    [Senate Hearing 105-365]
    [From the U.S. Government Publishing Office]

    [DOCID: f:39857.done]
                                                         S. Hrg. 105-365

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

    =======================================================================

                                    HEARINGS

                                    before a

                              SUBCOMMITTEE OF THE

                COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                           ONE HUNDRED FIFTH CONGRESS

                                 FIRST SESSION

                                       on

                                H.R. 2159/S. 955

    AN ACT MAKING APPROPRIATIONS FOR FOREIGN OPERATIONS, EXPORT FINANCING,
    AND RELATED PROGRAMS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1998, AND
                               FOR OTHER PURPOSES

                                   __________

                      Agency for International Development
                             Department of Justice
                              Department of State
                           Department of the Treasury
                           Nondepartmental witnesses
                                   __________

             Printed for the use of the Committee on Appropriations

     Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                     senate

                        U.S. GOVERNMENT PRINTING OFFICE
     39-857 cc                 WASHINGTON : 1998
    _______________________________________________________________________
                For sale by the U.S. Government Printing Office
    Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
                               ISBN 0-16-056220-1

                          COMMITTEE ON APPROPRIATIONS

                         TED STEVENS, Alaska, Chairman
    THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
    ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
    PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
    CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
    SLADE GORTON, Washington             DALE BUMPERS, Arkansas
    MITCH McCONNELL, Kentucky            FRANK R. LAUTENBERG, New Jersey
    CONRAD BURNS, Montana                TOM HARKIN, Iowa
    RICHARD C. SHELBY, Alabama           BARBARA A. MIKULSKI, Maryland
    JUDD GREGG, New Hampshire            HARRY REID, Nevada
    ROBERT F. BENNETT, Utah              HERB KOHL, Wisconsin
    BEN NIGHTHORSE CAMPBELL, Colorado    PATTY MURRAY, Washington
    LARRY CRAIG, Idaho                   BYRON DORGAN, North Dakota
    LAUCH FAIRCLOTH, North Carolina      BARBARA BOXER, California
    KAY BAILEY HUTCHISON, Texas
                       Steven J. Cortese, Staff Director
                     Lisa Sutherland, Deputy Staff Director
                   James H. English, Minority Staff Director
                                     ------

       Subcommittee on Foreign Operations, Export Financing, and Related
                                    Programs

                      MITCH McCONNELL, Kentucky, Chairman
    ARLEN SPECTER, Pennsylvania          PATRICK J. LEAHY, Vermont
    JUDD GREGG, New Hampshire            DANIEL K. INOUYE, Hawaii
    RICHARD C. SHELBY, Alabama           FRANK R. LAUTENBERG, New Jersey
    ROBERT F. BENNETT, Utah              TOM HARKIN, Iowa
    BEN NIGHTHORSE CAMPBELL, Colorado    BARBARA A. MIKULSKI, Maryland
    TED STEVENS, Alaska                  PATTY MURRAY, Washington
                                         ROBERT C. BYRD, West Virginia
                                           (Ex officio)
                               Professional Staff
                                Robin Cleveland
                                   Will Smith
                             Tim Rieser (Minority)

                                      (ii)

                                C O N T E N T S

                                  ----------

                          Thursday, February 27, 1997

                                                                       Page

    Agency for International Development.............................     1

                            Thursday, March 20, 1997

    Department of Justice: Federal Bureau of Investigation...........    55
    Department of State: Bureau of International Narcotics and Law
      Enforcement Affairs............................................

                            Thursday, April 17, 1997

    Agency for International Development.............................    97

                              Tuesday, May 6, 1997

    Department of State..............................................   137
    Agency for International Development.............................   137

                             Tuesday, May 20, 1997

    Department of the Treasury.......................................   185

                             Tuesday, May 22, 1997

    Department of State: Office of the Secretary.....................   215
    Nondepartmental witnesses........................................   265

                                     (iii)

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

                                  ----------

                          THURSDAY, FEBRUARY 27, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:35 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Mitch McConnell (chairman)
    presiding.
        Present: Senators McConnell, Bennett, Campbell, Leahy, and
    Lautenberg.

                      AGENCY FOR INTERNATIONAL DEVELOPMENT

    STATEMENT OF HON. J. BRIAN ATWOOD, ADMINISTRATOR

                  opening remarks of senator mitch mc connell

        Senator McConnell. This hearing will come to order.
        Welcome, Mr. Atwood. It is good to see you again.
        Mr. Atwood. Thank you, Mr. Chairman.
        Senator McConnell. I am pleased to have you open our fiscal
    year 1998 hearings on the administration's budget request. I am
    equally pleased with the fact that the President's request
    level finally reflects a serious commitment to advancing our
    international interests.
        Before offering some thoughts on some specific concerns I
    have about the allocation of funds within the foreign
    operations account, let me point out a small irony. Last year,
    $12.3 billion was provided for foreign operations. This year
    your budget submission of $13.3 billion reflects a $1 billion
    increase.
        I consider this $1 billion the amount that Senator Leahy
    and I have appealed and pressed the administration to request
    for the past 3 years. I welcome the request and hope that we
    have really turned the page, ending a sad chapter of neglect of
    the foreign affairs account.
        Having acknowledged your commitment, I should recognize
    that some of my colleagues are already pointing out that this
    increase exceeds other subcommittee or function requests. In
    his opening hearing, Congressman Callahan expressed concern
    about being able to pass a bill that includes a 9-percent
    increase when other subcommittees are continuing to experience
    reductions.
        Frankly, 9 percent may not be enough to compensate for the
    near fatal assault this account has suffered over the past
    decade.
        In the last 10 years, with the end of the cold war, we have
    established assistance programs to help stabilize and
    strengthen more than two dozen new, emerging democracies. At
    the same time, the resources available for foreign operations
    and export promotion have declined nearly 40 percent, from
    $20.2 billion to $12.2 billion.
        Measured against foreign aid's peak level in 1985, our
    resources have dropped nearly 60 percent. Those numbers give
    the term ``deficit'' new meaning. We are experiencing a
    critical deficiency in diplomacy's funding.
        While I strongly support the overall request level, I am
    not as convinced that the administration has distributed funds
    to best serve our interests. You have repeatedly called
    attention to the problems AID has experienced because of deep
    reductions in development assistance. While the administration
    added $1 billion to the overall foreign operations request,
    child survival programs have actually been cut. Education,
    health care, agriculture, and other development assistance
    priorities have either been straight-lined or reduced in this
    budget.
        The increase is dedicated almost entirely to down payments
    on arrears at international financial institutions and a huge
    increase in aid to Russia. In contrast, a majority of other NIS
    states have been reduced or held at the fiscal year 1997 level.
        Last year, our report recommended we graduate Russia from
    most of our grant programs, sustaining modest but declining
    support for a few projects which strengthen democracy and the
    private sector. This request continues to reflect a bias toward
    Moscow at the expense of our deep interests in the region and
    fails to recognize that we cannot buy our way out of the
    economic crisis which cripples opportunity in Russia.
        While I may not completely support the mix of funds, let me
    conclude by emphasizing once again that I am committed to
    securing as strong an overall account as possible. I urge you
    and Secretary Albright to make as persuasive a case as you can
    to the Budget Committee very soon since their decisions will
    have a significant impact on the resources allocated to our
    subcommittee.
        With that, let me turn to my friend and colleague, Senator
    Leahy, for whatever opening observations he might wish to make.

                    opening remarks of senator patrick leahy

        Senator Leahy. Thank you, Mr. Chairman.
        I am glad that we are starting off this year with the AID
    Administrator.
        You have been through some rather rough times in the past
    dozen years. The last 4 years have been no exception. There are
    two dozen field missions being closed, 200 of AID's staff,
    including some of the best, were laid off last year. There has
    been a suggestion that we merge AID into the State Department.
    We get a lot of requests from Senators who want us to fund
    various programs in AID and I sometimes wonder how they can
    find the time to ask us to fund these programs when they are so
    busy giving speeches about what a waste, foreign aid is. If
    they would spend a little bit less time talking more about
    where we will find the money to fund the programs they want, we
    might be better off.
        I think it would also help if they would do as you have,
    which is make the case to the American people why a lot of this
    aid is in our national best interest. You have been an eloquent
    spokesman on that, as have some others.
        I think we are going to have questions about AID's future.
    Is it going to be an autonomous agency or part of the State
    Department, whether it expresses national interests on its own
    or the State Department's political goals which may be more
    short-term.
        Mr. Atwood's persuasiveness is reflected in the President's
    request for an increase in foreign operations, but with all of
    the programs in the budget, AID has fared the worst. The State
    Department, the international financial institutions and the
    military assistance programs got the lion's share of the
    increase. That might not have been my choice. But at least it
    does not occur to me that at any time has the administration
    asked my opinion on what might go through this committee or
    what my views might be. So I was not bothered or impressed by
    their consistency in that they did not this year.
        I am concerned about some of the problems in AID. I think
    strategic goals for each country and more in the field staff is
    good. That was long overdue and I compliment you for doing it.
    But there has been a lot of money, an enormous amount of money,
    spent on new management systems while, at the same time, some
    of the best people have been laid off.
        You are moving to a new building which, at least from the
    impression I have gotten, will be more expensive but with less
    space. This bothers me. Then, maybe it is the State
    Department's fault, but they may have required you to do some
    things you should not have. I refer to Haiti and Russia. We
    have foreign interests there, of course. There have been some
    successes there. But I am worried that in a lot of instances
    money was sent down, was spent, so that we could say look, we
    are doing something, but nothing came out of it.
        There have been a number of failures in both countries
    where AID has seen something that is not working, restructures
    the program, asks for even more money, and then basically does
    the same thing.
        I applaud you, Mr. Atwood, for your eloquence in speaking
    up for AID's mission and for what is needed. I would urge you
    to get some good, day-by-day, nuts and bolts managers who can
    handle the nitty-gritty at AID.
        I know there is at least one intended. It would help, I
    think, for these people to get down there.
        I would not continue, Mr. Chairman, though I do have some
    more comments. These are just some that occur to me now.
        Senator McConnell. Thank you, Senator Leahy.
        Mr. Atwood, why don't you go ahead and tell us what is on
    your mind.

                   summary statement of hon. j. brian atwood

        Mr. Atwood. Thank you very much, Mr. Chairman and Senator
    Leahy. I want to thank both of you for the support you have
    given us over the years for a larger 150 account. This has not
    been an easy battle, and in the environment we are in all of us
    are trying to find ways to balance the budget. So very serious
    choices have to be made.
        But I think you have seen, and I would even call your
    views, those of the two of you, visionary because you do
    understand that, unless we continue to make investments in the
    global economy and investments in peace and stability through
    the 150 account, we are not going to be able to find the
    revenues necessary to balance the budget in the long run.
        So I do very much appreciate the support you have given us.
    Your prodding has succeeded in convincing the administration to
    come forward with an increase of about $1.1 billion, as you
    mentioned, this year. We keep hearing that the 40-plus percent
    decrease is not a correct number because 1985 was a year when
    we had a plus-up for the Middle East. The fact of the matter
    is, if you look at it from 1986 on and take away that plus-up,
    it is still a 34.6-percent decrease in the 150 account through
    fiscal year 1997.
        We are trying to bring that down to about 32 percent if we
    can get what the President has asked for this year. We very,
    very much appreciate your support.
        Senators, as both of you have alluded, we have been through
    really difficult times at USAID, and I think this budget
    request will enable our Agency to reach some degree of
    equilibrium, after we had to go through reductions in force.
        Let me make it clear that, while the increase that we have
    asked for in development assistance is only $65.5 million, the
    USAID will be managing an additional $476 million of the
    increase, the $1 billion increase, because we will be managing
    the SEED and NIS money--much of it, anyway--in those requests.
    It's $292 million, to be exact, of those additional requests;
    $135 million of the ESF requested mainly for transitions in the
    Middle East and Latin America.

                                  agriculture

        I want to emphasize one aspect of our request for an
    increase in development assistance and that is the word
    ``agriculture.''
        This is an extremely important aspect of development. About
    80 percent of the GNP's of some of these countries we work in
    are in the agriculture sector. And yet, over the years, we have
    seen the amount that we have been able to provide for
    agriculture programs, to increase productivity and get
    countries to adopt market techniques for their agriculture
    sector, diminish from 16 to 9 percent.
        Just the other day, a group of agribusiness interests and
    traditional farm associations and others interested in
    agriculture, land grant colleges, et cetera, got together and
    put out a report recommending a $2 billion increase in the
    foreign aid bill in order to pursue our agricultural interests.
        As you know, Mr. Chairman, coming from a farm State
    yourself, 1 out of every 4 acres grown in this country is for
    export. With our population stabilizing and our production
    continuing to go up, it is clear that everybody now agrees that
    increasing production overseas has increased our ability to
    export.
        Of the top 50 importers of American agricultural products,
    43 of them had been aid recipients in the past.
        So I think that our request for a food security plus-up,
    for agriculture and for agricultural research, which also
    redounds directly to the benefit of American farmers, is
    warranted, and I hope that we will be able to achieve a good
    deal more balance than we have had in the past in our
    development approach.

                              changing foreign aid

        Our foreign aid program has changed, Mr. Chairman, and a
    lot of it is due to your prodding and that of others. I can
    remember exchanges that we had a few years ago and one
    television program we did together where you said, that the aid
    program ought to serve American interests.
        Well, today we make judgments about where we work on the
    basis of the quality of the partnership we have with that
    government. We don't work in countries where they do not allow
    their people to participate in the process, where they don't
    accept the need for a market economy, where they don't accept
    the need for democratic institutions. So the quality of the
    partnership is important. The need of the country is important.
    The foreign policy interests of our country are important.
        Finally--and this is important because the Congress did
    pass the Government Performance and Results Act--performance of
    our programs is important. We are measuring those as never
    before, which got us a lot of acclaim from OMB. OMB said that
    we had submitted the best performance-based budget that any
    agency in government had submitted, which is why I think we
    were treated so relatively well in the budget process this
    year.
        So our Foreign Aid Program is a misnomer. It serves
    American interests more than it ever has in the past. It serves
    American interests by helping to achieve stability, dealing
    with crisis situations in terms of our humanitarian relief
    programs, and dealing with transition situations which are a
    crucial part today of our foreign policy in places like Bosnia,
    the former Soviet Union, South Africa, Cambodia, the West Bank,
    and Gaza. It serves our international economic interests by
    continuing to invest in the creation of new markets. And, of
    course, it most certainly serves our own humanitarian values as
    well.
        Our program serves American interests more now than ever
    before.

                              former soviet union

        Mr. Chairman, I do want to say a few words in particular,
    because you did raise these issues, about our request for
    additional funding for the former Soviet Union.
        The proposal for an additional $275 million for the NIS
    represents our effort to create permanent linkages between our
    country's democratic institutions and our business community
    and the new democratic market economies of this region. It is
    part of a strategy that will assure the strongest ties between
    our nations long after the technical assistance program we have
    undertaken is phased out.
        In this sense, the partnership for freedom proposal is a
    strategic investment in a peaceful, more stable future in this
    region.
        We have said all along that we will phase down technical
    assistance as the NIS countries continue their transformation
    to democratic market economies. We have said all along that one
    indication of the success of our technical assistance programs
    will be the discernible flow of trade and investment into these
    economies from Europe and the United States.
        There are still barriers to trade and investment. We know
    them well: crime, corruption, weak regulatory systems, the
    absence of capital markets, weak customs and tax administration
    systems and weak justice systems. Overall, these weaknesses add
    up to an unpredictable business environment.
        Our friends in these countries know this. This, for
    example, is what we discussed in the Gore-Chernomyrdin and
    Gore-Kuchma forums. These commissions are struggling to correct
    these problems and they want our help. Most importantly, they
    yearn for the day when trade and investment and not technical
    assistance characterize our relationship.
        The partnership for freedom is designed to accelerate the
    process. It is designed to force the issue, if you will. It
    makes explicit what we have always advised the Congress is our
    goal--trade, investment, and partnership between our democratic
    and market institutions and those of this vital region; $275
    million is not a large additional investment to make this
    happen. It is, I repeat, a strategic investment.
        Now I know, Mr. Chairman, you want more detail about how
    this additional money will be spent and I know that you are
    going to be holding a hearing on, I believe on March 13 with
    the NIS coordinator, Dick Morningstar, and our Assistant
    Administrator for Europe and the NIS, Tom Dine. But I do want
    to say a few words about the details here.
        The partnership for freedom has two basic components.
    First, the principal component is to promote trade and
    investment through capital mobilization. This will result from
    the combined U.S. Government effort working with private
    business organizations and NIS governments and businesses to
    remove the impediments to trade and investment. We are looking
    at several mechanisms to ensure that when good business
    projects come along, they can find the financing to move
    forward.
        Second, in order to have this kind of market economy, it
    must be based on a strong democratic civil society. Therefore,
    the second major component is to continue the development of
    institutions and organizations that are fundamental to a broad-
    based participatory democracy.
        We are going to be continuing our technical assistance
    programs, but we are going to be phasing them out; and, in
    time, we are going to be using more collaborative, collegial
    approaches that emphasize partnerships and linkages between
    institutions.
        I could go into more detail, but I do have a breakout that
    I would be happy to provide for the record, Mr. Chairman, of
    how some of these funds will be spent and what our intentions
    are. I know that you will be getting into much more detail in
    your hearing on the 13th.

                             new management systems

        Let me sum up, Mr. Chairman, and thank you for giving me so
    much time. We have, indeed, overhauled the agency. We do
    believe that it is managed very well. I know that there are
    concerns, as Senator Leahy expressed, about the new management
    system. Let me just say that you don't start receiving
    complaints from your work force on a new, integrated computer
    management system until you start to deploy it, until you start
    to activate it. We have activated it, starting on October 1. We
    have forced people to begin to adapt to the changes that we are
    bringing about. We have, I certainly have, heard all of the
    screams from our work force about the problems that we have
    encountered. I want you to be assured that we are absolutely on
    top of those problems.
        They relate to two basic aspects. One is the migration of
    old data from the old 11 accounting systems that we have had
    which, as every inspector general report that has come up here
    in recent years and GAO reports as well have indicated, is not
    good, consistent data. We need to clean it up in order to make
    the NMS system work. But it is not the NMS system that is at
    fault. That is a single entry system that doesn't allow us to
    use bad data or inconsistent data. So that has been a problem.
    It has taken us time.
        Communications with the worldwide network has also been a
    problem. We are working out those problems. It is not true that
    we have, indeed, laid off people in order to put this system in
    place. If we didn't put this system in place--and this system,
    by the way, in its earlier incarnation was planned by the last
    administration, by the last Bush administration, I should say.
    Everyone in government knows that under the requirements of the
    Chief Financial Officer's Act, the GMRA, which deals with
    management and financial statements, and the Government
    Performance Results Act, we must have a system like this.
        You don't hear complaints from other government agencies,
    Mr. Chairman, because other government agencies have not made
    as much progress in actually deploying their system.

                                  agency move

        Finally, regarding the move to the new building, I point
    out that this building, the Ronald Reagan building, is a
    government building. It is a government building that is
    sitting there, waiting for government occupancy. We drew the
    right straw. We've got to move into this building.
        We believe it will save us money over the long run and even
    in the immediate future, after the initial costs of the move.
        We are in commercial space now in 11 different buildings.
    In each case, we have to negotiate on an almost annual basis
    for new rental fees. Commercial buildings will charge you
    commercial rates based on inflation and other aspects of where
    the market is. A government building over time gives us more
    opportunity to see where we are going down the long run.
        It is not a fancy building. As Senator Leahy pointed out,
    our people will have less space than they had before, but there
    are tremendous efficiencies in getting everyone from 11
    buildings into one place.
        I believe very strongly that this is, again, a part of our
    effort to try to achieve equilibrium with respect to USAID, an
    agency that has been downsized by 2,700 people, has closed 26
    missions since 1993, has reduced its regulations by 55 percent,
    and is one of the pioneering agencies in implementing the
    Government Performance and Results Act.

                                u.s. leadership

        So I feel very proud, Mr. Chairman, that we were able to
    accomplish those things, that we have been able to maintain our
    leadership in the development community. We have even been able
    to do that despite the fact that we have fallen from being the
    No. 1 donor in absolute levels to being No. 4, behind economies
    like those of Japan, France, and Germany, which are one-half
    the size of ours.
        We have traditionally been near the bottom in terms of
    percentage of our GNP. We are at the absolute bottom, providing
    only 0.1 percent of our GNP to overseas development assistance.
    But when you look at it, that comes out to about $24 per
    American citizen, which is a pretty good meal for a family at
    McDonald's.
        It is not a lot to invest in our future in a global economy
    or a lot to invest in our stability, in the stability of the
    global economy, or a lot to invest in American interests.

                               prepared statement

        I feel that we have made some progress. I think we have
    done that with your help and with that of Senator Leahy and
    this entire subcommittee. I, therefore, want to make sure you
    understand that I am deeply grateful for that support and
    assistance.
        Thank you, Mr. Chairman.
        [The statement follows:]
                       Statement of Hon. J. Brian Atwood
        Chairman McConnell, Senator Leahy, and other members of the
    subcommittee, it is a pleasure to appear here today to defend the
    President's budget request for the U.S. Agency for International
    Development's (USAID's) fiscal year 1998 economic assistance request. I
    look forward to working closely with the subcommittee during the second
    Clinton Administration. It is my belief that we are entering a new and
    positive era in our international relations, and that our policies and
    approaches will be guided by the stabilizing hand of bipartisanship.
        Recently, Secretary Albright noted, ``In our democracy, we cannot
    pursue policies abroad that are not understood and supported here at
    home.'' I could not agree more. I look forward to sharing with you
    today the reasons why USAID's programs directly advance America's
    interests.
        President Clinton's budget request for fiscal year 1998 includes
    $19.4 billion for programs in international affairs. This is a modest
    increase from the previous year, and represents just slightly over 1
    percent of the federal budget. More importantly, this budget reverses
    the dangerous downward trend in funding for foreign affairs. USAID will
    manage $7.158 billion, or 37.5 percent, of those funds, including both
    USAID programs and programs administered by USAID in cooperation with
    other agencies. USAID's request for discretionary funding in the
    Foreign Operations appropriations bill includes $998 million for
    Development Assistance, $700 million for the Development Fund for
    Africa, $190 million for International Disaster Assistance, $11 million
    for credit programs, $473 million for operating expenses, $29 million
    for Inspector General operating expenses, $2.498 billion for the
    Economic Support Fund, $492 million for programs in Central and Eastern
    Europe and $900 million for programs in the New Independent States.
    USAID also requests $44.2 million for the fiscal year 1998 mandatory
    contribution to the Foreign Service Retirement and Disability Fund. In
    addition, USAID will administer $867 million in P.L. 480 funds,
    although this funding is not under the jurisdiction of this
    subcommittee.
        The total request for fiscal year 1998 USAID-managed programs
    represents an increase of $476 million over fiscal year 1997. This
    increase includes:
      --An additional $292 million for programs in Central and Eastern
            Europe and the New Independent States. These transitional
            programs are designed to aid Central and Eastern European
            countries and the New Independent States through their
            difficult passage to democracy and market economies. I know
            this subcommittee understands both the importance and
            challenges inherent in securing lasting change in these
            nations. Helping to secure free societies in this region
            remains one of America's highest foreign policy and national
            security priorities. This increased funding demonstrates the
            Administration's commitment to helping these nations move
            through this turbulent time and reflects a realization that
            such sweeping change has also been characterized by uneven
            political and economic progress. In Central and Eastern Europe
            support for Bosnian reconstruction and reform and efforts in
            the Southern Tier countries will be given special emphasis. In
            the New Independent States, the Partnership for Freedom effort
            will build on our achievements to date and reorient our
            assistance program--beginning with Russia and then in the other
            New Independent States--toward longer-term and more cooperative
            activities to spur economic growth and develop lasting links
            between our peoples.
      --$135 million more for the Economic Support Fund.--Economic Support
            Funds (ESF) advance key economic and political foreign policy
            interests of the United States by providing economic assistance
            to countries in transition to democracy, supporting the Middle
            East peace process and financing economic stabilization
            programs. The largest share of ESF will continue to go to
            supporting the Middle East peace process, including $52.5
            million to be transferred to the Middle East Development Bank.
            The Latin America region will receive ESF funding vital to
            support the democratic transition in Haiti and the breakthrough
            peace accords in Guatemala. ESF will also support programs in
            ``fledgling democracies'' such as Cambodia and Mongolia.
            Finally, ESF will be used for assistance in sub-Saharan Africa
            for elections, political party building and legislative
            training for countries in transition such as Angola.
      --An increase of $65.5 million in Sustainable Development
            Assistance.--These funds will support USAID's development goals
            by encouraging broad-based economic growth, protecting human
            health, slowing population growth, encouraging environmental
            protection and advancing democracy. By fostering free markets
            and open political systems, USAID's development programs are
            helping to shape a world that is more stable and open to U.S.
            trade and leadership. Specifically, the ``Promoting Food
            Security'' pilot initiative, aimed at improving food security
            in Africa, will in its first year target $30 million to five
            nations: Ethiopia, Uganda, Mali, Malawi and Mozambique. This
            initiative will support policy reform and a range of
            agricultural research that will benefit not only Africa, but
            other developing nations as well. Modernizing agriculture, the
            cornerstone of the economy in most developing nations,
            increases incomes of rural people, lowers the cost of food for
            the urban poor and conserves the environment. By furthering
            agricultural and, thus, economic growth in these countries, the
            initiative has the potential to both spark U.S. exports and
            save this country significant emergency relief food costs.
        In sum, these modest increases in spending are all vital to helping
    secure a more prosperous and stable world during the next century. I
    would also note that this year's request includes a decrease of over
    $15 million in our agency's operating expenses. This decrease is due to
    a reduction in staffing levels combined with economies achieved by
    reengineering and the restructuring of our overseas operations.
        Recognizing the importance of our unique mission, we have
    dramatically improved the management of USAID to make it the most
    effective foreign assistance agency in the world. We have overhauled
    the agency from top to bottom--its strategic approach, organization and
    management. We have demanded that our programs produce demonstrable
    results. Since 1993, we have reduced staff by over 2,700. 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 and will close six more by the end of
    fiscal year 1998. Further, USAID is one of the pioneering agencies in
    implementing the Government Performance and Results Act. All of these
    actions are designed to ensure that every dollar appropriated to the
    agency can bring taxpayers the best possible return on their
    investment.
        We know you have questions about our new management systems. Let me
    try to give you my perspective on what we are doing. You must first
    understand that our new management systems are not just designed to
    replace existing financial and procurement systems. We will indeed
    replace those systems but NMS is much more than computers or software.
    Our new management systems are a new way of doing business. As you
    know, we have redesigned our old project design system to make it
    faster, simpler and more customer-oriented. We have also redesigned our
    foreign missions to empower employees, to create strategic objective
    teams and to make our programs more results-driven. The new computer
    system will facilitate these improvements. It is a management tool
    created to allow us to manage more effectively the other reforms we
    have adopted.
        As we implement the computer portion of NMS, we are bringing the
    agency's technology to the forefront of any used in government. We are
    in the process of deploying a management system that fully integrates
    project planning, budgeting, a single-entry financial system, a
    simplified procurement system, and our evaluation system. In the next
    few years, we will add workforce planning, personnel management and a
    training module to our current capabilities. All of this will be
    available to every USAID office worldwide. Deploying such a system in a
    worldwide operation is not easy, but we have made great progress.
        Let me give you a brief status report.
        As you know, we activated NMS computer system worldwide on October
    1, 1996. Since then we have been using a combination of NMS and the old
    legacy systems to process transactions. To date we have processed 142
    contracts and grants in NMS totaling $252 million and have paid
    approximately $15 million in invoices plus the $1.2 billion cash
    transfer to Israel.
        Since bringing the system up worldwide, we have been addressing two
    major challenges. One relates to the need to migrate consistent and
    accurate data from the old systems into the new. The NMS will not allow
    us to process any inconsistent or inaccurate data. This forces us to
    clean up and reconcile data and incorporate it into the new system. We
    have found this to be a more labor-intensive process than we imagined
    because the level of inaccuracy in the old systems was even greater
    than anticipated. Nonetheless, we have made great progress. We have
    migrated all 8,000 records from the old Financial Accounting Control
    System (FACS) and the 6,500 records from the Contract Information
    Management System (CIMS). We still have to reconcile this data and
    reconcile it with the data from the field Mission Accounting Systems
    (MACS), but we expect to finish that process by this summer.
        Could we have waited until all this data was reconciled before we
    activated NMS? Could we have phased in the new system one module at a
    time? We considered both of these options. We rejected them because the
    integration process would have taken years, and we would still be using
    the old legacy systems and accumulating additional data of questionable
    accuracy that would have to be migrated later in a reconciled form.
    Activating NMS has forced us to migrate the data more expeditiously
    and, in the long run, it will save us time and tax dollars.
        The second challenge has been the need to create a worldwide, high-
    speed communications system. We have encountered problems with the two
    separate telecommunications systems we have been using, but we are
    making real progress in overcoming these problems. The time needed for
    transactions has been reduced, and we have several actions we are
    taking to further reduce this timeframe.
        Mr. Chairman, when I came to USAID in 1993, the need for an
    integrated management system had already been identified. A plan
    developed in 1992 called for a fully integrated financial management,
    procurement and budget system but one that did not integrate operations
    or allow us to integrate field and headquarters capabilities. This much
    less ambitious system was estimated to cost approximately $100 million.
    Our judgment was that that plan would not have given the Agency what it
    needed in a reasonable timeframe and that the cost estimate would most
    likely have been exceeded.
        What we have created is the full-fledged integrated management
    system I have described. We have consciously sought to deploy this
    system using state-of-the-art approaches. Each step of the way we have
    consulted with systems experts at OMB, GAO and the private sector, and
    we have been encouraged to move forward. My own Inspector General has
    offered superb advice on which we have acted to correct problems. He
    has also pointed out that our systems development approach is an
    unconventional one. That is his job.
        I want you to know that I understand the risks, and I believe that
    our approach will pay off. It reflects the latest thinking in systems
    development. I also understand there are risks in adopting conventional
    approaches as well. As business executive Hank Delevati of Quantum
    Corporation said recently, ``The phased approach is longer--and I
    contend riskier--because you won't get everyone involved and
    coordinated.'' Quantum Corporation was one of many large organizations
    that has successfully deployed a new integrated management system using
    the ``all at once'' approach.
        Last week we had our systems coordinators into Washington from
    around the world. We want them to know we understand the problems they
    are having and the solutions we are devising. They now have a better
    appreciation of the effort we are making. They and we are confident
    that we will accomplish what other government agencies have not.
        Mr. Chairman, we do not seek to mask the difficulties we face in
    making NMS fully operational, but we are on the right track. This
    system will not only revolutionize the way we do business at USAID, it
    will lead the way for the development of similar systems in the U.S.
    Government. We have been pleased that so many Congressional staff have
    sat through detailed briefings on NMS. We welcome your vigorous
    oversight. We welcome it because we know that together we can vastly
    improve our capacity to fulfill our mission.
        In short, we are doing everything possible on the management side
    to make America's international programs cost-effective. We want to
    achieve results that serve America's interests. Let me describe how we
    believe we serve those interests in today's world.
                          america's stake in the world
        The United States has a vital interest in maintaining a leadership
    role in the international community, and in seeing that the
    international community cooperates on the basis of shared values.
    Nowhere is this more true than in promoting development in poor nations
    and countries emerging from the long shadows of communism and
    totalitarianism. Why is this important to Americans?
        It is important because we live in a world where trends toward
    globalization and increased interdependence are powerful and
    accelerating. This means international cooperation is increasingly
    important--in areas as diverse as promoting trade, protecting the
    environment, fostering democratic governments, reducing rapid
    population growth rates, establishing market-based economies, stemming
    the flow of narcotics, slowing the spread of infectious diseases,
    coping with migration and protecting human rights. In all of these
    areas, the benefits of fruitful cooperation are significant and
    lasting, while the failure to work together will be increasingly costly
    and immediate.
        During the cold war, U.S. leadership was central and unmistakable
    as the protector of the free world against the threat of communist
    expansion. U.S. military power and economic dynamism were seen as
    essential to resisting that threat. But America's leadership then, as
    now, had a foundation stronger than our Army or our economy. The United
    States projected a compelling, and widely shared, vision of a world
    order where democracy and open systems were respected. Our vision of
    political and economic freedom, of social justice and respect for the
    individual was as powerful as any missile or any defense system. The
    United States offered the world not only security, but a better
    alternative to the Communist vision.
        The Cold War is over. We still have the strongest military and the
    strongest economy in the world. But strength alone is not a substitute
    for leadership. America's position in the 21st century will depend more
    and more on the quality of our leadership; on the perception that we
    understand and appreciate the broad interests of the international
    community, and that we act with these interests in mind; and on the
    perception that we still have the best, most compelling vision of a
    global world order. Equally important, America's domestic interests are
    now, more than ever before, inexorably linked to events that take place
    far from our own shores.
        Our modest and well-targeted foreign assistance programs directly
    advance America's interests--your constituents' interests--in three
    direct ways: by helping to prevent crises; by generating dynamic
    opportunities for expanded trade; and by providing protection from
    specific global health and environmental threats.
                        a diplomacy of crisis prevention
        One of the most profound areas of concern for the United States and
    its allies is the growing phenomena of failed states. One need only
    open a newspaper on any given day to see the perilous state in which
    many nations now find themselves. Whether it is rebels fighting in
    eastern Zaire, hostage-taking in Tajikistan, street protests in
    Belgrade, Bulgaria and Albania or the constitutional crisis in Ecuador,
    we are confronted by potentially explosive situations with the
    potential to trigger conflict or economic collapse.
        Since the mid-1980s, the number of man-made emergencies requiring a
    U.S. Government response has doubled. The staggering human, financial
    and political cost of these conflicts is reflected in the increasing
    scope and complexity of peacekeeping operations, the loss of human life
    and the exploding numbers of refugees around the globe. Since the Gulf
    War, the United States has mounted 27 military operations as a result
    of ethnic conflicts and failed states. Up to 1 million people lost
    their lives through genocide in one year in Rwanda. In the former
    Yugoslavia, the loss of human life in less than four years was the
    greatest in Europe's post-World War II history. The number of refugees
    and displaced persons in the world now numbers close to 50 million.
        As a nation, we know that we ignore the warning signs of crises
    only at our own peril. When potential crises erupt into genuine
    emergencies, it is the U.S. military most likely to be put in harm's
    way, it is U.S. economic interests that suffer and it is this nation
    that ends up providing the lion's share of humanitarian assistance to
    the victims of war and social collapse. It is abundantly clear: The
    United States has a compelling national interest in preventing and
    averting crises before they occur. Practicing a diplomacy of crisis
    prevention is one of our greatest challenges in this new era, and
    development programs have a lead role to play in these efforts.
        As we know from our own daily experience, every country is subject
    to the internal pressures to some degree of stress from ethnic,
    religious, economic and other deep-seated conflicts among their own
    citizens. What distinguishes a country that can endure these internal
    tensions from one that cannot is the relative strength of its domestic
    institutions. By institutions, I mean not just government and political
    organizations, but also tradition, culture, social practices, religion
    and the depth of human capital. In many cases, conflict is a result of
    a failure to give people a stake in their own society.
        The reality is that most nations in conflict simply lacked the
    institutional capacity to avoid escalating violence. We see prime
    examples of this in the former communist world. When communist
    institutions collapsed, and no strong institutions replaced them,
    conflict became commonplace. We obviously do not wish to see a return
    to totalitarian methods, so it is essential that we help these
    countries put democratic institutions and social conditions in place.
        A second category of countries that fall into crisis include
    nations such as Rwanda, Somalia, Sudan, Zaire, Afghanistan and Liberia.
    What these countries have in common is that they are among the least
    developed countries in the world. And, by ``least developed'' we mean
    they have the weakest institutions and least developed human resources.
        The findings of a recent CIA study of failed states confirm the
    role of underdevelopment in crises. The study attempted to find the
    indicators most commonly associated with a vulnerability to crisis. The
    three leading factors shared among nations that have succumbed to
    crisis were high infant mortality rates, a lack of openness to trade,
    and weak democratic institutions. Does this mean that if we simply
    promote trade, strengthen democracy and provide child health programs
    that crises would disappear? The study doesn't say that. What it does
    say is that these variables are reasonable proxies for a nation's
    relative level of overall development, including a country's
    willingness to invest in its own people, to concern itself with lower
    consumer prices and to create institutions to enable the people to
    participate in the development of their own society.
        The implications of this analysis for our foreign policy are
    profound. Development programs are aimed at enriching human resources,
    strengthening open institutions, and supporting political and economic
    reform. By fostering stronger institutions, a richer human resource
    base and economic and social progress, countries are better able to
    manage conflict and avoid the dangerous descent into war. Development
    programs give us the tools we need to deal with the uncertain world
    around us. I am not here today to say that development programs are an
    ironclad guarantee against crisis and collapse. But it is entirely fair
    to say that successful development and transitions out of closed
    systems vastly improve the capabilities of a country to manage division
    and conflict. This is clearly in the best interests of the United
    States.
        The challenge of crisis prevention is, in many respects, the
    logical successor to the paradigm of the Cold War. Through our
    democracy and governance programs, USAID seeks to strengthen the
    political, social and economic institutions on which management of
    conflict directly depends. Our efforts at promoting economic growth
    also encourage economic freedom. Our efforts at human resource
    development--in education and health--ensure that an increasing
    percentage of the population can take advantage of economic
    opportunity, social progress and political freedom. Our efforts to
    protect the environment and to give families the capacity to space
    their children help ensure that development progress is sustainable.
        And there is strong evidence that U.S. foreign assistance programs
    have successfully helped develop functioning stable democracies.
    Political freedoms have increased significantly in the countries where
    development activities have been most focused. Between 1982 and 1996,
    Freedom House data demonstrates that political freedom improved in 48
    countries and grew worse in 30. Of the 29 countries showing the most
    dramatic improvements in political freedoms, most were significant
    recipients of U.S. aid over the period. U.S. efforts helped nations
    such as the Philippines, South Africa, Jordan, Haiti, Bangladesh,
    Guatemala, Mozambique, Nicaragua, Uruguay and Malawi realize the dream
    of more open societies.
        We have also adopted the policy that nations that do not embrace
    democracy, and that turn their backs on their citizens, will not
    receive U.S. assistance. We cannot achieve development results if we
    have poor partners. We will not work with governments that exclude
    their people from the development process.
        International development cooperation works. In developing
    countries during the past 35 years, infant mortality has fallen from
    162 to 69 per thousand; life expectancy has risen from 50 to 65 years;
    and literacy has climbed from 35 to 67 percent.
        We cannot prevent every crisis, but we can avert many. Investing in
    these efforts is a small price to pay for a foreign policy that
    advances our interests in a more stable world.
                       advancing u.s. economic interests
        Let me turn now to the role development programs play in directly
    supporting U.S. economic interests. For both trade and investment,
    developing countries provide the most dynamic and rapidly expanding
    markets for U.S. goods and services. U.S. exports to developing
    countries in the 1990s have expanded at 12 percent annually, more than
    double the export growth to industrial countries. This is not just a
    short-term phenomenon, but reflects a trend that began emerging in the
    mid-1980s.
        U.S. exports to countries that receive U.S. assistance have
    boomed--rising by 76 percent in the last five years alone. Between 1990
    and 1995, American exports to transition and developing countries
    increased by $98.7 billion. This growth supported roughly 1.9 million
    jobs in the United States. Work in agriculture has a particularly high
    return. Forty-three of the 50 largest importers of American
    agricultural goods formerly received food aid from the United States--
    that's over $40 billion a year of U.S. agricultural exports. 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.
        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.
    USAID's programs are helping these people become America's next
    generation of customers.
        As Latin American economies have prospered, so have U.S. exports
    and jobs. The region is the fastest-growing market for U.S. exports of
    goods and services, and also one of the largest. In 1995, the Latin
    American and Caribbean region accounted for more than 70 percent of all
    U.S. exports to USAID-assisted countries. Exports of goods to all
    countries in the region reached $95 billion in 1995, more than three
    times the level 10 years ago.
        Creating the enabling environment for markets is a principal focus
    of USAID's programs. The connection with development programs, and
    USAID in particular, is quite significant. U.S. exports are growing
    much more rapidly to some developing countries than to others. What
    accounts for these differences? The major portion of the variation is
    explained by progress in terms of improved policies and institutions--
    i.e., the enabling environment for markets.
        USAID-assisted countries have been among those that have made the
    greatest progress in policy and institutional reform over the past
    decade, including Thailand, Jamaica, Bolivia, El Salvador, Guatemala,
    Peru, Ghana, Costa Rica, the Philippines, Morocco, Sri Lanka, Belize,
    Panama, Tanzania, Tunisia, Indonesia, Mali, Botswana, and Uganda.
    Because of our field presence, technical expertise and experience,
    USAID can have significant influence in encouraging economic policy
    reform.
        The international financial institutions have also played a vital
    role in supporting economic reform and restructuring weak economies,
    especially in countries in transition from authoritarian regimes or
    from conflict. In response to effective U.S. leadership within the
    donor community, they have increasingly put their weight behind
    governance reform, investment in social capital, and environmental
    sustainability--significantly complementing U.S. bilateral efforts.
    U.S. investments in both bilateral and multilateral assistance programs
    are fundamental to maintaining U.S. leadership within the donor
    community and to strengthening this complementarity.
        There are some who have argued that private capital flows can
    simply replace the need for foreign assistance programs. However, it is
    important to remember that foreign assistance and private investments
    are complements--not alternatives. By and large, private investment is
    flowing today into the emerged markets of the developing world, not
    into countries where there is no rule of law, no financial
    institutions, no private sector and no predictability. It is only when
    the enabling environment for markets has been well established--by
    recipient self-help efforts often supported by foreign aid--that
    private flows begin to accelerate. Eventually private investment and
    trade will replace foreign aid, and this is what a development program
    should strive to achieve. But the issue for most of the developing
    world countries is not best captured by the phrase ``trade, not aid.''
    The phrase ``aid, then trade'' is closer to their reality.
        Our development efforts have contributed to economic freedom
    worldwide. Of the 27 countries with large improvements in economic
    freedom between 1975 and 1995 (as measured by an index from the Fraser
    Institute), 22 have been major recipients of U.S. foreign aid.
    Continued Clinton Administration efforts to promote U.S. job creation
    through trade and investment abroad must focus on emerging markets in
    Asia, Latin America, Eastern Europe, the New Independent States and
    Africa. Hastening the fuller emergence of these dynamic new markets is
    an essential element of a long-term U.S. economic and foreign policy
    strategy for the United States. Private capital will play the largest
    role in bringing the markets of developing nations into the mainstream
    of trade and investment, but some of the most promising developing
    markets are still hampered by trade barriers, other policy distortions
    and human capacity constraints that discourage trade and private
    capital flows.
        U.S. development assistance is useful in removing these structural
    and policy barriers. By reducing barriers that keep out foreign trade,
    by fostering fair and transparent regulatory and legal regimes, and by
    building capital markets, USAID has been at the cutting-edge of the
    continued steady growth of America's economy.
                   protecting america against global threats
        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. Our
    environmental programs help protect the air and water that Americans
    share with the rest of the world. Our family planning programs help
    slow rapid population growth and make for healthier and better-cared-
    for families around the globe, ultimately reducing instability,
    migration and refugee flows.
        Let me give you several specific examples of how all Americans can
    benefit from our development efforts abroad. USAID has long been the
    leader in the battle to eradicate polio around the globe. Working with
    our neighbors, the Pan American Health Organization, American
    organizations like Rotary International and many others, we
    successfully wiped out polio in the Americas. But did you know that
    U.S. taxpayers still spend $230 million a year to immunize our children
    against the threat of polio reoccurring on this continent?
        USAID, working with a rich variety of partners, is helping to lead
    the effort to eradicate polio globally by the year 2000. This is an
    ambitious goal, but an achievable one. So by making modest resources
    available for foreign assistance, the United States stands to save $230
    million a year in domestic immunization costs. This is clearly a case
    where foreign assistance is an investment in our own self-interest.
        Or consider that USAID has reached more than 3.2 million people
    with HIV prevention education and trained more than 58,000 people to
    serve as counselors and health providers in the developing world.
    Recent computer modeling shows that USAID helped Kenya avert over
    110,000 HIV infections in just three years. Ultimately, our HIV/AIDS
    programs result in fewer Americans exposed to the virus, and lower
    health care costs for American families.
        By preventing crises, by boosting America's economy, and by
    protecting the United States from truly global threats, we are working
    abroad to keep America strong at home and abroad.
                  building the institutions that serve us well
        In closing, I would say to this subcommittee that today we have the
    chance to shape the international institutions and programs that will
    protect America's prosperity, security and stability for years to come.
    This includes not only bilateral institutions such as USAID, but
    equally vital multilateral mechanisms such as the United Nations, the
    World Bank and other international financial institutions.
        It is fitting that this year we will celebrate the 50th anniversary
    of the commencement of the Marshall Plan. All now agree that the
    Marshall Plan was a stunning, unprecedented example of enlightened
    leadership. The United States understood the benefits to the United
    States of economic recovery in Europe and Japan, and the threats in
    terms of crisis and instability that would result from economic
    stagnation in these regions.
        During the Marshall Plan, foreign economic aid amounted to more
    than 1.5 percent of U.S. gross national product. Now, foreign aid is
    about one-tenth of 1 percent of our gross national product, and well
    below one-half of 1 percent of federal expenditures. Fortunately, and
    precisely because the Marshall Plan was such a success, there are many
    other nations to help us carry the mutual burden of international
    leadership. But we should still do better if we want to maintain our
    leadership role and defend our interests.
        Development cooperation, including support for countries making the
    transition from communism, and humanitarian assistance for countries in
    crisis, remains an essential part of a credible and compelling vision
    of how the international community should function. A lead role for the
    United States in development cooperation is a vital part of American
    leadership in the post-Cold War era, arguably more important now than
    ever.
        I urge your support for the President's budget request, and I look
    forward to working with you to strengthen our nation's foreign policy
    capacity.
        Thank you.
                                     ______

                   U.S. Agency for International Development
                  fiscal year 1998 congressional presentation
                                    summary
        ``Every dollar we devote to preventing conflicts, to promoting
    democracy, to stopping the spread of disease and starvation brings a
    sure return in security and savings.'' --President William Jefferson
    Clinton State of the Union Address February 4, 1997
        The president's Budget Request for fiscal year 1998 includes $19.4
    billion for programs in international affairs. The U.S. Agency for
    International Development will manage $7.2 billion (37.5 percent) of
    those funds, which includes both USAID programs and programs
    administered by USAID in cooperation with other agencies. USAID works
    with developing nations and countries in transition to support viable
    democracies and market economies. America's fastest growing export
    markets are in developing countries--U.S. exports to countries
    receiving USAID assistance grew by $98.7 billion from 1990 to 1995,
    supporting roughly 1.9 million jobs in the U.S. By the year 2000, four
    out of five consumers in the world will live in developing nations.

    Fiscal year 1998 budget request

                                                                     Percent
    All other Federal spending........................................ 99.58
    USAID.............................................................   .42

        USAID's programs advance both our foreign policy goals and the
    well-being of some of the world's neediest people. The fiscal year 1998
    funds will:
      --Help eradicate polio globally by the year 2000, saving American
            taxpayers $230 million a year in domestic immunization costs;
      --Save more than 3 million lives through immunization programs;
      --Help developing nations build their capacity to open their markets
            and tear down barriers to U.S. trade;
      --Extend family planning services to more than 19 million couples
            around the world who could not otherwise afford them, thus
            averting thousands of needless deaths of mothers and children;
      --Provide assistance to millions of victims of flood, famine,
            conflict and other crises around the globe.
      --Combat worldwide environmental degradation, including global
            climate change, biodiversity loss and natural resource
            depletion; and,
      --Provide credit to hundreds of thousands women
            ``microentrepreneurs'' starting small businesses.
        The request for fiscal year 1998 USAID managed programs represents
    an increase of $476 million over fiscal year 1997--including,
    principally:
      --An additional $292 million for programs in Central and Eastern
            Europe and the NIS;
      --$135 million more for the Economic Support Fund; and
      --An increase of $65.5 million in USAID's Sustainable Development
            Assistance.
      --The fiscal year 1998 request also includes economic growth
            activities aimed at improving food security in Africa to help
            feed the hungry and support for agricultural research through
            the agency's central Global Bureau.
        The request also includes a decrease of $15.3 million in the
    agency's operating expenses.
        The fiscal year 1998 USAID request reverses the agency's downward
    budget trend of the last several years, and represents the minimum
    level necessary to implement a balanced program of sustainable
    development and humanitarian assistance that will significantly
    contribute to achieving the administration's foreign policy objectives
    in the post-Cold War era. USAID is now at a point where after four
    years of implementing a comprehensive set of management reforms, the
    Agency's program quality has greatly improved; is increasingly
    concentrated on results, improved efficiencies and more effective
    programming; and is more focused in defining its goals and objectives.

                                      [Discretionary budget authority--in millions]
    ----------------------------------------------------------------------------------------------------------------
                                                                               Fiscal year--
                                                                     --------------------------------
                                                                           1996            1997        1998 request
                                                                       appropriated    appropriated
    ----------------------------------------------------------------------------------------------------------------
    Development assistance (DA).....................................           1,619           1,132             998
    Child Survival and Disease Program \1\..........................  ..............             500  ..............
    Development Fund for Africa (DFA)...............................           (\2\)           (\2\)             700
    International disaster assistance...............................             181             190             190
    Credit programs:
        Micro and small enterprise development......................               2               2               2
        Urban and environmental credit..............................              11              10               9
    Operating expenses--USAID \3\...................................             494             489             473
    Operating expenses--USAID IG....................................              30              30              30
                                                                     -----------------------------------------------
          Subtotal--development assistance..........................           2,337           2,352           2,401
    Economic support fund...........................................           2,360       \4\ 2,363           2,498
    Eastern Europe..................................................             522             475             492
    New Independent States..........................................             641             625             900
                                                                     -----------------------------------------------
          Subtotal--USAID appropriated..............................           5,854           5,815           6,291
    Public Law 480 through USDA Title II............................             821             837             837
    Title III.......................................................              50              30              30
                                                                     -----------------------------------------------
          Total USAID administered..................................           6,725           6,682           7,158
    ----------------------------------------------------------------------------------------------------------------
    \1\ These programs are funded under Da in fiscal year 1996 and DA/DFA in fiscal year 1998.
    \2\ Africa program funding included in DA in 1996-97.
    \3\ Operating Expenses includes use of DA funds in 1996-97.
    \4\ ESF includes $52.5 million requested for the Middle East Development Bank in fiscal year 1998.

             usaid development and humanitarian programs ($2.445b)
        This request includes funding for bilateral Sustainable Development
    which is funded out of the Agency's Development Assistance (DA) and the
    Development Fund for Africa (DFA). In addition, USAID requests funding
    for the International Disaster Assistance account; USAID's credit,
    guaranty subsidy and administration programs; food assistance under
    Titles II and III of Public Law 480; USAID's and the Inspector
    General's Operating Expenses; and a mandatory payment to the Foreign
    Service Retirement and Disability Fund.
        Sustainable Development ($1.698B):
        This request, which compares to an fiscal year 1997 level of
    $1,632B (after transfers to UNICEF, the IAF, ADF and USAID's OE
    account), is the core of USAID's program. It is funded from the DA
    ($998M) and DFA ($700M) accounts.
        Sustainable Development is based on four integrated, interrelated
    and mutually reinforcing goals that are aimed at addressing the long-
    term economic interests of the United States. (The fifth goal,
    Humanitarian Assistance, is part of the programs described under
    USAID's request for the International Disaster Assistance and Food for
    Peace accounts.)
      --Encouraging Broad Based Economic Growth ($507.5M): This goal is
            centered around improving market efficiency and performance,
            expanding access and opportunity for the poor including food
            security, and ensuring that young women and men enter adulthood
            with basic education skills. Within the overall allocation for
            this goal $90.7M will support basic education for children. (FY
            1997 funding is $517.7M for this goal).
      --Stabilizing world population and protecting human health ($765M):
            This goal is centered around four objectives: reducing
            unintended pregnancies through increased use of family planning
            ($400M), reducing child mortality (220.5M), reducing the spread
            of HIV/AIDS ($117.5M) and for a variety of other activities to
            help reduce maternal mortality and the effects of other
            infectious diseases ($27M.) (FY 1997 funding is $764.6M for
            this goal)
      --Protection of the environment ($290M): This goal centers on
            reducing threats to the global environment, particularly
            conservation of biodiversity, reduction of threats to global
            climate change, reduction of pollution and promotion of
            sustainable urbanization, provision of environmentally sound
            energy activities and sustainable natural resource management.
            (FY 1997 funding is $227.6M for this goal).
      --The increase in environment funding in fiscal year 1998 reflects
            support of important activities in Africa, Latin America and
            the Asia and Near East (ANE) Bureaus.
      --Funds will be provided to Guinea's Fouta Djallon Highlands program
            to support environmental aspects of the Greater Horn of Africa
            work on related food security issues; assist community-based
            wildlife management initiatives in Southern Africa;
            biodiversity conservation in Madagascar, and provide additional
            funds to better service existing activities in countries
            serviced by REDSO/WCA.
      --In Latin America additional monies will be used to make up for
            deferred environmental funding in El Salvador, Jamaica and Peru
            as well as for a program expansion in Guatemala into the Maya
            forest areas; the result of the peace accords.
      --In ANE the increase in environmental funding will be used to make
            up for deferred funding in fiscal year 1997.
      --Supporting democratic participation ($135.5M): This goal is
            achieved through strengthening rule of law and respect for
            human rights, fostering more genuine and competitive political
            processes, increasing the development of politically active
            civil society, and supporting the establishment of more
            transparent and accountable government institutions. (FY 1997
            funding is $122.5M for this goal)
                     other development assistance programs
    Credit programs
        USAID believes that there are significant instances in which U.S.
    development priorities can be best funded through credit, especially in
    emerging market countries and in countries moving toward graduation
    status.
        Credit resources permit the leveraging of important amounts of
    private sector resources to support sustainable development. Credit
    programs also enable USAID to reach large populations that it would not
    otherwise be able to reach.
        Important beneficiaries of credit programs are the ``poorest of the
    poor'' in both urban and rural areas.
      --Urban and Environment program: USAID requests a total of $9M for
            this program. This includes $3M for subsidies and $6M for
            program administration. (This compares to the fiscal year 1997
            appropriated level of $9.5M.)
      --The subsidies will leverage approximately $45M in loan guaranties
            to help credit worthy borrowers to address pressing urban and
            environmental problems.
      --Emphasis is placed on addressing urban and environmental problems
            that impair human health, decrease child survival rates and
            prevent economic progress.
      --Micro and Small Enterprise Credit program: USAID requests a total
            of $2M for this program including $1.5M for credit subsidies
            and $500,000 for program administration. (The same amount was
            appropriated in fiscal year 1997.)
      --The program uses loans and guarantees to encourage financial
            institutions to extend and expand credit to microentrepreneurs
            and small businesses.
      --The primary financial instrument is the Micro and Small Business
            Loan Portfolio Guarantee (LPG).
        Enhanced Credit Authority: As part of USAID's fiscal year 1998
    request, the Agency seeks the use of up-to $10M in Sustainable
    Development funds (including up to $1.5M for administrative expenses).
      --The ECA will provide USAID with an important tool to leverage its
            limited resources more effectively to pursue its global
            development priorities.
    International Disaster Assistance (IDA)
      --USAID requests $190M for this program including $165M for disaster
            relief managed by the U.S. Office of Foreign Disaster
            Assistance and $25M for programs managed by the Agency's Office
            of Transition Initiatives. (The IDA request is the same as the
            fiscal year 1997 level.)
      --OFDA funds support emergency relief for natural and man-made
            disasters, and disaster preparedness, mitigation and
            prevention.
      --OTI activities address the head-line grabbing crises of failed
            states as they attempt to reconstitute social and political
            structures.
    USAID Operating Expenses (OE)
        USAID requests $473M to cover the salaries and other support costs
    of USAID operations in Washington and at overseas locations. This
    compares to an fiscal year 1997 level of $488.5M (including $17.5M
    transferred from the DA account), or a reduction of $15.5M.
      --This decrease is due to a reduction in overall OE funded staffing
            levels combined with the completion of the move of the Agency
            headquarters, with associated one-time cost savings.
      --The savings are offset, in part, by increases associated with
            worldwide inflation and the impact of pay raises for both U.S.
            and foreign national staff.
    Inspector General (IG) Operating Expenses
        USAID requests $29.047M for the IG operating expenses to cover the
    costs of domestic and overseas operations of the Agency's Inspector
    General. This compares to an fiscal year 1997 level of $30M.
    Foreign Service Retirement and Disability Fund (FSRDF)
        These funds are not included in USAID's tables on discretionary
    funding because it is a mandatory appropriation (required as a result
    of the inclusion in fiscal year 1974 of USAID career foreign service
    employees in this fund), and it is set at $44.208M for fiscal year 1998
    to cover associated costs of that fund. This compares to the fiscal
    year 1997 level of $43.826M.
                    other usaid-managed programs ($4,756.5b)
    Economic Support Fund (ESF) ($2,497.6B)
        The ESF account addresses economic and political foreign policy
    interests of the United States by providing economic assistance to
    allies and countries in transition to democracy, supporting the Middle
    East peace process and financing economic stabilization programs,
    frequently in a multi-donor context.
        The largest share of these funds will go to supporting the Middle
    East Peace Process ($1.2B for Israel, $815M for Egypt, $75M for the
    West Bank Gaza, $25M for Jordan, $12M for Lebanon and $52M for transfer
    to the Middle East Development Bank) and $17M to assist other non-peace
    process countries and programs in that region.
        The Latin America region will receive $116M, with the largest share
    of those funds going to Haiti ($70M), Guatemala ($20M), and $10M for
    the ICITAP program that funds administration of Justice and police
    training programs in that region.
        ESF will be used to fund continued support of programs for
    ``fledgling democracies'' in Cambodia ($37M) and Mongolia ($7M) as well
    as provide on-going assistance to the International Fund for Ireland
    (19.6M). $25M of ESF will be used for assistance in Sub-Saharan Africa
    for elections, political party building and legislative training for
    countries in transition such as Angola, the Congo and Sierra Leone, as
    well as support for U.S. NGOs to provide assistance in training local
    human rights and civil society networks in Cameroon, Rwanda and the
    Seychelles.
        (The ESF request compares an fiscal year 1997 level of $2.363B.)
    Assistance for East Europe (SEED): ($492M):
        This is a transitional program designed to aid Central and Eastern
    European countries through their difficult passage to democracy and
    market economies. As countries consolidate their political and economic
    transitions they will be graduated from the assistance category and
    funding for bilateral SEED programs will be phased out. However, the
    program will remain flexible to accommodate uneven political and
    economic progress.
        The broad objectives of this program are to build market economies
    and strong private sectors, consolidate democracy, and improve the
    basic quality of life throughout the region.
      --Of the amount requested, $225M will be allocated for Bosnia
            reconstruction and reform programs including activities
            associated with the Dayton Peace Accords.
      --Of the non-Bosnian resources, 45 percent will go to Southern
            Tiercountries, which have gotten off to a slower start then
            countries in the Northern Tier, and which up to now received a
            much smaller share of resources.
        (This request compares to an fiscal year 1997 level of $475M).
        Assistance for the New Independent States of the Former Soviet
    Union ($900M):
      --Funds under this request will be used to support these countries as
            they make the transition to market economies and democracies as
            responsible members of the international community.
        --In fiscal year 1998 a new initiative will be undertaken,
    Partnership for Freedom, that will build on achievements to date,
    reorient our assistance program, first to Russia and then for the other
    NIS countries, towards longer-term and more cooperative activities to
    spur economic growth and develop lasting links between our peoples.
        (This compares to an fiscal year 1997 level of $625M.)
    Public Law 480 Food for Peace Titles II and III ($867M):
      --Title II: USAID requests $837M (the same as the fiscal year 1997
            level) to address food insecurity through emergency response,
            increased agricultural productivity and increased household
            nutrition activities.
      --Title III: USAID requests $30M (compared to $29.5M in fiscal year
            1997) to fund food aid to low-income, food-deficit counties to
            encourage policy reforms aimed at achieving long-term food
            security.
        Country level detail for all USAID administered programs will be
    presented in USAID's fiscal year 1998 Congressional Presentation to be
    submitted to the Congress in late February/early March.

                           iri rapid response request

        Senator McConnell. Thank you, Mr. Atwood.
        What I am going to do, since we have several Senators here,
    is to limit the first round to 5 minutes each so that everybody
    can get a fairly early opportunity to question Mr. Atwood. And
    for those who want to stay, they will get more time on
    subsequent rounds.
        In your testimony, you identified Cambodia and Mongolia as
    examples of our support to fledgling democracies. In Cambodia,
    IRI struggled with the AID office for more than 1 year and
    eventually terminated the relationship when the program officer
    tried to steer subgrants to personal friends.
        After Mongolia's June elections, the Asia Foundation and
    IRI submitted requests for support from AID's rapid response
    fund. After extensive negotiation over plans, I am told the
    request sat in one office for further review from October until
    February.
        We finally received the notification just this week, which
    means that no funds will actually be released until March.
        Do you have any idea why it took nearly 10 months for a
    rapid response mechanism to release crucial funds for Mongolia?
        Mr. Atwood. Mr. Chairman, I have looked into this question
    because I knew that you were concerned about it. There were,
    indeed, two offices involved here. But let me make clear that
    IRI did use core funds to begin moving very quickly. They did
    have $110,000 available.
        There is no reason why it should have taken so much time to
    get the request, the notification, up to you, I can assure you.
    Having been the head of an NGO that was the partner of IRI at
    one point, I can understand their deep frustration. I can also
    understand the problems they have in trying to make ends meet.
        So I am pleased that at least we are able to get the
    notification up to you. I assume that within the next few
    weeks, when that notification clears, we will be able to make
    them whole again.
        I want to make clear that they were not restricted from
    moving. They did move, in fact, using their own funds and also
    the core funding that was made available under the umbrella
    contract for democracy.
        Senator McConnell. So it was a reimbursement issue?
        Mr. Atwood. That's right.

                               suspension of aid

        Senator McConnell. You also said in your testimony that
    nations that do not embrace democracy will not receive U.S.
    aid. Can you give me some examples of where we have suspended
    aid because of that policy?
        Mr. Atwood. Yes; I will.
        Given the fact that we suspended a lot of these programs
    when we announced our first list of 21 countries back in 1993
    and that, indeed, some of those countries have improved their
    situation since that time, although because of budget
    considerations we have not resumed our aid programs, I think
    every time I mention countries I get messages, telegrams from
    Ambassadors, saying you know, the situation has improved here
    so you don't need to keep blasting this country.
        But I think one of the countries that I do not have any
    hesitancy in talking about, because the country is falling
    apart and we are trying desperately to put it back together
    again, is Zaire. There is an example of a country where abuse
    of human rights, corruption, and everything else brought the
    per capita income down from about $2,000 to less than $200,
    despite the fact that we put $2.2 billion worth of aid into
    Zaire over the years.
        Now a lot of it was because we wanted Mr. Mobutu to vote
    right in the United Nations and be on our side in the East-West
    struggle. But we do not have to politicize our aid any longer.
    We don't have to work with governments that abuse human rights.
        In some cases we have the option of working only with NGO's
    in countries where we think we are making progress. That is
    true in a place like Kenya, where we are not exactly happy with
    their pursuit of democratic practices. But we are making a lot
    of progress in a lot of areas, working with nongovernmental
    organizations, and we expect that our contribution there will
    help change the situation over time.
        So I would say that I would be happy to share these
    countries with you privately, if you wish. But for me to now go
    over decisions that we took 3 years ago, when I know that in
    some cases the situation has improved, I think might be
    counterproductive from a foreign policy point of view.
        Senator McConnell. I'm curious as to what the criteria are.
    For example, would you consider forcible repatriation of
    refugees consistent with democratic practices?
        Mr. Atwood. Forcible repatriation of refugees?
        Senator McConnell. Yes.
        Mr. Atwood. Generally speaking, I would not. I mean, it
    depends on the situation you want to cite. Then we can argue
    whether or not it was forcible.
        Senator McConnell. The reason I raised that is a government
    that clearly has been a friend of ours most of the time, the
    Thai Government, is forcing Burmese women and children across
    the border into SLORC gunfire. That has happened just in the
    last 3 days. That is the sort of thing, it seems to me, that
    ought to get our attention and cause a review of our assistance
    policy, including Thailand's IMET program.
        I wonder if you have any reaction to that.
        Mr. Atwood. My only reaction is that we have had the
    celebration of the graduation of Thailand from our aid program
    because they have achieved a sustainable economic system and
    political system.
        Senator McConnell. I understand that. But I just cite that
    as an example of the kind of thing that, I gather from what you
    say, would meet the criteria.
        Mr. Atwood. I don't want to talk about Thailand
    specifically because it is a closeout post. But the fact of the
    matter is when those kinds of things happen, I think it is
    important for us to take those issues up with the government
    because forced repatriation into a state such as Burma is not
    something that we approve of. We are trying our best to be
    supportive of those refugees on the Thai border, as a matter of
    fact, through humanitarian and other assistance that we
    provide.
        Senator McConnell. I am out of time on the first round.
        Senator Leahy.
        Senator Leahy. Thank you, Mr. Chairman.
        I have a number of questions that I will submit for the
    record.

                             fledgling democracies

        Mr. Atwood, you spoke about the use of ESF funds to support
    fledgling democracies. What is democratic about Cambodia? They
    had an election a few years ago, but Prime Minister Hun Sen
    lost the election and forced his way into a coalition
    government, probably one of the most corrupt anywhere.
        Do we send aid to the government itself of Cambodia? I know
    we use the Leahy war victims fund for land mine victims. But do
    we give aid to the government itself?
        Mr. Atwood. We do aid that transition, as does the entire
    international community. I think that we understand exactly
    what you are saying about the state of democracy in Cambodia.
    We worry about it a great deal. We believe that the intent
    continues to be that they are going to pursue democracy and
    democratic institutions, and it is an important transition
    given the history of that country and the devastating civil war
    with the reign of the Khmer Rouge that we have experienced.
        So we are not happy with all things that are going on
    there. We did help sponsor an election which then resulted in a
    compromise and coalition government. They are preparing for
    another election.
        We feel we have to engage to make that situation better.
        Senator Leahy. Does that mean any pressure is being
    brought? I mean, we send aid. Do we have any strings tied to
    that aid?
        Mr. Atwood. There are clear conditions in our aid program.
    Most of them are in the law. If a country does absolutely turn
    its back on democracy, for example, by stealing an election--we
    have had that situation in Niger--under the law, we have to
    close our AID mission and only pursue humanitarian goals in the
    country.
        I just had a meeting with our mission director the other
    day. There are clear standards for our involvement. But I think
    even the law, which was passed by both branches of government--
    obviously, in every case--tends to lean toward engagement
    versus absolute decisionmaking. There is still a good deal of
    flexibility on the part of the administration to work a
    situation to improve it.

                              usaid budget request

        Senator Leahy. I'm looking at the increase over last year's
    appropriation, the budget request. I hope we can find the money
    because our foreign policy programs are underfunded. But it
    seems AID is still on the short end of the stick. The request
    is about a $1 billion increase above last year's level. But
    only $65 million of that $1 billion is for AID's Development
    Assistance programs, to protect the environment, to stabilize
    population growth, to stop the spread of infectious diseases.
    These are not glamorous programs. All they do is help the
    people.
        Why do they always end up in last place?
        Mr. Atwood. There are all sorts of pressures, Senator
    Leahy, as you know well. The most dramatic pressure that we are
    all under nowadays is to balance the budget. But within the 150
    account, there are also tremendous pressures.
        I certainly understand the need to pay our arrearages to
    the World Bank, for example, and have had meetings with
    Secretary Rubin. We both understand the importance of the
    overall system, the multilateral and the bilateral.
        We need to pay our arrearages at the United Nations, too,
    although there is a supplemental being considered, or at least
    being discussed with the Congress on that score. But the 150
    account is squeezed, even at $19.4 billion.

                            child survival and ngo's

        Senator Leahy. We appropriated $500 million for AID's Child
    Survival and Disease programs last year, and another $100
    million for UNICEF. This year that is being cut to $455
    million.
        I think we are only sending about 4 percent of it to NGO's.
    A great deal of it goes to for-profit contractors.
        Are we getting the biggest bang for the buck?
        Mr. Atwood. We have increased the amount that we provide
    through NGO's, NGO partnerships, from something like 22 percent
    to 34 percent.
        Senator Leahy. I'm told it is 4 percent.
        Mr. Atwood. No; in 1992, 24 percent of our aid went through
    NGO's. In 1996, it was 34 percent, Senator.
        Senator Leahy. Can you give me an example of the type of
    NGO it might be going through?
        Mr. Atwood. Well, there are hundreds of NGO's that we work
    with. I mean, some of them are doing our humanitarian programs,
    of course--the Catholic Relief Service, World Vision, and CARE.
    A lot of them are working with us on microenterprise programs.
    Some of them are working with us on family planning programs,
    some of them on democracy programs.
        It is a varied group. I would be happy to give you a list
    of all the NGO's that we work with.
        Senator Leahy. Yes; and I would also like to know whether
    it includes for-profit contractors.
        Mr. Atwood. No.
        Senator Leahy. It does not?
        Mr. Atwood. No; not that category. That is just NGO's.
        Senator Leahy. Thank you, Mr. Chairman.
        Senator McConnell. Thank you, Senator Leahy.
        [The information follows:]

              Private Voluntary and Nongovernmental Organizations

        A nongovernmental organization (NGO) is defined broadly as
    an organization organized formally or informally that is
    independent of government. For-profit firms, however, are
    excluded from this definition for USAID's internal coding
    system, and data about the amount of assistance USAID provides
    to NGOs does not include for-profit firms. Some for-profit
    firms have established separate non-profit organizations which
    meet the criteria for a private voluntary organization (PVO)
    and have so registered with USAID. The terms NGO and PVO are
    often used interchangeably, but USAID's definition of NGO for
    internal coding purposes includes not only PVOs but also
    universities and selected other non-profit organizations such
    as research institutions.
        The 24 percent and 34 percent figures I used above
    represent development assistance funding for PVOs as a percent
    of USAID's total development assistance funds.
        With regard to NGOs and child survival, USAID's total
    fiscal year 1996 child survival funding from all accounts was
    $301 million. NGOs, including universities, received about 36
    percent of this funding.
        I do not recognize the 4 percent figure which you
    mentioned. Until I know how it was calculated, the number is
    difficult to comment on.
        It might be helpful to note that some people think of the
    Office of Private and Voluntary Cooperation in our Bureau for
    Humanitarian Response (BHR/PVC) as the primary source of USAID
    funding for PVOs. In fact, while BHR/PVC plays an important
    capacity-building role for PVOs, this Office's funding for PVOs
    in fiscal year 1995 was about 4.5 percent of USAID's total
    development assistance funding for PVOs, which in fiscal year
    1995 amounted to over $715 million.
        Following is a list of registered U.S. private and
    voluntary organizations.

      registered u.s. private and voluntary organizations that work with
                                     usaid

        The Academy for Educational Development;
        ACCION International;
        AVSC International, Inc.;
        Action for Enterprise Adventist Development and Relief
    Agency International, Inc.;
        African Christian Relief, Inc.;
        African Community Resource Center, Inc., African Medical
    and Research Foundation, Inc., The African Methodist Episcopal
    Church Service & Development Agency
        African Wildlife Foundation;
        The African-American Institute;
        African-American Labor Center;
        Africare;
        Aga Khan Foundation U.S.A. Agricultural Cooperative
    Development International;
        AICF/USA;
        Aid to Artisans, Inc.;
        Air Serv International, Inc.;
        America's Development Foundation, Inc. America-Mideast
    Educational & Training Services American Association for
    International Aging, Inc.;
        American College of Nurse-Midwives American Committee for
    Shaare Zedek Hospital in Jerusalem, Inc.;
        American Council on Education American Federation of
    Teachers Educational Foundation American Institute for Free
    Labor Development The American Jewish Joint Distribution
    Committee, Inc. American Medical Resources Foundation, Inc.;
        American National Red Cross;
        American Near East Refugee Aid;
        American ORT, Inc.;
        American Red Magen David for Israel;
        American Refugee Committee;
        AmeriCares Foundation, Inc.;
        Andean Rural Health Care, Inc.;
        Appropriate Technology International;
        Armenian Assembly of America, Inc.;
        The Armenian Relief Society, Inc.;
        Armenian Technology Group, Inc.;
        The Asia Foundation;
        Asian-American Free Labor Institute Bethany Christian
    Services International, Inc.;
        Bicentennial Volunteers, Inc.;
        Blessings International, Inc.;
        Books for Africa, Inc.;
        Brother's Brother Foundation;
        Caribbean Conservation Corporation;
        The Carter Center, Inc.;
        Catholic Near East Welfare Association;
        Catholic Relief Services;
        Center for Citizen Initiatives The Center for Health,
    Education and Economic Research, Inc.;
        Center for Marine Conservation Center for Strategic and
    International Studies, Inc.;
        Center for Victims of Torture The Centre for Development
    and Population Activities;
        ChildHope Foundation;
        Children International;
        Children of Chornobyl Relief Fund, Inc.;
        Christian Children's Fund, Inc.;
        Christian Reformed World Relief Committee;
        Christian Relief Services, Inc.;
        Church World Service, Inc.;
        Citizens Democracy Corps, Inc.;
        The Citizens Network for Foreign Affairs;
        Community of Caring;
        CONCERN Worldwide (U.S.), Inc.;
        The Conservation International Foundation The Consortium
    for the MBA Enterprise Corps, Inc. Cooperative for Assistance
    and Relief Everywhere, Inc.;
        Cooperative Housing Foundation Cooperative Office for
    Voluntary Organizations, Inc.;
        The Corporate Council on Africa;
        COUNTERPART Foundation, Inc.;
        Covenant House;
        Credit Union National Association, Inc.;
        Delphi International;
        Dian Fossey Gorilla Fund;
        Direct Relief International;
        Doctors of the World, Inc.;
        Doulos Community, Inc.;
        Ecologically Sustainable Development, Inc.;
        Education Development Center, Inc.;
        Enersol Associates, Inc.;
        Environmental Law Institute;
        Esperanca, Inc. Ethiopian Community Development Council,
    Inc.;
        Eye Care, Inc.;
        Family Health International;
        Feed My People International, Ltd.;
        Financial Services Volunteer Corps, Inc.;
        Floresta USA, Inc.;
        Food for the Hungry, Inc.;
        Food for the Poor, Inc.;
        The Foundation for a Civil Society, Ltd. Foundation for
    International Community Assistance, Inc.;
        Freedom from Hunger;
        Fund for Democracy and Development;
        The Fund for Peace The German Marshall Fund of the United
    States;
        Global Health Action, Inc.;
        Global Operations and Development;
        Goodwill Industries International, Inc.;
        Habitat for Humanity International, Inc. Hadassah, The
    Women's Zionist Organization of America, Inc. The Harry T.
    Fultz Albanian-American Educational Foundation;
        Health Alliance International;
        Health and Education Volunteers, Inc.;
        Health Volunteers Overseas;
        Heart to Heart International, Inc.;
        Heifer Project International, Inc.;
        Helen Keller International, Inc.;
        Hermandad, Inc.;
        High/Scope Educational Research Foundation Holt
    International Children's Services, Inc.;
        Institute for a New South Africa;
        Institute for Development Research, Inc.;
        Institute for EastWest Studies;
        Institute of International Education, Inc.;
        International Center for Research on Women;
        International Child Care (USA), Inc.;
        International Church Relief Fund, Inc. International City/
    County Management Association International Clinical
    Epidemiology Network;
        International Development Enterprises;
        International Executive Service Corps;
        International Eye Foundation, Inc. International Foundation
    for Education and Self-Help;
        The International Human Rights Law Group International
    Institute for Energy Conservation International Institute of
    Rural Reconstruction;
        International Law Institute;
        The International Medical Corps International Partnership
    for Human Development International Planned Parenthood
    Federation, Western Hemisphere Region;
        International Rescue Committee International Services of
    Hope/Impact Medical Division;
        International Voluntary Services, Inc.;
        IPAS, Inc.;
        ISAR, Inc. Islamic African Relief Agency, United States
    Affiliate;
        Island Resources Foundation, Inc. Joint Center for
    Political and Economic Studies, Inc. Katalysis North/South
    Development Partnership;
        Larry Jones International Ministries, Inc.;
        The Life Link;
        LightHawk;
        Lithuanian Children's Relief, Inc.;
        Lutheran World Relief, Inc.;
        Magee-Womens Hospital;
        Manomet Observatory, Inc.;
        MAP International, Inc.;
        Medical Benevolence Foundation;
        Medical Care Development, Inc.;
        MEDISEND Melwood Horticultural Training Center, Inc. The
    Mennonite Economic Development Associates;
        Mercy Corps International;
        Minnesota International Health Volunteers;
        Mission Without Borders International;
        Missouri Botanical Garden;
        The Mountain Institute, Inc.;
        National Cooperative Business Association;
        National Council for International Health;
        National Council of Negro Women, Inc. National Council of
    the Young Men's Christian Association of the USA;
        National Fish and Wildlife Foundation;
        National Planning Association National Rural Electric
    Cooperative Association National Rural Electric Cooperative
    Association--International Foundation;
        National Telephone Cooperative Association;
        The Nature Conservancy;
        Nazarene Compassionate Ministries, Inc.;
        Near East Foundation;
        New York Botanical Garden;
        New York Zoological Society Northwest Medical Teams
    International, Inc.;
        Obor, Inc.;
        Operation California, Inc. Opportunities Industrialization
    Centers International, Inc.;
        OPPORTUNITY International, Inc.;
        Organization for Tropical Studies, Inc.;
        Pan American Development Foundation;
        Park West Children's Fund, Inc.;
        Parliamentary Human Rights Foundation;
        Partners in Economic Reform, Inc.;
        Partners of the Americas;
        Pathfinder International;
        The Pearl S. Buck Foundation, Inc. The People-to-People
    Health Foundation, Inc.;
        The Peregrine Fund;
        Philippine American Foundation;
        PLAN International USA, Inc., Planned Parenthood Federation
    of America, Inc.;
        Planned Parenthood of New York City, Inc.;
        Planning Assistance Polish American Congress Charitable
    Foundation;
        The Population Council;
        Population Services International Private Agencies
    Collaborating Together, Inc.;
        PRO Women Program for Appropriate Technology in Health;
        Project Concern International;
        Project Dawn, Inc.;
        Project ORBIS International, Inc.;
        Rodale Institute The Rotary Foundation of Rotary
    International;
        Sabre Foundation, Inc.;
        Salesian Missions;
        Salvadoran American Health Foundation;
        The Salvation Army World Service Office;
        Samaritan's Purse;
        Save the Children Federation, Inc.;
        Search for Common Ground;
        Shelter Now International, Inc.;
        Small Enterprise Assistance Funds;
        St. David's Relief Foundation;
        State of the World Forum;
        Strategies for International Development;
        Support Centers of America;
        TechnoServe, Inc.;
        Trees for Life, Inc.;
        Trickle Up Program;
        United Methodist Committee on Relief;
        Viet-Nam Assistance for the Handicapped;
        Vietnam Veterans of America Foundation Volunteers in
    Overseas Cooperative Assistance;
        Volunteers in Technical Assistance, Inc. Winrock
    International Institute for Agricultural Development;
        World Association for Children and Parents;
        World Concern Development Organization;
        World Education, Inc.;
        World Emergency Relief;
        World Environment Center;
        World Learning, Inc.;
        World Rehabilitation Fund, Inc.;
        World Relief Corporation;
        World Resources Institute;
        World SHARE, Inc.;
        World Vision Relief and Development, Inc.; and
        World Wildlife Fund, Inc.

                       administration of justice programs

        Senator McConnell. Senator Campbell.
        Senator Campbell. Thank you, Mr. Chairman.
        I, frankly, have no problem supporting the administration's
    modest request for a budget increase. I think the efforts of
    the USAID have made for stronger democratic nations. That has
    led to better trading partners, increased sales of American
    products, and certainly less conflict in those areas, too.
        I note with interest in your testimony the efforts you have
    made to streamline the Agency, to reduce regulations, to close
    some of the offices, things of that nature, and I certainly
    commend you on that point.
        The bottom of page 11 in your testimony leads me to ask a
    couple of questions. You talk about increased and escalating
    violence, which I guess is one of the unfortunate parts of
    democracy, and I would like to focus on this a little bit.
        The AID Program funds the Administration of Justice Program
    which primarily supports courts and prosecutors in developing
    countries. Support for other law enforcement activities is
    provided through the State Department's Bureau of International
    Narcotics and Law Enforcement, and the Justice Department
    operates an international criminal investigation training
    program. There are a number of other law enforcement programs,
    too.
        I know that we probably have more expertise on what works
    and what does not work in fighting crime, drugs, and gangs than
    anybody in the world. We have had certainly more experience at
    it.
        I, like anybody else, read a lot of accounts of the
    increased criminal activities in Russia, for instance, since
    they have tried democracy.
        I want to ask how do you ensure cooperation between your
    agency and other Federal agencies to support various
    international crime fighting programs so that we do not have
    duplications of effort?
        Mr. Atwood. I'm glad you asked because we have been
    involved in Administration of Justice Programs for many, many
    years, and there is more of a developmental aspect to our
    programs. We work in partnership. We understand what is needed
    in a country to create an institution that will do that kind of
    work.
        The State Department's relatively new Office on
    International Crime has the obvious interest in making sure
    that we can work with other governments to catch criminals and
    to try to prevent the flow of narcotics through countries and
    into our country, and the like. And then the Justice Department
    likewise has interests in this area. They have a very good
    operation that trains police officers.
        We have gotten out of that business long ago because of a
    lot of controversy. But it is an important function.
        So we have an interagency group that meets to talk about
    those issues and to talk about where we are working, what we
    are doing, and how we can collaborate to make all of our
    programs more effective.
        Senator Campbell. Are there three agencies involved in that
    interagency group?
        Mr. Atwood. Three agencies. That's right.
        Senator Campbell. How often do you meet?
        Mr. Atwood. I don't know, exactly, Senator. I don't attend
    the meetings myself. They are done at a lower level. But I
    could get you that information.
        Senator Campbell. OK, if you would, and I have several
    other questions related to that.
        [The information follows:]

              Administration of Justice: Interagency Coordination

        USAID participates in the inter-agency coordination
    process, led by the Democracy, Human Rights and Labor Bureau at
    the Department of State. The State Department's Bureau for
    Narcotics and Law Enforcement (INL) chairs an Interagency
    Working Group to coordinate various U.S. Government agencies'
    respective law enforcement training programs. An interagency
    working group meets regularly on ENI rule of law programs under
    the direction of the Coordinator's Office. Interagency
    coordination for other, long-term institutional building
    administration of justice programs is carried out in countries,
    through the country team under the direction of the U.S.
    Ambassador.

        Senator Campbell. I won't take any more time, Mr. Chairman.
    But I did want you to know that that is kind of a special
    interest for me.
        I thank you for your testimony.
        Mr. Atwood. Thank you, Senator.
        Senator McConnell. Thank you, Senator Campbell.
        Senator Lautenberg, your arrival is quite timely. As a
    matter of fact, you can take your turn if you'd like.
        Senator Lautenberg. That would be very nice.
        Senator McConnell. This has probably never happened in your
    entire Senate career, that you've arrived and immediately been
    called upon.
        Senator Lautenberg. That may be right.
        Senator McConnell. Let me just say that we are limiting
    this round to 5 minutes.
        Senator Lautenberg. OK. So I ought not take all of it
    trying to find my paper.
        Mr. Atwood, it's good to see you.
        Mr. Atwood. Likewise, Senator.

                              war crimes tribunal

        Senator Lautenberg. One of the things that has concerned
    me, and I'm sorry that I was not able to be here for your
    testimony, but I will certainly read it with interest, is
    implementation of a section of the Foreign Operations
    Appropriations Act that gives the President authority to
    withhold assistance from a country which knowingly grants
    sanctuary to indicted war criminals. I do not know if this
    subject has already been brought up.
        Senator McConnell. No; so go ahead.
        Senator Lautenberg. I am talking about countries that
    provide sanctuary to persons evading prosecution by the
    International Criminal Tribunal.
        I believe our foreign assistance program can be used to
    secure greater cooperation from the parties to the Dayton
    Agreement in arresting and transferring indicted war criminals
    to the tribunal.
        Has any funding been withheld thus far under the provision
    in fiscal year 1997?
        Mr. Atwood. We are obviously trying in Bosnia to work with
    officials who comply with the Dayton accords. We are also
    working with the War Crimes Tribunal to enhance their capacity
    to do their work. We are calling for the arrest of war
    criminals in Bosnia and the like.
        The answer to your question is that to date we have not
    withheld resources because we think it is more important to
    engage there and to try to change the conditions on the ground
    that caused those war criminals to be harbored, not by
    government officials in either Republika Srpska or the
    Government of Bosnia and the Federation, necessarily, but by
    other individuals within those societies.

                                republika srpska

        Senator Lautenberg. It is a tough decision that you make,
    only because we have a statutory obligation to try and do this.
    It seems to me that we are walking delicately all over the
    place. I'm not sure who is going to object to these people
    being picked up and tried.
        It is reported that more than one-half of the 75
    individuals indicted for war crimes by the ICT have been seen--
    this is in the papers--by journalists and nongovernmental
    organizations that live in Croatia and Republika Srpska.
    Earlier this year, my office was informed that our government
    plans to allocate about one-third of the roughly $200 million
    in funding appropriated by the Congress for Republika Srpska.
        Is that still the plan?
        Mr. Atwood. We are looking at what we can do. What we have
    done in Republika Srpska is not to work with the government
    that has been elected there, by the way, but more with
    nongovernmental groups, independent media, and the like to try
    to bring about reconciliation in the country.
        If we work in the government in the area of Republika
    Srpska, our intention would be to work to strengthen democratic
    elements within that part of Bosnia, not in any way to aid
    people who might be implicated, or whatever, but, rather, to
    isolate them.
        We need to pull that republic into the Bosnian Federation,
    but, more importantly, into the international community, and we
    cannot do it by just sitting back and not working with the
    mayors, for example, of small villages that really do believe
    that they ought to see a democratic change in those particular
    municipalities.
        On the other hand, our requirements ring hollow if we do
    not indicate in specific ways our unwillingness to accept the
    status quo.
        Senator Lautenberg. Now I know that you and your department
    are not in this alone by a long shot. But I would hope that our
    government can intervene. Whether it is financially or
    otherwise--I don't want to make the decision at this committee
    table--we need to move this thing along and show that we are
    serious.
        It is an insult that they are able to thumb their noses at
    us. The fact is that their conduct is unacceptable under any
    condition in the civilized world. We are the only ones who can
    really make a difference to impact on their behavior.
        So I would hope that we could condition that funding in
    some way and resist funding everything unless we get more
    cooperation from the people we are entrusting.
        Senator McConnell. Thank you, Senator Lautenberg.

                                 nis assistance

        Mr. Atwood, of the $900 million for the new NIS effort in
    the President's proposed budget, the largest portion is, once
    again, allocated to Russia. I am curious. What was the thinking
    behind allocating Russia $241 million, flat-lining Ukraine,
    reducing Armenia, and continuing support for Belarus, where a
    dictator has recently seized control?
        Mr. Atwood. The funding for Russia, as you know, Senator,
    has gone down considerably from over $2 billion--I believe 1
    year we handled about $1.2 billion of it--down to $95 million
    last year.
        We think, given the challenge that still exists there to
    bring about a democratic market economy and the goodwill that
    exists to try to pursue those issues under the Yeltsin regime,
    it warrants our increasing funding to $240-$241 million under
    this new arrangement of the partnership for freedom.
        The technical assistance aspect will continue. We still
    want to see that country break down the obstacles to trade and
    investment so that we can, indeed, follow an exit strategy that
    will have us leaving there within the next few years
    altogether.
        So I think the increase is in light of the fact that the
    pipeline is being expended very fast, that we are moving away,
    really, from government-to-government types of assistance to
    outside of Moscow, into the hinterlands. This is a very large
    country.
        I am not saying that one country is more important than the
    other. I think most people understand how important Russia is
    to the entire region, including the people of Ukraine, who want
    to see Russia become more democratic and a part of the
    international community.
        So that is our intention. It is our intention to begin to
    phase down our program. But we see the need and we see the
    importance of moving ahead with a program that will eventually
    become taken over by trade and investment, we hope, and
    linkages between democratic institutions.
        Senator McConnell. Any response to my observations about
    the other countries that I mentioned in my question?
        Mr. Atwood. Again, you know, I give you credit. You pushed
    us to some extent in a direction we wanted to go in the case of
    Ukraine.
        The problem, the only problem we face is that we had a
    finite amount of money for the former Soviet Union and you
    earmarked $225 million. I think that we have made some progress
    there. We clearly would always like flexibility. If we don't
    see reform happening, we'd like to move money from one place to
    the other.
        Nonetheless, I think we've made a great deal of progress
    with President Kuchma. Right now, we are waiting for the Rada,
    the parliament of the Ukraine, to vote for privatization and
    for further economic reforms so that we can make more progress.
    But we have made progress in Ukraine, and I think when the
    history of this era is written, the name ``McConnell'' will be
    part of it. [Laughter.]
        Senator McConnell. That's certainly not required.
    [Laughter.]
        And what about Armenia and Belarus? Any thoughts about
    those?
        Mr. Atwood. Again, we are moving, in the case of Armenia,
    from a mostly humanitarian program to really working with them.
    I have to tell you that we are troubled by what happened in the
    last election.
        The Government of Armenia knows that. A new prime minister
    has been named. We think that he is a real reformer and we are
    working with all sides in Armenia, including the government and
    the opposition. We have only requested $80 million this year,
    as opposed to what we asked for last year for Armenia. But a
    lot more of that is going to go to actual development
    assistance, as opposed to humanitarian assistance.
        I am not as familiar with the request for Belarus right off
    the top of my head. I would be happy to give you more
    information for the record on that country, Senator.
        [The information follows:]

                     Continued USAID Assistance for Belarus

        The USAID program in Belarus aims to promote a market-
    oriented economy and democracy, including strengthening the
    independent media, non-governmental organizations and private
    enterprise. Because the environment for political and economic
    reforms in Belarus is increasingly inhospitable, we will
    provide assistance at only very modest levels ($5 million, or
    less than one percent of the FSA request level).
        However, we believe it important to encourage support for
    reforms, and to do this by directing our assistance primarily
    through non-governmental channels in the few areas where
    progress has been made and where USAID can effectively counter
    the weakening of democracy. Thus, our assistance request
    reflects the fact that opportunities to support reforms are
    limited under the current regime in Belarus, as well as the
    fact that other NIS countries that are willing to reform and
    seek U.S. assistance deserve the lion's share of our assistance
    resources.

                               african elephants

        Senator McConnell. On another subject, I recently sent you
    a letter regarding the Zimbabwe Government's Communal Areas
    Management Program for Indigenous Resources [CAMPFIRE] and that
    is a mouthful. I have been contacted by a number of people from
    my State who are worried that AID is contributing to the
    wholesale slaughter of endangered species, such as elephants.
        Understanding that it is AID's position that CAMPFIRE is
    designed to ensure that the rural poor are active participants
    in the national development process, I wonder if you are
    prepared to address the concerns that were raised by the
    communication that I sent you.
        Mr. Atwood. First, yes. Any time you express those kinds of
    concerns, we are concerned as well. We are certainly concerned
    about the misinformation that has been going around the country
    as a result of a National Enquirer article, a newspaper not
    always known for its accuracy. In this case we can give you
    very good details as to how inaccurate the article was.
        But what I want to assure you of is, No. 1, we're looking
    into your concerns. Very specifically, David Hales, the head of
    our environment center, has been in Zimbabwe since last week.
    He is coming back on Monday. I would be happy to have him come
    up here and brief you and your staff on what his findings were
    because there were serious allegations that, for example, the
    group that we were supporting was lobbying to change the status
    of elephants under the Endangered Species Treaty and a number
    of other things that we believe not to be true. But David Hales
    is there to investigate these charges for me.
        What I want to emphasize here is that our interest is in
    conserving the natural resource base of Zimbabwe, and that
    includes the elephant, which is an endangered species. We tried
    it every other way over the years. Because of poaching, and
    because of corrupt governments, and because the communities
    weren't involved, the park areas of these countries were
    intruded upon. We saw the elephant population go down to about
    32,000 in the 1950's.
        That population is now up to 66,000 elephants because we
    have adopted community-based conservation techniques. We give
    the community a stake in taking care of the natural resource
    base, which includes the elephant, which is obviously a tourist
    attraction.
        Now as in every case of any animal population, whether it
    is deer here in this area or in Kentucky, or elephants in
    Africa, you need to cull the herd on occasion. They have
    created a tremendous amount of damage in the region. But there
    are 3,000 more elephants being born every year and about 100 or
    so taken as a result of hunting season permits that are granted
    and strictly regulated by the community in the area.
        If you don't give the community in the area a stake in
    this, then you are going to see that elephant population going
    down. Our interest is in preservation of the elephants and
    helping the communities to preserve the natural resource base
    of their own community and of their country.
        There are serious allegations beyond that. But I wanted to
    make it clear for the record that we are not sponsoring anyone
    going in and hunting trophies on an indiscriminate basis. What
    we are interested in is seeing that elephant population
    continue to grow and to protect the park areas where they live.
        Senator McConnell. I'm going to let Senator Lautenberg have
    another round. Then I will have one final question to wrap it
    up.

                          development assistance cuts

        Senator Lautenberg.
        Senator Lautenberg. Thank you. I will be fairly brief, Mr.
    Chairman.
        Mr. Atwood, what is the impact of the cuts on our ability
    to carry out the Development Assistance Program?
        Mr. Atwood. Well, Senator, we are losing some influence.
    That is my most important message to you.
        We have never claimed to do it all in terms of the gains
    that we made in development. Over the last 30 years, we have
    made some tremendous progress in reducing infant mortality by
    one-half, by providing clean drinking water to 1 billion more
    people, by increasing literacy rates by 75 percent, by
    providing food for a growing world population through the Green
    Revolution Program and by all of our contributions to
    agricultural research. But we have maintained our leadership
    capacity by convincing other countries to share the burden with
    us.
        In about 1960, we were providing 60 percent of all of the
    official development assistance in the world. Today we only
    provide 17 percent.
        But if we do not go to the table with something other than
    good ideas--and we continue to go to the table with good ideas,
    I think--and if we go to the table as No. 4 in overall
    contributions, compared to countries that are one-half the size
    of our economy, we cannot influence the other donors. In fact,
    we are influencing them in a negative way. They are cutting
    back as well.
        I think, given the progress that has been made and the need
    that is still out there, American leadership is still vital in
    this area. In addition, we've got diseases that we can control
    that affect Americans, for example. We did succeed in
    eradicating smallpox. We are able to save this country and all
    of its people $280 million each year in immunization costs for
    our children.
        We are on the verge of eradicating polio. That will save us
    $230 million per year for immunizations for our children
    against polio.
        Those kinds of things redound to the benefit of the
    American people. In addition, our exports have soared, which is
    why our economy is so strong versus that of other countries. We
    still have a lot of room for growth, but we have to realize
    that four out of five people will be living in the developing
    world by the year 2000. Those are either going to be consumers
    or they are going to be wards of the international community.
        Either we are going to benefit in terms of increased
    exports or we are going to lose in terms of increased costs for
    peacekeeping, refugee assistance, and the absence of economic
    growth.
        Senator Lautenberg. Unfortunately, it is sometimes hard to
    get the message through here, as we look primarily at the
    budget cuts, to remember that moral leadership is incumbent
    upon this democracy of ours because we are a nation with a
    conscience. We are a nation with concerns about other people.
    But also it follows on that our economic interests, as you
    indicate, are also very well served. If you have friends, just
    like within business circles in the country, if you have people
    to whom you can present product ideas, development ideas, or
    what have you and with whom you can work in cooperation, there
    is an opportunity for you. That is not the primary mission, I
    point out.
        We are, again, a country with a conscience. So it should
    be. Otherwise America is not the America that so many of us
    think about and are so proud of.
        But we are slashing away at programs where there has been
    remarkable success. I think of river blindness, for instance.
    We did not have to do much there but carry a product to the
    source of this, and it has been almost eliminated. Can you
    imagine? Hundreds of thousands of people each year are not
    going blind who otherwise might, who would have to walk with a
    young child in front of them to lead them to wherever they want
    to go. There has been some marvelous work done and your agency
    should be very proud, Mr. Atwood, for the contributions it has
    made over the years.
        Mr. Atwood. Thank you.

                     west bank and gaza microcredit program

        Senator Lautenberg. I would ask one last question, Mr.
    Chairman, and this has to do with the program, the development
    program, that we had, the microcredit program for the West Bank
    and Gaza.
        It was part of a $500 million 5-year pledge to the
    Palestinians. To date, if I am not mistaken, we have about $4.5
    million worth of expenditures made. What are the plans for the
    microcredit programs in the area? Will we continue to expand
    the programs now in place in the West Bank and Gaza? What kind
    of progress has been made in helping create financial
    institutions that would specialize in the extension of credit
    to these new enterprises?
        Mr. Atwood. Senator, before I answer your question
    specifically, let me say that I think we have made a major
    contribution to peace in that region and in the West Bank and
    Gaza in particular. We have done a lot to create wastewater
    facilities to deal with the water issue, which is a huge issue
    in that area. But there is something you may not be aware of.
    In the case of the tense negotiations over the city of Hebron
    at the last minute, one of the crucial issues was a road that
    went through the center of the city and how that road would
    look, how it could contribute to the peace. That was holding up
    the final agreement on Hebron.
        We sent a USAID engineer in from our office in Tel Aviv,
    into Hebron, to look at that situation. He provided
    architectural plans for redirecting that road and creating some
    security barriers and the like that really did push that
    agreement over the edge in the end.
        So I feel very proud of the contribution that we made
    there. We also have made a contribution generally in the sense
    that when people in the West Bank and Gaza feel a hope that
    their future is going to be better, indeed, that they will have
    access to jobs and the like, the polls--which, by the way, the
    International Republican Institute sponsors--are quite
    positive. When they poll the Palestinians on their attitude
    toward peace, they go all the way up to 70 percent in support
    of the peace process now.
        When you have problems, they tend to come down. The number
    of people that will say in a poll that they support violence
    against the State of Israel also goes way down when there is
    more hope and when they can see that jobs are being created.
        That is why, among other things, our credit programs are
    very important. We provided $14 million for the microenterprise
    sector--a loan guaranty facility, which has supported 270 small
    loans, 8,500 short-term working capital loans to
    microentrepreneurs, of whom 75 percent are women, equipment
    loans to help more than 200 vocational graduates get started in
    business, and loans averaging $23,000--which is not a
    microloan--to small Gazan businesses that are creating
    something like 800 to 1,000 jobs over a 3-year-period.
        So we believe very strongly that this is one way of doing
    it. There are other ways as well, and we need to continue, I
    think, to be leaders there. While our program isn't the
    largest--the World Bank's and the European Union's are--we
    still have led the way in helping others see how we can create
    a peaceful situation in that part of the Middle East.
        Senator Lautenberg. Not only did we help in the pursuit of
    peace, but we helped in the pursuit of expectation for an
    improvement in life. I think you said it clearly, but I would
    emphasize that unless the Palestinian people see some
    opportunity for personal improvement, family improvement, and
    so forth, they get disillusioned and I can understand why.
        Thank you, Mr. Chairman.

                                 polio programs

        Senator McConnell. Thank you, Senator Lautenberg.
        Just to wrap up, Mr. Atwood, you said that we sort of
    pushed you to where you wanted to go in Ukraine. Would you put
    the polio program in that category, too, that there also we
    pushed you where you wanted to go?
        Mr. Atwood. Absolutely, Senator.

                              rotary international

        I had a wonderful meeting with Rotary International the
    other day and I think that we are in accord with what we ought
    to be doing together with Rotary. I have to commend them.
    They've put something like $100 million of privately raised
    money into this program and they deserve a lot of credit.

                           africa 10-year assessment

        Senator McConnell. As a polio victim myself when I was a
    youngster--and I was lucky--I've always taken a great deal of
    interest in that. I am glad that you are doing the same.
        While I think we probably do too many studies, last year
    the subcommittee asked you to take a look at Africa in terms of
    economic growth. We asked you to carry out a comprehensive 10-
    year assessment of anticipated needs and the appropriate role
    the United States might play in addressing those requirements.
        I wonder if you have a status report on where you might be
    going with that report?
        Mr. Atwood. Yes, Senator. That report is being worked on as
    we speak. We have even come to some preliminary findings. I
    would be happy to provide those for the record.
        [The information follows:]

      Status of USAID's 10-Year Assessment for Development Assistance to
                                     Africa

        USAID's ``vision'' for development assistance to Africa
    over the next decade is premised on a ``new vision'' for a 21st
    century Africa--one in which elected leaders are committed to
    equitable growth as a key principle of nation-building; where
    Africans take the lead in maintaining peace and resolving
    crises across the continent; where Africa's children are well-
    fed, healthy, and in school; and where Africa's adults are
    healthy, literate, active in civil society and working as
    productive citizens in a global economy. This vision is based
    on four principles:
        (1) Africa's success depends on Africans themselves.--The
    Development Fund for Africa (DFA) has long advocated that
    consultation with and participation of our African partners
    would enhance the results of our assistance. Today, nearly 10
    years later, we can see that African leadership and ownership
    of the ``development agenda'' are essential for success. Where
    leaders have made hard choices for the good of their people,
    USAID-supported programs have succeeded.
        (2) Social and economic gains are not sustainable without
    broad-based economic growth.--Growth, to be effective, must not
    only focus on increasing the productive capacity of and
    economic opportunity for all Africans, but support programs
    that stabilize population growth, protect the environment, and
    foster democracy and participation.
        (3) Crisis prevention is critical.--While no nation is
    immune from the spill-over effects of crisis, stronger nations
    and economies are better able to cope. Addressing the critical
    issues of food security, conflict resolution, and post-crisis
    rehabilitation on a national and regional basis will help
    instill this strength and resilience.
        (4) Strategic coordination is essential.--Coordination
    intensifies the effectiveness of our resources. USAID's
    presence in Africa, while increasingly limited, nonetheless
    gives us an understanding of conditions that is unmatched by
    any other donor. This is key to influencing our partners and
    ensuring that our collective investments will have the greatest
    impact.
        Our 10-year Report is guided by these four basic
    principles, all of which are derived from experience in
    implementing the DFA. Our vision for future assistance to
    Africa is one that builds on past successes, adapts them to
    future conditions, and positions the U.S. to take advantage of
    new opportunities. Preliminary findings include:
        (1) We must pay even greater attention to food security.--
    Without access to adequate food, child survival is threatened;
    without greater food production and the incomes to buy it,
    child and adult health are compromised. USAID's Africa Food
    Security Initiative will help promote food security in Africa
    over the next decade by focusing on key aspects of agricultural
    policy, regional trade, technology, infrastructure, and
    integration of child survival and nutrition.
        (2) We must strengthen the links between development
    assistance and trade and investment.--The global economy is
    growing, and African economies must become part of this growth.
    USAID, with a view toward ``getting the enabling environment
    right'', will help committed African nations become full
    partners in the world's economy. A key outcome is enhanced
    trade that is mutually beneficial to Africa and the U.S.
        (3) We must continue social sector investments, especially
    in health, child survival, and basic education.-- Such
    investments must be linked to economic growth activities in
    ways that help alleviate poverty and promote a better quality
    of life for all Africans.
        (4) We must sustain our support for strengthening civil
    society and preventing crises.--Strong civil societies and
    functioning democracies are essential for food security,
    growth, social sector development, and trade and investment to
    occur. These are also the building-blocks needed to avert or
    mitigate the devastating effect of natural and man-made
    disasters.
        (5) We must emphasize regional approaches to regional
    problems.--Promoting regional economic cooperation in Southern
    Africa, through the Southern African Initiative; supporting
    African-led efforts to achieve food security and overall
    stability in East Africa, through the Greater Horn of Africa
    Initiative; and promoting food security, regional cooperation,
    and further democratic transition in West Africa, are some of
    the more promising regional approaches USAID and other agencies
    are using to complement and add-value to our bilateral
    programs.
        (6) We must continue our efforts to strengthen African
    capacity.--This means increasing our engagement with a host of
    public and private African institutions and networks in ways
    that build leadership and self-reliance.
        The Assessment, which is now being drafted, will be ready
    for discussion with the Senate by May.

                          development fund for africa

        Mr. Atwood. I want to say that your requesting us to look
    strategically is a good complement to what has been done in
    past years under the Development Fund for Africa, which is to
    talk about the results that we achieved and assist those
    countries that make greatest use of our assistance. This pushes
    us to look forward.
        We clearly believe that the food security request that we
    have made is extremely important in light of the fragility of
    some of these countries with respect to growing crops. We
    believe that a great deal of progress has been made in opening
    up African societies through the so-called Leland initiative,
    the Internet and the like.
        What we need to do is to put those kinds of changes that
    are occurring in Africa in a strategic context as you have
    asked us to do.
        I am told that we are planning to provide that report this
    spring. I will be happy to give you an exact date when I get
    back to the office and look at it. But let me just say one
    thing about Africa.
        I think you can look at our programs in Africa from the
    point of view of an optimist and say you can see real progress
    there. The economic growth rates overall in 1995 were 4.4
    percent and then 5.3 percent in 1996.
        We also know that a lot of those African countries are
    failing. So if you look at Africa and you say you are a
    pessimist, that we have not succeeded much in the past--and one
    has to give some credibility to that argument--then at a
    minimum we need to prevent the worst from happening because it
    is going to cost us a lot more money if we look at it from that
    perspective.
        We are looking at putting together a trade initiative for
    Africa. As we look at that, we realize that African Governments
    still need to reform their economies if they are going to have
    any prospect of joining the global economy. I'd say there are
    about a dozen countries that are ready to take off in Africa
    now because the old East-West debate over whether or not they
    ought to have a socialist economy has really ended. And we are
    not working, in any case, in those countries which still do not
    wish to reform their economies and privatize.
        So I think whether your view is the glass is half empty or
    half full, or whether you're an optimist or a pessimist, it is
    important to look strategically. Again, you happen to be
    pushing us in exactly the right direction.
        Thank you very much, Mr. Chairman.

                         Additional committee questions

        Senator McConnell. All right. Thank you very much. We are
    going to leave the record open for any members to submit
    questions and your response in the record.
        [The following questions were not asked at the hearing, but
    were submitted to the Agency for response subsequent to the
    hearing.]
                         Additional Committee Questions
                                 freedom house
        Question. Your prepared statement also mentions a Freedom house
    report which documents improvements in political freedom in 48
    countries and a deterioration in 30 countries. You go on to say in 29
    countries showing the most dramatic improvements, most were recipients
    of U.S. aid.
      --How many constitutes most?
      --Of the countries where political freedom eroded, how many received
            U.S. aid?
        Answer. Twenty-seven of the twenty-nine countries that showed the
    most dramatic improvement were USAID recipients during the period in
    question. Benin, Mali, Malawi, South Africa, Mozambique, Chile,
    Madagascar, Argentina, Uruguay, Bolivia, Central African Republic,
    Nicaragua, Guinea-Bissau, Ethiopia, Congo, Guyana, Guatemala, Panama,
    Haiti, Bangladesh, Jordan, Ghana, Philippines, Paraguay, El Salvador,
    Guinea, and Pakistan. The others were Korea and Taiwan, both earlier
    aid recipients. An improvement of 3 points or more on a scale from two
    to fourteen was considered large.
        Of the nineteen moderate improvers (a one or two point
    improvement), seventeen were USAID recipients. Twelve of these
    countries were in Africa.
        Only seven countries showed large declines (3 points or more) in
    political freedom--Dominican Republic, Kenya, Colombia, Sri Lanka,
    Sudan, Gambia, and Nigeria. All have been USAID recipients, and USAID
    has responded according to the circumstances. We have withdrawn from
    Gambia and restricted programs in the other six countries.
        Twenty-three other countries showed moderate declines impolitical
    freedom. We have had little or no role in six of these countries:
    Syria, Venezuela, Papua New Guinea, Malaysia, Greece, and Burma. We
    have restricted programs or exited from ten others: Lebanon, Zimbabwe,
    Ivory Coast, Zaire, Tunisia, Liberia, Costa Rica, Swaziland, Burundi,
    and Rwanda. The remaining countries are Peru, Indonesia, Ecuador, and
    Egypt (declines of two points): and Morocco, Honduras, and India
    (declines of one point). In each of these seven countries we are
    achieving important development results.
                                     ______

                      Questions Submitted by Senator Leahy
                               senior management
        Question. You say in your statement that you have cut senior
    management by 38 percent. How many people does that represent? Which
    positions have been eliminated?
        Answer. At the beginning of fiscal year 1993, there were 310 senior
    managers at USAID. As of December 31, 1996, there were 186 senior
    managers. This was a cut of 124 people, actually a cut of 40 percent.
        These cuts resulted from our efforts to ``flatten'' USAID's
    management structure. We eliminated a number of deputy positions, e.g.,
    some deputy mission director, deputy assistant administrator, and
    deputy office director positions. We also closed a number of missions,
    eliminating several senior management positions with each closing. And
    we consolidated several bureaus and offices in Washington further
    reducing senior management position requirements.
        Budget limitations, as well as streamlining our operations, are the
    reasons for these cuts.
                      usaid deputy administrator position
        Question. Does AID have a Deputy Administrator? Who is dealing with
    the day to day operations of the Agency?
        Answer. Since my Deputy, Carol Lancaster, left, we have used
    several different means to fill the role of the Deputy. I first rotated
    my Assistant Administrators to the Deputy spot for 30-day periods. I
    did this to broaden their agency-wide knowledge as well as to provide
    appropriate management controls. We are now actively recruiting with
    the White House for a new deputy.
                                 aid downsizing
        Question. You say you have closed 26 missions overseas. Since when?
    How many new missions have you opened during that same period?
        Answer. As of September 30, 1996, 26 mission or country programs
    have closed since fiscal year 1994. This counts as separate events the
    Thailand bilateral mission closing in 1995 and the Regional Support
    Mission in Bangkok, Thailand closing in 1996. During the same period,
    USAID has opened eight missions, including West Bank/Gaza, Eritrea, and
    Bosnia.
                            outreach for contractors
        Question. The contracting process at USAID is legendary. There has
    been a perception that USAID favors the beltway bandits, and that the
    process of awarding contracts takes ages. I gather you have cut the red
    tape considerably. What progress have you made in creating a level
    playing field for contractors outside the beltway and not-for-profit
    NGOs?
        Answer. First, we put all of our upcoming procurement opportunities
    on the Internet at the planning stage so all potential bidders get an
    early, equal opportunity to know what USAID is planning to procure
    during that fiscal year. Second, we have continued our outreach program
    with vendor conferences in New Orleans, Chicago and Cleveland during
    the past year. These conferences were widely attended and we hope that
    the interest generated will lead to further diversification of our
    contractor/grantee community. As a result of these and other outreach
    efforts, 800 vendors new to USAID have begun working with the Agency
    during the last three years.
                         indefinite quantity contracts
        Question. One thing I have been concerned about is the use of
    ``indefinite quantity contracts.'' You give a large amount of money to
    a contractor with few of the specifics spelled out. It gives you
    flexibility to shape the program as you go, but it also cuts down on
    competition and gives a few people control over a huge amount of money.
        An example I recently heard about is $100 million indefinite
    quantity contract with the ``International Resources Group'' and others
    for environmental policy work. Why put so much money in this one
    basket? How much of these funds will go to contractors, versus not-for-
    profit NGOs? How do you make sure you are getting your money's worth,
    and how do you hold anyone accountable?
        Answer. Indefinite quantity contracts (IQCs), while usually having
    a fairly high monetary ceiling, initially only obligate a small amount
    of funds for a limited amount of services. They do provide the
    opportunity for the ordering of additional services which are defined
    at the time of order. They are a very necessary quick response
    mechanism wherein USAID can define actual requirements and obligate
    funds at the time of the actual need. Appropriately defined and awarded
    IQCs can be crucial during times of emergency response.
        However, the use of IQCs for program implementation is becoming
    limited. Rather, we are, in accordance with the new Federal Acquisition
    Streamlining Act (the Glenn Bill), awarding more Task Ordering
    contracts. While Task Ordering contracts have several features of IQCs,
    such as a limited original obligation with the capability of future
    additional orders, they are generally awarded to more than a single
    organization with the resultant orders subject to competition among the
    contract holders. This permits USAID maximum flexibility, but also
    provides the Agency with the advantages of multiple sources of supply.
        The International Resources Group (IRG) contract was a task order
    contract that for very unique reasons, went against our general policy
    of multiple awards. A single contract was awarded because we needed
    cohesive environmental policy from a coordinated source. An advisory
    group had to be set up under the contract, and if multiple awards had
    been made, the contractor selected to form the advisory group would
    have had an unfair competitive advantage over the other firms competing
    for task orders. The alternative, an advisory group for each
    contractor, would create divergent policy groups and a costly
    administrative burden for the Agency. While IRG is the prime
    contractor, and ultimately responsible for performance, they have an
    impressive array of subcontractors and plan to implement approximately
    40 percent of their contract through non-profit organizations. The task
    orders to IRG will contain performance-based scopes of work ensuring
    better performance and achievement of desired results.
                                     egypt
        Question. Maybe Egypt is a good test of the effects of re-
    engineering. We have been pouring economic aid into Egypt for years.
    USAID talks a lot about getting results, and Egypt's centralized
    economy is desperately in need of reform. The Egyptian Government says
    it is committed to privatizing its economy. I have heard that for a
    dozen years or more. Do you see any way to get more results from the
    huge amount of aid we give to Egypt, especially in economic reform?
        Answer. Since 1991, U.S. assistance has significantly contributed
    to Egypt's progress on its reform agenda. The Egyptians have unified
    and stabilized their three parallel foreign exchange rates into one
    market-determined rate; liberalized interest rates; made deep cuts in
    consumer subsidies; slashed the budget deficit from about 20 percent of
    GDP to less than 1 percent, reduced inflation from 25 percent to around
    7.2 percent and accelerated the process of public sector reform and
    privatization. Substantial improvements have also been made in the
    foreign trade sector, including reduction in non-tariff barriers and
    cutting the maximum tariff on imported goods from 70 percent to 55
    percent.
        The international investment community has also taken notice.
    Standards and Poors gave Egypt sovereign debt an investment grade
    rating, on par with Greece and Poland, and over $300 million in new
    foreign investment poured into Egypt in January and February alone.
        USAID's programs have also had a significant impact on the quality
    of life for all Egyptians. Over 80,000 Egyptian children are saved each
    year through the use of USAID-financed oral rehydration therapy and
    immunizations. Infant mortality rates have declined by over 25 percent.
    Family planning programs have increased the contraceptive prevalence
    rate to around 50 percent, resulting in a significant decrease in
    fertility and a decline in the population growth rate from 2.9 percent
    to 2.1 percent over the past ten years. USAID has built more than 1,950
    primary schools. Our infrastructure activities have provided water and
    wastewater services to over 22 million people; provided 12 million
    residents of Cairo and Alexandria with reliable telephone service and
    built 40 percent of Egypt's electricity generating capacity.
        Much remains to be done. The cash transfer program, which supports
    the GOE in making needed policy reforms, is a very persuasive method of
    encouraging reforms. Furthermore, the high level dialogue directly with
    President Mubarak, as a result of the Gore-Mubarak Initiative, has been
    extremely successful in accelerating the pace of reform. Egypt is now,
    more than ever before, at a point of take-off. We expect to see an
    acceleration of reforms in the next year due in part to the influence
    of the U.S. and other donors such as the IMF and the World Bank. This
    should produce the kind of economic results that will enable Egypt to
    create jobs and a decent standard of living for all its inhabitants.
                                     egypt
        Question. Otherwise, aren't we throwing away good money after bad?
        Answer. As you can see from my previous response, we feel that
    Egypt truly is at a turning point. The pace of economic reform is
    picking up and key members of the government believe that not only is
    reform something required by foreign donors, but that it is the only
    long-term solution for Egypt's economic problems. Without reform there
    can be no growth and, without growth, Egypt will not be able to create
    enough jobs for its citizens.
        I believe that you will see economic changes in Egypt. The
    financial markets are growing and privatization is accelerating. This
    will result in a stable Egypt, a key objective of our foreign policy in
    the Middle East.
        It would be a mistake to look at Egypt's past performance and judge
    its future potential. The climate is changing and we, therefore, need
    to keep up the pressure, and the incentives, to encourage the Egyptians
    to make the needed change. With our continued technical advice and the
    financial support provided by the USAID program, the outlook is more
    optimistic than it has been.
        As I stated previously, I think that USAID can demonstrate
    tremendous results in Egypt, in all sectors. The results of our program
    are particularly obvious in the power, telecommunications and water/
    wastewater sectors. Without the improvements made in these sectors,
    Egypt would not be in the economic position it is in now and economic
    growth would be a dream and not the reality that it is today.
         guatemala--fiscal year 1998 esf funding for the peace program
        Question. The peace agreement signed in Guatemala in December ended
    thirty years of one of the bloodiest wars in this hemisphere. However,
    it will take a huge effort and a lot of luck for peace to survive
    there. You expect to obligate $25 million in development aid to
    Guatemala in fiscal year 1997. Yet you are requesting just $23 million
    for fiscal year 1998. What does that say for supporting the peace
    agreement there?
        Answer. We have requested a total of over $60 million for Guatemala
    in fiscal year 1998 in Development Assistance (DA), ESF and Public Law
    480 Title II resources. Over 4 years (fiscal years 1997-2000), we are
    planning to provide $100 million in ESF funding to help Guatemala
    implement its historic peace accords. These ESF resources, in addition
    to our ongoing DA and food aid programs, will bring the total planned
    commitment to Guatemala to $260 million over the four years.
        Question. How much ESF (Economic Support Funds) do you expect to
    make available for Guatemala in fiscal year 1998?
        Answer. We expect to provide $25 million in ESF for fiscal year
    1998 under the LAC Regional Democracy Fund.
                          middle east development bank
        Question. Can you explain to me why funding for the Middle East
    Development Bank--which we incidently cannot afford--is coming out of
    the Economic Support Fund, rather than out of the multilateral
    assistance account, where the other development banks are traditionally
    funded?
        Answer. The Bank originated as a joint proposal by the key parties
    in the peace process: Egypt, Jordan, the Palestinians and Israel. The
    primary reason the Administration proposes funding the Bank from the
    Economic Support Fund is that it is an integral part of the peace
    process and is closely linked to the political and economic objectives
    of the ESF resources. It is my understanding that a secondary reason
    for this decision, on which Treasury and State consulted, is a concern
    not to have to set aside resources within the Multilateral Development
    Banks account for a new institution at a time when we are trying to
    clear U.S. arrears to existing multilateral development banks.
                                  tuberculosis
        Question. In your statement you cite USAID's leadership in the
    effort to eradicate polio. I think it is worth mentioning that Congress
    had to push USAID to take that on.
        What you didn't say is how little you are doing to combat
    tuberculosis which kills more people than any other infectious
    disease--3 million annually, even though it can be cured for as little
    as $11 per person.
        If current rates continue, more than 30 million people will die
    from TB in the next decade.
        I have tried to find out how much USAID spent on TB, without a lot
    of success. I gather it's a few million dollars, which is hard to
    comprehend. Why so little?
        Answer. TB experts have recognized that treatment and control of TB
    is among the most labor-intensive of health interventions, since the
    most effective approach is Directly Observed Therapy Strategy (DOTS).
    Under DOTS, the patient is observed actually taking the prescribed
    medication by a trained health worker . The $11 per person you cited is
    the additional cost of drugs in a situation where the DOTS approach
    simply can be added on to an already fully functioning health care and
    outreach system. However, we have found that in the vast majority of
    the developing world where TB is most prevalent, we have had to start
    more or less at the foundation of building a health care delivery
    system before it would be appropriate or effective to launch DOTS. In
    fact, a high proportion of USAID's health budget, ($27.4 million or
    nearly 9 percent) is aimed directly at health systems development and
    strengthening. Without this, efforts at TB control would be futile.
    While we do not ``count'' this funding as TB-related because it has
    effects on the control of virtually all major public health problems,
    our efforts mean that the more closely targeted TB efforts of others
    have a chance of succeeding where they otherwise would not.
        These others include other U.S. government agencies (e.g., the
    Centers for Disease Control and Prevention and the National Institutes
    of Health) and universities, as well as other international agencies
    and organizations (e.g., The Joint United Nations Programme on HIV/
    AIDS, the World Health Organization, the International Union Against
    Tuberculosis and Lung Disease). To maximize the impact of funds
    available to combat tuberculosis, we are supporting work of these
    groups in areas in which we have a comparative advantage. For example:
        (1) Capacity Building: We have a cooperative agreement with the
    Centers for Disease Control and Prevention (CDC) to develop operational
    research projects related to HIV and TB, especially in sub-Saharan
    Africa. Through the agreement, we support work of the World Health
    Organization's (WHO) Global TB unit (approximately $650,000) on
    incorporation of DOTS style interventions in home and community based
    TB and HIV care through an operations research training project in
    seven sub-Saharan countries.
        (2) UNAIDS: USAID has also provided $1.75 million in TB-designated
    funds to the Joint United Nations Programme on HIV/AIDS (UNAIDS) for
    use in defining cost-effective TB treatment regimes, including DOTS-
    style management, for HIV-infected individuals; for surveillance of
    multidrug resistant disease as a part of a multi-donor international
    effort; and for training of 200 national TB program managers worldwide.
        (3) Prevention initiatives: In 1996, USAID allocated over $7.5
    million for infant BCG immunization to minimize the complications and
    shorten the course of pediatric tuberculosis infection.
        (4) Disease Management and control: USAID is developing a CD ROM-
    based interactive computer-based program for TB case management which
    may be implemented throughout the developing and developed world, if
    found to be effective. We are also supporting field evaluations of
    national TB control programs and studies on the cost effectiveness of
    different TB control interventions among HIV-infected persons, and on
    the policy implications of the increasing threat of TB. About $500,000
    is allocated for these purposes.
                                    malaria
        Question. Each year, more than 2 million children around the world
    die from malaria. USAID has led the international effort to develop a
    malaria vaccine and drugs to combat malaria. Yet your annual budget for
    this and other anti-malaria programs, like the development of repellant
    impregnated mosquito nets, is only about $8 million. Why so little?
        Answer. USAID recognizes the importance of malaria as a leading
    killer of children in Africa. Unfortunately, as overall funding levels
    have decreased, we have been forced to cut back on resources for this
    program and others. To maximize our investment, in the last few years,
    we have strengthened the focus of the program making it more results
    oriented.
      --In vaccine development, USAID's Malaria Vaccine Development Program
            (MVDP) is now focused on finding a vaccine that is effective
            for children in high endemic areas. We have partnered closely
            with the National Institutes of Health (NIH) and the Walter
            Reed Institute of Research (WRAIR) to maintain a substantial
            U.S. effort in all of the necessary stages of malaria vaccine
            development, and coordinate well with WHO, EU and other donors.
            This enables us to translate current knowledge into
            experimental vaccines which can be tested in humans. In fiscal
            year 1996, initial safety studies of a new USAID initiated
            experimental malaria vaccine were conducted in cooperation with
            other USG Agencies, and a second experimental vaccine is
            scheduled for testing in fiscal year 1997.
      --Africa Integrated Malaria Initiative (AIMI): Using the technologies
            now known for combatting malaria, last year, USAID established
            the Africa Integrated Malaria Initiative (AIMI) that promotes a
            comprehensive ``package'' of approaches, including the first
            large scale, sustainable impregnated mosquito net program in
            Africa. The initiative is designed to make it easier for our
            field missions to support malaria programs through a variety of
            central, regional and country specific mechanisms, including
            CDC, and we anticipate substantial growth in the program.
      --Extensive malaria control activities take place under other USAID
            programs. We are the lead bilateral donor in WHO's initiative
            for the Integrated Management of Childhood Illness (IMCI),
            which sets clear clinical standards for treating malaria and
            its complications. Our support for the development of new
            technologies has produced two promising diagnostic tests that
            health workers in the field can use to rapidly confirm malaria
            parasite infection in a cost-effective manner. USAID continues
            to train national malaria program managers, in Africa
            especially, in information systems and operations research.
                                family planning
        Question. I am told there are very few family planning services in
    the West Bank and Gaza, where the crush of people is already out of
    hand. Does USAID have a family planning program there?
        Answer. We agree that population growth is a big concern for the
    West Bank and Gaza. None of USAID's bilateral program, which is
    focussed on promoting the private sector, addressing the shortage and
    economical use of water, and facilitating accountable democracy and
    governance, is used for family planning. However, through centrally-
    funded programs, USAID has provided a small amount of funds for
    contraceptives and demographic data initiatives. USAID also provides
    centrally-funded assistance to the International Planned Parenthood
    Federation (IPPF) which, in West Bank and Gaza, assists with family
    planning delivery services. The European Union and UNFPA are
    contributing with $6 million and $7 million, respectively, for family
    planning and reproductive health services in the West Bank and Gaza.
                                   democracy
        Question. While we are on the subject of the West Bank, there is a
    lot of concern that the Palestinian Authority is becoming more and more
    authoritarian. What are you doing to support civic organizations, human
    rights groups, or other democratic institutions?
        Answer. Democracy/Governance is a cornerstone of the USAID WB/G
    program and promoting civic participation is a key part of our entire
    program. This fiscal year, about 15 percent, or $11 million, of our
    budget is for democracy activities. We are supporting civic
    organizations and their increased participation in society through
    grants to U.S. PVOs such as the International Republican Institute and
    the National Democratic Institute. We estimate that their activities
    reach more than 30,000 Palestinians through community level civic
    forums and activities that increase the flow and diversity of
    information to citizens. These programs involve Palestinians in
    discussions on their rights and responsibilities in a democracy.
        In addition, USAID soon will directly support selected Palestinian
    non-governmental organization activities such as women's rights
    watchdog groups, posting draft laws on the Internet, televising town
    hall meetings on proposed laws, training for civil society organization
    staff and reporting on Legislative Council and Executive Authority
    actions. USAID is funding proposals from several local organizations to
    increase their ability to conduct policy analysis and fulfill advocacy
    and government monitoring functions. All these combined civil society
    efforts reach, directly or indirectly, at least one-fourth of the
    Palestinian population--over 600,000 people.
        Other USAID democracy/governance activities entail working with the
    Palestinian Legislative Council to help them be responsive to the
    concerns of their constituents. We fund public opinion polls to inform
    the Council and the Palestinian Authority of constituent concerns. We
    are also promoting linkages between civic groups/non-governmental
    organizations and the Council and the Palestinian Authority to help set
    common policy goals and increase cooperation among them.
        In supporting the creation of a democratic system, our total
    democracy/governance efforts benefit the two million Palestinians in
    the West Bank and Gaza, directly or indirectly.
                                     ______

                    Questions Submitted by Senator Campbell
                       administration of justice program
        Question. USAID funds the Administration of Justice which supports
    courts and prosecutors in developing countries to strengthen
    democracies. Many developing countries are inflicted by rising crime
    rates, increasing violence, and a breakdown of law enforcement.
        Please provide the subcommittee with information on the current
    activities of the Administration of Justice program and activities
    which USAID plans to support in the coming year. Please include
    information on the impact which these activities have on the justice
    problems the activities were designed to address and any independent
    evaluating which have been conducted.
        Answer. USAID undertakes programs to strengthen the rule of law
    (ROL) (including the administration of justice) as part of its overall
    efforts to strengthen democracy and governance. Promoting democracy and
    governance advances key U.S. foreign policy objectives and is an
    essential part of USAID efforts to contribute to sustainable
    development.
        The approach undertaken by USAID in its rule of law (ROL) programs
    is determined in part by the most pressing needs within countries or
    regions. Crime control and law enforcement are important components of
    USAID's rule of law work in many regions, and USAID works in close
    coordination with the Department of Justice and the State Department in
    undertaking activities.
        For example, in Latin America, programs that address this issue
    tend to focus on enforcing due process and reducing abuses of basic
    human rights. A major element of these programs in several countries is
    a component related to enhancing the crime fighting capabilities of the
    police and investigative entities.
        In the Europe and New Independent States (ENI) region, the initial
    focus of USAID's rule of law (ROL) approach was related to creation of
    market based economies, including rewriting of legislation and judicial
    training in the commercial area. More recently, programs to address
    crime control and the strengthening of police and prosecutorial
    investigative capabilities have been undertaken.
        USAID is currently developing strategies for applying lessons
    learned in these regions to its programs in other parts of the world.
    In Africa, crime and violence are problems in many countries, but their
    solution is further complicated by cultural diversity, limited access
    to the judicial system, and weak or nonexistent legal institutions.
        In all regions there is now an added emphasis on the expansion of
    access to justice for marginalized groups (including women) and, in a
    number of failed states, efforts are directed toward recreating
    institutions destroyed by internal violence and assisting with
    reconciliation programs. The mix of objectives and the extent of change
    sought varies from country to country.
        USAID undertakes regular evaluations of particular projects. In
    1993, an overall evaluation of all USAID programs in rule of law was
    undertaken which documented the ``lessons learned'' so far in this
    critical sector. A copy of the report, Weighing in on the Scales on
    Justice is available upon request.
        Results achieved in USAID's ROL programs to date have been
    impressive. In Latin America, the region with the longest-running ROL
    programs, documented progress has been made in reducing human rights
    abuses and increasing the observance of due process rights. USAID
    programs have created viable public defense systems in Bolivia, Panama,
    and El Salvador, and are supporting their establishment in Colombia and
    Guatemala. Uruguay has made measurable progress in reducing the average
    time for handling of civil disputes. Cooperation from the judiciary
    ranges from very high in El Salvador to negligible in Colombia.
    However, the highest levels of judicial cooperation were reached with
    the small Costa Rican project where USAID supported the creation of an
    extremely active Constitutional Chamber; Costa Rican judges are now
    promoting reform efforts throughout the region. The Panama program has
    made significant progress in coordinating police and prosecutorial
    investigations, and the methods used there are now being adopted in a
    redesigned Guatemala program.
        Despite these important gains, clearly a number of challenges
    remain. The difficulties of reorienting and coordinating the activities
    of four independent agencies (police, courts, defense and prosecution)
    have taken time and required creative and flexible approaches. Mid-term
    evaluations of progress in Colombia and El Salvador, while generally
    positive, suggest the need for further actions to improve the skills of
    legal practitioners and improve the coordination of the various
    entities associated with the legal system.
        Programs in other regions are newer and thus more difficult to
    assess. An evaluation of the Russian program is scheduled for this
    spring. Programs elsewhere in ENI and other regions will be subject to
    normal evaluations.
        Question. The United States has a wealth of expertise in ``what
    works'' to fight crime, drugs, and gangs. Experts who have first-hand
    experience in these areas could be invaluable resources to other
    countries experiencing these problems if some technical assistance were
    available. What additional steps can you take to expand the scope of
    the Administration of Justice Program so valuable technical assistance
    in the United States can be provided to those countries which need it
    most?
        Answer. USAID is already tapping into a variety of resources for
    implementation of its rule of law programs, including administration of
    justice (AOJ) activities. For example, the Department of Justice's
    prosecutorial and police training entities--Office of Professional
    Development and Training (OPDAT) and International Criminal
    Investigative Training Assistance Program (ICITAP), respectively--have
    been key components of USAID's AOJ programs in Latin America, the
    Europe and New Independent States (ENI) countries and, most recently,
    in Africa.
        USAID also draws on the wealth of expertise available in the U.S.
    non-governmental sector. For example, efforts to improve court
    administration have drawn on resources from entities like the National
    Center for State Courts. This Center, as well as the Reno Judicial
    College, and various state entities have been used to improve judicial
    and prosecutorial training programs. USAID is also attempting to draw
    on state prosecutor organizations to assist with setting up basic
    prosecutorial organizations and we have used U.S. juvenile court judges
    and staff to give assistance in treating youth crime and gangs, and
    supported NGOs to set up legal assistance, advocacy, and alternative
    dispute resolution programs in disadvantaged communities.
        USAID is constantly looking for additional U.S. sources of
    specialized expertise in this area. This fiscal year, additional
    mechanisms will be established to allow USAID to expand access to
    appropriate U.S. technical expertise in this area.
        Question. As I previously noted, USAID funds the Administration of
    Justice program which primarily supports courts and prosecutors in
    developing countries. Support for other law enforcement activities is
    provided by the State Department's Bureau of International Narcotics
    and Law Enforcement. And, the Justice Department operates the
    International Criminal Investigative Training Assistance Program
    (ICITAP) which is funded by the State Department's Bureau of Latin
    American Affairs.
        How do you ensure full coordination between USAID and the other
    federal agencies which also support various international crime
    programs?
        Answer. Effective inter-agency coordination of all USG democracy
    programs occurs in the field, under the direction of the Ambassador.
    All overseas posts have established inter-agency coordinating
    committees on democracy promotion, including rule of law programs. For
    example, in the case of ICITAP's Latin American programs, agreement on
    country program directions and benchmarks to measure progress toward
    critical objectives related to these efforts is reached in a joint
    exercise in which ICITAP, Department of State's Office of Inter-
    American Affairs (ARA), and USAID all participate. U.S. Ambassadors in
    Eastern Europe chair democracy commissions, which review programs
    proposed by USG agencies and by various nongovernmental organizations
    receiving US assistance.
        In Washington, there are a number of task forces, usually focussed
    on country specific issues, that also ensure close collaboration among
    the various USG entities as well as coordination with other donors
    engaged in similar efforts. Washington task forces are particularly
    important for countries like Haiti, Guatemala and El Salvador where
    major assistance efforts in this sector are underway and include not
    just USG entities but a variety of other donors, both bilateral and
    multilateral.
        Question. Is there an inter-agency working group which would ensure
    coordination of international crime programs: If so, which federal
    agencies are represented and how often does the group meet?
        Answer. USAID participates in the inter-agency coordination
    process, led by the Democracy, Human Rights and Labor Bureau at the
    Department of State. The State Department's Bureau for Narcotics and
    Law Enforcement (INL) chairs an Interagency Working Group to coordinate
    various U.S. Government agencies' respective law enforcement training
    programs. An interagency working group meets regularly on ENI rule of
    law programs under the direction of the Coordinator's Office.
    Interagency coordination for other, long-term institutional building
    administration of justice programs is carried out in countries, through
    the country team under the direction of the U.S. Ambassador.
                               microcredit summit
        Question. On February 2-4, 1997, the Microcredit Summit was held in
    Washington, DC. This international conference considered the
    microcredit program which provides small loans to the poorest of the
    poor to help them become economically self-sufficient.
        In 1994 USAID launched a microcredit initiative with half of the
    resources targeted to the poorest to support loans under $300. Please
    provide the Subcommittee with information on the status of this
    initiative and its impact. Also, please provide the Subcommittee with
    information on any plans to expand the microcredit program.
        Answer. The Microenterprise Initiative was launched in 1994 and
    renewed this year. Its primary goal is to assist the efforts of the
    poor to increase their income and assets. Two additional goals are to
    increase skills and productivity to enhance economic growth, and to
    facilitate the development of ``economic democracy.''
        USAID has worked conscientiously to fulfill the commitments it made
    for the Initiative, though circumstances have required some adjustments
    in targets.
        USAID provided $137.4 million and $140.5 million of support to
    microenterprise activities in 1994 and 1995, respectively. USAID's
    budget contracted significantly in 1995 and 1996, forcing us to trim
    overall funding targets for microenterprise. Provisional figures for
    fiscal year 1996 show USAID directing $118.9 million to
    microenterprise. USAID plans to continue supporting microenterprise at
    the $123 million in 1997 and $122 million in 1998.
        To spearhead the initiative, we established the Office of
    Microenterprise Development in the Bureau for Global Programs, Field
    Support, and Research to manage the Initiative. Accomplishments
    include: The Microenterprise Implementation Grant Program has awarded
    $30 million to 17 US PVOs and international organizations, expected to
    be serving over 400,000 clients by the end of the grants. The Prime
    Fund provided $17 million to USAID missions in 20 countries for
    institution-building, promoting an enabling environment for
    microfinance, and providing credit and savings services to over 300,000
    clients. The Microenterprise Best Practices Subgrant facility, which
    supports capacity-building, has awarded small grants to 13
    organizations. USAID has also expanded microenterprise in other
    programs: The Matching Grant and Cooperative Development Programs have
    provided $25 million to 16 US PVOs and Cooperative Development
    Organizations for microenterprise development in 29 countries. The
    Micro and Small Enterprise Development loan guarantee program manages
    loan and guarantee facilities supporting microenterprise credit in six
    countries, as well as ``bridg funds'' for two US PVOs. At the mission
    level, USAID has active microenterprise programs in all regions,
    covering 45 countries, and serving nearly 5 million clients.
                            bulgaria economic crisis
        Question. Recent news reports show that Bulgaria is in the midst of
    a severe economic crisis. Bulgarians are facing a great deal of
    deprivation, including a shortage of food and medicine. And, because of
    a poor grain crop last year, there is a shortage of bread and bread
    lines are forming.
        Please provide the subcommittee with information on what steps
    USAID is taking to provide assistance to Bulgaria, and what additional
    steps you plan to take in the future.
        Answer. The USAID/Bulgaria program has been designed to proactively
    address the Bulgarian situation. Aware that this would be a hard winter
    in Bulgaria, USAID/Bulgaria, U.S. Embassy/Bulgaria, and USAID/
    Washington worked hard on an assistance package for the beleaguered
    Bulgarians. USAID has committed $2.1 million to the procurement and
    delivery of much needed pharmaceuticals to populations at risk.
    Distribution to seven targeted cities is scheduled to begin as early as
    April. An additional $400,000 has been designated for the International
    Red Cross/Red Crescent to contribute to their ongoing emergency appeal,
    mostly to support the distribution of food aid to over 41,000 needy
    beneficiaries.
        USAID/Bulgaria is working with other donors, especially the
    European countries, and donor organizations, to coordinate relief
    efforts in Bulgaria. USAID/Bulgaria is looking at potential follow-on
    programs as a recent UNDP assessment reported that the need for
    additional assistance is clear. USAID/Bulgaria continues to monitor
    closely the political and economic developments that impact on the
    standard of living for Bulgarians and remains ready to respond should a
    crisis situation arise.
                             aid to the middle east
        Question. In signing the Hebron agreement with the Palestinians,
    Israel's Prime Minister, Benjamin Netanyahu, has demonstrated Israel's
    continuing commitment to the peace process and to the willingness to
    take risks for peace. Yet the toughest issues in the peace process now
    will be addressed in the negotiations, making it more important than
    ever that the U.S. stand by its friend and ally Israel. Do you think
    that maintaining aid to Israel at current levels is important for the
    peace process to succeed?
        Answer. I fully support the President's fiscal year 1998 assistance
    request for Israel. Assistance to Israel remains a concrete
    demonstration of our unshakable commitment to the security and well
    being of a key ally.
        Question. What do you think the connection is between U.S. aid to
    Israel and Israel's ability to take risks in the peace negotiations?
        Answer. U.S. assistance to Israel represents a concrete
    demonstration of our support for a key peace process partner.
        Question. What message would a cut to Israel send to Israel's Arab
    negotiating partners?
        Answer. As I indicated, we support full fiscal year 1998 funding
    for assistance to Israel as a clear demonstration of our unshakable
    commitment to a key ally.
        Question. How would you assess the effectiveness of our aid
    programs to the other nations of the Middle East, particularly Egypt
    and Jordan?
        Answer. There is no question that our assistance to Egypt has had
    significant impact on its development. During the past year, we have
    seen significant policy reforms, essential to sustainable economic
    growth, and we are optimistic that this trend will continue. Our more
    modest assistance program to Jordan has produced significant results in
    the key areas of water conservation and use and population planning. We
    are requesting an increase in fiscal year 1998 funding levels to expand
    programs designed to enhance Jordan's economic stability, thereby
    bolstering its position as a key partner in the peace process.
        Question. Given the helpful role that Jordan has played in
    advancing the Middle East peace process, do you believe your request
    for aid to Jordan is sufficient to meet Jordan's needs?
        Answer. Ultimately, Jordan's needs must be met by market forces.
    Jordan has experienced strong economic growth in the past year, but its
    economy remains extremely vulnerable to regional events. Our assistance
    can help create the conditions for growth, but it cannot substitute for
    private sector growth. Obviously, we could do more with additional aid
    and bring Jordan more quickly to a stable economic situation. Our
    request for aid to Jordan is a compromise among Jordan's needs, the
    needs of other countries, and our assessment of how our resources can
    best be utilized.
                                  foreign aid
        Question. This year the Administration requested a modest increase
    in spending on international affairs, after more than a decade of
    successive annual cuts.
        In your view, why is foreign aid so critically important? What does
    foreign aid do for the United States? Can America continue to lead
    without this program?
        Answer. Our foreign assistance programs directly advance America's
    interests in three ways: by helping to prevent crises; by generating
    dynamic opportunities for expanded trade; and by providing protection
    from specific global health and environmental threats. In the post Cold
    War era it is arguably more important than ever for U.S. leadership.
        One of the most profound areas of concern for the United States and
    its allies is the growing phenomenon of failed states that trigger
    conflict and economic collapse. The staggering human, financial, and
    political costs of these conflicts are reflected in the increasing
    scope and complexity of peacekeeping operations, the loss of human
    life, and the exploding numbers of refugees around the globe. The U.S.
    has a compelling national interest in preventing and averting crises
    before they occur.
        Development programs have a lead role to play in these efforts.
    Crises erupt when countries lack the institutional capacity to deal
    with internal conflicts. Two groups of countries are clearly the most
    vulnerable in this respect, and most cases of failed states fall into
    one of these two groups. First, many of the countries that were
    formerly communist are struggling to establish new institutions to
    replace those associated with Communism. Until they succeed in this
    daunting task, they are highly vulnerable to crisis. Second, the least
    developed countries of the world are (almost by definition) those with
    the weakest human resources and institutions, e.g. Rwanda, Somalia,
    Sudan, Zaire, Afghanistan, and Liberia. In contrast, developmentally
    more advanced countries such as Sri Lanka, India, Indonesia, Malaysia,
    and others have been able to avoid collapse despite serious internal
    conflicts and tensions.
        Our programs in developing and transitional countries are aimed at
    enriching human resources, strengthening institutions, and supporting
    political and economic reform. They are part of a much larger
    international effort. By fostering stronger institutions, a richer
    human resource base, and economic and social progress countries are
    better able to manage conflict and avoid crisis and dissolution.
        Where economic interests are concerned, developing countries
    provide the most dynamic and rapidly expanding markets for U.S. goods
    and services. U.S. exports to developing countries since 1990 have
    expanded at 12 per cent annually, more than double the growth rate of
    our exports to industrial countries. This trend has been evident since
    the mid-1980's.
        USAID programs that help create a better enabling environment for
    markets make a significant and fairly direct contribution to expansion
    of U.S. exports. While U.S. exports have expanded rapidly overall (much
    more rapidly than those of our competitors), they have grown much more
    rapidly to some developing countries than to others. The major factor
    explaining the difference is differential progress among developing
    countries in terms of improved policies and institutions that support
    markets.
        Finally, foreign assistance programs are vital in protecting the
    United States against many dangers that are global in scope. By taking
    on the challenging task of preventing and controlling infectious
    diseases like AIDS, polio, and emerging viruses like Ebola before they
    reach our shores, USAID lowers health costs here at home. Our
    environmental programs help protect the air and water than Americans
    share with the rest of the world.
        No less important, our foreign aid programs provide a critical
    foundation for continuing U.S. leadership in the global community. This
    is increasingly important in the post Cold War era.
        During the Cold War, U.S. leadership was central and unmistakable
    as the protector of the free world against the threat of communist
    expansion. U.S. military power and economic dynamism were seen as
    essential to resisting that threat. But America's leadership, then as
    now, had a foundation stronger than our military or our economy. The
    United States projected a compelling, and widely shared vision of a
    world order where democracy and open systems were respected. Our vision
    of political and economic freedom, of social justice and respect for
    the individual was as powerful as any missile or other defense system.
    The U.S. offered the world not only security, but a better alternative
    to the Communist vision.
        Leadership in foreign aid, starting with the Marshall Plan and
    renewed by President Kennedy, was a critical element of U.S. leadership
    and vision during the Cold War. Others followed our example and non-
    U.S. aid expanded rapidly, to the point where the share of global
    foreign aid provided by the U.S. has fallen from about 50 percent in
    1960 to around 15 percent today.
        The Cold War is over. We still have the strongest military and the
    strongest economy in the world. But leadership depends on more than
    strength. America's position in the 21st century will increasingly
    depend on the perception that we understand and appreciate the broad
    interests of the international community, and that we act with these
    interests in mind; and on the perception that we still have the best,
    most compelling vision of a global world order. International
    development cooperation, including foreign aid provided by rich
    countries to needy countries that are making reasonable self-help
    efforts, is a vital part of this.
        Expressed negatively, a perception that America sees foreign aid as
    simply a Cold War tactic cloaked in lofty rhetoric, to be discarded now
    that the threat of Communist expansion has subsided, would cause
    irreparable damage to any U.S. claim to international leadership.
        Development cooperation, including support for countries making the
    transition from Communism and humanitarian assistance for countries in
    crisis, remains an essential part of a credible and compelling vision
    of how the international community should function. A lead role for the
    U.S. in development cooperation is a vital part of American leadership
    in the post-Cold War era, arguably more important now than ever.
                                     ______

                     Questions Submitted by Senator Stevens
                    the u.s. russia investment fund (tusrif)
        Question. Mr. Atwood, as Chairman of the Appropriations Committee
    and the Senator of a State which is very interested in the continued
    development of business relations with the Russian Far East, I have
    heard some complaints about the performance of one of the enterprise
    funds (TUSRIF). Would you explain to me the formula which USAID intends
    to use when allocating funding to TUSRIF for fiscal year 1998? Please
    detail to me the oversight responsibilities of USAID toward TUSRIF.
        Answer. USAID has tentatively budgeted $33 million to TUSRIF in
    fiscal year 1998. The final obligations will depend on TUSRIF's need
    for funding based on their expenditure rate.
        Oversight of the enterprise funds, including TUSRIF, has evolved
    and expanded since the first grant agreements were signed for Poland
    and Hungary in 1990. Oversight is based on periodic written reports
    from the Fund Managers, on-site reviews and other interviews with Fund
    Managers, review and authorization of specific types of activity and
    documentation, and Inspector General reviews of external audits. The
    written reports submitted by Fund Managers include annual reports,
    including audited financial statements; semi-annual reports; monthly
    cash transaction reports; and ad-hoc reports submitted by the Fund
    Managers. In addition to USAID's oversight, the State Department
    Coordinator for NIS Assistance meets with TUSRIF management regularly.
    USAID Technical Office Reviews are comprised of semi-annual reviews in
    Washington and/or the field; semi-annual field trips to host country
    offices; site visits to selected investee firms; and annual visits to
    U.S. offices. USAID Authorization of Specific Types of Activities
    include structural changes; investments in financial institutions;
    investments in defense related enterprises; changes/additions to the
    Boards of Directors; non-investment related technical assistance;
    articles of incorporation, bylaws, company policies, etc.; and detailed
    statement of Fund objectives. In addition, the USAID Inspector General
    reviews and audits working papers of Fund's external auditors and does
    other ad-hoc reviews of enterprise fund activities.
            projects outside moscow, especially the russian far east
        Question. Mr. Atwood, I have been encouraging USAID to support
    projects in the Newly Independent States, specifically in the regions
    outside Moscow. Please explain your plans for increasing project
    activity in these areas, specifically the Russian Far East.
        Answer. Historically, about 75 percent of USAID's projects in
    Russia have been located in regions outside Moscow. USAID has always
    pursued a two-pronged strategy in Russia, working simultaneously with
    national and ``grassroots'' organizations to accelerate the process of
    economic and democratic reform. Under the Administration's proposed
    fiscal year 1998 Partnership for Freedom (PFF) initiative, USAID
    proposes to place even greater emphasis on the ``grassroots''--towns,
    regions, local organizations both public and private, and business
    associations and firms, both small and large. Other changes include
    greater emphasis on the development of sustainable trade and investment
    linkages between American and Russian companies and fostering mutually-
    beneficial partnerships between American and Russian nonprofit and
    nongovernmental organizations.
        Even though most of Russia's population is concentrated west of the
    Urals, the Russian Far East offers attractive investment opportunities
    because of its rich natural resources, access to the ocean, and
    proximity to Asia and the United States. As oil investments develop off
    Sakhalin Island, we see that an increased role for USAID assistance on
    economic planning, regional development, and training-related
    activities might be extremely useful in underpinning the commercial
    development of Sakhalin.
        It is likely that the Russian Far East will be selected as one of
    the regions to participate in the Regional Investment Initiative that
    was signed by Vice President Gore and Prime Minister Chernomyrdin at
    the February 1997 meeting of the Gore-Chernomyrdin Commission. Under
    this new arrangement, U.S. Government assistance will be focused on
    several regions in Russia to stimulate real economic growth by reducing
    impediments to trade and investment.
                              former soviet union
        Question. I am considering a Full Committee hearing on all facets
    of our relationship with Russia and the former Soviet countries. Please
    tell us what activities do you have in each area of the Former Soviet
    Union. I'm interested in generic programs and the allocation for each
    such country including Russia.
        Answer. USAID would be pleased to participate in such a hearing.
    Our programs in the twelve NIS (New Independent States) of the former
    Soviet Union are broadly organized into four generic categories, each
    with one or more ``Strategic Objectives'' (or generic programs). The
    four categories are (a) economic restructuring, (b) democratic
    transition, (c) social stabilization, and (d) cross-cutting and special
    initiatives. As an example of the subdivision of these four broad
    categories into Strategic Objectives, within ``economic restructuring''
    there are five: privatization, fiscal reform, private enterprise
    support, financial reform, and energy. Every program activity in each
    NIS country falls within one of our twelve Strategic Objectives.
        In order to provide you with the information you have requested on
    each country, I am attaching the most recent Congressional Presentation
    subsections on the twelve NIS countries. These subsections will give
    you a feel for current programs, as well as plans for activities in
    fiscal year 1998. The discussion on each country is organized by
    Strategic Objective and contains information on proposed allocation of
    funds in fiscal year 1998. I am also attaching a table that shows
    cumulative obligations through the end of fiscal year 1996 for each
    country, by Strategic Objective.
                                     ______

                     Questions Submitted by Senator Bennett
                        waste and favoritism in belarus
        Question. Ambassador Richard Swartz was our envoy to Belarus until
    January 1994. Did you ever receive warning cables from him warning of
    waste and favoritism in our bilateral assistance programs? If so, what
    action did you take regarding these warnings?
        Answer. While we cannot cite specific cables from Ambassador Swartz
    on this subject, we are aware of his concerns about waste and
    favoritism, which he expressed in meetings with us and in his writings
    on the subject.
        Ambassador Swartz has been critical of USAID's conceptualization
    and administration of the U.S. assistance program in Belarus. He has
    argued that U.S. assistance should, but has not, supported assistance
    efforts that show quick results to the people of Belarus and that
    support reform-minded elements, especially through non-governmental
    organizations. In fact, we can demonstrate that we have had some
    success in our modest assistance program, especially considering the
    difficult environment in Belarus, and that our program of working
    through non-governmental channels and targeting the grass-roots level
    has made in-roads in supporting reform in Belarus.
        The U.S. assistance program in Belarus has been very limited due to
    the unwillingness of the Government of Belarus to implement economic
    and democratic reforms. Nevertheless, to encourage reform where
    possible, U.S. assistance is geared toward grass-roots efforts in
    small-scale privatization, democracy initiatives, humanitarian
    assistance, and support for non-governmental organizations (NGOs). Most
    assistance is provided through non-governmental channels.
        Since late 1993, USAID has been funding the International Finance
    Corporation's (IFC) small-scale privatization program, which has
    resulted in a steady movement of communally-owned trade, catering and
    service enterprises into the private sector. In November 1996, IFC
    completed its 100th auction, with 14 percent of small-scale enterprises
    now privately owned.
        USAID also supports the democracy-building work of the American Bar
    Association Central and East European Law Initiative (ABA/CEELI), which
    contributed to the opening of Belarus' first publicly accessible
    international law library. This program is also strengthening legal
    organizations and the judiciary. An important new focus of the program
    is strengthening independent media, with technical assistance provided
    by the International Research and Exchanges Board (IREX) to expand
    access to and distribution of international and domestic news to
    independent media outlets, and help publishers, editors, and
    journalists improve their effectiveness.
        Since 1994, the USAID-funded Counterpart Humanitarian Assistance
    Program has organized the delivery and distribution of humanitarian
    shipments throughout Belarus with a total value of about $6 million.
    The USAID-sponsored hospital partnership program has resulted in
    Belarusian physicians being able to meet the pressing need to improve
    detection and treatment of an increased number of pediatric thyroid
    cancers resulting from the explosion of the Chernobyl Nuclear Power
    Plant. The partnership program has also helped to establish a
    contemporary poison information resource database and an intensive
    training program for clinical toxicologists.
        Finally, USAID has played a significant role in the development of
    NGOs, having contributed to the creation and strengthening of a large
    number of NGOs and having trained over 125 NGO leaders. The new NGO
    Democratic Social Service Activity will focus on strengthening NGOs to
    assist the elderly, disabled and other vulnerable groups in Belarus.
        We recognize that Ambassador Swartz has not always agreed with
    USAID's conclusions concerning the most cost-effective use of U.S.
    assistance funds. However, both as Ambassador and now, his opinions
    have been taken into account, with a final decision based on consensus
    of a variety of government and non-government opinions. In our
    selection of assistance activities, we have and will continue to choose
    projects that best support U.S. foreign policy and have the greatest
    potential for return on each assistance dollar. We are not aware of any
    waste or favoritism in USAID assistance to Belarus.
                     russian inter-regional bar association
        Question. What relationship, if any does the Russian Inter-Regional
    Bar Association have with the Russian Intelligence services or their
    Soviet predecessors?
        Answer. USAID has no contacts with, nor knowledge of this
    association.
                           lessons from privatization
        Question. Will you please comment on the problems of fraud of U.S.
    supported privatization programs in Russia, what the lessons are, and
    how they are being addressed in the Ukraine?
        Answer. The USAID financed programs have facilitated broad popular
    participation in the market reform revolution taking place in Russia.
    Privatization was an essential prerequisite for building a market-based
    economy to replace the bankrupt Soviet command economy. The USAID
    programs have actually restrained the influence of criminal activity as
    demonstrated by the following facts:
        The privatization program created 40 million Russian shareholders
    in private enterprises across Russia, making Russia the country with
    the largest group of shareholders in the world.
        Entrepreneurs are getting together, buying blocks of shares, and
    removing old managers. Boards of Directors are being formed with
    outsider shareholder participation on the boards. Shareholder rights
    groups have been formed which are lobbying to protect the rights of
    investors. Self-regulatory organizations equivalent to the NASD
    (National Association of Securities Dealers) have been created and are
    establishing practices and ethical standards for their membership.
        International investors are gaining control of enterprises.
        New laws and reforms together with enforcement agencies such as the
    Russian Securities and Exchange Commission are having an impact on
    investor protection, transparency and fair play.
        These are just a few examples of activities USAID is financing
    which are helping create a stable, fair and predictable business
    environment in Russia. Admittedly, there remain old policies, laws and
    regulations that continue to provide an incentive for fraudulent
    activities. For example, the high tax rates encourage corruption, pay-
    offs and non-compliance through the use of mafia organizations.
    [Anecdote: Ask a small shop owner whether he would rather pay 30
    percent protection tax to the Mafia or 80-90 percent of his profits to
    the tax authorities. The answer is obvious.]
        The point is that progress has been made. But if we want to
    continue to deepen these reforms and complete the enormous process of
    economic restructuring, we must continue to work with the Russian
    reformers to make this happen.
        In the Ukraine, measures are being taken to protect the rights of
    shareholders and investors, as the efficient and transparent operation
    of capital markets is critical to mass privatization and the
    restructuring of Ukraine's economy. Three independent share registrars
    have been established to help ensure shareholder transparency; a
    capital market monitoring unit has been established to monitor, on
    behalf of the government, the activities of investment intermediaries;
    the Ukraine Securities Commission is drafting regulatory normative acts
    insuring shareholder and investor rights; model investment funds and a
    self regulatory association have been established to increase
    professional standards within the fund industry; mass privatization and
    public awareness programs have provided training materials, seminars
    for managers of privatized enterprises, and mass media education to the
    public on the principles of shareholder rights and corporate
    governance; an over-the-counter trading system has been established for
    trading shares of privatized enterprises and a self regulatory
    organization for broker dealers established to ensure shareholder
    rights and broad market participation in the trading of shares; and
    instituting the use of internationally accepted accounting standards
    for reporting, disclosure and other purposes to standardize industry
    practices and attract a broad range of domestic and international
    investors.
                            privatization in russia
        Question. On June 13, 1996, former CIA Director James Woolsey told
    the House National Security Committee the following: ``The unfairness
    of privatization in Russia, which has led to most ownerships being
    concentrated in the hands of the former factory managers and
    nomenclature, and increasingly also in the hands of organized crime
    figures, adds substantially to the average Russian's dissatisfaction
    with the current political and economic system.'' Is Director Woolsey's
    analysis correct?
        Answer. Director Woolsey has expressed some reasonable concerns
    regarding Russia's privatization. However, it is important to
    understand the broader institutional context which USAID and other
    donors are establishing to mitigate such potential problems.
        The privatization program in Russia envisioned 51 percent ownership
    being retained by company managers and workers to encourage, in the
    first instance, acceptance of the program. The mass privatization
    program in Russia resulted in over 40 million individual ahareholders,
    and 15,779 medium and large enterprises privatized in 86 regions of
    Russia. This was the largest privatization in world history, and there
    are now more shareholders in Russia than in the United States. Against
    this background, individual cases of management manipulation and
    malfeasance at individual firms, while unfortunate, cannot invalidate
    the historical importance of dismantling a state-controlled economy and
    giving market forces a chance to operate.
        The design of the mass privatization program in Russia limited
    criminal interference from the outset. Every Russian citizen was
    eligible to receive and use only one Privatization Voucher upon
    presentation of appropriate personal identification. In addition, the
    methods for voucher distribution, cancellation, and destruction were
    developed with anti-fraud controls and were very closely and
    successfully monitored. Even if criminal elements attempted to use
    outside means, such as creating investment funds, to control portions
    of privatized enterprises, the investment funds are highly regulated by
    the Russian Commission on Securities and Exchanges.
        It is important to note that one of the main strategies behind
    Russian privatization was to break the old branch Ministries' influence
    over enterprises and distribute the ownership as widely as possible
    among the entire population. The program was extremely successful in
    this regard. Russia's enterprises are owned by 40 million shareholders,
    and most branch ministries were completely cut out of the privatization
    process. Shareholders are insisting on enterprise restructuring,
    efficiency, and profits, and do not want criminals hijacking their
    investments. USAID has responded to these demands by:
      --Assisting Russian legal drafters on appropriate commercial
            legislation, particularly for the tax code, law on pricing,
            anti-monopoly law, contractual law, and securities law;
      --Helping the Russian government establish appropriate regulatory
            bodies such as the Securities and Exchange Commission and Anti-
            Monopoly Commission;
      --Fostering the development of capital market institutions, corporate
            governance, independent share registries, and self-regulatory
            organizations for capital markets professionals; and
      --Assisting and training Russian law enforcement officials and
            helping to develop the judicial system.
        To further the objective of regulatory compliance and oversight in
    the business community, the Russians have developed capital markets and
    private sector self-regulatory organizations which promote professional
    standards and business practices. An example is the Professional
    Brokers Association that is creating a national trading system modelled
    after the American National Association of Securities Dealers (NASD).
    This association is promoting transparency and recognizes that it is in
    their interest to restrict mafia or other criminal participation in
    capital markets. The Professional Brokers Association started in May
    1995 with 5 members and 8 privatized enterprises listed. It has since
    expanded nationwide with hundreds of brokers and listed enterprises,
    creating competition and transparency in the process.
        The ultimate goal of these USAID interventions is to create a
    stable, transparent, fair and predictable business environment. The
    best defense against organized crime is promoting continued economic
    stabilization and reform.
                       whistle-blower protection measures
        Question. There have been some question of pressure on those who
    criticized USAID programs in the former Soviet Union. Will you pledge
    to protect whistle-blowers and honest critics from retaliation?
        Answer. This Administration welcomes robust debate on important
    issues, and strongly supports whistle-blower protection measures. It
    has been and will continue to be my practice to encourage free
    discussion that will help us improve the efficiency of our operations
    and combat waste, fraud and abuse without fear of reprisal.
                                  agriculture
        Question. In previous administrations assistance to international
    agricultural research had a high priority.
        What is in your budget this year for crop research programs such as
    the International Rice Research Institute (IRRI) in Manila?
        How does this compare with prior years?
        Answer. USAID's support to international agricultural research has
    declined substantially since fiscal year 1993. The decreased funding is
    the result of a severe and continuing decline in unearmarked funds made
    available to the Agency. In some cases, although not in the case of
    agricultural research, unearmarked programs have been eliminated
    entirely.
        There are three major components of USAID's support to
    international agricultural research. The Collaborative Research Support
    Programs (CRSPs) draw on the expertise of more than 40 U.S.
    universities to pursue research on topics of mutual interest and
    benefit to developing countries and U.S. agriculture.
        The International Agricultural Research Centers (IARCs), sponsored
    by the Consultative Group on International Agricultural Research
    (CGIAR), constitute the major multilaterally supported agricultural and
    natural resources research program for developing countries; the
    International Rice Research Institute (IRRI) is part of the CGIAR
    system of research centers.
        Our third effort is through USAID funding to enhance the
    effectiveness of National Agricultural Research Systems (NARS) through
    our bilateral and regional programs. Together, these three approaches
    bring the best tools of modern science to bear on the problems
    affecting small-farmer agriculture and natural resource management in
    Asia, Africa and Latin America.
        All three of these efforts have suffered during the budget cuts of
    recent years. After deep cuts in fiscal year 1994, the CRSP budgets
    have recovered to approximately the level of previous years. In the
    case of the CGIAR, USAID's funding declined from a fiscal year 1993
    level of $38 million to $28 million in fiscal year 1994 and fiscal year
    1995, and to $23 million in fiscal year 1996. In fiscal year 1997,
    USAID will increase funding of the CGIAR centers to $26 million; of
    this amount, $2 million will be used by the centers to increase their
    collaborative research linkages with U.S. universities. Funding for the
    third category of activity, National Agricultural Research Systems
    (NARS), has declined even more sharply than CGIAR funding during the
    last 4 years.
        Turning to IRRI specifically, USAID's funding declined from $5
    million in fiscal year 1993 to $2.9 million in fiscal year 1996, a
    reduction of 42 percent. We recognize that rice research is a critical
    factor in the global food supply equation; in Asia, rice production
    must nearly double in the coming two decades to meet rising demand. For
    fiscal year 1997, we have yet to allocate our exact level of support to
    the center; however, it is certain that IRRI will emerge as our top
    priority for a budget increase within the limitations of our overall
    resource envelope for the CGIAR.
                                microenterprise
        Question. In the Committee report of last year's Foreign Operations
    bill, we requested a report from USAID on the amount of funding going
    into poverty lending programs.
        When can we expect this report?
        Answer. USAID is preparing a survey of its 1996 portfolio, to be
    completed in the fall of this year.
        Question. In your 1994 Microenterprise Initiative you set a goal by
    the end of 1996 of half of your total Microenterprise resources would
    be devoted to loans of less than $300.
        Have you reached this goal?
        Answer. Analysis of 1995 programming shows that about 42 percent of
    USAID's total microenterprise support was aimed at poverty lending.
    Poverty lending amounted to over half of our support to microlending.
    As I said to you earlier, USAID is preparing a survey of its 1996
    portfolio and will provide the results to you as soon as they are
    available.
                                     ______

                     Questions Submitted by Senator Allard
                                    campfire
        Question. Mr. Atwood, are you familiar with the USAID CAMPFIRE
    program? Could you please provide a brief explanation of the purpose
    behind the CAMPFIRE program, including the exact recipients, and their
    allotment, of program funds?
        Answer. USAID is the lead bilateral donor in the environment in
    Africa, providing over $80 million a year to support biodiversity,
    tropical forest management, and sustainable agriculture practices. The
    CAMPFIRE program, one of our more successful efforts in Africa, seeks a
    long range, sustainable balance of lands, people, and wildlife.
    CAMPFIRE was established by Zimbabweans in the mid-1980s; USAID support
    for CAMPFIRE began in 1989.
        Our expanded assistance to CAMPFIRE (currently planned at US$20.5
    million) supports:
      --Wildlife conservation ($3.1 million). Primarily executed by the
            World Wildlife Fund and the Zimbabwe Department of National
            Parks, activities include research and field work on the
            ecology of wildlife habitat, alternative resource options, and
            other issues needed by the CAMPFIRE members.
      --Community development ($3.9 million) including training staff at
            the district level, and providing technical support so that
            district councils can fulfill the technical and financial
            requirements required if they are to make use of the
            ``appropriate authority'' provided them by the Government of
            Zimbabwe. The majority of funds go via Zimbabwe Trust, which
            works with district councils, wards, villages and households to
            strengthen their capacity to manage their natural resources.
      --Grants to communities and Rural District Councils ($6 million).
            Includes capacity building activities, payments for animal
            damage, and support for the establishment of nature-based
            tourism infrastructure, such as electric game fencing,
            waterhole development, trail establishment.
      --Regional communications and training ($1.2 million). Includes
            exchange of information between nations with similar resource
            applications, and sharing lessons learned beyond Southern
            Africa. This component is implemented by ACTION, an
            environmental magazine; and the African Resources Trust.
      --Planning and applied research ($2.1 million). Socio-economic and
            biophysical research, monitoring and evaluation of program
            impact, and 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 project areas.
      --Technical/administrative assistance ($2.7 million). Includes grant
            management, assistance to the CAMPFIRE Association and other
            members in setting up administrative, financial and technical
            support systems. This component is primarily implemented by
            U.S. consulting firms (Development Alternatives, Inc and Price,
            Waterhouse and Company).
      --USAID management/audit and evaluation. Technical oversight by USAID
            mission, as well as audits and evaluations ($1.5 million).
        Question. To your knowledge, are any USAID funds being used to
    underwrite the cost of trophy hunting expeditions in countries targeted
    by your CAMPFIRE program?
        Answer. No. Taxpayer funds do not subsidize trophy hunting of
    elephants and other wildlife.
        However, CAMPFIRE does assist local communities, some of which do
    generate revenues by granting licenses to hunters. The revenues earned
    from these licenses are used to benefit the communities in a variety of
    ways, such as building schools. At the same time, by helping
    communities to manage resources in a responsible way, this has reduced
    unregulated hunting and poaching, and benefited the animal population.
        Question. What is the USAID time frame for completion of the
    CAMPFIRE program? Are there any indications that USAID will need to
    extend the time frame and/or the United States' commitment to the
    CAMPFIRE program? If there is no need for extending the program, are
    there indications that the CAMPFIRE program will arrive at its end goal
    of self-sufficiency for the native people within the pre-established
    time frame?
        Answer. The USAID bilateral program is now in the process of
    developing a revised strategic plan, targeting the year 2003 for
    mission closeout. The CAMPFIRE program is meeting its intended results.
    During the planned review of this plan, whether continued USAID
    involvement will be necessary in order to successfully build the
    institutional and individual capacity leading to improved rural
    livelihoods will be considered. If there are continued CAMPFIRE
    activities after the planned USAID/Zimbabwe mission closeout in 2003,
    management of those activities probably would be transferred to the
    regional mission in Botswana. Activities could include extending the
    lessons learned under CAMPFIRE to other countries in the region. While
    some rural district councils and communities will be self-sufficient at
    the end of USAID bilateral involvement, we do not believe that this
    will constitute the critical mass required to ensure the sustainability
    of the greater CAMPFIRE program.
                                     ______

                   Questions Submitted by Senator Lautenberg
                       status of vitamin c pilot program
        Question. The increasing awareness of the role of vitamin C in
    preventative health care prompted Congress, beginning in 1992, to
    recommend that A.I.D. increase the fortification level of vitamin C in
    A.I.D. food/grain exports under the Public Law 480 Food Aid Program. In
    subsequent years, congressional appropriations committees, relying on
    studies which showed that new mothers and infants can readily improve
    their health through vitamin C consumption, appropriated funds and
    requested A.I.D. to perform a pilot program fortifying Public Law 480
    Program food with higher levels of vitamin C. Would you please comment
    on the current status of the pilot program, including: What is current
    status of the pilot study?
        Answer. USAID has assessed, at the point of manufacture, the
    uniformity of vitamin C in both wheat soy and corn soy blends, at
    conventional and elevated levels of vitamin C fortification. 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 U.S.
        Question. What are your preliminary findings?
        Answer. Vitamin C uniformity was poor in the corn soy blend at the
    point of manufacture. Commodity manufacturers, USAID and USDA are
    seeking to rectify this. Preliminary indications suggest some loss of
    vitamin C potency during shipment and storage of the blended
    commodities overseas. Preliminary results also indicate that vitamin C
    is lost during the normal food preparation of these commodities.
    Perhaps only a small part the vitamin C added may be consumed by food
    aid program recipients. This still needs to be confirmed.
        Question. When will you complete the pilot study and submit a
    report to the Appropriations 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.

                              subcommittee recess

        Senator McConnell. We appreciate your coming up. We look
    forward to working with you on getting a more adequate, shall I
    say, 150 account for the coming year. Thank you, the
    subcommittee will stand in recess until 10:30 a.m., Thursday,
    March 20 when we will receive testimony from FBI Director,
    Louis Freeh and Hon. Robert Gelbard, Assistant Secretary of
    State.
        [Whereupon, at 11:40 a.m., Thursday, February 27, the
    subcommittee was recessed, to reconvene at 10:30 a.m.,
    Thursday, March 20.]

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

                                  ----------

                            THURSDAY, MARCH 20, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:35 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Mitch McConnell (chairman)
    presiding.
        Present: Senators McConnell, Specter, Shelby, Campbell, and
    Leahy.

                             DEPARTMENT OF JUSTICE

                        Federal Bureau of Investigation

    STATEMENT OF HON. LOUIS J. FREEH, DIRECTOR

                              DEPARTMENT OF STATE

         Bureau of International Narcotics and Law Enforcement Affairs

    STATEMENT OF HON. ROBERT S. GELBARD, ASSISTANT
                SECRETARY OF STATE

                    opening statement of senator mc connell

        Senator McConnell. The hearing will come to order.
        The ranking member, Senator Leahy, is in the Judiciary
    Committee but will be here in just a little while.
        With a Senate vote likely today on Mexico's cooperation in
    the drug war and the continuing swirl of allegations about
    Chinese influence peddling, our hearing on international
    narcotics and crime is obviously timely.
        I do not think our Founding Fathers' vision of America as a
    land of opportunity includes foreign governments corrupting our
    democratic system with illegal campaign contributions. And,
    when they endowed our citizens with the inalienable rights of
    life, liberty, and pursuit of happiness, they expected the
    American Government to uphold and defend those principles. This
    means taking the drug war seriously, not making excuses for
    confusion, incompetence, or corruption. This means protecting
    American citizens at home and abroad--citizens like Paul Tatum,
    a well known U.S. businessman who was gunned down in Moscow 100
    yards from the Radisson Hotel.
        In 1993, when Senator Leahy and I visited Moscow, every
    businessman we met with said that the problem of crime and
    corruption, the lack of both enforceable laws and law
    enforcement were the biggest impediments to investment.
        Few ventured out without bullet proof cars and heavily
    armed body guards. Most had been victims of extortion attempts.
    Many had moved to the suburbs where they lived in fortified
    villas, hoping to protect their families from kidnapping.
        Four years ago, Senator Leahy and I returned with the
    business community's message. We urged the administration to
    develop a major effort to combat crime and corruption. Short of
    a serious undertaking, investment and economic growth, the
    foundation of real stability, would obviously crack.
        Unfortunately, the business community's predictions have
    now come true. There has been a steady increase in capital
    flight and foreign investment is stagnant. Billions of dollars
    in U.S. grant aid will not make a dime's worth of difference if
    this problem is not solved.
        Russian police now claim over 400 banks are controlled by
    organized crime. Are these the same institutions that the
    administration's new investment partnership intends to
    financially back?
        The Interior Ministry has said at least 40 percent of the
    economy is in the mafia's hands, control gained through
    exploiting the privatization process. Our privatization program
    was the centerpiece of the U.S. effort from 1993 through 1995.
    I think we need to be clear that we have not subsidized a
    transfer of economic power to the mafia.
        International crime is obviously not confined to Russia or
    NIS borders. Los Angeles, Miami, and New York are among several
    United States cities where 26 Russian organizations are basing
    their drug trade, prostitution rings and extortion, fraud, and
    counterfeiting operations. And if the stories are true, we are
    facing a whole, new threat to our democratic process if foreign
    governments are illegally contributing to our political system.
        In this troubling context, let me be clear on one point.
    Judge Freeh, you deserve the credit for the only serious effort
    this administration has made to tackle international crime and
    we thank you. In the face of strong opposition, you have
    continued your fight to increase funding for global FBI
    training programs and, more particularly, the International Law
    Enforcement Academy in Budapest. ILEA is one of the most
    impressive facilities I have ever had the privilege to visit. I
    am proud to have offered support through foreign operations
    funding for ILEA and we want to thank you for your leadership
    in seeing this through. It is an organization that is making a
    real difference.
        When I was there in January, the academy was running an 8-
    week class with 50 midlevel police officers from Latvia,
    Lithuania, and Estonia. The deputy police commissioner from
    Buffalo was lecturing for a week on community policing
    techniques, a class each student could take with simultaneous
    translation.
        For a few million dollars a year, we are strengthening the
    professional skills of hundreds--hundreds--of police officers
    in Europe and the NIS as we improve regional law enforcement
    cooperation and our cop-to-cop relationships that directly
    serve American safety and security.
        While I am pleased with the FBI's effort, let me note my
    concern that, once again, the administration's international
    crime budget fails to meet the urgent requirements and the ever
    expanding scope of the problem. This year, the administration
    has asked for a 44-percent increase in overall funding for the
    NIS, an increase from $625 million to $900 million. Of that,
    they are requesting $10 million to combat crime in Russia,
    which triples the past budget request, but still is inadequate.
        We have spent over $4.5 billion in aid to Russia; $10
    million to combat a problem which directly affects America's
    security is simply not enough.
        Let me now turn to the second half of today's agenda, the
    international narcotics control effort. The administration
    seeks a sizeable increase, from $213 million to $230 million.
    Before I make a decision to commit more resources, I must be
    satisfied the effort is better managed.
        Today, the administration's effort suffers from a
    fundamental if not fatal flaw, which is the basic lack of
    coordination between agencies.
        Over the past several weeks, my staff has tried to respond
    to my request to build a matrix identifying the dollars we
    spend along with the agencies and number of personnel assigned
    in each country where we engage in international narcotics
    control efforts. They have been told it is not and cannot be
    done.
        For example, no one in the administration can provide an
    accounting of the number of FBI, DEA, DOD, and INL staff in
    Mexico. No one can tell me how much all agencies spend on
    counter narcotics in Mexico. The most questionable response
    actually came from the drug czar's office, where it was claimed
    they simply do not have the resources or staff to develop the
    data.
        If no one knows which agencies and how much we are spending
    in any given country, how can we possibly hope to measure the
    cost effectiveness and success of the effort?
        Judge Freeh, let us begin with your assessment of where we
    stand in our effort to combat crime, corruption, and narcotics
    trafficking. We will then hear from Ambassador Gelbard,
    Assistant Secretary of State for International Narcotics and
    Law Enforcement, the office with the key policy coordination
    role.
        I want to welcome my friend and colleague, Senator
    Campbell, here as well. I am glad to have him.
        As I said, Senator Leahy will be here shortly.
        Judge Freeh, why don't you proceed.

                     summary statement of hon. louis freeh

        Mr. Freeh. Thank you, Mr. Chairman and good morning,
    Senator Campbell.
        Let me just give a brief overview of what I think the
    issues of continuing interest are to the committee and, with
    your permission, I will submit a longer written statement for
    the record.
        The international training and law assistance programs that
    the FBI are engaged in are, in my view, not only appropriate
    but also a very good return for the tax dollars being expended.
    In addition to the ILEA Academy in Budapest--which is a
    partnership, a joint venture, between the State Department, the
    FBI, the Department of Treasury and some other agencies--for a
    very small amount of money, we are not only able to bring
    training and assistance to many different countries, but we
    have also established through our Legal Attache Program [LEGAT]
    what I like to call our first perimeter of defense around the
    world.
        We have an interest certainly in giving to new democracies
    and new police forces the fundamentals of policing. For
    instance, I am very proud of the 375 students who have now
    graduated from the ILEA. Upon completion of the course, we
    asked them to rate the most important course for them and the
    one from which they derived the most benefit. The course which
    receives that vote is the course on human dignity, which we
    think is a tribute to the curriculum. This course is designed
    to teach policing in a democracy and the balancing of public
    security with civil rights and human rights.
        But more importantly, the presence of the FBI Legal Attache
    Program and the in-country training which is supported in large
    part by the Department of State gives us the ability to protect
    Americans in a way that a global world with transnational crime
    and no borders requires us to do.
        Let me just sketch a couple of cases very, very briefly.
        The Tatum case, which you referred to, Mr. Chairman, is a
    case which is now being actively investigated by the Ministry
    of Interior in Russia with the assistance and input of our FBI
    legal attaches in Moscow. We have a strong and abiding interest
    in the resolution of that case.
        Very recently, we had a case involving Citibank. An
    individual sitting in St. Petersburg, Russia, with access to a
    laptop computer broke into Citibank accounts in New York and
    moved several millions of dollars into his own accounts, or
    attempted to move them into accounts where he would get access
    to them. Because of our relationship with the Ministry of
    Interior and our presence in that country, we were able to
    quickly address that particular episode.
        In another recent case, an individual in Sweden with a
    laptop computer hacked his way into some switching systems in
    the United States and proceeded to shut down several 911
    systems in northern Florida for several hours at a time. Those
    are systems which deliver not just police, but emergency and
    rescue services too.
        We recently have been successful in taking back many
    fugitives, not only in counterterrorism cases but in homicide
    cases. One in particular is an individual who is a member of a
    very notorious drug gang here in the District, the First and
    Kennedy crew. A member of this gang was responsible for walking
    into Washington Metropolitan Police Headquarters in November
    1994, killing two of my FBI agents and a metropolitan police
    sergeant. A fellow gang member, an individual named Kobi Mowatt
    who was wanted for a triple homicide in the District of
    Columbia, fled first to Russia and then to Eastern Africa. He
    was found as a result of our relationships with the MVD in
    Russia, who traced some Aeroflot records, and through our Legal
    Attache Program was apprehended, brought back, and pled guilty
    to that particular crime.
        There are many, many other instances where we are working
    cooperatively in what we call our practical case training
    program, where we actually partner up with police officers in
    various countries--Kazakhstan, Uzbekistan, Latvia, and Russia
    being some examples--and work on cases which impact directly on
    the United States.
        One particular case which we worked with Kazakhstan under
    this program was responsible for the seizure by Russian customs
    of 1.1 tons of cocaine. We are seeing to a greater extent
    alliances between criminal elements and criminal groups in the
    United States and organized crime groups, not just in Eurasia,
    looking to now import and ship cocaine into what are
    potentially vast markets in Eurasia.
        In a recent case in Florida, a Russian national planned to
    bring large amounts of narcotics into the United States. He was
    involved in negotiations to purchase a submarine from the
    Russians that would be used to clandestinely move cocaine from
    South America to Florida.
        There are a whole series of cases which give us the ability
    to not only fulfill our mission but protect Americans--in the
    counterterrorism area, in the drug trafficking area, and in the
    financial crimes area, even coming down to the matters that
    affect local jurisdictions, such as the triple homicide that I
    mentioned.
        We have now 81 agents overseas in our Legal Attache Program
    and 30 different offices, which are up and running. We just
    opened offices in Cairo, Tel Aviv, and Riyadh, which, for the
    first time in the history of the FBI, gives us the ability to
    directly deal with and work with our counterparts in that very
    critical region where our counterterrorism interests are of
    great particular moment.
        The training that we have done through the FSA programs and
    the SEED programs have been, in my view, extraordinarily
    successful. The State Department supported all of our requests
    for 1996, and our 1997 requests are being quickly attended to.
        I want to take a moment to thank Ambassador Gelbard
    particularly for his leadership in that regard for both the
    ILEA Academy and FSA and SEED support. The Antiterrorism
    Training Assistance Program, which is terrorism training that
    the FBI performs at the request of the Department of State, has
    also added at a very low cost, in my view, to extraordinary
    relationships with our foreign counterparts and the ability to
    project American law enforcement interests into places in the
    world where, heretofore, we really had no representation.
        Many of the other programs which are subject to funding by
    this committee have given law enforcement a very immediate and
    very successful derivative benefit. We routinely now, through
    our Legal Attache Program, discharge leads for State and local
    officers. Many of the police departments in the United States
    are very small and do not have this capability, except through
    Interpol, which is really a warrant service, not an
    investigative service. So they come to the FBI with requests
    which we pursue for them through our Legal Attache Program and
    through the Department of State.
        So all in all, I think the return on the dollar which is
    being given to the American taxpayers in terms of security,
    investigative capability, and protection is really very, very
    well received, given the amount of money that is being spent.
    Both the ILEA Program and the other training programs are, in
    my view, being conducted very successfully. We trained
    approximately 1,900 foreign police officers last year under the
    FSA and SEED authority of the State Department.
        We have a series of 40 courses which we regularly present
    around the world, courses such as hostage negotiations. The
    Russians asked us recently to teach their rescue team hostage
    negotiations, which we are in the process of doing. There is an
    internal control seminar on how to make a police force work
    with the standards of integrity which are necessary for people
    to have confidence in it. There are bomb detection courses,
    courses in crisis management, money laundering, and financial
    crimes. We have done that now in 21 countries just in fiscal
    year 1996, all with State Department funding which comes from
    this committee.
        The other long-range benefit that is being derived from
    this training is that the police officers being trained--the
    officers that you saw, Mr. Chairman, in ILEA--will be in 5 or
    10 years the chiefs of police or the commissioners of many of
    their departments. Those relationships with the FBI and the
    State Department will continue and will inure to the great
    benefit of our country.
        So both in terms of the dollars being spent, the return
    that we are getting, and the coordination between the two
    departments represented here, I think the benefits are very,
    very high.
        When we submitted to the Congress last year our 4-year
    Legal Attache Expansion Program, it was written jointly with
    Ambassador Gelbard and approved by the Attorney General and the
    Secretary of State. That has given us the planning, the
    knowledge and the coordination to take these very important
    steps in an effective and manageable way.

                               prepared statement

        I am very appreciative to you, Mr. Chairman, for your
    continuing interest in law enforcement, particularly the
    international capability that our country must have, and I
    thank the other members of the committee for your continuous
    support and your leadership in the area of international law
    enforcement. As always, it is a pleasure to appear before your
    committee.
        I would be happy to answer all of your questions.
        Senator McConnell. Thank you, Judge Freeh.
        [The statement follows:]

                   Prepared Statement of Hon. Louis J. Freeh

        Recognizing the fluidity of crime around the world, the FBI
    has worked closely with the Department of State to develop a
    strategy which facilitates our ability to protect Americans'
    and American interests. Without the support and vision of
    Ambassador Gelbard, Secretary Christopher, and now Secretary
    Albright, the United States' response to international crime
    would have been disjointed and inefficient. Their leadership
    and assistance has been particularly helpful to the FBI as we
    have developed a response to this problem. The FBI is
    particularly indebted to Ambassador Gelbard for all he has done
    for law enforcement over the last several years.
        The United States cannot simply fight crime on our own
    soil; we must be proactive to prevent these criminal
    organizations from gaining strength. Therefore, the FBI has
    underway a multi-faceted approach to better protect Americans
    at home and abroad, and to train and assist our fellow law
    enforcement organizations in fighting crime within their own
    countries. We have expanded our Legal Attache program,
    increased our international training efforts, and developed
    programs to open the lines of communication among law
    enforcement officials. Crime is a transnational phenomenon; it
    knows no boundaries. By slowing the spread and development of
    complex criminal enterprises in their home country, we can
    prevent their establishing a foothold within the U.S.
        One of the first areas where the FBI proactively sought
    partnerships was the countries of Eastern Europe, the Baltics
    and Russia. The responses of these countries to our offers of
    assistance have been overwhelmingly positive. One of our first
    activities in this region was the opening of the Legal Attache
    office in Moscow to work closely with Russian police against a
    variety of costly crimes. From July 1994 to the present, the
    number of cases worked by the FBI agents in Moscow has
    increased from 20 to approximately 275. Since that time, we
    have also opened offices in Tallinn, Estonia; Kiev, Ukraine;
    and Warsaw, Poland. Our 1998 budget proposes opening additional
    offices in Almaty, Kazakhstan; Prague, Czech Republic; and
    Tashkent, Uzbekistan; as well as other locations.
        The strength and success of organized crime has become an
    increasing problem in this region of the world as it is in the
    United States. According to the Nezavisimaya Gazeta, (Moscow,
    1996), Moscow police break up at least two organized crime
    gangs each day, but each gang is replaced by a new one. There
    are now more than 200 groups active in Moscow; bloody
    ``altercations'' between groups are an almost daily occurrence.
    In Lithuania there are an estimated 100 organized criminal
    groups with total core membership of about 1,200 criminals.
    Latvian and Estonian police estimate that there are 10-15 such
    groups operating in each of their countries. In Vilnius, the
    crime rate is high, and it is estimated that 70 percent of the
    offenses are not reported to police. The situation is far worse
    in Estonia and only slightly better in Latvia.
        Through cooperative efforts, we have begun to achieve
    successes. The June 1995 arrest and subsequent prosecution in
    New York City of Vyacheslav Kirillovich Ivankov and five of his
    associates on federal charges of conspiracy to commit extortion
    continues to be recognized in Russia and the U.S. as a shining
    example of FBI-Russian police cooperation. Ivankov, convicted
    in U.S. District Court last July, was sentenced in January to
    over nine years in prison. More recently, in July 1996, an
    Ivankov associate was killed in a gangland-style shooting in
    Vienna, Austria. Efforts by the FBI Legal Attache office in
    Vienna helped authorities identify and arrest two Georgian
    suspects in the shooting.
        In another successful cooperative effort, a major computer
    fraud investigation continues into the diversion of over $10
    million by a St. Petersburg, Russia, gang to dummy accounts at
    Citibank in New York. Russian Ministry of Interior (MVD)
    officers and FBI Agents have worked closely to investigate this
    case. For instance, Russian police officers traveled to New
    York last August to obtain evidence. Russian investigators
    assigned to this case also attended the Computers Crimes
    Conference in New York earlier this month.
        However, the success of these cooperative efforts does not
    lessen the danger which exists for these countries and the U.S.
    The FBI is supporting the ongoing MVD investigation into the
    November 1996 murder of American citizen Paul Tatum in Moscow.
    Mr. Tatum was murdered November 3, 1996, in a subway station
    outside of a hotel whose ownership he was disputing. While this
    killing of a businessman was the first involving a U.S.
    citizen, this use of force has become far too common in Russia.
    The cooperation occurring in the investigation of this case
    continues to strengthen our law enforcement relationship and
    provides a glimpse into the crime and corruption problem which
    still plagues the Russian democracy. Through our cooperative
    efforts, we hope to help the Russian authorities develop law
    enforcement tools and investigative techniques to assist them
    in their battle against this problem.
        One of the most difficult law enforcement problems facing
    many of the New Independent States (NIS) and Eastern European
    nations is drug trafficking. The scourge of drug trafficking
    has had a devastating impact on the entire global community.
    Russia, the NIS, and Eastern Europe are certainly not immune to
    this epidemic. Criminal organizations in these emerging
    democracies are taking advantage of the relaxed borders and
    improved telecommunications systems that have emerged in recent
    years to facilitate their illegitimate operations. These
    countries are targets of opportunity for the major drug
    trafficking organizations, like the Colombian cartels, which
    seek to establish new and lucrative markets.
        Our increased cooperation has netted some success. For
    example, the FBI's Miami office in January 1997, arrested
    Ludwig Fainberg on racketeering charges. Fainberg was indicted
    by a Federal Grand Jury, along with two associates, on 30
    counts of RICO conspiracy, narcotics conspiracy, interstate
    transportation of stolen property, and other crimes. As part of
    a plan which illustrates growing drug trafficking efforts
    between elements in Russia and South America, Fainberg proposed
    the purchase of a Russian diesel submarine to smuggle cocaine,
    according to the charges.
        The FBI, in coordination with the Department of Justice,
    the Department of State and others, completed a four-year
    expansion plan for our Legal Attache program. I am happy to say
    that we have met our initial goals in this plan and continue to
    open offices. Last fiscal year, we opened three offices (Cairo,
    Egypt; Islamabad, Pakistan; and Tel Aviv, Israel) and this
    fiscal year we have already opened four (Warsaw, Poland;
    Riyadh, Saudi Arabia; Tallinn, Estonia; and Kiev, Ukraine). We
    plan to open three more offices this year (Pretoria, South
    Africa; New Delhi, India; and Buenos Aires, Argentina).
    Presently, we have 82 agents and 61 support employees in 30
    nations around the world. During fiscal year 1996, these
    offices handled 3,355 cases and 5,767 lead assignments.
        The FBI's Legal Attache program is the single most
    significant factor in the Bureau's ability to detect, deter,
    and investigate international crimes in which the United States
    or our citizens are victims. By stationing agents abroad and
    establishing operational links with foreign police, the FBI
    substantially expands the nation's perimeter of law enforcement
    protection.
        The Legal Attaches play an important role as conduits for
    information regarding international criminals and crime. They
    also act as facilitators for our international training
    programs. Through the Legal Attaches, foreign law enforcement
    officials become aware of the training opportunities which are
    open to them. At the host governments invitation, the FBI
    conducts an analysis of that country's crime problem and police
    training needs. We then provide the host government with
    recommendations to enhance their techniques and capabilities
    with FBI assistance and training initiatives. Several
    assessments have been conducted in the last two years with
    additional assessments planned for fiscal year 1997. The Legal
    Attaches also screen potential students and make
    recommendations regarding student's attendance.
        Combating this growing international crime problem cannot
    be done by the FBI alone. We rely on our partners within the
    United States Government to work together to fight this
    problem. Recently, the FBI and Department of State have
    undertaken a number of efforts to clarify our roles and
    increase cooperation between our employees. The most important
    result of these efforts was the negotiation and signing of a
    comprehensive Memorandum of Understanding (MOU) regarding the
    Legal Attache's relationship to the Chief of Mission. This MOU
    clarifies the importance of our relationship and the need for
    cooperation in order to be successful overseas. In addition, a
    Diplomatic Security Special Agent has been detailed to the FBI
    to help ensure open and clear communication on policy and
    operational issues. In the future, we also hope to implement a
    comprehensive training program to sensitize DOS and FBI
    personnel to interagency issues. Through these efforts, we have
    strengthened our relationship and ensured a coordinated
    strategy overseas.
        The FBI also works closely with other government agencies
    in one of the United States finest law enforcement
    achievements--the establishment and opening of the
    International Law Enforcement Academy in Budapest, Hungary. I
    know, Mr. Chairman, that you recently visited the ILEA and saw
    firsthand the importance that this facility plays in developing
    working relationships among law enforcement officials. The ILEA
    is a direct outgrowth of our trip to Eastern Europe in 1994 and
    President Clinton's direction to U.S. Government agencies to
    join together to build the world's capabilities in fighting
    international crime. The Academy represents the combined
    efforts of the Department of State (DOS), the Department of
    Justice (DOJ), the FBI, the Drug Enforcement Administration
    (DEA), the Internal Revenue Service (IRS), the United States
    Secret Service (USSS), the Federal Law Enforcement Training
    Center (FLETC), the Alcohol Tobacco and Firearms (ATF), and
    other agencies and countries. It is truly a case where all of
    these law enforcement agencies are working together as partners
    toward a common goal. I cannot speak highly enough about the
    contributions ATF, DEA, Secret Service, IRS, the Federal Law
    Enforcement Training Center in the Department of Treasury and
    the Department of State's Bureau of Diplomatic Security have
    made in making the Academy succeed. The Academy brings together
    seasoned investigators as instructors and law enforcement
    officers from across Eastern Europe, Russia, and the NIS to
    learn policing under the rule of law.
        The opening of ILEA in April 1995, was an important step
    toward establishing a mechanism for regional law enforcement
    training in Eastern Europe. At ILEA, police officers from
    Eastern Europe, Russia and the Baltic states are being trained
    in techniques used to combat modern criminal activity,
    including organized crime and terrorist groups. To date, 377
    students from 19 countries have graduated from the eight-week
    professional development seminar which is the cornerstone of
    activity at the ILEA. In addition, 18 other courses have been
    taught by six different U.S. Government agencies. For example,
    the FBI taught a footwear and tire impression class for 20
    students from Poland, Slovenia, Slovakia, Hungary, and the
    Czech Republic. The United States Secret Service has taught two
    counterfeiting courses for 53 students from Belarus, Ukraine,
    Russia, Hungary, the Czech Republic, Slovakia, Slovenia, and
    Estonia. In addition, ILEA instructors participated in the
    United Nations sanctioned training initiative, under the
    auspices of the Austrian Interior Ministry, for 300 Bosnian
    police officers in Vienna.
        The FBI also conducts training courses with funds allocated
    to the FBI by the U.S. Department of State Bureau for
    International Narcotics and Law Enforcement Affairs (INL) and
    funding from Freedom and Support Act (FSA) and Support for
    Eastern European Democracies (SEED) funds. In fiscal 1997, the
    FBI will receive $1,341,000 from FSA; $1,074,000 from SEED; and
    $3,168,700 from INL for a total of $5,583,700 in funding from
    the Department of State. These funds are used to support the
    teaching of a variety of courses designed to meet particular
    needs of the host country.
        Through the FBI's in-country training program, the FBI
    conducts one and two-week schools in foreign nations which
    concentrate on police operations and technical skills. Our in-
    country training is very broad, ranging from basic
    investigative techniques to police integrity internal control
    courses. We use seasoned, senior FBI street agent instructors
    who use their extensive practical experience in training our
    foreign counterparts in policing under the rule of law. The
    instructors in these programs have an established expertise in
    criminal investigations, especially organized crime and white
    collar crime. Their credibility is not only essential for
    effective instruction but also is very effective in building
    the cop-to-cop bridges that we so critically need.
        During fiscal year 1996 the FBI, provided over 52 training
    courses in 21 countries for 2,078 foreign law enforcement
    personnel through FSA and SEED funding. In 1997, the FBI plans
    to conduct 170 training courses for 59 countries for an
    estimated 4,606 foreign law enforcement personnel. This
    dramatic increase in training is due to the increase in funding
    made available by the Department of State for world wide
    training. The FBI projects a 10 percent increase in training
    courses to be conducted in fiscal year 1998.
        One beneficial part of this training is the opportunity it
    provides the trainers and the trainees to interact about
    specific crime problems being encountered in their countries,
    how to address the problem, share experiences learned in the
    process and forge new relationships for future cooperation on
    matters of mutual interest and concern. To further build upon
    these initial training courses, the FBI has also begun another
    initiative--Practical Case Training (PCT). The PCT initiatives
    allow the FBI to invite law enforcement officers from abroad to
    take part in hands-on, on-the-job practical case training
    regarding mutual investigative interests. The program also
    sends FBI Agents to foreign countries to train their counter-
    parts in the same methodology.
        The PCT serves as a forum in which case information and
    investigative techniques can be shared in effort to combat
    those criminal elements that are common to both nations. This
    program has been extremely well-received and successful.
    Currently, an FBI agent with an expertise in financial crimes
    is assisting the Czech government in its efforts to investigate
    financial fraud, specifically irregularities in the Czech
    banking system. As a result, Czech authorities are becoming
    much stronger in their ability to thwart future criminal bank
    failures. For example, the Czechs are in the process of forming
    financial crime task forces modeled after US examples. The PCT
    serves as a forum in which case information and investigative
    techniques can be shared in an effort to combat those criminal
    elements that are common to both nations.
        In another example of this cooperative program, Russian
    police officers have now worked side-by-side with Agents in ten
    FBI field offices, resulting in testimony and other support by
    Russians in major FBI cases such as the Ivankov organized crime
    and Citibank fraud investigations. In Russia, an ambitious FBI
    commitment to training has already resulted in 36 one-week
    seminars throughout Russia, with at least ten more slated for
    the remainder of this fiscal year. The practical result is that
    there now exists a network of Russian investigators who are
    better prepared to not only meet their own crime challenges but
    to assist the FBI in its responsibility to protect American
    citizens.
        Under the auspices of the State Department's Antiterrorism
    Training Assistance (ATA) program, and working with the
    Department of Defense, the FBI has also developed two training
    courses which attempt to counter threats of concern to the
    United States--terrorism and those involving weapons of mass
    destruction. In conjunction with the ATA program, the FBI will
    be conducting multiple sessions of three specific anti-
    terrorism courses this year. Countries being considered as
    attendees include Brazil, Egypt, Morocco and Turkey. The first
    two-week course, the Criminal Justice Executive Forum (CJEF),
    provides senior level law enforcement officials with current
    leadership, management, and organizational concepts and
    experiences critical to the direction of national law
    enforcement agencies and the coordination of multi-agency
    crisis management policy and strategy. CJEF was first conducted
    in May 1996, and the FBI plans to conduct three of these
    seminars this year.
        We are also working with the ATA program in developing a
    Major Case Management course to provide the basis for managing
    the investigation of terrorist crimes. It specifies the
    procedure for forming an investigative task force. The course
    will enhance the abilities of foreign criminal investigation
    agencies to investigate, arrest, prosecute and convict
    perpetrators of terrorist crimes. The first country to be
    invited to participate in this training was El Salvador. From
    March 3-14, 1997, the FBI taught this course to 25 law
    enforcement officials from the government of El Salvador. This
    course was the first time that judges, prosecutors and police
    officers from El Salvador had been brought together under their
    new constitution to discuss issues such as how to conduct a
    major case investigation and how to form an investigative team.
        We have also developed with ATA a two-week Terrorist Crime
    Scene Investigation course. This course teaches investigators
    the principles of crime scene management and seeks to provide
    the participants with the skill to conduct crime scene
    searches, to process physical evidence, and to provide
    testimony in judicial proceedings. An important part of crime
    scene management involves principles of searching for
    perishable physical evidence, such as fingerprints and
    impressions of tires and tools. The majority of this course is
    conducted in an academic learning environment using lecture,
    group discussion, case studies, and practical exercises.
        Proliferation of weapons of mass destruction and their
    delivery systems poses one of the greatest threats to our
    national and international security now and for the foreseeable
    future. A recent example illustrates the extent of this threat.
    In December 1994, Czech authorities seized 2.72 kilograms of
    weapons grade uranium 235 in Prague. Three persons were
    arrested including the leader, a Czech nuclear engineer who had
    been trained in the former Soviet Union and had personal ties
    with two Russian businessmen. The Czechs had no information
    about the destination of the shipment, but estimate that the
    uranium was worth ``several million dollars.'' This case
    represents the largest quantity of weapons-usable material
    seized outside Russia. In another case, one man died and at
    least four others were hospitalized from overexposure to
    radiation after a tiny sliver of Cesium 137, a radioactive
    source, was found inside the man's home in Estonia. The United
    States must take a proactive role to assist these countries
    with this serious threat.
        Last July, Secretary of Defense William J. Perry and I
    submitted a joint report to the Congress titled,'' DOD-FBI
    Counter Proliferation Program'' which called for the
    development of a training program to improve the ability of
    states of the Former Soviet Union, the Baltic countries, and
    Eastern Europe to prevent, deter and investigate any aspects of
    crimes related to the proliferation and/or diversion of
    nuclear, biological, and chemical weapons and their delivery
    systems, as well as to prevent the illicit trade in related
    materials. This training program will be developed for the
    entire law enforcement community--from investigators to
    prosecutors to judges. The plan calls for U.S. representatives
    to discuss and evaluate the existing counter-proliferation and
    anti-nuclear smuggling apparatus and the legal structures and
    principles for the development of legislative, regulatory, and
    law enforcement frameworks. In addition to the FBI and DOD,
    participating agencies include the DOS, Intelligence Community,
    DOE, DOC, and USCS. Training outside the U.S. will take place
    at the ILEA.
        The FBI realizes the threat which international crimes pose
    to the American public and the importance that international
    partnerships play in the effort to stop these crimes. However,
    we cannot do this alone. Without the support of the Congress,
    the Department of State, and our other law enforcement partners
    here in the U.S., this effort will be fruitless. Through our
    joint endeavors, we have seen positive results; however, we
    cannot stop now. As long as criminals and their organizations
    believe they can exploit the law, we must continue our quest to
    educate and assist our law enforcement partners around the
    world--and in turn receive their assistance and cooperation.

                    summary statement of hon. robert gelbard

        Senator McConnell. Why don't we go to Mr. Gelbard and get
    his opening statement. Then we will get to our questions.
        Ambassador Gelbard. Thank you, Mr. Chairman.
        I would like to submit a written statement for the record,
    please.
        Senator McConnell. Without objection, that will be made a
    part of the record.
        Ambassador Gelbard. The importance of the issues which we
    are here to discuss has become ever more acute in recent years.
    As Director Freeh has said, there has been a dramatic change in
    the world. And, as you, too, said in your opening statement,
    Mr. Chairman, the world has seen a dramatic shift, particularly
    in the wake of the end of the cold war.
        Senator McConnell. Why don't you pull the microphone a
    little closer.
        Ambassador Gelbard. In October 1995, President Clinton
    spoke at the 50th anniversary of the United Nations in New
    York. The subjects he decided to address were not the
    traditional ones that one might have expected. Instead of
    talking about issues related to what might have been expected
    to be a geopolitical tour de raison, he focused on the issues
    that this hearing is about. He focused on the new foreign
    policy and international security issues, of drug trafficking,
    transnational crime, terrorism, traffic and weapons of mass
    destruction, and money laundering.
        Along those same lines, he identified new instruments, new
    tools, new weapons which we needed to bring to bear on these
    problems.
        On the one hand, we are focusing very strongly on the need
    to protect American citizens because the nature of these
    transnational criminal enterprises, as Director Freeh has said,
    has now meant that either organizations are working worldwide,
    as we particularly see in the case of Nigerian drug trafficking
    and other criminal enterprises, or through linkages which we
    see, that have been brought about between criminal
    organizations on the basis of telecommunication advances,
    transportation changes, and computers.
        As a result, we in the State Department changed the shift
    rather dramatically of what had traditionally been the Bureau
    of International Narcotics Matters. When then-Secretary
    Christopher asked me to take this job, we focused on the need
    to change the focus, to broaden it to include law enforcement
    issues, international crime issues, and other related matters.
        Between my Bureau, and other law enforcement entities, and
    other parts of the U.S. Government, we have developed new
    relationships which now result in much stronger exchanges of
    personnel, much stronger communication, and much closer working
    relationships.
        Director Freeh mentioned, for example, that we have jointly
    worked to establish the International Law Enforcement Academy
    in Budapest. We are now looking, between the State Department
    and the rest of the law enforcement community, at establishing
    another such regional entity for the Latin American and
    Caribbean region in this fiscal year, and, funding permitting,
    we want to look at the prospects of establishing a similar
    entity in Southeast Asia in fiscal year 1998.
        At the same time, the relationships between the State
    Department and the FBI in particular have developed in closer
    ways than ever before. I accompanied Director Freeh on his trip
    to Russia, Ukraine, and other parts of central Europe in the
    summer of 1994, which produced the idea for establishing the
    International Law Enforcement Academy. The director of that
    academy is, as you know, Mr. Chairman, an FBI official. We have
    provided approximately $11.2 million in funding to support the
    activities of that academy and have now earmarked approximately
    $5 million for the establishment of the regional institution in
    Latin America and the Caribbean this fiscal year.
        As we deal with these problems, we recognize that this
    involves a fundamental shift in the way we look at
    international affairs. The issues of international crime, the
    issues of drug trafficking, money laundering and other related
    problems have clearly become among the fundamental priorities
    for us not only as they affect American citizens but as they
    affect the stability of our friends and allies around the
    world.
        We do not see to the degree as we did before the threats to
    international security coming from the traditional left and the
    traditional right. But instead we do see some fundamental
    attempts to try to erode or destroy the efforts to develop
    strong democratic institutions coming from international crime.
        Clearly, the most dramatic example that we see of that is
    in Colombia, where drug trafficking organizations and other
    criminal enterprises have made woeful, successful attempts,
    efforts to undermine democratic institutions, economic, and
    social institutions in one of the oldest democracies in the
    Western Hemisphere.
        Similarly in Nigeria we have a regime which is completely
    linked into criminal enterprises. And, of course, as you know
    well, Mr. Chairman, in Burma, the SLORC has a strong alliance
    with criminal enterprises. It is no accident that in these
    three countries we see a complete disregard for the rule of law
    and a complete alliance between those who would violate human
    rights and those who are engaged in criminal action.
        We are deeply concerned in central Europe and in Eastern
    Europe with similar efforts by criminal enterprises to try to
    attack the new democratic institutions as well as economic and
    social institutions which those countries are trying to develop
    and consolidate.
        As a result of that, what we are trying to do, whether
    based on the INL budget, my own bureau's budget, or funds we
    receive from the Freedom Support Act or the Seed Act is work
    with the Federal Bureau of Investigation and other law
    enforcement entities to try to develop strong institutional
    defenses in those countries, to try to develop what is needed
    to combat these threats.
        I should note, too, that we are also working in South
    Africa to try to do the same. The government of President
    Mandela has requested our assistance as they try to change what
    were repressive law enforcement institutions, akin to those in
    the former Soviet Union and central Europe, to democratic
    police agencies and to try to develop the structures that are
    needed to really defend against the threats that exist in that
    country.
        As a result, we are now working to provide support in
    counternarcotics, border controls, advice to the Ministry of
    Justice on developing reviews of their criminal laws and
    criminal procedures, and the DEA and Customs have now set up
    offices with the FBI scheduled in this fiscal year.
        We see the efforts that are involved, whether it is in
    Russia, Ukraine, South Africa, Colombia, Mexico, or in
    Southeast Asia as fundamental to the establishment and
    consolidation of democracy as well as for the protection of
    American citizens.

                               prepared statement

        As a result, we have tried to be as careful as possible to
    support our colleagues in the law enforcement community as well
    as in the Department of Justice and other parts of the U.S.
    Government in our mutual efforts to train and equip their
    counterparts and develop the appropriate institutional
    frameworks that are needed in the effort against these
    problems.
        Thank you, Mr. Chairman.
        Senator McConnell. Thank you, Mr. Gelbard.
        [The statement follows:]

                  Prepared Statement of Hon. Robert S. Gelbard

               international narcotics control budget and program

        Good afternoon Mr. Chairman, Members of the Subcommittee,
    ladies and gentlemen.
        I appreciate the opportunity to discuss the program that
    will be funded by $230 million requested by the President for
    the International Narcotics Control account for fiscal year
    1998. A unique specific purpose of this element of our Foreign
    Operations account is to directly protect American citizens
    within the U.S. from illicit drugs produced abroad, and from
    other transnational crime.

                               new under the sun

        Abuse of psychoactive substances, and criminal acts by one
    person against another, are as old as human society. Protecting
    individuals from crime is traditionally one of the fundamental
    responsibilities of government. In an earlier time, it was an
    area in which a government might occasionally ask assistance of
    another, as when we sought extradition of Butch Cassidy and the
    Sundance Kid when they evaded U.S. prosecution by fleeing to
    Bolivia. Mostly, though, crime and criminals were a domestic
    matter.
        The extent to which things once exclusively domestic have
    become internationalized is almost a cliche. What is true of
    industry, science and trade is true of crime. Once, criminals
    in one country might occasionally have dealt with those in
    another. Now, criminal enterprise is as truly transnational as
    any other business. The financial and geographic scope of
    transnational criminal enterprise has grown beyond the reach of
    any individual government. It equals or exceeds even the
    proverbial scope of multinational corporations.
        This is something new under the sun, as different as a
    Butch and Sundance from the Cali Cartel. A global economy with
    global communications compels governments to address new
    issues, and in so doing to recognize that no one government can
    respond without the effective collaboration of all. A truly
    global reach of illicit drugs and other transnational crime is
    similarly something new under the sun. It compels innovative
    and nontraditional responses. The President's guidance
    regarding the International Crime Initiative (PDD-42) and on
    international efforts against cocaine and heroin (PDD-14 and -
    44) has provided the basis for defining such responses. The
    International Narcotics Control request for fiscal year 1998 is
    an integral part of that response.

                     narcotics: old problem, new approaches

        Illegal traffic in heroin and cocaine has existed since the
    pharmaceutical industry discovered a century ago how to refine
    these potent and tremendously addicting drugs. Both originate
    from raw material produced outside the U.S. Raw material for
    the entire world supply of cocaine originates in only three
    South American countries. The international community worked
    for decades to establish a treaty regime to regulate and
    control production, traffic and abuse of these drugs, based on
    the Single Convention on Narcotic Drugs and other elements of
    the United Nations drug control regime.
        More recently, a new level of multinationalization and
    polycriminality arose in illegal international drug trade.
    Transnational criminal enterprises originated with drug
    trafficking in Colombia and Mexico, but grew to New York and
    Houston, carrying other forms of crime and violence with them.
    Asian criminal enterprises smuggle drugs and illegal aliens
    alike into the U.S. and other countries.
        Virtually all nations are now committed by treaty to
    prevent cultivation of crops that are raw material for drugs of
    abuse, illegal processing of those crops to dangerous drugs,
    and international smuggling of such drugs to their consumers.
    But treaty commitments, however significant, are of value to
    the U.S. and other nations only if backed by government
    capability to implement them. The International Narcotics
    Control program is an essential element of the cooperative
    effort of the international community to control production,
    international smuggling and abuse of illegal drugs. It
    implements elements of our National Drug Control Strategy
    calling for reducing production of these drugs abroad, and
    preventing their smuggling to the U.S. It provides training,
    advice and material support to equip other governments with
    institutional capabilities to make their treaty commitments
    effective enough in practice to protect the American people
    from dangerous drugs originating abroad.
        In fiscal year 1998, the INC program will again fund
    training by DEA, Customs, Coast Guard and other USG agencies to
    improve capabilities of drug law enforcement agencies
    throughout the world, and in doing so will build relationships
    that enhance the ability of our law enforcement agencies to
    carry out their own missions of enforcing U.S. law. The INC
    program supports activities by the UN International Drug
    Control Program and promotes support by other donors to reduce
    production and attack trafficking in illicit drugs in
    countries, especially the major Asian producers of heroin,
    where our bilateral access is limited. Bilateral INC projects
    in selected countries where heroin and cocaine trafficking are
    most significant provide sustained training, advisory and
    material support to enhance the capabilities of their drug law
    enforcement institutions.
        This program is not limited to drug trafficking. As
    important as it is, taken alone, this is like giving aspirin
    for a fever without antibiotics to cure the infection causing
    it. Our National Drug Control Strategy prescribes a
    comprehensive effort to break foreign drug sources of drug
    supply and production. The INC program includes significant
    elements whose purpose is not just to reduce the symptoms but
    to cure the problem, to permanently reduce production of the
    crops from which illicit drugs of abuse come.
        The INC account includes a regionally funded aviation
    component that supports reduction of illicit drug crops by
    destruction with herbicides applied by USG-owned and -supported
    aircraft. These have operated effectively in Colombia,
    Guatemala, Panama, Venezuela and other countries. It also
    supports aviation aspects of our bilateral country projects in
    the three principal cocaine raw material source countries,
    Peru, Bolivia and Colombia. In 1993, the President decided that
    the INC account should include economic (formerly ESF) and
    military (formerly FMF) assistance provided since the 1980's to
    advance our drug control goals. The equivalents to these former
    programs are also now included in the INC drug source country
    projects.
        In fiscal year 1998, over half of our INC request is
    devoted to bilateral projects in the three coca source
    countries, and aviation support for them. In these countries,
    our goal is not limited to drug law enforcement. We promote and
    support comprehensive programs by those countries to reduce
    and, within the decade of our National Drug Control Strategy,
    eliminate commercial-scale cultivation of coca destined for
    illicit cocaine production. This demands robust, efficient host
    government institutions for drug enforcement and interdiction,
    to control prices the illegal drug industry can offer farmers
    growing drug crops. It demands equally robust, efficient
    development of licit economic livelihood, to enable farmers to
    escape dependence on illegal coca and prevent re-establishment
    of the crop.
        INC-funded assistance has helped implement a design worked
    out in the Peruvian government national drug control plan
    approved in 1994. By 1996, coca cultivation was reduced by 18
    percent, to the lowest level since the mid-1980's. The National
    Drug Control Strategy identifies the enhanced support for INC
    activities in Peru reflected in this fiscal year 1998 request
    as one of its most important foreign drug supply control
    initiatives for the coming decade. Implementing the important
    long-term goal of eliminating illicit coca cultivation in Peru
    and the other cocaine source countries, will not be quick or
    easy. The INC program for 1998 and future years is an important
    part of the means by which we intend to get there. With
    continuing support from Congress, we are persuaded that it is
    possible to do, and that we must do it.

           crime and criminal justice: new occasions teach new duties

        In fiscal year 1997, for the first time, the INC
    appropriation included a separate sub-element devoted
    specifically to assisting the criminal justice institutions of
    other countries to define and implement activities against
    forms of crime other than illegal drug production and traffic.
    The types and manner of assistance are familiar to us: funding
    the provision of training, professional and technical advice,
    providing material and financial support to criminal justice
    institutions, is something the INC program has been doing for
    drug law enforcement for two decades. The reasons our
    activities have been expanded to more aspects of the general
    issue of crime and criminal justice institutions, and some of
    the consequences of this expansion, are new and different
    occasions for the INC program. I would like to devote somewhat
    greater time and attention today to them.
        Drug trafficking, in today's world, is far from the only
    criminal activity that reaches from beyond a country's borders
    to victimize its citizens. The same explosive economic,
    technological and social developments that globalized legal
    activities, and production and trade in illegal drugs, affected
    other types of lawbreaking. Once, it took being in a village to
    perpetrate a fraud. Today, a swindler can be physically half a
    world away from a victim. As the scope for illegal activity
    expanded, so did its organization; as legal businesses got
    bigger, so did illegal ones. Criminal organizations like the
    Sicilian Mafia, well known for centuries, expanded to global
    dimensions. Criminal organizations that gained transnational
    scope trafficking drugs from East Asia or Mexico entered allied
    forms of illegal activity, like smuggling aliens.
        Crime on an organized, transnational basis has become a
    fact of the modern world. Cars stolen in the U.S. are sent
    illegally to other nations to avoid high import tariffs. The
    National Insurance Crime Bureau reports that 40 percent of all
    vehicles stolen off U.S. streets ultimately are moved to other
    countries, costing insurance companies and customers millions
    of dollars a year. Illegal immigration and alien smuggling
    reach into the U.S. and other industrialized countries; in
    Washington a year ago, a seemingly legitimate U-Haul truck had
    a minor accident, and was found to be packed with illegal
    Mexican migrants who had been smuggled some 3,000 miles in
    deplorable conditions.
        The smugglers were tied to criminal organizations in
    Mexico. Nigerian criminal groups are wreaking havoc with
    American, European and Asian citizens. Last year, it is
    estimated that Americans lost $20 billion to Nigerian fraud
    scams--mostly in the insurance industry, but also with credit
    cards. In one recent instance, the trail of a costly telephone
    swindle in the U.S. led to Moldova, others to otherwise obscure
    island ministates in the South Pacific. Asian criminal groups
    in the U.S. and Europe exploit their own countrymen. Promising
    a better life, these groups smuggle illegal aliens into the
    U.S. or other countries, and then hold them hostage to large
    sums of money they will never be able to pay. Money launderers
    use sophisticated international banking and financial systems
    to legitimize the illegal proceeds of drug trafficking or other
    criminal activity, or illegally evade tax or other laws of
    individual countries.
        The reach and complexity of these activities is by itself
    sufficient to compel us and the international community to
    recognize them as a greater and more immediate threat than our
    domestic law enforcement agencies have dealt with. However, the
    matter does not rest with this. Transnational criminal groups
    find a favorable business environment in debilitated legal
    institutions of formerly totalitarian states, like the former
    Soviet Union or Eastern Europe. Those criminal groups thus
    acquire a vested interest in perpetuating that institutional
    debilitation. They bring to corruption resources far greater
    than weak governments can dispose to prevent it. Where
    transnational criminality on a vast scale has an interest in
    seeing that courts belong to the highest bidder, impartial and
    authoritative judicial institutions essential to democracy will
    be stillborn.
        The advance of democracy thus brings with it special
    challenges. As politically authoritarian or totalitarian
    systems break down, whether of the left, as in Russia, or the
    right, as in South Africa, their countries must develop new
    legal and institutional capacities characteristic of
    democracies to maintain law and order. Police officers whose
    approach to investigation was to round up usual suspects are
    utterly unequipped to deal with criminals experienced in
    evading mature law enforcement institutions in established and
    stable democratic states. The resulting political and social
    environment has tremendous possibilities for individuals
    interested in making money from others, without regard for law.
        Transnational crime thus has two significant new
    dimensions. It reaches to subject ordinary American citizens in
    their home states and cities more directly to crime whose
    perpetrators are beyond the reach of U.S. law enforcement than
    has ever been the case before. The corrosive effect of
    transnational crime can debilitate, subvert, even destroy the
    institutions of a state responsible to act against it. Without
    functioning criminal justice institutions, there is no law.
    Without law, democratic political institutions that our foreign
    policy is to promote cannot function.
        These are the twin elements of explanation and
    justification for this new component of the INC account.
    Projects and activities begun over the past few years, and
    sustained through fiscal year 1997 by the first INC criminal
    justice appropriation, will be maintained and enhanced under
    this requested appropriation for fiscal year 1998 to more
    effectively protect Americans from crime initiated abroad, and
    to further the development of criminal justice institutions
    indispensable to our foreign policy goals of preserving peace
    and stability and promoting democracy.
        President Clinton used his address to the 50th Anniversary
    session of the UN General Assembly to call the attention of the
    global community to the emergence of nontraditional threats to
    the security of nations and the safety of citizens, including
    transnational organized crime. The U.S. has led industrialized
    countries through groups of experts of the G-7/P-8 countries to
    concert national policies and approaches to transnational crime
    issues. The Summit of the Americas follow-up ministerial
    meeting on money laundering in December 1995 approved a
    declaration calling for enlargement and improvement of action
    by governments in the hemisphere to prevent illegal money
    laundering, and providing for mutual consideration of
    government activities that once would have been jealously
    argued to be of no legitimate international concern. Actions in
    the Summit and other international fora to establish and define
    international norms relating to governmental corruption
    represent another aspect of growing governmental recognition of
    the national security dimensions of transnational crime.
        With this INC program, the U.S. has led the world in
    developing programmatic responses to this global challenge in
    specific situations. Our experience over two decades of
    enhancing the institutional capabilities of other governments
    to define and implement national efforts against illicit drug
    trafficking is equally pertinent to law enforcement and
    judicial institutions addressed to other forms of crime. The
    Support for East European Democracy and Freedom Support Acts
    provided training, advice and technical assistance, including
    the establishment of an International Law Enforcement Academy
    at Budapest, to strengthen institutional capacities of formerly
    totalitarian governments in Eastern Europe and the former
    Soviet Union to establish and maintain institutions of domestic
    law and order appropriate to democratic society. The fiscal
    year 1998 INC criminal justice appropriation, along with SEED
    and FSA funding that will be allocated to INL, will help to
    sustain and support these activities as vital elements of our
    national foreign policy priorities in these regions. We
    recently agreed to a wide-ranging program to provide advice and
    assistance to South Africa to review, revise and improve its
    domestic criminal laws.
        Much has been accomplished already. In fiscal year 1995,
    over 4,100 law enforcement officers from Central Europe and the
    former Soviet Union received training, a level that was
    sustained in fiscal year 1996. In 1996, 250 law enforcement
    officials from this region participated in an 8-week ILEA
    program for police managers, with the cooperation and support
    of instructors from Germany, the UK, Canada, Italy, Russia and
    the council of Europe.
        In our immediate region, INC-funded training in stolen
    vehicle detection and recovery in Panama, El Salvador, Honduras
    and Venezuela supported an initiative, developed in cooperation
    with the National Insurance Crime Bureau and the FBI, to
    establish treaty arrangements to identify, recover and return
    stolen vehicles to owners. In 1997, this initiative is being
    expanded to Central Europe. A Caribbean Crime Initiative
    against organized criminal activity has been developed, and
    training such as, for example, a regional witness security
    program has been provided to improve protection of witnesses
    prior to and during trial.
        New extradition treaties with Bolivia, France, Poland,
    Cyprus and Spain better respond to the realities of modern
    transnational crime, and reflect the willingness of governments
    in a wide variety of nations to cooperate to prevent criminals
    from evading prosecution by fleeing to other countries.
        During fiscal year 1998, the requested INC appropriation
    will fund law enforcement training programs and technical
    assistance to the New Independent States, Russia, Central
    Europe, Latin America, Africa and East Asia, provided by
    federal, state and local law enforcement agencies, the
    Department of Justice's International Criminal Investigative
    Training and Assistance Program (ICITAP), and other
    organizations. The program will place particular emphasis on
    money laundering, alien smuggling, and enhancing the
    institutional capabilities of other governments to combat
    organized and financial crime.
        In Russia and the New Independent States, and in Central
    Europe, INL-managed training funded by INC, FSA and SEED funds
    will be offered to strengthen the capacity of criminal justice
    institutions to act against organized crime, including
    financial and white collar crimes, illegal drug traffic, and
    traffic in nuclear materials. Training is offered in basic law
    enforcement techniques, and advanced technical assistance
    programs will be continued in Poland, Czech Republic, Bulgaria,
    the Baltics, Slovakia and Hungary, and support will be
    maintained for the ILEA at Budapest. We will provide assistance
    to the NIS, Russia and Central European countries to combat
    alien smuggling by enacting anti-smuggling legislation,
    training and cooperation through existing international groups.
    A first regional training program on illegal migration was held
    in 1996 at the ILEA. These activities are carried out in close
    collaboration and coordination with Federal enforcement
    agencies, including the FBI--represented today by Director
    Freeh--and other Justice and Treasury agencies. These agencies
    participate in an interagency working group which coordinates
    training programs carried out for students from Central Europe
    and the NIS.
        In Latin America and the Caribbean, the fiscal year 1998
    INC appropriation will support civilian law enforcement
    training, and seek to establish a regional law enforcement
    academy modeled on the ILEA at Budapest. INC funds will support
    a third phase of the program to negotiate bilateral agreements
    on stolen vehicles, to provide standard procedures for recovery
    and return from Central America, and training for local law
    enforcement officers, to reduce the annual loss to car theft of
    several hundred millions of dollars by U.S. citizens. This
    program will be expanded to South America and other parts of
    the world where stolen U.S. vehicles are being marketed in
    large numbers.
        In Africa, law enforcement training and technical
    assistance funded by the fiscal year 1998 INC appropriation
    will emphasize respect for human rights by demonstrating how
    U.S. criminal justice agencies function to enhance the rule of
    law. INC funding will support technical assistance to law
    enforcement agencies in South Africa responsible for preventing
    illegal trafficking in nuclear materials and weapons. In East
    Asia, INC-funded law enforcement training will be provided to
    institutions responsible for action against organized criminal
    groups involved in alien smuggling, and to prevent money
    laundering.

                            conclusion: miles to go

        Our National Drug Control Strategy emphatically states that
    the metaphor of ``war'' must be recognized as totally
    inappropriate to our nation's drug problem. It is equally
    inappropriate to transnational crime. Wars are expected to end.
    They involve enemies that are nations, not unnatural
    transnational enemies whose only motivation is money. A
    democratic nation must utterly reject the concept of a ``war''
    against its own people. The new transnational challenges of
    narcotics and crime demand responses different from the
    traditional international diplomacy of war and peace.
        After the Second World War, the United States and Western
    Europe defined multinational security institutions in NATO,
    whose integration of national security activities once seen as
    exclusively sovereign prerogatives was unprecedented. We cannot
    use capabilities and institutional arrangements we created to
    confront the danger of war between sovereign nations to deal
    with the dangers of transnational crime and narcotics. The
    times and circumstances call upon us, however, to be equally
    innovative, and not allow precedent or tradition to block
    effective response.
        The international community's response to transnational
    crime remains less comprehensive and mature than to that of
    illicit drugs. There is need for continued development of the
    global policy recognition that the threats of transnational
    crime and illegal drugs have become as much an element of
    global foreign policy as war and peace.
        One important consequence of this is that governmental
    activities and agencies once considered purely domestic have
    developed, and must continue to develop, operational
    relationships on a permanent basis with comparable institutions
    of other governments. Sustaining representatives abroad of U.S.
    domestic law enforcement agencies such as the FBI, DEA, Customs
    Service, ATF and others must become not an ancillary and
    peripheral element of our diplomatic missions, but as central
    as any part of traditional diplomacy. Practitioners of
    traditional diplomacy, in our Foreign Service and others, must
    become conversant with the issues and professional expertise of
    law enforcement agencies. In turn, diplomats can offer to the
    enforcement agencies the support of a profession whose essence
    is leading other governments to do, or not do, that which is in
    the national interest of one's own country.
        In 1996, the Department of State worked with FBI to develop
    a five-year strategy for FBI staffing and operations overseas.
    The study published in June 1996 embodies the view that the
    traditional foreign affairs community and U.S. law enforcement
    entities must develop similar world views regarding the roles
    of U.S. law enforcement agencies in overseas programs. There
    has been good progress in recent years, but there remains work
    to do in streamlining mechanisms for overseas law enforcement
    staffing, law enforcement coordination within country teams
    abroad, and appropriate reporting from missions abroad to
    Washington agencies to facilitate coordination. In this
    context, I stress again that the oversight authority provided
    by law to the Chief of Mission in any country is central to the
    ultimate success of all policies and programs in those
    countries.
        Our fiscal year 1998 INC appropriation is the broadest and
    most effective means by which coordinated assistance by U.S.
    law enforcement agencies is delivered to strengthen the
    capabilities of counterpart foreign institutions. The INC
    program is fundamental to framing and implementing U.S.
    national foreign policy responses to production and traffic of
    illicit drugs abroad, and transnational crime. It is a novel,
    significant employment of known programs and capabilities to
    respond creatively to foreign policy challenges of the next
    century, as we and others formerly did for those of war and
    peace. We must continue to define and implement new and
    innovative forms of multinational cooperation and collaboration
    against transnational criminal organizations. If the
    international community cannot define institutions and
    arrangements that respond to the imperatives of these
    challenges, the ultimate result will be as destructive to our
    nations and our peoples as any lost war in history. People die.
    People are deprived of their personal liberty by addiction to
    drugs. People are stripped of their property by criminals and
    their crimes. As our Founding Fathers so eloquently declared
    centuries ago, it is precisely for the protection of the
    citizen from such threats that democratic governments and
    institutions exist. Without effective institutions for the
    preservation of law and order, democracy itself cannot long
    hope to survive.
        Mr. Chairman, I welcome your questions and those of your
    Subcommittee, concerning this request.

                      remarks of senator patrick j. leahy

        Senator McConnell. Our ranking member, Senator Leahy, would
    like to make an opening observation, too, and then we will go
    to questions.
        Senator Leahy. Thank you, Mr. Chairman. We had the
    Judiciary Committee meeting upstairs.
        Senator McConnell. Right, and I mentioned that that is
    where you were.
        Senator Leahy. Thank you. You deserve a great deal of the
    credit for giving the problem of international crime so much
    attention, both as ranking member and chairman of this
    subcommittee. You have been very, very strong on this and I
    commend you for it.
        Director Freeh, you and I have had many conversations about
    this and I appreciate the effort you have made personally and
    the effort that members of your staff have made to keep me
    apprised, as well as other members, of the problem of
    international crime.
        As Mr. Gelbard, I, and all the rest of us know, as we
    travel abroad and talk to people in these areas where we are
    trying to help them build a market economy, to build up a
    middle class, to support democracy, it all falls apart if crime
    is so prevalent that it invades everything you do in business,
    from getting your permits to being able to even open a door of
    a business.

                               prepared statement

        What we have done in Budapest and elsewhere I think is
    extremely important and it will continue to have my support. I
    think it is a daunting task. I did not even fully expect the
    enormity of it when I first started looking at it and I
    appreciate both of you being here and what you are doing.
        I will put my full statement in the record.
        [The statement follows:]

                  Prepared Statement of Senator Patrick Leahy

        Mr. Chairman, you deserve a great deal of credit for giving
    the problem of international crime the attention it deserves.
    It would be hard to think of anything in this bill more
    relevant to the American people. That is not to take away from
    anything else. It is simply to point out how serious a problem
    this has become--from Russia to Nigeria to Colombia, the power
    of organized crime and the drug cartels has grown sharply.
        These countries are unable to deal effectively with these
    problems. Their police officers are under-paid, often poorly
    trained, and in many cases involved in criminal enterprises
    themselves.
        The effect on foreign investment is devastating. American
    companies are not going to put up with all the bureaucratic
    headaches of doing business in Russia and the other NIS
    countries, if the system is run by organized crime.
        Director Freeh, this subcommittee has tried to give you the
    resources to work with these countries to combat these crimes.
    I have heard that the International Law Enforcement Academy at
    Budapest is an excellent facility.
        But training police is not enough. We also need to train
    judges, court personnel, prosecutors and defenders. And we need
    to help these countries rewrite their criminal codes. The State
    Department is doing some of this work. Let's not forget that
    the State Department is first and foremost responsible for
    foreign policy. You need to work closely together.
        I think Mr. Gelbard knows of my skepticism about the
    international counter-narcotics program. We have spent an awful
    lot of money to stop the flow of drugs into this country, and
    it has not slowed one bit.
        That is not to say we should not try, because I recognize
    that the drug cartels threaten democracy itself in the
    countries where they are strongest. But let's not fool
    ourselves into thinking that we are going to make a dent in the
    drug problem as long as the demand is there.
        Let's also not repeat our mistakes. How many times have we
    sent aid to the armed forces in these countries, and closed our
    eyes to the human rights abuses, because of some misguided idea
    that the ends justified the means?
        Last year I wrote a provision that became law, with the
    Chairman's support, which aims to keep our aid out of the hands
    of people who violate human rights. This is very important to
    me, and I want to be sure we agree on how to implement that
    law.
        Thank you, Mr. Chairman.

                              international crime

        Senator McConnell. Thank you, Senator Leahy. I appreciate
    your kind comments.
        Director Freeh, we have all, of course, read the recent
    stories about alleged efforts of foreign governments to
    influence the American political process. Obviously, this is a
    complex issue which the Governmental Affairs Committee and,
    hopefully, an independent counsel will pursue in all
    appropriate detail.
        However, there are a few questions that I hope you can
    answer as this issue potentially bears on international crime.
        Do we have a legal attache in Beijing?
        Mr. Freeh. No, sir; we don't. We have a legal attache
    office in Hong Kong. The Congress has approved the opening of
    the office in Beijing. It has been funded. We have not yet been
    able to locate the agents who have already been selected to the
    Beijing office, which we need to do, we think, before July when
    Hong Kong reverts to the People's Republic of China [PRC]
    control.
        Senator McConnell. How would you characterize the FBI's
    coverage of Chinese criminal activities? Obviously, I would
    draw a distinction between individual or organized criminal
    enterprise versus officially sanctioned activities, such as
    have been at least alleged in the influence peddling stories.
        Mr. Freeh. We have had quite a bit of law enforcement and
    criminal justice associations with the Ministry of Public
    Security--that is, the law enforcement agency in the PRC.
        We had a recent case, actually, where we were able to
    return to the PRC an individual who was an employee of the
    Central Bank of the People's Republic of China, who embezzled
    and attempted to move several millions of dollars out of that
    bank in the PRC into North America. Working with the Ministry
    of Public Security, we were able to locate and return most of
    that money.
        We work with them, as the DEA does and as the State
    Department does, in drug interdiction matters. We have had a
    number of the PRC police officers come to Quantico for some
    training and high level exchanges. We also work with them on a
    case-by-case basis through our legal attache, as the DEA does.
    We have actually had some good successes with respect to those
    law enforcement matters.
        Senator McConnell. Jim Lilley, our former Ambassador to
    China, has publicly confirmed extensive official Chinese use of
    funds to attempt to influence the American political system.
    Would you agree with his assessment that this is a widespread,
    long-standing, serious law enforcement problem?
        Mr. Freeh. One of the subjects that the grand jury and the
    task force is currently investigating are allegations with
    respect to not just illegal political activities and
    contributions, but also to the national security aspect--
    whether any of the funding, attempted funding, or planning
    originated not by an individual per se but by a foreign
    government, a state sponsor or ministry. That is really the
    heart of part of what our grand jury is currently doing.
        I think the most I could probably tell you is that the
    allegations are in there. They are being treated very
    seriously. I have assigned 25 agents and an inspector full-
    time, with many other agents around the country and even in our
    legal attaches, to follow leads in that investigation. There is
    not a matter that has my attention to a greater degree right
    now.
        Senator McConnell. Including espionage, are you aware of
    any other criminal activities sanctioned by the Chinese
    Government?
        Mr. Freeh. I don't know that I could go into this in a
    nonclassified forum. I would certainly be happy to provide you
    with some material, mostly of a classified nature, which has
    indications of perhaps other activities not necessarily
    relating to the Government, but to individuals perhaps
    associated with the Government.
        Because of the nature of it, I don't think I could do it in
    open forum.
        Senator McConnell. Fair enough.
        The White House Press Office has taken the position that an
    FBI agent and another NSC staffer misunderstood instructions to
    protect sensitive information regarding illegal Chinese
    activities.
        [Clerk's note.--The White House claims crucial information
    on Chinese activities was never provided to senior policymakers
    or the President--that all these people were unaware or
    uniformed about illegal campaign activities.]
        Senator McConnell. I think it is very unusual that a senior
    FBI agent with 25 years experience would not understand basic
    instructions regarding the dissemination of protected
    information and issue orders not to advise senior officials of
    important information.
        It is my understanding that the Commander in Chief is both
    entitled to and should expect to have access to any and all
    information developed by our intelligence and law enforcement
    agencies.
        Is there information not available to the President?
        Mr. Freeh. With respect to national security matters?
        Senator McConnell. Yes.
        Mr. Freeh. I don't believe so, sir.
        I know the Attorney General is looking at all of the
    matters relating to the current investigations that are being
    undertaken and will make a decision, as appropriate, as to
    whether matters which are pursued or discovered in the context
    of a criminal investigation are appropriately disseminated to
    national security policymakers, including the President.
        I believe that national security information at this point
    is being appropriately reported.
        Senator McConnell. Have you ever instructed an FBI agent
    not to make information available to the President?
        Mr. Freeh. No.
        Senator McConnell. Did the FBI agent involved in this case
    have a record of misunderstanding security guidelines and
    procedures or a history of denying information to superiors?
        Mr. Freeh. Not as far as I know sir.
        Senator McConnell. Can you shed any light on how the
    information was handled?
        Mr. Freeh. I really don't know that I could say more than
    has already been publicly discussed. My understanding was that
    the national security staffers were going to be briefed on a
    matter which the Attorney General and I thought was very
    important and very significant. Neither I nor anybody on my
    staff placed any restrictions with respect to that information
    going up the chain of command in the National Security Council.
    I don't think such a restriction would make much sense.
        I also note that the White House counsel on Tuesday, I
    believe, did issue a written statement which said, in effect,
    that one of the staffers had a recollection that the
    information should not be disseminated outside the room. The
    second staffer had no memory and was relying on the first.
        The statement also said that the staffers elected not to
    brief that information up, even though the regulations they
    were aware of in the NSC would have permitted that. I think
    that is the state of the public record right now.
        We certainly put no restrictions on that. When we came to
    brief the committees, we briefed the Intelligence Committees in
    the House and Senate, mostly senior staff. No restrictions were
    put on that briefing as to reports to the members. Otherwise
    the briefing wouldn't make any sense, in my view.
        Senator McConnell. What is the basic standard or threshold
    for advising a government official that he or she may be the
    target or an unwitting participant in a criminal effort?
        Mr. Freeh. It is really a decision which is a case-by-case
    determination. We look at the information that we have and a
    determination is made whether there is any basis to believe
    that a criminal offense is being committed, whether or not the
    person who may be the recipient of the effort or the attempt is
    witting or unwitting. We weigh the national security concerns
    in terms of making sure that an official is aware of an
    unwitting attempt to influence him or her or some policy. But
    that is always balanced against a determination, sometimes
    based on very preliminary facts, that the person may
    potentially be a subject themselves of a criminal case, in
    which case we would reserve, perhaps temporarily, the advice
    and the notification.
        It is really done on a case-by-case basis, looking at all
    the facts and determining and balancing national security
    interests against the protection of a criminal case.
        Senator McConnell. What I am trying to determine is if in
    briefing White House and other officials, did the FBI provide
    general warnings that an individual should be aware of possible
    illegal overtures from or was the FBI more specific in advising
    a course of action, such as United States officials should take
    steps to avoid contact with specific Chinese officials or
    individuals.
        Mr. Freeh. Again, I could go into the subject matter of the
    June briefing with you. I would be happy to do that. But, it is
    a classified briefing, and I don't think I could do it here.
        Senator McConnell. There seems to be some confusion about
    why some members were advised of Chinese efforts which may have
    been targeted against them and others were not. The New York
    Times suggested you drew up a list of 30 individuals who might
    be the target of Chinese efforts. Yet it is suggested you only
    briefed a half dozen.
        Is that accurate?
        Mr. Freeh. That is basically accurate, sir. Six members--
    actually seven members--who were briefed were briefed on the
    basis of what we and the Department of Justice determined was
    very specific information, more than just general interest, and
    the determination was made on that basis. We also advised the
    staffs of both intelligence committees before we briefed the
    members.
        Senator McConnell. Was the information treated as a counter
    intelligence matter or as a criminal investigation? And did
    that determination affect the manner in which the information
    was handled or disseminated?
        Mr. Freeh. It was treated strictly as counterintelligence,
    national security information. There was no indication then,
    and now, and in the period between that, that any of the people
    to whom we made notification were in any way involved or
    knowing of any improper or inappropriate activity, which is why
    we certainly advised them quickly.
        Senator McConnell. Do you believe all appropriate and
    standard procedures were followed in this investigation, and,
    more specifically, the handling and use of the information?
        Mr. Freeh. We are reviewing, as we speak, that whole
    process. I want to make sure that we did appropriately bring
    the information as it was developed to the people who needed to
    have it.
        I am not 100 percent sure that that was done, but I will be
    when I finish the review.
        Senator McConnell. Finally on this issue, have all the
    members with presumed interests in the matter been informed?
        Mr. Freeh. They are being informed, sir. Yes.
        Senator McConnell. Senator Leahy, have you any questions?
        Senator Leahy. Yes.
        Senator Specter. Mr. Chairman, might I interrupt for just a
    moment?
        We are in the course of hearings down the hall on Conrail,
    so I cannot be present. But I wanted to come and say that I
    consider this a very important hearing. I thank the chairman
    for scheduling it and I will be following the transcript
    closely and working with you, Mr. Director.
        Thank you for the interruption, Mr. Chairman.
        Senator McConnell. Thank you, Senator Specter.
        Senator Leahy.
        Senator Leahy. It's always good to have you here, Arlen.
        Senator Specter. And the shorter the better, perhaps.
    [Laughter.]
        Senator Leahy. Along the lines of the question the chairman
    was asking, have we found any indication of other countries
    doing similar things and have Members of Congress been warned
    about other countries?
        Mr. Freeh. Not anywhere close to the degree that was
    involved in this particular situation, no.
        Senator Leahy. Have members been given warnings about other
    countries?
        Mr. Freeh. Not to my knowledge.
        Senator Leahy. Director Freeh and Secretary Gelbard, you
    have been both involved in the question of training police
    officers. But there is also a need for qualified court
    personnel, judges, court reporters, prosecutors, defenders, and
    the revision of criminal codes.
        When I have talked with some of the people in the Russian
    court system, there are things that we take for granted--public
    defenders, independent prosecutors, somebody who actually keeps
    a transcript--and I wonder if the FBI and State coordinate on
    this, and whether that further infrastructure training is in
    there?
        Ambassador Gelbard. Yes, Senator, we do.
        We have an interagency group that is set up to examine on a
    country by country and also subregional bases exactly the kinds
    of programs we provide funding for. What we try to look at is
    exactly as you say, Senator, the totality of what is required
    in the justice sector. Whether it is in Russia or, as I was
    mentioning earlier, South Africa, we are very concerned about
    training police in the right kinds of techniques, starting with
    the basic concepts of democratic, community based policing, but
    also prosecutors, public defenders, judges, and the legal
    framework that wraps it all up.
        In Russia, for example, we have had two assistant U.S.
    attorneys who have been working out of the Embassy, advising
    various parts of the Russian Government, including the Duma, on
    revisions of the criminal procedures code and the criminal
    code--the Duma and their executive branch.
        We have had programs that fund training of public defenders
    and prosecutors working through the ABA, through the Justice
    Department, and so on.
        We are trying to work increasingly, too, through State and
    local governments. Mr. Chairman, I would point out that we have
    been working in particular with the University of Louisville
    and the Southern Police Institute in Romania, Hungary, and
    Ukraine on some of these issues, too.
        Senator Leahy. Do you find that the private sector, the
    companies that may invest there, do they check with you on
    this? Do they ask you about this?
        Ambassador Gelbard. Through our Embassy in Moscow, for
    example, there is a liaison relationship to discuss issues.
        Senator Leahy. Is it used?
        Ambassador Gelbard. Excuse me?
        Senator Leahy. Is it used? Is it an active one?
        Ambassador Gelbard. Yes, sir.
        Senator Leahy. Tell the two U.S. attorneys, the assistant
    U.S. attorneys who are over there that if they get to stay in
    townhouse No. 1 to be sure and lock the door. [Laughter.]
        Ambassador Gelbard. I will do that, sir.
        Senator Leahy. I'm sorry. That's an inside joke, so to
    speak. [Laughter.]
        Mr. Gelbard, we spent $103 billion between 1986 and 1996 on
    combatting drugs, $20 billion for international counter
    narcotics programs. During 1988 to 1995, drug cultivation, drug
    related activities increased in Latin America, the Caribbean,
    and Southeast Asia. The amount of cocaine coming into the
    United States has remained steady since 1988. We spend billions
    but the street price doesn't change.
        We take money out of development assistance and put it into
    counternarcotics. Another $17 million has been requested for
    fiscal year 1998 for counternarcotics programs. Is it really
    making any difference?
        Ambassador Gelbard. Yes; it is, Senator.
        First, these are problems which took us a long time to get
    into, and the solutions are going to take a while. These are
    not issues which can be solved through short term solutions
    except in the cases of specific discreet arrests of
    individuals.
        What we are fundamentally talking about here is institution
    building, trying to develop institutions in countries that
    either are new democracies or are democracies which have
    serious problems in terms of corruption. Whether those
    institution building mechanisms relate to something as basic as
    helicopter units or they involve longer-term problems, such as
    being able to develop strong judiciaries, these take a while.
        We have seen some good, important results. For example,
    over the course of last year, we saw an 18-percent decrease,
    net decrease, in coca cultivation in Peru thanks in significant
    part, in overwhelming part, to efforts by the United States to
    support alternative development, which have caused farmers to
    walk away from the coca fields, along with strong interdiction
    efforts, which meant support for the Peruvian police and
    military to stop the transit of coca and coca paste.
        Senator Leahy. But you know, in some ways I feel, with all
    the good intentions of everybody involved, I feel in some ways
    that some of these counter narcotics efforts are like King
    Canute telling the tide not to come in. We have cut down
    cultivation in Peru but the cultivation goes up somewhere else.
        Frankly, I am becoming increasingly worried that we waste a
    lot of money. We send equipment to other countries--and I have
    an amendment on that that you are now supposedly following--to
    stop this. But the problem is here.
        If we are going to have a huge demand in the United States
    for these drugs, with all the money from the United States, you
    are going to continue to have corruption no matter what you do.
    If you stop it in one country, it is going to come from
    somewhere else as long as the demand is here.
        I think maybe at some point, as we try to decide how we
    presssure the Governments of Mexico, Colombia, Peru, and
    elsewhere, we here in the United States are going to have to
    ask ourselves are we doing that just to shift the blame to
    somebody else. If we cannot find some way to stop our adults
    and our children from using drugs, nothing you, I, the
    chairman, or anybody else can do is going to stop it.
        Ambassador Gelbard. Senator, I agree with you fully. That
    is why this administration has developed a balanced strategy
    with more emphasis on demand reduction and more emphasis on
    supply reduction. But to continue the use of European metaphors
    with King Canute, we can't have a Maginot type of defense line.
    We cannot try to build a wall around the United States.
        So what we are trying to do is put greater emphasis on both
    sides of the equation.
        Senator Leahy. I mentioned that I had written to Secretary
    Albright about my amendment prohibiting the transfer of U.S.
    equipment to units of security forces if members have been
    implicated in gross violations of human rights, unless the
    Government is taking steps to hold them accountable. I am told
    the administration intends to apply that law to all
    counternarcotics related assistance, including FMF and drawdown
    equipment.
        Am I correct on the administration's policy?
        Ambassador Gelbard. Yes, sir.
        We take this issue very seriously. We have put great
    emphasis on this problem of end-use monitoring as it relates to
    human rights.
        We sent out a telegram to all diplomatic posts on this
    issue. As I told your staff, I will be happy to supply a copy
    of that to you.
        We have explained the amendment concerning the use of funds
    from now on. Posts were instructed that if gross human rights
    violations are reported to have been committed by any recipient
    units, they must report on steps taken by the host government
    to bring those responsible to justice.
        We are making sure that units that receive any of this
    equipment, whether it is from our budget or FMF funds, have
    been examined with the utmost care.
        We have started that, particularly with Colombia because of
    the overwhelming amount of assistance that goes to that
    country. I have personally discussed this issue with the
    Colombian Minister of Justice, with the former Colombian
    Minister of Defense, who is now their Ambassador here. Our
    Ambassador has worked this issue very carefully with all the
    appropriate people in the Colombian Government, and we are
    assuring, to the maximum extent possible, that any of this is
    avoided.
        My bureau and the Bureau of Democracy, Human Rights and
    Labor also met recently with Amnesty International and reviewed
    all the steps we were taking. I am told we received a very
    positive reaction on that.
        Senator Leahy. Thank you.
        Thank you, Mr. Chairman.
        Senator McConnell. Thank you, Senator Leahy.
        Senator Campbell.
        Senator Campbell. Thank you, Mr. Chairman.
        I would like to associate myself with some of the comments
    of Senator Leahy. To start with, I know that a lot of your
    mission, that of both of you, has to do with interdiction. But
    if Prohibition taught us anything some years ago, it was that
    you almost cannot reduce the supply unless you can reduce the
    demand, and as long as Americans, too many of them, think they
    just can't get along without drugs, we are always going to have
    to fight the war, which you are doing.
        I know that both your agencies, as many Federal law
    enforcement agencies in the last few years in at least some
    circles in America, have sort of been under assault. I just
    want to reaffirm, as the chairman has, that you do have friends
    on this committee. I want you to know that I am certainly one
    of them.
        I want to get back a little bit to terrorism and
    international crime, if I could, Mr. Chairman, just for a
    couple of questions.
        As you probably know, Director Freeh, we are going to host
    the G-7 summit in Denver this year, which will bring leaders
    from the seven major countries, major industrialized countries,
    all into Denver at the same time.
        We are also involved in this very, very difficult and
    extensive trial of the people who have been accused of bombing
    the Oklahoma City Federal Center.
        I am a little bit concerned about how we are coordinating
    our efforts from a national and local standpoint. Certainly,
    Colorado does not have the resources to be able to keep a close
    eye on things and we know that these big international events,
    whether it is the Olympic games, the Super Bowl, or whatever,
    seem to attract nuts now because they know they can get
    international attention through the media if they do some
    outlandish thing as they did in Atlanta.
        I would like to know a little bit, though I know some of
    the things you cannot talk about and I would not expect you to.
    I know that some of this is very carefully guarded information
    and that's fine. But I would like to know in what role, in
    general terms, the FBI is providing assistance to the G-7
    summit in Denver.
        Mr. Freeh. Yes; surely, Senator.
        We have a dedicated set of resources, including a command
    structure back at headquarters. We call it our Special Events
    Program, which is a freestanding unit. This unit's assignment
    is to prepare for, assess, and then carry out the coordination
    as well as the operational deployment of not just FBI
    resources, but Federal resources integrated with State
    resources, for certain major events. You mentioned several of
    them. Certainly, there is the Olympics. In addition, this unit
    was involved during both Presidential conventions and also
    during the inauguration. Within 2 weeks last year, we had both
    the 50th anniversary of the United Nations with 200 world
    leaders and the Pope visiting. With the New York City Police
    Department, the Secret Service, the Department of State, and
    many other agencies, a plan was put together which was very
    well coordinated and also, thank goodness, very successful.
        We are doing the same thing with respect to the Denver G-7
    Summit. We have already started the planning. Actually, the
    planning has been going on for several months, coordinated by
    the FBI but in close conjunction with the Secret Service, the
    Department of State, and particularly the Bureau of Diplomatic
    Security. We also use the intelligence agencies for collecting
    any information which will be available pertinent to the
    security of that event. All of the State and local authorities,
    not just the police authorities but the rescue authorities, the
    emergency response, and FEMA are part of that integrated
    planning. It is actually a very complex written plan.
        Senator Campbell. Excuse me for interrupting, but is that
    done through what is commonly called the interagency task
    force?
        Mr. Freeh. Yes; that is one mechanism for doing that. But
    just to give you an example, with respect to the Olympics
    planning and some of the more recent events, we even liaison
    with the military to insure that, if necessary, we have special
    capabilities available for any extraordinary problems that
    might arise.
        I would be happy to brief you and actually show you the
    plan that we have. It is being done very closely with the State
    and local authorities of Colorado.
        Senator Campbell. If I could arrange a time, I would like
    to see that, and I think that Senator Allard, the other Senator
    from Colorado, would also like to, too.
        Ambassador Gelbard. May I add a point to that, please?
        Senator Campbell. Yes; please do.
        Ambassador Gelbard. An additional thing that I think would
    be of interest to you is that, starting with the Lyons Summit
    and now moving toward the Denver Summit, we have made working
    with our allies in the G-7 and Russia, which is now a part of
    this process, the issues of international crime, terrorism, and
    drug trafficking fundamental parts of those summit processes in
    terms of substance.
        We are now chairing a major group comprised of those
    countries that is working toward implementation and development
    of some new major initiatives which would be announced at the
    summit based on the work that was done at Lyons.
        Senator Campbell. These will be announced in Denver?
        Ambassador Gelbard. Yes, sir.
        We had a first meeting under the U.S. leadership in
    January. A second meeting will be taking place here in
    Washington next month, and we are continuing to develop some
    very strong initiatives dealing with transnational crime in
    working with the G-7 and Russia in the PA context.
        Senator Campbell. Maybe I should ask you the important
    question since you are going into a great deal of detail. Do
    you have the financial resources to do this?
        Mr. Freeh. Yes, sir; we do.
        Senator Campbell. Without any additional funds you think
    you will be able to do this?
        Mr. Freeh. Yes; I think so. I mean we don't have,
    unfortunately, separate line item funding for those matters.
    Funding is coming out of our general operations budget, just
    like our investigation in New York in the TWA case. We spent
    several millions of dollars. We don't have any special funding
    or special appropriation for that, particularly in this case
    because it has not yet been ruled a criminal act or an act of
    terrorism. But, it's the same with the G-7 Denver planning.
    That is coming out of our general operations funds.
        Senator Campbell. There seems to be an escalation of work
    for you, an unexpected one, such as the bombing or the disaster
    that that plane went through. I was concerned that you have the
    resources to be able to keep up with those, that unexpected
    growth.
        Let me just get to one other question, Mr. Chairman.
    Director Freeh, perhaps both witnesses, mentioned about some of
    the escalation of crime going on in the new democracies, the
    countries that are trying the democratic way. There are some
    increased activities in some very, very sophisticated
    countries, too.
        I have been interested in reading lately about the increase
    of gangs in the Scandinavian countries. They certainly do not
    have a new culture, but they have a new situation which they
    have never dealt with before. I think maybe it is because they
    don't have the equivalent of RICO or some of the statutes that
    we have in place to combat this.
        They have been using pretty strong firepower against each
    other in control of the drug trade, including rocket launchers,
    grenades, automatic weapons, and so on.
        They were referred to in the newspapers as ``biker gangs.''
    But, as I understand it, most of them do not ride motorcycles,
    though some of them do and, therefore, they are called biker
    gangs.
        Because the Danish Government has called on the United
    States for some help, I would like to ask you what is the FBI
    doing to assistant Denmark in particular? Can you speak to
    that?
        Mr. Freeh. Yes, sir; I can.
        We, not only in Denmark, but also in Sweden.
        Senator Campbell. Yes; all three of the Scandinavian
    countries.
        Mr. Freeh. Their Minister of Justice and the heads of their
    police agencies have been here. We have met with them. We have
    given them briefings on our violent crime techniques and
    investigative strategies. Since then, we have had an exchange
    of officers and experts. We have also offered to furnish them
    additional assistance.
        As you point out--I understand that their statutory ability
    to deal with certain types of enterprise crimes, even on a
    simple conspiracy level, are not what they are in this country.
    They don't have the history of statutory law or case law to
    criminalize large enterprises. It is more of an individual
    case-by-case determination.
        They have asked us about our investigative techniques. We
    have given them briefings on our use of informants, undercover
    techniques, and wiretapping. But, they do not have a lot of
    those authorities under their current statutes.

                 high intensity drug trafficking agency [hidta]

        Senator Campbell. One report, Mr. Chairman, even said that
    one of these so-called gangs rents a government building to
    operate out of, which I found interesting. So we are way ahead
    of them in some of our abilities to deal with these gangs.
        Let me ask one other question, if I can, which deals with
    another group, an agency, called the High Intensity Drug
    Trafficking Agency [HIDTA]. We have had an increase in drug
    traffic in Colorado. As you put more pressure on drug
    traffickers in California, they look for the line of least
    resistance, and we have found a marked increase in Colorado.
        Last year we managed to get a HIDTA office set up in
    Denver, one in Salt Lake City, and one in Laramie, WY, too,
    which basically are to coordinate other agencies in the
    reduction of drug trafficking.
        I want to ask, Mr. Gelbard, if you could reflect on how
    your agency is working with HIDTA.
        Ambassador Gelbard. Well, Senator, we actually do not
    because our programs are all international. But this is
    something that General McCaffrey and the law enforcement
    community work on very closely.
        Senator Campbell. I assumed that since a lot of this is
    coming up over the border into Mexico and then through New
    Mexico into Colorado there might be some involvement with your
    agency.
        Ambassador Gelbard. Our programs are fundamentally directed
    to working with agencies that work internationally and with
    foreign governments.
        Senator Campbell. I see. Thank you.
        Thank you, Mr. Chairman.
        Senator McConnell. Thank you, Senator Campbell.
        This question is addressed primarily to you, Ambassador
    Gelbard, but I might ask Judge Freeh if he has anything to add.
        Focusing on Asia, I understand Singapore is becoming the
    key money laundering haven of choice for Asian drug
    traffickers. So it looks like they are busy not only in
    Scandinavia but in other places.
        Is this due to the bank secrecy laws? Either of you may
    respond.
        Ambassador Gelbard. We are very concerned about significant
    money laundering efforts in a number of countries in Southeast
    Asia. Singapore is certainly one of them.
        We have been pressing the Government of Singapore to
    undertake some fundamental legislative reforms to try to
    develop internationally accepted standards and laws as
    developed through the financial action task force.
        This is a high priority for us because we are very
    concerned about drug funds being laundered through there,
    particularly funds from Burma. We are also pressing the
    governments, particularly the Government of Thailand, which
    assures us, most recently at a meeting that I had with their
    Ambassador this week, that they will be presenting a law to
    their parliament shortly. In fact, this was a subject that
    President Clinton raised with their prime minister during his
    visit there in November, and we are pressing other governments
    in the region to undertake similar measures.
        Senator McConnell. Do you have anything to add on that,
    Judge Freeh?

                                money laundering

        Mr. Freeh. We are, as part of the 4-year plan approved by
    the Congress, planning to open up a legal attache office in
    Singapore next year. My counterparts in the Singapore law
    enforcement authorities have expressed an interest in
    information about our money laundering strategies here in the
    United States; the statutory authority that we use; and, how we
    implement that on an enforcement basis.
        I think that that presence over there, in addition to many
    other matters of mutual interest including counterterrorism,
    will help to begin to address the concerns that Ambassador
    Gelbard has spoken about.
        Ambassador Gelbard. I should add, Mr. Chairman, if I may,
    that we have been pressing through the financial action task
    force for the establishment of an Asian Financial Action Task
    Force. This is now coming to fruition. We see this as a
    mechanism to try to get regional cooperation to develop the
    highest level standards that we can on this issue.
        Senator McConnell. Ambassador Gelbard, shifting to Burma,
    as you know I have been a leader of the movement to enforce
    unilateral sanctions against Burma and I plan to try that again
    this year. It was watered down on the floor of the Senate last
    year so that we ended up with something considerably less
    tough.
        Focusing on Burma, I am convinced that only a democratic
    ally with common principles could be counted on to engage in a
    serious effort to combat narcotics. I also agree with
    observations you made in the Far Eastern Economic Review that
    SLORC officials are exploiting drug trafficking money and the
    longer the political impasse continues, the more embedded the
    drug trade is likely to become.
        Given your views, can you explain why our Charge recently
    hosted a meeting in his home involving U.S. Senators and drug
    traffickers identified in the International Narcotics Control
    Strategy Report?
        Ambassador Gelbard. The meeting which took place, which was
    in November of last year, was done on the occasion of a visit
    by a Senator. This was done when there was a request for a
    meeting with Aung San Suu Kyi. The SLORC requested that other
    political parties be included, too, and Aung San Suu Kyi also
    supported that view, as I understand it from our Embassy,
    because, according to our Embassy, she felt that this would add
    to her legitimization and support within the country because of
    being seen with other political leaders.
        Parties were asked to supply individuals to this meeting
    and two individuals whom we, in my bureau, discovered later to
    be associated with drug trafficking were present. In
    particular, it was Matu Nao of the Kachin Defense Army, and Tin
    Ying of the New Democratic Army.
        We were obviously deeply disturbed and shocked to discover
    this. We have instructed our Embassy about contacts with any
    such individuals in the future and particularly organizations
    which we feel might be associated with drug traffickers or have
    drug traffickers involved and how they are to deal with them.
        I should say that in the past I have noticed that the SLORC
    has gone out of its way to try to make sure that when Members
    of the United States Congress are in Burma that there are
    suspicious individuals who do meet with them in a variety of
    circumstances. And in the occasions with which I am familiar,
    Members of Congress unknowingly have met with such individuals,
    sometimes without having had contact with the U.S. Embassy or
    the U.S. Government before they did this.
        We are obviously very, very concerned about this. That is
    why we sent out an instruction immediately afterward regarding
    future conduct for the Embassy in terms of its contacts.
        Senator McConnell. Are you saying, then, that it was
    inadvertent and also unavoidable? Or is it avoidable in the
    future? What are you saying?
        Ambassador Gelbard. In this case it was inadvertent. There
    are, obviously, as you very well know, sir, many organizations,
    many ethnic group entities in Burma which have individuals
    involved who are related to drug trafficking. It is not
    unavoidable.
        We want to have senior officials of our Embassy avoid
    contact with those individuals and they have been so
    instructed. And we obviously want to make sure that no Members
    of Congress have contact with such individuals when we can have
    any say in that matter.

                               burmese drug lord

        Senator McConnell. Khun Sa, the notorious Burmese drug
    lord, now lives in a Rangoon villa, openly enjoying the fruits
    of his ill-gotten profits. Has the United States formally
    requested his extradition?
        Ambassador Gelbard. I believe we have, sir. In fact, I am
    on record as having said over the last several years that we
    have strongly believed that the SLORC had no intention of
    really trying to get Khun Sa out of the business. I said so in
    a press conference in June 1995 in Bangkok and was lambasted
    for that by the SLORC. I felt good about that.
        Senator McConnell. You should.
        Ambassador Gelbard. But it is, in fact, our view that Khun
    Sa is still in the business. We do not feel, I do not feel
    personally, that he ever left the drug trafficking business and
    I have reason to believe that he is back associated with heroin
    trafficking and certainly associated with major amphetamine
    manufacturing. This major amphetamine effort is not directed at
    the United States. We have no reason to believe that this is
    coming here. However, we are well aware that there is a massive
    amount of amphetamines coming out of the area in which he was
    located that now are being consumed in Thailand and in other
    countries in Southeast and in East Asia.
        We have every reason to believe, of course, that he is
    under the protection of the SLORC. As you well know, Mr.
    Chairman, he has been given the honorific of ``Gu,'' and he has
    now been elevated to a position of great honor. I think it is
    yet another demonstration, and I'm sure you would agree, Mr.
    Chairman, of the criminal activities of the SLORC.
        Senator McConnell. Since my proposal for unilateral
    sanctions was defeated, there was a substitute offered by
    Senator Cohen and supported by the administration. It did have
    some criteria in it which I do not have in front of me. But I
    am curious as to whether you think those criteria have now been
    met.
        Ambassador Gelbard. Sir; I couldn't hear you.
        Senator McConnell. Have the criteria of the Cohen amendment
    targeted at Burma now been met?
        Ambassador Gelbard. We are studying that right now. There
    is a policy review in the administration and I hope we will
    come forward with a conclusion to that shortly.
        Senator McConnell. When?
        Ambassador Gelbard. Shortly. I recently discussed this with
    Secretary Albright and I know she is deeply engaged and
    concerned about this issue.

                    chinese cooperation on counternarcotics

        Senator McConnell. Well, we are looking forward to hearing
    from you soon. I am looking forward to hearing from you soon
    because I think the criteria of the Cohen amendment have
    obviously been met by the recent escalation of arrests and
    activities which threaten Aung San Suu Kyi and others.
        I have one final question before turning to Senator Shelby.
        This is still focusing on Burma. Can you describe the
    extent of Chinese cooperation on counternarcotics in that part
    of the world? With an increase in local addiction rates, I
    would think they would be increasingly willing to work with us
    on a solution to shut down the Burma border. I just wonder what
    you might be able to add on that subject.
        Ambassador Gelbard. We have discussed this issue
    periodically with the Chinese Government. I led a delegation to
    China in January 1994, which included two officials from the
    FBI, incidentally. In the course of that trip, I visited Yunan
    Province, right across from the border.
        It is exceedingly clear, tragically clear, as you state,
    Mr. Chairman, that China is suffering seriously. Addiction is
    up, which means HIV and AIDS infections are up. I visited, in
    fact, a rehabilitation center and it was truly tragic to see
    this.
        The Chinese Government has been attempting, as I understand
    it, to engage particularly with the northern ethnic groups near
    their border on alternative development programs and on other
    kinds of programs to try to wean peasant farmers out of opium
    poppy cultivation.
        They have a direct vested interest, obviously, and they
    have been engaged also talking to the SLORC, trying to put
    greater emphasis on greater action from the SLORC on this
    problem.
        One of the fundamental problems, though, that we continue
    to have not just with China but with all the countries in
    Southeast Asia, too, is their strategy of so-called
    constructive engagement with the SLORC. I simply do not believe
    that is feasible.
        Senator McConnell. But that has been our strategy as well,
    has it not?
        Ambassador Gelbard. I wouldn't call it that, certainly not
    on drug issues.
        Senator McConnell. How would you characterize it?

                                  drug issues

        Ambassador Gelbard. On drug issues, unfortunately, because
    we have no confidence at this point that they would be prepared
    to use funds appropriately, we do not provide funds to the
    SLORC. The only funds that have been provided have been those
    to OSS-1, earmarked under last year's budget by the Congress.
    Now I am interested in providing some funds to the U.N. drug
    control program for eradication of opium poppy in the Wa area
    with an alternative development program associated with it if
    and when--and only if and when--I am satisfied with the
    criteria that have been built into the program.
        Senator McConnell. Thank you.
        Senator Shelby.
        Senator Shelby. Thank you, Mr. Chairman. Mr. Chairman, I
    was chairing another committee and that is why I was not here.
    I'm sorry that I missed the testimony and probably some of the
    questions. But I hope I am not redundant.
        Judge Freeh, it is good to see you today.
        Going back into, Judge Freeh, when you briefed the national
    security staff, or someone under you did. Is the purpose of the
    briefing generally to impart very important information to the
    national security staff that you believe they ought to know and
    ultimately that the President should know?
        Mr. Freeh. Yes, sir.
        Senator Shelby. And you do this when there is a need to do
    it?
        Mr. Freeh. Yes; it is actually done on a very regular
    basis.
        Senator Shelby. A regular basis.
        Mr. Freeh. The FBI staff to NSC staff communication, both
    at a mid- and senior-level, is an ongoing process. It may
    happen several times a week on whatever matters are of
    interest.
        Senator Shelby. Judge Freeh, as the director, is there an
    expectation of some kind at the Bureau, at the FBI, that by
    briefing the NSC staff, which you do, on very important news,
    on explosive news, you are effectively notifying the President
    through the chain? Is that basically right?
        Mr. Freeh. It is my understanding and certainly----
        Senator Shelby. That would be your hope, anyway, wouldn't
    it?
        Mr. Freeh. Well, it would be my understanding and my
    expectation that we brief----
        Senator Shelby. Expectation.
        Mr. Freeh [continuing]. Someone on the staff of a matter of
    interest, that that is a matter that is for the NSC. We don't
    have any particular interest or any responsibility to brief any
    single member of the NSC to the exclusion of anyone else.
        Senator Shelby. Absolutely.
        Have you been concerned with the breakdown in this case
    that has been talked about in the press and otherwise in some
    of the committees, that information, very explosive
    information, was given to or allegedly given to the National
    Security Council staffers and it never went anywhere, so they
    say, from inside the NSC?
        Mr. Freeh. Without characterizing the nature of the
    information----
        Senator Shelby. Well, you wouldn't call it routine
    information, would you?
        Mr. Freeh. Well, we have discussed what the information was
    in a classified setting.
        Senator Shelby. That's right, we have, and I cannot get
    into that and you would not, either.
        Mr. Freeh. Yes, sir. No. If somebody briefs a member of my
    staff, even at midlevel, on a matter which----
        Senator Shelby. It's important information.
        Mr. Freeh [continuing]. If it's important information and
    they are briefed on it, I expect them to use their sound
    judgment to get it to me as appropriately as they can. That is
    the nature of briefings in Washington. The Director, the
    Attorney General, the head of the National Security Agency or
    staffs, counsels, cannot, would not have the time all day to
    just keep reporting things. That is why we rely on staff-to-
    staff briefings.

                            intelligence information

        Senator Shelby. But as the Director of the Federal Bureau
    of Investigation, when you impart information, important
    information to National Security Council staff, you need some
    kind of understanding or assurance that this critical,
    relevant, intelligence information--if that's what it was--is
    able to reach the President of the United States. Isn't that
    the purpose of why you're doing this?
        Mr. Freeh. Depending on the particular information----
        Senator Shelby. Absolutely, sure.
        Mr. Freeh [continuing]. Depending upon the context in which
    it is known and communicated, it is fair to say, and I would
    agree with the proposition, that it is my understanding and
    expectation that people at the NSC, just as people at the FBI,
    would use their judgment and prudence to decide whether an
    issue should be briefed up the chain.
        Senator Shelby. Would it ever be appropriate, in your
    judgment, for the FBI to attempt to restrict the dissemination
    of intelligence information to the NSC or the President?
        Mr. Freeh. I cannot think of any instance where that would
    occur except in a very extraordinary instance, certainly not
    one that applied here.
        Senator Shelby. Are you aware, Judge Freeh, of any other
    time that the National Security Council staff was briefed by
    the FBI and that that information, when it was very important
    information, was not passed up the chain of command?
        Mr. Freeh. Yes, sir; I can recall one. I would be happy to
    go into it with you at a different session.
        Senator Shelby. Yes; I understand.
        Was this the same basic National Security Council under the
    Clinton administration?
        Mr. Freeh. Yes; it was the current National Security
    Council.
        Senator Shelby. Mr. Secretary, shifting over to you for
    just 1 minute, what about the hard targets that you are after
    around the country? How are we going to deal with those? It is
    difficult to assess them. I understand your report notes the
    success and progress we have made against the drug trade in
    1996. But I am concerned that it is difficult to actually
    measure what success is. You know, we hear so many horror
    stories and we hear all the others. And yet, we talk about
    success. Gosh, I want success. I know that the Director wants
    success. You want success.
        But what kind of benchmarks or goals are in place to
    measure what success is? Are we playing games with ourselves or
    the American people? I hope not.
        I know you are a serious person, but it seems like we are
    going backward in a lot of areas. Do you want to comment?
        Ambassador Gelbard. I don't think we are going backward,
    Senator.
        As I was saying earlier, before you arrived, this is a
    process. Trying to solve, trying to have success in counter
    narcotics is a medium to long-term proposition. This is a
    problem that took us a long time to get into and it is going to
    take us a long time to get out.
        First, we have been on the domestic side trying to
    establish some clear benchmarks in terms of reducing demand.
    That is in the President's national drug control strategy, and
    there has been over the last several years----
        Senator Shelby. If we could do that, that would be a big
    step.

                           u.s. consumption of heroin

        Ambassador Gelbard. There has, in fact, been some
    significant progress in terms of dramatic decreases in
    consumption of heroin and some other drugs--excuse me--of
    cocaine and some other drugs.
        There is alarming news, as you are aware, Senator, in terms
    of teenage consumption of marijuana, now of heroin to a small
    extent, and a bit of cocaine.
        U.S. consumption of heroin has been rising, but it still is
    very small compared to worldwide consumption. It only
    represents about 3 to 4 percent of worldwide heroin
    consumption.
        Senator Shelby. But aren't you disturbed by the fact that
    it is rising, the demand?
        Ambassador Gelbard. Absolutely. I am disturbed both in my
    professional capacity and personally. As the father of a 16-
    year-old girl who does not take drugs--as far as I know--I am
    deeply disturbed when I see this happening nationwide.
        Internationally, we try to set up benchmarks and goals both
    short-term and long-term. We work with the law enforcement
    community to establish both in the cocaine area and in the
    heroin area targeting systems. I don't want to get into how we
    do all that, but it is something where there is a clearcut
    process.
        We have had real success working with the Colombian police,
    for example, and General Serrano, the head of the Colombian
    police, has been very generous in expressing publicly his
    support as they have been able to capture the leadership of the
    Cali Cartel.
        We have had similar success recently in some other areas,
    in some other places around the world.
        In Thailand, for example, our DEA, working with other
    agencies of the United States Government and the Thai police,
    have had enormous success in capturing some of Khun Sa's top
    lieutenants in an operation with which you are familiar, Mr.
    Chairman, called tiger trap. The Thai Government has started
    extraditing its own citizens to the United States--
    unprecedented.
        We have targeted under the leadership of the Attorney
    General certain ideas in terms of getting countries to accept
    the extradition of their own nationals. We now have new world-
    class treaties that facilitate the extradition of nationals. We
    have just signed one with Argentina and Bolivia. Mexico has
    started extraditing its own nationals last year for the first
    time in history.
        In eradication, we made dramatic progress last year. I
    mentioned earlier that Peru is the largest producer of coca in
    the world. You and I met, Senator, when you visited me in
    Bolivia.
        Senator Shelby. That's right.

                                coca production

        Ambassador Gelbard. We have seen dramatic progress, an 18-
    percent decrease in coca production in Peru. We saw a decrease
    in Bolivia. Unfortunately, we saw an increase in Colombia, but
    the Colombian police are working with great dedication spraying
    these coca plants.
        I am optimistic in that sense that we have set out some
    clear benchmarks. General McCaffrey has shown great leadership
    in bringing together the interagency community on this. The law
    enforcement community on this I think is working better than
    ever before in terms of trying to do this.
        As Director Freeh said in his opening statement, with the
    projection of more FBI personnel overseas, something we have
    worked on cooperatively, more DEA personnel, and other agency
    law enforcement personnel, we are now able to work on
    enforcement and training in much better ways than ever before,
    too.
        Senator Shelby. How concerned are you with the poppy growth
    in Colombia? You are dealing with coca and dealing with heroin.
        Ambassador Gelbard. We are deeply concerned.
        There was about a 7-percent increase in poppy cultivation
    in Colombia last year to approximately, I think, about--it's
    only about 15,000 acres. But that is high concentrate, with
    three crops a year. Almost all of that is directed to the
    United States market, and Colombians have taken over virtually
    all of the heroin market in the Northeast. You cannot find
    Southeast Asian heroin on the streets of New York anymore, I am
    told.
        So we have targeted this as part of our major effort. All
    of Colombia's eradication efforts are financed through my
    bureau, and the Colombian police have been doing a superb
    effort in trying to target these very small patches of opium
    poppies and trying to eradicate them with great support from
    us.
        We have now included American pilots to help train them on
    an on-the-job basis. Very sadly, we lost one of our pilots last
    year when his plane crashed. So we consider this one of our
    very top priorities.
        We are also spraying opium poppies in Venezuela because the
    Colombian trafficking groups have now franchised into
    Venezuela. We and the Peruvian Government have heard rumors
    about moving into Peru.
        We are working very closely with the Peruvian Government to
    seek this out and they are eager to eradicate that, too. So we
    are deeply focused on this issue.
        Senator Shelby. If 80 percent of the drugs coming into the
    United States, if this is true--I have heard those numbers
    used--is coming through Mexico one way or the other--trucks,
    cars, air, who knows--haven't we got, I would not say
    insurmountable problems, but a tough road to plough there?
        Ambassador Gelbard. I think the figure is a little lower.
    We believe that probably it is somewhere between 50 and 60
    percent of the cocaine, down from probably around 70 percent.
        Senator Shelby. OK, it was higher at one time.

                          heroin and cocaine seizures

        Ambassador Gelbard. It was higher. But we have embarked, we
    have been working with the Mexican Government and particularly
    with President Zedillo on what we consider to be very important
    efforts.
        When you look at the statistics, it is very clear that
    arrests, eradication efforts, and seizures have all gone up
    pretty dramatically since he came into office. The amount of
    marijuana now being grown in Mexico has plummeted by one-half
    over the last couple of years.
        Heroin seizures went up 79 percent in 1996 over 1995 in
    Mexico. Cocaine seizures went up a much smaller percent, about
    7 percent, but the point is they are up.
        What President Zedillo was faced with when he came into
    office was this. He identified this as their No. 1 national
    security problem, but he presses buttons, he pulls levers, and
    nothing happens because he recognizes that he has little in the
    way of institutional capabilities.
        We are trying to work to support him, and the FBI, once
    again, is giving terrific support to trying to help develop
    institutional capabilities along with DEA, Customs, and other
    organizations, funded by us.
        But this has to be a source, a fundamental focus, the
    biggest focus of our attentions.
        Senator Shelby. This may have been asked by Senator
    McConnell or others earlier when I was not in the room. I ask
    both of you how can we deal with governments whose higher
    officials that we have to deal with at the country to country
    level from time to time have been, we find out, corrupted by
    drugs or trade over the years? I know that some people would
    say well, gosh, that is the business of these countries, like
    Mexico or Colombia, whoever we deal with. But it is also our
    business because the caliber of people we deal with depends to
    a great extent on what we share with them, how much we trust
    them. That will go a long way on how well we deal with the drug
    trade down the road.
        Judge Freeh.
        Mr. Freeh. I think it is a two-part process. Part of it is
    the long-range institution building that the Ambassador spoke
    about. I mean, they need the training, the models, the
    resources to put together a capable force, and one that is
    honest and respected.
        The other thing you do on an interim basis is you identify,
    by trial and error sometimes, the people who have the honesty
    and integrity to protect your investigations. For instance, in
    the early 1980's, we found a young magistrate in Sicily,
    Giovanni Falcone, who we found by experience could be trusted
    with our most sensitive investigations. He was privy to title
    III's, electronic surveillance informant information, and
    worked, until he and his wife were murdered by the mafia, with
    complete trustworthiness and courage.
        In Russia, we have identified officers in the MVD with whom
    we have worked in very sensitive cases. In a case in New York,
    we arrested a guy named Ivankov, a very powerful member of a
    Russian organized crime group, who was taking root in New York
    City and organizing criminal elements there. We worked that
    case in a clandestine manner for a period of time with Russian
    officials.
        We had Russian police officers with FBI agents in cars
    doing surveillances in Brighton Beach.
        So I think part of it is trial and error, developing people
    through ILEA, through our training programs, who we can trust
    and rely upon. It is a very time consuming and very perilous
    process. We have to be very cautious how we proceed.
        Ambassador Gelbard. There is another side to that coin,
    too. When we identify individuals who are corrupt, one of the
    new measures we have tried to really undertake with much
    greater intensity is something as simple as revoking visas.
        The U.S. visa is a very prized commodity, and we have used
    this as a way of stigmatizing individuals. The President of
    Colombia had his visa revoked, as well as several other members
    of his cabinet and a significant number of members of their
    congress. It is known and it is a mark of Cain.
        We have done it elsewhere. For example, in Thailand it is
    well known that two very senior politicians in Thailand had
    their visas revoked. This has been a source of controversy. But
    we are very confident about that view.
        The good news, for example, is in the Western Hemisphere,
    increasingly governments are themselves concerned about
    corruption. For example, there has now been an inter-American
    Anti-Corruption Convention that has been approved within the
    hemisphere. Governments are coming to us and asking for
    assistance in setting up anticorruption measures.
        One of the things our law enforcement community is helping
    with, or our police training people are helping with is setting
    up internal affairs units. Increasingly, we are working with
    governments to set up their own capabilities in those areas,
    too.
        Senator Shelby. Mr. Chairman, thank you for your
    indulgence.

                                 russian crime

        Senator McConnell. Thank you, Senator Shelby.
        Let's wrap it up. You mentioned Russian crime, Director
    Freeh, so let's wrap this up with a Russian question.
        Is the Russian mafia coming into the United States in a
    particular way? Is it individuals or is it groups, networks,
    and are they concentrating on sectors? Are they in drugs, are
    they in counterfeiting, or are they all over the place?
        What form is Russian mafia influence in the United States
    taking?
        Mr. Freeh. In respect to the first part of your question,
    there is a continuing presence in terms of individuals
    identified, sometimes prior to their arrival here, as members
    associated with Russian organized crime groups, who then do
    what other groups have done in the past. That is, organize
    cells and groups as Ivankov did in Brooklyn. They engage, we
    find, in a variety of different criminal enterprises across a
    broad spectrum.
        For instance, we have cases in California where Russian
    organized crime members and fragments of groups here have
    worked on gasoline excise tax schemes, which require quite a
    bit of sophistication setting up paper corporations.
        We had another group in the West who was investigated and
    convicted for a multimillion dollar health fraud scam. Ivankov
    was convicted in New York City for extortion, basic loan-
    sharking type extortion. The case that I mentioned, indicted
    recently in Florida, is a drug case in which discussions were
    had about getting a submarine from Russia and using it to
    transport drugs.
        We find them involved in a wide variety of schemes,
    including complicated, sophisticated crimes. The sophistication
    of these groups and individuals is a symbol of their
    capability.
        Many of them have continuing contacts with Russia, both
    financial and otherwise. They certainly look at the United
    States as a great place to do criminal business. They are also
    organizing, as they were in Florida, to bring drugs back into
    Russia and central Europe. There are also combinations that we
    and the DEA have seen between some of the Russian groups and
    South American narcotics groups, which is a very dangerous
    omen, I think, for everyone.
        So there are individuals, they are organizing groups here,
    and they are involved in a wide variety of sophisticated
    criminal activity.

                         additional committee questions

        Senator McConnell. Both of you gentlemen have your work cut
    out for you and we wish you well.
        There will be some additional questions which will be
    submitted for your response in the record.
        [The following questions were not asked at the hearing but
    were submitted to the Department for response subsequent to the
    hearing.]
                  Questions Submitted by Senator Patrick Leahy
                                     mexico
        Question. I do not believe that decertifying Mexico is a wise
    approach at this point, but I am also very disappointed by how little
    success we have had in getting the Mexican Government to deal
    effectively with the corruption and human rights abuses by the Mexican
    police and armed forces. What specific improvement in these areas are
    you expecting from the Mexican Government?
        Answer. Corruption and other abuses of official authority by law
    enforcement and military personnel continue to be very serious problems
    in Mexico. These abuses seriously impair the Government of Mexico's
    ability to combat drug trafficking effectively or, on a broader scale,
    to pursue needed reforms in other sectors.
        President Zedillo recognizes that narcotics trafficking and related
    corruption pose the greatest threats to Mexico's national security and
    has vowed an all-out effort to combat them. The February 18 arrest of
    the national anti-drug coordinator underscores the problem, but
    likewise demonstrated the Zedillo Administration's determination to
    address it forthrightly. Some critics cite such revelations of
    narcotics-related corruption as evidence that the situation is getting
    worse. We view it differently. These revelations came as a result of
    Mexican government investigations, not external initiatives. We are
    encouraged that such revelations are a sign that things are improving.
        The Government of Mexico has launched a major reorganization and
    reform effort within its criminal justice system, including creation of
    a new anti-drug law enforcement agency and specialized investigative
    units. The U.S. has offered to provide a comprehensive training and
    technical support package, drawing on the talent and expertise of many
    U.S. agencies. Training is underway, concentrating specifically on
    skills and procedures relating to implementation of the newly-passed
    Organized Crime Bill and anti-money laundering legislation.
        This is clearly a long-term effort, and there will be failures and
    further disappointments along the way. However, it is in the long-term
    interests of both Mexico and the U.S. to keep pressing ahead.
        In 1997, based on bilateral discussions, the two governments will
    seek to achieve:
      --Tangible progress in dismantling major narcotics trafficking
            organizations, including arrest and prosecution of their
            leadership.
      --Strengthened investigative and prosecutorial capabilities, as
            demonstrated by adequate screening, training and financing of
            the bilateral task forces and organized crime prosecutors unit.
      --Enhanced interdiction effort, encompassing maritime and overland
            interdiction as well as air interdiction.
      --Enhanced eradication campaign and other efforts to reduce the
            production of illicit drug crops.
      --Enforcement of newly-published regulations that require reporting
            of financial transactions involving large sums of currency and
            suspicious circumstances, and implementation of the money
            laundering legislation passed in May 1996.
      --Implementation of an effective asset forfeiture program.
      --Implementation of an effective control system on diversion of
            precursor and essential chemicals.
      --Enhanced relationship with the U.S. on extradition and return of
            fugitives.
      --Expediting the mutual legal assistance treaty process.
      --Investigation and prosecution of corruption at all levels of
            government, and complementary action to strengthen governmental
            institutions to prevent corruption and other abuses of official
            authority from recurring.
                               colombia drawdown
        Question. You want to use your 614 waiver authority to make
    available $30 million in prior year military aid to the Colombian army
    and police.
        I understand why you want to do this. I also understand that the
    police, who have a fairly good human rights record, cannot do the job
    alone. But it seems like every week my office receives a report of some
    atrocity by the Colombian army, or paramilitary groups they are linked
    to. Is this another example of the ends, no matter how hopeless,
    justify the means, no matter how contemptible? In other words, even
    though we know the army is corrupt and violates human rights, we are
    going to give them aid anyway because no one else can do the job? Isn't
    that what is really going on?
        Answer. We share your concerns about human rights abuses in
    Colombia. As detailed in our human rights report, the situation is
    grave and complex, with violations committed by many different groups.
    The Administration believes that the type of assistance under
    consideration for Colombia is not only critical to the types of
    programs we must continue with elements of the Colombian government
    committed to counternarcotics efforts, but is also vital to the
    national security interests of the United States.
        In this regard, the plan under consideration would provide
    equipment to the Colombian National Police and those elements of the
    Colombian Armed forces which support them. As a matter of policy, the
    Colombian Army provides essential ground support for eradication
    (spray) missions and seizes and destroys labs and drug shipments
    jointly with the police.
        In addition, training designed to improve performance on
    counternarcotics activities, promote professional development, foster
    respect for human rights, civilian control of the military and improved
    military justice would be provided using International Military
    Education and Training funds.
        We are currently weighing carefully what types of equipment we
    might provide to selected military units with a CN support role. Please
    be assured that, in keeping with the spirit of recent legislation
    requiring human rights conditions on International Narcotics Control
    (INC) funds, we will extend the spirit of these human rights conditions
    to all USG counternarcotics assistance to Colombia's security forces.
        Embassy Bogota has been working to improve end use monitoring
    (EUM), especially vis-a-vis human rights concerns. The finalized
    procedures for the 506(a)(2) transfer will serve as the basis for
    monitoring any equipment that might be provided under the 614 waiver.
    We will review the human rights record of personnel in recipient units
    prior to providing counternarcotics assistance. Ambassador Frechette is
    finalizing an EUM agreement with the newly-appointed minister of
    defense. The proposed agreement will safeguard against use of USG-
    origin equipment by known human rights violators, and will provide a
    mechanism for transfer out of the unit of any individual who is alleged
    to have been involved in serious human rights violations, without
    prejudice and in accordance with Colombian law, while the allegations
    are investigated.
                                    nigeria
        Question. The Nigerian Government is notoriously repressive. I wish
    they spent half as much effort fighting drug traffickers, as they do
    repressing legitimate dissent by their own people.
        Nigeria has become a major narcotics transit center. I don't know
    if the Nigerian Government is directly involved in the drug trade, but
    it clearly tolerates drug activity and the corruption associated with
    it. The State Department called Nigeria's counter-narcotics efforts in
    1996 ``inadequate'' and ``marginal.'' What hope do you see there for a
    more cooperative relationship?
        Answer. Although we characterized Nigeria's counter-narcotics
    efforts in 1996 as ``inadequate,'' there were some positive
    developments. For example, although the majority of drug-related
    convictions were of minor traffickers, the Nigeria Drug Law Enforcement
    Agency (NDLEA) reported that the GON did convict 537 narcotics
    producers/traffickers in 1996. The NDLEA also improved performance and
    cleaned up corruption within its ranks, firing 600 corrupt NDLEA
    officers. In addition, in collaboration with the UN Drug Control
    Program, Nigeria developed a national strategy to reduce demand for
    drugs.
        In December 1996, Jonathan Winer, Deputy Assistant Secretary in the
    Bureau for International Narcotics and Law Enforcement Affairs, led an
    eleven-member interagency team to Nigeria. Although the delegation's
    principal mandate was the discussion of money laundering issues, the
    Government of Nigeria (GON) was extremely forthcoming in providing
    access to high-level officials across the board, and wide-ranging
    discussions took place on a variety of law enforcement issues,
    including narcotics trafficking, immigration and deportation issues,
    extradition, ``419'' (advance-fee) fraud, international criminal
    activity by Nigerians, and more effective sharing of crime-related
    information. Team members identified with their Nigerian counterparts a
    number of areas for future cooperation.
        The team made it clear that the GON needed to provide evidence of
    its good faith in cooperative efforts by resuming extraditions of
    Nigerian nationals wanted in the United States on narcotics and other
    criminal charges. Though the GON agreed with this request and promised
    that extraditions would resume, to date none have taken place. When the
    GON told us that all extradition packets previously submitted had been
    lost and requested resubmission of new packets, the Department of
    Justice quickly resubmitted the most significant cases. Although the US
    Government continues to work towards a more cooperative relationship
    with the Nigerian Government on counter-narcotics, we are discouraged
    by the lack of progress so far on extraditions.
                          alternative crop production
        Questions. I understand that a small part of funds in this program
    go to support AID's efforts to teach farmers to cultivate legitimate
    crops rather than coca. How much are we spending on these programs, and
    where have they been successful? Should we be spending more resources
    on these efforts?
        Answer. The International Narcotics Control program for fiscal year
    1997 includes $66,208,000, 34.3 percent of narcotics programs, for
    illicit crop reduction by economic incentives, eradication and related
    programs. $80,800,000, 37.8 percent of narcotics programs, is requested
    for this purpose in fiscal year 1998. This includes opium poppy
    substitution in Laos, Pakistan and Thailand, and coca crop destruction
    by aerial herbicides in Colombia. The largest part, in excess of $43
    million in fiscal year 1998, is to reduce coca cultivation in Bolivia
    and Peru.
        In Peru, AID is implementing an alternative development project
    specifically designed to reduce coca cultivation by economic assistance
    to communities that undertake to prevent new and reduce existing coca.
    This began in May 1995, and is directly supported by coca crop
    verification surveys by another Peruvian agency also supported by the
    INC program. In 1996, the U.S. Government estimated coca cultivation in
    Peru at 94,400 hectares, 18 percent less than in 1995, and the lowest
    figure in Peru since these estimates began in 1986.
        In Bolivia, since the 1980's, in conjunction with that government's
    program for voluntary compensated eradication of coca by growers, AID
    assistance greatly increased licit crops and economic activities in the
    main coca region. Verified eradication of coca since 1988 exceeds
    40,000 hectares. While planting of new coca has kept this from
    correspondingly reducing net coca cultivation, we are reviewing this
    program with a view to attaining net reduction on a national basis.
        The 1997 National Drug Control Strategy recognizes that specially
    designed rural development assistance can reduce coca destined for
    illicit drug production. Our goal is to greatly reduce and hopefully
    eliminate large-scale coca cultivation during the ten-year Strategy
    period. However, it is vital to recognize that economic alternatives
    cannot do this alone. These projects depend for success also on
    reducing prices drug traffickers pay farmers for coca products, which
    depends on effective action to control illicit drug trafficking. These
    activities similarly depend on this appropriation. It clearly would be
    advantageous to increase support for alternative development, but if
    support for activities against illicit drug traffic is not also
    correspondingly enhanced, alternative development by itself will fail
    to produce its intended result.

                              subcommittee recess

        Senator McConnell. Thank you, the subcommitee will stand in
    recess until 11 a.m., Thursday, April 17 when we will receive
    testimony from Charles Kartman, Acting Assistant Secretary of
    State.
        [Whereupon, at 12:10 p.m., Thursday, March 20, the
    subcommittee was recessed, to reconvene at 11 a.m., Thursday,
    April 17.]

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

                                  ----------

                            THURSDAY, APRIL 17, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 11:10 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Mitch McConnell (chairman)
    presiding.
        Present: Senators McConnell, Bennett, and Leahy.

                              DEPARTMENT OF STATE

    STATEMENT OF HON. CHARLES KARTMAN, ACTING ASSISTANT
                SECRETARY OF STATE
    ACCOMPANIED BY:
            AURELIA BRAZEAL, DEPUTY ASSISTANT SECRETARY
            JEFFREY BADER, DEPUTY ASSISTANT SECRETARY

                    opening remarks of senator patrick leahy

        Senator Leahy. I am Patrick Leahy and the ranking member on
    this subcommittee.
        Senator McConnell has asked me to start the hearing because
    he is tied up in the Rules Committee. And to make it more
    difficult, the Rules Committee changed its schedule at the very
    last minute. He will be here as soon as he can.
        Mr. Secretary, we appreciate you coming down here to
    testify. I know that discussions are underway in New York with
    the North Koreans. And I realize that this means that you have
    to do what, unfortunately, Senator McConnell and I have been
    trying to do today, which is to be in two places at once.
        I have talked with the President on occasion about what we
    are trying to do in Korea, to feed starving people. But
    obviously, we have some concerns, about where the food aid goes
    and where not. We do not want to make it easy for the North
    Koreans to do whatever they want militarily, while we send them
    humanitarian aid.
        I also want to say that I fully support Senator McConnell's
    efforts in Burma. The SLORC regime stole the democratic
    election. Aung San Suu Kyi remains in virtual house arrest.
    Hundreds of her supporters have been jailed.
        We had legislation passed last year. I believe those
    conditions have been met. I think the President has to impose
    the sanctions the bill calls for. And I intend to keep pushing
    for that.
        I have very serious concerns about the Chinese Government's
    assault on civil liberties in Hong Kong. I have visited Hong
    Kong many times. Anyone who does not see that the Chinese are
    systematically dismantling the underpinnings of democracy, are
    fooling themselves.
        Perhaps some felt comfortable when former Prime Minister
    Thatcher announced that this was all worked out. It now seems
    that, to some extent she, too, was fooled. But we should not
    allow ourselves to continue to be fooled. I think we need to
    speak out very forcefully, and to be prepared to use our
    economic leverage to counter that assault.
        In Indonesia, the Suharto government, which is among the
    world's most corrupt, has sought to intimidate, arrest and
    brutalize its prodemocracy opponents. And in East Timor the
    human rights situation remains deplorable.
        The Indonesian Government has dismissed the reports of
    political killings, disappearances, and torture and instead
    engaged in a public relations campaign to bury the truth.
        Cambodia is another example of a corrupt government doing
    its best to subvert the forces of democracy. With Presidential
    elections scheduled for next year, Prime Minister Hun Sen's
    political opponents are being harassed and attacked on every
    front. And I am afraid that we are not doing enough to stand up
    for the forces of democracy there.
        Having said all of that, I know the Pacific rim countries
    hold enormous economic and strategic importance for the United
    States. I saw that when I visited Vietnam, China, Hong Kong,
    and Taiwan last November. And obviously, we have to be engaged
    economically.
        But we are the world's greatest democracy, the world's most
    powerful democracy. And we have to stand up, whether it is
    aggressively trying to prevent an arms race in the Far East or
    standing up for basic democratic principles.
        We have been joined by the chairman. And under his new
    policy of trying to get look-alike Senators on either side of
    him when he is here. [Laughter.]
        We have Senator Bennett from Utah. And if I might, Mr.
    Chairman, tell just one very quick story: And this is during
    the height of President Dole--Senator Dole----
        Senator McConnell. Thank you. We were hoping. [Laughter.]
        Senator Leahy. I know you were. [Laughter.]
        Senator, so was he.
        In Senator Dole's campaign for the Presidency, I had a
    Vermonter come up to me and say they were very, very pleased to
    see me giving strong support to Senator Dole.
        And I said, ``Well, Senator Dole is a very good friend of
    mine. I think the world of him, but I am a Democrat, and I am
    supporting President Clinton.''
        They said, ``No, no; we have this photograph of you at a
    fund raiser introducing Bob Dole.''
        They brought out the photograph. And it was Senator Bennett
    and Bob Dole. [Laughter.]
        And I guess we just all--if you are tall, bald, and white-
    haired, you all look alike. [Laughter.]
        Over to you, Mr. Chairman.

                     opening remarks of senator mc connell

        Senator McConnell [presiding]. I do not know how to top
    that. [Laughter.]
        I am sorry for the delay. It is the case around here, there
    are a lot of things going on at one time.
        Mr. Kartman, I understand you have been in New York
    participating in the negotiations with South and North Korea.
    We appreciate your interrupting that schedule to return here to
    testify today.
        The policy and programs developed by your bureau are
    exceptionally important to U.S. security, economic and
    political interests. I believe the administration has worked
    and largely succeeded in assuring both friend and potential foe
    that we are a Pacific nation determined to sustain our presence
    and promote stability and mutual prosperity.
        However, our strategic commitment is routinely challenged
    by a host of tough, tactical issues involving trade, human and
    civil rights, and both conventional and nuclear weapons
    proliferation.
        In spite of our difference, every nation continues to seek
    active American leadership and engagement to maintain the
    balance of power which has afforded unprecedented economic
    growth and to a lesser, but still important extent, democratic
    rights as well.
        Our involvement has eased regional concerns about Japan's
    and China's expanding strength as well as Japan's and China's
    concerns about each others emerging roles.
        A decade ago, it would have been difficult to imagine the
    United States would join South Korea in responding to an
    international appeal to avoid famine in North Korea, a subject
    which dominates the front page of today's Washington Post.
        And in the aftermath of Tiananmen Square, a peaceful
    transition in Hong Kong was not the currency of conventional
    wisdom.
        But signs of progress are shadowed by some serious
    problems. And let me just mention a few before we get to your
    testimony.
        With most favored nation [MFN] on the horizon, the debate
    continues over China's long-term intentions. Are we
    contributing to building a well-armed economic superpower with
    expansionist ambitions; or will economic growth yield political
    liberalization, with China increasingly assuming an important
    role as a responsible global leader?
        Obviously, our decisions and China's choices will have a
    major impact on Hong Kong's future. In this context, let me
    both note and welcome President Clinton's decision to see
    Martin Lee. It sends a strong signal of American support for
    democracy.
        In striking contrast, in Burma, the administration's record
    of support for democracy and Aung San Suu Kyi, has been
    extraordinarily disappointing. After 6 years, on July 10, 1995,
    Suu Kyi was formally released from house arrest.
        Sadly as of last October, she seems to once again be under
    de facto house arrest. In addition, thousands of Burmese have
    been arrested, tortured, subjected to forced relocations and
    slave labor.
        The United Nations and every human rights organization I am
    aware of has condemned SLORC's conduct and urged that Suu Kyi's
    legitimately elected government be restored to office. Since
    July 10, 1995, the administration has told me our policy has
    been under review. Even on the slowest learning curve, 655 days
    is a long, long review.
        Finally, turning to North Korea: Last week, the
    administration announced an additional contribution of
    emergency food aid for North Korea, bringing this year's total
    to $25 million.
        I understand the World Food Program intends to target the
    most vulnerable sector by providing food primarily for children
    under 6. I think this is a position most of us will be able to
    support.
        But this appeal only responds to 4 million of more than 18
    million estimated to be on the brink of starvation. I
    understand from reliable sources that North Korea's public
    distribution system will run out of food for the general
    population, at the latest, by mid-July, obviously a worrisome
    prospect.
        I also have been told that soldiers are not starving
    because the military runs its own farms to supply food. General
    Shalikashvili's recent comments that there has been no
    reduction in the level of military threat or exercises
    underscores that point.

                               prepared statement

        Adding to the volatile mix is the North's nuclear
    capabilities. We are obviously engaged in a very delicate
    balancing act with North Korea, hoping to secure a permanent
    peace while trying to prevent a domestic crisis from erupting
    which could unleash a still very strong military threat.
        Those are some of the items I assume you will touch on
    today and that we will be anxious to ask you about when we get
    to questions.
        [The statement follows:]

                 Prepared Statement of Senator Mitch McConnell

        Mr. Kartman, I understand you have been in New York
    participating in the negotiations with South and North Korea. I
    appreciate your interrupting that important schedule to return
    here to testify.
        The policy and programs developed by your bureau are
    exceptionally important to U.S. security, economic and
    political interests. I believe the Administration has worked,
    and largely succeeded, in assuring both friend and potential
    foe that we are a Pacific nation determined to sustain our
    presence and promote stability and mutual prosperity. However,
    our strategic commitment is routinely challenged by a host of
    tough, tactical issues involving trade, human and civil rights
    and both conventional and nuclear weapons proliferation.
        In spite of our differences, every nation continues to seek
    active American leadership and engagement to maintain the
    balance of power which has afforded unprecedented economic
    growth and to a lesser, but still important extent, democratic
    rights. Our involvement has eased regional concerns about Japan
    and China's expanding strength, as well as Japan and China's
    concerns about each other's emerging roles.
        A decade ago, it would have been difficult to imagine the
    United States would join South Korea in responding to an
    international appeal to avoid famine in North Korea--and, in
    the aftermath of Tiananmen Square, a peaceful transition in
    Hong Kong was not the currency of conventional wisdom.
        But, signs of progress are shadowed by some serious
    problems. Let me tick off just a few of the issues I hope we
    can discuss today:
        With MFN on the horizon, the debate continues over China's
    long term intentions. Are we contributing to building a well-
    armed economic super-power with expansionist ambitions? Or,
    will economic growth yield political liberalization with China
    increasingly assuming an important role as a responsible global
    leader? Obviously, our decisions and China's choices will have
    a major impact on Hong Kong's future. In this context, let me
    both note and welcome the recent Presidential decision to see
    Martin Lee; it sends a strong signal of American support for
    democrats everywhere.
        In striking contrast, in Burma, the Administration's record
    of support for democracy and its most vocal champion, Aung San
    Suu Kyi, has been disappointing. After six years, on July 10,
    1995 Aung San Suu Kyi was formally released from house arrest.
    Sadly, as of last October she seems once again to be under de
    facto house arrest. In addition, thousands of Burmese have been
    arrested, tortured, subjected to forced relocations and slave
    labor. The U.N. and every human rights organization I am aware
    of has condemned SLORC's conduct and urged that Suu Kyi's
    legitimately elected government be restored to office. Since
    July 10, 1995 the Administration has told me our policy has
    been under review. Even on the slowest learning curve, 654 days
    is a long, long review period.
        Finally, turning to North Korea. Last week the
    Administration announced an additional contribution of
    emergency food aid for North Korea bringing this year's total
    to $25 million. I understand the World Food Program (WFP)
    intends to target the most vulnerable sector by providing food
    primarily for children under six--I think this is a position
    most of my colleagues can support. But, this appeal only
    responds to 4 million of more than 18 million estimated to be
    on the brink of starvation. I understand from reliable sources
    that North Korea's Public Distribution System will run out of
    food for the general population, at the latest, by mid-July,
    obviously a worrisome prospect. I also have been told that
    soldiers are not starving because the military runs its own
    farms to supply food. General Shalikashvili's recent comments
    that there has been no reduction in the level of military
    threat or exercises underscore this point. Adding to this
    volatile mix, is the North's nuclear capabilities. We are
    obviously engaged in a very delicate balancing act with the
    North Koreans, hoping to secure a permanent peace while trying
    to prevent a domestic crisis from erupting which could unleash
    a still very strong military threat.

                   summary statement of hon. charles kartman

        Senator McConnell. So why do you not proceed?
        Mr. Kartman. Thank you very much, Mr. Chairman and members
    of the committee.
        Together with my colleagues, Aurelia Brazeal and Jeffrey
    Bader, I thank you for this opportunity to present an overview
    of the administration's policy in East Asia and the Pacific.
        We have submitted a detailed statement for you.
        United States interests in the Asia-Pacific region are
    abiding and underpin our global foreign policy. Secretary
    Albright has said our commitment to the region is solid because
    it is solidly based on American interests.
        We have strengthened our core alliances and reconfirmed our
    intention to maintain a forward troop presence in the region.
    We have also buttressed our other cooperative bilateral
    security arrangements and actively supported multilateral
    security dialogs such as the ASEAN regional forum.
        We have aggressively promoted American economic interests
    and elevated the diplomatic profile of our efforts to address
    transnational problems in the region.
        Secretary Albright has stressed that America has a vital
    interest in remaining a Pacific power. She gave testimony to
    that commitment in her meetings with leaders in Tokyo, Seoul,
    and Beijing as part of her first overseas trip as Secretary of
    State in February.
        And last November, President Clinton underlined the United
    States intention to remain deeply engaged in Asia and the
    Pacific when he visited three important partners for regional
    cooperation, Australia, the Philippines, and Thailand.
        I would now like to mention briefly some, but by no means
    all, of our key interests in relations in the region.
        Any discussion of overall Asia policy should begin with the
    cornerstone of United States engagement in the region, our
    global partnership with Japan.
        Most governments in East Asia see the United States-Japan
    partnership as key to political and military stability and to
    economic prosperity in the region. At the April 1996 summit in
    Tokyo, President Clinton and Prime Minister Hashimoto signed a
    joint security declaration reaffirming the importance of the
    United States-Japan alliance.
        We have an ambitious program on global issues known as the
    common agenda. And we are encouraging Japan to promote strong
    domestic demand for its products, open its markets further to
    imports and to regulate its economy.
        Although we have had some successes under the framework
    agreement, we need better implementation of existing agreements
    and outstanding issues such as civil aviation.
        Let me now turn to Korea. Our goal in the Korean Peninsula
    is to build a durable peace on the Peninsula and to facilitate
    progress by the Korean people themselves toward national
    reunification.
        As you mentioned, I have excused myself from the
    discussions that are going on in New York where, together with
    our South Korean allies, we spent several hours in intense
    negotiations with the North Korean delegation led by a Vice
    Foreign Minister. I will return there tomorrow.
        These discussions are an effort to persuade North Korea to
    accept President Clinton and President Kim's proposal for four-
    party peace  talks  involving  the  North  and  the  South,  as
     well  as  the United States and China, concerning a reduction
    of tensions in the peninsula and the establishment of a
    permanent peace to replace the 1953 Armistice Agreement.
        We are also discussing bilaterally with the North Koreans
    other important issues, including efforts to recover the
    remains of Korean war-era MIA's, proposals to end North Korean
    development and export of missiles and missile technology, and
    implementation of our commitment to exchange liaison offices in
    Washington and Pyongyang.
        On a strictly humanitarian level, we have provided
    approximately $33 million in cash and in-kind support for
    emergency relief assistance, basically medical supplies and
    food for targeted sectors of the North Koreans.
        It is difficult to predict the pace of progress in our
    dealings with North Korea, however. North Korea's economic
    difficulties have created opportunities for diplomacy, but they
    also pose dangers.
        Our approach, which is in full coordination with the ROK,
    offers the DPRK a way to deal with its current crisis; that is,
    through responsible engagement with the United States, the ROK,
    and the international community.
        Let me now turn to China. In recent months, few if any
    foreign policy issues have been the subject of more intense
    debate than China.
        China is a major power whose influence will continue to
    expand in the 21st century. We seek a productive relationship
    with the secure, open, and successful China that is
    increasingly integrated into the international system and a
    responsible member of the international community.
        The administration is convinced that we can best advance
    our long-term interests by expanding and intensifying dialog
    with China's leaders at the highest levels. In line with this,
    we expect an exchange of state visits in 1997-98.
        Secretary Albright's decision to visit Beijing as part of
    her overseas--her first overseas trip reflected the importance
    we attach to laying a firm foundation for bilateral relations.
        Engagement with China should not be seen as implying
    approval of Chinese Government practices or policies. It is a
    vehicle by which we can expand areas of cooperation to advance
    our strategic interests, such as the search for stability on
    the Korean Peninsula.
        It also enables us to deal forthrightly with China on
    issues where we have differences, including human rights,
    market access, and some of China's weapons and dual-use item
    sales.
        Our bilateral trade deficit with China is a source of
    growing concern. Although the rate of growth of the deficit
    with China is slowing, its size, $39.5 billion, is politically
    unsustainable.
        We strongly support China's entry into the WTO on
    commercially acceptable terms.
        We have had serious difficulty with China on
    nonproliferation, largely over Chinese exports of arms as well
    as sensitive goods and technologies, primarily to Iran and
    Pakistan.
        In the missile and chemical areas, we continue to have
    concerns about the nature of China's commitment to abide by the
    MTCR guidelines, and about China's willingness to strengthen
    its chemical export control system and curb its dual-use
    chemical-related transfers to Iran.
        Human rights is an important issue in our relations with
    China. And we raise it at every high level meeting. We urge
    China to take steps to improve the human rights situation by
    releasing political prisoners and allowing prison visits by
    international human rights organizations.
        In just over 2 months time, the world's attention will be
    focused on the reversion of Hong Kong. We expect China to honor
    its commitments to preserve Hong Kong's high degree of autonomy
    and its unique way of life.
        Vice President Gore and Secretary Albright expressed our
    views regarding Hong Kong in meetings with Chinese leaders
    during their visits in February and March. And Secretary
    Albright will raise Hong Kong again when Vice Premier Qian
    Qichen visits Washington later this month.
        Secretary Albright will represent the United States at the
    Hong Kong reversion ceremony, a measure of the importance we
    place on this event, our support for the terms agreed to by the
    British and the Chinese, and our interest in the future of Hong
    Kong.
        Let me briefly highlight other important interests we have
    in the region.
        One of the President's most significant, if sometimes
    overlooked, foreign policy accomplishments has been the
    elevation of the Asia-Pacific region in general on the foreign
    policy agenda.
        Through his vision of a genuine Pacific community of
    interests, the President has elevated APEC to the leaders
    level.
        The administration has also played a prominent role in
    shaping a new regional security architecture through the
    creation of the ASEAN regional forum and other subregional
    dialogs.
        Regional dialog and architecture such as the ARF are
    designed to complement our existing core alliances, as well as
    cooperative security arrangements with other friendly nations.
        However, as you noted in your statement, Mr. Chairman, in
    sad contrast to the largely positive trends elsewhere in the
    region, the people of Burma continue to live under a highly
    authoritarian military regime.
        The SLORC refuses to engage the democratic opposition in
    dialog, and continues to engage in widespread human rights
    violations.
        The activities of Aung San Suu Kyi and her party, the
    National League for Democracy, are monitored and circumscribed
    by the regime.
        The Cohen-Feinstein Burma sanctions provisions, which were
    signed into law by the President on September 30, 1996, require
    the President to impose a ban on new United States investment
    in Burma under now well-known conditions.
        We continue to watch the situation in Burma closely and
    will impose such a ban if the President makes that
    determination.
        With the recent Senate confirmation of Pete Peterson as the
    first American Ambassador to Hanoi, I am confident we will be
    able to encourage more effective cooperation from the SRV on
    issues of national interest, especially on obtaining the
    fullest possible accounting for Americans missing from the
    conflict, which remains our top bilateral priority.
        We will also be in a position to urge greater political and
    religious freedom in Vietnam.
        Sometime this year, we hope to open a Consulate General in
    Ho Chi Minh City, which will enable us to better process former
    boat people for possible resettlement in the United States, as
    well as provide consular and commercial services to American
    citizens.
        Mr. Chairman, in conclusion, I would like to note two
    countries in East Asia which deserve the full support of the
    United States as they continue their difficult transition to
    democracy, Cambodia and Mongolia.
        In Cambodia, the traditional threat posed by the Khmer
    Rouge, while not eliminated, has receded considerably following
    a series of large scale defections to the government side.
        However, other internal threats, political violence most
    notable among them, now pose a grave challenge to Cambodia's
    transition to a democratic future.
        The United States is equally committed to assisting the
    Mongolian people with their remarkable transition to democratic
    government through programs made possible by ESF and by
    encouraging active involvement by NGO's.
        Mongolia's 7-year democracy building experience and
    experiment with a free-market economy is truly an Asian success
    story.
        So, Mr. Chairman, the breadth of our interests in the Asia-
    Pacific region, our partnerships and alliances, and the
    challenges we face there will increase in importance as we
    enter the next century.

                               prepared statement

        The successes I have reviewed with you today vastly
    outnumber the problems, some admittedly serious, which remain.
    With the cooperation of Congress, we plan to continue the
    active pursuit of peace and stability, prosperity and
    individual rights and liberties throughout Asia and the
    Pacific.
        Thank you very much. We will be glad to answer questions.
        Senator McConnell. Thank you.
        [The statement follows:]

           Prepared Statement of Assistant Secretary Charles Kartman

                           introduction and overview

        Mr. Chairman, Members of the Committee: Together with my
    colleagues, Aurelia Brazeal and Jeffrey Bader, I thank you for
    this opportunity to present an overview of the Administration's
    policy in East Asia and the Pacific.
        U.S. interests in the Asia-Pacific region--security,
    political, economic, socio-cultural--are abiding and underpin
    our global foreign policy. As Secretary Albright said on April
    15, our commitment to the region is solid because it is solidly
    based on American interests. Together with our partners in the
    region, the Administration is committed to building a community
    across the Pacific based on shared interests, economic
    interdependence, respect for democratic principles, and a
    common commitment to peace.
        The United States has employed a multi-pronged, reinforcing
    approach in providing leadership to seize the opportunity for
    mutually beneficial cooperation in the region. On the security
    front, we have strengthened our core alliances and buttressed
    other cooperative bilateral security relationships. We have
    reconfirmed our intention to maintain a forward troop presence
    in the region, as Vice President Gore underscored in Japan last
    month. At the same time, we have actively supported
    multilateral security dialogues, such as the ASEAN Regional
    Forum, which now includes both Russia and India as members.
        We have aggressively promoted American economic interests
    in this dynamic part of the globe, regionally through our
    participation in APEC and bilaterally through negotiations with
    Japan, the PRC and other prominent economies. The growth of the
    ASEAN economies and their general commitment to market-oriented
    free trade principles figures prominently in how the United
    States pursues trade and other economic interests. The East
    Asia and Pacific region has surpassed Western Europe to become
    the largest regional trading partner of the United States.
    Close to 40 percent of our global trade is with the countries
    of the Pacific Rim.
        In recent years, we have also elevated the diplomatic
    profile of our efforts to address trans-national problems in
    the Asia-Pacific region which by definition have no respect for
    boundaries: weapons proliferation, terrorism, narcotics
    trafficking, and environmental degradation. For example,
    sustainable development and the environment figured prominently
    on Vice President Gore's agenda during his visit to Japan,
    China and Korea in late March.
        In her confirmation hearings in January and in subsequent
    Congressional testimony, Secretary Albright stressed that
    America has a vital interest in remaining a Pacific power. She
    gave testimony to that commitment in her first overseas trip as
    Secretary of State in February. In Tokyo and Seoul, she
    reaffirmed America's intention to do its part to help build a
    secure and peaceful future for Asia and the Pacific and the
    vitality of our strong security relationships with key allies.
    In Beijing, the Secretary encouraged China's active and
    responsible participation in the international community.
        Last November, within days of being reelected to a second
    term, President Clinton underlined his conviction that the
    United States intends to remain deeply engaged in Asia and the
    Pacific when he visited three important partners for regional
    cooperation--Australia, the Philippines and Thailand. Secretary
    Cohen has just returned from consultations in Northeast Asia.
    General Shalikashvili is there now. And less than two weeks
    ago, Treasury Secretary Rubin travelled to Vietnam where he
    advanced the process of economic normalization between our two
    countries.
        Having briefly outlined the main elements of our Asia
    policy, I would now like to lay out in more detail some of our
    key interests and relations in the region.

                                     japan

        Any discussion of overall Asia policy should begin with the
    cornerstone of U.S. engagement in the region: our global
    partnership with Japan. The United States is committed to
    working closely with Japan to meet the many international
    security, political and global challenges of the 21st century.
        Most governments in East Asia generally see the U.S.-Japan
    partnership as key to political and military stability and to
    economic prosperity in the region. The United States and Japan,
    in close consultation with the Republic of Korea, seek
    continued stability on the Korean Peninsula and the faithful
    execution of the October 1994 U.S.-DPRK Agreed Framework which
    froze North Korea's nuclear program. Japan joined the United
    States and the ROK as founding members of the Korean Energy
    Development Organization (KEDO). Japan has committed to fund a
    significant portion of the multi-billion dollar light-water
    reactor project for North Korea. Japan has likewise given
    strong support for the proposed Four Party proposal involving
    the United States, the ROK, the DPRK, and China.
        Both we and Japan encourage and support China's active,
    constructive role in the international community. Our
    governments continue to engage China on a broad range of
    issues, including nonproliferation, trade, human rights, and
    Hong Kong. We both share an interest in seeing that China is
    successfully integrated into the core institutions of the
    international community and, in so doing, meets its
    responsibilities and obligations.
        In the United Nations, where Japan has the second largest
    individual country assessment, we have worked together to
    promote reform of the organization. We strongly support Japan's
    bid for permanent membership on the Security Council. In recent
    years, Japan has displayed greater willingness to participate
    in UN peacekeeping operations, as it continues to be an active
    leader in financing a range of international humanitarian
    relief efforts such as Bosnia reconstruction, the Middle East
    Peace Process and programs to cope with refugee crises in
    Africa.
        Under the U.S.-Japan Common Agenda, launched in July 1993,
    Japan and the United States are cooperating on more than two
    dozen initiatives covering a broad range of the world's most
    pressing global problems such as health, rapid population
    growth and the environment.
        At the April 1996 Summit in Tokyo, President Clinton and
    Prime Minister Hashimoto signed a Joint Security Declaration
    which reaffirmed the importance of the U.S.-Japan alliance. At
    present, there are about 43,000 U.S. military personnel in
    Japan. Japan provides about $5 billion a year in Host Nation
    Support (HNS), or about 70 percent of the non-salary costs of
    maintaining U.S. forces in Japan. We will continue to maintain
    our forces in Japan, as part of our 100,000 forward-deployed
    troops in the region, for the foreseeable future.
        The Joint Security Declaration also endorsed the then-
    ongoing work of the U.S.-Japan Special Action Committee on
    Okinawa (SACO), which completed its work in December 1996 by
    announcing substantial consolidations of U.S. bases in Okinawa.
    SACO reflected the recognition by both the United States and
    Japan that the sensibilities of Okinawan communities regarding
    the U.S. military presence needed to addressed in order to
    sustain, for the long term, our forward deployments in Okinawa.
        Japan is our largest trading partner after Canada. It is
    also the world's second largest economy. However, except for
    1996 when real GDP growth was 3.6 percent due to a large fiscal
    stimulus and low interest rates, economic growth has been flat
    since the real estate and stock bubble burst in 1990. The
    government's plan to reduce spending and raise the consumption
    tax is expected to constrain economic growth in 1997. Japan
    remains a massive net exporter of goods to the rest of the
    world. Although Japan's merchandise trade surplus with the
    United States fell to $48 billion in 1996 from $59 billion in
    1995, the surplus is expected to rise in 1997 as the weaker yen
    increases Japan's exports and reduces its imports.
        We are encouraging Japan to promote strong domestic demand
    for its products, open its markets further to imports and
    deregulate its economy. Excessive regulation and non-
    transparent procedures, however, continue to be a drag on
    Japanese growth and to impede the access of American firms and
    products to Japanese markets. Prime Minister Hashimoto said
    that deregulation is one of his administration's top
    priorities. His strong leadership will be important in
    overcoming bureaucratic and economic interests who favor the
    status quo.
        Our trade policy aims at opening Japan's markets, so that
    foreign firms can compete on an equal footing. The Framework
    Agreement, signed by President Clinton and then-Prime Minister
    Miyazawa in 1993, governs our bilateral trade relationship.
    Since then, we have negotiated 23 trade agreements. Under the
    Framework, we have had successes not only in autos and auto
    parts, but in insurance, semiconductors and intellectual
    property rights protection. We have enjoyed similar success in
    our WTO case involving distilled spirits. Nevertheless, Japan
    remains a difficult market especially for new entrants owing to
    government regulation, exclusionary private business practices,
    and inadequate anti-trust enforcement. We are pressing Japan to
    implement existing agreements, including on autos and auto
    parts and government procurement, and to deregulate its
    economy. We are also working hard to address outstanding issues
    such as civil aviation and telecommunications.

                                     korea

        Mr. Chairman, I have just returned from New York, where
    together with our South Korean allies we have spent several
    hours in intense discussions with a North Korean delegation led
    by Vice Foreign Minister Kim Gye Gwan. I will return to New
    York tomorrow to continue those talks.
        I would like to discuss briefly the Administration's basic
    policy approach toward the Democratic People's Republic of
    Korea (DPRK). Our overall goals in this policy are to build a
    durable peace on the Korean Peninsula as a key contribution to
    regional stability, and to facilitate progress by the Korean
    people themselves toward national reunification.
        Central to our strategy for managing North Korea is our
    commitment to consult regularly and closely with our South
    Korean allies, to ensure that our North Korea policy remains
    tightly coordinated. Recent visits to Seoul by the Vice
    President, Secretary Albright, Secretary Cohen and General
    Shalikashvili have all contributed to that objective. The U.S.-
    ROK security alliance, which has withstood nearly five decades
    of challenges and changes, remains at the heart of our policy
    on the Peninsula. Our joint ability to deter North Korean
    aggression is stronger than ever. The Republic of Korea, which
    emerged from the Korean War in ruins, has built itself into a
    vibrant democracy with a robust economy. The United States is
    rightly proud of the role we have played in this process, in
    the first instance, by ensuring the security of our ally.
        Negotiated in close consultation with our South Korean and
    Japanese allies, the October 1994 Agreed Framework not only
    provided a means to address our concerns about the North Korean
    nuclear program, but also laid out a structure to pursue our
    other diplomatic objectives with the DPRK. Since November 1994,
    a freeze on key existing facilities in North Korea's nuclear
    program has been in place and is being continuously monitored
    by the International Atomic Energy Agency (IAEA) as well as by
    our own national technical means. Under the Agreed Framework,
    the North will forego the right to reprocess spent fuel and
    will, instead, safely store and eventually transfer the
    existing fuel out of the country.
        I would note that the existing spent fuel contains material
    which could be used to build nuclear weapons. Thanks to the
    hard work of a team of experts led by the Department of Energy,
    which is in North Korea working 12 hours a day, six days a
    week, the task of putting this material into storage under IAEA
    safeguards is more than half completed. Actual canning of the
    spent fuel began in April 1996 and is planned for completion
    later this year. Upon the completion of canning activities, the
    spent fuel will remain at the spent fuel storage basin at
    Nyongbyon where it will continue to be subject to monitoring by
    the IAEA until it is transferred out of the DPRK.
        The Agreed Framework also provides that, in return for the
    freeze and dismantlement of the DPRK's present nuclear program,
    the United States will organize under its leadership an
    international consortium to finance and supply two light-water
    reactors (LWR), as well as heavy fuel oil shipments, to the
    DPRK. Under American, South Korean and Japanese leadership, the
    Korean Peninsula Energy Development Organization (KEDO) has
    grown into an important arm of our three countries' coordinated
    diplomacy. KEDO currently has ten members, spread over five
    continents, and has received financial contributions from over
    twenty-one countries. The European Union (EU) recently
    announced that it would join KEDO as the fourth member of its
    Executive Board. The EU's commitment to contribute $20 million
    annually to KEDO over five years will help put KEDO finances on
    a more solid footing. Nonetheless, KEDO is running a serious
    deficit in its oil funding account; the deficit was $2.7
    million in 1995, and about $33.5 million in 1996.
        The combination of new EU funding, the U.S. contribution to
    KEDO, and the contributions of other countries is critically
    important to ensure that KEDO's commitment to deliver heavy
    fuel oil to the DPRK is met. These deliveries are essential to
    the integrity of the nuclear freeze, since they help compensate
    the DPRK for the loss of energy production from nuclear
    reactors which were under construction before the Agreed
    Framework. KEDO is also taking steps to ensure the proper use
    of this fuel by the North. We are following this situation very
    closely.
        KEDO has negotiated five protocols to the LWR Supply
    Agreement which define the terms and conditions for reactor
    construction. It has sent seven teams of technical experts--
    American, South Korean and Japanese--to the DPRK to gather
    necessary geological, environmental, and structural information
    about the proposed LWR site in the DPRK. We anticipate
    groundbreaking on the project to begin in late spring. As the
    LWR project progresses, North Korea's contact with the world
    and with the ROK will rapidly increase. Most specialists
    working on the project will be ROK citizens, and South Korea's
    national power company--KEPCO--is the prime contractor.
    Already, the LWR project has facilitated North-South contact
    through almost constant KEDO-DPRK negotiations at KEDO
    headquarters in New York City and through the regular visits of
    South Koreans, under KEDO sponsorship, to the North to prepare
    for the reactor project.
        The Agreed Framework also called on the United States and
    the DPRK to improve bilateral relations through resolution of
    issues of importance to the U.S. The pace of change will
    depend, of course, on the degree to which the DPRK is prepared
    to move further along the positive path on which it embarked
    with the signing of the Agreed Framework. Another key element,
    which was written into the Agreed Framework at our insistence,
    is the expectation of progress in North-South relations. In our
    subsequent diplomatic contacts with the DPRK, we have stressed
    consistently and frequently the necessity of such contact.
        North Korea's agreement to sit down with the United States
    and ROK on March 5 to hear our joint briefing on President
    Clinton and President Kim's proposal for Four Party peace talks
    was tangible evidence of the recent success of our policies in
    engaging the DPRK and encouraging inter-Korean dialogue. This
    joint briefing will, we hope, lead to discussions involving the
    North and South, as well as the United States and China,
    concerning a reduction of tensions on the Peninsula and the
    establishment of permanent peace to replace the 1953 Armistice.
        Two days after the joint briefing on the Four Party talks,
    accompanied by officials from the Department of Defense and the
    National Security Council, I met with the same DPRK delegation
    to discuss the range of bilateral issues between our two
    countries. Among the issues I raised in that meeting were
    efforts to recover the remains of Korean War-era MIAs,
    proposals to end North Korean development and export of
    missiles and missile technology, and implementation of our
    commitment to exchange liaison offices in Washington and
    Pyongyang.
        U.S. negotiators first met with DPRK officials in April
    1996 to discuss our concerns about North Korea's development,
    deployment, and proliferation of missiles and missile
    technology. The DPRK has agreed to a second round of these
    talks to be held May 12-13 in New York. Putting an end to these
    threats is a top U.S. priority.
        Under terms of the Agreed Framework, the United States and
    North Korea agreed to exchange liaison offices--the lowest
    level of diplomatic representation between countries--as soon
    as technical issues could be resolved. Although we are still
    discussing some of these matters, including arrangements for
    supplying and supporting our office in Pyongyang and the
    North's ability to find suitable offices in Washington,
    conditions appear to be improving for the realization of this
    commitment. The establishment of these small-scale offices
    would be of practical benefit to both sides. We are very
    grateful to Sweden for its willingness to act as our protecting
    power in the DPRK. However, as American citizens increasingly
    visit the DPRK--as journalists, academics, humanitarian relief
    workers or specialists in the canning, remains, or fuel
    monitoring projects--we feel the need to be able to provide
    them directly with consular protection and support. A full-time
    diplomatic presence in Pyongyang will also give us a first-hand
    perspective on the situation and provide us with improved
    access to North Korean officials.
        In recognition of the progress made on issues of concern to
    us, we have taken a number of modest steps since January 1995
    to ease economic sanctions against the DPRK. In December 1996,
    for example, we approved the license of a U.S. firm to pursue a
    commercial deal to sell North Korea up to 500,000 tons of
    grain, consistent with our policy of sympathetic consideration
    of all applications for provision of foodstuffs on commercial
    terms. We understand that negotiations to conclude this deal
    for a limited shipment on a commercial basis were recently
    successful. We will consider further sanctions-easing measures
    as North Korea makes progress on issues of concern to us.
        On a strictly humanitarian level, the United States has
    participated in international efforts to alleviate the
    suffering of North Korean civilians affected by recent flooding
    and food shortages there. Over the past two years, we have
    provided approximately $33 million in cash and in-kind support
    for emergency relief assistance--basically, medical supplies
    and food--for the North. These contributions have been made in
    the spirit of the American tradition of providing assistance to
    people in need, without regard to politics.
        Our most recent donation, announced April 15 after close
    consultation with the ROK and Japan, is a donation of 50,000
    metric tons of corn valued at approximately $15 million for use
    in feeding 2.6 million children under the age of 6 in North
    Korea. This assistance, which will be in the form of PL 480
    Title II Emergency Food Aid, is in response to the UN World
    Food Program's (WFP) April 3 announcement that it was expanding
    its outstanding appeal by an additional 100,000 metric tons,
    bringing its total appeal to 200,000 metric tons, valued at $95
    million. UN agencies with staff in North Korea will arrange the
    delivery of our contribution. The WFP, which will monitor the
    distribution, has demonstrated its ability to ensure that
    assistance reaches the intended civilian beneficiaries.
        The latest WFP appeal, even if fully subscribed, will only
    meet 5 percent of the North's estimated 2 million ton shortfall
    of grain this year. However, the appeal is designed to get food
    in the pipeline now for delivery to those most vulnerable to
    the threat of famine.
        The United States has not acted alone in providing
    humanitarian assistance to the DPRK. In February, the ROK
    announced a $6 million contribution to the WFP appeal, and we
    expect South Korea to respond to the WFP's expanded appeal.
    Japan donated $6 million in response to the 1995 UN appeal and
    is considering its response to the expanded WFP appeal. Canada
    has contributed $4 million and Australia $2.2 million; Denmark,
    Norway, and New Zealand have also announced contributions.
        Experience has taught us that it is difficult to predict
    the pace of progress in our dealings with North Korea, and
    events can move quickly on the Korean Peninsula. Persistent
    diplomacy by the United States, in close coordination with the
    ROK, has laid the groundwork for a possible improvement of the
    situation on the Peninsula. North Korea's economic difficulties
    have created opportunities for diplomacy, but they also pose
    dangers.
        In summary, although there is clearly a long way to go, I
    am cautiously optimistic about our effort to promote lasting
    peace on the Korean Peninsula. It has at its foundation the
    U.S.-ROK security alliance and our commitment to deter North
    Korean aggression. It seeks to reduce tensions, but insists on
    the principle of reciprocity enshrined in the Agreed Framework.
    It recognizes the long-standing American tradition of offering
    assistance to needy people regardless of the political views of
    their leaders. And, it offers the DPRK a way to deal with its
    current crisis--through responsible engagement with the United
    States, the ROK, and the international community.

                                     china

        Mr. Chairman, in recent months few if any foreign policy
    issues have been the subject of more intense debate than China.
    Constructive relations with the PRC are of fundamental
    importance to the preservation of world peace and regional
    stability. As Secretary Albright noted in her address at the
    Naval Academy two days ago, no nation is destined to play a
    larger role in shaping the future of Asia than China. Already,
    China is a major power whose influence will continue to expand
    in the 21st century.
        We seek a productive relationship with a secure, open and
    successful China that is increasingly integrated into the
    international system and a responsible member of the
    international community. American interests are served best by
    a China that does not threaten others. China, in turn, is less
    likely to be hostile if it does not feel threatened. American
    interests are not served by a policy that seeks to contain or
    isolate China. We would not only eventually fail, but an effort
    to do so would undercut the stability that all countries in the
    Asia-Pacific region need for the future to be secure and
    prosperous.
        A China that evolves as a power that is stable, politically
    and economically more open and non-threatening militarily--in
    short, a China that is moving toward, not away, from a secure
    international order--is profoundly in our national interest.
    Ultimately, of course, China will determine its own course, and
    there is no assurance that our policy of engagement will
    succeed in moving China in the direction of the international
    community, away from more nationalistic, self-absorbed
    policies. But we can and should help shape its choices. This
    can be accomplished most effectively by continuing our present
    policy of deepening our strategic dialogue with China.
        The Administration is convinced that we can best advance
    our long-term interests by expanding and intensifying dialogue
    with China's leaders at the highest levels. In line with this,
    we expect an exchange of state visits in 1997 and 1998.
        Secretary Albright's decision to visit Beijing as part of
    her first overseas trip reflected the importance we attach to
    laying a firm foundation for bilateral relations. Meetings such
    as those during the Vice President's visit to China in March
    are conducive to a productive dialogue in which differences can
    be aired.
        Engagement with China should not be seen as implying
    approval of Chinese government practices or policies. It is a
    vehicle by which we can expand areas of cooperation to advance
    our strategic interests--such as the CTBT and stability on the
    Korean Peninsula. It also enables us to deal forthrightly with
    China on issues where we have differences--including human
    rights, market access and some of China's weapons and dual-use
    items sales.
        Our relationship with China has many dimensions. We have a
    positive agenda, where we seek productive dialogue on issues of
    mutual interest: global and regional security cooperation--
    including at the UN--on matters such as the situation on the
    Korean peninsula; arms control and nonproliferation; trade and
    investment; sustainable development and protection of the
    environment; and the ongoing fight against drug trafficking,
    alien smuggling, international crime and terrorism. On the
    other hand, just as we try to expand areas of cooperation
    wherever possible, so do we work assiduously on those areas
    marked by differences. I would like to mention briefly some of
    the key issues in the relationship.
        Taiwan is a longstanding issue between us. As provided in
    three joint communiques with the PRC, the United States
    recognizes the Government of the PRC as the sole legal
    government of China and acknowledges the Chinese position that
    there is just one China, and that Taiwan is a part of China.
    However, we maintain strong unofficial ties with the people of
    Taiwan, in cultural, commercial and other areas. We welcome the
    democratic transformation of Taiwan.
        While the Taiwan issue is a matter for the parties involved
    to resolve, we have a strong and continuing interest that any
    resolution be peaceful. The United States has an abiding
    interest in the region's continued peace and stability, and
    under the Taiwan Relations Act (TRA), any effort to determine
    the future of Taiwan by other than peaceful means would be of
    grave concern to the United States. The TRA requires the United
    States to make available to Taiwan defense equipment to
    maintain a sufficient self-defense capability. The PRC has
    always opposed arms sales to Taiwan, which it regards as
    interference in its internal affairs, and they continue to be a
    source of friction. Since differences between Beijing and
    Taipei remain a potential source of instability, we have
    stressed to both sides the importance of avoiding provocation
    and of resuming cross-Strait dialogue as a possible route
    toward eventual resolution of this problem.
        A growing source of concern is our bilateral trade deficit
    with China. Although the rate of growth of the deficit with
    China is slowing, its size--$39.5 billion--is politically
    unsustainable. We continue to press for implementation of our
    bilateral market access and intellectual property rights
    agreements, and we are seeking increased access for our goods
    and services in the negotiations on China's accession to the
    World Trade Organization. We strongly support China's entry
    into the WTO on commercially acceptable terms. Both sides are
    working to intensify negotiations.
        Chinese cooperation is essential to achieve our regional
    and global nonproliferation objectives, and we have made
    progress. We engage the Chinese on nonproliferation frequently
    and at various levels. We urge that China accept and abide by
    international nonproliferation agreements and norms.
        China's evolving attitude toward nonproliferation norms can
    be seen in Chinese actions in the 1990s. In 1992, it acceded to
    the Nonproliferation Treaty (NPT), in 1993, it signed the
    Chemical Weapons Convention (CWC), which its National People's
    Congress approved last December; in 1994, China stated it would
    abide by the guidelines and parameters of the Missile
    Technology Control Regime (MTCR), joined the United States in
    calling for the negotiation of a multilateral agreement banning
    the production of fissile material for nuclear weapons, and
    played a constructive role with North Korea in obtaining its
    agreement to eliminate its nuclear weapons program; in 1995,
    China supported the successful effort to make the NPT
    permanent; in 1996, China stopped testing nuclear weapons and
    signed the Comprehensive Test Ban Treaty (CTBT); and this year,
    China joined with other members of the IAEA in negotiating and
    recommending that the IAEA Board of Governors adopt new
    safeguards to strengthen the IAEA's ability to detect
    undeclared nuclear activities in states with comprehensive
    safeguards agreements.
        We and China need to build on these steps. We will need
    Beijing's active cooperation to help bring North Korea into
    full compliance with its NPT and IAEA safeguards obligations,
    to help avert a destabilizing nuclear and missile competition
    in South Asia, and to help stabilize the Persian Gulf region by
    curbing exports to Iran and supporting fully Security Council
    resolutions on Iraq. We have urged China to join the new
    Wassenaar Arrangement of 33 major arms suppliers that have
    agreed not to sell arms and sensitive technologies to Iran.
        At the same time, we have had serious difficulties with
    China on nonproliferation, largely over Chinese exports of arms
    as well as sensitive goods and technologies, primarily to Iran
    and Pakistan. Our intensive engagement with the Chinese over
    the last few years on nuclear export issues has begun to yield
    some concrete results. China has shown a greater willingness to
    scrutinize and restrain its nuclear exports and cooperative
    activities, to strengthen their national export controls, and
    to address more promptly and seriously our concerns. If we
    continue to make progress, we would hope to be in a position to
    implement the long-dormant 1985 U.S.-China Agreement for
    Nuclear Cooperation, which would bring major benefits to both
    countries. In the missile and chemical areas, however, we
    continue to have concerns about the nature of China's
    commitment to abide by the MTCR guidelines and about China's
    willingness to strengthen its chemical export control system
    and curb its dual-use chemical-related transfers to Iran.
        Human rights is an important issue in our relations with
    China, and we raise it at every high-level meeting. Our
    concerns are well documented in the State Department's annual
    country reports of human rights practices. We urge China to
    take steps to improve the human rights situation by releasing
    political prisoners and allowing prison visits by international
    human rights organizations.
        Some argue that the United States should restrict access
    for Chinese goods to the domestic American market until China
    improves its record on human rights. However, this
    Administration believes that revoking or conditioning Most
    Favored Nation (MFN) tariff treatment for China would not
    advance human rights there. On the contrary, denial of MFN
    would remove a beneficial influence for creating a more open
    China; undermine American leadership in the region and the
    confidence of our Asian allies; damage our economy, harm Taiwan
    and especially Hong Kong, whose economies are intertwined
    closely with that of the PRC; and would damage our ability to
    work constructively with China. In the Administration's view,
    renewing MFN unconditionally for China is the best way to
    advance American interests, a conclusion reached by every
    American president since 1979.
        Although longstanding U.S. policy recognizes Tibet as part
    of China, we strongly support the resumption by Beijing,
    without preconditions, of negotiations with the Dalai Lama to
    protect Tibet's distinctive heritage and culture. We would
    welcome any formula for discussions agreed upon by
    representatives of the Dalai Lama and of the PRC. The Dalai
    Lama will visit Washington next week.
        In just over two months' time, the world's attention will
    be focused on the reversion of Hong Kong. Under the 1984 Sino-
    British Joint Declaration, Hong Kong will become a Special
    Administrative Region (SAR) of the PRC at midnight on July 1,
    1997, after which it will continue to enjoy a high degree of
    autonomy in all areas but foreign affairs and defense. We are
    expressing at the highest levels our interest in a smooth and
    successful transition, and in the future of Hong Kong. We
    expect China to honor its commitments to preserve Hong Kong's
    high degree of autonomy and its unique way of life. We believe
    that the protection of civil liberties and individual freedoms,
    including freedom of expression, is important to Hong Kong's
    way of life and vital to continuing confidence there.
        China has a strong self-interest in Hong Kong's continued
    prosperity, and it understands Hong Kong's critical role in
    providing and funneling the capital, technology, and
    entrepreneurial skills that fuel China's economic growth.
        Vice President Gore and Secretary Albright expressed our
    views regarding Hong Kong in meetings with Chinese leaders
    during their visits in February and March, and Secretary
    Albright will raise Hong Kong again when Vice Premier Qian
    Qichen visits Washington later this month. We believe the
    Chinese leaders understand our interest, and they express their
    intention to preserve Hong Kong's autonomy and way of life.
    Secretary Albright will represent the United States at the Hong
    Kong reversion ceremony, a measure of the importance we place
    on this event, our support for the terms agreed to by the
    British and the Chinese, and our interest in the future of Hong
    Kong. As mentioned by the Hong Kong Policy Act of 1992, the
    Administration will monitor the situation after reversion and
    report on any erosion in Hong Kong's autonomy.

                  pacific community and regional architecture

        Mr. Chairman, in any broad discussion of U.S. policy in
    Asia, Northeast Asia tends to dominate. Today, I want to
    briefly highlight other important interests we have in this
    dynamic region.
        One of the most significant if sometimes overlooked foreign
    policy accomplishments of the First Clinton Administration was
    the elevation of the Asia-Pacific region in general on the
    foreign policy agenda. This elevation continues in the Second
    Administration. Through his vision of a genuine Pacific
    community of interests, the President has nurtured the APEC
    process, founded in 1989, to the Leaders level. In November of
    this year, APEC leaders will come to the North American
    continent, where the city of Vancouver will play proud host.
        This Administration has also played a prominent role in
    shaping a new regional security architecture through the
    creation of the ASEAN Regional Forum (ARF) and other sub-
    regional dialogues. Since its inception in 1994, the
    accomplishments of the ASEAN Regional Forum--whose membership
    now numbers 21--have been significant. Regional dialogue and
    architecture such as the ARF are designed to complement
    existing core alliances--with Japan, the ROK, Australia,
    Thailand and the Philippines--as well as cooperative security
    arrangements with other friendly nations.

                                   australia

        Australia is the southern anchor of the U.S. presence in
    the Asia-Pacific region. A stalwart and dependable ally,
    Australians have fought by our side in every major conflict in
    the 20th century. In addition to our military alliance, we and
    Australia have a long and profound history of cooperation on
    multilateral issues. Australia has provided timely and
    important financial support to KEDO, and was instrumental in
    helping bring about a positive outcome on the CTBT.

                                     asean

        With over 330 million people, the seven ASEAN nations--
    Indonesia, Malaysia, Singapore, Thailand, the Philippines,
    Brunei, and Vietnam--have become collectively our fourth
    largest overseas market. U.S. companies have invested over $30
    billion in the ASEAN countries, an investment which helped
    produce two-way trade valued at more than $100 billion. ASEAN
    boasts some of the world's fastest growing economies, and is
    likely to remain a vibrant market for U.S. goods and services
    for the foreseeable future.
        ASEAN, together with the ASEAN Regional Forum, has become a
    force for regional stability and a vehicle for increased
    involvement in both regional and global affairs. The seven
    ASEAN nations border the South China Sea in a region fraught
    with historical tensions and overlapping territorial claims.
    However, the economic and cultural ties which bind the ASEAN
    nations have served to reduce volatility in this strategic
    area. Thailand and the Philippines are treaty allies of the
    United States, and we have a cooperative security arrangement
    with Singapore. Both Malaysia and the Sultanate of Brunei have
    contributed significant financial support for various
    multilateral assistance efforts underway in Bosnia.

                                   indonesia

        In many respects, no country better symbolizes the dynamic
    reality of ASEAN than Indonesia. By far the largest of the
    ASEAN nations with its 200 million population, Indonesia has
    chosen over the last 30 years to work closely with its
    neighbors through that organization to encourage consensual,
    constructive approaches to regional challenges. No other factor
    is of greater importance to the region's long-term stability
    and unparalleled economic growth. In the process, Indonesia has
    played key roles in bringing democratic elections to Cambodia
    and in using its chairmanship of the Organization of the
    Islamic Conference to broker a peace agreement to end a
    decades-long conflict in the southern Philippines. Indonesia
    also hosted the 1994 APEC Leaders Meeting, where leaders agreed
    to free up regional trade and investment by the years 2010 and
    2020 for developed and developing countries.
        Stability in the region and in Indonesia has provided the
    necessary preconditions for one of the most remarkable economic
    success stories of any developing nation. GDP growth has
    averaged in the neighborhood of 7 percent over several decades.
    This growth has been balanced by developing country standards;
    World Bank studies show income gaps between the richest and
    poorest ranks of society to be among the smallest of virtually
    any developing country. This economic growth has benefited U.S.
    interests as well. Our own bilateral trade has grown by nearly
    60 percent over the last five years, to almost $12.3 billion.
    U.S. investment, including outlays in the oil and gas sector,
    totals in the vicinity of $20 billion.
        We have important differences over human rights issues with
    Indonesia. Administration officials, including President
    Clinton, repeatedly have made clear that our relationship, as
    strong as it is, cannot reach its full potential until
    Indonesia improves its human rights performance. And we intend
    to continue raising these issues and to ensure that our views
    are known to the government and to the Indonesian people. The
    United States looks forward to a more democratic Indonesia. We
    believe the best way for that to happen would be through a
    process of evolutionary change that does not threaten the kind
    of stability that has brought so much to Indonesia and to the
    wider region. To encourage these trends--and many trends in
    Indonesia are positive--the United States needs a relationship
    that will serve our broad interests in fostering regional
    stability, prosperity, and representative government.
        We also are concerned about the human rights conditions in
    East Timor. We are encouraged by U.N. Secretary General Anan's
    decision to appoint a special representative to focus on the
    East Timor issue and the resumption of Indonesian-Portuguese
    discussions. We view favorably proposals to give the Timorese
    greater control of their political and economic life and to
    accord recognition to East Timor's unique history and culture.

                                     burma

        In marked contrast to the largely positive trends in
    Southeast Asia, the people of Burma continue to live under a
    highly authoritarian military regime, the State Law and Order
    Restoration Council (SLORC), which has made no progress in
    recent months in moving toward greater democratization and
    respect for human rights. The SLORC continues to dominate the
    political, economic and social life of the country, refuses to
    engage the democratic opposition in dialogue, and continues to
    engage in widespread human rights violations.
        Political party activity remains severely restricted. The
    activities of Aung San Suu Kyi and her party, the National
    League for Democracy (NLD), are monitored and circumscribed by
    the regime. Several hundred political prisoners are in
    detention, including 29 Members of Parliament elected in 1990.
    Since late September 1996, Aung San Suu Kyi has been prevented
    from addressing party supporters in front of her house, as the
    SLORC puts up blockades to prevent gatherings there. Since late
    December, the SLORC has generally allowed her to meet with
    visitors at her compound if the authorities are notified in
    advance. She meets relatively often with diplomats and her
    supporters. Since the beginning of the year, she has had three
    large gatherings of more than 1,500 supporters on her compound.
        The Cohen-Feinstein Burma sanctions provisions, which were
    signed into law by the President on September 30, 1996, as part
    of the Fiscal Year 1997 Omnibus Appropriations Act, require the
    President to impose a ban on new U.S. investment in Burma if he
    determines and certifies to Congress that, after September 30,
    1996, the Government of Burma has ``physically harmed,
    rearrested for political acts, or exiled Daw Aung San Suu Kyi
    or has committed large-scale repression of or violence against
    the democratic opposition.'' We continue to watch the situation
    in Burma closely and will impose such a ban if the President
    makes that determination.
        In an effort to promote democratic change in Burma, we have
    engaged in a vigorous multilateral strategy to encourage the
    EU, ASEAN, Japan and other nations to urge progress by the
    SLORC in the key areas of our concern--democracy, human rights
    and counternarcotics. The Administration has imposed visa
    restrictions on senior leaders of the regime and their
    families. We maintain other forms of pressure against the
    SLORC: we have cut off economic aid and GSP benefits;
    prohibited Eximbank financing and OPIC insurance; maintained an
    arms embargo; blocked assistance from international financial
    institutions; and downgraded the level of our official
    representation to Charge d'Affaires. Further, in light of
    Burma's abysmal performance in the area of counternarcotics,
    for eight years we have decertified Burma as not cooperating
    with the United States against narcotics production and
    trafficking.
        We also have strong concerns about the Burma Army's attacks
    on the Karen near the Thai-Burma border. We have pressed the
    SLORC to halt these attacks and to ensure safe passage for
    returning refugees. Up to 12,000 Karen were forced to flee into
    Thailand, the vast majority of them civilians, including women,
    children and the elderly. Thousands of civilians were forcibly
    conscripted to serve as porters for the Burma Army in its
    offensive. We also expressed our deep concern to the Thai
    Government regarding the incidents in which Karen civilians who
    were fleeing the fighting in Burma were sent back across the
    border. Thailand has stopped these incidents and has assured us
    that it intends to return to its former policy of providing
    refuge for such persons until conditions inside Burma permit
    their safe and voluntary return.

                                    vietnam

        Mr. Chairman, we welcome the recent Senate confirmation of
    Pete Peterson as the first American Ambassador to Hanoi. With
    Ambassador Peterson's presence there, I am confident that we
    will be able to encourage more effective cooperation from the
    SRV on issues of national interest, especially in obtaining the
    fullest possible accounting for Americans missing from the
    conflict, which remains our top bilateral priority. It will
    also bolster our ongoing efforts to urge greater political and
    religious freedom in Vietnam. Another priority is to work with
    the SRV to streamline the process known as ROVR (Resettlement
    Opportunity for Vietnamese Returnees), whereby certain
    Vietnamese returnees can be interviewed in Vietnam for possible
    resettlement in the United States. Sometime this year, we hope
    to open a Consulate General in Ho Chi Minh City, which will
    enable us to implement the ROVR program more effectively as
    well as provide consular and commercial services to American
    citizens.
        Vietnamese leaders have made emphatically clear that
    integration of the economy into the region is a top national
    priority. We support this process, as it would also serve the
    interests of regional stability. We look forward to further
    progress in normalizing economic relations between the United
    States and Vietnam. During his recent visit, Secretary Rubin
    signed a debt agreement between our two countries. We have also
    launched a series of negotiations which we hope will lead to a
    bilateral trade agreement. Other talks have begun on
    intellectual property rights and civil aviation.

                 transition to democracy: cambodia and mongolia

        Finally, Mr. Chairman, I would like discuss two countries
    in East Asia which deserve the full support of the United
    States as they continue the difficult transition to democracy:
    Cambodia and Mongolia.
        In Cambodia, the traditional threat posed by the Khmer
    Rouge, while not eliminated, has receded considerably following
    a series of large scale defections to the government side.
    However, other internal threats--political violence most
    notable among them--now pose a grave challenge to Cambodia's
    transition to a democratic future. The March 30 assassination
    attempt against opposition leader Sam Rainsy, which we strongly
    condemned, is one example of the type of political violence
    that must be eradicated. We call on all factions to commit
    themselves to the development of the Cambodian nation and the
    peaceful settlement of their differences.
        We are committed to assisting the Mongolian people with
    their remarkable transition to democratic government, through
    programs made possible by Economic Support Funds (ESF) and by
    encouraging active involvement by NGOs. Mongolia was the first
    formerly communist country in Asia to embrace democracy,
    holding elections in 1990. Senator Robb and former Secretary of
    State James Baker joined American election monitors sponsored
    by the Asia Foundation to witness the 1996 parliamentary
    elections. No other monitors or officials came from any other
    country, thus making our presence all the more important as a
    concrete symbol of international support for Mongolia's bold
    but arduous continuing democratic experiment. Like Cambodia's
    return from Khmer Rouge terror, Mongolia's seven year democracy
    building experience and experiment with a free market economy
    is truly an Asian success story.

                                   conclusion

        The breadth of our interests in the Asia-Pacific region,
    our partnerships and alliances, and the challenges we face
    there will increase in importance as we enter the next century.
    Through careful diplomacy, the nurturing of relationships with
    other Pacific countries and the dynamism of our private sector
    throughout the region, the United States remains a principal
    actor and force for stability. Our future lies, in great part,
    in the Pacific. The Administration, in consultation with
    Congress, has been rigorous in promoting U.S. interests
    throughout the region. The successes I have reviewed with you
    today vastly outnumber the problems--some admittedly serious--
    which remain. We will only surmount those challenges, however,
    through the kind of proactive diplomacy which has characterized
    this Administration. With the cooperation of Congress, we plan
    to continue the active pursuit of peace and stability,
    prosperity, and individual rights and liberties throughout Asia
    and the Pacific.
        Thank you.

                                     burma

        Senator McConnell. Let me start out with Burma, and then I
    will turn to Senator Bennett.
        On several occasions over the past few years, the U.N.
    Special Rapporteur on Burma has reported on SLORC's widespread
    abuses, including the use of slave labor and carrying out
    forced relocations of ethnic groups, particularly in areas ripe
    for economic development.
        I would like for you to comment on SLORC's record in these
    two areas, forced labor and forced relocation.
        Mr. Kartman. Mr. Chairman, may I ask my colleague, Jeffrey
    Bader, to reply?
        Senator McConnell. OK.
        Mr. Bader. Mr. Chairman, we have seen the reports on use of
    forced labor, particularly in minority areas. We have condemned
    them. International organizations including the ILO have been
    looking into them.
        We regard these as unacceptable practices. We have
    highlighted them in our public commentary and on human rights
    reports.
        Senator McConnell. Am I to assume that you are going to be
    answering all of the Burma questions?
        Mr. Bader. Yes.
        Senator McConnell. All right. The State Department Human
    Rights Report indicates several hundred members of Aung San Suu
    Kyi's National League for Democracy have been arrested for
    political reasons. Amnesty International reported over 2,000
    citizens were arrested last year for political reasons.
        Do you see this as an improving or deteriorating political
    situation?
        Mr. Bader. The numbers you cited are the same numbers that
    we have seen. We would certainly not characterize this as an
    improving situation. The term we have used is that there seems
    to be a pattern of rolling repression on the part of the SLORC.
        We do not see any signs of imminent improvement or
    liberalization. These steps, I think, continue a pattern on the
    part of the SLORC that is very disturbing.
        Senator McConnell. You would agree, though, that many
    observers feel that things have actually deteriorated.
        Mr. Bader. Yes; I would agree with that.
        Senator McConnell. That may not be your view, but many,
    many feel that.
        Mr. Bader. Yes.
        Senator McConnell. Has Aung San Suu Kyi been able to travel
    freely beyond her compound since last October?
        Mr. Bader. She has been able to travel beyond her compound,
    but not consistently freely. For awhile after October, she was
    restricted to her compound. Then toward the end of the year,
    the beginning of this year, she was allowed out of her compound
    for some meetings if she gave notification to the SLORC's
    security. She has had a number of meetings outside of the
    compound.
        She still is under considerable restraint in her movements.
        Senator McConnell. On how many occasions has she left the
    compound for political meetings?
        Mr. Bader. I will have to get back to you with an exact
    answer. I am aware of three meetings. There may be more, but I
    am aware of three.
        [The information follows:]

                    Political Meetings Outside the Compound

        Since the beginning of the year, Aung San Suu Kyi has met
    both inside and outside her compound with a large but
    uncountable number of Burmese and foreign visitors. Most if not
    all of these activities could be characterized as
    ``political.'' Many of these meetings are held at U Kyi Maung's
    house, a few blocks from her own. She has attended luncheons
    and teas at various ambassadors' residences in Rangoon on an
    average of two or three times a week until recently, when she
    decided as a general rule to have diplomats call on her at her
    compound.
        The U.S. Charge meets her on average once every 2 weeks or
    so, sometimes more often, both at her compound and at his
    residence. She has also held four large public political
    rallies or other events at her compound since the beginning of
    the year: Independence Day, Unity Day, Resistance Day, and
    Burmese New Year. She reports to our Embassy that she is in the
    midst of intensive daily political activities inside the
    compound focused on training NLD members and strengthening her
    party organization.

                                     slorc

        Senator McConnell. She recently said that SLORC was
    escalating attacks against her supporters and noted the
    kidnaping of 12 NLD members, 1 of whom was left dead beside a
    road.
        Do you agree with her characterization that pressure is
    escalating?
        Mr. Bader. I would agree with that characterization.
        Senator McConnell. Secretary Gelbard recently told this
    subcommittee that SLORC refused to extradite Khun Sa with whom
    we are all familiar, a notorious narcowarlord. In fact, he
    lives a protected, lavish life in Rangoon.
        Gelbard testified that there had been no improvement in
    counternarcotics efforts by SLORC.
        I am wondering if you can point to any initiative or effort
    they have made to address this, the growing opium production
    problem.
        Mr. Bader. Burma remains the source of approximately 60
    percent of the heroin that flows into the United States. We
    have decertified them as a cooperating country in narcotics
    cooperation with the United States.
        So, obviously, we do not consider their cooperation close
    to adequate. The only item I could cite of recent interest is
    that we did recently conduct an opium crop survey in opium-
    growing areas in Burma. The SLORC did cooperate in allowing us
    to perform that survey.
        Senator McConnell. Given the fact that the one thing they
    are pretty good at is maintaining an army, have they not been
    using their army against narcotics traffickers?
        Mr. Bader. The assessment of most observers, including our
    own, is what they have been doing with the army is dealing with
    insurgencies or former insurgencies among minority peoples
    along the border.
        Those areas are traditionally the opium-growing areas of
    Burma. And the highest priority of the army has been to achieve
    cease-fires in order to improve stability in Burma.
        They have not taken on, in anything like the way we would
    like to see, counternarcotics activities.
        Senator McConnell. Well, in fact, you use the word
    ``stability.'' That is really a euphemism for ``suppression,''
    is it not, or ``repression''?
        Mr. Bader. Well, they have achieved cease-fires with some
    of these groups.
        Senator McConnell. The Karen part of the National Coalition
    of Burma, the Coalition of Ethnic Groups, which has called for
    the restoration of Suu Kyi and the NLD to office, do you
    consider this group part of the democratic opposition?
        Mr. Bader. The Karen National Union has not reached
    agreement with the SLORC, it has not reached a cease-fire. They
    are the one ethnic group that has not.
        There are certainly elements of the Karen Group that we
    would consider to be elements of the democratic opposition
    allied with Suu Kyi. On the other hand, the KNU is also armed.
        It is a difficult question in looking at the KNU as a
    whole, as to whether the KNU, since they are armed, constitutes
    a democratic group or not.
        But we certainly would say that there are democratic
    elements among the Karen and that they have every right to be
    considered as such when we are looking at the SLORC's treatment
    of democratic opposition in Burma.
        Senator McConnell. According to reliable refugee groups,
    SLORC's recent attack on Karen camps is one of the most brutal
    to date. Are these military attacks, in your view, an effort to
    eliminate any opposition to SLORC?
        Mr. Bader. They are an effort to eliminate Karen opposition
    to the SLORC. The figures we have seen indicate that about
    18,000 Karen were forced over the border into Thailand.
        We were disturbed some weeks ago when some of these Karen
    were forced back into Burma by elements of the Thai Army. In
    the last 5 or 6 weeks, behavior in that regard seems to have
    altered, and they have been receiving protection in Thailand.
        Senator McConnell. Is it still the U.S. position that the
    1990 elections were free and fair and that the NLD and Aung San
    Suu Kyi were legitimately elected to office?
        Mr. Bader. That is our position.
        Senator McConnell. As a result of the Foreign Operations
    appropriations bill last year, current law states:

        Sanctions must be imposed if any action is taken to harm,
    rearrest for political reasons, or exile Suu Kyi or if SLORC
    engages in a wide-scale repression against the democratic
    opposition.

        You have just testified on the restrictions on her
    movements, the escalation in attacks on the NLD and other
    members of the democratic opposition.
        If these actions do not meet the threshold, I would like
    for you to tell me exactly what you are looking for in terms of
    outrageous conduct by SLORC to meet the test under current law.
        Is it the administration's view that anything short of the
    assassination of Suu Kyi is not enough to meet the criteria of
    the existing law?
        Mr. Bader. No; that would not be our view, Mr. Chairman.
        Mr. Chairman, I heard your opening statement, and you
    referred to 655 days of review. All I can say is that this
    matter remains under review, and it is getting high level,
    intensive attention in the U.S. Government at this time.
        A determination has not yet been made. We take the Cohen-
    Feinstein law very seriously. There are a number of elements in
    it that we have acted upon already, for example, the visa ban
    on high level SLORC officials and their families traveling to
    the United States, as well as organizing an international
    campaign to try to apply multilateral pressure against the
    SLORC.
        With our European Union and ASEAN colleagues, we have taken
    a number of steps in that regard and have achieved some
    results.
        The thrust of your question, I am sure, is directed at the
    new investment ban. Secretary Albright, in a speech at the
    United States Naval Academy on Tuesday, made it clear that the
    SLORC is on notice that unless the clouds of repression over
    Burma are lifted, then it could look forward to an investment
    ban being imposed.
        Senator McConnell. Well, that would be certainly a step in
    the right direction. It seems to me that it is perfectly clear
    that the administration has been--either because it was a low
    priority or because of fear of offending our Asian trading
    partners--has had little or no interest in this issue to this
    point, and even gone to great lengths to avoid complying, in my
    view, with even existing law.
        It makes me wonder whether anything short of a
    congressional mandate--congressionally mandated implementation
    of sanctions is going to get your attention. I certainly hope
    that this extended review may come to an end sometime soon.
        Mr. Bader. I certainly note what you said, Mr. Chairman. I
    will convey that to the appropriate executive offices when I go
    back from this hearing. I understand the passion and the
    intensity of your view.
        If I could just make one other point on this: Our policy
    with Burma has not been one of tolerance. Aside from this one
    question of the investment ban, we have taken, as you know, a
    large number of measures designed to show our abhorrence for
    the behavior of the SLORC.
        As you know, we have no Ambassador there or charge
    d'affaires. We have withdrawn GSP benefits from Burma. We have
    blocked international financial institution support to Burma.
    We have decertified it as a narcotics cooperating country.
        It receives no assistance. We have imposed an arms embargo.
    And as I say, we have worked closely with our allies to achieve
    some degree of coordination on this. But I certainly understand
    the point you are making, and I will carry that back with me
    today.
        Senator McConnell. It seems to me nothing short of
    sanctions plus U.S. leadership to try to encourage others to do
    the same thing--and I think unilateral sanctions, candidly,
    probably are not going to have a huge impact.
        But if America coupled that with the kind of leadership
    that it showed in the South African situation, I think there is
    every reason to believe that if we were willing to use up some
    chits on this issue, that we could get some results.
        I would like now to turn to Senator Bennett.

                      remarks of senator robert f. bennett

        Senator Bennett. Thank you, Mr. Chairman.
        I will just comment: The reference to this being in the
    focus of very high officials should be underscored. It is very
    much in the focus of very high officials here, starting with
    the chairman, but not stopping with the chairman.
        There are a number of us who share his view on this, and
    this is not something that the committee as a whole is going to
    let go by.
        That being said, Mr. Kartman, I would like to turn to you
    for a moment. We have before us, first, a picture of a Navy
    escort vessel, U.S.S. Stark, after it was hit by an Exocet
    missile in 1987, 10 years ago.
        Next to that is the Chinese version of the Exocet 10 years
    later, the C-802, which the Chinese claim to be new and
    improved; indeed much improved.
        In this brochure seeking to sell that missile, the Chinese
    describe the C-802 as a missile with mighty attack capability
    and great firepower.
        Would you agree with that characterization of the missile?
        Mr. Kartman. Senator Bennett and Mr. Chairman, when I
    introduced Jeffrey Bader, Deputy Assistant Secretary, to have
    him answer questions on Burma, it appeared that he was our
    resident Burma expert.
        But  in  fact,  he  is  probably  the  premier  China
    expert  in  the United States Government. So I am going to ask
    him to answer this question also.
        Senator Bennett. Mr. Bader, would you agree with the
    characterization in the brochure about the missile being one of
    mighty attack capability and great firepower?
        Mr. Bader. I would agree that we are disturbed by the
    reports of intentions to provide this missile to Iran, and that
    it does constitute a threat to the United States Navy in the
    region. I would certainly agree with that.
        It is, as you have said, an Exocet-like missile with
    capabilities that are very disturbing to us.
        Senator Bennett. You have run ahead of me, and that is
    fine. [Laughter.]
        It is being marketed to Iran, and it is being marketed
    again, in the words of the brochure, the sales brochure, for
    attacking escort vessels. And the Stark, of course, is a U.S.
    Navy escort vessel of exactly the kind that this is being
    marketed as a target to.
        Now, on the right, there is a picture of five Chinese
    missile boats on their way to Iran with C-802's aboard. You see
    the C-802 missiles on the back deck of those five Chinese
    missile boats.
        Recently, Deputy Assistant Secretary of State Einhorn
    stated, ``These cruise missiles pose new and direct threats to
    deployed U.S. forces.''
        Do I assume from your comment that you agree with that?
        Mr. Bader. Yes; I do.
        Senator Bennett. Now, the other picture is of a land-based
    version of this C-802. And Mr. Einhorn recently suggested that
    the land-based version is on its way to Iran.
        Do you agree that that is the case?
        Mr. Bader. If Mr. Einhorn said it, I have no reason to
    doubt it.
        Senator Bennett. Well, the problem with all of this was a
    statement, in response to a question that I raised, by
    Secretary Albright that these missiles are not destabilizing
    under the definitions in the Gore-McCain Act.
        Now, has the State Department asked the U.S. Navy for its
    evaluation of this threat?
        If we could put up the map, that helps us understand why
    the Navy might be a little bit--of a little bit different
    attitude as to what is not destabilizing in the area.
        This is the Persian Gulf. You see it comes down. Iran is
    the country to the north of the gulf. The entire coastline of
    the gulf is Iranian. There are 500 miles of coastline. And in
    that 500-mile area, the land-based missile could be hidden in
    caves or deployed from the back of trucks.
        And when you come around the Gulf of Hormuz, it is
    impossible for an escort vessel not to be within range of one
    of these missiles.
        So my question is: Has the State Department asked the U.S.
    Navy for its evaluation of the threat these missiles might pose
    to U.S. forces in the gulf?
        Mr. Bader. There is, as you know, legislation on the books
    the Iran-Iraq Nonproliferation Act, which does set up the
    criteria of whether or not something constitutes a threat to
    the stability of the region as a basis for determination for
    whether sanctions will be imposed.
        We do have an interagency process for evaluating questions
    like this. The Defense Department, the Navy and JCS would be
    active players in that process.
        The determination of whether or not a particular system
    reaches the threshold of satisfying the requirements of that
    act or is in itself destabilizing is a complex process.
        I do not sit on that committee. I would not want to
    prejudge the factors that they weigh in determining what is
    destabilizing.
        There are all manner of weapons that are being provided to
    the region by all manner of players.
        My understanding is that the administration has not yet
    made a decision that what we have seen to date is
    destabilizing. It is disturbing, absolutely. And I share the
    points that you have made.
        And the Navy has been a player in this process.
        Senator Bennett. Well----
        Mr. Bader. If I could just add one more point----
        Senator Bennett. Yes.
        Mr. Bader. Senator, we have made it very clear to the
    Chinese how we feel about this, during the visits of Vice
    President Gore and Secretary Albright to Beijing.
        We have also highlighted our concerns over these weapon
    systems to the Chinese in nonproliferation talks, so they can
    have no illusions about the strength of our feeling on this
    subject.
        Senator Bennett. I listened carefully, but I did not quite
    hear an answer to my question, which is: Has the State
    Department asked the Navy for its evaluation of the threat?
        I heard that there are consultations going on, and that
    there is a group that is worrying about this, and that it is
    highly complex.
        But I did not hear, ``Yes, we have asked the Navy,''
    because my next question is: If we asked the Navy, what did the
    Navy tell you?
        Is there any way you can provide that for the record?
        Mr. Bader. Can I get back to you for the record on that? I
    was trying to give you a sense of the interagency process, but
    I do not know the specific answer----
        Senator Bennett. OK.
        Mr. Bader [continuing]. As to whether there has been a
    formal request and a formal answer.
        Senator Bennett. I have a sense that the Navy may be a
    little more worried than the State Department.
        Mr. Bader. We are very worried about it, as well, I assure
    you.
        Senator Bennett. Well, I am glad to know that you are
    worried about it.
        I have a letter to Secretary Albright which I would ask
    you, Secretary Kartman, to deliver to the Secretary, asking
    that the administration either enforce the Gore-McCain Act in
    this circumstance or come up with some kind of alternative plan
    of equal strength.
        We have in excess of 15,000 United States service personnel
    in this area, who are in direct harm's way as a result of these
    missiles going to Iran. And I think for those 15,000 people and
    their families--let alone, of course, American interests in the
    area with respect to the free-flow of oil through the Strait of
    Hormuz--that this one ought to move up the scale pretty
    quickly.
        And that is why I have engaged in these questions to
    Secretary Albright and have this letter for the Secretary,
    which I would ask you to deliver to her.
        And I would ask, Mr. Chairman, that the letter be included
    now at the conclusion of my questions.
        Senator McConnell. It will be made a part of the record.
        Senator Bennett. Thank you, Mr. Chairman.
        Senator McConnell. Thank you, Senator Bennett. That was
    very interesting.
        [The letter follows:]
                     Letter From Senator Robert F. Bennett
                                                   U.S. Senate,
                                        Washington, DC, April 17, 1997.
    Hon. Madeleine K. Albright,
    Secretary of State,
    Washington, DC.
        Dear Secretary Albright: During 1996 Chinese defense companies
    delivered a number of missile boats to the Iranian Revolutionary Guard
    Navy. Each missile boat was armed with four C-802 cruise missiles.
    Recently, Deputy Assistant Secretary of State Robert Einhorn told the
    Senate, ``These cruise missiles pose new, direct threats to deployed
    U.S. forces.''
        It is now my understanding that China is about to deliver the land
    variant of the C-802 to Iran. When the Iranian Revolutionary Guard
    acquires C-802's in quantity, it will have a weapon with greater range,
    reliability, accuracy, and mobility than anything currently in its
    inventory.
        The delivery of advanced cruise missiles to Iran is a violation of
    the Gore-McCain Act. However, in answer to my query on this issue in
    January, you answered, ``The Administration has concluded at present
    that the known transfers (of C-802's) are not of a destabilizing number
    and type.''
        However, I believe that the arrival of additional C-802's in Iran
    is a matter of grave concern to the United States, and the
    Administration has an obligation either to sanction the perpetrators or
    put in motion an alternative policy of equivalent strength.
                Sincerely,
                                             Robert F. Bennett,
                                                          U.S. Senator.

                            fuel oil for north korea

        Senator McConnell. Mr. Kartman, over the past year, the
    United States has led a very aggressive effort to raise funds,
    as you discussed in your testimony, to support fuel oil for
    North Korea.
        It was especially significant that the European Union
    looked beyond its immediate regional requirements in the
    Balkans and pledged $20 million annually for the next several
    years.
        What I thought was rather shocking was the anemic and
    declining contribution offered by Singapore. They dropped from
    a $300,000 pledge to $200,000.
        Adding to this problem are recent reports that Singapore, a
    government with severe penalties for drug use and trafficking,
    has actually become the banking facility of choice for Burma's
    drug thugs.
        Singapore considers itself a major player in Asia politics,
    and certainly has economic interests, as we all know, in
    securing regional stability.
        Could you give me some explanation?
        Mr. Kartman. May I first address KEDO fund raising?
        Senator McConnell. Yes.
        Mr. Kartman. And then I would like to turn to Ambassador
    Brazeal with your permission to respond on your other questions
    regarding Singapore.
        I was recently in Singapore, and went over our KEDO efforts
    with senior officials of the Foreign Ministry there. I found
    that they are in broad and fundamental agreement with what we
    are trying to achieve.
        I underscored for them that it seemed that European efforts
    were more substantial than those closer to home within the
    region. And they took that aboard. They expressed some
    understanding of the view I was expressing.
        But they demurred that they were not a very wealthy
    country, and they noted that at least they had made a
    commitment for a multiyear contribution which is, after all, of
    some significance to us. We would like to see more of that from
    others.
        This is one that we are going to come back to. So I think,
    basically, I agree with your characterization. Maybe I would
    not use the word ``anemic,'' but something less than they are
    capable of doing or than what I think they ought to be doing.
        With respect to the other issue you raised, banking, may I
    turn to Aurelia Brazeal, please?
        Ms. Brazeal. Thank you.
        I would just add regarding KEDO that we hope Singapore,
    also being a leader, will consider the levels because that
    encourages other countries also to consider higher levels. We
    have raised that point with them, and we will continue to do
    so, as well as joining KEDO.
        On money laundering, we have worked with the law
    enforcement authorities in Singapore on that question. And in
    1996, they seized $20 million of laundered drug money in a DEA-
    assisted investigation.
        So we are engaged in the issue of money laundering and drug
    trafficking.
        I note that Singapore is also a member of the financial
    action task force that looks into these questions, narcotics-
    associated money.
        Money laundering is a criminal offense in Singapore.
    Bankers can be held personally liable in such cases.
        But the most recent efforts we have underway are to work
    with the Government of Singapore to begin negotiations for a
    designation agreement that would permit our two countries to
    better pool our resources to combat more effectively drug
    trafficking and money laundering.
        We had our last meeting the end of March. We would hope to
    begin negotiations fairly soon on that.
        Senator McConnell. Mr. Kartman, is there anything you can
    add beyond your testimony about your discussions in New York?
        Mr. Kartman. Mr. Chairman, I would like to be able to give
    you a very complete description of where things are in a more
    private setting, if that would be convenient for you.
        But for the record, these talks are underway. The North
    Koreans have raised over and over again their highest priority,
    which is food. And we have raised over and over again our
    desire to see them enter these peace talks.
        Both sides have agreed that the two things are not linked.
    But there we are.
        Senator McConnell. Do you agree with General
    Shalikashvili's statements that the North continues to pose a
    significant military threat to the South?
        Mr. Kartman. Absolutely, I do agree. One of the principal
    problems for South Korea and American forces for many years has
    been a heavy emphasis on North Korean artillery that is forward
    deployed.
        And we suspect there is a possible plan to use weapons of
    mass destruction, perhaps chemical, biological weapons. We also
    have watched with some concern the growth of their special
    operations forces, which are designed to be inserted behind the
    lines to disrupt communications and the forward flow of forces
    to the front lines.
        Senator McConnell. And all of these people are pretty well
    fed and ready to go, right?
        Mr. Kartman. Actually, we do not know that, Mr. Chairman.
        Senator McConnell. Is there any division in North Korea to
    speak of between the military and the civilian leadership?
        Mr. Kartman. We are hearing that more and more. Sometimes
    we hear that from North Koreans themselves. For instance, the
    recent high-level defector, Hwang Jang Yop who is still in the
    Philippines, has noted that he has some concern about the
    growing influence of the military in North Korea.
        It is not clear to us what precisely that means in terms of
    their future policies or intentions. But we have always felt
    that one of the fundamental structural flaws of the North
    Korean regime is the over-reliance on the military as an
    instrument for all things and the fact that it is getting about
    25 percent of their gross domestic product.
        If they would change that, we think that would solve a lot
    of their internal problems.
        Senator McConnell. They could not change that overnight,
    though. I gather from reading the paper that we are looking--
    and you may have alluded to this in your statement; I cannot
    remember--that we are looking at a huge crisis by midsummer.
        And I assume the Chinese, the Japanese, and the South
    Koreans are not at all interested in having a massive wave of
    starving refugees.
        Is there a plan being developed to provide food aid on a
    much more massive scale than is currently being conducted
    should that come to pass this summer?
        Mr. Kartman. Well, Mr. Chairman, there are two things I
    would like to mention in that regard.
        First, we feel that North Korea must make some important
    changes in their system. You have noted that there may not be
    much time before the present situation reaches crisis
    proportions. The delay in North Korea making those changes is
    hard to explain, and it seems to be completely internal to
    their own system, the death of Kim Il Sung and the 3-year
    period of mourning, among other factors.
        There is an international----
        Senator McConnell. But my question is----
        Mr. Kartman. Yes.
        Senator McConnell. They are not going to become a thriving
    capitalist country by July or able to feed themselves. My
    question is this: Are there plans underway should this food
    crisis hit the level it could in July to feed these people, to
    avoid the kind of out-migration that would probably follow
    that?
        Mr. Kartman. Well, if I may, we are in a very intense round
    of discussions with all of the countries in the region who are
    the principal food providers for North Korea. And those would
    be China, South Korea, and Japan.
        The Chinese recently announced a 70,000-ton food aid
    donation to go along with the donations that had been
    previously announced by the United States and the ROK. We are
    still in discussion with the Japanese.
        Those amounts, as you noted, may not be sufficient to feed
    the North Koreans through what may become a crisis. However, we
    do to some extent rely on the judgments of those countries that
    are closest to North Korea.
        If there is a serious problem, I imagine that the world
    community is going to have to step in and help the North Korean
    people be fed.
        Is there a plan for it? No; there is not a plan. The
    present state of affairs is that we are responding to
    international appeals as they are issued by the relevant
    international organizations.
        Senator McConnell. Finally, let me shift to Hong Kong. Like
    the Secretary of State, I am planning on being there on July 1.
        I have taken an interest in Hong Kong for some time--I do
    not know whether you are familiar with the United States-Hong
    Kong Policy Act which President Bush signed in 1992. The act
    basically wrote into United States law, language consistent
    with the joint declaration so that United States and Hong
    Kong's bilateral relationship would be sustained intact after
    July 1, 1997. We are all watching with great interest, as I am
    sure you are, the various steps that are being taken leading up
    to July 1.
        You probably noticed in today's Washington Post the George
    Will column referring to a new book by Bernstein and Monroe
    called ``The Coming Conflict With China.''
        They argue that China's political evolution may not be
    toward pluralism at all, but down toward something like early
    20th century fascism.
        Will adds to the argument that attributes of concern also
    include a cult of the party state, a state dominated by the
    army and allied with financial interests, coupled with a
    powerful sense of nationalism.
        I am wondering if you could comment on that thesis that our
    engagement policy is, as George Will put it, ``a pedestal
    without a statue.''
        Mr. Kartman. May I----
        Senator McConnell. It is a good thing you were here, Mr.
    Bader.
        Mr. Bader. Mr. Chairman, I did see the George Will piece.
    First of all, I would not agree with the general direction that
    he foresees as most likely. That does not mean that I discount
    it.
        We are talking about unknowns here. Predictions here are
    extremely dangerous. I think what we can predict with some
    certainty is that we are looking at a country that has been
    growing about 10 percent a year for the last 20 years. That is,
    you know, among the most explosive economic growth in human
    history.
        This is a country that sees itself as a major regional
    power, certainly. Its top priority is economic modernization.
    It has been undertaking a more modest program of military
    modernization.
        What will China look like 20 years from now? Well, if you
    look at what China looked like 20 years ago, despite the
    considerable human rights abuses, and the failure of the system
    to evolve politically, I think we have to say that the China we
    are looking at now is a more open and liberal China than what
    we saw 20 years ago.
        The trend since Deng Xiaoping opened up China to the West
    and toward greater options for the Chinese people has been for
    greater integration of China in the world community.
        China has joined the major international organizations and
    has become accepting of the disciplines of those organizations.
        There is a long way to go. Their behavior is not
    satisfactory in the area of weapons of mass destruction. They
    have not come close to meeting WTO standards yet. There is
    still considerable concern in the region about China's
    behavior.
        And the program of political reform which was in its
    rudimentary stages before 1989 has essentially been halted
    since 1989 except for some changes in statutes in the last
    couple of years which provide the beginning, rudimentary steps
    toward the rule of law.
        The jury is out. I would not discount the Will thesis as a
    possible outcome. I think that by a policy of engagement with
    China--and that does not simply mean engagement with China's
    leadership--but engagement at all levels of Chinese society, we
    maximize the chances for having a liberalizing and a softening
    effect upon the direction that China will be going in the next
    20 years. That, I think, is the impact that we have had in the
    last 20 years.
        But one cannot say with confidence, since our ability to
    affect the situation is only marginal, what the outcome will
    be.
        Senator McConnell. Almost as interesting as watching the
    evolution in China is watching the evolution of policy in the
    administration. The President in 1992 campaigned for the
    termination of MFN has done a 180-degree turn and supports
    extension of MFN. The Vice President, a couple of weeks ago
    went to China but did not go to Hong Kong, yet we know the
    President is going to meet with Martin Lee tomorrow.
        Do we--are we witnessing here an evolution of policy in the
    administration with regard to how to handle China?
        Mr. Bader. The administration has set clear lines for its
    China policy for the next several years. I mean, I----
        Senator McConnell. Clear?
        Mr. Bader. Certainly, a policy was pursued in 1993 with
    regard to MFN that is no longer the policy of the
    administration. But the basic outlines of the policy of where
    we are going for the next few years have been laid down.
        We are planning state visits by President Jiang Zemin and
    President Clinton over the next 2 years. In the lead-up to
    those visits, and during those visits, we hope to build a
    stronger basis for the relationship and to make progress on the
    outstanding bilateral issues which are numerous, where we have
    problems.
        We do not believe that an approach of making China a pariah
    or----
        Senator McConnell. Well, why did Gore not go to Hong Kong?
        Mr. Bader. I would have to leave that to Vice President
    Gore to explain which stops he chose. I know he did raise Hong
    Kong in virtually all of his meetings in Beijing.
        He raised our concerns in three or four of the meetings I
    saw in considerable detail, but cannot go to every place on
    every trip. He went to China, Japan, and Korea. I cannot give
    you more of an answer than that.
        But Secretary Albright did announce that she would be going
    for the reversion.
        Vice President Gore's not going to Hong Kong was not meant
    in any way to suggest indifference to Hong Kong. As I said, he
    raised it forcefully with the Chinese leaders.
        Senator McConnell. The Hong Kong and Shanghai Banking
    Corporation said back in 1990 that it had detected a
    significant increase in capital flight, about $2.8 billion in
    private, nontrade capital in 1989.
        Do you have any current figures to reflect the capital
    flight situation in Hong Kong.
        Mr. Bader. We can give you figures on that, Mr. Chairman. I
    know we do have figures.
        My impression is that was a temporary phenomenon in the
    wake of a severe loss of confidence in 1989. My understanding
    is that the Hong Kong dollar is trading at the upper end of the
    peg to the United States dollar at the moment, and that United
    States dollar reserves in Hong Kong are upward of $60 billion.
    Hong Kong has, I think, about the third largest reserve funds
    in the world, of any currency.
        There are no controls on capital in and out of Hong Kong.
    There are flows all of the time outward and inward, depending
    upon levels of confidence.
        I think the economic indicators over the past year in Hong
    Kong have been, for the most part, positive. I do not think we
    have seen any indication of capital flight.
        Senator McConnell. My recollection was--and I could not--
    this may no longer be accurate. My recollection from a couple
    of years ago is that there were 22,000 Americans living in Hong
    Kong, many of them working for American businesses.
        Are you pretty comfortable that these American businesses
    are going to still be able to operate and thrive?
        Mr. Bader. The American businesses are pretty comfortable.
    I mean, if you looked at the surveys of the American Chamber of
    Commerce, which was done confidentially, they generally show
    that about 95 percent of the companies have confidence in the
    future of Hong Kong.
        They have a number of concerns which mostly involve issues
    of danger of corruption coming from the North and the future of
    the rule of law in Hong Kong. They are not without worries.
        And a number of companies have set up corporate
    headquarters outside of Hong Kong in order to assure protection
    of their assets. But----
        Senator McConnell. Would you describe the mood in Hong Kong
    these days as less apprehensive than it was in 1989 after
    Tiananmen, or more?
        Mr. Bader. I would describe it as less apprehensive than in
    1989. But of course, that was a low point. You had a million
    people in the streets demonstrating in sympathy for the
    students up in Beijing.
        There was an outflow of people from Hong Kong in 1989-91,
    in the wake of that. But since then, the immigration flows have
    decreased, and population has stabilized.
        There is no question that there are concerns though, Mr.
    Chairman. And I think that your statements, as I recall,
    alluded----
        Senator McConnell. Do you think the abolishing of LEGCO is
    consistent with the joint declaration?
        Mr. Bader. Mr. Chairman, we have strongly criticized the
    abolition of LEGCO. We have strongly criticized the creation of
    the provisional LEGCO. We have not taken a position----
        Senator McConnell. In fact, the joint declaration, did it
    not, described the makeup of LEGCO post July 1, 1997? Did it
    not?
        Mr. Bader. The joint declaration said that there shall be
    an elected LEGCO----
        Senator McConnell. Yes.
        Mr. Bader [continuing]. I believe was the language. So what
    we have said is it should not have been abolished; the
    provisional LEGCO should not have been created; and we expect
    to see an elected LEGCO created as soon as possible in order to
    assure that there is conformity with the requirements of the
    joint declaration. But we have not taken an----
        Senator McConnell. Do you think the Chinese basically just
    do not view the joint declaration as binding on them in any
    way?
        Mr. Bader. No; I think that the Chinese do see the joint
    declaration as binding. They have a different view of the joint
    declaration, of course, that we do not share in many respects.
        But, you know, the way they approach the joint
    declaration--I do not like to come up here speaking for China.
    But since you asked the question about the Chinese perception,
    let me try it for a minute.
        The Chinese view the joint declaration as essentially
    freezing the situation in 1984. They felt that whatever system
    was in place in 1984, that that was what was being bequeathed
    to them in 1997.
        So they have seen changes since then as contrary to the
    joint declaration. That is not a view we share. But that is why
    they have attacked certain changes in statutes since 1984.
        Senator McConnell. Well, thank you very much. We appreciate
    all three of you being here today.
        Good luck in New York, Mr. Kartman.
        Mr. Kartman. Thank you, Mr. Chairman.

                         Additional committee questions

        Senator McConnell. There will be some additional questions
    which will be submitted for your response in the record.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing.]
                         Additional Committee Questions
        Question. Which Asian countries have ratified the CWC so far?
        Answer. The following countries have ratified the Chemical Weapons
    Convention as of September 15:

                                 COUNTRIES THAT RATIFIED THE CHEMICAL WEAPONS CONVENTION
    Australia............................  May 6, 1994             Maldives................  May 31, 1994.
    Bangladesh...........................  Apr 25, 1997            Mongolia................  Jan. 17, 1995.
    Brunei Darussalam....................  July 28, 1997           Papua New Guinea........  Apr. 17, 1996.
    China................................  Apr. 25, 1997           Philippines.............  Dec. 11, 1996.
    Cook Islands.........................  July 15, 1994           Singapore...............  May 21, 1997.
    Fiji.................................  Jan. 20, 1993           Sri Lanka...............  Aug. 19, 1994.
    India................................  Sept. 3, 1996           Tajikistan..............  Jan. 11, 1995.
    Japan................................  Sept. 15, 1995          Turkmenistan............  Sept. 29, 1994.
    Korea (Republic of)..................  Apr. 28, 1997           Uzbekistan..............  July 23, 1996.
    Laos (P.D.R.)........................  Feb. 25, 1997

        Question. Of those who haven't, what is your assessment of their
    reluctance?
        Answer. There are several factors contributing to the reluctance of
    some states to ratify the Convention, including:
      --difficulties in the legislative process;
      --concerns regarding the costs and complexities associated with
            implementation;
      --reluctance to submit facilities to intrusive inspections; and
      --in the case of North Korea, aversion to destroying CW stockpiles.
        Question. What about biological weapons? Is there the same
    reluctance to sign off on eliminating these weapons as well?
        Answer. No, we do not see a similar reluctance to ratify the BWC,
    which has 140 States Parties (including North Korea) compared to the
    CWC's 99.
        Question. Can you offer some impressions on Asian perspectives on
    regional security pressure points?
        For instance, how do the Southeast Asian nations, such as Indonesia
    or Singapore, perceive the nuclear and conventional capabilities of
    India?
        What would factor into a Japanese decision to expand their
    capabilities to project conventional force or acquire a nuclear
    capability?
                                     india
        Answer. The Southeast Asian nations do not perceive India as a
    threat. They do however, encourage India to take a responsible position
    on nuclear and security issues. For example, on the Comprehensive Test
    Ban Treaty which is supported by all ASEAN nations, India has been
    urged by ASEAN to change its stance and sign the ban. India was made a
    member of the ASEAN Regional Forum in 1996 in order to encourage
    constructive Indian participation in regional security efforts.
                                     japan
        We do not expect that Japan will either expand its capabilities to
    project conventional force or acquire an indigenous nuclear capability.
        Under Article 9 of the Japanese Constitution, the Japanese people
    ``forever renounce'' the ``threat or use of force as a means of
    settling international disputes.'' Under its interpretation of the
    constitution, the Government of Japan limits the use of military force
    to the defense of national territory in the event of an attack.
        Barring dramatic changes in the regional strategic landscape, we
    think that these issues are strictly hypothetical and are extremely
    unlikely developments in the foreseeable future.
                                     ______

           Questions Submitted by Senator McConnell and Senator Leahy
                                    cambodia
        Question. Last Easter Sunday, a grenade attack on an opposition
    rally outside the National Assembly in Cambodia killed 16 people and
    wounded more than a 100, including an American citizen. The
    demonstration's leader, Sam Rainsy, who himself barely avoided the
    deadly blast, was in Washington last week appealing to the United
    States to take concrete steps to support the democratic process in
    Cambodia. There is a growing fear among international observers in the
    country that this attack will not only subdue political expression in
    the future, but may delay indefinitely national elections in Cambodia,
    scheduled for late 1998.
        It seems clear that unless steps are taken immediately, the
    democratic progress Cambodia has made thus far will be supplanted by
    more intimidation, terror and political killings.
        What specifically is the United States Government doing to bolster
    the democratic movement in Cambodia?
        There have been accusations made that Prime Minister Hun Sen, and
    his Cambodian People's Party were responsible for the terrorist attack.
        Do we have any concrete evidence to back the assertions that Hun
    Sen, or any other political group, was directly responsible for this
    attack?
        Have the Cambodian authorities committed to a thorough and
    comprehensive investigation into this attack?
        Mr. Secretary, do you believe the United States should condition
    any future economic assistance to Cambodia on the progress in this
    investigation?
        Answer. We share your concern that acts of political violence such
    as this could put at risk the significant progress toward democracy
    Cambodia has made since the U.N.-sponsored elections in 1993, and
    possibly disrupt the elections scheduled for 1998.
        We issued a press statement on March 30 condemning the grenade
    attack and calling upon the Cambodian government to take all possible
    steps to identify and punish the perpetrators.
        The State Department called in the Cambodian ambassador on March
    31. We condemned the attack and urged the Cambodian government to take
    steps now to prevent further political violence and bring to justice
    those responsible. Similar demarches were delivered in Phnom Penh to
    Foreign Minister Ung Huot and to the Co-ministers of the Interior.
    Deputy Secretary of State Strobe Talbott met with Mr. Sam Rainsy and
    his wife on April 9. Mr. Talbott expressed relief that Sam Rainsy had
    escaped without serious injury and outrage that others had not. We have
    called on Cambodia to conduct a speedy credible investigation of the
    incident and to identify and punish the perpetrators.
        We do not have concrete evidence indicating who was responsible for
    the attack.
        The United States does not provide direct assistance to the
    Government of Cambodia. Because of the government's weak accountability
    and implementation capacity, USAID's program is being implemented
    through direct USAID contracts, grants and cooperative agreements to
    NGOs. We do not believe that conditions linked to the investigation of
    the grenade attack should be placed on our humanitarian assistance.
                                     ______

                      Questions Submitted by Senator Leahy
                                ngawang choephel
        Question. Ngawang Choephel, a former Fulbright Scholar at
    Middlebury College who returned to Tibet to make a documentary film,
    was sentenced to 18 years in a Chinese prison for espionage. The
    Chinese have never produced a shred of evidence to support the charge.
    I raised this case with President Jiang Zemin in Beijing, and have
    written numerous times to top officials in China. I appreciated that
    this case was included in the State Department's Annual Human Rights
    report.
        What, besides saying you are upset, can we expect the
    administration to do on behalf of Ngawang Choephel and other political
    prisoners in China? Do you have any reason to believe that the Chinese
    will pay attention?
        Answer. I, and other senior levels of this Administration, have
    raised--and will continue to raise--our concerns with Chinese leaders
    at the highest level about human rights in China, including Tibet. The
    case of Ngawang Choephel is of serious concern to the U.S. Government.
    Our Embassy has sought more information from the Chinese government
    about the evidence involved, but has gotten no substantive reply beyond
    what you have received. In testimony on May 13 before the Senate
    Foreign Relations Committee, we said, ``We cannot understand why such a
    sentence should have been imposed when there has been no public
    explanation of why his activities were unlawful.''
        We will continue to raise our concerns over China's treatment of
    those who peacefully express their political and religious views, and
    urge China to release those incarcerated for exercising their basic
    rights. Raising China's violations of basic freedoms in such
    multilateral fora as the U.N. Human Rights Commission also serves to
    focus world attention on China. The Chinese Government is concerned
    about its international image. It is noteworthy, for example, that in
    response to international pressure, China announced that it would sign
    the International Covenant on Economic, Social and Cultural Rights by
    the end of this year, and is actively considering signing the
    International Covenant on Civil and Political Rights.
                                   indonesia
        Question. The Suharto Government has shown no tolerance for
    political opposition candidates, even declaring the main opposition
    leader ineligible for the coming election. The administration states
    that democratization is a priority for our policy toward Indonesia.
    What is the administration doing to promote a democratic transition and
    political freedom in Indonesia?
        Answer. Over the last 30 years, Indonesia has made remarkable
    progress, becoming one of the major engines of economic growth in
    Southeast Asia and increasing per capita income from $100 to about
    $1000. Political progress has not kept pace with economic growth,
    however. As former Secretary Christopher stated in testimony before the
    Senate Foreign Relations Committee last year:
        At the present time, I think that there's a strong interest in
    seeing an orderly transition of power there that will recognize the
    pluralism that should exist in a country of that magnitude and
    importance. So we will be encouraging a transition there that expresses
    the popular will.
        The United States has long encouraged greater respect for human
    rights, democracy, and worker rights in Indonesia. For example, the
    U.S. is the leading international supporter of non-governmental
    organizations in Indonesia that are working for good governance,
    greater democracy, and sound environmental policies. U.S. AID programs
    also contribute to Indonesian efforts to develop greater transparency
    in government decision making to reduce corruption.
        In addition, we make it a practice to raise human rights in all of
    our senior-level meetings with Indonesian officials and to speak out
    publicly about human rights problems when this is warranted. With
    regard to worker rights, we have negotiated benchmarks with the
    Indonesian Government that have helped improve the labor situation in
    certain areas. We intend to continue this process, and to urge the
    Government to adhere to internationally accepted labor standards.
        The Indonesian military is the key to improving human rights in
    Indonesia. International Military Education and Training (IMET)
    provides the opportunity for Indonesian military personnel to be
    educated in the United States, to observe our commitment to
    international law and American values, and to acquire additional
    skills. Our experience is that IMET graduates are more professional,
    more committed to improving their own armed forces, and more likely to
    be at the forefront in reforming their own services. IMET is
    particularly important to educate senior officials of Indonesia's armed
    forces in greater respect for civilian control of the military,
    improvements in military justice, and responsible defense resource
    management in accordance with internationally recognized human rights.
        If we are to speak frankly about Indonesia's human rights problems,
    it is also important in our view to acknowledge Indonesia's
    accomplishments in other areas. Indonesia is a key contributor, for
    example, to regional stability that has helped produce the remarkable
    economic growth in Southeast Asia. Indonesia's own economic policies
    have ensured widespread benefits for its own population as well. U.S.
    trade with Indonesia is growing rapidly, and contributes to prosperity
    in both countries, while helping open the Indonesian economy to
    positive outside influences.
        Congressional funding for the programs mentioned above has been
    extremely important, and we hope that it will continue. We want to
    encourage the positive trends and policies we see in Indonesia
    particularly regarding more respect for human rights. Ultimately,
    however, it is up to the Indonesian Government and people to shape a
    democratic society at a time and in a manner they think best.
        Question. After the crack down against political opposition groups
    last September, I and several other Members of Congress spoke out
    against the sale of F-16s to Indonesia. Yet just days after the
    administration put the sale on hold because of these human rights
    concerns, Secretary Lord announced in Jakarta that the sale would
    proceed in 1997. Does the administration intend to complete the sale.
    If so, on what conditions?
        Answer. As we said last fall, the U.S. remains committed to the
    sale. However, the Administration has decided not to notify the
    Congress of the transfer at this time.
        Our arms sales decisions are based on a number of considerations
    including regional, bilateral, and domestic political factors.
        When we decide to move forward, we will do so in a context that
    offers the greatest assurance of success.
        We will continue to consult closely with the Congress as the
    process moves forward.
        Question. I know the State Department has tried to inject a degree
    of restraint into the Administration's policy on arms sales.
    Unfortunately, the Commerce and Defense Departments seem to
    consistently win out. If there is money to be made, they support it,
    regardless of the potential consequences down the road. I thought that
    might change with a Democratic administration, but if anything, you
    have outdone your predecessors.
        Too many times, we have seen our weapons come back to haunt us,
    whether landmines or tanks. We saw that in Somalia, the Persian Gulf,
    and Bosnia.
        What is the administration's policy on arms sales to the Asian
    countries, especially those where the armed forces are involved in
    suppressing democracy?
        Answer. The U.S. policy on arms sales to Asia follows the
    President's Conventional Arms Transfer (CAT) Policy of February 1995
    which declares we will transfer arms to support the legitimate security
    needs of friends and allies, and that we will refrain from transfers
    that may adversely affect regional security or contribute to violation
    of human rights and democracy. The policy contains an extensive list of
    generic decision-making criteria to be used in evaluating all proposed
    U.S. arms transfers.
        The CAT policy requires that we seek to enhance multilateral
    restraint, but recognizes that only rarely will our interests be served
    by unilateral restraint. Although decisions on U.S. arms transfers are
    to be made primarily on foreign policy and national security grounds,
    the policy takes into account the implication of transfers for
    preservation of the defense industrial base.
        We are seeking to strike a proper balance between the imperatives
    to transfer arms and the need for restraint to avoid destabilizing arms
    races and diversion of resources from economic and social needs. We
    make full use of the Intelligence Community to ensure we have the best
    information available for arms transfer decision, are improving our
    oversight of weapons technology-sharing negotiations between DOD and
    foreign militaries and are applying the evaluative criteria in the CAT
    policy in the interagency arms transfer process.
        In the case of countries in the region where human rights problems
    exist, the CAT policy requires us to take into consideration the effect
    of weapons transfers on the specific situation. For example, in Burma
    we are not willing to make any arms transfers given the human rights
    situation there. In Indonesia, we have a formal policy that prohibits
    the transfer of small arms, crowd control, and other related equipment.
    In other countries, we have imposed temporary bans of specific weapons
    transfers when the situation warranted.
        Question. It is obvious that the Chinese Government is losing no
    time to whittle away at democracy and political freedom in Hong Kong.
    If this assault continues, what are the Administration's options for
    responding to it?
        Answer. The United States has long supported development of open,
    accountable, and democratic government in Hong Kong. Such a government
    has become essential part of Hong Kong's successful business and
    political environment. We have told Chinese leaders at the highest
    level that we expect China to honor its commitments in the 1984 UK-PRC
    joint declaration and the 1990 Chinese Basic Law to preserve Hong
    Kong's way of life, basic freedoms, civil liberties and rule of law.
        The key question is whether China will live up to its commitments
    to preserve Hong Kong's high degree of autonomy. In some areas, such as
    economic and immigration matters, China's statements and actions have
    been reassuring. In other areas, such as respect for political
    institutions and the freedom of expression, Beijing has done things
    that represent a step backward. In the event Hong Kong's autonomy is
    damaged, the U.S. will act consistent with the U.S.-Hong Kong Policy
    Act of 1992, which calls on the President to report to the Congress if
    Hong Kong is unable to carry out its bilateral obligations to us. A
    roll-back in freedoms and democratic development would also negatively
    affect U.S.-China relations. We have made that clear to the PRC in our
    diplomatic dialogue and our public statements. We will continue to
    convey to both the Chinese and to the new Hong Kong Special
    Administrative Region Government our expectation that Hong Kong's
    autonomy, stability and prosperity be preserved consistent with the
    principles of the joint declaration.
        We are encouraged that the new Chief Executive, C.H. Tung, has
    stated his commitment to maintaining Hong Kong's high degree of
    autonomy, its economic system, and its way of life, and has announced
    plans to hold elections for a new legislature in less than a year. As
    the Secretary said in Hong Kong, we will be watching closely and
    discussing developments with both Chinese and Hong Kong authorities.
                                     korea
        Question. I understand the North Koreans have finally agreed to
    attend Four Party Talks with officials from the U.S., China, and South
    Korea. I want to stress how important I believe it is that the aim of
    these discussions be to promote dialogue between North and South Korea.
    There is only so much we can do, and we cannot substitute ourselves for
    the South Koreans. What do you expect these talks to accomplish?
        The freeze on North Korea's nuclear program has been in place since
    November 1994. How do you explain that a government as paranoid as
    North Korea would give up its ambition to be a nuclear power? How
    certain are you that there is no cheating going on?
        What portion of KEDO's budget are we paying? Who pays the rest?
        Answer. The goal of the Four Party talks is to reduce tension and
    increase peaceful cooperation between the two Koreas, and ultimately to
    replace the 1953 Armistice Agreement with a permanent peace treaty.
    Another important area for discussion will be economic cooperation,
    both to address North Korea's immediate needs and its long-term
    problems. Institutionalizing North-South dialogue will be central to
    this process.
        For this reason, the U.S. expects South and North Korea to be the
    leading negotiators within the Four Party talks. This reflects our
    longstanding policy that the future of the Korean Peninsula is for the
    Korean people to determine. However, the U.S. will be a full and active
    participant in the talks.
        North Korea has not yet fully agreed to attend Four Party Talks,
    but has indicated that it will continue to discuss its participation
    with U.S. and South Korean officials.
        Regarding North Korea's decision to enter into the Agreed
    Framework, although we cannot know for certain the DPRK's motives, we
    assume that North Korea agreed to freeze and eventually dismantle it
    nuclear program in exchange for perceived benefits, including increased
    dialogue and potential political and economic relations with the United
    States.
        We are confident that we can monitor North Korea's compliance in
    fulfilling the provisions of the Agreed Framework. Inspectors of the
    international Atomic Energy Agency (IAEA) have maintained a continuous
    presence at the DPRK's Nyongbyon nuclear facility since 1994 and visit
    the nearby nuclear support facilities on a weekly basis. Moreover, a
    U.S. team also resides at Nyongbyon and works inside the nuclear
    facility in a joint project with North Koreans to place the spent
    nuclear fuel from the DPRK's reactor into safe, long-term storage,
    under IAEA monitoring. In addition, our National Technical Means can
    detect any significant activities at the construction sites where work
    on two nuclear power plants has been suspended in accordance with the
    Agreed Framework.
        Through these various means of monitoring and verifying North
    Korean compliance with the Agreed Framework, we have ascertained that
    the DPRK is complying with the freeze provisions of the Agreed
    Framework. The DPRK's 5-megawatt nuclear reactor is not operating, and
    its reprocessing facility and fuel fabrication facility have also been
    shut down. North Korea has also ceased construction at both the 50-
    megawatt reactor at Yongbyon and the 200-megawatt reactor at Taechon.
        Regarding KEDO's budget, the three founding members of the
    organization--the U.S., Japan, and South Korea--share KEDO's
    administrative and operating costs. In the past, the U.S. has paid
    roughly a third of those expenses. Funding for KEDO's projects,
    including the provision of proliferation-resistant LWRs to North Korea
    (costing several billion dollars), will be provided primarily by South
    Korea and Japan. In addition to supporting a portion of KEDO's
    administrative costs, the U.S. contribution to KEDO will also help fund
    heavy fuel oil (HFO) deliveries to the DPRK, which are required until
    the first LWR is completed. Additional funding for HFO will come from
    members of the international community. To date, over 22 countries
    other than the U.S., as well as the European Union, have contributed or
    pledged over $100 million to KEDO for this purpose.
                                  china-tibet
        Question. You reiterate in your statement that ``longstanding U.S.
    policy recognizes Tibet as part of China.''
        Hasn't this policy, unintentionally but effectively, given China a
    green light to destroy Tibet's cultural autonomy? By the time China is
    willing to enter into negotiations with the Dalai Lama, as you have
    urged, what will be left to negotiate about? The way things are going,
    Tibet as a unique entity will exist in name only. Does your policy mean
    anything?
        Answer. We share your concerns, but should point out that no
    country recognizes Tibet as a sovereign state. The United States,
    however, along with many other countries seeks improved human rights in
    China, including in Tibet. In particular, we support the preservation
    of Tibet's unique cultural and religious heritage and raise our
    concerns about Chinese policies with Chinese leaders at the highest
    levels.
        The United States has urged China to respect Tibet's unique
    religious, linguistic and cultural traditions, and the human rights of
    Tibetans as it formulates its policies for Tibet. The United States
    encourages China and the Dalai Lama to hold serious discussions aimed
    at resolution of the differences at an early date, without
    preconditions. We have consistently asserted that any questions
    surrounding Tibet and its relationship to Chinese authorities in
    Beijing should be resolved by direct dialogue between the Tibetans, in
    particular the Dalai Lama, and the Chinese.
        The Dalai Lama would obviously be a key player if discussions
    develop between the PRC and Tibetans living outside China. As a sign of
    the great respect the President and Vice President have for the Dalai
    Lama as a religious leader, they have met with him on a number of
    occasions, most recently on April 23. The Dalai Lama has the respect
    and affection of the Tibetan people, and the PRC should take advantage
    of this and talk with him. We urge a resumption of the dialogue between
    the Chinese government and the Dalai Lama and his representatives as
    the best way to defuse tensions--and potential violence--in Tibet and
    believe the Chinese Government recognizes that it is in its own self-
    interests to resolve the issue peacefully.
        China has said it will not resume the dialogue until the Dalai Lama
    publicly acknowledges that Tibet is part of China and that he does not
    seek an independent Tibet. The Dalai Lama has told us that he seeks
    autonomy for Tibet, not independence, and that he is prepared to resume
    the dialogue any place, any time. We have urged him to use every
    channel available to communicate that position directly and clearly to
    the Chinese. We have made clear to the Chinese the importance we attach
    to resuming the dialogue. We see a basis for a dialogue here and
    encourage both parties to pursue its restoration.
                                     korea
        Question. I am told that North Korea recently agreed to accept
    Taiwan's nuclear waste, in return for $200 million. Is this true? How
    has South Korea reacted to this?
        Answer. Taipower announced in January that it had concluded a
    commercial contract with North Korea to ship low-level nuclear waste to
    the DPRK. The contract is worth approximately $200 million. We
    understand that the waste material contains no uranium or plutonium,
    but consists of contaminated clothing, filters, sludge, tubing, etc.
    Concern is therefore environmental rather than a matter of
    proliferation.
        South Korea announced almost immediately its total opposition to
    this transaction, and has lobbied in international fora and bilaterally
    to have this transshipment deal terminated.
                                     ______

                     Questions Submitted by Senator Bennett
        Question. What is the Administration's position regarding the
    Taiwan-North-Korea Nuclear Waste-Agreement?
        Answer. We are mindful of Taiwan's need for viable storage options
    for its low-level nuclear waste. We also understand the ROK's concerns
    and have encouraged Taiwan to take into account South Korean and
    regional views. To verify to the international community the exact
    nature of the materials and that shipment and storage will conform to
    internationally accepted guidelines, we have urged Taiwan to request
    the assistance of the International Atomic Energy Agency (IAEA). The
    IAEA is the principal international body with the technical ability to
    independently address the issues involved. Ultimately, Taiwan must
    demonstrate that all steps in this transaction are in accordance with
    international guidelines.
        Question. If the Administration has concerns over this agreement,
    what are they and how does the Administration intend to address them?
        Answer. Our concerns are noted above. We continue to raise them
    with the Taiwan authorities and other interested parties.
                                     ______

                    Questions Submitted by Senator Campbell
                                   east timor
        Many Members of Congress and the Portuguese-American community are
    concerned about human rights in East Timor, Indonesia. The East
    Timorese have suffered a campaign of repression since Portugal withdrew
    from the colony in 1974 and Indonesia annexed East Timor. The country
    was closed to the outside world until 1989, and even now access is
    still restricted. Journalists and international human rights monitors
    are rarely granted permission to visit.
        Question. (A) What is your agency doing to help protect the rights
    and civil liberties of the East Timorese left in Indonesia?
        Answer. (A) We share Congressional concern for the people of East
    Timor, and we are actively seeking to improve human rights in the
    province.
        The United States strongly supports resumption of the direct
    discussions, facilitated by the UN Secretary General, between Indonesia
    and Portugal to resolve their differences on East Timor. We are
    encouraged that Secretary General Kofi Annan's recent decision to
    appoint Ambassador Jamsheed Marker to be his Special Representative for
    East Timor will give new impetus to these key discussions. On May 7,
    John Shattuck, Assistant Secretary for East Asian and Pacific Affairs
    and Aurelia E. Brazeal, Deputy Assistant Secretary for East Asian and
    Pacific Affairs met with Ambassador Marker.
        The situation in East Timor has long been an important part of our
    dialogue with the Government of Indonesia. President Clinton, for
    example, has raised our concerns directly with President Soeharto.
    Secretaries of State Christopher and Albright have discussed them
    extensively with Foreign Minister Alatas, as have Ambassador Roy and
    his embassy colleagues with their counterparts in Jakarta. President
    Clinton has also discussed the East Timor situation with Portuguese
    Prime Minister Guterres.
        While many of our efforts involve quiet diplomacy, we also have not
    been reluctant to support public expressions of concern where
    appropriate. For example, we have supported action on East Timor at the
    United Nations Human Rights Commission. Only last month, the Commission
    passed a resolution, with U.S. cosponsorship, that expresses deep
    concerns over Indonesian policies there.
        It will be important for an overall solution in East Timor to
    incorporate proposals that give East Timorese themselves greater
    control over their economic and political life, in keeping with their
    unique history and culture. In the meantime, we have urged the
    government to reduce troop levels, to allow increased access to the
    province, and to release prisoners of conscience. We have also called
    on the East Timor resistance to forswear violence and join efforts to
    achieve a peaceful resolution of the dispute. Two U.S. Congressmen,
    Ambassador Roy, and Assistant Secretary of State for Democracy, Human
    Rights, and Labor, John Shattuck, recently visited the area, and other
    embassy officers have visited six times in the past ten months.
    Assistant Secretary Shattuck also visited the imprisoned East Timorese
    activist Fernando de Araujo last March.
        Over the years, we have been the largest international aid donor to
    East Timor, with eight projects now currently under way with a total
    budget of $15.8 million. Our aid programs are designed to improve the
    lives of average Timorese, while helping them achieve more control over
    their own economic future.
        Question. (B) What type of foreign assistance is most beneficial in
    a difficult situation such as this?
        Answer. (B) USAID has the largest donor assistance programs in East
    Timor. Between 1991 and 1995 USAID directed approximately $11 million
    to Indonesian and U.S. non-governmental organizations for rural and
    community development activities such as teaching skills to develop
    local NGOs, drilling wells, draining land, monitoring human rights,
    improving farming technology, educating orphans, increasing practical
    business skills, training community self-help groups, establishing
    micro-enterprises, strengthening the institutional capacity of the
    University of East Timor, assisting rural cooperative improve product
    development and marketing, training journalists, expanding coffee
    cooperatives, and providing investment in urban environmental
    infrastructure such as shelter, water supply, and sanitation. USAID has
    also supported the work of the International Committee of the Red Cross
    to reunite families and to monitor the human rights situation in East
    Timor.
        Given East Timor's rural economy and political situation, the most
    beneficial use of funding would be on programs to increase rural
    incomes, to provide vocational training for Timorese youth, to manage
    its water supply, to assist East Timorese protect their human rights
    and to advance the peace process would be most beneficial. One of the
    largest constraints on our aid program has been the ability of East
    Timor NGOs to absorb our assistance.
                                 crime in asia
        Question. As we are aware, China, North Korea, Vietnam and other
    East Asian countries are often in the news for committing abuses
    against human rights. But what many of us are less familiar with is the
    other types of crime in East Asia. These include visa fraud, drug
    smuggling, murder, bribery and corruption. Some of this rampant crime
    can be attributed to frustration at the pace of reform and backlash
    against a repressive government.
        The Chinese authorities have launched a highly publicized campaign
    of prosecution and punishment, called the ``Strike Hard'' attack on
    crime, which goes along with a harsh anti-corruption campaign. In 1996,
    news sources reported that the Chinese had publicly executed over 1000
    citizens in this crackdown.
        Lacking training in criminal justice, many countries resort to a
    system of complete intolerance, resulting in large-scale punishment and
    public executions.
        In the past, Congress has funded programs that aid in law
    enforcement and corrections training abroad. What type of aid programs
    can the U.S. fund to aid in crime prevention measures in East Asia,
    without seeming to support such arbitrary and extreme punishments?
        What recommendations would you like Congress to consider in fiscal
    year 1998 to help adequately fund crime prevention and law enforcement
    measures abroad?
        Answer. USG funds appropriated to the Bureau of International
    Narcotics and Law Enforcement Matters are used for the following kinds
    of programs in East Asia: demand reduction training, alternative
    development (in opium producing countries such as Laos), and law
    enforcement support and training. Law enforcement training includes
    specific training programs offered by DEA, Customs, the Coast Guard,
    the U.S. Secret Service, etc., which are directed at drug interdiction,
    smuggling, counterfeiting and other forms of financial fraud. Some
    funds go to equipment purchases to help modernize counternarcotics
    police units, with purchases ranging from motorcycles and radios to a
    drug testing laboratory. USG funds also support advisors who may be
    made available to specific host government institutions for
    consultations on a range of law enforcement-related activities, such as
    writing laws affecting money laundering, advising banks on methodology
    for detecting and protecting against various financial fraud schemes,
    running a court system, etc.
        INL has presented a budget proposal for counternarcotics and law
    enforcement programs in Asia for fiscal year 1988. Our recommendations
    are contained in this package.
                             asian organized crime
        Question. What is your bureau doing to help fight this type of non-
    territorial organized gang violence?
        To what extent does your agency coordinate with the FBI and with
    federal agencies to reduce the amount of criminal activity perpetuated
    by Asian gangs?
        Answer. While the State Department and its bureaus do not focus on
    domestic organized crime gangs, the Department does coordinate closely
    with those USG law enforcement agencies which have overseas as well as
    domestic missions. Members of the FBI, INS, Customs, DEA and DOD serve
    on detail to the Department of State in the Bureau of International
    Narcotics and Law Enforcement. While most of their work, once again, is
    not focused on Asian gangs in the United States, they do work with
    personnel of the Department of State to coordinate such issues as
    repatriation of smuggled (largely Chinese) aliens and the extradition
    for prosecution in the United States of drug traffickers whose
    activities in the United States doubtless contributes to some of the
    crime in American Asian communities.
        The Department of State also has an active policy with regard to
    denying visas to identified criminals. As the parent agency for our
    Embassies and Consulates abroad, the Department is also fully engaged
    in helping USG law enforcement agencies to further investigations
    abroad, to negotiate mutual legal assistance treaties which facilitate
    information exchanges with other governments on law enforcement matters
    and plays a key role in seeking the cooperation of host governments on
    issues such as drug trafficking, credit card fraud, alien and other
    smuggling and other financial crimes which impact on Asian and other
    communities in the United States.

                              subcommittee recess

        Senator McConnell. We appreciate all three of you being
    here today, the subcommittee will stand in recess until 2 p.m.,
    Tuesday, May 6 when we will receive testimony from Ambassador
    Morningstar of the Department of State and Thomas Dine from the
    Agency for International Development.
        [Whereupon, at 12:15 p.m., Thursday, April 17, the
    subcommittee was recessed, to reconvene at 2 p.m., Tuesday, May
    6.]

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

                                  ----------

                              TUESDAY, MAY 6, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 2:40 p.m., in room S-128, the
    Capitol, Hon. Mitch McConnell (chairman) presiding.
        Present: Senators McConnell, Campbell, Leahy, and Murray.

                              DEPARTMENT OF STATE

    STATEMENT OF HON. RICHARD L. MORNINGSTAR, AMBASSADOR,
                SPECIAL ADVISOR TO THE PRESIDENT AND
                SECRETARY OF STATE ON ASSISTANCE TO THE NEW
                INDEPENDENT STATES

                      AGENCY FOR INTERNATIONAL DEVELOPMENT

    STATEMENT OF HON. THOMAS A DINE, ASSISTANT
                ADMINISTRATOR, BUREAU OF EUROPE AND THE NEW
                INDEPENDENT STATES

                     OPENING REMARKS OF SENATOR MC CONNELL

        Senator McConnell. The hearing will come to order.
        I am sure Senator Leahy will be here momentarily. We have
    been upstairs voting. And I am sure he will be down shortly.
        I welcome, Mr. Dine and Mr. Morningstar, here today. And I
    would like to make essentially three points this afternoon,
    before going to your statements.
        First, I believe the administration's request for Russia,
    once again, is disproportionately large relative to the overall
    request and our broader regional interests. Second, I am
    concerned that in order to sell an overall increase, the
    packaging seems more important to the administration than
    developing a sound product. Third, the legal and law
    enforcement issues, which Senator Leahy and I have been talking
    about for 4 years, still do not receive the emphasis that I
    think they should. So let me elaborate just a bit on that.
        In a recent letter to congressional leaders, the President
    urged us to fully fund his request for foreign aid. For the
    record, his general position is one that I, as you all know,
    strongly support. He pointed out one of the reasons why full
    funding is so important is the sharp decline in our assistance
    to the NIS since fiscal year 1994. And he pointed out that that
    means we are investing very little in many parts of the former
    Soviet Union.
        For example, we have only $44 million for Kazakstan,
    Turkmenistan, and Azerbaijan, countries whose huge energy
    resources make them major economic interests. That is a quote
    from the President. The congressional funding levels have
    little to do with the fact that the administration has only
    provided $44 million for these three countries.
        The squeeze is in fact the result of a significant drop in
    the administration's NIS request last year, combined with
    chronic overspending on Russia. To put the problem in context,
    we should compare $44 million for these three countries with
    the request for Russia of $241 million, which is only a small
    share of the total of more than $4 billion provided for Moscow
    since 1993. Having drawn attention to the pressures which tend
    to compromise our interests in the non-Russian states, the
    administration still provides Russia both the largest share and
    the largest increase, this year, from $95 million to $241
    million.
        Now, Russia certainly deserves some support. But I continue
    to believe the private sector is far more important to Moscow's
    future than any assistance we may provide. In contrast, our aid
    is vital to the survival of the smaller states. I intend to
    provide the highest level of NIS aid possible within budget
    constraints. But, I do not share the administration's
    priorities. Just as one example, given the remarkable reforms
    engineered by President Shevardnadze, it is my hope to
    substantially increase United States support for Georgia.
         While the administration seems sure of its commitment to
    Russia, its commitment to develop a sound, substantive basis
    for these programs, it seems to me, comes up short. I
    appreciate the shift in the marketing strategy and the new
    emphasis that the Partnership for Freedom places on trade,
    investment and business priorities--activities which, in
    principle, I think we all support. However, the request
    included $160 million for a new business development program,
    to be administered by the Eximbank. I think we have learned
    through discussions with the Bank this initiative is simply not
    supportable. Traditionally, Exim uses local banks to support
    its transactions.
        Given how weak the banking institutions are in virtually
    every country, Exim staff has told us they would have to use
    nearly one-half of the $160 million to field staff to assure
    the appropriate lending and financial analyses could be
    prepared to prevent major losses. Even then there would be
    serious reservations about how soon and effectively the program
    could be implemented.
        While I wonder why the commitment was made in the first
    place, I understand you have dropped that idea. I do hope you
    will be able to answer how you plan to spend the $160 million
    now available.
        Finally, let me turn to crime and corruption. Senator Leahy
    and I have been calling attention to this problem since 1993.
    The first year I chaired the subcommittee, the Senate report
    stated:

        The incidence of crime and corruption have markedly
    increased since last year's recommendation. The committee is
    deeply concerned about reports that more than 5,000 organized
    criminal enterprises have developed throughout the NIS.

        Our primary concern was and is simple: The private sector
    is the key to jobs and economic stability. If businesses refuse
    to invest because of corruption and crime, obviously there will
    be no growth. I only wish the administration spent as much time
    developing solutions to this problem as it does fighting Senate
    earmarks. Unfortunately, another year has passed without
    significant action. There continues to be fresh compelling
    evidence of how widespread and acute this crisis is.
        Whether it is the murder of an American in Moscow over a
    sour business deal or routine allegations that contracts are
    moving legal targets and very difficult to enforce, it seems to
    me we are now bearing the bitter fruit of neglecting this
    critical area. The problems which have surfaced in Ukraine in
    the last several months are the most recent examples of the
    spread of crime and corruption.
        Obviously, recalcitrant parliaments, unwilling to pass or
    enforce reforms, must assume a share of the responsibility.
    But, what we see unravelling is a dangerous cycle, where crime
    and corruption, reaching the most senior levels of government,
    are sapping investor confidence, which in turns stalls economic
    growth. And stagnant growth means stagnant wages for the
    average citizen, including members of the police force. And if
    their wages drag, so do their enforcement efforts. Which means
    the cycle of crime and corruption spirals ever downward.
        To arrest this cycle we need to target and increase our
    commitment to meaningful legal and law enforcement training.
    After spending over $500 million on privatizing companies, it
    seems worthwhile that we be able to protect them. One example
    of what we can do is evident in Ukraine. For 3 years, the
    Government has asked for and not received support to establish
    an FBI-like training academy to teach its law enforcement
    community how to combat crime, especially the white-collar
    variety.
        I intend to make this kind of project and combating crime
    and corruption a high funding priority, particularly since I
    believe it serves our interests as well as the interests of the
    region.
        So let me at this point turn to you, Mr. Dine, and you, Mr.
    Morningstar, for your opening statements. And then we will go
    to questions.

                  summary statement of ambassador morningstar

        Mr. Morningstar. Thank you, Mr. Chairman and members of the
    subcommittee.
        The issues that you have raised in your opening statement
    are all very important issues, and I hope during the course of
    the hearing today to answer most of those. And if the
    opportunity does not arise to deal with every issue, I look
    forward to the opportunity of meeting with you later to go over
    each and every one of the issues that you raised.
        I appreciate the opportunity to appear before you today to
    discuss one of the President's top priorities in the foreign
    affairs budget, the Partnership for Freedom. The fiscal year
    1998 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 a very simple
    principle. And I do not think we can say it enough. And that is
    that we, the United States, have no greater national security
    interest than the stability of Russia, Ukraine, and the other
    New Independent States, and the consolidation of their
    transition to market democracies.
        Our most dangerous adversary of all time, the former 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.
        With respect to Russia specifically, a recent article in
    the Financial Times, I think, framed the issue quite well. Will
    Russia choose open and fair capitalism or the corrupt
    monopolistic capitalism and all that could entail? The article
    pointed out that it might take more than a generation to answer
    this question, but that recent changes in the government could
    present some opportunities.
        This is why the Partnership for Freedom is important. How
    can we help all of the countries of the New Independent States
    give their citizens a more tangible stake in the reform? The
    first way to do this, I would submit, is by mobilizing capital
    and increasing investment, to create jobs and ultimately
    utilizing the private sector as we suggested. This will require
    NIS leaders to take on more aggressive legal and policy reforms
    to improve the environment for business. This will require more
    capital, particularly in the region and to smaller businesses.
    And this will require, as you pointed out, increased efforts in
    the NIS to fight crime and corruption.
        Second, we need to stay engaged to strengthen the
    democratic organizations that will allow citizens to influence
    government and to advocate change. We must continue to persuade
    and cajole. The real change will come from the bottom up, as
    well as from strong leadership. And I know this is something
    you have pointed out many times in the past.
        Why did we ask 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 reform, such as privatization,
    such as macroeconomic stabilization that is taking place in
    most of these countries. Our active engagement, which will
    focus on the push for real growth in these economies, is
    crucial.
        Second, we look 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 business, particularly 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, as well as at least eight business roundtables,
    getting the views of American and NIS business people.
        In fact, since I originally wrote this, there have been a
    couple more. It is quite interesting that just a year ago, I do
    not think we could have made the same findings that we make
    now. A year ago we were hearing about the lack of a qualified
    demand for financing, emphasizing the word ``qualified.'' Now
    that has changed. And we have learned from the EBRD's small-
    loan program, from NGO's, like the Eurasian Foundation, CCI,
    the Consumer Citizens' Initiative, and FINCA, which does a lot
    of microcredit work, that the demand far outstrips the supply
    of capital.
        In fact, we have also found, from the EBRD program as well
    as some of our enterprise fund programs, that with respect to
    small business lending, there are banks within the regions--
    many banks in the regions--that can be worked with and can be
    used to help distribute money, to help lend money to small
    businesses. And we can talk more about that later.
        Another crucial opportunity in our proposal is that we do
    propose to more than double the amount of resources we direct
    to anticrime and law enforcement. And these last few years have
    built the foundations that allow us to do more to fight crime
    and corruption.
        Third, now is the time that we really need to emphasize
    also the cooperative mutually beneficial activities. U.S.
    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
    our governments could ever do to achieve constructive
    relationships and have an impact on a community level every
    week.
        I see new evidence of the value of these partnerships.
    Yesterday, for example, I spoke to 43 Ukraine bankers and
    faculty members from the International Management Institute in
    Kiev. The have a partnership with Carnegie-Mellon in
    Pittsburgh. IMI sponsored a study tool for this group that is
    getting a master's degree in Kiev to promote banking in the
    United States and show how they can improve their banking
    systems. These, I think, can be extremely valuable and have a
    long-term effect.
        Fourth, we continue to hear from our Ambassadors in the NIS
    and from notable leaders of reform, such as Andrei Kozyrev, for
    example, and Grigori Yavlinsky, that one of our largest returns
    on investment and assistance dollars are some exchanges and
    support for the hundreds of nascent democracy NGO's, human
    rights groups and political parties that are springing up in
    that region. 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 specifically to double
    the number of exchanges. We have proposed to do more democracy
    work in countries in Central Asia and the Caucasus that are
    lagging in some ways.
        Another recent illustration on exchange is Ambassador
    Courtney of Georgia--and by the way, we would be increasing
    Georgia by something like 60 percent in the Partnership for
    Freedom--sent in a cable. We have a graph with respect to the
    country dollars that are back there.
        In any event, Ambassador Courtney sent in a cable,
    outlining the profound impact that the alumni of United States
    exchange programs are having in Georgia. He mentioned that the
    chairs of two key parliamentary committees, a leader of the
    independent media, and several others doing high-profile
    community work have been graduates of those programs.
    Particularly in his case, he is referring to the Muskie
    fellows.
        Fifth, the regions have emerged as the most promising bases
    for reform and growth. When we talk about doing small business
    in the regions, we are talking about doing it in regions where
    there has already been indications of success and where we
    think we can build on that. One illustration, for example, is
    the Novgorod region in northwest Russia. That is really a model
    where we need to be working. The regional government there is
    taking aggressive steps to improve the investment climate and
    encourage growth. Tax incentives for foreign investors and
    strong early results in getting investment targets actually
    done have occurred. And it is action, not just words.
        This region and others like it--the Russian Far East is
    another area where we clearly intend to develop our regional
    initiative--are where we can and must do more and where we will
    see the kind of results that push and pull the country along.
    We are developing a Partnership for Freedom pilot program with
    existing funds, using Novgorod as the pilot, utilizing more
    investment and more partnerships.
        I must add here, as I am sure you know, that the new
    Russian Cabinet includes two notable leaders of Russia's most
    progressive regions, Nizhny Novgorod and Samara. And hopefully
    this will bode well for increasing our efforts in the regions
    and how success there now will affect the center. We need to
    encourage pressure from the bottom up to make the changes that
    need to be made.
        Let me just say a few words about Ukraine. I did return
    from Kiev late the week before last, where I met with Ukrainian
    leaders to discuss our concerns about the downturn in the
    investment climate and the treatment of various United States
    companies. And there are very serious issues with this country.
    Mr. Lemire from Gala Radio is sitting here in the audience
    today.
        But let me say in the strongest possible terms that the
    development of Ukraine as a stable market democracy is in our
    national interest and certainly in Ukraine's national interest.
    If they show the political will to deal with these issues, we
    have to be prepared to work with them, particularly relating to
    transparency in business/government interactions.
        On the other hand, if these concerns are not addressed
    completely, we should consider scaling back assistance in
    certain sectors where backtracking of reform has been a
    problem. The ultimate issue, the real ultimate issue when all
    is said and done, is that Ukraine's future and all that they
    have achieved in the last 5 years is at stake, and we need to
    do everything we can, through whatever methods we can, to help
    ensure that future.
        And as you know, President Kuchma is scheduled to come here
    the week after next.
        Senator Leahy. Is that still on?
        Mr. Morningstar. That is still on.
        I think it is critical that trip take place. This is an
    opportunity for the President and the Vice President and
    Members of Congress such as yourselves to discuss with him the
    magnitude of these issues and the large stakes that are
    involved. President Kuchma announced on April 10 an
    anticorruption decree, which, if implemented, could solve a lot
    of these problems. And you have to establish that that
    political will does exist and, if it does, we need to help as
    much as we can.
        But, in the meantime, the kinds of investment disputes,
    such as Mr. Lemire has, really do have to be solved. They are
    symptoms of underlying problems. But until they are solved,
    there is going to be constant pressure that we are all up
    against.
        Senator McConnell. Can I just interrupt you on that point.
        Given the current state of affairs, how much would that
    decree be worth in terms of the likelihood of it having an
    impact?
        Mr. Morningstar. We will have to see. The decree itself,
    when you read it, if it were all implemented, deals with all of
    the issues that need to take place.
        Senator McConnell. That is really my question.
        Mr. Morningstar. What I kept trying to impress upon the
    Ukrainian officials when I was there was that the real issue is
    not the American assistance program. The real issue is not
    President Kuchma's visit. The real issue is that Ukraine will
    develop and thrive as a market democracy. As long as you have
    the kinds of problems we are talking about, which discourage
    investment--not just United States investment, but also
    Ukrainian domestic investment, European investment, investment
    wherever it is--unless you solve all of these problems,
    whatever problems you come up with, it is not going to do any
    good, because you cannot grow. And you just have to face up to
    these issues.
        I think that President Kuchma understands that. I think
    many of the senior officials do understand it. And all we can
    do is to keep impressing upon them the importance that this
    needs to be done. And there are some very--at the risk of
    elaborating--I am basically done with my opening statement
    anyway--but there is tremendous short-term risk. It is not just
    our assistance program. It is the World Bank Program for
    leveraging, in which there are really millions and millions--
    probably over $1 billion at risk at this point by Ukraine if
    Ukraine does not heed the conditionality with respect to those.
        So there are leverage points. But, at the same time, we
    have to keep our eye on the ball and recognize that what we
    need to accomplish, the ultimate goal, is a strong Ukraine. And
    that is very important to all of us. I think we all agree on
    that goal.
        And it is an example, I think, that, with respect to our
    programs in general, that we have to respond appropriately to
    both the setbacks and breakthroughs that are inevitably going
    to be part of this transformation, whatever the country will
    be. In Ukraine, hopefully what we are talking about is a short-
    term setback.

                               prepared statement

        In Russia, at least on the economic front, there appear to
    be some breakthroughs. We have to recognize that this is an up-
    and-down process. And for this reason, frankly, I am more
    certain than I ever was that our request for fiscal year 1998
    is in the right direction and is the way that U.S. assistance
    should be refocused in the future. We need to be able to stay
    engaged and we need to retain the flexibility to respond to
    both the setbacks and the breakthroughs with appropriate
    support.
        [The statement follows:]
            Prepared Statement of Ambassador Richard L. Morningstar
        Mr. Chairman and members of the Subcommittee, I am very pleased to
    have the opportunity to testify here today about the Administration's
    plans for assistance to the New Independent States of the former Soviet
    Union, and most importantly about one of the President's top priorities
    in the foreign affairs budget, the Partnership for Freedom. The fiscal
    year 1998 budget request for NIS assistance is $900 million, up from
    $625 million in fiscal year 1997. The Partnership for Freedom supplies
    the vision and the framework for sustainable, mutually-beneficial
    cooperation between the people of the United States and the people of
    the New Independent States, and thus for a more secure and prosperous
    future.
        Partnership for Freedom rests on a simple principle: the security
    of the United States and the rest of the world is immeasurably enhanced
    if Russia, Ukraine and the rest of the NIS are stable market
    democracies. We must take specific actions to help these countries
    attain economic growth. Lack of growth will ultimately lead to
    destabilization which could raise new threats to our national security.
        We must also accept the fact that reform in the NIS is a complex
    generational process, the outcome of which is, today, not yet secured.
    For example, although last summer's presidential election in Russia was
    remarkably free and fair, a monumental signal in its own right of
    reform's progress, 40 percent of Russian voters opted for the past.
    Many people in the NIS are still significantly worse off economically
    than they were in the Soviet Union.
        We must stay visibly and materially engaged to help ensure that
    lasting democratic and market institutions take root and prosper in the
    region. Over the next few years, we must help give people throughout
    the NIS region a more tangible stake in reform. The cost of this
    investment is small relative to the far-reaching benefits that stable,
    democratic New Independent States hold for the American people.
        Presidents Clinton and Yeltsin issued a joint statement in Helsinki
    outlining their commitment to stimulating investment and growth in
    Russia, and to advancing Russia's membership in international
    organizations. Included in this statement was President Yeltsin's
    agenda to launch Russia on to its next phase of reform, including
    comprehensive tax reform, laws to strengthen the Production Sharing
    Agreements needed for energy sector investment, tough anti-crime laws,
    and ratification of the U.S.-Russia Bilateral Investment Treaty.
    Presidents Clinton and Yeltsin also applauded plans announced by Vice
    President Gore and Prime Minister Chernomyrdin to launch a regional
    investment initiative, that will attract resources to key regions,
    including the Russian Far East. This initiative will demonstrate the
    impact of joint efforts on policy reform, investment finance, and the
    creation of new channels of commercial cooperation between regions in
    both countries. Although the primary responsibilities, and
    capabilities, for advancing the economic growth and reform agenda lie
    within Russia, this recognition that joint efforts between the United
    States and Russia play a significant, mutually beneficial role in the
    process is an underlying assumption of the Partnership for Freedom.
        With Congress' support, the Partnership for Freedom will respond to
    this imperative. The United States represents the potential of
    democracy like no other nation in the world, and thus our visible
    engagement in the reform process provides a crucial boost to the
    hundreds of thousands of people with a new voice, and new economic
    opportunities, in the future of their nations.
        The Partnership for Freedom will deliver a strategic refocus of our
    approach to assistance, focused on fostering economic growth and
    investment, and no less important, on strengthening the myriad of new
    democratic institutions, most of them non-governmental, that have
    emerged over the past five years. These dual tracks for a reinvigorated
    program will give us the greatest chance of success in sustaining the
    political impetus for reform and democracy.
        It is particularly important that Partnership for Freedom will be
    even more significant at the times that tensions between our nations
    are high. Business, people-to-people, and community ties are mechanisms
    which increase the survivability of stable market democracies over the
    long term, whatever the political situation is at a given point in
    time.
               phase i--u.s. assistance from 1992 to the present
        We can consider the first phase of our engagement in the NIS to be
    complete when basic structural and institutional changes to a market
    democracy have taken place, such as:
      --Private ownership--the private sector's share of GDP is now over 60
            percent in Russia, 50-60 percent in Moldova, 50 percent in
            Ukraine, 40 percent in Kyrgyzstan, and 35 percent in
            Kazakhstan. Privatization to this degree is a key building
            block for future economic reform and growth.
      --Elections--reasonably fair and open elections have had a
            significant impact the political process in Russia, Ukraine,
            and Moldova-Russia now has held parliamentary, presidential,
            and regional elections since December, 1995. In those countries
            whose commitment to elections and independent political parties
            appears more tenuous, and where elections have been tainted,
            political leadership has had to accept the consequences of
            international scrutiny and condemnation.
      --Civil society--non-governmental organizations (NGOs) did not exist
            in the NIS in 1992. Since that time, there has been explosive
            growth in this sector, particularly in civic associations,
            policy think tanks, private universities, business and industry
            associations, citizen action groups, environmental groups, and
            many more varieties of public interest and advocacy
            organizations.
        In addition to what is outlined above, other key building blocks
    are the rule of law, independent media, and functioning capital markets
    and financial institutions. Russia is closest to meeting these
    criteria, and Moldova, Kyrgyzstan, Ukraine, and Georgia are next in
    line. The other NIS countries are reforming at a slower pace.
        The Administration's current proposal for introducing the
    Partnership for Freedom creates a staggered transition for the NIS
    countries from broad-based technical assistance programs to the
    concentration of resources on fewer actitivities. For example, over 91
    percent of the fiscal year 1998 program in Russia will be under PFF, in
    Ukraine, 51 percent under PFF and in Kazakhstan, 53 percent. Over the
    next four to five years, technical assistance will phase out in each
    country, and the longer term framework for remaining Freedom Support
    Act activities in the New Independent States will be the Partnership
    for Freedom package.
                       phase ii: partnership for freedom
        The United States and the New Independent States ultimately want
    constructive bilateral relationships based on mutual respect and mutual
    geopolitical, economic and trade interests, not relationships based on
    assistance as such.
        The Partnership for Freedom will include the following activities:
    I. Investment and capital mobilization
        1. Increase investment support in the regions, emphasizing small
    business and microcredit.--Implemented through Eurasia Foundation,
    selected USAID grantees, EBRD Small Loan Program, USAID Loan Guarantees
    for Micro & Small Enterprises, Eximbank, OPIC, Trade and Development
    Agency, science & technology foundation up to $163 million.
        2. Continue support for NIS enterprise funds.--Up to $64 million.
        3. Remove impediments to trade and investment.--Targeted technical
    assistance for tax reform, WTO accession, legal reform accounting
    standards reform $20 million.
        4. Facilitate and accelerate World Bank and other IFI loans to NIS
    governments.--Help NIS governments meet the structural reform
    conditions required by the World Bank and IMF for the release of major
    loans $12 million.
        5. Link business training to specific investment projects involving
    U.S. companies and capital.--Improve capabilities of enterprise
    managers, particularly in the regions, in those enterprises engaged in
    trade and investment with U.S. companies, small loan programs, and
    enterprise funds, $17 million.
    II. Consolidation of democracy and civil society gains
        1. Significantly expand law enforcement and criminal justice reform
    activities to address problems of crime and corruption.--Increase
    training in financial fraud, money laundering, organized crime, anti-
    narcotics, bank inspection; increase support to the International Law
    Enforcement Academy (ILEA) in Budapest for training NIS law enforcement
    professionals; provide non-lethal material support, such as forensics,
    computer and communications equipment; increase training for judges and
    prosecutors, $29 million.
        2. Endow foundations to create sustainable support for new
    democratic institutions.--Create long-term vehicles for U.S. support
    for democratic institutions such as NGOs, independent media, citizens'
    advocacy groups that will carry on beyond the end of U.S. bilateral
    assistance activities; select foundations to be endowed partially on
    the basis of private matching funds, $41 million.
        3. Expand institutional partnerships to support cooperative
    activities at community levels, and expand cooperative activities in
    such areas of mutual interest as health, environment, energy, and
    technology commercialization.--Support partnerships between business
    associations, hospitals, universities, cities, bar associations,
    charities, and other non-governmental organizations to foster and
    deepen commitments to participatory civil society and productive,
    mutually beneficial relationships between the NIS and the United
    States; work through binational commissions with Russia and Ukraine,
    $59 million.
        4. Increase professional and academic exchanges with emphasis on
    young leaders.--Seek to more than double the number of NIS citizens
    coming to stay in the U.S. for month, semester, and academic year
    programs; recruiting business interns, young professionals, and
    students; emphasizing community-based, home stay programs, $58 million.
        5. Strengthen democratic political organizations as they become
    part of the greater network of citizens organizations.--Continue
    political party development through IRI and NDI, and support for
    election reform, and related NGOs and human rights organizations, $28
    million.
        The fiscal year 1998 request for $900 million is a 44-percent
    increase above the current fiscal year's budget for the NIS. This level
    of funding, combined with the strategic refocus of the program, will be
    able to support at least double the number of exchanges and
    partnerships. These funds will direct more than five times the amount
    of resources into investment programs, and more than double the level
    of effort on law enforcement and anticrime activities compared to
    fiscal year 1997.
        Another major effect of these additional funds will be more
    resources for democracy and economic restructuring work in Central Asia
    (+60 percent), Georgia (+60 percent) and Azerbaijan (+90 percent)--
    countries of key geopolitical and economic interest to the United
    States, that have not been adequately supported due to overall budget
    constraints combined with congressional earmarks. Russia's budget will
    be up significantly from this year's $95 million to $241 million. Over
    91 percent of the Russia budget will be directed to PFF activities. The
    amount allocated to Russia is still only 15 percent of that allocated
    in fiscal year 1994.
        The Partnership for Freedom is structured to operate in parallel
    with U.S. government security-related programs to promote arms control,
    nonproliferation, and regional stability. These include Department of
    Defense programs for Cooperative Threat Reduction,
    Counterproliferation, and Warsaw Initiative/Partnership for Peace
    efforts, as well as Department of Energy programs such as the Materials
    Protection, Control & Accounting activities. The PFF helps to
    strengthen our efforts in these security areas, and vice versa. All of
    these programs should be reviewed as a cohesive package, which together
    fulfill U.S. national security objectives.
                                lessons learned
        I have been in this position now for over two years. The approach
    that I have taken in this time period, and presented to this committee
    on numerous occasions, has been aggressively focused on the notion of
    continuous improvement to maximize our effectiveness in meeting U.S.
    national interests, and to maximize our return on the investment of
    U.S. taxpayer dollars in the reform process. The implementing agencies
    and organizations have accomplished a tremendous amount in this regard,
    and Mr. Dine will get into more of that detail for USAID later in this
    presentation.
        We have learned how far small amounts of funding can go to support
    reformers in real and lasting ways. Smaller, regionally based programs,
    that are encouraged to be flexible and adapt to local needs, work best.
    We have never, and will never, invest as much as it would take to do it
    all, to make ``the'' critical difference. I actually do not believe
    that is even possible. But, we have made, and must continue to make,
    many small differences. Today, regions in Russia such as Novgorod,
    Samara, Nizhny Novgorod have become models of accomplishment for the
    rest of the country on what is achievable by taking advantage of
    targeted assistance programs. We must and will do more in regions to
    create visible community-based impact. The heros of the new market
    democracies in the NIS are not USAID, not the World Bank, not the EBRD;
    they are the people that we have supported, educated and made small
    loans to over the past five years--reformers, entrepreneurs, and
    advocates for change from all levels of society, who deserve the credit
    for all the real and lasting accomplishments. They are winning a
    courageous battle.
        We have learned that cost sharing works. Programs such as USAID's
    small business service centers and the Morozov small business training
    project in Russia have achieved 40 percent to 50 percent cost recovery
    from fee-for-service. The programs that recruit volunteer experts to
    assist and train private entrepreneurs and farmers all rely on major
    cost sharing with their NIS clients, in addition to the valuable,
    donated time of the skilled Americans who volunteer. One of our most
    important exchange programs, Community Connections, (also known as PEP
    in some regions), is achieving great success in a pilot effort to have
    the professional exchange participants pay all of their travel costs to
    the United States, and some of their per diem expenses while they are
    here. All of these community-based exchanges receive a tremendous
    amount of in-kind contributions of organizing time, accommodations,
    local transportation and training from American communities all over
    the country that host these NIS groups. We have found that people who
    have a financial stake in the program will make the best use of it.
        We have learned that the time lag between capital availability in
    our investment programs, such as TUSRIF, OPIC, EXIM and our various
    funds, and the disbursement of that capital has been partially
    unavoidable, as the NIS entrepreneurs come up the learning curve, and
    the impediments to investment in these countries remain numerous.
    Nonetheless, we have also observed that with skilled shepherding, and
    high quality training of local financial institutions, more can be
    achieved--particularly with smaller projects and companies, and that we
    can now direct more resources where there are gaps, and make the
    necessary adjustments to the programs.
        We have learned that it doesn't make sense to spend assistance
    dollars on restructuring large, formerly state-owned companies.
    Companies with a chance of pulling through this transition will be able
    to find the resources to pay for the consulting or training that it
    needs. Many business services providers exist now, both indigenous and
    foreign. We have ended programs that were funded back in 1994 and 1995
    to do this kind of work, and retargeted private enterprise training
    resources to small and medium enterprises. NIS governments must play a
    critical role, as reform legislation is required to allow enterprises
    to sell land and other assets, shed some of the burdens of social
    services, and make a fair return on investment in a rational tax
    environment.
        We have learned that we can accomplish tremendous leverage by
    focusing our technical assistance in some instances on helping the NIS
    meet structural reform conditions for major loans from international
    financial institutions. We, and most importantly the NIS side, achieve
    a tremendous return on our assistance investment through this kind of
    coordination.
        We have also re-learned some old lessons about U.S. assistance--
    that well managed, internationally coordinated humanitarian assistance
    efforts can save lives and help to maintain the stability of a region
    or country. In Armenia, Georgia and Azerbaijan, a region that faces
    numerous ethnic and cross-border conflicts since the break-up of the
    former Soviet Union, U.S. resources and leadership to bring in food,
    fuel and medical commodities and to fund the Caucasus Logistics
    Advisory Unit, have made a difference in helping these nations get
    through their most challenging early years. President Shevardnadze has
    stated on several occasions that it was U.S. humanitarian assistance
    that made the critical difference in helping Georgia maintain its
    stability and independence. The leverage that we have been able to
    achieve in our humanitarian program since inception in the NIS is huge
    and has often gone unnoticed--$1.6 billion worth of 100 percent donated
    and surplus commodities delivered to 12 NIS countries in 480 airlifts,
    costing under $174 million in transport(through the end of calender
    year 1996). We should be very proud of this accomplishment.
                                     russia
        While recognizing that some crucial forms of technical assistance,
    particularly those that address key impediments to investment like tax
    reform, will require continued work, the implementation of the
    Partnership for Freedom in Russia will create a much greater emphasis
    on Russia's regions and will address the following goals:
      --1. Working with regional governments to address key obstacles to
            investment, helping them to gain access to international
            capital markets, and strengthening regional financial
            institutions.
      --2. Increasing the availability of financing in the regions through
            EXIM, OPIC, the U.S.-Russia Investment Fund, other small and
            medium-sized lending and equity investment programs, and
            microcredit activities.
      --3. Increasing the level of support for exchanges and regional and
            community-based institutional partnerships, that will link
            cities, universities, law schools, policy think tanks, and a
            variety of NGOS and citizens' organizations.
        This regional approach to the PFF in Russia has been developed
    through extensive consultations with numerous American and Russian
    professionals and policymakers in the field of investment and economic
    development in Russia, who have identified the gaps in programs to date
    to be a lack of credit for smaller businesses in the regions--the major
    engine for growth and real incomes for the Russian people. Vice
    President Gore and Prime Minister Chernomyrdin highlighted the
    importance of a regional investment initiative in a joint statement at
    the last meeting of the U.S-Russia Binational Commission in Washington
    this past January. The Russian Far East has been acknowledged by both
    the U.S. and Russia as a region of great economic potential and will be
    included in this initiative. Other potential participating regions
    include oblasts in the Urals region and the Southern Russia-Volga
    region.
        One extremely promising oblast in the Northwest of Russia,
    Novgorod, has been identified as an appropriate area to launch a
    ``quick start'' demonstration of the PFF and the regional investment
    initiative, due to the regional government's reform action, strong
    interest from the U.S. business community in Russia, and a significant
    level of existing assistance resources and programs on which to build.
        The Novgorod region, with a population of about 750,000 people,
    today provides one of the most compelling illustrations of Russia's
    promise to become a prospering market economy. Although the region
    suffers from the same fundamental economic and structural problems as
    the rest of Russia, it leads Russia with the highest per capita foreign
    investment. Perhaps not coincidentally, Novgorod has one of the oldest
    traditions of democracy in Russia. Founded in the 9th century, medieval
    Novgorod was governed by an assembly of its citizens, the ``veche'';
    and prior to the establishment of St. Petersburg, was the major trading
    center of Northwest Russia. Now, through the dynamic leadership of its
    elected governor, Novgorod has established an investment-friendly
    climate, and has been recognized by the American Chamber of Commerce in
    Russia as one of the most progressive regions of Russia today. This
    region is not waiting for a handout, but instead is working diligently
    to enact reforms that have mobilized capital investment. This region,
    and others like it, should be the foci of our assistance effort through
    the Partnership for Freedom; there is no point to these programs if the
    local leadership, both in government and in the private sector, is not
    a major part of the solution, and willing to act to create real
    opportunity for the future.
        One component of the PFF, ``partnerships and cooperative
    activities'' is best understood through the examples of working
    partnerships in the region. One notable example happens to be in
    Russia--the partnership between the World Institute for the Disabled
    and the All-Russia Society of Disabled. With the material support,
    know-how, and encouragement of their U.S. partner the Russia group's
    membership has climbed to 2.4 million in 78 different regions. They
    have helped members set up over 1700 enterprises, as well as
    manufacturing companies that make wheelchairs and other equipment for
    the disabled. Their public education and outreach, leadership training,
    legislative advocacy, and efforts to bring disabled children more into
    the mainstream of Russian life add up to an incredibly powerful lesson
    for all NGOs in the NIS. Partnerships such as this one must have an
    important place in our long term engagement with Russians through the
    Partnership for Freedom. Many more existing relationships between U.S.
    and Russian organizations will be able to have significantly greater
    impacts on their communities with relatively small amounts of money.
        Securing and advancing reform also requires leadership, and we are
    very encouraged by the newly invigorated government's approach to
    taking on some pressing issues such as demonopolization and public
    administration reform.
                      ukraine, central asia, the caucasus
        The non-Russian NIS are still facing the most fundamental
    challenges of building new market democracies. These nations are
    building all of their government institutions from the ground up. The
    rule of law, media, and basic market institutions, such as banks,
    capital markets, and regulatory institutions are also at early stages
    in their development.
        Our national interest in supporting these countries through their
    transitions to becoming stable, independent, market-oriented
    democracies is extremely strong. The Partnership for Freedom approach,
    and the Administration's fiscal year 1998 budget request of $900
    million, will allow the appropriate level of assistance resources to be
    directed to the non-Russian nations.
        In Ukraine, with the second largest population and economy of the
    NIS, stability and growth are crucial to a secure and undivided Europe.
    In 1996, several important actions, including the removal of the last
    nuclear weapons, ratification of a new constitution, and the successful
    introduction of a new currency, gave us great confidence in increasing
    assistance to Ukraine. Since last October, we have grown increasingly
    concerned about backtracking on key reforms--particularly in
    privatization, agriculture, and the energy sector, and about
    bureaucratic obstacles and corruption, particularly as these affect
    U.S. investors. I raised these issues in Kyiv last week with Ukrainian
    leaders. If these problems are not addressed concretely, we will
    consider scaling back assistance in certain sectors where backtracking
    on reform has been of greatest concern. We are also consulting with
    other donors and the IFIs to ensure that all of our programs are
    conditioned on measures of reform.
        We have supported Ukraine because it is is our national interest to
    do so, and this has not changed. Ukraine's reforms, as in all of the
    NIS, are part of a generational process that will have setbacks as well
    as great breakthroughs. We must be prepared to stay engaged through
    this process, and we must retain flexibility in our assistance program
    so that we can respond to both the setbacks and the breakthoughs with
    appropriate levels and forms of support. We must be realistic and have
    the ability to be flexible in meeting changing circumstances
        Assistance to the fledging market democracies of Central Asia and
    the Caucasus are strongly in our national interest. Their strategic
    location between Russia, the Middle East, and China, coupled with vast
    energy resources, make their stability vital to U.S. interests. We will
    continue to help nascent democratic organizations and institutions,
    such as the independent media, non-governmental citizens groups, and
    educational institutions, establish active, effective roles in these
    countries. Economic restructuring and support for small businesses will
    also continue to be a prominent part of our assistance program in
    Central Asia.
        The Administration continues to oppose Section 907 of the Freedom
    Support Act, which since its inception in 1992, has hindered U.S.
    policy interests in the Caucasus region and Azerbaijan by severely
    limiting the promotion of U.S. investment, the encouragement of
    democratic and market development, and the advancement of the Nagorno-
    Karabakh peace process. We view our assistance efforts in the Caucasus
    region as a vehicle for furthering our policy objectives and interests
    in the region. The loss of U.S. influence in Azerbaijan threatens to
    undermine overall efforts for peace in the region.
                                   conclusion
        The courage of the citizens of Russia, Ukraine, and all the New
    Independent States to stay on the path of reform is bolstered by our
    investment in democracy, free markets, and building strong people-to-
    people linkages with Americans. We must consider the strategic
    importance of the NIS both in a historical context, and as a part of
    our vision of the world that our children will inherit. The New
    Independent States greatly appreciate U.S. assistance, but do not want
    to rely on aid. The Partnership for Freedom is one of the top
    priorities of the Administration's foreign affairs budget. This is
    because the vital importance of constructive, mutually-beneficial
    relations with the NIS, and, as Secretary Albright recently expressed
    it in recent testimony, ``the ultimate victory of freedom over
    despotism'' are so important for the security of every American. U.S.
    assistance to date, and looking ahead to the Partnership for Freedom,
    is one of the smartest investments we can make to help insure the
    security, health and prosperity of future generations.

                                    ukraine

        Senator Leahy. Is President Kuchma going to be told very
    strongly--is it going to be made very clear to him that the
    Congress is not going to continue sending money with this kind
    of corruption going on? One of the news items indicated
    Motorola walked away from an investment that could have been
    extremely helpful to them.
        It is even the little things like gouging people who are
    there. I saw it myself when I stayed there, in a cockroach-and
    rat-infested room at $280 a night, and things like this. It is
    outrageous. And if they think they can just keep on doing it,
    even though they realize they are killing the goose that lays
    the golden egg, they are in for a surprise.
        Mr. Morningstar. We had a hearing a few weeks ago, prior to
    my going to Ukraine, on the House side. And I quoted him. It
    was not just from one congressman, it was from several members.
    And I quoted them. And I told all of the officials at these
    high levels that you have got to understand, why should we be
    giving money to Ukraine? This is what we are facing on the
    Hill. Why should we give any money to Ukraine if you are
    treating our businesses this way?
        And I think they understand it. And as far as the message
    goes, I have been involved very deeply in the preparations for
    the meetings between Vice President Gore and President Kuchma.
    In fact, I am the chairman of the Committee on Joint Economic
    Cooperation. And I can assure you that the message, in a very
    constructive way, will also be presented very strongly by the
    Vice President.
        Senator Campbell. Would the gentleman yield for a question
    on this point?
        Senator Leahy. Yes.
        Senator Campbell. I have always been a believer that there
    should be some linkage between American aid and how they treat
    our businesses. But I guess we are just supposed to keep giving
    it away and let our businesses take a bath. But I have one
    particular point, and I am sure there are many, but I just
    happened to pull something from our own files. One of my
    constituents entered a 10-year contract with authorities in the
    Ukraine to sell advertising time on television. And then, one
    of the two national channels, after he had a contract and after
    he got off the ground for a couple of years, simply managed,
    through government authority, to take the contract away from
    him and just virtually left him hanging. And he is now in the
    courts to try to get some redress.
        Obviously, I think somehow he is not going to prevail. And
    I just wanted your opinion on whether we should not link some
    of this aid. You are asking for $900 million, and to give that
    without any kind of connection to how we are treated over there
    is wrong to do that.
        Senator McConnell. Let me add on, before you answer Senator
    Campbell's question, since we have kind of gotten started here.
    You mentioned setbacks versus breakthroughs. I would describe
    this as a setback, another setback. After you deal with that, I
    would like to know if there have been any breakthroughs in
    Ukraine.
        Mr. Morningstar. Sure. Yes, first, the question with
    respect to the issue you have raised. You have raised, I think,
    one of the more difficult issues that comes up and has come up
    in Ukraine in a series of issues. And Mr. Lemire's case is an
    example--basically the same thing that involves problems
    relating to the National Broadcasting Council, in which there
    literally are arbitration decrees that have been awarded. The
    issue--and certainly in Mr. Lemire's case and some other cases
    I can point to--is not, as it turns out, that there was not a
    process by which one could go through to get relief. The issue
    has been, once the arbitration decree was awarded, it has not
    been enforced.
        There is a promise outstanding, at least, with respect to
    Mr. Lemire's case, that the issue will be solved before
    President Kuchma shows up. We will see if that happens. What we
    have found is that, with respect to cases which are, in
    effect--and I do not want to shortchange the solutions, but
    ones that are easier to solve--for example, that just require
    the signature of the Prime Minister, even though there may be 6
    or 8 months of delays in achieving that--that, it seems, we are
    dealing with right now, because of pressure, the pressure that
    has been shown.
        Senator Campbell. How about reducing the amount of money
    that their request is by the amount they have cheated American
    businesses?
        Mr. Morningstar. Well, we could do that. And that would
    come pretty close to eliminating our Ukraine program.
        Senator Campbell. Well, they are trying to eliminate the
    American partners.
        Mr. Morningstar. Let me answer that in a couple of ways.
    And I think there will be, if in fact some of these disputes
    are not solved, I think in fact there will be cuts. And I think
    it will be beyond any individual's control. But one of the
    things we have to be careful about is we do not want to cut our
    nose to spite our face either. The whole purpose of the
    Partnership for Freedom is to get into areas that are not
    direct assistance to government-related activities, to do
    things that will help the private sector, to create more
    partnerships, and establish the kind of relationships between
    communities that will help create pressure from the bottom up.
        And I think that it is going to be very important that we
    emphasize those activities and that we do not lose that and we
    do not throw out the baby with the bath water.
        Senator Campbell. I understand that, Mr. Chairman. But when
    you go home, you have to justify giving $900 million of
    American taxpayers' money to Ukraine and the Soviet Union. And
    when you have businessmen in your own State that have been
    cheated out of their part of the business in the same place you
    are trying to give this money, it is a darn difficult thing to
    justify.
        Senator Leahy. You have the further problem, too, I might
    say, when you see something in Russia, when you see the way
    they jerk people around. Certainly like a very high profile
    thing like the exhibit that was at the Corcoran. It is a kind
    of shakedown that they are probably used to doing on the
    streets of Moscow, but suddenly they are doing it on the
    streets of Washington and the whole Nation is watching. And I
    come from a State that is pretty internationalist in its
    affiliations, and you know, they say we are making a mistake
    because all this money is just being siphoned off or we are
    being naive.
        Our Ambassador in the Ukraine seems to take a far softer
    attitude toward it than you do, Ambassador Morningstar. Somehow
    we have got to get across that it is not a bottomless pit. I
    commend the chairman, who has been as strong an
    internationalist on this issue as anybody. But we all have to
    go back home and explain why.
        I have supported money for Ukraine, and we have supported
    each other on the former Soviet Union, and we want it to work.
    I do not think there is anybody in this room that does not want
    it to work. Our business people want it to work. Our Government
    wants it to work. But I do not think they are listening over
    there.
        Senator McConnell. My question was, are there any
    breakthroughs to point to?
        Mr. Morningstar. Sure, there have been some. It is easy to
    look at the glass as half empty, or maybe today one might argue
    two-thirds empty for the time being. The Ukraine has achieved
    the enactment of a constitution. They did that last year. And
    President Kuchma deserves a lot of credit for that.
        From a macroeconomic standpoint, they have shown some very
    significant successes in bringing the rate of inflation down
    and introducing a new currency. That has maintained stability.
    There is a lot of successful work that is going on out in the
    regions. We have achieved a memorandum of understanding with
    respect to Chernobyl. And we have had some success in our
    negotiations with them just in the last few weeks in connection
    with the sarcophagus. So there are successes.
        And there are issues. And we have to address the issues.
    And it is not just simply by cutting off the aid. It is
    addressing the cause of the problems and trying to get
    assurances for the political will that will allow us to help
    them to create transparency, to create the deregulation which
    is necessary to eliminate a lot of the opportunity for
    corruption that has grown up over the years.
        Senator McConnell. Well, let us get Mr. Dine's statement,
    and then we will come back to questions.

                     summary statement of hon. thomas dine

        Mr. Dine. Thank you, Mr. Chairman, Senator Leahy. I join
    Dick Morningstar in urging this committee to seriously consider
    the administration's request for the New Independent States of
    $900 million under the FREEDOM Support Act. USAID is scheduled
    and is planned to implement much of this appropriated number,
    and I think it is a critical, critical effort on all our parts
    to engage in this task.
        AID has been and is a direct part of and involved with
    overall genuine progress in the region. In my prepared
    testimony, Mr. Chairman, I list a lot of results that AID has
    been directly involved in, and I urge that our prepared
    statements be inserted in the record, as I am sure they will
    be.
        Senator McConnell. Yes; they will be made a part of the
    record.
        Mr. Dine. It is also true that in several spots of the
    region progress has been slow, uneven, among and in countries
    and in sectors, as one would expect, in dismantling communism
    and in building free market democracies.
        The discussion that has just taken place among all of you
    about Ukraine, about the treatment of American citizens and
    American investments, I believe underlines three points: how
    difficult this job is to promote change--to promote change from
    where these places were for 70-plus years and if not even
    before that, the necessity of building a foundation for these
    societies, and, for the most part, Mr. Chairman and Senator
    Leahy, the people we deal with did not grow up with a textbook
    on capitalism. They did not grow up with a Constitution of the
    United States, with Hobbs, Locke, Montesquieu, you name it. We
    are dealing with people who are trying and having a great
    difficulty in building market democracies.

                        transfer of expertise, not cash

        And, finally, just to reiterate something or to correct
    something that Senator Campbell said. He kept using the word
    ``give.'' I would say one of the important parts of this whole
    program has been the fact that when Congress passed the SEED
    Act in 1989 and the FREEDOM Support Act of 1991, you made sure
    that this was technical assistance, the transfer of expertise
    and not the transfer of cash. And so we are not giving anyone
    any money. We are trying to promote the transfer of knowledge,
    in fact, so that we can eventually get to that point that Dick
    Morningstar just mentioned about partnership.

                         reform progress in the region

        Let me move on now to some charts, to give you a snapshot
    picture, a range of the progress that I mentioned.
        Chart No. 1 shows the place of both the NIS and the central
    and Eastern European countries on a trend line. And you notice
    this is the average of economic policy and democratic freedoms.
    The European Union countries are up here. This data is taken
    from the European Bank for Reconstruction and Development
    [EBRD] and Freedom House here in Washington.
        As you can see, the countries of the northern tier of
    central and Eastern Europe are by far in the lead. Then comes a
    second category of countries, starting with Romania and the
    first NIS countries roughly. Ukraine has been sliding backward
    in recent times, but we will get to that in 1 minute. Some of
    the NIS countries in the southern tier of the central and
    Eastern European countries are in the second bunch.
        The third bunch are basically NIS countries. Two others did
    not make the chart frankly--Serbia and Bosnia--but they are
    also in the portfolio that I have been assigned responsibility
    for. You mentioned a couple of those, Mr. Chairman, in Europe,
    in your statement. Others are not reforming countries as of
    now, and that is a fact of life, although, I agree with you,
    they have tremendous natural resources.
        Our objective, it seems to me--and that is what we have
    been trying to do--is, No. 1, get countries going this way and
    to get this trend line, which is now headed this way, closer
    and closer to the European Union standard. That is basically
    the strategy we are pursuing right now with the technical
    assistance, as well as with the World Bank, IMF, EBRD, European
    Union and other bilateral programs.

                    policy reforms bring foreign investment

        I have another chart. I just want to reconfirm what my
    friend Dick Morningstar has just said. This chart shows that
    countries that exhibit real policy reform--and again, the
    northern tier of central and Eastern Europe and those with
    natural resources you will see come up in this--but this chart
    shows that real policy reforms have greater foreign investment
    per capita. And this is what the Partnership for Freedom is all
    about, to increase the investment, to lure people where reform
    has taken place.
        Changes are occurring. As I have indicated, USAID has had a
    hand in basic changes. We have been engaged, over the last
    couple of years, in privatization; 49 percent of the GDP of the
    countries of the New Independent States is now produced by the
    private sector. I have another chart for a different kind of
    hearing, but if you took the central and Eastern European
    countries, you would see that it is about 65 percent. Again,
    more progress is being made in central and Eastern European
    countries for a variety reasons, both historical as well as the
    fact that they have a couple of years head start on the New
    Independent States. Some 55 percent of the GDP in Russia is now
    produced by the private sector.
        So, again, Russia is ahead of all of the others.
    Unfortunately, Ukraine is hovering around the 40-percent mark.
    We have helped them with fiscal reform, we have been involved
    with budgeting and helping them with tax codes, et cetera.
        In enterprise development, a tremendous amount of work has
    been involved in legal and regulatory reform, civil codes in
    Moldova and Russia and other places, guaranteeing freedom of
    contracts and protection of private property.
        In the financial sector, we have been able to help set up
    stock markets and other capital markets, working with the
    national banks and commercial banks. But, as indicated in the
    previous discussion, so much of this is spotty. So much of this
    is still incomplete.
        In the energy and environment area, we have had some
    success, including in Ukraine, although that has slowed down
    now. But among the Central Asian Republics, for instance, we
    have gotten involved in the Aral Sea problems, and from that,
    begun to work with all five countries of the Central Asian
    Republics, so they would work together on the water problem and
    water management and water financing. We have been a catalyst
    to 13 short-term water-sharing agreements between these five
    countries, and we look forward to more.
        We have been involved in the Russian Far East on
    environmental reform. We have been involved with environmental
    NGO's, through the American NGO, ISAR.
        And, finally, in democratic institution building, it could
    not be tougher. It is easier to do economic reform, frankly,
    than democratic reform. But we have been involved in civil
    society work, media work, judiciary work, and political party
    building. The overall point that I would like to stress here is
    the value of the process, the idea of transparency.
        Transparency is really foreign to these folks. It is
    something that we are trying to transfer as we are engaged in
    our work, whether it is democracy building, tax code, or
    whatever. So while communism is defeated and even dismantled,
    democracy is still not victorious. And I think we have got to
    stay involved in this process.

                                    ukraine

        Finally, I want to contrast our activities in two NIS
    countries, Ukraine and Georgia. As this discussion has already
    indicated, Ukraine today faces excruciating difficulties the
    confluence of political stalemate, the lack of reform, and
    stagnancy in the economy that is showing signs of contraction.
    This is a very, very important time, frankly. It is a
    crossroads for Ukraine and for United States-Ukrainian
    relations. We see continued dominance of monopolies, state
    control of the agricultural sector, delay, again, in
    privatization, failure to collect payments in the electrical
    power arena, the resignation of the key reformer, Minister
    Pynzanek, and an international and domestic barrage of
    allegations and of corruption.
        So this is coming to a head. And as Dick indicated, the
    World Bank is seriously considering the suspension of three
    major loans and delaying several new ones. The IMF has said it
    will not go forward with the important extended facility fund
    unless all conditions are met. Foreign investors, particularly
    small and large American companies--and I am going to use your
    words, because I have got them down--are walking away. And
    Ukraine must face this particular dilemma.
        President Kuchma will be meeting, as Dick indicated, with
    high officials of this administration, as well as yourselves. I
    believe this administration will be delivering a hard-hitting
    message on the urgent need to turn this situation around and
    get back on track, as it was 6 months ago, and implement
    economic reforms in a way that reinforces the reasons for the
    Congress earmarking so much technical assistance in fiscal
    years 1996-97.
        Mr. Chairman, slowly but surely, Ukraine had been
    progressing, and we ought to keep that in mind. And USAID can
    show results in privatization and a modern constitution, in the
    energy sector, in local governments, in community-based
    projects, and an independent media.

                                    georgia

        Let me turn to Georgia. Georgia faced a turning point 2
    years ago, and held elections in December 1995--a nationwide
    election in which Edward Shevardnadze was duely elected
    President of the nation-state and a parliament was elected as
    well. That parliament has turned out to be not only very
    active, but very proreform. Together, the executive and
    legislative branches in that particular small country have been
    engaged together on reform policies. Therefore, we see a
    tremendous contrast there from the Ukraine. Again, like the
    Ukraine, Georgia has a new constitution. AID has helped set up
    a Center for Economic Policy and Reform, which has been at the
    heart of so many of these economic reform policies.
        We have seen a frontal attack on corruption. President
    Shevardnadze has fired his finance minister after all kinds of
    allegations. There is macroeconomic stabilization. Inflation is
    way down. Prices are liberalized. Currency has stabilized.
    There has been a real development of reform for us and our
    involvement in energy restructuring, where we have seen the
    sale of hydro powerplants, a new national regulatory body for
    the power sectors, an agreement with the Azerbaijan
    international oil consortium and the Government of Azerbaijan
    on the oil pipeline issues, and the new Black Sea port of
    Sokhumi.
        And, finally, we see a lot of investment coming into
    Georgia. And I believe, as Dick indicated, it is important that
    we increase the amount of assistance to Georgia, to reward
    reform.

                               prepared statement

        So, Mr. Chairman and Senator Leahy, I hope this committee
    supports USAID's continuing efforts to help the NIS countries
    reform, and to vote for the full $900 million appropriations in
    the FREEDOM Support Act request for fiscal year 1998. It is in
    the U.S. national interest to sustain changes, or lock them in,
    to make them irreversible, and to continue to work on economic
    stabilization and structural change, so that these translate
    into growth and investment and the societies themselves head
    toward the victory circle of full participatory democracies.
        Thank you.
        [The statement follows:]
                      Prepared Statement of Thomas A. Dine
        Mr. Chairman, Members of the Committee: I am pleased to have the
    opportunity to testify today in support of the Administration's request
    for $900 million under the FREEDOM Support Act for USAID's activities
    in the Newly Independent States (NIS). I believe, and this testimony
    will demonstrate, that overall progress in dismantling communism and in
    building democratic governments and free market economies in its place
    merits your strong support. I also wish to restate the Administration's
    support for an appropriation of $492 million under the Support for East
    European Democracy (SEED) Act for our activities in Central Europe, $15
    million in economic support funds (ESF) for Cyprus to support
    bicommunal activities and scholarships, and $50 million in ESF for
    Turkey plus $4 million for family planning. The Administration requests
    as well $19.6 million in ESF for the International Fund for Ireland
    which, like our Cyprus request, is designed specifically to promote
    peace between two communities sharing an island. I also wish to state
    that the Administration strongly opposes Section 907 of the Freedom
    Support Act because its restrictions impede the United States
    government's ability to implement more effectively our development
    assistance program in Azerbaijan and thereby slows the advancement of
    U.S. interests in a strategically significant region.
        The President's request for $900 million for the NIS, an increase
    from $625 million this year, follows three years of falling
    appropriations levels. After the large fiscal year 1994 appropriation
    of $2.5 billion, assistance levels fell to $850 million in fiscal year
    1995, $641 million in fiscal year 1996 and $625 million in fiscal year
    1997. Resources for most of the New Independent States have dropped
    below the levels needed to spur and cement fundamental reform. The
    United States relationship with Ukraine, Russia, and other key states
    in the NIS remain vital to our national security, and we need a
    framework for a new phase of U.S engagement, focused on trade and
    investment and building enduring ties between their citizens and ours.
    The proposed Partnership for Freedom would be established for those
    purposes.
        First a word on Ukraine. As reported extensively in the media,
    there are real problems in Ukraine. The perceived level of official and
    unofficial corruption is pervasive and deep. Internal reform appears
    stagnant and the economy is beginning to show signs of contraction. The
    Deputy Prime Minister, the country's leading reformer, recently
    resigned. Major and small U.S. companies, faced with harassment,
    intimidation, and bribery are leaving the country. Business disputes
    are on the increase and because of continued state control over the
    agricultural sector, delays in privatization, and failure to collect
    payments in the electricity sector, the World Bank is seriously
    considering the suspension of three critical loans. Corruption, of
    course, is nothing new in the areas of the former Soviet Union.
    Ukraine, no less than anywhere else in the former Soviet Union, lived
    under a regime that was conceived in corruption and governed corruptly
    until its fall from power. That is, in fact, why we are in the former
    Soviet Union--to help Ukraine, Russia and the others establish economic
    and governmental systems that are honest, transparent and fair. We
    cannot expect American investors to do business in Ukraine or any of
    the NIS countries if they are not going to be treated fairly. That is
    why the state of economic reform and the transparency of economic
    decision-making have been high on our agenda in discussions with the
    Ukrainian government and will be at the top of the agenda at the Gore-
    Kuchma Commission meetings next week.
        It is the intention of the Administration to let the Ukrainian
    government know, in no uncertain terms, that we will not support the
    continued stalling of reform and transparency initiatives and certainly
    not the mistreatment of our citizens. We will be looking not only for a
    verbal response; we will also hold the GOU to a series of actions which
    it has, in various international loan and assistance agreements, agreed
    to undertake during the coming weeks and months if we are to continue
    our support. We are examining our program in Ukraine to gauge which
    activities are dependent on progress in reform. This committee has seen
    fit to earmark over one-third of total FREEDOM Support resources to
    Ukraine in 1997 and 1996. You have every right to know that these
    resources are being utilized to provide the maximum protection to U.S.
    interests including U.S. investors. You may wish to provide the
    Administration with sufficient flexibility on earmarked funds to ensure
    that your concerns, and ours, are being met. But, rest assured, in this
    case as in others, no one is more determined than USAID to ensure that
    corruption does not taint our efforts and that our assistance is
    buttressing actions to root out corruption at all levels.
        It has now been five years since this Committee took the historic
    step of funding assistance to the NIS. This action reflected the
    decision by Congress, and President George Bush, that the United States
    would seize the opportunity provided by the break-up of Soviet
    Communism to help the states formerly incorporated into the Soviet
    Union make the transition to democratic market economies. It was based
    on the premise that the people of these nations wanted to transform
    their entire way of existence and that reformers welcomed US technical
    assistance. It was based on the hope that our involvement would
    forestall the return of totalitarianism and state socialism and help
    ensure democratic futures for the people of the former Soviet Union.
    Today the American people have every right to hear if the programs they
    are funding have produced tangible results.
        I am pleased to report that, at this juncture, we are witnessing
    broad and unmistakable signs that reform is achieving demonstrable
    results. Communism is being dismantled, and a viable middle class based
    upon the empowerment of the individual is being created--not evenly,
    not everywhere in the NIS and often in fits and starts--but across
    enough of the region, and in enough sectors, that we can say that its
    roots have taken strong hold of people's outlooks and expectations.
    Reform has given oxygen to the life blood of civil society and private
    enterprise. And it has produced some remarkable results.
        That is especially remarkable when we consider the context. We are
    speaking here of the former Soviet Union, for seventy years under the
    fists of Brezhnev, Stalin, and Lenin.
        Under Communism, there were no market institutions, no legal
    foundations for a market economy, no democracy and no basic
    institutions for citizen participation. All real power rested with the
    Communist party and the thoroughly corrupt central government. The
    individual was powerless, with no control over his or her personal
    destiny--much less over the destiny of his community or nation. Today,
    just six years after the hammer and sickle flag was lowered at the
    Kremlin, I am able to report to you about a region in transformation,
    about people suddenly empowered both economically and politically.
        A quick snapshot. In Russia, the private sector now accounts for 60
    percent of GDP and employs about half of the labor force. In Ukraine,
    some 400 formerly state-owned companies a month are being auctioned
    off. The Central Asian Republic of Kazakstan opened its first private
    stock exchange in Almaty in April 1995. In Kyrgyzstan, economic
    stabilization has helped make the local currency, the som, the most
    stable currency in the region, at times appreciating against the
    dollar. Eleven individual television stations operate in Georgia,
    independent and free of government control.
        I am pleased to say that the United States, led by USAID, has had a
    part in each of those changes and the others I will attempt to describe
    for you today.
        These results testify to a U.S. assistance program that has had a
    strong positive impact. Would I claim that change would not have
    occurred without the United States? No. The collapse of the Soviet
    system, and its history of eight decades of failure, ensured that much
    of the old system would be swept away as soon as the people of the
    region had the opportunity to rid themselves of it.
        But, at the same time, I can state with confidence that without our
    assistance program, a program not of cash giveaways but of hard
    technical and practical assistance, change could have taken any number
    of paths--including authoritarian, nationalist approaches which would
    not safeguard personal freedoms and would have been inimicable to U.S.
    national interests. The wrong kind of change might even have reignited
    the cold war and all the costs the renewed threat of confrontation
    would entail.
        Modern free enterprise does not just happen. You cannot expect a
    modern banking system or stock market to just evolve from the ruins of
    state socialism. Someone has to show the way, offer the models and the
    counsel. That is what we are doing. Similarly, democracy is an idea, a
    worthy political goal. But nations with little or no democratic
    tradition need someone to show the way to create a system that will
    support democracy. That means election laws and codes and
    constitutions. Again, the U.S. shows the way. And, although other
    nations and multilateral institutions are playing an important role in
    the building of the NIS, it is appropriate that the United States play
    a central role. The former Soviet bloc was governed by the principle
    that the state counts and that individuals do not. The United States,
    the world's oldest democracy, is built on just the opposite idea; the
    rights, privileges and opportunities for the individual is the bedrock
    of our nation's greatness. Our goal is similarly to help empower
    individual citizens who, under the previous system, were considered
    insignificant or not considered at all.
        The USAID program pursues three strategic goals in the region:
    economic restructuring, democratic transition and social stabilization.
    It is under these rubrics that USAID has achieved our results.
        Economic Restructuring: Since 1992, USAID programs have contributed
    to sweeping economic changes, including mass privatization, land
    privatization, fiscal reform, development of modern financial systems
    and energy sector restructuring. Establishment of private property
    rights and the growth of entrepreneurship have given ordinary citizens
    a stake in the new economic system. With USAID assistance, most
    countries have made systemic changes such as creation of laws and
    institutions to permit private business, as well as specific changes in
    practices such as adopting Western accounting principles and banking
    practices. The severe output declines experienced by most NIS countries
    since the collapse of the Soviet Union appear to have bottomed out.
    Economic restructuring is pursued through privatization, fiscal reform,
    enterprise development, financial sector development and energy/
    environment reform.
        Privatization: Almost 50 percent of GDP in the NIS is now generated
    by the private sector, as compared to less than 10 percent when the
    Soviet Union collapsed in 1991 USAID has been instrumental in this
    process. In Russia, for example, a recent agricultural land
    privatization law gives citizens the right to buy and sell land for the
    first time since the 1917 revolution. Titles to nearly a thousand
    parcels of land had been transferred to privatized industrial
    enterprises throughout Russia by October 1996.
        Fiscal Reform: Throughout the region USAID has helped governments
    adopt more effective budgeting and expenditure procedures, reform tax
    regimes to make them more conducive to business growth, and improve tax
    administration to raise the revenues essential for good governance. For
    example, with USAID assistance, Kazakstan's new tax code was approved
    in April 1995 and introduced in June 1995. Regarded as the most
    efficient and equitable code to be adopted in any former Soviet
    republic, it is serving as a model for draft codes elsewhere. A new tax
    code has been completed in Uzbekistan and awaits enactment by Congress.
    A budget law and a treasury law are near completion.
        Enterprise Development: In nearly every country in the region,
    USAID is assisting enterprises to operate more competitively, and
    helping reduce government interference in the marketplace. For example,
    in Russia, passage of the Civil Code, guaranteeing freedom of contract
    and protection of private property, is a major advance in creating a
    legal and regulatory environment to support a market economy.
        Financial Sector Development: USAID is helping establish stock
    markets and improve commercial banks so that businesses get access to
    investment and operating capital and buy and sell assets. For example,
    Moldova is the first NIS country to establish an independent securities
    market agency with ministry status. The Moldova stock exchange opened
    in June 1995 and, by the end of the year, 300,000 shares had been
    traded.
        Energy and Environment: Throughout the region, USAID is helping to
    reduce waste in the production and use of energy and improve the
    reliability of power supplies. It is also working to prevent further
    environmental damage and to reverse the effects of decades of
    indifference to the environment under the Communist regimes. For
    example, since 1995, with USAID assistance, 13 short-term water sharing
    agreements have been signed between countries in Central Asia. Three of
    seven agreements approved this past year have included provision for
    hydroelectricity generation in the Aral Sea.
        Economic restructuring is starting to show results in terms of
    economic performance. The output decline which followed the collapse of
    the Soviet state has slowed considerably with preliminary estimates
    indicating that eight NIS countries experienced positive economic
    growth in 1996. Even more encouraging, impressive gains in inflation
    reduction bode well for future growth.
        It is clear that foreign investment follows economic reform. All
    the countries of the NIS, with the exception of oil/gas-rich Kazakstan,
    Azerbaijan, and Turkmenistan, fall neatly along a trend line
    associating economic policy reforms and per capita foreign investment.
    This tells us that our efforts to assist reform will result in growth.
        Democratic Transition: Democratic governance is critical to these
    formerly authoritarian states. Under communist rule, there was
    widespread abuse of civil and human rights and little access to
    information or citizen participation in political decisionmaking. Now
    free and fair elections are being held across the region, governments
    are being decentralized, independent media access is making information
    available and increasing government accountability, and NGOs are
    attracting support and influencing policy as they help articulate
    citizens' needs. USAID's democracy and governance programs help make
    recipient governments transparent and responsive to the public by
    creating checks and balances against the arbitrary power of political
    leadership and the state bureaucracy. They also create the legal and
    informational environments which facilitate community initiative
    outside government and protect individual rights. Increasingly, USAID's
    support for the development of commercial laws provides the environment
    necessary for individuals to enjoy economic freedom on a par with newly
    acquired personal freedom. Progress in building democratic institutions
    has been just as dramatic, and USAID has been just as central to this
    progress.
        Civil society: In promoting citizen participation in civil society,
    USAID has helped install the machinery of free and fair elections,
    strengthened competitive political parties, assisted the development of
    NGOs, and aided the growth and independence of public broadcast and
    print media. In 1996, for example, Azerbaijan, Kyrgyzstan, Kazakstan
    and Russia all received election-related training and technical
    assistance which complemented ongoing long-term political process
    programs. In 1996, Russia held a free and fair presidential election
    after which the defeated parties accepted the results, pledging to
    continue their activities through the democratic process rather than
    seek to overturn the results.
        We have helped build and strengthen the all-important nongovernment
    sector. In 1991, only a handful of NGOs operated in Russia; now there
    are more than 40,000. USAID has assisted numerous activities intended
    to support citizen and NGO participation in community and national
    life. We have helped establish free and independent media. Internews,
    an American NGO supported by USAID which trains print and electronic
    media professionals, has helped transform Russia from a nation which,
    in 1991, received all its news from one source to one in which there
    are more than 500 broadcasting companies. The new independent media
    coverage of the war in Chechnya is widely credited with having fostered
    public awareness of the situation there.
        Rule of Law: USAID is also assisting countries throughout the
    region to strengthen the rule of law. We have helped draft
    constitutions, train judges, prosecutors, and trial attorneys, and
    establish jury trial systems. For example, in June 1996, after
    considerable input from USAID grantees, the Ukrainian parliament
    ratified its first post-Soviet constitution. Georgia is drafting a new
    civil code.
        Local Government: USAID is helping to bring good government closer
    to the people by assisting with decentralization of power from the
    national to local level and working with mayors and municipal
    authorities to improve governance and delivery of essential public
    services. For example, in Kazakstan, USAID grantees have established
    housing associations, new institutional mechanisms by which citizens
    can get maintenance work performed.
        Social Stabilization: When social dislocation is ignored or
    inadequately addressed, citizens suffer. Citizens associate their
    plight with reforms, and in some cases have used newly acquired voting
    rights to elect politicians who exploit these concerns. Neither USAID
    nor other donors can finance social ``safety nets,'' but the agency can
    provide targeted technical assistance to strengthen the countries' own
    social protection systems. For example, helping Russia and Ukraine to
    move away from virtually free housing for all to market-based rents and
    maintenance fees has improved the quality of housing while freeing
    municipalities' resources for targeted subsidies for the most
    vulnerable groups. In areas affected by civil strife, USAID has played
    a major role in alleviating suffering, particularly in the Caucasus and
    Tajikistan.
        Reproductive health programs are being funded in Central Asia,
    Moldova, Russia and Ukraine. Preliminary data indicate that service
    improvements have resulted in reduced abortion rates and increased
    contraceptive use. In Central Asia, the USAID-supported Aral Sea
    initiative has fostered regional cooperation in protecting the Sea from
    further degradation and will ultimately provide potable water to over a
    million people.
        Noting these successes, it is reasonable to ask why, if things are
    going so well, do we need an increase in funding? The simple answer is
    that it is in the national interest of the United States to sustain
    these changes, lock them in, make them irreversible. Economic
    stabilization and structural change do not automatically translate into
    investment and growth, nor do new political systems automatically
    develop into full participatory democracies. As the political and
    economic transitions in the region proceed, we will move from guiding
    and advising on the mechanisms of structural change to maintaining
    connections to these countries in ways that sustain these transitions.
    Our engagement will evolve towards more normal, mutually beneficial
    bilateral relations.
        The New Independent States still have far to go. This region is too
    critical to U.S. strategic interests for us to abandon. The stakes for
    the United States are still high in terms of promoting regional
    stability independence from disruptive regimes in the region, and
    growing markets for American businesses.
        We need a longer time frame and more resources than we had
    anticipated a year ago. Much remains to be done, including further work
    in improving the policy/legal/regulatory environment that has been
    discouraging trade and investment, reform of the tax regimes to
    facilitate business investment and provide the revenues necessary for
    legitimate public functions, developing capital markets and commercial
    banking so that private enterprise can flourish, restructuring wasteful
    energy systems, like those in Central Asia, continuing support to
    grass-roots NGOs and to the development of political parties and
    independent media that spur popular participation in civil affairs,
    strengthening of judicial systems to fight crime and corruption and
    facilitate the settlement of commercial disputes, and continuing the
    decentralization of power and authority from central governments to
    local governments in which local citizens have more say.
        Accordingly, the Administration is proposing the Partnership for
    Freedom that would change the emphasis of our engagement with the
    countries that are ready for such a change--from assistance to
    partnership. It builds on successes in our assistance program while
    focusing on trade and investment, exchanges and cooperative activities.
    This initiative will support opportunities for U.S. business and help
    support partnership activities by private U.S. organizations. A key
    aspect of Partnership for Freedom activities will be their mutuality.
    U.S. assistance is not charity, and the Partnership for Freedom
    stresses areas in which both sides will benefit.
        The results and successes I have just cited do not come out of the
    air. They are not the product of guesswork. Through a collaborative
    process with USAID development partners, field missions defined sets of
    results, performance indicators and targets for measuring progress
    against the achievement of strategic objectives. With these tools in
    place, USAID is systematically incorporating performance information
    into program reviews, planning and decisionmaking.
        Country progress monitoring examines macroeconomic performance,
    democracy and governance, and social sector data to help determine
    whether continued assistance is necessary or justified. In combination
    with other factors, this information helps form the basis for country-
    level resource requests as well as decisions on country graduation from
    U.S. assistance.
        By managing for results, USAID has confirmed that many of the
    countries in the region are implementing the policy and institutional
    changes needed to make reform real. Not all the indicators are good.
    While we applaud the successful completion of the first democratic
    Presidential election in Russia's history, we also must take into
    account that some 40 percent of Russian voters chose the anti-reform
    candidate. In several countries, economic reform has advanced far
    faster than democratic reform. The undermining of parliamentary
    independence by the government in Belarus, a repressive regime in
    Turkmenistan, and the disputed Fall 1996 elections in Armenia remind us
    that progress toward democracy in the NIS is far from uniform.
        Some social trends are also troubling, indicating that economic
    reform has not always led to economic growth and equitable distribution
    of wealth. Some of the NIS countries--most notably Russia--are now
    experiencing income inequalities comparable to Latin American levels.
    Although this may be attributable, in part, to wealth creation among a
    few, poverty has also increased significantly. There is also the growth
    in crime which is a serious threat to democracy and to the willingness
    of US business to operate in parts of the NIS environment.
        While five countries in the NIS witnessed an increase in life
    expectancy since 1991, on balance, the region experienced a decrease.
    Life expectancy among Russian males has plummeted--from 64 years in
    1989 to 59 in 1993 and possibly as low as 57 today. In addition, six
    countries in the region have experienced an increase in infant
    mortality since 1991.
        Just as the overall improvement in conditions in the NIS argues for
    our continued involvement to help sustain and deepen reform, so too do
    the less successful transitions argue for redoubled effort. The
    building of free enterprise democracy in nations that have primarily
    known despotism is not an exact science. There are no books that tell
    USAID how to confront the withering of both a nation's industrial
    capacity and its spirit after decades and decades of centralized
    repression. No books, no manuals, except the ones we are writing. We
    learn from our successes and we learn from our mistakes. That is why
    the program I am describing today bears so little resemblance to the
    program that the United States envisioned at the time the Soviet Union
    dissolved. At that time we thought that our immediate mission was to be
    the eradication of hunger; we discussed massive food relief. We
    envisioned humanitarian assistance. But almost immediately we realized
    that pure humanitarian assistance was not the answer. As the old adage
    goes, it is better to teach the hungry how to fish for themselves
    rather than to provide a one-time supply. Thus we have developed our
    program of cooperation and partnership.
        This year, in contrast to past years, I decided that our
    Congressional testimony would not be arranged by country. I decided
    instead that our testimony would reflect the way we actually do
    business--by strategic objective. USAID's program in the NIS is not a
    potpourri designed to produce a variety of salutary effects on life in
    this or that country. It is rather a tightly focused program of
    targeted assistance to promote U.S. economic and security interests by
    supporting economic reform, democratic transition and social stability
    in each respective country and across the region as a whole.
        We have every right to be proud of our accomplishments in the NIS.
    And when I say ``we,'' I mean two succeeding administrations, and the
    three Congresses. Back in 1992, it was President Bush who saw the fall
    of the Soviet state not merely as cause for celebration (which it was
    and is) but as an opportunity to build peace and trade relations with
    nations which, for decades, we essentially had neither. The FREEDOM
    Support Act, which funds our assistance program, was the vehicle this
    Committee sponsored and Congress enacted to facilitate this transition.
    Upon his inauguration, President Clinton continued and advanced his
    predecessor's vision.
        I wish we could say that we have finished the job and are ready to
    pack our bags and come home. I cannot say that. But we have made
    progress throughout the entire region. As you will see in the appendix
    to this testimony, we have had successes in every country and in every
    area of reform. Reform is happening. But not overnight. As we have
    learned over and over, the revolutions that accomplish things overnight
    are those that tear down. Building takes time but we are doing it. I am
    bullish about the future of this region.
        Mr. Chairman: Again, thank you for inviting me to appear today. I
    look forward to working with you over the coming years.
                                     ______

                                    Appendix
                    Results in the Newly Independent States
                           building market economies
    Russia:
        As a direct result of USAID assistance, Russia's mass privatization
    program (completed in mid-1994) transferred ownership of approximately
    120,000 businesses from the state to over 40 million private
    shareholders. The Russian people now have a stake in the economy and in
    reform, and have the opportunity as entrepreneurs and investors to make
    their own economic choices.
        The private sector now accounts for 55 percent of GDP and employs
    about half of the labor force. New businesses are springing up,
    creating thousands of jobs. More than 200 institutions and
    organizations which support entrepreneurship and innovation, such as
    business incubators and business support centers, are flourishing.
        A recent agricultural land privatization law gives citizens the
    right to buy and sell land for the first time since the 1917
    revolution. Titles to nearly a thousand parcels of land had been
    transferred to privatized industrial enterprises throughout Russia by
    October 1996.
        A nascent residential mortgage market has been formed on the heels
    of privatization of over half of Russia's housing stock. Some 25 banks
    are now making housing mortgage loans on market terms--so Russians can
    buy and sell. Where public housing remains, 80 percent of
    municipalities have means tests for housing allowances, permitting them
    to move to cost recovery.
        The legal and regulatory framework to make the marketplace
    transparent and businesses subject to the public interest is beginning
    to be put in place. More needs to be done to make the tax system fair
    and non-confiscatory, to prevent money laundering and other forms of
    corruption, and to improve corporate governance, but a good beginning
    has been made:
        Passage of the Civil Code, which guarantees both freedom of
    contract and protection of private property, is a major advance in
    creating a legal and regulatory environment to support a flourishing
    market economy. The passage of scores of other laws and regulations has
    begun to establish the basis for trade and investment.
        Capital markets are up and running, and regulatory mechanisms are
    in place. Stock exchanges, clearing and settlement organizations, share
    registries and depositories, and a securities commission are operating.
    Several legal reform programs specifically address capital markets
    issues, including corporate governance and shareholder rights.
    Ukraine
        Just two years into its serious economic reform program, Ukraine
    has made considerable progress in monetary stabilization, trade
    liberalization, and a substantial reduction in inflation, meriting
    support of the World Bank and IMF.
        USAID-assisted enterprise privatization is now well underway.
    Bolstered by World Bank loan conditionality, some 400 companies a month
    are entering the auction process. Approximately 30,000 of Ukraine's
    estimated 40,000-45,000 small-scale state enterprises and over 3,500
    medium and large enterprises have been privatized.
        The National Bank of Ukraine (NBU) has taken significant steps
    toward establishing a sound banking sector. NBU's Interbank Payment
    System is fully functional with technical execution of payments now
    taking minutes rather than weeks. Prudent banking regulations have been
    enacted and approximately 1750 employees from over 100 banks have
    attended training at the National Center for Training Bank Personnel,
    which was created with substantial investment from NBU.
        Parliament approved a broad strategy that establishes an open and
    competitive structure for the long term evolution of capital markets in
    Ukraine. An Association of Investment Businesses has been established,
    uniting 140 investment funds and trust companies under a common code of
    conduct. An Over-the-Counter trading system and a self-regulatory
    organization to govern it have been established. Live trading began in
    June 1996.
        With USAID support, Ukrainian Government introduced targeted,
    means-tested subsidies for housing and utilities in conjunction with
    IMF-mandated price increases. More than 3.2 million families were
    reached through the subsidies program, enabling price increases for
    housing and communal services. As a result, net savings of $600 million
    was estimated for the 1995 national budget.
    Moldova
        Moldova is a reform leader, with a stable currency, low inflation,
    liberalized prices and open trade, and substantial privatization of
    state assets.
        The mass privatization program has nearly been completed, with the
    participation of 90 percent of the eligible population and resulting in
    the privatization of an estimated two-thirds of the Republic's agro-
    industrial assets.
        It is the first NIS country to establish an independent securities
    market regulating entity (SEC) with Ministry status. The Moldova Stock
    exchange opened June 1995 and by the end of the year, over 300,000
    shares had been traded.
    The Caucasus
        Despite a necessary preoccupation with meeting humanitarian needs
    resulting from the region's conflict, Armenia has made progress in
    developing a market economy. It has moved into real economic growth,
    first in the former Soviet Union to do so; taken initial steps in
    privatizing agriculture and industry; and begun the legal, regulatory
    and policy framework needed for competition and growth.
        Armenia was the first of the former Soviet republics to adopt a
    real property law which defines basic private property interests and
    rights. Housing stock is being privatized and a real estate market is
    developing.
        The Central Bank of Armenia has greatly strengthened its primary
    functions, with U.S. technical assistance; bank examiners are enforcing
    bank laws and regulations, and installing an electronic accounting and
    payments system.
        Efforts are well under way in Armenia to de-monopolize the
    electricity sector, rationalize energy pricing, and improve tariff
    collection. Armenergo, the power utility previously responsible for all
    electricity generation, transmission, and distribution, has been
    effectively ``unbundled'' into three generation companies, one
    transmission and dispatching company, and approximately 52 distribution
    companies.
        Georgia has made progress in macro-economic stabilization, reducing
    inflation, liberalizing prices and stabilizing its currency.
        Restructuring in Georgia's energy sector 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. Georgia is
    participating in an agreement with the Azerbaijan International
    Operating Company and the Government of Azerbaijan on oil transit
    issues.
                                in central asia
        Accession to GATT/WTO. Both Kazakstan and Kyrgyzstan are well along
    the way regarding the steps in the submission process for accession to
    the World Trade Organization. The memorandum on the Foreign Trade
    Regime of Kazakstan was prepared with assistance of advisors from
    USAID. Negotiations, which will take at least one year, are expected to
    begin in mid-1997. Accession would provide a certain level of comfort
    for foreign and domestic investors that a legal framework is in place.
    It would also provide for dispute resolution mechanisms, again, adding
    to the comfort level of foreign and domestic investors.
        New tax codes in Kazakstan and Kyrgyzstan. With USAID assistance,
    both countries have signed into law the most comprehensive and systemic
    bodies of law dealing with taxes that have been introduced within the
    NIS. As such, they will serve as models for other Central Asian and NIS
    countries that seek to improve fiscal systems and strengthen government
    revenues. When fully implemented, both codes will have a tremendous
    impact on the establishment of a sound fiscal policy which is fair,
    transparent, enforceable, and non-confiscatory. Businessmen have long
    told us that lack of such codes has been a major constraint to
    investment and is a factor in business corruption.
        Commercial Law. A commercial law training program for judges,
    attorneys, and prosecutors is being implemented in Kazakstan and
    Kyrgyzstan. This training is designed to address problems of white-
    collar commercial crimes which are a growing problem as these two
    societies undertake market reforms.
        Capital Markets. In both Kazakstan and Kyrgyzstan, a Securities
    Commission has been established as a fully independent body apart from
    the Ministry of Finance with full regulatory authority over the capital
    market. The Central Asian Stock Exchange in Almaty has been operating
    for two years; the Kyrgyz Stock Exchange has approximately 25 companies
    listed on its exchange although trading volume is as yet very light.
        Microenterprise Support. The FINCA Program (Foundation for
    International Community Assistance) in Kyrgystan is only a little over
    a year old, but has already started to show amazing success in
    mobilizing resources for the growth of microenterprises. Focused
    primarily on women entrepreneurs (98 percent), FINCA has created 264
    village banks with trained staff and an active membership of over 3,000
    depositors. These community institutions have lent $500,000 to over
    8,000 microentrepreneurs in the past year. While only a small amount of
    money in traditional USAID project terms, this credit is not only
    attaining its objective of accelerating growth of microenterprises, but
    in many cases these enterprises are now stimulating development of new
    agricultural production and distribution systems in the rural sector.
        Internet Homepage, a first for Kazakstan. You may be interested to
    know, Mr. Chairman, that Kazakstan's Stock Exchange is reaching out to
    investors worldwide, and with USAID assistance, has established an
    internet homepage. Available in both English and Russian, it provides
    company specific information on privatization and the Kazakstani
    securities market. The Homepage includes databases on joint stock
    companies, upcoming company sales, and legal information related to
    business activities. It is also the only location on the Internet that
    carries news from the Kazakstani press. USAID's objectives of ``more
    sustainable private business operations'' are being launched to new
    heights with the Homepage. Address: http://www.matrix.ru/stockinfo
        Eurobonds. In December 1996, Kazakstan offered $200 million dollars
    of three-year maturity Eurobonds to international investors; interest
    was so high that the offering was oversubscribed. This offering came
    after USAID-funded U.S. Treasury advisors provided assistance to the
    Ministry of Finance. This bond offering is of critical importance
    because proceeds from this issue will be used to reduce government wage
    arrears, purchase electrical power and fuel, as well as fund the
    acquisition of medicines and other supplies for the health sector.
        Energy Sector Reforms. As a result of USAID technical assistance
    and partnerships between Cincinnati Gas and Electric and Kazaki
    utilities, 70 percent of electrical generation in Kazakstan is being
    sold to the private sector, including American investors such as AES of
    Alexandria, Virginia. This reform represents billions of dollars of
    private capital. Soon to follow will be distribution companies. In the
    Caspian Sea context, the largest new petroleum potential in the world,
    USAID is currently helping to develop an oil and gas legal, regulatory
    and environmental framework based on international standards to further
    private investment.
                      establishing democratic institutions
    Russia
        In 1996, Russia held presidential, parliamentary, and local
    elections all in the space of one year. And the process had real
    credibility among the citizenry and international election observers.
    The fact that 40 percent voted against reform in the Presidential
    election tells us there is still much to be done to win support for
    further change, but it also attests to the legitimacy of the elections.
        Judicial reform has resulted from workshops, training and
    exchanges, including a pilot program to reintroduce jury trials for
    serious criminal offenses in selected regions. USAID has provided
    copies of the Civil Code, Part I, to all judges and trained over 40
    percent of them in commercial law.
        There are now 40,000 registered NGOs in Russia, up from just a
    handful in 1991, representing citizens' interests and advocating policy
    change at the national and local levels.
        One of the most striking differences between the Russia of 1991 and
    today is the variety of media outlets bringing information to people.
    In 1991, all Russia received its televised news from only one source,
    the government controlled service. Today there are at least 500
    broadcasting companies producing original programming in Russia. The
    Russian government can no longer keep a war in Chechnya or the health
    of its leader a secret from its citizens. Internews, an American NGO,
    has played a key role in Russia with USAID funding by training and
    networking both broadcast and print media in the private sector.
    Ukraine
        A fundamental first step in the establishment of the rule of law
    was accomplished with the June 28, 1996 adoption of a new constitution.
    The U.S. Government's programs in Ukraine contributed significantly by
    sponsoring town meetings to encourage wide public debate; providing
    lawmakers with information on comparative constitutional systems;
    assisting Ukraine's independent media, which provided extensive
    coverage; and supporting a public education campaign.
        With USAID assistance, local governments 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 have never before existed. Municipal services are
    more efficient and better financed.
        USAID developed a network of 25 Press Clubs throughout Ukraine
    where journalists can meet on a weekly/biweekly basis with GNU
    officials to discuss different issues of privatization and economic
    reform. Weekly meetings at the Kiev Press club meetings are shown
    nationally during the main news program on UT-1, providing a very
    effective means for GNU officials to reach a large audience.
    Caucasus
        Armenia has made strides and had setbacks in its democratic
    transition in the past year. It held parliamentary elections and
    approved a new constitution in 1995. In late 1996, presidential and
    local elections were held but international observers described them as
    flawed.
        An objective, professional and independent journalistic cadre is a
    necessary component of democracy, and its development is a major USAID
    focus. USAID helped to organize Armenia's independent television
    stations into a network with a capacity for objective, professional
    journalism.
        Progress in democratic political processes is further along in
    Georgia than elsewhere in the Caucasus. The parliament is one of the
    most progressive in the former Soviet Union. There is a perceptible
    strong will in the political leadership, in the media and among civic
    groups to advance and protect the new democracy, to establish a
    transparent system of public administration and the rule of law.
        Georgia is drafting a new Civil Code.
        USAID support has led to the creation of 50 new Georgian NGOs
    participating in democratic and market reform.
        An independent television network was created in Georgia with 11
    individual stations.
        In Azerbaijan, USAID and its NGO partners have made headway in
    strengthening the NGO sector, independent media These nascent entities
    are critical to support a transition toward democratic governance.
    Central Asia
        NGO Development. Turkmenistan is not a democracy, yet USAID
    provides critical support for the growth and development of country-
    wide citizen initiatives. We are providing this support through the
    ASSAYER (formerly the Institute for Soviet-American Relations) grant
    program for assistance to environmental non-governmental organizations.
    While government policy prohibits the import of foreign magazines and
    newspapers, the Turkmen NGO, Catena, working with its U.S. partner, the
    Sacred Earth Network, provides free NGO access to information from all
    over the world through Catena's Internet link-up. Catena pays for its
    work with local NGOs by offering reasonable and reliable paid Internet
    service to Turkmen businesses and government officials.
        Turkmen NGO Promotes Civic Education. Another Turkmen NGO, Dialog
    Center for Civic Education, can be counted along with Catena, as one of
    the few indigenous groups actively working in the rather restrictive
    environment of Turkmenistan. With USAID funding through the National
    Endowment for Democracy and a grant from the USAID funded NGO,
    Counterpart, Dialog recently took a significant step towards wide
    dissemination of the concepts of civic education by publishing a book
    entitled ``The ABCs of Civic Education.'' This book has been well
    received as a vehicle for disseminating and promoting democratic
    principles and the concepts of civic education.
        Media Support. Internews, an organization funded by USAID through
    the Soros Foundation, promotes independence and diversity of the
    broadcasting media in Kazakstan, Kyrgyzstan, and Uzbekistan. Internews
    has been a prominent voice in promoting democracy through the
    establishment of independent television stations. It is helping to
    establish independent television stations by providing equipment,
    technical, and business training. Numerous independent stations have
    benefited from workshops and instructional materials. The impact of the
    work of Internews is greater access by the public to an increasingly
    strengthened and diversified broadcast media.
        National Elections. USAID provided funding to the American Bar
    Association and the American Legal Consortium to prepare analyses of
    the Kazakstani Constitution which was passed by national referendum in
    September 1995. According to the Kazakstani government, 90 percent of
    the population turned out to vote.
        Responsive and Accountable Local Government. With USAID funding
    through International City Managers Association (ICMA) technical
    assistance, the Semipalatinsk region of Kazakstan is benefitting from a
    determination to reform local government. The region has privatized
    housing, established open and competitive contracting for providing
    goods and services and established a short-term safety net for those
    who are most affected by the transition process to a market economy.
    When housing was originally privatized, the government discovered it
    could no longer provide maintenance services. ICMA provided assistance
    in the formation of housing associations, the new institutional
    mechanisms through which homeowners may channel requests for
    maintenance services. Fledgling results are that homeowners now get
    maintenance work done much sooner and the government gets out of the
    recurrent cost business of apartment and home repairs and maintenance.
        Eurasia Foundation. In the last couple of years, the Eurasia
    Foundation has blazed the trail in responding effectively to on-the-
    ground reform needs as seen by NIS citizens and institutions
    themselves. In the Central Asian Republics, the Foundation has invested
    roughly $6 million to support reform minded grassroots initiatives such
    as the liberalization of laws governing media and the free press, the
    development of new modes of citizen-government relationships through
    linkages between university and training programs on public
    administration reform, and the strengthening and expansion of the
    nonprofit sector through newly established NGO resource centers.
    Finally, to better address the growing demand such new and innovative
    programs in this area of the world, the Foundation has opened a smaller
    satellite office in Almaty that broadens its outreach ability.
                        strengthening the social sectors
    Russia:
        Social impacts of societal change are also critical. Reform efforts
    could be jeopardized if, for example, citizens cannot access basic
    health services or other services essential to their welfare. Likewise,
    failure of Russia to address its serious problems of environmental
    pollution and unsustainable management of natural resources will both
    undermine long-term economic growth and produce substantial negative
    global environmental impacts.
        Health reform has produced new policies, laws, and models that are
    helping Russia improve the quality, organization, and financing of its
    health care system. Health care is no longer always controlled from the
    center, and is becoming more efficient and responsive to patient needs.
        U.S.-Russian hospital partnerships have taught Russian health
    professionals state-of-the-art practices in several specializations,
    including women's clinical services, and contributed to improved
    hospital management. Modern contraceptive use is increasing and
    abortions are decreasing.
        Modern economic tools are being incorporated in to environmental
    policy-making, e.g., introduction of user fees and regional forestry
    codes. Environmental NGOs are vigorously pursuing public education,
    clean-up projects, and legal and legislative efforts.
    Ukraine
        Ukraine is making progress in protecting the most vulnerable
    members of society during the economic transition and making serves
    more efficient and financially sustainable. Universal price subsidies
    are giving way to assistance based on need. The income-based benefits
    program on housing and utilities, developed with USAID support, is a
    model for a broader program of means-tested benefits for the needy. It
    has resulted in a savings of $600 million in 1995 and a projected $1
    billion in 1996.
        The number of NGOs has grown markedly, from roughly 40 in 1990 to
    an estimated 5,000 in 1995, with almost half working to provide social
    services that the government may no longer be able to afford. USAID
    programs have trained over 1,200 NGO leaders, partnered U.S. private
    and voluntary organizations with Ukrainian NGOs, and provided critical
    support to social service, public policy, human rights, and women's
    NGOs and civic organizations. Recently, USAID launched a new program to
    strengthen social service and advocacy NGOs and to improve the legal
    and regulatory environment for NGOs.
        Health care efforts are combatting a diphtheria epidemic, reforming
    delivery and financing at local levels, for better responsiveness to
    citizen needs, improving water quality, and making modern family
    planning methods available instead of abortion.
    Caucasus
        U.S. assistance to the Caucasus has been predominantly
    humanitarian, given the severe hardships engendered by regional
    conflict for all the peoples of this area. 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 in Armenia 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 infectious disease.
    Central Asia
        Privatization in the Health Sector. In Kazakstan, the state-owned
    pharmaceutical distribution and retail system known as ``Farmatsiya''
    has been almost completely privatized, helped along by USAID-funded
    technical assistance. Of 1,378 pharmacies, 691 have been auctioned and
    562 were privatized by the end of 1996.
        Health Reform in Kyrgyzstan. A critical element of USAID's health
    sector reform in the NIS is empowering consumers by promoting choice
    and responsibility. For the first time ever, Kyrgyz consumers have an
    opportunity to choose their health care provider. In June 1996, the
    health reform program launched a family medicine enrollment campaign in
    which 86 percent of residents in Karokol city and 96 percent of
    residents in Tyup in eastern Kyrgyzstan selected from a newly
    refurbished group of family practices.
        Women's Health in Central Asia. USAID has allocated $22 million
    since 1993 to reduce high maternal mortality in the Central Asian
    Republics related to high fertility and the use of abortion for
    fertility control. As you may know, in the former Soviet Union abortion
    was the main method of birth control and many women had multiple
    abortions in their lifetimes. The American International Health
    Alliance (AIHA) received funds in 1996 to establish two women's health
    clinics in partnership hospitals in Kazakstan and one in Uzbekistan.
        USAID reproductive health programs support modern, effective, and
    well-financed family planning services by providing assistance in
    strategic planning for nation-wide approaches, clinical training,
    expanding contraceptive marketing and informing men and women about
    modern contraceptives as an alternative to abortion. In 1997, USAID
    will support family planning training for Kyrgyz general family
    practitioners in group practice to expand services beyond women's
    clinics, and continue to expand and strengthen contraceptive marketing
    programs in Kazakstan and Uzbekistan. Project sites reported a 58-
    percent increase in modern contraceptive use and a 30-percent reduction
    in abortions in 1994.
        In 1996, a single center, Marriage and Family Center in Bishkek,
    Krygyz Republic reported an almost 50 percent decrease in the numbers
    of abortions since 1994 and a 200 percent increase in the use of oral
    contraceptives (1994-1,333 clients to 1996 4,140 clients) during that
    period. Clearly there is a hunger for modern methods which can lead to
    nation-wide impacts.
        Aral Sea: In Kazakstan, Turkmenistan, and Uzbekistan, the US
    through USAID provided technical assistance for upgrading and improving
    water systems to supply potable water to populations at risk. By
    focusing on providing safe drinking water supply, which is an
    environmental problem of the highest priority to each national
    government, U.S. credibility and access was greatly enhanced. USAID's
    tangible investments in potable water improvements have helped in turn
    to create strong working relationships with the region's new
    governments on issues of water management. Beginning in 1995, this
    credibility was used to establish a new USAID-supported regional
    program on water resources management to introduce concepts of water
    economics and conservation prevalent in the United States and Europe to
    the broader Aral Basin.

                       contrasting georgia to the ukraine

        Senator McConnell. I did find it interesting, your
    contrasting Georgia to Ukraine. Georgia has certainly made
    significant progress, and I think it is reasonable to assume
    that this subcommittee, at least in the chairman's mark, is
    going to reward that progress with additional support. Ukraine
    is certainly, for all of the reasons you all have outlined, a
    mixed bag.
        I think of Ukraine's decision not to sell turbines for the
    Iran nuclear reactor, something which the Russians continue to
    support, as clearly something on the plus side for Ukraine. I
    mean it cost them $400 million or $500 million to refuse to
    sell those turbines to Iran, while our good friends, the
    Russians, continue to help the Iranians with that facility.
        When I asked you, Mr. Morningstar, to give us some of the
    breakthroughs, you did give us some. But one does get the
    impression that it is really quite a mixed bag.
        Is it your view, either of you, that in addition to the
    problems of organized crime in Ukraine, that there is also a
    problem, a significant problem, with official government
    corruption as well?
        Mr. Morningstar. At various levels and in various
    instances, I think it is pretty clear that corruption is
    existent. I think if anyone has to look at the cause of some of
    that corruption and what one does about it, part of it, as I
    mentioned earlier, is a result of the incredible amount of
    bureaucratization and regulations that literally give the
    opportunity for government officials to assert undue influence.
        Senator McConnell. So it is more systemic?
        Mr. Morningstar. I would say it is a combination. I think
    too often we simply say the problem in Ukraine is corruption.
    Yes; corruption is a problem. It is a problem in a lot of the
    NIS countries and other countries in the world as we all know.
    But it also is a systemic issue relating to some of the archaic
    laws and the bureaucracy and regulations in the country as
    well, and the opportunity, as I said before, to exert undue
    influence. We need to work on it.
        Senator McConnell. To the extent that it may also be
    individuals in key places, is it widely known who those
    individuals are? And if it is, in your view, why has not
    President Kuchma just dismissed them?
        Mr. Morningstar. The answer is I have no idea why President
    Kuchma has or has not dealt with various officials. Anything
    that I would say about any individual would be pure speculation
    and not based on any hard evidence. I do know that President
    Kuchma, over the last month, as a result of his new clean hands
    campaign on anticorruption--at least I have been told--has had
    some very, very hard meetings with good government officials.
    And it is my understanding that some officials have in fact
    been dismissed over the past month for corruption.

                                  transparency

        Mr. Dine. Mr. Chairman, I would just like to add one item,
    and come back to the term I used before, ``transparency.'' The
    deregulation package that we and the IMF have proposed will
    enhance the theme of transparency that will start to overcome
    the official corruption that has been engaged in. So there are
    ways of working on this problem. But, basically, it is an
    internal problem that has to be faced up to.

                                american values

        The thing that always amazes me, in the 3\1/2\ years I have
    been in this job now, every time I come back to this country, I
    always ask myself, how are we different? And the two things
    that always strike me is, No. 1, the Puritan ethic. And, yes,
    we have our problems with corruption, but it is considered a
    value, a no-no value. It is something that is ingrained in all
    of us about right and wrong.
        And, second, it is the Constitution, the flexibility, the
    ambiguity, the genius of our Constitution. And these countries
    are still in a straitjacket of the past. The burden of history
    overwhelms them. If you read Russian literature even before
    communism, it is all about corruption. Most of our literature
    is about victory.
        Senator Leahy. Mr. Chairman, I just wondered, Ambassador
    Morningstar, in your answer to the question, among the people
    involved in corruption, would that include Prime Minister
    Lazarenko? I mean he is accused, in the press anyway, of all
    kinds of corruption.
        Mr. Morningstar. I think it would be unwise for me to make
    any kind of direct allegation with respect to the Prime
    Minister. I certainly do not have any specific evidence of
    corruption on his part. But I am well aware of everything that
    has been written.

                      prepared statement of senator leahy

        Senator Leahy. I just want to make sure you are aware of
    what has been said.
        Mr. Chairman, can I just leave my statements and questions
    for the record? I have to go back to another committee.
        Senator McConnell. Yes; Senator Leahy's statement will be
    made a part of the record. And you are also submitting
    questions, are you?
        Senator Leahy. I am. I raise some of the same skepticisms
    as you. And I think we both want to help in any way we can. But
    they are making it harder and harder to pull this sled.
        [The statement follows:]

                  Prepared Statement of Senator Patrick Leahy

        Mr. Chairman, it would be hard to think of a more important
    foreign policy goal that supporting democracy and market
    economies in the former Soviet Union. I was pleased to see the
    increase in funding for aid to the NIS in the President's 1998
    budget request.
        These countries are really starting over from scratch--in
    fact it may be even harder because they have to reverse so much
    of the damage that was done over the past 70 years.
        We have to be realistic in our expectations--the problems
    there are not going to solved overnight. But we also need to
    learn from our mistakes. As far as I can tell, our efforts have
    been plagued by poor design, poor management, and often
    disappointing results.
        Some of that was predictable--we are talking about
    countries where there are powerful forces opposed to change.
    But we have seen some of the same problems of other hastily
    conceived aid programs. I am reminded of what happened in
    Panama after the overthrow of General Noriega. We rushed a lot
    of money down there, and a lot was wasted. We did the same
    thing in Nicaragua. Then, just to show how little we learn from
    our mistakes, we repeated some of them in Russia and Ukraine.
        That is not to say that nothing has been accomplished. When
    you consider where they started, a lot has been accomplished--
    from hospital partnerships to legal reform. But many AID
    personnel were ignorant of the language and culture, and relied
    on foreign nationals who took advantage. High-priced
    contractors with past connections to AID but no previous
    experience in the NIS, ``reinvented'' themselves to get AID
    contracts from NIS funds.
        Today, many Russians, who have not received a paycheck in
    months, have lost faith in their government and in our ability
    to help them. I am sorry to say that I share some of their
    disillusionment.
        Add to that the rampant corruption and organized crime, and
    the picture becomes pretty bleak.
        I want to see this program succeed. I think the new
    ``Partnership for Freedom,'' as much as I dislike slogans,
    represents a step in the right direction. I am a big fan of
    partnerships and exchange programs. Like Chairman McConnell, I
    strongly support programs to combat organized crime. And I
    certainly favor doing all we can to promote trade and
    investment.
        But if someone asked me whether AID and the State
    Department are capable of carrying out a cost effective program
    in the NIS, I would have to say ``I don't know.'' The record is
    mixed.
        I have supported aid to Ukraine, and believe President
    Kuchma is trying to do the right thing. But the corruption that
    has infested his government, which has plagued American
    businesses trying to get a foothold there, is outrageous.
    Investment contracts don't seem to be worth the paper they are
    printed on. Company representatives have been threatened, their
    property stolen, and several large businesses have simply
    pulled out. Millions of dollars have been lost. Others are
    fighting their cases in the Ukrainian courts, with little hope
    of getting justice. The Gala Radio case is one appalling
    example.
        I know Chairman McConnell is concerned about this, as I am,
    and we will be watching the situation there very closely.
        I know you both--Mr. Morningstar and Mr. Dine, are also
    concerned. But it is no longer enough to say you are ``raising
    these concerns at the highest levels.'' The situation is worse,
    not better, and the Ukrainian officials' response has been to
    dismiss most of the complaints as fabrications. They are not.
        Mr. Chairman, I am going to support the President's request
    for the NIS, because I believe it is in our national interest.
    But I also want to work closely with you so we get the maximum
    results for our money, and American investors are treated
    fairly.
        Thank you.

                                   corruption

        Mr. Morningstar. Is it possible, since you did ask, just
    quickly before you leave, Senator Leahy--you did ask a
    question--why should we continue to pour money into these
    countries? Could I just briefly respond to that?
        I think that we need to have the discipline, all of us, to
    do what is rational and to do what makes sense. And in my view,
    that means doing what is in our national interest and carrying
    out those programs which make sense, which continue to make
    sense, depending on whatever the circumstances may be. I think,
    for example, to cut assistance simply as a pure punishment does
    not make sense.
        I think what makes sense is that if the Ukraine, for
    example, is making no progress--if we determine, in
    consultation, that in fact they are making no progress in the
    agricultural area--and I could make a very strong case that
    they are not--then, yes, maybe that program should be suspended
    or deferred until certain conditionality takes place. That, in
    effect, is what the World Bank is doing. I think you could say
    the same with respect to the energy market and with respect to
    privatization.
        But I think it would be a mistake and against our own
    national interests simply to take the punishment approach,
    whether it be with respect to Ukraine, Russia or any of the
    other countries. But, again, we want to help the private
    sector, to help the communities, to help the individual
    citizens.
        Senator Leahy. Thank you.

                                    ukraine

        Senator McConnell. The dilemma, it seems to me, is
    fundamentally this. Because of size and strategic geographic
    location, I am sure we would all agree--with all due respect to
    the other former Soviet republics--that Ukraine is potentially
    the most important of all the non-Russian republics. Although
    we have had some tussles over just how much emphasis you put in
    Moscow at the expense of the other republics, helping Ukraine
    achieve its potential is in our national interest, we would all
    agree.
        At this juncture, having seen the mixed bag of progress--
    and, clearly, when contrasted with Georgia, they do not a have
    good record--the dilemma is what is the best way to go from
    here?
        Now, the administration--any administration--would prefer
    to have no earmarks, and we have had those tussles in the last
    4 years. I have felt we needed to have them or you would spend
    all the money in Russia. You have wanted the flexibility, and I
    understand. If I were in your shoes, I would want it as well.
        But this year, after 4 years of this subcommittee's steady
    support for Ukraine, with the earmark I find myself
    disappointed in what those 4 years have brought. And I am
    trying to think through--and I am thinking out loud here with
    you--as to where we go from here.
        Even though you would like to have a blank check, I think
    we are probably not going to give you a blank check. But in
    filling in some of the lines in the check, I am torn this year
    as to what is the best way to send a message, the carrot or the
    stick. It seems to me it is not clear.
        Mr. Dine.
        Mr. Dine. I think you and I have experienced other accounts
    in which this question has come up. There is no doubt in my
    mind, that, after all of this effort, if things seem to be as
    bad as we all agree, you have to hold out the opportunity, but
    only if they perform. To me, that is natural, that is human
    nature. And that is often how we get over some stumbling.
        You know, if you look at Georgia before that December 1995
    election, it was mired in corruption, assassination, and the
    whole Abkazia situation had complicated things further. And we
    were very, very concerned. The election itself happened to be a
    liberating event. And all of the attributes that we have so
    respected Mr. Shevardnadze for and also the parliament--you may
    have met the 33-year-old speaker when he was here--he was
    impressive. And there are many more like him.
        And I think, with patience, with hard work, patience,
    carrots and sticks, Ukraine is going to bust out of itself,
    too. We have got to help them get beyond the past.
        Senator McConnell. I like having the Georgian example in
    the neighborhood.
        Mr. Dine. They butt up against Hungary, too. And Hungary,
    in foreign investments, is No. 1. And it drives them crazy
    every time we use it as an example. Again, the basic
    fundamental stuff of private property, of individual rights,
    and of limited government has to get through to them. After
    all, that is our revolution, and it is still going on.
        Senator McConnell. Let me ask you one more question in this
    round, then I will turn to Senator Murray.
        I know, of course, you would like to have no earmarks at
    all. On the assumption you are going to have some, which would
    you rather have? Given where we are today with Ukraine and
    where we could like to go, where would you put your priorities?
        Mr. Morningstar. Do you mean from a country earmark
    standpoint?
        Senator McConnell. Let me rephrase the question. Assuming
    we gave you essentially unearmarked funds for Ukraine, tell me
    again what your priorities would be for the next 12 months.

                                  partnerships

        Mr. Morningstar. I would say that the priorities should be
    in four or five different areas. First, I think we should
    institute in Ukraine as many Partnership for Freedom-type
    activities as possible. I think we ought to emphasize
    activities that are at the local and community level, and
    increase exchanges and increase partnerships and use those as
    vehicles and mechanisms to get assistance and cooperation to
    the local level. That, in turn, will generate pressure on the
    national level.
        Second, I would want to continue to work with Ukraine in
    the area of legal reform--to the extent that we have determined
    that in fact there was a will and there is a chance of moving
    forward to continue to work with them on criminal codes with
    respect to criminal procedures codes and generally with respect
    to the rule of law.
        Next, I would want to get into areas where they really
    showed a genuine commitment to move forward. If President
    Kuchma can convince all of us that in fact he is serious about
    the issues relating to corruption, I think we do need to help
    with respect to transparency issues, both in connection with
    the regulation--work with him on things such as conflict of
    interest, open tender processing, the kinds of things that
    basically will show that they have a fair process. I think we
    should continue working with small business.
        Senator McConnell. What about the law enforcement training
    issues?
        Mr. Morningstar. I would include that. The law enforcement
    training continues to be important. I think those programs are
    beginning to show some results.
        Senator McConnell. How about the economy? They are doing
    great work.
        Mr. Morningstar. Everything I hear about it is sensational.
    We ought to be increasing what we can do in that area. I think
    that, with respect to Chernobyl, we are going to have to make
    sure to continue that. A memorandum of understanding and some
    of the earmarks with respect to that assistance should continue
    to move forward. The issues are basic, in the area of energy
    reform, the area of agriculture, the area of privatization,
    whether or not Ukraine shows that they are serious.
        I can make a very strong argument that given the continuing
    development of Parastatal, the failure of the privatized grain
    elevators, the issue relating to grain embargoes, all the work
    we have done on commodity exchanges is going to naught because
    of state control over that issue. And that is an area that we
    gave some very serious consideration to suspending or deferring
    until they show that they are moving ahead.
        I think we also need to work very closely with the World
    Bank, in coordinating with them with respect to their
    conditionalities and when they feel that they can go forward in
    the areas of central agriculture, energy and public
    administration and privatization, that we should work with them
    in a coordinated way.

                  reformists' triumphs in bulgaria and romania

        Mr. Dine. I fully agree with what Dick just said. We faced
    a similar situation a couple of years ago in Bulgaria. The
    socialist government ruled from the center and refused to
    reform. We were knocking our heads up against the wall. And our
    mission director there said let us go to the cities, let us go
    to the municipalities. And we started working in 10
    municipalities, even with socialists. And after the elections,
    reformers had won 9 out of 10. These folks wanted to reform as
    fast as possible--privatization, housing, you name it, land,
    urban land, utilities, urban waste, great.
        And Romania had its breakthrough on its election. There is
    a new day there. And we are working very closely with the
    government. And now there is the Bulgarian situation. And so if
    we do the steady work, the fundamentals, I believe time takes
    care of itself.
        Mr. Morningstar. The type of thing we ought to be doing--
    just to give a plug to a program--a prominent member of the
    Ukrainian art community came up with a program that AID is now
    funding that is exactly the kind of thing we need to be
    emphasizing, which is pushing the relationship between cities
    and using relationships between cities as vehicles to provide
    assistance to Ukrainian communities.
        For example, if a given community has a problem with
    respect to sewage or a problem where it wants to learn more
    about municipal bond financing or whatever it may happen to be
    that these are the kinds of things we need to do.
        Senator McConnell. Senator Murray.
        Senator Murray. Thank you, Mr. Chairman.
        And thank you, Mr. Morningstar and Mr. Dine. It is good to
    see you again. I appreciate all of your work, particularly, of
    course, in the Russian Far East.
        As you know, we have had continuing conversations about
    that. And, as you know, that is an area that my State is very
    interested in, both dealing with the challenges and the
    tremendous opportunities that are there. And I appreciate the
    work that has been done there.
        I just have a couple of questions. And you probably know my
    first one, which is the funding for the west coast group, for
    the Gore-Chernomyrdin Commission. I heard there is a little bit
    of progress in that. Can you tell me about it?
        Mr. Morningstar. The commitment was made, as you know, by
    me some months ago. And as I understand, a letter went to you
    from Mr. Kalicki of the Commerce Department, pledging the
    $216,000 that would go to the secretariat. In any event, there
    is no question that money will be provided. And it is necessary
    that it be provided for the activities.

                               exchange programs

        Senator Murray. I am very much looking forward to receiving
    that letter. If you can make sure that that happens.
        The other area I really wanted to ask you about today is
    exchange programs that have been funded by USAID. And of
    particular importance to me is the Newly Independent Youth
    Exchange Program. I wondered if you could update me on where
    you see that going, particularly with the consolidation in the
    State Department.
        Mr. Morningstar. This is something we were concerned about
    in our office when we announced the consolidations would take
    place. And in fact we confirmed with USIA that there would be
    no interference at all with how the exchange programs are run,
    at least through fiscal year 1998, as a result of this
    consolidation. And we can give you and the staff some more
    information with respect to that.
        The Partnership for Freedom program budget, you might note,
    wherever it is on one of these charts here, if we can pull it
    out, would show a doubling of moneys that would be going to
    exchanges. It is going from about $30 million in fiscal year
    1998 to $59 million, as that chart shows. And we think that the
    efficiencies in the program would literally more than double
    the exchanges.
        Senator Murray. Efficiencies meaning?
        Mr. Morningstar. Lower cost per exchange. And we have been
    successful in the last couple of years in reducing the cost of
    exchanges significantly, in many cases by as much as one-half,
    by doing more with respect to home stays and doing more with
    respect to, at least on a professional level as opposed to the
    student level, people paying their own way. And it is
    interesting, by paying their own way, they are able to use
    Aeroflot, which is much, much less expensive than American
    carriers, I have to say.
        Senator Murray. I appreciate that. And let me just say for
    the record that I think this is extremely important that we
    keep those programs intact. The real way we are going to have
    democracy in the future, the real way that Russia is going to
    succeed in the future is for those young people to have those
    kinds of experiences that allow them to go home and share with
    their fellow students and to become leaders for tomorrow. And
    so I want to make sure that we keep those intact as we go
    through some of these changes in those programs.
        Mr. Morningstar. And that is the basic underpinning of our
    new initiative.
        Senator Murray. Thank you.
        Thank you, Mr. Chairman.
        Senator McConnell. Thank you, Senator Murray.
        OK, let us go to Russia. Last year, the Russian GDP
    declined 6 percent. A lot of the problem seems to result from a
    tax system, described by the New York Times as ``a hodgepodge
    of Soviet-era law, ad hoc new taxes and favors granted to the
    well connected.'' Because of the revenue shortfalls at the end
    of January, workers were waiting for $8.6 billion in overdue
    wages, a problem compounded by the fact that the soldiers have
    not been paid in 4 months.
        Last year you came up here and said the IMF and the
    administration had confidence that laws were on the verge of
    being passed to rationalize the tax system. In fact, just
    before the elections, the IMF had enough confidence to release
    an additional installment of a $10 billion loan--a decision
    some viewed as rather political. Since then, the IMF has
    withheld three installments because of a lack of tax receipts
    and the absence of any budget reform. Apparently, last week,
    based upon commitments by President Yeltsin to reform
    telecommunications, energy and rail monopolies, the IMF
    announced plans to release more than $700 million.
        I guess the question is this: Is the appearance of reform
    rather than concrete results all that seem to matter to IMF,
    and, for that matter, to the administration?
        Mr. Morningstar. Obviously my answer is ``no.'' But I will
    elaborate. First of all, the whole area of tax reform is one of
    the few areas of technical assistance in Russia that I think we
    need to stay very much involved in. In fact, in our new
    program----

                           new investment initiative

        Senator McConnell. Assuming we have any credibility at all
    in tax reform.
        Mr. Morningstar. Part of the new investment initiative
    includes continuing to provide moneys with respect to obstacles
    to trade and investment. The whole situation with respect to
    the Tax Code is obviously very important. Things went very
    slowly in the last year, obviously. And it is very frustrating
    and had a lot to do with elections, and it had a lot to do with
    President Yeltsin being sick and all sorts of excuses.
        That does not matter. What does matter is that because of
    our work with the appropriate officials in the Russian
    Government, a tax code, a rational tax code, was finally agreed
    to by the government just a couple of weeks ago. There was an
    article about it, I think, in today's Wall Street Journal. And
    that code has been submitted to the Duma. Or if it has not been
    submitted, it is within hours of being submitted.
        Senator McConnell. Does that have a pretty good chance of
    passing, do you know?
        Mr. Morningstar. There is some optimism. What happened is,
    one of the debates that has been going on in Russia over the
    last couple of months is whether it should be submitted as a
    full code or whether it should be submitted in pieces. What
    they finally decided to do was submit it as a full code, which
    includes total revision of the value-added tax. It includes a
    revised corporate profits tax, which allow for basic business
    expenditures, for example, that never existed before. It allows
    for depreciation and for revisions with respect to tax
    administration. And there are other aspects as well.
        And so what their strategy was to do was to submit it as a
    full code, and then, if necessary, break it up into individual
    pieces. But they are optimistic that it can pass, hopefully
    during this year. And one of the things that I found in my
    trips to Russia, in dealing with government officials at high
    levels, as well as the Duma members and members of the Budget
    Committee, who were very much involved with the tax codes, and
    frankly members of all parties, is that they all requested tax
    assistance. And it really does need to be cleaned up. So we do
    hold out some optimism.
        Also, one of the more positive things that happened is when
    the finance minister came in, one of the changes that was made
    virtually right away was the change in the new director of tax
    estate services, who was appointed. And there was also a note
    in the paper this morning that said that Gazprom--and this is
    just a note in the paper, I do not have any other information--
    had agreed to pay $2.5 billion in back taxes. And again, they
    are getting serious about the issue.
        Mr. Dine. The government has agreed to pay Gazprom several
    more billion more dollars, though.
        Senator McConnell. I was just thinking, if the Russians
    pulled this off and successfully reform their tax code, we may
    have them testify over here before the Finance Committee.
    [Laughter.]
        Mr. Dine. But, overall, Mr. Chairman, the economy in Russia
    is on the right course. In the month of April, they had only 1
    percent inflation. This is the first time it has reached 1
    percent. Whether or not it is going to continue to go down, we
    will see.
        Senator McConnell. What statistic did you use in the
    percentage of the economy in private hands in Russia?
        Mr. Dine. I said 55 percent.
        Senator McConnell. Fifty-five percent; I thought you said
    65. Was it 55?
        Mr. Dine. I said 55 percent of GDP comes from their private
    sector.
        That is the official statistic. In all these countries, if
    you look at the gray economy, it changes. But those are the
    official statistics.
        Senator McConnell. On the corruption issue, we spent a lot
    of time on corruption in Ukraine. It is a fairly serious
    problem still in Russia. Have there been any examples in the
    last year or so of any senior Russian officials being indicted
    or prosecuted for corruption?

                                organized crime

        Mr. Morningstar. I do not know. I am not saying it is not
    the case, but I do not know of any senior official that has
    been actually indicted. I know people have been removed from
    the government. But I do not know of any.
        Senator McConnell. Is the organized crime problem still
    about where it was 1 year ago?
        Mr. Morningstar. It is still obviously a very significant
    problem. If you talk to Russians, they will argue that in fact
    the situation has gotten somewhat better. If you talk to
    American businesses in general, they think the problem is
    handleable--handleable from the standpoint that I think that
    most business people, American business people, who I have
    spoken to, will say that if you know who you are dealing with
    and if you lay down the ground rules right up front as to how
    you are going to deal with your partners and people within the
    government, that they can generally avoid many of the problems.
        That is not true in every case. I can give you horror
    stories in Russia, as is the case in Ukraine. But there seems
    to be the view that the problem is manageable, but that we need
    to keep working very, very hard with respect to it.
        Mr. Dine. And again, in conversations I have had recently,
    individuals have indicated that they do not have to park their
    money anymore in Cyprus or Switzerland.
        Mr. Morningstar. One of the other factors that has happened
    in the last couple of months--and we will see how it all works
    out--is that Nemtsov, who really, if you take what he is saying
    at face value, is really trying to do some very remarkable
    things with respect to demonopolization and corruption. I had
    an opportunity to meet with him a few times in his prior life,
    when he was the Governor. And he really is a very impressive
    person. And I tried to explain myself and not get too excited
    about some of these breakthroughs, just like we do not want to
    get overly excited about some of the setbacks.
        Senator McConnell. Ambassador Morningstar, with regards to
    your testimony for a minute, you had a section on lessons
    learned that was refreshingly frank. I was particularly pleased
    to see you acknowledge the subcommittee's longstanding interest
    in seeing an emphasis on more small-scale, grassroots
    initiatives. However, I am somewhat stunned by your statement,
    ``We have learned that it does not make sense to spend
    additional dollars on restructuring large, formerly state-owned
    companies.'' And that is a quote from your statement.
        According to one private study, we spent more than half-a-
    billion dollars on privatization and follow-on activities. And
    so I am curious as to when you figured out that was the wrong
    approach and why.
        Mr. Morningstar. Well, I very early came to the conclusion
    that we were not going to be very successful at our efforts
    with respect to larger-scale enterprise structures. We had a
    program--and Tom and I agreed to cut it very shortly after I
    came into my position--called the Powers Program, in which we
    were given $800,000 each, through a group of consultants, and
    to then take that $800,000 and go into a specific company and
    tell them how they were going to restructure things.
        What we found out very quickly was, one, that it did not
    work, and, second, that these companies can afford to do it
    themselves. They have plenty of assets. And even beyond that,
    if we simply hand out the money for programs such as this, they
    are not going to have anywhere near the commitment to following
    through on the recommendations that in fact are made. These
    companies have to have a piece of the action if they are really
    going to believe or they are really going to appreciate and
    follow through on the advice that they are getting. And we have
    taken that approach now through all of our business training
    programs.
        The Morozov Institute, which has, I think, been a very
    successful, now Russian-run, training program, is very much on
    a cost-sharing basis.
        Senator McConnell. What is happening to all of these
    megaenterprises? Are they fading away, downsizing, going out of
    business? What is happening to these massive, state-run
    enterprises?
        Mr. Dine. It depends on which country you are in.
        Senator McConnell. We are talking about Russia.

                        state-owned companies in russia

        Mr. Dine. Well, there is a whole range. Some of them look
    like they are petrified at a period in time and they are just
    standing still. Nothing is going on inside. Some are paying or
    pretend to be paying workers still, but nobody wants to buy the
    whole thing or part of the dinosaur. And so they are just going
    to languish until somebody comes in and buys the land and
    starts all over.
        Senator McConnell. Well, they are presumably not making a
    profit if they are laying people off.
        Mr. Dine. They are not making a profit and not laying
    people off.
        I remember one discussion outside of Moscow less than 1
    year ago with a company manager. He was railing about all of
    the expenses he had because he had to run the hockey team, he
    had to run the high school and the grade school, he had to run
    a dormitory, he had to run a food servicing unit, and he also
    had to do some products. And he was not breaking even. But he
    could not break--the state cannot pick up--there is no social
    safety net, or not a sufficient one, and, therefore, he was
    stuck with all of these expenses. It was not a dead dinosaur;
    it was alive. He was trying to take part of the factory and
    make it profitable.
        Mr. Morningstar. They are having some successes, I guess,
    with respect to some of these companies, with people coming in
    and purchasing bits of it.
        But if there is any issue that keeps me up in the middle of
    the night, this is the one. Because I have a really hard time
    figuring out how these large-scale enterprises are going to
    come down in size in a way that is balanced by the growth of
    new business and the creation of new jobs. And that is why I
    keep coming back to the point that we have got to do as much as
    we possibly can do in these countries to build from the bottom
    up and build the private sector. And even then, it is still
    going to be a major, major issue for years to come.
        Senator McConnell. Are not a huge number of these
    enterprises, by Western standards, bankrupt?
        Mr. Morningstar. Sure.
        Senator McConnell. Is there such a thing as bankruptcy in
    Russia?
        Mr. Dine. Yes; but there is not enough case law even in the
    civil codes. They comment on the bankruptcy, but----
        Senator McConnell. It probably ought to be in receivership
    or bankruptcy, the assets.
        Mr. Dine [continuing]. But they are still owned by the
    state.
        Mr. Morningstar. This is one of the things that I believe
    Nemtsov is trying to do. And the value of doing it is at least
    this whole question of hidden unemployment will disappear. When
    they talk about their unemployment numbers being in the low-
    single digits, it is ridiculous. I mean you have all of these
    people that are sitting, doing nothing, in these large
    enterprises. And they need to recognize the situation for what
    it is, and then determine how do we take care of these people
    if there are not any jobs coming fast enough to take their
    place.
        Senator McConnell. I will never forget, I was at a seminar
    4 or 5 years ago, there was a speaker there who was talking
    about one Russian enterprise that made SS-18 or SS-24 missiles
    and Christmas tree lights. Obviously, some central planner in
    Moscow said, now, who are we going to assign the Christmas tree
    lights to? And they found a place on the map. That kind of
    thing is still hanging on.
        Mr. Dine. Well, the ministries, politically, hold on to
    these useless companies. And this gets to, again, given the
    broader brush, the 35-year-olds and below are not interested.
        Senator McConnell. They are all starting small businesses.
    That is the good news.
        Mr. Dine. And the interesting thing to me is that those
    above that, who came out of these factories, who came out of
    these enterprises, who are now major entrepreneurs, I mean
    clearly, in the human chemistry, they just knew how to take off
    without stealing.
        Senator McConnell. But there is the vitality in the
    economy, people are starting little businesses and growing off
    to the side.
        Mr. Morningstar. Absolutely. That is what the Partnership
    for Freedom is all about. And the problem with the large
    enterprises, if I might, is it affects other areas of reform as
    well.
        One of the things we are concerned about in Ukraine is the
    energy reform. Over the last year, the World Bank is
    complaining the tax collections are coming down, overall
    collections are coming down. There is a reason why that is
    happening. One, it is harder to collect in winter than in the
    summer. But what is happening in the winter is that the
    government is continuing to provide subsidies to its large
    enterprises with respect to electricity. And so that is grossly
    inflating the problem of nonpayment. So how do you do energy
    reform when you have these kinds of issues?
        Mr. Dine. Just one other point. Do not forgot that in this
    whole account, there are other countries. There are economies
    beginning to move quickly. And it is proliferating with the
    small businessmen. For the most part, they are really moving
    and they are showing real growth. I will mention Georgia and
    Moldova. There are varying degrees of progress here. And it is
    going to be the middle class, the entrepreneurial middle class,
    that will build these countries for the future.
        Senator McConnell. Just a couple of things to close. The
    Russian Enterprise Fund has been a big disappointment, I
    gather. They have spent more on legal fees than on successful
    investments. And Mr. Morningstar, you were going to review it.
    I am curious if you could give us any hope.
        Mr. Morningstar. I think there is some hope. We have been
    working very, very hard with all of the enterprise funds, not
    just the United States-Russian investment fund, over the last 6
    months, to work with them to develop performance measures and
    to develop strategic objectives that will in fact increase the
    rate of investment. They have had, I think, a difficult time
    over the last few years.
        Even successful enterprise funds in Eastern Europe have
    taken some time to get up and going. We are caught in between
    the need for and the importance of making rational business
    decisions. We do not make investments in projects that they do
    not expect to be successful--that is not going to teach anybody
    anything--while at the same time trying to get money.
        We are emphasizing small business lending in the regions,
    which we think can be very successful--it already is--and can
    be a more successful major activity. And we are encouraging
    them to be open to projects that they think can be commercially
    profitable and, when that is the case, to take the risk.
        We think that the new CEO understands the importance of
    moving forward. He has told me he is concerned. He wants to
    move faster. And one of his principal objectives is to get more
    reasonable projects out the door more quickly, including in the
    Russian Far East. And that is where Senator Stevens' staff and
    Senator Murray are working.

                            ukraine health earmarks

        Senator McConnell. Finally, last year I put a couple of
    earmarks in for breast cancer and for children of Chernobyl,
    and I wonder if you could give me an update on where
    implementation of those stand.
        Mr. Dine. These are beginning to work out pretty well. On
    the Ukraine earmark on birth defects, we have received a
    proposal from the University of South Alabama. We have reviewed
    it. We have provided preliminary comments. And we are
    optimistic that we can develop that into a good program.
        On Ukraine childhood mental and physical illness, we are
    going to issue a request for applications during the next few
    months regarding screening and treatment of mental and physical
    illness and children. And we understand the birth defects
    requirements to be technically and operationally distinct from
    the broader mandate to address childhood mental and physical
    illness related to Chernobyl. So we are taking those very
    seriously.

                         Additional committee questions

        Senator McConnell. All right. Well, thank you both for
    being here. I appreciate it very much and we will continue to
    talk.
        There will be some additional questions which will be
    submitted for your response in the record.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

                         Additional Committee Questions

                      Agency for International Development

                        independent media outside moscow

        Question. I have read recent news reports regarding the
    consolidation of broadcast media in Moscow by powerful economic
    powers, leaving concerns that the sovereignty of the media will
    succumb to political forces as well. What is USAID doing to
    support decentralized, independent media outside of Moscow?
        Answer. USAID/Russia works with Internews and the Russian
    American Press and Information Center (RAPIC) to support the
    development of independent television, print, and electronic
    media--almost exclusively outside of Moscow.
        Internews provides training and advisory services on both
    technical and business issues, seed grants of equipment, and
    program support to more than 90 regional independent television
    stations. Although most of these stations started from scratch
    in the early 1990's, by the end of 1996, more than 20 stations
    were grossing in excess of $100,000 in monthly revenues.
    Internews now estimates that up to 30 percent of the prime-time
    viewing audience is now watching regional stations.
        RAPIC works principally with independent, regional
    newspapers. Through the Media Development Program (which RAPIC
    and Internews jointly implement), RAPIC has deployed a number
    of consulting teams which bring American media specialists to
    Russia on a volunteer basis to work with independent media
    organizations on business practices, including financial
    management and advertising. RAPIC is also exploring mechanisms
    to encourage alternative investment mechanisms, particularly
    leasing mechanisms, which would provide cash-strapped
    independent regional media organizations with an alternative to
    state-owned presses, transmitters, and other capital equipment.
        The competition for advertising revenues is tough and the
    availability of needed capital financing is still limited. Top
    quality independent media operations are, however, increasingly
    seen as good investment opportunities. The U.S.-Russian
    Investment Fund (TUSRIF) has already invested in media
    companies in St. Petersburg. Metromedia (U.S.) continues to
    pursue its business interests in radio and television. And, as
    the question notes, major Russian companies with apparent
    political biases are also purchasing media outlets.
        In USAID's view, Russian television managers hold the keys
    to the two factors most likely to ensure the continued
    independence of independent media in the regions: Presentation
    of high-quality and unbiased presentation of news and managing
    financially-sound businesses.
        Therefore, USAID's strategy is to continue to work with
    regional media managers on these highly-related goals. Without
    a good quality product capable of attracting a growing
    audience, advertising revenues are not going to grow. Without
    good management of those advertising revenues, the media
    company is unlikely to attract larger equity investments or
    secure needed loans.
        This strategy may not prevent a biased investor from taking
    over a regional media operation but it should ensure that
    managers can turn down such potential investors if they wish.
                                    ------

                      Questions Submitted by Senator Leahy

               american college of physicians partnership program

        Question. Mr. Dine, I have been approached, as I believe
    you have, by representatives of the American College of
    Physicians, about their idea to develop a partnership program
    dedicated to professional medical education in the NIS.
        The idea is to send American doctors, who would volunteer
    their time, to the NIS to provide continuing medical education
    in the diseases that contribute the most to excess morbidity
    and mortality, and where appropriate medical care could bring a
    measurable benefit to health. They are talking about
    cardiovascular disease, infections, diabetes, oncology,
    respiratory disease.
        They believe this would be complementary to the hospital
    partnership program and other efforts we are making to improve
    healthcare there. What do you think?
        Answer. A partnership between representatives of the
    American College of Physicians and a counterpart institution or
    institutions in the NIS focussing on professional medical
    education in the NIS would certainly complement current USG
    efforts to improve health care in the NIS, including the
    hospital partnership program.
        The current hospital partnership program under the American
    International Health Alliance agreement with USAID is scheduled
    to conclude in December of 1998.
        Beginning in fiscal year 1998, USAID plans to compete a
    follow-on partnership program, the specific parameters of which
    have yet to be determined. However, such a partnership as
    proposed by the American College of Physicians may be
    considered during any future solicitations for follow-on
    partnership programs. All future partnerships are contingent on
    the availability of future funds.

                                  agriculture

        Question. Mr. Dine, let me read you a quote from a recent
    ``L.A. Times'' article about the current state of agriculture
    in Russia: ``Agriculture reform's most visible result has been
    to create a new underclass of rural poor, tied to the land
    because they have no money to leave, with little more hope of
    freedom or well-being than their serf ancestors had more than a
    century ago.''
        I hear that USAID is pretty much out of the agriculture
    business. Grain harvests in Russia are steadily shrinking. Have
    we neglected an important part of the Russian economy?
        Answer. It is true that USAID support for the Russian
    agriculture sector has been limited. Because of the magnitude
    of the economic problems and the fact that this sector has been
    one of the least reform-minded, USAID (as well as some other
    donors) felt that in helping to create a market economy,
    agriculture was not the place to begin. Instead, we
    concentrated on promoting systemic changes such as tax and
    legal reform and development of capital markets (which would
    also benefit agriculture), and in other areas where
    opportunities for short term success were greater. In the past
    3 years, with USAID/Russia's increasingly severe budget
    constraints and little progress in agrarian policy reform, we
    continued to give relatively low priority to agriculture.
        Nevertheless, USAID's Russia program has undertaken some
    significant activities in farm reorganization and post
    restructuring support. Over 400 new, smaller, more efficient,
    privately owned agricultural enterprises were created from 64
    reorganized farms in 15 oblasts. An institutional capacity was
    also established for Russians to expand farm reorganization in
    these oblasts and to new regions. Through the Market-Oriented
    Farm Support Activity (MOFSA), we are developing replicable
    pilot models for agribusiness, credit, and social services.
    Recognizing the success of the farm reorganization activity,
    the Russian government requested USAID to extend the program;
    however, because of budget restrictions we were unable to do
    so. Similarly, MOFSA, while designed to be implemented in four
    oblasts, was cut back to two.
        With reformers now back at the helm of the federal
    government, personnel changes in the Ministry of Agriculture,
    and a number of regional governments taking progressive
    approaches to agrarian reform, we hope to begin a dialogue with
    Russian federal and regional authorities on a range of
    agricultural reform initiatives.

                         center for citizen initiatives

        Question. I know you are familiar with the Center for
    Citizen Initiatives, and its efforts to develop a sustainable
    agriculture extension program in Russia.
        USAID has supported this in the past, and I understand you
    are going to find some money for them this year. I want you to
    know that I support this. Environmentally safe agriculture
    makes as much sense in Russia as it does anywhere else. If we
    can help them promote these techniques--if there are people
    there who want to learn, we should help them. Would you like to
    comment?
        Answer. In all of USAID's agricultural projects, we are
    concerned with promoting environmentally safe and sustainable
    agriculture. We agree that CCI's work in this field has been
    useful. We are now carefully considering CCI's proposed new
    activities. Development of a full-scale agricultural extension
    system is a long term and ambitious undertaking, which the
    current Russia budget will not allow. We are encouraging CCI to
    focus on providing extension-type information that will give
    privatized farms access to technology and help them to better
    manage their resources, thus enabling them to compete in a
    market economy.
                                    ------

                     Questions Submitted by Senator Bennett

                               title viii funding

        Question. The complex post-Soviet transition requires the
    United States to continue maintaining the domestic intellectual
    resources that have helped shape our policy. At present, the
    only program currently devoted to this objective is the program
    on research and training on Eastern Europe and the Independent
    States of the former Soviet Union (Title VIII). Do you support
    the continuation of the Title VIII program? If so, how do you
    propose to best ensure the integrity of this important program?
        Answer. We share your confidence that the Title VIII
    program has historically produced significant research on the
    countries of Central and Eastern Europe and the NIS. We
    continue to support the Title VIII program. The budget for
    Title VIII will be $4.2 million for fiscal year 1997, with
    $900,000 from the SEED budget (for Central and Eastern Europe)
    and $3.3 million from FREEDOM Support Act funds (for the NIS).
        Congress enacted Title VIII to promote the U.S. national
    interest by funding important research that otherwise was not
    financed by private and academic sources. We are happy to see
    that Central and Eastern Europe is increasingly the subject of
    privately funded American research. For example, institutions
    which did not exist when Title VIII was conceived, such as the
    Central European University, the American University in
    Bulgaria, and the Soros Foundation, are now promoting long-term
    research by American scholars in this critical region.
        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 long-term integrity 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 (INR), 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. Traditionally,
    funding for Title VIII has come from the INR Bureau's budget.
    We look forward to working with Congress to find a better
    lasting funding arrangement than the SEED Act and FREEDOM
    Support Act accounts.

                            russian demonopolization

        Question. A recent Russian Government initiative has been a
    prominent anti-monopoly drive designed-ostensibly-to break
    apart the communist era monopolies that inhibit further
    economic reform.
        Yet the major monopolies-such as Gazprom and the Unified
    Electrical System-are to remain under government control. And
    the Russian government is now moving to create a state monopoly
    in the telecommunications industry.
        First Deputy Prime Minister Boris Nemtsov has even stated
    that ``the richer Gazprom is the richer Russia is.''
        Are any U.S. assistance funds being provided to what
    amounts to a Russian policy of claiming demonopolization, while
    at the same time strengthening them?
        Answer. U.S. foreign assistance funds have, in fact, been
    deployed to assist the Government of the Russian Federation
    (GOR) in formulating recent reform initiatives related to
    natural monopolies, i.e., those sectors such as utilities where
    the magnitude of infrastructural investments make more than one
    provider inefficient or impractical). U.S. foreign assistance
    is also being used to strengthen regulatory commissions whose
    purpose is to foster competition and prevent monopolistic
    entities from exploiting their market position. The combined
    assistance in these two areas has been approximately $4 million
    since 1994. However, it should be clear that U.S. assistance is
    not returning Russia to Communist era monopolies, but rather
    supporting a series of structural reforms and improved Western-
    style regulatory actions.
        The Russian Government's commitment to the reform process
    was demonstrated on April 28, 1997, when President Boris
    Yeltsin signed Decree No. 426 approving a concept of structural
    reforms in the natural monopolies and a three year plan to
    improve the system of regulation of the natural monopolies,
    including price regulation, deregulation of activities that are
    not ``natural monopolies,'' and promotion of competitive
    markets for natural monopoly products and services. These
    reforms are to include the privatization of certain areas
    controlled by monopolistic entities, such as Gazprom and the
    Unified Electrical System Rossii (UES Rossii).
        Presidential Decree No. 426 specifically calls for Gazprom
    to be demonopolized to the extent that exploration, development
    and production functions-which are not, in reality, natural
    monopolies-will be opened up to other competitors. In addition,
    regulatory steps will be taken to ensure that these competitors
    will have non-discriminatory open access to the pipeline
    network and reasonable transportation tariffs.
        The Decree also calls for UES Rossii restructuring from a
    monolithic entity, to separate entities in the fields of power
    generating supply, power transmission, the operation of the
    national wholesale energy market, and local distribution of
    power.
        The GOR exercises the regulatory control necessary to
    ensure competitive and economic pricing and fair access to
    transportation services; however, it does not control the 75
    percent of stock required under Russian law to effect the
    reorganization of the two companies advocated in Decree No.
    426. In fact foreign investors own large blocks of UES Rossii
    stock. It is hoped that the restructuring proposed under Decree
    No. 426 as well as the influence of foreign investors will
    result in enterprises that are well-managed, appropriately
    regulated, and prosperous.
        A comprehensive reform of the telecommunications industry
    is also addressed in Presidential Decree No. 426. Although the
    GOR does plan to combine the monopoly in local service with the
    monopoly in long-distance, this is, in fact, an effort to
    package the telecommunications entities so that large parts of
    them can be privatized. The GOR has stated that the sale of 49
    percent of the combined monopoly is imminent, subject to
    signature of the Presidential Decree. Plans for the sale are
    virtually complete. Provided the sale goes forward as planned
    and the new Federal Communications Regulatory Commission is
    formed-which will be due in large measure to U.S. assistance-
    the reform of the telecommunications industry will, in fact, be
    significantly advanced. In addition, expanding cellular
    telephone networks are already creating substantial competition
    within the telecom industry which serves to mitigate
    monopolistic tendencies.

                      property rights or freedom of speech

        Question. The development of property rights and the
    creation of a free and independent press are key objectives of
    American assistance policy in the NIS.
        Yet these two fundamentals of a democratic society are now
    in conflict as Lukoil, Russia's largest oil company, has
    attempted to censor Izvestiya, a leading pro-reform newspaper.
    Piotr Nayev, a Lukoil spokesman, summed up the conflict by
    concluding that ``property rights are [more] important and
    freedom of speech * * * must be in second place.''
        What provisions has the administration made to handle
    America [sic] policy in the event of conflict between
    fundamental assistance priorities? Will it support property
    rights or freedom of speech?
        Answer. USAID does not envision a fundamental ``trade-off''
    between property rights and freedom of speech issues. Property
    rights--so long as governed by rule of law and accepted anti-
    monopoly limitations (which have not yet taken hold in
    Russia)--should, in principle, go hand in hand with freedom of
    the press. The development of diversified capital markets, as
    free as possible from corruption or from state domination,
    would maximize the range of lending and investment sources
    available to the mass media, enabling the free development of a
    broadly pluralistic range of media outlets. In principle,
    property rights as well as freedom of speech constitute
    mutually-supporting components in democracy and in democratic
    media systems.
        USAID supports the freedoms of speech and press through
    many programs, including the RAPIC-supported Standing
    Commission on Freedom of Information, the Glasnost Defense
    Foundation, and the Media Law and Policy Center. These and
    other USAID programs promote legal progress toward a regulatory
    environment that is conducive to the continued development of a
    free press.
        USAID's Media Development Program (MDP) and Media Viability
    Fund (MVF) are working to expand the range of lending and
    investment sources available to the independent media. These
    programs, in addition to the LUKOILs of the world, will provide
    independent media outlets with many additional sources of
    capital infusion.
        In terms of property rights, USAID has provided technical
    support for privatization, legal drafting, and improved
    regulation of natural monopolies in the public interest,
    including in the telecommunications area. A broadened range of
    legally recognized property rights, with careful limitations
    placed upon monopolistic tendencies, will serve to provide
    important preconditions for a more pluralistic range of
    ownership in the media sector as well.

                              subcommittee recess

        Senator McConnell. The subcommittee will stand in recess
    until 2 p.m., Tuesday, May 20, when we will receive testimony
    from the Secretary of the Treasury, Hon. Robert E. Rubin.
        [Whereupon, at 4:05 p.m., Tuesday, May 6, the subcommittee
    was recessed, to reconvene at 2 p.m., Tuesday, May 20.]

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

                                  ----------

                             TUESDAY, MAY 20, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 2:41 p.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Mitch McConnell (chairman)
    presiding.
        Present: Senators McConnell, Bennett, and Leahy.

                           DEPARTMENT OF THE TREASURY

    STATEMENT OF HON. ROBERT E. RUBIN, SECRETARY OF THE
                TREASURY
    ACCOMPANIED BY DAVID LIPTON, ASSISTANT SECRETARY FOR INTERNATIONAL
                AFFAIRS

                    opening statement of senator mc connell

        Senator McConnell. The hearing will come to order.
        Secretary Rubin, we apologize for being a few moments late;
    we had a vote. And that always comes first.
        Mr. Secretary, there is good news and bad news. The good
    news is the Budget Committee resolution, as it currently
    stands, essentially protects the President's request level for
    the 150 account. It also specifically allows for adjustments in
    the discretionary caps if we decide to appropriate funds to
    cover U.S. arrears, the most notable being $234 million for the
    International Development Association.
        The bad news is I believe Congress will be reluctant to
    fulfill the new pledge of $800 million to IDA 11 and provide
    the $234 million to complete the IDA 10 pledge unless there is
    an immediate positive decision, allowing United States
    procurement access to money segregated by donors in the interim
    trust fund.
        Let me provide my understanding of where I think we stand.
    Last year, IDA donors expressed their frustration with U.S.
    arrears by establishing a separate account, allegedly as a
    bridge to cover fiscal year 1997 project funding shortfalls.
    Although our obligation at the time was $934 million, the ITF
    set aside $3.3 billion, which only companies from ITF donors
    could bid on. At the same time, the subcommittee strongly
    recommended the United States withhold all fiscal year 1997
    funds unless this idea was abandoned. Our views reflected the
    longstanding fact that the U.S. share of procurement has
    consistently been less than our share as the single largest IDA
    donor. So a decision to link procurement with contributions was
    inconsistent, ill-advised and, for that matter, just plain
    unfair.
        Nonetheless, the administration voted to approve that
    arrangement. It should not have come as a surprise when the
    Congress decided to withhold funds until March 1997, when you
    were to report on efforts to dismantle the ITF and open up
    procurement. That report was a helpful review of the
    administration's efforts to overcome considerable legal,
    political and practical obstacles presented by the ITF. Not the
    least of the problems was the fact that by the time a key
    deputies meeting was held in February, nearly two-thirds of the
    ITF resources has been obligated for projects, leaving a
    balance of roughly $1 billion.
        After intensive negotiations, I understand you now have a
    tentative agreement which potentially will make the balance
    available for U.S. competition. The exact status of a decision
    on this balance will have a clear impact on our recommendation
    in the coming weeks regarding your fiscal 1998 request, as well
    as clearing up the arrears. And we are obviously hopeful you
    can make a report on that today.
        Let me turn for a moment to some specific concerns about
    the management of the World Bank and IDA. I want to commend Mr.
    Wolfensohn for his declared intent to increase the development
    impact of lending as he improves cost effectiveness and
    services. His agenda has been well outlined in a recently
    released report, known as the strategic compact. I hope this is
    not one more study in a long line of studies which have failed
    to produce real progress.
        Some 5 years ago, the Bank's portfolio management task
    force report identified serious performance problems related to
    project structure as well as the policy and practical
    impediments to development posed by borrowing nations. While
    the Bank continues to attempt to address past task force
    recommendations, and no doubt will respond to Mr. Wolfensohn's
    new challenges, there are ongoing systemic concerns. The Bank
    has been slow to effectively implement, coordinate and make
    improvements in the country assistance strategies which link
    new lending with ongoing assessments of performance.
        The consequence of not enforcing benchmarks is evident in
    the Bank's internal assessment that the percentage of problem
    projects has not declined since 1992. Their documents reflect
    the fact that of the 737 projects funded between 1985 and 1993,
    32 percent of World Bank and 41 percent of IDA projects were
    rated unsatisfactory. Reviewed by region, the numbers tell
    another important story. In the Pacific, 81 percent of projects
    received a satisfactory rating, but in Africa--the target of
    one-third of IDA loans--only one-half the projects were
    considered satisfactory.
        Let me just note that these projects are not exactly
    failing a particularly tough test. The standards for meeting
    the satisfactory test are not only lenient, the evaluations are
    largely administered by the loan managers, consulting from
    headquarters with the borrower. Rigorous independent field
    audits are not currently conducted, but I think they must be
    considered to establish integrity and credibility in the
    evaluation process.
        Obviously concerns such as these are what prompted Mr.
    Wolfensohn's review. However, I am dubious about the
    congressional support, given the strategic compact's solutions
    will cost $100 million to $150 million a year, largely to get
    rid of so-called redundant staff, while at the same time, Bank
    officials are enjoying the luxury of a new gold-leaf executive
    dining room, which Newsweek reported cost $25 a square foot.
        Mr. Secretary, I raise these issues because I respect how
    hard you have worked to restore congressional confidence in the
    multilateral banks. In light of these observations, it may seem
    a thankless task on your part, but let me assure you it is
    because I believe these institutions are vital to leveraging
    resources to serve development interests that we intend to work
    with you to try to improve them.
        Let me now turn to my good friend and colleague, the
    ranking member, Senator Leahy.

                        opening remarks of senator leahy

        Senator Leahy. Thank you very much, Mr. Chairman.
        Mr. Secretary, I want to commend you and the Treasury
    Department for what you have done over the past couple of years
    in negotiating replenishments for the international financial
    institutions. It probably reflects some of your skills from
    Wall Street or some magic or something, but you were able to
    reduce the amounts of U.S. contributions at a time when are not
    even able to pay our past debts.
        I suspect it also reflects that some of the other donors
    can and should pay more. Our pledge to IDA has dropped from
    $1.25 billion to $800 million. I am sitting here with the
    chairman trying to figure out where we get the $800 million,
    but it is a lot better than $1.25 billion.
        We have seen similar reductions at the other banks. You
    have also negotiated some important reforms. The African
    Development Fund is an example. The institution has squandered
    hundreds of millions of dollars, and it is now headed in the
    right direction. I do not know if we are going to be able to
    come up with the $50 million pledge, but I want to applaud you
    because you pushed for changes that were long overdue.
        These institutions are extremely important to the United
    States. They are extremely important to their client countries.
    In many ways, they are also the bane of our existence. They
    have far more than their share of arrogant, overpaid staff.
    They strike me, at least, as not having the time of day for
    anyone unless it is a government official. I can get through
    easily if it is Senator Leahy calling. If it is somebody else
    who they don't know, it is a different story.
        They pay attention to a government official. They prefer
    one, I think, that is equally disinterested in the views of the
    very people who are most likely to be affected by their
    decisions.
        I suppose a lot of bureaucracies act like that, but it is
    amazing. I cannot think of very many that could rival the
    arrogance of some of the bureaucracts at IMF and World Bank.
    They treat representatives of the nongovernmental community
    like pests to be pacified, grudgingly--it's an old boys
    network.
        Now, having said that, I know exceptions, like Jim
    Wolfensohn. I think he is the right man for the job. Nobody
    else has been able to get control of the place. And his
    strategic compact, if it gains broad support within the
    institution, could make a real difference. But if I cannot get,
    or my staff cannot get, the Bank's or the IMF's attention on
    even the little tiny issues, I hate to think what other people
    have to go through.
        The people who the long-time bureaucracy ought to emulate
    are the people who are most respected, like Mr. Wolfensohn. He
    is capable of understanding. He is accessible. He does
    understand what is needed. And I wish some of those below him
    would. It makes me wonder if we should sit things out for a
    year to see if they might change their attitude, or maybe
    somehow we might end up with a new crop of middle managers who
    do not act like they own the place.
        I guess they know we are not going to walk away for a year.
    They figure that presidents of the Bank will come and go,
    Members of Congress come and go, Secretaries of the Treasury
    will come and go. Certainly even some of the countries they are
    supposed to help, unfortunately, come and go. But, by God, they
    and their perks stay on.
        And I do not fault you, obviously. You have done more to
    try to improve this than anybody I know. But I have stood up
    for these institutions in the past, notwithstanding some of the
    arrogant indifference of some people down there. I have done it
    because I thought that our national interest and world interest
    demanded that. But I am finding it more and more difficult to
    defend, especially as more and more people come to me with
    examples that, if it was my staff doing that, they would be
    fired on the spot.
        I mention that for whatever it is worth. But again, I want
    to compliment you for what you have done. And if I could say
    anything at all, it is just keep it up.
        Thank you, Mr. Chairman.
        Senator McConnell. Let me just say before turning to you,
    Mr. Secretary, we had a similar problem to the one Senator
    Leahy was describing with regard to burley tobacco programs in
    Malawi. The top managers were as responsive as the desk
    officers were abusive. They actually told my constituents that
    they were wasting their time. That is a direct quote. It is
    really an astonishing state of affairs. Nevertheless, Mr.
    Secretary, please proceed. And we are glad to have you here.
    [Laughter.]
        I bet you are delighted.

                      summary statement of secretary rubin

        Secretary Rubin. Very nice to be here, Senator.
        I do not know that I have a very meaningful response, other
    than to----
        Senator McConnell. I am not expecting you to. Go ahead.
        Senator Leahy. We are not. We just want to put this on the
    record. And not that anybody is going to pay the least bit of
    attention down there to what we say.
        Senator McConnell. Yes; we feel so much better. [Laughter.]
        Secretary Rubin. Well, you transfer your grief, I guess.
    [Laughter.]
        You know it is interesting, though. Having run a large
    private sector organization for a while, the people at the top
    in our place I thought were always very responsive. The more
    junior you got in the organization, the more arrogance seemed
    to be a problem. So I think it is not a problem unique to the
    World Bank or the IMF, though it may exist in exacerbated
    levels there; I do not know.
        In any event, let me say, Mr. Chairman, Senator Leahy, that
    it is a pleasure to be here. And as you both have said, this is
    a concern that all of us share and all of us recognize the
    vital importance of these institutions to our national
    interests. And it is my hope that the spirit of bipartisanship,
    that has prevailed in recent weeks in regard to the budget
    agreement and the CWC before that, can be applied to dealing
    with these very important institutions.
        The President has said on a number of occasions that we are
    truly the indispensable nation, and I can see it as I go to G-7
    and other meetings. We are truly the only Nation in the world
    today who can provide effective leadership on the issues of the
    global economy. But I think it is also equally clear that if we
    are going to maintain the ability to do that, we have got to be
    seen as bearing our fair share of the burdens. And that very
    much includes full participation in these institutions--in the
    United Nations and the various international financial
    institutions--the World Bank, the IMF, and the regional
    development banks.
        The contributions that we make to these institutions and
    other international programs, as you know, Mr. Chairman, are
    less than 1 percent of our budget, but they give us enormous
    leverage. We have calculated, with respect to the multilateral
    development banks, that our roughly $1.2 billion contribution
    put us in a position to have enormous, enormous influence over
    roughly $46 billion of lending. And that is the kind of
    influence that, it seems to me, is enormously in our Nation's
    self-interest to maintain.
        We have worked forcefully for reforms, as Senator Leahy
    suggested in his comments--even as we have negotiated major
    reductions in our budgetary commitments. If you go through this
    account by account, we have negotiated, on average, a 40-
    percent reduction in future U.S. obligations to the
    multilateral development banks. And once we pay our arrears,
    then on an ongoing basis, we will be at a level of about $1.2
    billion.
        We have also taken the lead in securing broad-ranging
    reforms in the international financial institutions with
    respect to both the multilateral development banks and the IMF.
    There are programs to reduce overhead. There are programs to
    become more open, and to do more to prevent corruption--a more
    recent but I think very important focus of both institutions.
    And lending has been shifted to provide the underpinnings for
    the private sector, rather than to try to substitute for what
    the private sector can otherwise do. There has also been an
    increased sensitivity with respect to environmental issues.
        I have in my written statement a number of examples. I will
    leave that for the written statement and not repeat them here,
    other than to mention two. One is, as you mentioned, Jim
    Wolfensohn's strategic compact at the World Bank, which we
    think is very responsive to the issues of the World Bank and
    which we have supported very strongly, while at the same time
    continuing to work with Jim Wolfensohn and the World Bank with
    respect to minimizing the costs associated with the program.
        And second is the African Development Bank, which has had
    serious problems. They have now instituted a sweeping
    reorganization, including term limits and replacement of 70
    percent of its managers.
        All this notwithstanding, we are now behind in our payments
    to the multilateral development banks by $862 million. And
    though we are by far the world's largest and richest economy,
    we are the largest debtor in the United Nations. And we account
    for the great preponderance of the arrears to the multilateral
    development banks and the global environmental facility.
        Our budget request of $1.6 billion for the multilateral
    development banks includes something over $300 million to
    partially pay down those arrears. And that is the first payment
    on a proposed 3-year payment plan, which will then eliminate
    the arrears altogether. The remainder, of course, would go to
    meet our annual commitments.
        I do not think there is any question, Mr. Chairman, that if
    one goes to the G-7 meetings and attends meetings at these
    institutions that we are getting to the position where, if we
    do not both pay our arrears and participate fully on an ongoing
    basis, that we very much put at risk our ability to continue to
    have a quite disproportionate influence on shaping economic
    policy with respect to the developing countries. We also put at
    risk achieving various of our foreign policy priorities through
    the international financial institutions, which have been very
    active in Bosnia, the former Soviet Union, and Africa as just
    three examples.
        As I said a moment ago, our budget request is based solely
    and simply on the view that it is in our national self-
    interest, both in terms of our economy and our national
    security. As developing nations grow, their markets become
    larger. And as their markets become larger, we export more to
    them. And that, of course, increases American jobs and
    standards of living.
        Let me just, if I may, focus on one particular area of the
    world, because I think it has now become front and center in
    our thinking, and that is Africa. The IMF's ESAF, IDA debt
    reduction, and African Development Fund requests are integral
    to a broader effort on the part of the administration to foster
    growth in Africa, which is clearly that part of the world that
    lags furthest behind the global economy.
        A growing and dynamic Africa, an Africa with democracy and
    open markets, economic reform and sustainable development would
    not only provide higher standards of living to its people, but
    it would provide new and better markets to the United States.
    It would deal with environmental problems that affect not only
    Africa but affect us. And it would contribute to our national
    security, particularly, hopefully, enabling us to avoid the
    costs that are involved in dealing with the crises that have
    developed from time to time in Africa.
        We have proposed a bold initiative to foster solid
    macroeconomic conditions, open trade and other economic reforms
    to attract private sector capital to Africa, and to promote
    growth in Africa. And we are working with Congress on a
    bipartisan basis to do that. The international financial
    institutions play a critical role in that effort. The
    international financial institutions' work in promoting growth
    in developing nations clearly has benefited American businesses
    and workers. United States firms exported more than $25 billion
    worth of goods and services to the 79 very poor countries that
    are eligible for IDA--or that were eligible--for IDA funds in
    1995, and roughly $60 billion to IDA graduates.
        The IMF, for its part, has been critical with respect to
    fostering stability in the global financial markets, preventing
    crises, and when crises did develop, in dealing with those
    crises. And that is very much in the interest of all members of
    the global financial community, very much including ourselves.
    In effect, they have become the guarantor, of this vastly
    increased global financial market, with the vastly increased
    flows of capital that have enormous benefits, but also carry
    with them risks.
        Before I close, let me mention one final issue. Our fiscal
    year 1998 budget includes a request for $3.5 billion for the
    U.S. participation in the IMF's new arrangements to borrow.
    This new line of credit would build on the general arrangements
    to borrow, and in effect, would provide a larger reserve for
    the IMF in the event of threatened systemic crisis.
        The idea for the NAB really grew out of the Mexican
    situation, when, looking at that situation, it struck us that,
    in these vastly enlarged global financial markets, there could
    come a day when there might be a crisis that could be of such
    size and such systemic significance that it could not be dealt
    with adequately with the resources currently available.
        We are also reviewing the adequacy of the IMF's normal
    quota reserves. And if--and I stress if--that review shows that
    a quota increase is necessary for the IMF to do its job over
    the medium term, and if we can negotiate a satisfactory
    arrangement--and that is a second very important if--then we
    will request an increase in the U.S. quota. Obviously we will
    continue to consult very closely with Congress on this matter.
        In both cases, as you know, the funds that would be used
    both in the NAB and in the quota, if called upon, would not
    count as outlays in the budget process, and, therefore, would
    not increase the deficit.

                               prepared statement

        Mr. Chairman, let me close by saying that the
    administration stands ready to work with you, with your
    committee, to maintain the bipartisan commitment to these
    institutions that has existed for over 50 years, and which I
    believe enormously serves the economic and national security
    interests of our country.
        Thank you very much. Assistant Secretary Lipton and I would
    be delighted to respond to any questions you may have.
        [The statement follows:]
                Prepared Statement of Secretary Robert E. Rubin
        Mr. Chairman, it is a pleasure to testify today on the President's
    fiscal year 1998 budget request for foreign operations. Over the last
    few weeks, we have seen how much we can accomplish when we act together
    in a bipartisan manner: Congress passed the Chemical Weapons Convention
    and, of course, we've reached an agreement on a plan to balance the
    budget. We should now carry that spirit of bipartisanship to other key
    priorities that are facing the nation and we will be working on issues
    such as fast track authority and most favored nation status for China
    in the near future. Today, I would like to discuss one of our most
    important priorities: the imperative of maintaining U.S. leadership in
    the global economy by fully funding our share in the international
    financial institutions.
        As President Clinton has said, the United States is the only
    country that can provide effective leadership in today's world--and it
    is more important than ever for our own well-being that we do so.
    However, for us to function as the world's indispensable nation, we
    must participate fully in the international institutions and the global
    economy. We must fully commit to our foreign affairs budget, which pays
    for the United Nations, bilateral assistance programs and the
    international financial institutions (IFI's)--the World Bank, the
    International Monetary Fund and the regional development banks.
    Accounting for less than one percent of the federal budget, these
    programs provide an enormous return for American taxpayers. Abroad,
    they help bring peace and stability, foster democracy, build free
    markets and free trade, and promote sustainable development. At home,
    that leads to increased exports, high quality American jobs and greater
    economic and national security.
        The Clinton Administration has worked hard with Congress to
    maintain support for the multilateral development banks (MDB's). We
    have achieved increases in social sector lending by the MDB's and
    worked forcefully for continued reforms, even as we have negotiated
    major reductions of our budgetary commitments. We have, in fact, made
    significant progress on all fronts. Account by account, we have
    negotiated, on average, a 40 percent reduction in future U.S.
    obligations to the MDB's, which, after we pay our arrears, will lower
    our total annual commitment to $1.2 billion. On the basis of this
    annual U.S. investment, we are able to strongly influence the $46
    billion that the MDB's lend.
        The Administration, working with Congress, has taken the lead in
    securing needed administrative reform in the IFI's. The MDB's and the
    IMF are reducing overhead, becoming more open, doing more to prevent
    corruption and promote the private sector, and becoming more sensitive
    to environmental concerns. They are, in fact, providing us with better
    value for the money than at any time in their history. To cite a few
    examples:
      --The World Bank, long a target of criticism, has become more open,
            and has cut its administrative budget 10 percent in real terms
            over the last two years. The Bank has now embarked on a new
            reform program, the Strategic Compact, which is very responsive
            to U.S. reform priorities. We support President Wolfensohn's
            efforts to reform and we are working closely with him to
            minimize the costs associated with this program.
      --The IMF has also controlled its administrative budget, cutting it
            by one percent in real terms over the last three fiscal years.
            It has made substantial advances in transparency and
            strengthened its capacity to detect financial crises.
      --The Inter-American Development Bank has cut its budget by 5 percent
            in real terms since 1995 and staffing is down 12 percent from
            its peak in 1988. Yet loans managed by the bank have increased
            48 percent since 1991.
      --The African Development Bank has instituted a sweeping
            reorganization including term limits and replacing 70 percent
            of its managers.
        Despite this progress, we are now behind in our payments to the
    MDB's by $862 million. We are the world's largest and richest economy
    yet we are the largest debtor to the United Nations, and account for
    the lion's share of arrears to the MDB's and the Global Environment
    Fund. Nations around the globe, who look to us for leadership, are
    seriously questioning our willingness to lead. Our budget request of
    $1.6 billion for the MDB's includes over $300 million to partially pay
    down those arrears, the first payment on a proposed three year plan,
    with the remainder going to meet our annual commitments.
        This year is critical. If we do not meet our commitments, we will
    put at risk our leadership in these institutions and thereby our
    ability to shape policy with respect to developing countries. This
    risks affecting foreign policy priorities in places from Bosnia to the
    former Soviet Union to Africa. Failure to meet our commitments would
    also undercut our ability to direct ongoing reforms. We cannot lead
    with other people's money.
        We make this budget request purely and simply because it is in our
    economic and national security interest. The IFI's are important to our
    interests for two basic reasons. First, they help foster growth in the
    developing world. That, in turn, promotes global prosperity and
    stability, which creates new markets for U.S. goods.
        The IFI's have been instrumental in the economic renewal of Asia,
    Latin America, and central and Eastern Europe, helping foster economic
    reform and democracy which has turned these regions into dynamic
    emerging markets. The MDB's are also building the essential foundations
    for growth in the poorest countries by funding child survival, and
    improvements in health, education and basic infrastructure. The IMF's
    Enhanced Structural Adjustment Facility (ESAF) lays the groundwork for
    the banks' efforts through the macroeconomic and structural conditions
    attached to ESAF loans.
        Last month, I traveled to Vietnam, a very poor country in the midst
    of transformation from a state run economy to a market economy,
    struggling to build the infrastructure of a modern economy. I met with
    the general secretary of the Communist Party, the prime minister and
    the finance minister. These officials--the leaders in what is still a
    communist country, a country that fought a war with the United States
    only 25 years ago--were keenly focused on what constitutes a market
    economy, how you get there, and how to attract more foreign investment.
    It is precisely this kind of help in developing a modern market-based
    economy that the IFI's can provide.
        While in Vietnam, I visited a school outside Ho Chi Minh City. I
    saw how World Bank funds provided for a new school building and
    textbooks for children. I only wish that every member of Congress could
    see what our money buys.
        The ESAF, IDA, debt reduction and African Development Fund requests
    are integral to the Administration's effort to foster growth in Africa,
    an area vastly behind in development. A growing and dynamic Africa--an
    Africa committed to democracy, economic reform, and sustainable
    development--will provide higher standards of living for its people and
    be more stable politically and socially. That, in turn, will present
    new markets for American businesses, create jobs and increase standards
    of living in this country. It will also strengthen our national
    security as stability in any part of the globe contributes to our
    national security. Hopefully, it will save us the very high costs of
    responding to crises in Africa. We have proposed a bold initiative to
    foster solid macroeconomic conditions, open trade and other economic
    reforms to attract private sector capital and promote growth--and we
    are working with Congress on a bipartisan basis to enact it. We will
    need the help of the IFI's to move forward with our initiative.
        The IFIs' work in promoting growth in developing nations has
    clearly benefited U.S. businesses and workers. U.S. firms exported more
    than $25 billion worth of goods and services to the 79 very poor
    countries eligible for IDA funds in 1995 and roughly $60 billion worth
    to IDA graduates. Of course, the MDB's also benefit American businesses
    and workers directly through the projects they finance. In the past
    year alone, U.S. firms received over $3.2 billion in direct business
    from the MDB's.
        The IMF is critical to fostering a stable, well-functioning global
    financial system that facilitates the trade and investment flows
    necessary to the growth and opening of markets around the world. The
    IMF serves us very well as the guardian and guarantor of that system,
    helping to integrate its newest participants and preventing and
    containing severe financial shocks.
        Before I close, let me mention one final issue. Our fiscal year
    1998 budget includes a request for $3.5 billion for U.S. participation
    in the IMF's New Arrangements to Borrow. This new line of credit would
    build on the General Arrangements to Borrow and provide a larger
    reserve tank for the IMF to respond to financial shocks that create
    systemic risk, and do so in a manner that reduces our share of the
    burden. We are also reviewing the adequacy of the IMF's normal quota
    resources. If that review shows that a quota increase is necessary for
    the IMF to do its job over the medium term--and if we are able to
    negotiate a satisfactory agreement within the IMF--then we will request
    an increase in the U.S. quota. We will continue to consult closely with
    Congress as this process develops. Like funds for the NAB, use of these
    funds would not be scored as outlays, as they are offset by the
    creation of a counterpart claim on the IMF that is liquid and interest
    bearing.
        Mr. Chairman, there has been a tremendous movement over the past
    decade toward a global economy. Countless U.S. workers and businesses
    depend on trade--and a thriving global economy--for their livelihoods.
    The World Bank, the regional development banks, the IMF, the United
    Nations and bilateral assistance programs, play vital roles in the
    global economy by promoting economic growth, democracy, free markets,
    the rule of law, a stable international monetary system and sustainable
    development. They advance the interests of the American people.
        But our ability to advance those interests will be gravely
    jeopardized if we do not begin this year to pay what we owe and to
    fully fund our current commitments. The Administration stands ready to
    work with you to maintain the bipartisan commitment to these
    institutions that has existed for fifty years and which gives us the
    power to guide global economic growth and reform. Thank you very much.

                                     burma

        Senator McConnell. OK, thank you very much. I am going to
    ask that your full statement be made a part of the record and
    lead off with a question about Burma. At the Asian Development
    Bank meeting in Japan recently, Burma was lobbying for a
    resumption of funding. And the President of ADB, the Asian
    Development Bank, Sato, indicated Burma ``badly needs economic
    aid.''
        What is the current U.S. position on resumption of loans to
    Burma?
        Secretary Rubin. Well, we are in the process, as you know,
    of imposing sanctions on Burma, although the content of those
    sanctions are still under discussion in the administration.
        Senator McConnell. On that issue, when do you expect that
    to be finished and the sanctions to be imposed?
        Secretary Rubin. I am not sure, Mr. Chairman.
        Do you know when the work on that will be done?
        Mr. Lipton. It should be in the next day.
        Secretary Rubin. The next day.
        Mr. Lipton. I believe so.
        Secretary Rubin. That is tomorrow.
        Mr. Lipton. On the Executive order? I think it is coming.
        Secretary Rubin. OK. Well, in the relatively near future,
    then. [Laughter.]
        Senator McConnell. But what about the question of ADB
    loans?
        Mr. Lipton. Well, as far as we know, there are no
    operations being prepared. I was unaware of the statement of
    President Sato to which you referred. But it would be our
    position not to favor--not to vote to support any loans that
    they might choose to----
        Senator McConnell. I am sorry?
        Mr. Lipton. I say, it would be our position to oppose any
    loans that they might bring to the board. But it is not our--it
    is our understanding that they have no planned operations in
    Burma.
        Senator McConnell. But if they did, we would oppose it?
        Mr. Lipton. It would be our position that we would oppose
    those.
        Senator McConnell. Good.
        You spent some time speaking about IDA. I can see we may
    get into a chicken and egg problem, where other donors are
    insisting we fulfill the fiscal year 1998 commitment and clear
    arrears or they will not release the $1 billion from the ITF,
    while we insist the funds be released before further
    appropriations. I just want to make it clear that the blackmail
    did not work last time and it is not going to work this time.
        We have been the largest contributors over the longest time
    to IDA, and, frankly, demanded very little in return. Without
    specific action, there may be a serious backlash and there
    might be little support for funding even here in the Senate. I
    am just curious, how do we solve this problem?
        Secretary Rubin. It is a good question, Mr. Chairman. As
    you know, we worked very vigorously. We have sent letters. When
    I spoke at the World Bank, I referred to it in my remarks. And
    sometime in the last two or three G-7 finance ministers
    meetings, I brought it up there. We abstained--we did not vote
    in favor of this, by the way--we abstained at the meeting.
        We are very much opposed to this being done. On the other
    hand, the view of the other donors was that many of them had--
    in fact, probably all of them--had worse deficit problems than
    we did, and they were contributing and we were not. And they
    had parliamentary problems of their own. And so they said that
    the only way they could warrant or justify this with their
    parliaments was to say that if we did not participate, then we
    would not have procurement opportunities.
        We opposed that, we strongly opposed it, but it succeeded
    nonetheless. We did manage to get this billion dollars put
    aside. And I think you are right, we are in a bit of a chicken
    and egg situation. We have exerted every bit of energy and
    resource that we can think of to get this thing reversed now
    for the very reason you just said--so that it would not create
    a burden in terms of our working with Congress. And thus far at
    least, we have not been successful, although we will continue
    to try. But I do not know how we get it unraveled at this
    point, Mr. Chairman.
        But I must say, we are totally opposed to what they did. I
    think it was a mistake. I think it was foolish. I think it has
    interfered with their ability to get funding. And it was a very
    unwise thing to do. But from their perspective, they have said
    that they have worse deficits than we do. We have been for some
    years now, the most successful major industrial country in the
    world economically, and yet we are the one country that is not
    willing to contribute. So they felt, from that point of view,
    this was the position they needed to take with their
    parliaments.
        Senator McConnell. Obviously we have a continuing dilemma.
        Secretary Rubin. We have a continuing dilemma that we will
    do our best to unravel, but I cannot promise you that we are
    going to be successful--although it is not for lack of trying.
        Senator McConnell. In the justification materials for IDA,
    your Department stated, ``IDA increasingly conditions its
    lending on implementation of specific economic reform programs,
    rewarding those who reform and denying loans to those who do
    not.''
        I am curious as to whether or not you could give me some
    examples of nonreformers who have been denied loans.
        Mr. Lipton. Well, first, to make a summary statement, if
    you look at the IDA-eligible countries, the top--if you look at
    the best performances, the top 50 percent, they have been
    receiving 84 percent of the funds from IDA. So that is a
    measuring, of course, in terms of the results of their reforms,
    but I think it shows that the World Bank has attempted to
    channel the funds, in general, to those that are embarking on
    reforms.
        I think, clearly, there are examples--and I can get you a
    list of examples--from Africa, where countries that are not
    embarking on reform are not receiving support. And there are
    also a number of countries where there is a prospect for
    reform. The World Bank negotiates a structural adjustment or a
    sectoral adjustment loan, but withholds the go-ahead for
    funding until the reforms that have been promised have been
    carried out.
        And to give an example there, in Haiti, a country that is
    very important to us, the World Bank has negotiated a loan last
    year, but it is awaiting further reform steps by the Haitian
    Government in order to begin the disbursement.
        Senator McConnell. Well, I would like the list of all the
    nonreformers who have been denied loans.
        [The information follows:]
            Information on IDA Selectivity Based on Economic Reform
        Countries with the best policy performance received much higher IDA
    funding per capita over the last 3 years than countries with below-
    average policy performance. IDA-eligible countries who received the top
    rating in terms of their progress on economic reform received $13.4 per
    capita in IDA loans over the 1994-96 period. Those with the lowest
    rating received $1.1 per capita. Overall, 84 percent of IDA lending
    over this period went to countries rated average or better.
        Countries with very poor policy performance do not receive any
    funding from IDA. For instance, there has been no lending to Myanmar,
    Nigeria, Sudan or Zaire for a number of years. Other countries where
    poor policy performance has resulted in minimal levels of lending
    include Angola and the Central African Republic.
        IDA's objective is to concentrate its efforts in the poorest
    countries and in countries with the social and economic policies more
    conducive to development. Bolivia, Cote d'Ivoire, Mauritania and
    Vietnam are among the IDA-eligible countries with better policy
    performance and are also among the highest recipients of IDA lending.
        At the same level of income, the better the country's policies the
    larger the lending program IDA is prepared to undertake. For instance:
      --Mali and Niger have per capita GNPs in the $200-250 range but
            Mali's superior policies are reflected in recent annual lending
            averaging $9 per capita compared to $5 per capita for Niger;
      --IDA lending to Laos averages $9 per capita per year, while
            Cambodia's weaker policy performance results in lending of only
            $6 per capita there;
      --Malawi's policies have allowed IDA to lend an annual average of $12
            per capita to this very poor country (GNP per capita equal
            $160), while even poorer Tanzania (GNP per capita equal $130)
            received less than $4 per capita because of its much weaker
            policy performance; and
      --Senegal and Guinea both have GNP per capita in the $500-600 range
            but Senegal's policy performance warranted annual IDA lending
            of $12 per capita while Guinea's performance led IDA to limit
            lending to about $7 per capita.

                                   world bank

        Senator McConnell. The World Bank reports that 81 percent
    of the projects in Asia are in satisfactory shape--I think I
    mentioned this in my opening statement--compared with a 51-
    percent approval rating for African projects. Given this
    disparity, why are we only making a down payment, roughly, of
    $50 million out of $237 million on the Asian Development Fund's
    arrearage, while clearing all of IDA's, where more than a third
    of the lending is to Africa?
        Secretary Rubin. Let me take the first shot at that and
    then let me ask David to participate.
        I guess it would be my view, Mr. Chairman, that IDA is
    really dealing with the most difficult problems that we face
    right now in the developing world, and particularly in the case
    of Africa. And I think that that is where the largest amounts
    of money exist. That is where our influence can have the
    largest effect on the developing world. And I think it is where
    our credibility is most at stake if we do not pay back our
    arrears.
        So I think that clearly in IDA, which is the flagship
    multilateral development bank, and also the one that is in many
    ways dealing with the most serious issues that we need to face,
    we need to get ourselves back where we need to be. That would
    be my sort of overall, if you will, strategic----
        Senator McConnell. But in this particular situation, is not
    saying the poorer your performance, the more we will award you?
        Secretary Rubin. I do not think so, because I think you are
    dealing--and I will let David answer, because he can probably
    give you, in many ways, a more specific answer than I can--but
    I think that you are dealing with much more difficult
    circumstances in many cases when you look at the full range of
    the IDA portfolio than when you look at it from the point of
    the Asian Development Bank.
        David.
        Mr. Lipton. I think that we are concerned about the problem
    that you mention, the performance of projects and loans. We
    have tried to approach getting improvements in the banks by
    negotiating replenishments that we think suit the needs of the
    Bank, and trying to see that the lending is kept within the
    bounds of the resources available. We would like to see the
    arrears paid down to all the institutions.
        I think the reason we have focused on IDA first is, as
    Secretary Rubin mentioned, because it is the flagship bank and
    because of the very great attention that other donors have
    brought to bear on the arrears that we have had there for some
    time period.
        Secretary Rubin. You know, it just occurs to me, too, I was
    at lunch a few weeks ago over at the World Bank, and Jim
    Wolfensohn was talking with the representatives of the Board
    about the focus that he intends as he goes forward. He intends
    to have a heightened focus on the quality of the loan
    portfolio.
        And I think, you might be influenced by where you think
    they are going. Basically I think it is a strategic judgment of
    which institution should priority--of the importance of IDA and
    the importance of our making up our arrears, and of what they
    do with the breadth of countries they deal with, including, as
    I say, a lot of the most difficult problems in the developing
    world.
        Senator McConnell. Well, I look forward to getting the list
    of nonreformers who have been denied loans. My general reaction
    is that we have a different standard at work here. I think I
    hear you admitting that we have a different standard here,
    because of the problems.
        Secretary Rubin. You know, I am not sure it is not
    necessarily a different standard as much as it is that if you
    are going to deal with more difficult countries, I think you
    are going to wind up with lower success rates.
        Mr. Lipton. Yes; surely the problems in Asia in World Bank
    loans were greater when the Asian countries were not doing as
    well. And I think that their performance is surely improved in
    part because of the work that they have gone through with the
    World Bank, and now the performance numbers at the Asian
    Development Bank, in some measure, reflect that.
        Secretary Rubin. Just, if I may, make one other comment. I
    think it was last year that we did not fund the African
    Development Bank, was it not, because we really had lost
    confidence in the top management.
        Mr. Lipton. It was 2 years ago.
        Secretary Rubin. It was 2 years ago. If you felt at the
    World Bank you had a real lack of confidence in top management,
    then I think, Mr. Chairman, all of what I said notwithstanding,
    it seems to me that you might take the position that we are
    going to withhold funding or reduce it or one thing or another.
    But just exactly the opposite is the case--we have a president
    who we really have enormous confidence in, although I think he
    has got a very difficult job ahead of him.
        Senator McConnell. Well, speaking of Asia, why is IDA in
    China at all? I mean China is still getting IDA loans. Given
    the huge influx of private capital, why have not we graduated
    China from this kind of concessional lending?
        Secretary Rubin. David.
        Mr. Lipton. We have negotiated with other IDA donors that,
    following the next replenishment, the IDA 11 replenishment,
    China will be graduated. At present, we vote against all loans
    to China, all World Bank loans to China, besides those that
    satisfy basic human needs requirements, as a part of our China
    policy. We have a very great sympathy with the idea of
    graduation. And we have also been urging, I think with success,
    that the amount of funds that China will receive during IDA 11
    is diminished, and that then they are graduated thereafter.
        Senator McConnell. OK, I am going to stop my first round.
        Senator Leahy.
        Senator Leahy. Thank you, Mr. Chairman.
        I notice the budget agreement calls for $19 billion for
    international affairs, which is good; an additional $415
    million for U.N. and MDB arrears, but only if the Congress
    appropriates this additional money. Why this kind of
    arrangement?
        Secretary Rubin. You mean the arrearages money?
        Senator Leahy. Yes.
        Secretary Rubin. Well my understanding----
        Senator Leahy. Why not just put it in the budget right to
    begin with?
        Secretary Rubin. Yes; my understanding was that that was a
    function of some different views and degrees of enthusiasm
    amongst some of the participants. Your chairman is shaking his
    head, probably with respect to doing this. And so that was the
    technique that was developed. Is that a fair characterization?
        Senator McConnell. I think that is a fair characterization.
        Senator Leahy. Well, unfortunately, a lot of the Members of
    Congress have been able to contain their own enthusiasm for
    these arrearage payments. And this probably will not kindle--
    this arrangement probably will not kindle enthusiasm. But we
    will see what happens.
        Secretary Rubin. Well, it may not have been optimal, but it
    may have been the art of the deal.
        Senator Leahy. I understand. So you are telling me what I
    suspected.
        The MDB's do not really talk to many local people about
    what they are going to do on their loan decisions--at least I
    get that impression. It is sort of like an Olympian--we know
    better than all of you folks, so we will just kind of make up
    our mind in our board rooms and over our lunches and so on.
        I know the World Bank conducts environmental impact
    assessments before approving loans. But would it not make sense
    for them to go down and actually consult with the local people
    who are going to be affected, rather than just the Government
    or just some very high-level parts of government--especially in
    some of the countries where there is a lot of corruption at the
    highest levels?
        Mr. Lipton. Yes; I think that that is correct and I think
    it is something that we have been pressing the World Bank and
    the other development banks to do. I think it is something that
    Jim Wolfensohn has focussed on right now. An important part--
    perhaps the most important part of his strategic compact--
    involves moving to the field people with the responsibility to
    make decisions about the World Bank's lending operations, and
    having what they call greater front-line contact, in part, to
    increase the interactions that their staff have with people,
    not just the Government, but people who are affected by the
    operations that they undertake.
        Senator Leahy. Well, we also see this with the IMF. I mean
    the IMF has all this confidentiality, which strikes me as, you
    know, confidentiality is cover your ass kind of
    confidentiality. That is a parliamentary expression.
    [Laughter.]
        It is from an old Jefferson manual that is rarely used
    today. Mr. Lipton does not know quite what to do with that.
        Mr. Lipton. No; I appreciate the expression. [Laughter.]
        Senator Leahy. It is not unknown in the hallowed halls of
    the Treasury?
        Mr. Lipton. No; I have heard that. I have heard that
    expression. [Laughter.]
        Again, we have urged the IMF to publish its board papers.
    We have now gotten to a point where they publish the so-called
    recent economic developments papers. There are other member
    governments who probably allegedly heard that expression and do
    not want the so-called confidential assessments that the staff
    make of their economic policies to be published unexpurgated.
        Senator Leahy. And I understand that. But it is also you
    can kind of spin it out too far.
        Mr. Lipton. Oh, no; I agree.
        Senator Leahy. It is like for years the Department of
    Defense, the CIA, and everybody else in our own Government,
    everything was classified. Well, everything was classified
    because a lot of mistakes get covered up that way. Those who
    resist the Freedom of Information Act in our country, it is so
    often because it covers mistakes.
        And I realize you do not want to start looking for an
    assessment on a loan and topple a government doing it because
    of too much candor, but what I am concerned about, and I think
    it underscores my point, is that many times that is not the
    reason. Many times it is that a lot of these things just go
    belly up and nobody wants to ever have to take responsibility
    for it.
        Mr. Lipton. I think that is part of it. And I think that
    the point you made in your opening remarks about culture is an
    important part of it. I think that there has been a culture of
    closed, confidential operations at the IMF in particular, but
    also at the World Bank, for a long time. And I think,
    especially at the World Bank, Wolfensohn is trying to address
    that.
        And at the Fund, we continue to press for further
    disclosure of reports. There is now going to be so-called press
    information notices that summarize, somewhat expurgated, the
    conclusions that the IMF has made about a country's policies.
    We will continue to press to have candid assessments of the
    staff made public.
        Secretary Rubin. David, is not there also a new information
    disclosure--well, these new disclosure requirements that
    started about 6 months ago or something like that?
        Mr. Lipton. Yes; that is different. That is to get
    countries to reveal the data in a very transparent way, the
    data that describe economic developments in their countries.
        Senator Leahy. I am looking at a couple of the different
    things in the budget--the Middle East Development Bank, the
    North American Development Bank. You propose to fund the Middle
    East Bank with economic support funds rather than multilateral
    assistance. I suspect we are going to have precious few
    economic support funds, or ESF, to play around with, to say
    nothing about putting it in something like the Middle East
    Bank. And then we are already giving one-half our foreign aid
    to the Middle East. And we have got to rob this from somewhere
    else if we are going to put it there.
        Then you look at the North American Bank, which is on our
    border, there is pollution, a need for water treatment, waste
    disposal and all, that affects an awful lot of Americans very
    directly. If we have to choose between the Middle East
    Development Bank or the North American Development Bank, which
    one do we go with?
        Secretary Rubin. We would recommend you do both.
    [Laughter.]
        Senator Leahy. There are going to have to be choices. Do we
    go with U.S. interests along our border? Or do we say that we
    are already spending billions of dollars in the Middle East and
    maybe somebody else ought to help out?
        Secretary Rubin. Well, could I take one shot at that?
    Senator, if you take a look at the budget, at least as we have
    submitted it, all of this would fit within the budget that was
    part of the budget agreement. So I do not think you would
    actually be forced to make that choice unless----
        Senator Leahy. Well, if we take ESF funds, I mean we are
    going to take them from somewhere. There is not enough money to
    do some of the things we are now doing.
        Secretary Rubin. For the Middle East Development Bank you
    are talking about?
        Senator Leahy. Yes.
        Secretary Rubin. Yes, David?
        Mr. Lipton. Yes; I mean----
        Secretary Rubin. But that would not be a choice between
    that and the NAD Bank, I do not think.
        Senator Leahy. No; I know. But I am just saying that I do
    not think everything can be funded. That is what I am saying.
        Secretary Rubin. The use of the ESF funds, that is another
    question. David?
        Mr. Lipton. The Middle East Bank funding request is in the
    ESF mainly because it is understood that the success of that
    bank will come along with progress in the peace process. That
    is one where there would be multilateralization of our
    contribution. We hope still to entice other countries who have
    not yet joined that effort to do so.
        The North American Bank is very important to us.
        Senator Leahy. Which is more important?
        Mr. Lipton. I think that is a very hard question to answer.
        Senator Leahy. Well, I know it is a hard question. That is
    why I am asking you.
        Mr. Lipton. OK, I would say that the--in terms of the time
    priorities, I think it is unlikely that the Middle East Bank
    will be up and running until the peace process makes further
    strides and there is a greater coming together among the
    parties in the region about working together in such a
    cooperative way. So in terms of time priorities, I think that
    the North American Bank is now beginning to operate and will
    need these funds and is a very high priority.
        Secretary Rubin. But I guess I still do not quite
    understand why you frame the choice that way. And I do not
    profess----
        Senator Leahy. Well, because I think, Mr. Secretary, I am
    looking at this budget, and somehow everything that the
    administration wants is funded in here, but there are other
    things that the Congress wants that are different from the
    administration that are not funded if we fund all of the
    administration's priorities. So we are going to be making some
    choices. And I realize one is ESF and one is not.
        Secretary Rubin. That is what I meant.
        Senator Leahy. But at some point we have got to make
    choices. Do we really break arms and knuckles and all to fund
    one or fund the other? And if it is a question of which is more
    important to U.S. interests, which of the two?
        Secretary Rubin. The only reason I made my comment--I know
    there are a lot of people who felt the NAD Bank was sort of a
    concomitant part of NAFTA, to deal both with problems in
    communities with trade displacement problems as well as
    environmental problems, and that is listed in our list of
    multilateral development banks and the like, whereas the Middle
    East Development Bank was moved over to the ESF--was this year
    the first time?
        Mr. Lipton. This year.
        Secretary Rubin. Yes; this year for the first time. So I
    would have thought maybe--maybe this is wrong--but I would have
    thought maybe the choice with respect to the Middle East
    Development Bank was versus other items in that ESF account.
    That is all I meant.
        Senator Leahy. I would note just a couple of points in
    here, Mr. Chairman--that while our law says that the
    administration should oppose loans to countries that give
    sanctuary to war criminals, about 1 week ago Senator Lautenberg
    and I sent a letter to the Secretary urging a delay of a vote
    on a World Bank loan to the Government of Croatia for its
    failure to live up to its commitment to arrest and turn over
    war criminals.
        And I understand from a letter just received from Secretary
    Rubin that they had to support the loan because the State
    Department said to support the loan. And I understand that. I
    am not questioning, on a foreign policy issue like this, the
    ultimate call on something like that should be with the State
    Department. But a few days ago, I think the State Department
    was criticizing Croatia for not arresting war criminals. So I
    think it is an issue that, when Secretary Albright comes here,
    we should ask about. Because we either go after them or not. We
    are going to support the war crimes tribunal or not.
        Another thing I should note is that the World Bank is
    negotiating an agreement with Croatia. And they said they will
    support demining programs only if the Croatian Government
    agreed not to lay more land mines in their territory. I wish
    all the banks, if they are going to give countries money--and
    I, as you know, strongly supported demining efforts worldwide--
    they should be able to give you the money, but you should have
    to agree to stop using mines.
        I have other items that I will put into the record, Mr.
    Chairman. I probably caused enough confusion already this
    afternoon, or problems.
        Secretary Rubin. No, no; we appreciate the comments, and it
    gives us good things to focus on.
        Senator Leahy. And everybody else. My phones will be
    ringing off the hook now. Thank you.
        Senator McConnell. Thank you, Senator Leahy.
        Senator Bennett.
        Senator Bennett. Thank you, Mr. Chairman.
        Welcome, Mr. Secretary. I appreciate the opportunity of
    visiting with you in this forum, somewhat different from the
    one where we usually have contact.
        You talk in your formal statement about visiting Vietnam.
        Secretary Rubin. Yes.
        Senator Bennett. And you say, and I quote:

        I visited a school outside Ho Chi Minh City. I saw how
    World Bank funds provided for a new school building and
    textbooks for children. I only wish that every Member of
    Congress could see what our money buys.

        I have been to Vietnam and realize, with you, how poor a
    country that is and how much they need any kind of help they
    could get. But I would like to now go over the border, up to
    China, and raise the issue of whether or not the money that the
    World Bank is putting into China is going for schools and
    textbooks for children or in fact, since money is fungible, is
    it going for something else?
        Now, it may just be coincidence that World Bank loans for
    China last year were about $2.5 billion and Chinese purchases
    of weapons from Russia were about $2.5 billion. But, again,
    money is fungible, and it could well be that they say, well, we
    are spending your money on school buildings and textbooks for
    children, while we are spending our money on weapons from
    China.
        Are you aware that China has been engaged in a very
    extensive and expensive program of modernizing its strategic
    rocket forces and purchasing advanced weaponry from Russia?
        Secretary Rubin. Senator, I have a general awareness from
    discussions that I have been part of that they have been
    modernizing their military forces. You say, on the one hand,
    the World Bank--we do not support any loans with respect to
    China that do not go for what we call basic human needs. On the
    other hand, you correctly say that money is fungible. And in
    the final analysis, there is probably no way to really be
    strictly enforcing with respect to that.
        I think it may have been before you came in, but Secretary
    Lipton mentioned to the chairman that we have been a very
    strong supporter of China no longer receiving IDA funds. And
    they will graduate at the end of this IDA 11.
        Senator Bennett. Yes; I heard that, and I have the figures
    in front of me. Here is a report: ``China and the Multilateral
    Development Banks,'' done for the Congress by CRS over at the
    Library of Congress. Just from this report--and quickly, I will
    not expect you to get the numbers, but they are in the report
    and I will just run them down in a hurry--the World Bank gave
    China $1.5 billion--this is in 1996--$1.5 billion for
    infrastructure, $400 million for industry, $60 million for
    agriculture, $10 million more social sectors, $500 million for
    the environment--and the author of the report makes it clear
    that the word ``environment'' is being stretched enormously to
    cover just about anything--and nothing for economic reform.
        But you go down to IDA, they have nothing for
    infrastructure--$90 million for industry, 100 for agriculture,
    220 for social sectors, 50 for the environment, and nothing for
    economic reform. You begin to put these together--then you go
    down to the Asian Development Bank, they have got $652 million
    for infrastructure, 280 for industry, 70 for agriculture, 28
    for social sectors, 112 for the environment, and nothing for
    economic reform.
        You have three sources. You end up with $4 billion. And you
    blend them in these various categories, and each category gets
    funded fairly well. And they can say, yes, the IDA money is
    getting cut off, but we are going to pick it up from the Asian
    Development Bank or from the World Bank. And we are still going
    to buy weapons from the Russians, trying to build up a nuclear
    capability and maybe cause problems for their neighbors, and
    eventually for the United States. I think it is something worth
    raising and being concerned about.
        Secretary Rubin. When you say pick it up from the World
    Bank, Senator, I am sorry? Are you talking about the hard
    dollar window?
        Senator Bennett. Yes.
        Secretary Rubin. Yes; I would imagine--David, I do not
    know--that if they did not borrow it from the World Bank,
    giving that it is a hard dollar window, they could probably get
    comparable money in the private sector, I would think.
        Mr. Lipton. In some cases, I think that is true.
        Senator, I think you put your finger on a very important
    problem of fungibility which applies to China and other
    countries around the world. The World Bank tries as best it can
    to overcome the problem by trying to see that its loans, where
    it is supporting policy reform, are bringing changes that
    promote sound economic policies--our economic values. And there
    is some of that in the case of China.
        When they do project loans--and there is the issue of
    fungibility--they try to ensure that they are carrying out
    projects where there is some additionality, whether it is
    conveying expertise or in some way, whether it is working on
    environmental projects, where they can show that the Government
    would not or might not have done this on its own.
        But in the case of China, I think we concur with you that
    the overall risk of this is too great that China's policies are
    those that we do not support. We do not support lending there,
    and we try to convince other member countries of the World Bank
    to join us in this effort. We only support loans that are in
    the area of basic human needs, essentially for this family of
    reasons.
        Senator Bennett. Thank you. I appreciate hearing that. I am
    one who supports MFN for China. I think the worst thing we
    could do in terms of having an impact on China would be to
    withdraw, so that there would be no American influence there at
    all in economic terms. And the strongest American influence I
    think we exercise there is in terms of American companies who
    are there, who would be forced out if we were to deprive China
    of MFN. So I am not one who says, in the name of human rights
    or arms purchases or anything else, we should kill MFN for
    China.
        But I did want to raise the issue of Western money, using
    the term in a nongeographic sense--an ideological sense--
    Western money going into China so that they can then use the
    fungibility of that money to purchase weapons of mass
    destruction from the Russians and perhaps then import them for
    additional profits to the Iranians and the North Koreans, and
    there is some indication they are doing some of that.
        Thank you, Mr. Chairman. I have nothing further.
        Senator McConnell. Thank you, Senator Bennett.
        Just a couple of more, Mr. Secretary.
        As a lot of people predicted, the Bank has been pretty slow
    to achieve any measurable results in Bosnia. One of the
    explanations has been the requirement that the Bank work
    directly with the counterpart development agencies, which were
    of course shattered by the war. I wonder if you could give us
    an update on the Bank obligations in Bosnia. What have they
    actually accomplished and where?
        Secretary Rubin. Mr. Chairman, David Lipton has been the
    lead person in the United States Government on dealing with
    Bosnia with respect to all economic issues.
        Senator McConnell. OK.
        Secretary Rubin. David?
        Mr. Lipton. I think the Bank has played a remarkably
    constructive role in Bosnia. First, even before the Dayton
    negotiations, they helped to map out a reconstruction plan for
    Bosnia. They had relations with the Muslim authorities, the
    Bosnians, going back into the summer of 1995. They developed a
    recovery plan that had recovery, over the period to the year
    2000, rising to two-thirds of the prewar income. They developed
    sectoral plans for reconstruction, and they developed a basic
    policy framework.
        They began with the very difficult problem that Bosnia had
    inherited claims and debts to the World Bank upon the
    dissolution of Yugoslavia, and worked hard to find an
    imaginative way to in part get those repaid and in part get
    those rescheduled. And they began a lending program in the
    early part of 1996.
        They had to be a little unconventional in beginning to
    support Bosnia before there was an IMF agreement with Bosnia.
    This support came in essence, before the state institutions had
    come together. And so what they did was work with the Republic
    of Bosnia and with the Federation entity--one of the two
    entities under the Dayton process.
        At this point, the Bank has made one very substantial
    program loan. It is called a TAC loan. It was disbursed late
    last year. They have a number of project loans that they have
    prepared. They are awaiting--and I think it makes sense for
    them to--to await an IMF agreement. The IMF has been
    negotiating for most of this year with the State Government of
    Bosnia and the two entities, the Federation and the Republic of
    Srpska, to try and come together on a set of economic
    institutions, where the parties will cooperate, and a set of
    macroeconomic policies that makes sense for Bosnia.
        We believe that further large loans from the World Bank
    should wait until there is this overall cooperation structure
    and policy structure, but that then the World Bank should
    resume policy lending in that context.
        Senator McConnell. OK. Finally, I want to touch on the
    European Bank. It is rather impressive that the Bank has
    committed to self-sufficiency after the current capital
    increase. I am curious as to how they achieve that result and
    if we can expect any other bank to accomplish the same results.
        Secretary Rubin. David?
        Mr. Lipton. The European Bank is in a bit of a unique
    situation in that it supports transition in Eastern Europe and
    in the former Soviet Union. And I guess we all are hoping that
    transition will in fact be temporary. The replenishment doubles
    their capital base from $10 billion to $20 billion, roughly
    speaking. And they will have the ability to lend or invest out
    of the reflows from the first installment.
        But already the EBRD is beginning to graduate certain of
    the countries in central Europe, something that we have
    supported as long as graduation is not a cutoff that is
    absolute for countries. We believe that many of the countries
    in central Europe can be graduated from certain kinds of
    support as the private sector can pick that up, and that the
    Bank should turn its attention to the southern tier--Bulgaria
    and Romania--and to the parts of the former Soviet Union that
    really are now in greater need.
        But the approach that leads to declaring that they will not
    need any further capital is the idea that in another 10 years
    or so, really, the transition should be, as far as reforms are
    concerned and creating private sector institutions, the
    transition should be completed. And then a process of income
    convergence would continue for some years after that.
        Senator McConnell. Since we are the largest shareholder in
    that Bank, do you find it curious that we are between fourth
    and sixth in all of the procurement categories?
        Mr. Lipton. Yes; I believe that the last data I saw had us
    at fifth, with about 8-and-some-odd percent of the procurement,
    with about a 10-percent share. Typically, our shares for
    procurement are somewhat less than our shares of contributions,
    because borrowing countries are able to be in the procurement
    pool along with contributing countries. It is true that we are
    behind a couple of the borrowing countries, where there is a
    lot of local procurement that is allowed. I think we can
    provide you with a list of those.
        [The information follows:]

                         EBRD PUBLIC SECTOR PROCUREMENT
                           [Top 10 countries--1991-96]
    ------------------------------------------------------------------------
                     Country                  ECU million\1\      Percent
    ------------------------------------------------------------------------
    Germany.................................          204.77            11.3
    Italy...................................          183.63            10.1
    France..................................          161.13             8.9
    United States...........................          124.14             6.9
    Russia..................................          116.27             6.4
    Hungary.................................          115.37             6.4
    United Kingdom..........................           89.41             4.9
    Slovenia................................           89.12             4.9
    Poland..................................           79.53             4.4
    Finland.................................           57.95             3.2
    ------------------------------------------------------------------------
    \1\ Exchange rate on December 31, 1996 was 1ECU=$1.24.

        Senator McConnell. Anything we can do to improve that?
        Mr. Lipton. Well, I will grant that--I have heard
    complaints from U.S. companies who say that they feel that they
    should be doing better. And they suspect that the Bank is not
    being fair. We have pressed and will continue to press to see
    that American companies are treated fairly in this process. But
    I think that it would not really make sense to try to block the
    regional countries, the borrowing countries, from being
    involved in the procurement. It is really part of the effort to
    promote their private sectors, to try and get their private
    companies--in particular, construction companies--into the
    process.
        Senator McConnell. Senator Bennett, would you like another
    round?
        Senator Bennett. No, thank you, Mr. Chairman.
        Senator McConnell. I think we are essentially through, Mr.
    Secretary. Thank you very much for coming.
        Secretary Rubin. Mr. Chairman, thank you for having us.

                         Additional committee questions

        Senator McConnell. There will be some additional questions
    which will be submitted for your response in the record.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing.]
                         Additional Committee Questions
        Question. Mr. Secretary, I am concerned about the current number of
    cases involving expropriated property of American citizens abroad.
        Could you provide the subcommittee with a comprehensive list and
    approximate values of properties expropriated by foreign governments in
    which claims by American citizens have not been satisfied?
        Answer. This information is outside Treasury jurisdiction. I will
    have to refer this question to other agencies in the U.S. Government.
        [Clerk's note.--The Department of Treasury, or any other U.S.
    Government agency, was unable to provide an answer to any part of this
    question as of December 31, 1997.]
                                     ______

                   Questions Submitted by Senator Lautenberg
      upcoming votes on assistance to countries that may be harboring war
                                   criminals
        Question. What upcoming votes are there at the World Bank or any
    other international financial institutions for which you are seeking
    advice from the State Department with respect to implementing Section
    568 of the Foreign Operations Appropriations Act, 1997, concerning
    sanctions against countries that are harboring war criminals? What
    countries have you been advised are on the ``watch list'' because of
    their lack of cooperations with the war crimes tribunal?
        Answer. The State Department has cited concerns about Croatia's
    implementation of the Dayton accords, including its cooperation with
    the International Criminal Tribunal for Former Yugoslavia (ICTY). In
    March, at the State Department's request we instructed the U.S.
    Executive Director at the IMF to abstain in the vote on the proposed
    Extended Fund Facility arrangement for Croatia. Indeed we seek guidance
    from the State Department on all proposed IFI loans for Croatia. Also,
    we seek guidance from State on all IFI loans to Bosnia-Herzegovina that
    would benefit the Republika Srpska. Since Serbia-Montenegro is excluded
    from IFI membership under the ``outer wall'' of sanctions agreed by the
    international community, it is not eligible for loans from the IFIs.
        Rwanda is also on this list.
        Question. I have run up against obstacles in trying to obtain
    information about votes that are taking place in the IFI's. Can you
    provide me with a list of all World Bank and IMF votes related to
    Croatia, Serbia, and Bosnia that are projected to take place between
    now and the end of 1998, including a description of the projects to be
    voted on and the projected dates of consideration?
        Answer. The following is a tentative list of upcoming projects in
    the IFI's.
                                    croatia
    July
        World Bank Investment Recovery Project loan to four commercial
    banks for on lending to private sector and enterprises to be
    privatized; $30 million.
        EBRD equity investment to help establish the first venture capital
    fund in Croatia, the Croatia Capital Partnership Ltd; co-sponsors
    include privatized Zagrebacka Banka (with about 24 percent remaining
    ownership by State funds and State-owned companies, including State-
    owned companies in the process of privatization) and a group of British
    private investors; $5 million.
        IMF completion of first review under EFF Arrangement; SDR 28.78
    million (about $40 million).
        MIGA guarantee to Danish investor Brodrene Hartmann A/S for an
    investment in a privatized Croatian egg-packaging company, Hartmann-
    Bilokalnik Ambalaza d.o.o.; to be approved on a ``no objections''
    basis, unless 3 EDs request a Board discussion; $6.7 million guarantee.
        EBRD loan to the Government-owned National Agricultural Wholesale
    Market Company for on lending to 6 regional government-owned wholesale
    market companies; the project aims to improve the efficiency of
    wholesaling in Croatia's 6 largest cities; $17.9 million.
    Late July
        EBRD investment in privatization of Slavonska Banka; related to
    World Bank Investment Recovery Project above; $19 million.
    October
        EBRD multi-project facility for $50 million of equity investments
    with the Italian dairy products company, Parmalat SpA, in various
    countries of eastern Europe and the former Soviet Union; EBRD
    management would have the authority to decide on investing in these
    sub-projects, including possibly in Croatia.
    End of November
        EBRD discussion of its proposed investment Strategy for Croatia.
    December
        IMF Board's second review under Croatia's EFF Arrangement; SDR
    28.78 million (about $40 million) of immediate purchases will be
    authorized by Board, provided that Croatia has satisfied the end-
    September 1997 performance criteria. Another $40 million tranche would
    be authorized automatically in February 1998, if management determines
    that Croatia has satisfied end-December performance criteria.
        EBRD investment to support privatization of Slavonska Banka;
    related to World Bank Investment Recovery Project above; awaiting
    Government of Croatia decision; $19 million.
    Early 1998
        World Bank Municipal Environmental Infrastructure Investment
    Project loan to reduce environmental pollution by financing assistance
    to 6 municipalities to improve their wastewater collection, treatment
    and disposal systems; under preparation; $45 million.
        World Bank Municipal Environmental Infrastructure Investment
    Project loan to reduce environmental pollution by financing assistance
    to 6 municipalities to improve their wastewater collection, treatment
    and disposal systems; $41 million.
    January through March
        EBRD loan to a Croatian food company; at least DM 50 million.
    February
        IMF EFF tranche of SDR 28.78 million (about $40 million) becomes
    available without Executive Board review, provided Croatia has
    satisfied end-December 1997 performance criteria.
    February through March
        Possible IMF Board discussion of Article IV consultation on
    economic policies.
    March
        World Bank Railway Rehabilitation Project loan to rehabilitate the
    damaged railroad system including reintegrating the areas that had been
    under rebel Serb control; $100 million.
    No tentative date
        World Bank Public Sector Adjustment Loan to reduce recurrent public
    expenditures and improve the fiscal and regulatory framework of public
    finances; under preparation; $100 million.
        World Bank Public Sector Adjustment Loan to reduce recurrent public
    expenditures and improve the fiscal and regulatory framework of public
    finances; under preparation; $100 million.
        IFC loan and equity investment in partly privatized paper
    manufacturer, Belisce d.d., for modernization, environmental
    improvements and refinancing some existing loans; $13.4 million.
         bosnia-herzegovina (all dates tentative and subject to change)
    July
        EBRD investment in share capital of private sector bank, Market
    Banka, based in Sarajevo; Board approved with U.S. support; $1.5
    million.
    August
        IDA Interim Trust Fund credit for Emergency Wood Supply and Forest
    Management Project to rehabilitate harvesting capacity and support
    management of forest resources in the Federation and Republika Srpska;
    $7 million.
        IDA credit for Republika Srpska Reconstruction Assistance Project;
    finance imports of farm machinery and livestock, repairs of public
    apartment buildings, imports of road maintenance equipment and spare
    parts, repairs of water supply and sewerage systems, imports of
    critical parts to restore electric power supply and fiscal support;
    policy objectives are to reform trade policy, link and reintegrate
    infrastructure between the entities, and to assist RS economic
    recovery; $26 million.
        IDA Interim Trust Fund credit for Second Transport Reconstruction
    Project; support for reconstruction and rehabilitation of roads,
    bridges, tunnels, railways, and urban transit systems throughout the
    Federation and RS; $30 million.
        IDA Interim Trust Fund credit for Second Education Reconstruction
    Project; finance reconstruction of war-damaged schools, emergency
    delivery of textbooks and other educational materials, and support
    teacher education in the Federation and RS; $11 million.
    End-August
        EBRD investment in Horizonte Enterprise Fund; joint project with
    IFC; $5 million.
    September
        EBRD Emergency Power Sector loan; emergency renovations for three
    public utilities in Bosniak, Croat and Serb regions; $15.6 million.
        Possible IMF Standby Arrangement.
        EBRD equity investment in Horizonte Enterprise Fund which will
    invest in small and medium-sized enterprises in Bosnia and Herzegovina;
    joint project with IFC and Scandinavian Government-owned funds; $5
    million.
    October
        IDA Emergency Gas System Reconstruction Project credit to support
    reconstruction of transmission pipeline and distribution system in
    Sarajevo and to strengthen institutions; $25 million.
        EBRD loan to Sarajevska Pivara, partly privatized brewery in
    Sarajevo; joint project with IFC; $5.2 million.
    November
        IMF Board discussion of Article IV consultation on economic
    policies and institutions.
    December
        IFC loan to small private sector Sarajevo-registered firm, Akmeat--
    Akova Impex, to refurbish existing facilities and install new equipment
    for the production of hot dogs and other meat products; $1.8 million.
        IFC loan to socially-owned/state-owned pharmaceutical manufacturer
    Bosnalijek to refurbish existing facilities and install new equipment
    to modernize and expand production capacity for oral drugs; the company
    is to be privatized; $2.4 million.
    January
        IDA Republika Srpska Emergency Pilot Credit to provide line of
    credit to enterprises in Republika Srpska; $5 million.
    No tentative date
        EBRD Telecommunications Rehabilitation Project loan to 3 public
    utilities in Bosniak, Croat and Serb areas for emergency renovations;
    under preparation; $20 million.
        EBRD investment in Bosnia & Herzegovina Reconstruction Equity Fund,
    a small business venture capital fund; under preparation; $16 million.
        IDA Banking and Enterprise Privatization Project credit to support
    design and implementation of a privatization plan and to provide lines
    of credit to banks for restructuring; under preparation; $30 million.
        IDA Public Finance Reform Project credit to improve fiscal
    efficiency and ensure policies conducive to private sector led growth;
    under preparation; $million to be determined.
        IDA Second Electric Power Reconstruction Project credit to support
    rehabilitation of power stations and transmission and distribution
    networks; under preparation; $25 million.
        IDA Interim Trust Fund credit for Wood Supply and Forest Management
    Project to rehabilitate harvesting capacity and support management of
    forest resources in the Federation and Republika Srpska; $7 million.
        IFC Wood Sector Agency Credit Line to provide a line of credit to
    6-10 small and medium-sized wood sector enterprises in the Federation
    and Republika Srpska using up to 5 local commercial banks as IFC's
    agents; $10 million.
        IDA Republika Srpska Enterprise Credit to provide line of credit to
    enterprises in Republika Srpska; $5 million.
        EBRD Emergency Power Sector loan; emergency renovations for three
    public utilities in Bosniak, Croat and Serb regions; $15.2 million.
        IDA credit for Reconstruction Assistance (Republika Srpska)
    Project; finance essential reconstruction activities, including civil
    works for housing repairs and water supply system rehabilitation,
    imports for agriculture and repairs to electric power systems; also
    support economic reintegration of Bosnia through trade reforms;
    postponed from August 28 at U.S. request; $17 million.
                     prevent war criminals from benefiting
        Question. In a recent letter to Senator Leahy and me, you mentioned
    that the Treasury Department ``will continue to work closely with the
    World Bank to ensure that monitoring takes place to prevent any
    suspected war criminals from benefitting from Bank-administered
    loans.''
        Could you describe specifically what the Treasury Department and
    the World Bank have been doing in this regard?
        Answer. Treasury and State consult with World Bank staff in
    implementing the conditionality policy agreed upon by the international
    community to support those localities implementing the Dayton accords,
    including cooperation on war crimes issues, and to withhold support
    from those not implementing Dayton. These consultations include
    discussions of the loan pipeline.
        While the World Bank must be non-political, it wants to support the
    Dayton accords. In designing its projects, the Bank consults very
    closely with the Office of the High Representative, which advises
    donors on conditionality issues, including war crimes issues.
        Question. Are the ownerships and boards of recipient companies or
    entities checked in some fashion to ensure that the indicted do not
    benefit? Is there written material describing this process? Who is
    responsible for doing so?
        Answer. So far, the Bank has done very little lending involving
    companies in Bosnia. The Bank's Project Implementation Units (PIUs) are
    under a commitment to screen all proposed disbursements. The PIUs are
    audited much more frequently in Bosnia than elsewhere, because of
    general concerns about corruption as well as war criminals.
        As part of its due diligence, the Bank audits the PIUs more
    frequently, and consults with the OHR and with NGOs and other
    particular groups about corruption and war crimes issues.
        So far the Bank's projects have never benefitted war criminals.
                          middle east development bank
        Question. The United States was a leader in the effort to create
    the Bank for Economic Cooperation and Development in the Middle East
    and North Africa (MEDB), and effort which I strongly supported. The
    MEDB is a key element of the effort to strengthen the economic
    foundation that will be essential if we are to have a lasting peace in
    the Middle East.
        Why has the Administration proposed funding the Bank out of
    Economic Support Funds (ESF) instead of funding it directly as is done
    with other regional development banks?
        Answer. It is most appropriate to use ESF to support the Bank
    because the mission of the Bank is closely linked to the political and
    economic objectives of ESF.
        The Bank originated as a joint proposal by the four core parties in
    the peace process: Egypt, Israel, Jordan and the Palestinians.
        The Bank will be a major presence in the Middle East, helping to
    lock in the political commitment to peace and regional economic
    cooperation. The regional parties will be able to demonstrate the
    concrete economic rewards of cooperation.
        Question. What do you see as the prospects for getting the Bank off
    the ground during the coming year?
        Answer. The MEDB Articles of Agreement will enter into force--
    allowing the Bank to begin operations--when shareholders with 65
    percent of the agreed subscriptions ratify the Articles. Since the U.S.
    represents 27 percent of the agreed subscriptions, entry into force
    could theoretically occur without U.S. involvement but it is highly
    unlikely given the importance of a U.S. role.
                     international development association
        Question. I am concerned about funding for the International
    Development Association (IDA) which lends money on concessional terms
    to the poorest countries of the world. Because of U.S. failure to pay
    our entire contribution to the tenth replenishment to IDA, other donors
    have had to fill in the gap for fiscal year 1997, and U.S. companies
    have been excluded from a portion of this year's IDA procurement. I'd
    like for you to clarify on the record what effect our arrears to IDA
    have in poor countries and on the U.S. leadership role in the world?
        How effective has IDA lending been in terms of economic development
    and poverty alleviation?
        Answer. Because of its focus on poverty alleviation, IDA has made a
    significant contribution to poverty alleviation. Below are cited some
    of the strongest indicators of how poverty has been reduced in the last
    several decades. We believe that many of these improvements would not
    have come about were it not for IDA. The U.S. role in guiding the IDA
    and the other MDBs in the last 50 years has focused and shaped their
    operations, tangibly improving the lives of millions in the developing
    world, and making poverty reduction a primary goal. Even though it may
    not always appear so, life in even the poorest countries has improved
    dramatically in many respects, thanks in large part to the efforts of
    the IDA and the other IFIs. Since 1970, in the poorest countries (with
    incomes less than $700 in 1993) the following results have been
    achieved:
      --Fertility rates and infant mortality rates are both down 40
            percent.
      --The number of children enrolled in secondary schools has nearly
            doubled from 22 percent to 42 percent and primary school
            enrollment has increased 36 percent.
      --Literacy rates have risen 33 percent.
      --Life expectancy has increased from 54 to 62 years.
      --The percent of people with access to safe drinking water has risen
            from 22 percent to 69 percent.
        Question. How effective has IDA lending been in terms of opening up
    new markets for U.S. goods and services?
        Answer. Building new markets in the developing world is critical to
    U.S. economic interests as long as our domestic growth continues to
    rely heavily on exports. Thirty-five percent of our economic growth
    over the last five years has come in the export sector. With exports to
    developing countries now 42 percent of total exports and growing at
    nearly twice the pace of those to industrialized countries, we need to
    nurture stable, growing trading partners to ensure our future
    prosperity. IDA graduates purchased $65 billion in U.S. exports in
    1996, up from $61 billion in 1995. Current IDA borrowers purchased $27
    billion in U.S. exports in 1996.
        Question. Has the United States lost influence with other donor
    countries and the general direction of the IDA program because of its
    failure to fully fund its contribution to the tenth replenishment?
        Answer. When the U.S. does not make its payments, our influence
    does indeed erode. We are regularly pushing the Bank to accomplish
    reforms and enact policies that we believe are important to improving
    the Bank's development potential, but by not paying IDA-10 on time, we
    lost our leverage in pushing our initiatives forward.
        Our IDA-10 payments should have been completed in fiscal year 1996.
    The Bush administration negotiated the agreement and Congress
    authorized it. In fiscal year 1997 we put no new money toward IDA and
    instead put our full appropriation toward paying off arrears. The U.S.
    was faced with being the only country to fall three years behind its
    commitment. Prompt payment of arrears is essential for any country's
    credibility, but particularly for the U.S. since we control such a
    large part of the voting shares.
        Our future commitments to IDA and the rest of the MDBs have been
    reduced by 40 percent. With full MDB arrears clearance, we will be able
    to fund all of the MDBs, including IDA, for less than we used to pay
    for IDA alone.
        Question. In your opinion, is the U.S. share of the next IDA
    replenishment (the eleventh) fair?
        Answer. The U.S. pledge of $800 million per year for two years is
    40 percent less than the prior annual commitment to IDA-10 of $1.25
    billion per year, which had been negotiated by the previous
    Administration. The overall level of IDA concessional lending is
    expected to average over $7 billion per year despite the U.S. reduction
    in funding, with World Bank net income, carryover of IDA-10 resources,
    and IDA repayments making up for lower donor contributions. Thus, the
    U.S. share is fair not only for the U.S., but also for the Bank.
                                     ______

                    Questions Submitted by Senator Campbell
                             denver summit of eight
        In June, my home state of Colorado will host the Denver Summit of
    Eight, which will bring together leaders of the seven major
    industrialized nations and Russia for three days to discuss economic
    and monetary policy.
        This meeting marks an historic change in the format for the G-7
    Summit. For the first time in the 23-year history of these economic
    summits, Russia will participate as a member, rather than as an
    observer.
        Question. The United States provides millions of dollars in foreign
    aid to Russia. What additional steps can the United States take at the
    summit to improve the climate in Russia for American businessmen and
    women?
        Answer. For the past five years, U.S. assistance to Russia has been
    aimed chiefly at promoting the country's transition to a market-
    oriented economy. Through our intensive work with the international
    financial institutions and bilateral efforts through the Gore-
    Chernomyrdin Commission, the US has helped Russia stabilize its economy
    and advance the process of improving the country's investment climate.
    We have been and continue to promote legal reform and the development
    of regulatory mechanisms in Russia that are vital to enabling American
    and other foreign investors to participate in the many opportunities
    available in Russia on an equal footing with domestic investors, and to
    create an environment in which investors can be confident of a return
    ontheir capital as well as return of their capital. Our efforts have
    been aimed at critical areas including:
      --Reforming Russia's tax system to promote lower rates that are more
            uniformly applied and enforced across taxpayers.
      --Advancing Russian legislation pertaining to Production Sharing
            Agreements (PSAs) that could open the way for US companies to
            participate in the development of Russia's vast energy
            resources.
      --Reducing onerous licensing requirements faced by both foreign and
            domestic firms, involving payment of fees and administrative
            burdens, which could stop even a highly motivated entrepreneur
            from starting a legitimate enterprise.
        The upcoming summit provides us with an excellent opportunity to
    engage Russia's leadership at the highest levels in an effort to
    advance these critical reforms.
        Question. What are some of your goals for the United States during
    the Summit of Eight?
        Answer. Treasury's work for the Denver Summit is focused on Summit
    Leaders' economic and financial discussions. We anticipate three chief
    themes: financial stability; development, with a special focus on sub-
    Saharan Africa; and cooperating to combat international financial
    crimes.
        At the Denver Summit, we intend to build on the financial stability
    accomplishments from Halifax and Lyon to manage the risks presented by
    globalization of financial markets, such that a financial crisis
    originating in a major financial institution or market is less likely
    to spill over to other markets. Special working groups have been
    preparing reports on improving prudential standards for emerging market
    countries,
        We will work to improve governance, which is crucial to sustainable
    economic development, by asking IFIs to help countries combat
    corruption and reduce incentives and opportunities for corrupt
    practices, and regional development banks to collaborate fully with
    World Bank efforts to raise public procurement standards worldwide.
        We will seek Summit Leaders' endorsement of the OECD Ministers'
    call to eliminate tax deductibility of bribes, and to negotiate by
    year-end a high standard international convention to criminalize
    bribery, to submit national criminalization legislation by April 1,
    1998, and to seeks its enactment and convention entry-into-force by the
    end of 1998.
        We will particularly focus our development attention on Sub-Saharan
    Africa, committing to improve their exports' access, and to consider
    strengthened assistance for reforming countries with the greatest need.
    We will examine our own bilateral aid and trade promotion programs to
    ensure their support for climates conducive to economic growth, and to
    strengthen cooperation among concerned institutions to facilitate and
    coordinate capacity building efforts. We also will urge IFIs to
    strengthen efforts to support reforming Sub-Saharan African countries,
    reporting on implementation at the September World Bank/IMF annual
    meeting.
        We will seek Summit countries' commitments to help reduce
    international financial crime, including money laundering, through
    endorsing an expansion of the Financial Action Task Force, which is
    leading the international fight against moneylaundering, and mandating
    recommendations on strengthening international cooperation between law
    enforcement and financial regulatory agencies on international cases
    involving serious financial crimes and regulatory abuse.
        Question. What are the implications for the United States from the
    change in Russia's status at the summit?
        [Clerk's note.--The Department of Treasury was unable to provide an
    answer to any part of this question as of December 31, 1997.]
                                     ______

                     Questions Submitted by Senator Bennett
        Question. When will the World Bank's new policy on child labor be
    finalized and how will it be carried out?
        Answer. The World Bank paper on child labor is expected by the end
    of the year. We will work with the Bank on full and rapid
    implementation of the measures in the paper.
        [Clerk note.-- Prior to the subcommittee publication date, the
    World Bank completed the Child Labor Report and Treasury has submitted
    it to the subcommittee.]
        Question. What is the U.S. position on Asian Development Bank
    funding for the military regime in Burma i.e., the SLORC?
        Answer. Public Law 104-208, the Fiscal Year 1997 Foreign Operations
    Appropriation Act, requires the United States to vote against
    assistance to Burma in any of the IFI's until the President determines
    and certifies to Congress that Burma has made progress in improving
    human rights practices and implementing democratic government. Since
    1988, no new loans or technical assistance of any kind had been
    extended to Burma from the ADB. The U.S. has been one of the most
    active Bank members in ensuring that the military regime receives no
    funding.
        Question. The Congressional Research Service \1\ judges that the
    Chinese Government will not borrow market rate money to fund social
    programs and non-commercial agriculture. Does Treasury agree with this?
    ---------------------------------------------------------------------------
        \1\ Document 97-518 F [summary page].
    ---------------------------------------------------------------------------
        Answer. China has generally been unwilling to borrow at market
    rates for social programs and non-commercial agriculture. We have no
    reason to expect that this position will change.
        Question. About how much has the World Bank lent to China since
    1985?
        Answer. The total amount from IDA and the IBRD since 1985 is $25.3
    billion.
        Question. Is it not true that the Chinese government has been
    engaged in a multi-billion dollar strategic and advanced conventional
    weapon acquisition program?
        Answer. China is seeking to modernize its forces, but increases in
    spending are not dramatic and much spending has gone for increased
    personnel costs.
        Most of China's weapons technologies are 30-40 years behind those
    of the U.S. China's power projection capability is rudimentary and its
    sustained power projection ability virtually non-existent.
        Question. Does not World Bank Group support for social programs and
    non-commercial agriculture allow the Chinese Government to divert
    resources to modern weapons programs?
        Answer. As China develops economically, it seeks funding from MDBs,
    like other developing countries. Through our engagement policy, we are
    attempting to develop a relationship that will encourage China to
    accept what we believe to be true--that it will be able to find greater
    security inside, rather than outside, the international system.
        Encouraging China's economic reforms and its integration into the
    world economy--including through MDB programs--is a key part of our
    engagement strategy.

                              subcommittee recess

        Senator McConnell. The subcommittee will stand in recess
    until 10:30 a.m., Thursday, May 22 when we will receive
    testimony on the fiscal year 1998 budget request from the
    Secretary of State, Hon. Madeleine Albright.
        [Whereupon, at 3:43 p.m., Tuesday, May 20, the subcommittee
    was recessed, to reconvene at 10:30 a.m., Thursday, May 22.]

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

                                  ----------

                             THURSDAY, MAY 22, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:35 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Mitch McConnell (chairman)
    presiding.
        Present: Senators McConnell, Specter, Bennett, Campbell,
    Stevens, Leahy, Lautenberg, Mikulski, and Murray.

                              DEPARTMENT OF STATE

                            Office of the Secretary

    STATEMENT OF HON. MADELEINE K. ALBRIGHT, SECRETARY OF
                STATE

                    opening statement of senator mc connell

        Senator McConnell. This hearing will come to order.
        I want to welcome the Secretary of State again this year,
    although in a different capacity.
        This week the Senate will pass a budget resolution which
    increases funding for the administration of America's
    international relations. This is a very positive, important
    development which you have vigorously promoted and for which
    you deserve high praise. Senator Leahy and I have been waging a
    campaign for several years to add $1 billion back to the
    function 150 account, but were unable to persuade the White
    House or the State Department of the urgency of the crisis in
    previous years.
        I want to say, Madam Secretary, I know that you weighed in
    on this issue this year. I want to congratulate you for your
    success in that regard. We intend to support your request here
    in the Congress on a bipartisan basis.
        Reacting to a perception of public indifference, the
    administration has been fundamentally averse to accepting the
    price of our global responsibilities. It has been clear to me
    for some time that public opposition to all things foreign has
    been greatly exaggerated. The proof is evident in the
    consistently strong votes for the subcommittee's bills.
    Unfortunately, it is also clear that we could not strengthen
    funding levels without the administration's commitment to the
    effort which, as I indicated, you have skillfully engineered.
    Your fresh perspective has made a decisive difference and we
    thank you for that.
        The increase is vital to our interest and it is certainly
    well-timed. The world today seems relatively peaceful,
    particularly when compared to the past violence in Central
    Africa, Central America, Bosnia, Chechnya, and Cambodia. For
    more than a decade, few continents have been conflict free.
    However, I believe we should all be cautioned. The absence of
    conflict must not lull us into a false sense of security, a
    sense which could suggest that it is time to withdraw from the
    rest of the world. To the contrary, our times are framed by
    high expectations and real risks, enormous opportunities and
    steep costs. Stability, the hallmark of success, hinges on a
    durable, believable American commitment to steady leadership
    and sustained engagement.
        Let me illustrate my point by turning to two examples,
    Bosnia and Cambodia, where a heavy investment of American
    credibility and resources has reduced tensions but not yet
    solidified democracy or economic growth. Indeed, I worry that a
    false sense of security risks a return to conflict.
        A few weeks ago, I met with Bosnian Minister Silajdzic who
    identified the three top issues which I agree must be addressed
    for his country to survive. They are reconstruction, refugee
    resettlement, and war crimes.
        Tuesday, when Secretary Rubin testified, I raised my
    concerns about the slow pace of the World Bank reconstruction
    efforts. While our bilateral aid program is in reasonably good
    shape, with more than $400 million committed of the $600
    million pledged, standing alone it is insufficient to meet the
    urgent and massive requirements. The bank must accelerate the
    commitment of funds.
        The more intractable issues which I urge you to focus on
    today are the safe resettlement of the displaced and refugee
    population and the arrest and prosecution of war criminals. We
    probably all need a better sense of how our aid program is
    facilitating solutions.
        As an outspoken critic of the atrocities committed to
    achieve ethnic cleansing, I know you share the view of many on
    this subcommittee that reconciliation and peace in Bosnia are
    not possible without the moral reckoning envisioned by the war
    crimes tribunal. However, it seems this worthy idea is
    foundering. Short of a major renewed effort when our troops
    withdraw, I fear Bosnia will once again disintegrate into
    conflict, and this time with an American arsenal. In this
    context, I am especially interested in hearing your perspective
    on how our assistance program might be used to prompt the
    regions leaders to turn over war criminals.
        Cambodia presents similar problems and opportunities to
    leverage our aid. After $3 billion and a major international
    peacekeeping intervention, we all had high hopes Cambodia would
    recover from the savage legacy of the Khmer Rouge killing
    fields. Instead, we have seen Hun Sen systematically destroy
    the legitimate political opposition. Easter Sunday at a rally
    against government corruption, four grenades were tossed into
    the crowd, killing 16 and injuring more than 80 people,
    including 1 American.
        Madam Secretary, this incident is a part of an ominous
    pattern which threatens Cambodia's future and the region's
    stability. Our policy should express clear and unequivocal
    opposition to political violence. Our aid must leverage
    judicial reforms, the protection of a free press, and an
    immediate end to the campaign of terror and violence against
    legitimate political parties.
        We also should concentrate our considerable influence and
    resources in support of a regulatory framework and institutions
    to assure the elections scheduled for next year are conducted
    in a free and fair manner. We are 18 months from elections and
    there is no census, no voter rolls, no independent election
    commission, nor an agreed draft to electoral law.
        These are two trouble spots that have the potential to
    challenge, if not jeopardize, our political interests in
    European stability and our economic stakes in expanding
    prospering markets in Asia. As threats they hardly stand alone.
    Beneath a surface calm, there are countless problems which U.S.
    diplomacy and dollars are in a unique position to prevent or
    resolve. To summarize just a few, NATO expansion, so key to
    European stability, began and has been sustained, obviously, by
    American security assistance and leadership. Peace on the
    Korean peninsula assumes an American role. A solution to the
    stalemate between Armenia and Azerbaijan depends on United
    States aid and meaningful participation in the Minsk group.
    Zaire's troubles are far from over and should Mr. Kabila commit
    to a democratic course, he will need all the assistance we can
    offer to reconstruct that shattered nation. And, finally, our
    active leadership is essential in the effort to restore Aung
    San Suu Kyi to office and democracy to Burma.

                               prepared statement

        I welcome your energy and your activism. We are looking
    forward to this hearing.
        I am going to call on my dear colleague, Senator Leahy, the
    ranking member, and then we will hear from you, Madam
    Secretary. Senator Leahy.
        [The statement follows:]

                    Prepared Statement of Senator McConnell

        This week, the Senate will pass a budget resolution which
    increases funding for the administration of America's
    international relations. This is a very positive, important
    development which you vigorously promoted and for which you
    deserve high praise. Senator Leahy and I have been waging a
    campaign for several years to add $1 billion back to the
    function 150 account, but were unable to persuade the White
    House or State Department of the urgency of the crisis.
        Reacting to a perception of public indifference, the
    Administration has been fundamentally averse to accepting the
    price of our global responsibilities. It has been clear to me
    for some time that public opposition to all things foreign has
    been greatly exaggerated; the proof is evident in the
    consistently strong votes for this Subcommittee's bills.
    Unfortunately, it was also clear that we could not strengthen
    funding levels without the Administration's commitment to the
    effort which you skillfully engineered. Your fresh perspective
    has made a decisive difference.
        The increase is vital to our interests and well timed. The
    world today seems relatively peaceful, particularly when
    compared to the past violence in Central Africa, Central
    America, Bosnia, Chechnya, and Cambodia. For more than a
    decade, few continents have been conflict free. However, I
    believe we should all be cautioned--the absence of conflict
    must not lull us into a false sense of security, a sense which
    could suggest it is time to withdraw from the world. To the
    contrary, our times are framed by high expectations and real
    risks, enormous opportunities and steep costs. Stability, the
    hallmark of success, hinges on a durable, believable American
    commitment to steady leadership and sustained engagement.
        Let me illustrate my point by turning to two examples,
    Bosnia and Cambodia, where our heavy investment of American
    credibility and resources has not yet produced either
    prosperity or stability. Indeed, I worry that a false sense of
    security risks a return to conflict.
        A few weeks ago, I met with Bosnian Minister Silajdzic who
    identified the three top issues which I agree must be addressed
    for his country to survive. They are reconstruction refugee
    resettlement and war crimes.
        Tuesday, when Secretary Rubin testified I raised my
    concerns about the slow pace of the World Bank reconstruction
    efforts. While our bilateral aid program is in reasonably good
    shape, standing alone it is insufficient to meet the urgent and
    massive requirements. The Bank must accelerate the commitment
    of funds.
        The more intractable issues which I urge you to focus on
    today are the safe resettlement of the displaced and refugee
    population and the arrest and prosecution of war criminals. We
    probably all need a better sense of how our aid program is
    facilitating solutions.
        As an outspoken critic of the atrocities committed to
    further ethnic cleansing, I know you share the view of many on
    this Subcommittee that reconciliation and peace in Bosnia are
    not possible without the moral reckoning envisioned by the war
    crimes tribunal. However, it seems this worthy idea is
    foundering. Short of a renewed effort on the order of magnitude
    of the Dayton negotiations, I fear Bosnia will once again
    disintegrate into conflict, and this time with an American
    arsenal. In this context, I am especially interested in hearing
    your perspective on how our assistance program might prompt
    improved cooperation from the region's leaders.
        Cambodia presents a similar problem and opportunity to
    leverage our aid. After $3 billion and a major international
    peacekeeping intervention, we all had high hopes Cambodia would
    recover from the savage legacy of the Khmer Rouge killing
    fields. Instead, we have seen Hun Sen systematically destroy
    the legitimate political opposition. Easter Sunday, at a rally
    against government corruption, four grenades were tossed into
    the crowd killing sixteen and injuring more than eighty people,
    including one American.
        Secretary Albright, this incident is part of a ominous
    pattern which threatens Cambodia's future and the region's
    stability. Our policy should be clear and unequivocal in
    opposition to political violence. Our aid should leverage
    judicial reforms, protection of a free press, and an immediate
    end to the campaign of terror and violence against legitimate
    political parties. We also should concentrate our considerable
    influence and resources in support of a framework and
    institutions to assure the elections scheduled for next year
    are conducted in a free and fair manner.
        These two trouble spots have the potential to challenge, if
    not jeopardize, our political interests in European stability
    and our economic stakes in expanding prospering markets in
    Asia. As threats, they hardly stand alone. Beneath a surface
    calm, there are problems which U.S. diplomacy and dollars are
    in a unique position to prevent or resolve. Peace on the Korean
    peninsula assumes on an American role. A solution to the
    stalemate between Armenia and Azerbaijan depends on U.S. aid
    and meaningful participation in the Minsk group. Zaire's
    troubles are far from over and should Mr. Kabila commit to a
    democratic course, he will need all the assistance we can offer
    to reconstruct his shattered nation. And, finally, our active
    leadership is essential in the effort to restore Aung San Suu
    Kyi to office and democracy to Burma.
        I welcome your energy and activism and look forward to your
    assessment of our place in the world today.

                        opening remarks of senator leahy

        Senator Leahy. Thank you, Mr. Chairman.
        Madam Secretary, it is a pleasure to have you here.
    Secretary Albright and I have known each other I think almost
    from the first month I came here to the Senate, and I do not
    think there was anybody more pleased than I and the other
    members of the Leahy family when she was nominated and then
    confirmed to be our Secretary of State.
        I want to echo what Chairman McConnell said about the time
    and effort you have devoted to winning support for additional
    resources for foreign assistance. Sometimes some of your
    predecessors did not recognize what you obviously know so well,
    that you can have the greatest policies in the world, but if
    you do not have the resources to carry them out, they are not
    much more than historical talking points that will be in
    somebody's archives somewhere. You want them to be enacted, not
    archived, and I agree with you on that.
        Our foreign assistance budget has been dangerously
    underfunded since the end of the cold war. Now, that in not to
    say that some of the programs we had were not in dire need of
    reform. We threw away money in Zaire and in Central America. We
    propped up some of the world's worst dictators. We ignored
    pressing development needs. We could have used our money more
    wisely during that period.
        But that time is gone. Now we have new challenges. The news
    from the Budget Committee has been encouraging. As Senator
    McConnell said, he and I have consistently called for the funds
    necessary for the United States to play a leadership role in
    the world. We have done this under both Democrat and Republican
    Presidents. So, you have some dependable allies here both among
    Republicans and Democrats.
        I will make one other point. It is also a point you have
    made very strongly. There is no substitute for American
    leadership. We are the wealthiest, most powerful, Nation on
    Earth. No democracy in history has ever attained what we have,
    but we should not just slap ourselves on the back. It has a
    whole lot of leadership responsibilities that go with it. We
    are not or should not be an isolationist country. We have
    responsibilities worldwide and you, Madam Secretary, have shown
    a willingness to face up to those responsibilities and those
    opportunities as much or more than anybody I know. Whether it
    is protecting the Earth's environment or controlling the spread
    of plutonium, or building global defenses against health
    epidemics or fighting international organized crime, or banning
    the use of antipersonnel landmines, it is not going to happen
    unless we set the example and push forward. These are immensely
    difficult challenges and I am going to do whatever I can to
    support you when I can.
        But I also hope that you will encourage the administration
    to challenge conventional wisdom. Take risks. Not everything we
    do is going to work out. Not everything is going to be
    successful. Not everything is going to be politically popular.
        I think of the Marshall plan. When President Truman
    proposed that, I think it had around 10 percent support or less
    in this country. Think what the world would be like today if he
    had not persisted.
        Take risks. It is the only way we can leave the past behind
    and seize what I think are the opportunities of a very unique
    period in our history as we go into this new millennium. You
    and I spoke a little bit about these challenges yesterday, in
    Bosnia and the Middle East, China and Central Africa. Your
    plate is overflowing and more so all the time.
        I think it is time for the United States to push hard for
    solutions. Do not hold back.
        Obviously, one area that I have always been concerned about
    is antipersonnel landmines. They maim or kill somebody every 22
    minutes. The United States has proudly taken strong steps on
    the Test Ban Treaty on Nuclear Weapons by taking the initiative
    and going first. We have taken strong steps in the Chemical
    Weapons Convention by taking the initial steps unilaterally and
    going forward. Landmines have killed a lot and maimed a lot
    more innocent people than chemical weapons or nuclear weapons.
        Yesterday the British Government announced they will sign a
    treaty banning the weapons at Ottawa this December, the United
    States should do that. We ought to be leading the world, not
    sitting on the sidelines on such an important moral issue. We
    need the kind of leadership, Madam Secretary, that you showed
    so courageously at the United Nations, and I would urge the
    President and the administration to look back at how well you
    did there and let us move forward on this. Several of us,
    including around this table, on both sides of the aisle, will
    continue to push it. Thank you again for being here.
        Thank you, Mr. Chairman.
        Senator McConnell. Madam Secretary, before turning to you,
    we have the honor this morning of having with us the
    distinguished chairman of the full Appropriations Committee,
    Senator Stevens. Do you have any opening observations, Mr.
    Chairman?

                       opening remarks of senator stevens

        Senator Stevens. Thank you, Mr. Chairman. I have just come
    to welcome the Secretary to our committee for the first time
    since I have been chairman. As we remarked coming in, we have a
    longstanding, almost family relationship, and I am delighted
    that you are here.
        I have only one comment. I am sending you a letter, Madam
    Secretary, about the recent statement of the Canadian
    Government that they will once again put fines on fishing
    vessels coming up into the waters off Alaska from Seattle and
    Portland. We went through that once before and finally got a
    bill passed that the President signed to repay all of those
    people who paid fines to the Canadian Government before. It is
    a government responsibility to maintain the freedom of the
    seas, and I hope that we are able to do that.
        I do not ask any questions now. Maybe Senator Murray will
    ask questions about it when she gets the opportunity. I am
    going back to the conference, but I do welcome you.
        I want to say, as chairman, I have been very appreciative
    of the State Department under your administration responding
    promptly to our requests. We have had just excellent
    cooperation with the committee since you have become Secretary,
    and I welcome that. I am sure all the members do. Thank you
    very much.
        Secretary Albright. Thank you very much.
        Senator McConnell. Thank you very much, Mr. Chairman.
        We are going to have a vote in about 10 minutes, but what
    we are going to try to do here is go on and get started, and if
    we have to have a break, it will be a very brief one. We will
    just run over and vote and come right back.
        So, Madam Secretary, we look forward to hearing from you.

                  summary statement of hon. madeleine albright

        Secretary Albright. Thank you very much, Mr. Chairman. I
    really am delighted to be here this morning on such a fine day
    in this auspicious spring, a spring in which two teams from
    your State made it to the final eight at the NCAA basketball
    tournament, in which Senator Mikulski's Orioles for which I
    started out are in first place, and in which Senator Leahy can
    look forward to a new Batman movie. [Laughter.]
        And in which the executive branch and Congress are moving
    rapidly toward agreement on a budget resolution.
        I am most heartened by the budget resolution in that it
    treats international affairs as the priority it is, and I very
    much appreciate not only your kind words, but also the help of
    many members of this subcommittee in achieving what we have
    gotten. I think we are all in this together, and I thank you
    all very much for your support on this.
        Now that the action moves here to appropriations, I hope
    that this subcommittee and the subcommittee chaired by Senator
    Gregg will receive large enough allocations to fund our arrears
    to the United Nations and the multilateral banks, while also
    meeting the President's request for current year funding for
    our foreign operations programs.
        These programs are designed to protect the interests of our
    citizens in an age when national borders are porous, markets
    are global, and many of the threats to our safety and security
    cannot be dealt with by any one nation acting alone.
        Mr. Chairman, the subcommittee has my written statement
    which, as I am assured by those who wrote it, is brilliant in
    its entirety. [Laughter.]
        Senator McConnell. That will be made a part of the record.
        Secretary Albright. However, to save more time for
    questions and to keep us all awake, I will focus my oral
    remarks on programs or policies that relate directly to this
    funding request as opposed, for example, to NATO enlargement or
    our China policy and that I believe we also should focus on
    things that require our particular attention.
        I will begin for programs for maintaining the security and
    safety of our people. Here I emphasize the importance we attach
    to the Korean Peninsula Energy Development Organization [KEDO].
    As you know, KEDO stems from our framework agreement for
    freezing and ultimately dismantling North Korea's dangerous
    nuclear weapons program.
        Last February I had the opportunity to visit Korea's
    demilitarized zone and talk to our Armed Forces there. I also
    had the chance to meet with officials in Seoul and to reaffirm
    our strong friendship for the Republic of Korea. I returned
    from that visit more convinced than ever that KEDO is a
    national security bargain for the United States. Our
    contributions are helping to generate support from others that
    will ultimately dwarf our own. We are asking $30 million for
    the American share this year and I hope we will have your
    support on that.
        Also in the category of protecting our security is the $230
    million we are requesting for the war against drugs. Obviously
    there are many battles yet to be won, but I am encouraged by
    the progress being made in reducing coca production, signing
    law enforcement cooperation agreements, and disrupting the
    profits of notorious traffickers such as the Cali cartel.
        I am encouraged as well by the joint commitment we made
    earlier this month with Mexico to work together as allies on
    every aspect of our shared problem. The State Department will
    be working hard with others to translate that commitment into
    sustained progress on the ground, in the air, at sea, and in
    our neighborhoods.
        Mr. Chairman, when we support arms control and
    antinarcotics initiatives, we advance the long-term interests
    and safety of our people. The same is true when we help end
    conflicts and reduce tensions in troubled regions around the
    world. In the Middle East, we face an extremely difficult and
    complex situation because Arabs and Israelis alike are doubting
    their faith in the peace process and in one another. We believe
    that the way forward begins with the restoration of competence
    and a sense of shared interests. All parties must accept as a
    starting point that there is no room for terrorism or violence
    as a tool of negotiation. There can be no rationalizations or
    room for debate on that central point.
        Looking ahead, Israelis must see that violence or threats
    of violence will not be used against them as a means of
    leverage in negotiations. Palestinians must see that Israelis
    are not taking unilateral actions which foreclose options on
    issues reserved for permanent negotiations. And both must
    assume responsibility for improving the negotiating climate.
        Arab-Israeli peace remains a high priority for the
    administration and for the United States. To support our active
    diplomacy, we must maintain appropriate bilateral assistance to
    Israel, Jordan, and Egypt while contributing to economic growth
    and the creation of democratic institutions within the
    Palestinian authority.
        It is also essential to American interests and to the
    future stability of Europe that we fully implement the Dayton
    Agreement for peace in Bosnia. Since Dayton was signed, our
    initial security goals have been achieved and economic
    reconstruction has begun.
        Unfortunately, there remain important areas where progress
    has been slow due to the failure of many Bosnian leaders to
    embrace true political and social integration.
        Now, President Clinton has approved measures to encourage
    further and more rapid progress toward the core goals of
    Dayton. Next week I will be visiting Sarajevo, Brcko, Banja
    Luka, and other locations in the region to demonstrate
    America's commitment to a single Bosnian state with two
    multiethnic entities. I will also be making a more detailed
    statement in New York tonight regarding the administration's
    policy toward Bosnia.
        The heart of our message is that the international
    community, including both civilian and military components,
    must make clear that those who contribute to peace in Bosnia
    will be supported, while those who obstruct peace should pay a
    price. For example, our new open cities support project
    provides assistance to communities and only to communities that
    have demonstrated a willingness to allow persons from ethnic
    minorities to return safely to their homes.
        One city where it is especially critical that residents
    work for unity and peace is Brcko. Because of its strategic
    location and the terrible ethnic cleansing that occurred there,
    a peaceful, multiethnic Brcko would be a powerful symbol to the
    rest of Bosnia and a springboard toward success for the entire
    Dayton process.
        Our goal in Brcko, as in Bosnia more generally, is to
    reconnect what has been disconnected to restore the flow of
    transportation, communication, commerce, and social interaction
    among the various ethnic communities.
        There are those who resist this process and there are many
    in Bosnia and elsewhere who are skeptical that it will succeed,
    but these are the same people who said that the war could not
    be ended, that Dayton could not be negotiated, and that the
    United States and Europe, including Russia, could never come
    together on behalf of a Balkans peace.
        The administration does not underestimate the obstacles,
    but neither do we underestimate the stakes. We are determined
    to use our leverage and to press ahead with our partners both
    in and outside Bosnia to support the work of the International
    War Crimes Tribunal and to help create institutions that
    improve security, permit more displaced persons and refugees to
    return home, enhance civil liberties, and allow democratic
    institutions to take root.
        In this effort, we pledge regular consultations with this
    subcommittee and with others in Congress and seek your support.
        Switching continents, Mr. Chairman, today in the newly
    renamed Democratic Republic of Congo, our goal is to encourage
    a peaceful transition based on democratic principles. We
    welcome Mr. Kabila's declared intention to form a broadly based
    interim government, and we have made it clear that we would
    like to see a government that is also transparent in its
    activities so that the people of this long-troubled nation may
    know that the days of secret looting and secret terror will not
    return.
        We also want to see a government that respects human
    rights, assures due process, and cooperates with the
    international community in caring for refugees and
    investigating reports of atrocities.
        Finally, we will look to the new authorities to adopt
    democratic practices and build democratic institutions, to work
    actively to prevent that vast country's fragmentation, and to
    foster stable and peaceful relations with its neighbors.
        The Democratic Republic of Congo is a nation rich in both
    human and natural resources. In the weeks ahead, we will work
    with officials in that country and elsewhere to improve
    prospects for a democratic, prosperous, and peaceful future. We
    will also consult closely with Congress concerning the
    evolution of our policy.
        Mr. Chairman and members of the subcommittee, America's
    leadership is derived not only from economic and military
    power, but also from the power of our ideals, and fundamental
    to our ideals is our commitment to democracy. Accordingly, we
    are asking your support for programs to strengthen democratic
    institutions in the world, including central Europe and the New
    Independent States, [NIS].
        Mr. Chairman, the transition from communism to democracy in
    central Europe is the product of central European courage,
    energy, and vision. But the United States may be proud of the
    role the SEED program, for which we are requesting $492 million
    this year, continues to play in assisting the process of
    economic and political reform. You all have mentioned the
    Marshall plan, but what was once said about the Marshall plan
    may fairly be said about this program. It has served as--and I
    quote: ``the lubricant in an engine, not the fuel, allowing a
    machine to run that would otherwise buckle and bind.''
        A democratic Russia is also an essential partner in our
    efforts to build a secure Europe. In Helsinki, Presidents
    Clinton and Yeltsin expressed their commitment to stimulating
    growth in investment in Russia while citing President Yeltsin's
    plan to launch Russia on its next phase of reform.
        In recognition of progress made and of our stake in
    strengthening market democracies, we have this year revamped
    our assistance program to Russia and the other NIS. Of the $900
    million we have requested, $528 million will fund a new
    partnership for freedom.
        This initiative will concentrate on the promotion of
    business, trade, and investment, and the rule of law, and it
    will include increased professional and academic exchanges.
        Mr. Chairman, before wrapping up, I want also to ask your
    support for a full range of our programs in support of economic
    and sustainable development. These include our requests for the
    Export-Import Bank, the Trade and Development Agency, our
    population programs, the global environment fund, important
    U.N. programs, such as UNICEF and UNDP, and the multilateral
    banks. Taken together, these programs make an enormous
    contribution to America's well-being by promoting U.S.
    investment and by helping our neighbors' trading partners and
    friends to build healthier and more prosperous and more stable
    societies.
        I know, Mr. Chairman and members of the subcommittee, that
    supporting foreign assistance is not the easiest vote for a
    Senator to make. We are all concerned about priorities at home,
    but I think as many of you have said, we also know that neither
    our history, nor our character, nor our self-interest will
    allow us to withdraw from the center stage of global,
    political, and economic life.
        There is, after all, no more immediate or local an issue
    than whether our sons and daughters will some day be called
    upon to do battle in big wars because we failed to prevent or
    contain the small ones.
        There are few more significant economic issues than whether
    we will find ourselves forced into a new arms race because of
    setbacks in the former Soviet Union or because nuclear weapons
    have fallen into the wrong hands.
        There are few goals more important to our workers than
    opening new markets overseas.
        There are few matters more urgent for our communities than
    reducing the flow of drugs across our borders.
        And there are few questions more vital to our children than
    whether we will bequeath to them a world that is relatively
    stable and respectful of the law or one that is brutal,
    anarchic, or violent.
        I will cease so you can go and vote.
        Senator McConnell. I think probably the least disruptive
    thing to do--and feel free to come back to the back room--would
    be for us to recess the hearing, all go vote, and come right
    back. If you would like to come back here, that would be fine.
        Secretary Albright. Very good. Then I will give you my
    final two paragraphs when you come back.
        [A brief recess was taken.]
        Senator McConnell. The hearing will resume.
        Madam Secretary, had you completed your statement? If not,
    go ahead.
        Secretary Albright. Well, I had one more paragraph.
        Senator McConnell. All right. We will take your last
    paragraph.
        Secretary Albright. I think it is germane actually because
    it does talk about executive/legislative relations.
        A half a century ago, a great American generation, led by
    President Truman and supported by Members of Congress from both
    parties, rose above the weariness of war's aftermath and the
    temptation of isolation to secure the future. Working with our
    allies, they made the investments and built the institutions
    that would keep the peace, defend freedom, and create economic
    progress through five decades.
        I think it is clear that it is up to us in our time to do
    what they did in their time, to support an active role for
    America, protect American interests, keep American commitments,
    and help where we can those from around the world who share our
    values.

                               prepared statement

        In that effort, I pledge my own best efforts as Secretary
    of State and I solicit your support in it. From your opening
    statement, I would say that we are on the same wavelength.
        Thank you very much.
        [The statement follows:]

                Prepared Statement of Hon. Madeleine K. Albright

        Mr. Chairman and Members of the Subcommittee, I am pleased
    to have the opportunity to testify this morning, for the first
    time in my new capacity. I hope very much that we will be able
    to continue the frank relationship we enjoyed while I served as
    our Permanent Representative to the United Nations. Together,
    we have an important job to do, and I look forward to working
    with you not only this year but in the future.
        I want to acknowledge at the outset that this Subcommittee
    and members on it have been leaders in supporting an active and
    engaged U.S. foreign policy. We have not always agreed on all
    subjects, but the disagreements have almost always been on
    tactics not on goals. We all agree that the United States is,
    and should remain, vigilant in protecting its interests,
    careful and reliable in its commitments and a forceful advocate
    for freedom, human rights, open markets and the rule of law.
        I am heartened that the agreement on the Budget Resolution
    worked out by the Administration and Congressional leaders
    treats international affairs as the priority it is. I know that
    Senator Lautenberg and others on this Subcommittee were
    important actors in this process and I want to thank you for
    your support.
        Now, the action moves to appropriations. Consistent with
    the Budget Resolution, I hope that this Subcommittee and the
    Subcommittee on Commerce, Justice and State Appropriations will
    receive allocations sufficient to fund both our regular
    international programs and to pay our arrearages to the United
    Nations and the multilateral development banks.
        I hope that my testimony this morning will help persuade
    any who may doubt that such an allocation would serve our
    nation and our people well.
        Mr. Chairman, I am here today to ask your support and that
    of the Subcommittee for the President's request for funds for
    the foreign operations programs of the United States.
        Put simply, the goal of those programs is to protect the
    interests of our citizens in an age when national borders are
    porous, markets are global, and many of the threats to our
    safety and security cannot be dealt with by any one nation
    acting alone.
        The President's request seeks to ensure that we will have
    the foreign policy tools we need to sustain principled and
    purposeful American leadership.
        It includes funds for programs that will help us to promote
    peace and maintain our security; to safeguard our people from
    the continuing threat posed by weapons of mass destruction; to
    build prosperity for Americans at home by opening new markets
    overseas; to promote democratic values and strengthen
    democratic institutions; to respond to the global threats of
    international terrorism, crime, drugs and pollution; and to
    care for those who are in desperate need of humanitarian aid.
        Let me begin my discussion here this morning with our
    programs for maintaining the security and safety of our people.

                              maintaining security

        The Cold War may be over, but the threat posed by nuclear
    and other weapons of mass destruction has only been reduced,
    not ended.
        Our efforts to reduce the number and stop the spread of
    weapons of mass destruction contribute to what former Defense
    Secretary Perry called ``preventive defense.'' We pursue these
    initiatives not as favors to others, but because they are a
    national security bargain for the American people.
        With strong U.S. leadership, and bipartisan support from
    the Congress, much has been accomplished. Achievements range
    from the removal of nuclear weapons from Belarus, Kazakstan and
    Ukraine to recent approval by the Senate--with the help of many
    members of this Subcommittee--of our participation in the
    Chemical Weapons Convention.
        But arms control and nonproliferation are works in
    progress, and we will need your help and that of the Congress,
    as a whole, to continue that progress.
        The 1994 Agreed Framework between the United States and
    North Korea froze and established a roadmap for dismantling
    that country's dangerous nuclear weapons program. With our
    partners, we created the Korean Peninsula Energy Development
    Organization (KEDO) to implement key aspects of the agreement.
    Our earlier commitment helped jump-start KEDO and generated
    contributions from Japan and South Korea that will ultimately
    dwarf our own.
        KEDO now has 10 members--and we will bring in at least
    three more this year to share the burden. I appreciate the
    support this Subcommittee has shown in the past for our
    participation in KEDO, and ask your support for our proposed
    $30 million contribution in fiscal year 1998. Those funds will
    leverage the support of others, while contributing directly to
    the safety and security of the American people.
        I also ask your support for our proposed $36 million
    voluntary contribution to the International Atomic Energy
    Agency (IAEA). These funds will help that agency to verify
    compliance with the Nuclear Non-Proliferation Treaty in more
    than 820 locations in 61 countries.
        We are also continuing efforts to fulfill the President's
    call for negotiations leading to a worldwide ban on the use,
    stockpiling, production, and transfer of anti-personnel
    landmines.
        Just last week, ACDA Director John Holum was in Geneva to
    urge the Conference on Disarmament to begin that negotiation in
    earnest. He also voiced U.S. support for the complementary
    process now under way in Ottawa. As Director Holum made clear,
    we don't under-estimate the challenges at the Conference on
    Disarmament. However, that venue does provide the best
    opportunity to negotiate an APL ban that is truly comprehensive
    and effective. This issue remains a high foreign policy
    priority for the United States, and I will continue to consult
    closely with Senator Leahy--who has been an inspiring and
    determined leader on this issue--and other Members of Congress
    concerning it.
        Finally, I join President Clinton in his call last Friday
    for early Senate approval of the pending protocol on landmines.
    By strengthening the restrictions on landmine use, this
    protocol will help prevent many casualties and is, in the
    President's words ``an essential step toward a total ban.''
        Mr. Chairman, international narcotics trafficking also
    endangers Americans. The President, and law enforcement
    agencies and educators at all levels are committed to doing the
    job at home. But we cannot hope to safeguard our citizens
    unless we also fight this menace abroad, where illicit drugs
    are produced and ill-gotten gains are hidden away.
        Under the President's leadership, we have moved
    aggressively and with results. This past year, our support for
    eradication and interdiction helped knock coca production in
    Peru to its lowest level in a decade. Cooperation with Paraguay
    has improved. New law enforcement cooperation agreements with
    Argentina, Brazil and Bolivia have been signed. And by
    economically targeting individuals and front companies, we have
    done much to disrupt the business and decrease the profits of
    the notorious Cali cartel.
        In Mexico, drug seizures and arrests are up. New laws have
    been enacted to fight money-laundering. Mexico has set a
    precedent by extraditing its own nationals to the United States
    to be prosecuted for drug-related crimes. And amidst all the
    publicity and real problems related to corruption, it is worth
    remembering that 200 Mexican law enforcement personnel were
    killed last year in the battle against drug trafficking.
        During the meeting of the U.S.-Mexico Binational Commission
    earlier this month, Presidents Zedillo and Clinton reaffirmed
    the commitment of our two nations to work together as allies to
    reduce demand, intercept shipments, arrest traffickers,
    confiscate profits and professionalize every aspect of law
    enforcement response. We will be working hard, in close
    cooperation with representatives from the White House and other
    agencies, to translate this commitment into further progress in
    the war against drugs.
        We are asking this Subcommittee to support our efforts in
    Latin America and around the world by approving our request for
    $230 million to combat international narcotics and crime. In
    addition to other anti-crime initiatives, these funds support
    our source country narcotics eradication and alternative
    development programs, provide material and logistical support
    for police and military in strategic areas, and finance our
    comprehensive heroin control strategy.
        America is the world's leader in the fight against
    international terror, which continues to claim victims despite
    steady improvements in multinational law enforcement and
    information-sharing. We are persisting--and making some
    headway--in encouraging our allies to refrain from business as
    usual with Iran until that nation ends its support for
    terrorism. And we remain steadfast in our support for United
    Nations sanctions against Libya and Iraq.
        To supplement our diplomatic initiatives, we have requested
    $19 million for our anti-terrorism programs. These funds will
    be used primarily to enhance the skills of police and security
    officials in selected countries so that they may be more
    effective partners in preventing and punishing terrorist acts.

                                promoting peace

        When we support arms control and anti-terrorism efforts in
    other countries and regions, we advance the long-term interests
    and safety of Americans. The same is true when we help end
    conflicts and reduce tensions in regions important to the
    interests of the United States.
        Today, I will cite three cases involving past, present or
    potential conflicts where our budgetary resources are affected,
    our interests are engaged and our participation or leadership
    is required.
        In the Middle East, we face an extremely difficult and
    complex situation in the Arab-Israeli peace process.
        Since 1993, the parties have made enormous gains in
    transforming the political landscape of their historically
    troubled region and laying the foundation for an enduring
    peace.
        In recent months, however, those gains have been threatened
    and the people of the region have once again become the victims
    of confrontation and acts of violence. The reason is that Arabs
    and Israelis alike are doubting their faith in the peace
    process and in one another.
        We have, in the past, experienced setbacks to peace in the
    Middle East, but we have persevered. Despite present problems,
    we will continue to look for a way forward. That way begins
    with restoration of the confidence, trust and sense of shared
    interests upon which the peace process rests.
        All parties must recognize and fully accept that there is
    no room for terrorism or violence as a tool of negotiation.
    There can be no rationalizations or room for debate on that
    central point.
        Looking ahead, Israelis must see that terror and threats of
    violence will not be used against them as a means of leveraging
    their position in negotiations. Palestinians must see that
    Israelis are not taking unilateral actions which foreclose
    options on issues that are reserved for permanent negotiations.
    And both must assume responsibility for reversing the
    deterioration in the negotiating environment. In that regard,
    we have encouraged friends of peace in the Arab world not to
    take actions which could make progress towards peace more
    difficult.
        Arab-Israeli peace remains a high priority for the
    Administration and for the United States. We have an enormous
    stake in the future of the region, and we remain in almost
    continual contact with representatives of all sides. To support
    our diplomacy, we must maintain appropriate bilateral
    assistance to Israel, Jordan and Egypt, while contributing to
    economic growth and the creation of democratic institutions
    within the Palestinian Authority.
        It is also essential to American interests and to the
    future stability of Europe that we finish the job and fully
    implement the Dayton Agreement for peace in Bosnia.
        Fulfillment of these Accords would produce a stable,
    undivided Bosnia that would cease to be a source of instability
    in southern Europe.
        It would also make possible over time the full integration
    of the Balkans into European institutions; contribute to
    regional prosperity; bolster democracy; prevent the area from
    becoming a base for transnational crime; create a further bar
    to meddling by Iran; and create a precedent-setting model for
    resolving ethnic differences on the basis of justice and
    respect for human rights.
        Since Dayton was signed, our initial security goals have
    been achieved and economic reconstruction has begun.
        Unfortunately, there remain important areas where progress
    has been slow due to the failure of Bosnian leaders, especially
    in Bosnian Serb entity, the Republika Srpska, to embrace
    political and social integration.
        Today, and in days to come, we will be re-dedicating
    ourselves to the goal of full implementation of the Dayton
    Accords and to a single Bosnian state with two multi-ethnic
    entities. Next week, I will be visiting Sarajevo, Brcko, Banja
    Luka and other locations in the region. I will also be making a
    more detailed statement in New York tonight regarding the
    Administration's policy towards Bosnia.
        The heart of our message is that the international
    community, including both civilian and military components,
    must re-energize its commitment to implement Dayton.
        For example, while SFOR will remain principally focused on
    enforcing the military aspects of the Dayton Agreement, it will
    build on its past accomplishments by actively supporting
    crucial civil implementation tasks, within its mandate and
    capabilities. These include helping to create a secure
    environment for managed refugee returns and the installation of
    elected officials in targeted areas, and specific economic
    reconstruction projects which could include inter-entity
    telecommunications and restoring civil aviation.
        Full implementation must be our goal in all sectors, and
    the parties cannot pick and choose those elements they prefer
    at the expense of others. If they are not complying on key
    implementation tasks, it will not be business as usual for
    their politicians or their military leaders. For example, if
    the parties do not comply with their arms control obligations,
    SFOR has the option to restrict military movements and
    training.
        On the civilian side, as well, we will move ahead with
    fresh energy to help those in Bosnia striving to build a true
    national community.
        For example, our Open Cities Support Project provides
    assistance to communities, and only to communities, that have
    demonstrated a willingness to allow persons from ethnic
    minorities to return safely to their homes.
        To date, we have identified four municipalities in
    different parts of Bosnia to participate at a cost of $3.6
    million. We have an additional $5 million available to help
    repair buildings, provide agricultural support and business
    credit and to train workers in eligible communities.
        One city where it is especially critical that residents
    work for unity and peace is Brcko. Because of its strategic
    location and the terrible ethnic cleansing that occurred there,
    a peaceful, multi-ethnic Brcko would be a powerful symbol to
    the rest of Bosnia.
        Our goal in Brcko, as in Bosnia more generally, is to
    reconnect what has been disconnected, to restore the flow of
    transportation, communication, commerce and social interaction
    among the various ethnic communities.
        There are those who resist this process; and there are many
    in Bosnia and elsewhere who are skeptical that it will succeed.
    These are the same people who said that the war could not be
    ended; that Dayton could not be negotiated; and that the United
    States and Europe, including Russia, could never come together
    on behalf of a Balkans peace.
        The Administration does not under-estimate the obstacles,
    but neither do we under-estimate the stakes. We are determined
    to press ahead with our partners both in and outside Bosnia to
    support the work of the International War Crimes Tribunal in
    every way we can, and to help create institutions that improve
    security, permit more displaced persons and refugees to return
    home, enhance civil liberties, and allow the institutions of a
    unitary, multi-ethnic and democratic state to take root.
        In this effort, we pledge regular consultations with this
    Subcommittee and with others in Congress, and seek your
    support.
        Mr. Chairman, of the many outbreaks of violence around the
    world in recent years, the interrelated conflicts in Central
    Africa have been the most deadly.
        Today, in the Democratic Republic of Congo, formerly Zaire,
    our goal is to encourage a peaceful and stable transition to a
    new era based on democratic representation and popular
    responsibility.
        We note that the victorious Alliance leader, Laurent
    Kabila, has said he intends to form an interim government that
    includes representatives from various components of Congolese
    society.
        We welcome that intention and have expressed our
    willingness to work with others to provide appropriate help to
    a transitional government that demonstrates a commitment to
    broad-based political participation, democratic practices, and
    human rights.
        We have made it clear that what we would like to see is a
    transitional government that, in addition to being broadly-
    representative, is also transparent in its activities, so that
    the Congolese people know that the days of secret looting and
    secret terror will not return.
        We also want to see a government that respects the rights
    of its people, assures due process to those charged with
    crimes, and cooperates fully with the international community
    in caring for refugees and investigating reports of atrocities.
        Finally, we will look to the new authorities to adopt
    democratic practices and build democratic institutions, to work
    actively to prevent Congo's fragmentation, and to foster stable
    and peaceful relations with its neighbors.
        The Congo is a nation rich in both human and natural
    resources. In the weeks ahead, we will work with officials in
    that country and elsewhere to improve prospects for a
    democratic, prosperous and peaceful future. We will also
    consult closely with the Congress concerning the evolution of
    our policy.
        The United States supports international peacekeeping
    activities that serve our interests through payment of our
    assessments to United Nations peacekeeping operations and
    through our voluntary peacekeeping account, for which we are
    seeking $90 million in fiscal year 1998. Operations expected to
    be funded by this account include, among others, peacekeeping
    and observer activities in the Great Lakes region of Africa,
    the Multinational Force and Observers in the Sinai, the Israel-
    Lebanon Monitoring Group and peacekeeping and preventive
    diplomacy missions of the OSCE.
        As we work with others to resolve problems such as civil
    conflict and proliferation, we need strong partnerships with
    other leading nations. These are the bonds that hold together
    not only our foreign policy, but the entire international
    system.
        By acting together, we are able to elevate standards of
    international behavior, spur economic and social progress, and
    strengthen the rule of law. We also leverage resources far
    beyond our own.
        Today, for example, many of the same countries that are
    working to implement peace in Bosnia are also striving to build
    lasting stability through NATO's Partnership for Peace. This
    year we have requested $70 million in military assistance for
    Partner countries. We are also requesting $20 million for
    Central European Defense Loans (CEDL), to help recipient
    countries build defensively-oriented, civilian-controlled
    militaries with strong ties to the United States.
        While preserving NATO's traditional purposes and strengths,
    we are also adapting it to meet new missions and take in new
    members. At the July summit in Madrid, NATO will invite a
    number of Central European states to begin negotiations to join
    the alliance. As President Clinton has repeatedly made clear,
    this is part of a larger strategy, developed with our allies,
    to build a future for Europe in which every democracy is our
    partner and every partner is a builder of peace. Also
    contributing to this goal is the historic ``founding act''
    between NATO and Russia that was reached last week, and that
    establishes the basis for long term cooperation on security
    matters. In addition, a new Euro-Atlantic Council will provide
    the framework for consultations involving NATO and Europe's
    other democratic states.
        In this context, Mr. Chairman, I might add that I
    appreciate the counsel I have received from members of the
    Senate's NATO Observer Group and from other Senators with an
    interest in the evolution of Europe's economic and security
    institutions. This is a process of enormous importance and can
    only benefit from vigorous and wide-ranging examination of the
    issues.
        Meanwhile, the economic, political and military evolution
    of nations in Asia will also have a profound effect on American
    security and foreign policy.
        Today, we are working with allies and friends to build an
    Asia-Pacific community based on shared interests and a common
    commitment to peace.
        Over the last few years, we have reinvigorated our Asian
    alliances while maintaining our forward deployment of 100,000
    American troops in the Western Pacific. We are encouraging new
    efforts to build security and resolve disputes peacefully
    through bodies such as the ASEAN Regional Forum.
        Our core alliances in Asia are as strong, and our
    cooperation as broad, as they have ever been. Our relationship
    with our closest Asian ally, Japan, is underpinned by our
    shared commitment to open and democratic societies. We consult
    regularly on issues from peace in Asia to development in
    Africa. We appreciate Japan's generous financial support for
    the Middle East peace process and for our Common Agenda of
    environmental initiatives around the world.
        We are working closely with the Republic of Korea, another
    key ally, to maintain stability on the Korean peninsula and to
    explore possibilities for permanent reconciliation. Our
    cooperation is growing in numerous other areas as well, as
    Seoul, anchor of the world's 11th-largest economy, takes on a
    larger regional and global role.
        We are also deeply engaged in managing our complex
    relationship with China, as it emerges as a key Asian and
    global power.
        The evolution of our relations with China will depend
    primarily on how China defines its own national interests
    during the remainder of this century and into the next. Through
    our strategic dialogue, we are encouraging the Chinese to
    accept what we believe is true--that China will be able to find
    greater security, prosperity and well-being inside a rule-based
    international system than outside. Accordingly, the President
    has decided to renew China's most-favored-nation trading
    status, equivalent to normal trading relations, for the coming
    year.
        Currently, China is constructively engaged with the
    international community in some areas; in some, it is not. We
    have been able to work together well with respect to the North
    Korea nuclear issue and banning nuclear tests. We have also
    made progress on a range of specific commercial concerns and
    laid the basis for cooperation on responding to global threats
    of terrorism, crime, drugs and pollution.
        We do, however, still have important differences with
    China, especially on trade, arms-related transfers and human
    rights, including Tibet. We do not hesitate to raise these
    differences privately with China's leaders, or to express our
    beliefs publicly concerning the need for all countries to
    respect international standards. We will continue to voice
    strong concern about the need for China to meet its commitments
    concerning Hong Kong, a message that I will deliver, in person,
    at the time of the former colony's reversion to Chinese
    authority on July 1. And, while we will adhere to our ``one
    China'' policy, we will also maintain robust unofficial ties
    with Taiwan.

                              promoting democracy

        Mr. Chairman, America's global leadership is derived not
    only from our economic and military power, but from the power
    of our ideals. And fundamental to American ideals is our
    commitment to democracy.
        Today, in Burma, as the Chairman has often and eloquently
    reminded us, a legitimate democratic movement with demonstrated
    popular support has been brutally repressed. That movement has
    urged the international community to limit foreign investment.
    What is more, Burma's government protects and profits from the
    world's largest heroin trafficking enterprise.
        Last month, in response to deepening repression in Burma,
    President Clinton decided to impose investment sanctions under
    a law approved last year by Congress. In combination with the
    earlier actions we and other nations have taken, together with
    shareholder and consumer pressure, we believe this step will
    deal a further blow to investor confidence in Burma. It has
    sent a message to the military regime that it will not attract
    the capital investment it needs unless it begins a genuine
    dialogue with its own people.
        We also bolster democracy through our economic support and
    development assistance programs in selected countries around
    the world. For example, we are requesting $202 million in
    economic support funds for democratic development in countries
    such as Haiti, Angola, Cambodia and for regional programs that
    promote respect for civil liberties and the rule of law.
        We are also continuing major programs for strengthening
    democratic transitions in Central Europe through the Support
    for East Europe Democracy (SEED) program and in the New
    Independent States (NIS).
        The transition from Communism to democracy is the product
    of Central European courage, energy and vision. But the United
    States may be proud of the role the SEED program continues to
    play in assisting the process of economic and political reform.
    What was once said about the Marshall Plan may fairly be said
    about this program, it has served as ``the lubricant in an
    engine--not the fuel--allowing a machine to run that would
    otherwise buckle and bind.''
        Through SEED, for which we are requesting $492 million this
    year, we have been able to serve as technical adviser on the
    ways and means of building democratic institutions and
    processes, developing financial sectors that attract investment
    and coping with energy and environmental problems.
        Clearly, progress has not been even either over time or
    among countries in the region. But the overall direction has
    been steady in the direction of less centralization, increased
    reliance on private enterprise, more civil liberties and
    greater development of the rule of law.
        Central and eastern Europe remain as important to American
    interests today as when the original SEED act was passed. The
    nations here are proving that democracy and economic prosperity
    can be built on the ruins of failed communist systems--a
    valuable example for countries further to the east. Central
    Europe is a growing market for U.S. goods and services, and a
    gateway to the vast potential markets in Russia and Ukraine.
    Finally, a peaceful, democratic Central Europe gives the U.S.
    and the Atlantic alliance greater assurance of security at a
    relatively low cost.
        A democratic Russia is also an essential partner in our
    efforts to build a secure Europe. Russia's transition has been
    arduous and uncertain. More difficult times lie ahead. But open
    markets and democratic institutions have taken hold. If Russia
    is to become a full and productive partner in a Europe at
    peace, that progress must continue.
        The United States has a profound interest in encouraging
    Russia to continue its democratic and economic reforms, to
    respect fully the sovereignty of its neighbors, and to join us
    in addressing critical regional and global issues.
        In Helsinki, Presidents Clinton and Yeltsin issued a joint
    statement outlining their commitment to stimulating growth and
    investment in Russia, advancing Russia's integration into
    international organizations and citing President Yeltsin's plan
    to launch Russia on its next phase of reform.
        In recognition of the progress that has been made, and of
    the magnitude of our stake in the strengthening of market
    democracies in the region, we have this year revamped our
    assistance program to Russia and the other NIS. Of the $900
    million we have requested, $528 million will fund a new
    Partnership for Freedom.
        This initiative will concentrate on activities to promote
    business, trade and investment and those that would more fully
    establish the rule of law. It will support opportunities for
    U.S. business and help support partnerships with private U.S.
    organizations. And it will increase professional and academic
    exchanges.
        In the aftermath of the Soviet Union's disintegration, the
    NIS had to build their government institutions from the ground
    up. In most cases, media and basic market institutions, such as
    banks, capital markets and regulatory institutions remain at
    early stages of development.
        In several countries, economic reform has advanced faster
    than democratic reform. We are concerned, for example, by the
    undermining of parliamentary independence in Belarus, by
    continued repression in Turkmenistan and by the disputed nature
    of elections held last fall in Armenia.
        We are concerned, as well, that in some sectors of the NIS,
    weak institutions of government have led to a vacuum of
    effective authority that has opened the way to a rapid increase
    in criminal activity. This is hampering fledgling democratic
    institutions, creating social instability and discouraging
    foreign investment.
        We have responded by substantially increasing the
    proportion of our assistance that is designed to strengthen law
    enforcement and judicial institutions and promote the rule of
    law. Since 1995, for example, we have provided law enforcement
    training to nearly 10,000 officials in Central Europe and the
    NIS. We have developed regional criminal justice training
    programs for more than 1,000 law enforcement officers and
    prosecutors at the International Law Enforcement Academy in
    Budapest. And we have greatly increased our formal cooperation
    with Central European and NIS governments through agreements
    that allow us to share information and coordinate
    investigatory, prosecutorial and crime preventive activities.
        Throughout this region and, indeed, the world, the United
    States represents the potential of democracy. Wherever we are
    visibly involved and engaged, we give hope to people who
    believe in freedom and who want democratic institutions to
    succeed. By building partnerships with other freedom-loving
    peoples, we sustain the growth of open markets and democracy
    that has enhanced our own security and prosperity, and which
    has been the signature element of our age. If, however, we were
    to abandon or walk away from our partners in these countries,
    we would heighten the possibility that their societies would
    retreat into repression or dissolve into the disorder within
    which terrorists and criminals thrive.
        Certainly, assistance to the strategically-located and
    energy-rich democracies of Central Asia and the Caucasus is
    strongly in our national interest. The purpose of our aid is to
    help small businesses gain a greater foothold and to assist
    nascent democratic organizations, such as the independent
    media, public interest groups and educational institutions
    establish active, effective roles.
        In this connection, I note that the Administration
    continues strongly to oppose section 907 of the Freedom Support
    Act, which undermines U.S. influence and policy flexibility in
    the Caucasus region and Azerbaijan.
        The Administration continues to support assistance for
    Ukraine as part of our long term strategic partnership with
    that country. Last week's first full meeting of the U.S.-
    Ukraine Binational Commission underscored the value we place on
    a stable, democratic Ukraine that is working cooperatively with
    us on a range of issues. During those meetings, we were able to
    express our support for the process of economic and political
    reform, while also expressing concern about the problem of
    corruption that has been chilling outside investment in
    Ukraine.

                              promoting prosperity

        Mr. Chairman, peace and security are paramount goals of our
    international programs, but promoting economic prosperity is
    another top priority.
        The Clinton Administration has had extraordinary success in
    helping our economy grow at home by opening markets abroad. Our
    exports have grown by 34 percent since 1993, generating 1.6
    million new jobs. Since the North American Free Trade Agreement
    entered into force three years ago, U.S. exports to Mexico have
    risen by more than one-third and overall trade has more than
    doubled. We have laid the groundwork for free and open trade in
    our hemisphere by 2005 and in the Asia-Pacific region by 2020.
    And we have put our full weight behind better enforcement of
    intellectual property standards, and fuller consideration of
    core labor rights, at the World Trade Organization.
        Looking ahead, we all know that competition for the world's
    markets is fierce. Often, our firms go head-to-head with
    foreign competitors who receive active help from their own
    governments.
        Our goal is to see that American companies, workers and
    farmers have a level playing field on which to compete.
        As long as I am Secretary of State, our diplomacy will
    strive for a global economic system that is increasingly open
    and fair. Our embassies will provide all appropriate help to
    American firms. Our negotiators will seek trade agreements that
    help create new American jobs. And I will personally make the
    point to other governments that if their countries want to sell
    in our backyard, they had better allow America to do business
    in theirs.
        Fortunately, our diplomats are doing their jobs. One of the
    pleasures of my own job is hearing about compliments from
    American corporations like this one. After executing a contract
    to build a power generating plant in Yemen, officials from CAE
    Development of Lexington, Kentucky wrote that ``Every
    Department of State employee contacted was top notch and eager
    to help * * * we could not have obtained this contract without
    their help.''
        But our diplomats and our businesspeople need your
    commitment as well, and your support for our requests for the
    Export-Import Bank and the Trade and Development Agency.
        The Overseas Private Investment Corporation, I am pleased
    to say, is now self-sustaining. Its commitments have grown by a
    factor of five over the last five years, and it has shown
    profits repeatedly, reaching $209 million in 1996.

                       promoting sustainable development

        Mr. Chairman, many of America's fastest-growing markets are
    in developing countries, where the transition to an open
    economic system is underway, but incomplete. Often, these
    countries are held back by high rates of population growth,
    lack of access to health care and education, a scarcity of
    natural resources or conflict.
        When democratic institutions in a developing country are
    weak, that country will be less likely to grow peacefully, less
    inclined to confront international terrorists and criminals,
    and less able to do its part to protect the environment.
        That is why our sustainable development programs are a
    sound investment in American security and well-being.
        This year, we have given them a new focus on one of the
    most basic problems that stifles development and sparks
    conflict--food security. Programs to improve the dependability
    of crops and distribution of food in Africa can help make sure
    hunger is no longer a constant threat to the lives of people
    and the stability of societies.
        Our financial support and pressure for reform have helped
    the United Nations Development Program to become the central
    coordinating and funding mechanism for UN development
    assistance. Every dollar we contribute leverages $8-10 from
    other nations in support of Bosnian reconstruction, Rwandan
    judicial reform, and Cambodian de-mining--to name just a few
    projects. I urge this Subcommittee to support the President's
    full request of $100 million for UNDP.
        We have maintained our request for funding for UNICEF at
    $100 million for fiscal year 1998. Like UNDP, UNICEF plays an
    important role in countries suffering from, or recovering from,
    the devastation caused by civil or international conflict.
    UNICEF helps protect children--a society's most vulnerable
    members and its hope for the future--from the Balkans to
    Liberia.
        We have requested $795 million for population and health
    programs. By stabilizing population growth rates, developing
    nations can devote more of their scarce resources to meet the
    basic needs of their citizens. Moreover, our voluntary family
    planning programs serve our broader interests by advancing the
    status of women, reducing the flow of refugees, protecting the
    environment, and promoting economic growth.
        We are developing forward-looking programs to protect the
    global environment and promote sound management of natural
    resources with our request of $341.5 million. Of this amount,
    AID programs totaling $290 million are used for projects such
    as helping to reclaim land for agriculture in Mali, cut
    greenhouse gas emissions in the Philippines and acquire
    American ``green technology'' in Nepal.
        Our $100 million request for the Global Environment Fund
    (GEF) provides loans for developing country projects to
    preserve biodiversity, inhibit global warming, protect oceans,
    and mitigate depletion of the ozone layer. A key U.S. priority
    in the GEF is to increase support for private sector efforts on
    behalf of sustainable development, including new tools such as
    project guarantees and equity investments in promising
    environmental technology firms.
        As Treasury Secretary Rubin testified earlier this week, we
    have also requested an increase to restore full funding and
    begin to pay our debts to the multilateral development banks
    and the IDA, where our support for reform has achieved results.
    For example, the World Bank has increased accountability and
    transparency while cutting its administrative budget by 10
    percent, and the African Development Bank has tightened lending
    rules, cut staff by 20 percent and appointed external auditors.
        The Budget Resolution provides you with the flexibility to
    respond favorably to our request, and we hope you will take
    advantage of the opportunity to maintain U.S. leadership in
    these institutions.

                       providing humanitarian assistance

        The President's request of $650 million for Migration and
    Refugee Assistance would enable the United States to continue
    contributing to the relief of those victimized by human or
    natural disaster. We have also requested that our international
    disaster assistance and Office of Transition Initiatives
    programs be funded at the same levels as last year.

                                   conclusion

        Mr. Chairman, I know that supporting foreign assistance is
    not the easiest vote for a Member of Congress to make.
    Americans, all of us, are deeply concerned about problems here
    at home; about the budget, about the quality of our schools,
    about crime.
        No one understands better than the President that we cannot
    hope to lead abroad unless we are first strong at home. That is
    precisely why he has placed his primary emphasis on building a
    strong and growing domestic economy.
        But the Administration also knows that neither our history,
    nor our character, nor our self-interest will allow us to
    withdraw from the center stage of global political and economic
    life. In today's world, domestic policy and foreign policy are
    no longer separable things.
        There is, after all, no more immediate or local an issue
    than whether our sons and daughters will someday be called upon
    to do battle in big wars because we failed to prevent or
    contain small ones.
        There are few more significant economic issues than whether
    we will find ourselves forced into a new arms race because of
    setbacks in the former Soviet Union or because nuclear weapons
    have fallen into the wrong hands.
        There are few goals more important to our workers than
    opening new markets for American goods overseas.
        There are few matters more urgent for our communities than
    reducing the flow of drugs across our borders.
        And there are few questions more vital for our children
    than whether we will bequeath to them a world that is
    relatively stable and respectful of the law, or one that is
    brutal, anarchic or violent.
        A half century ago, a great American generation, led by
    President Truman, and supported by Members of Congress from
    both parties, rose above the weariness of war's aftermath, and
    the temptation of isolation, to secure the future. Working with
    our allies, they made the investments, and built the
    institutions, that would keep the peace, defend freedom and
    create economic progress through five decades.
        Members of the Subcommittee, it is up to us in our time to
    do what they did in their time. To support an active role for
    America on the world stage. To protect American interests. To
    keep American commitments. And to help where we can those from
    around the world who share our values.
        In that effort, I pledge my own best efforts as Secretary
    of State. And I earnestly solicit your support.
        Thank you very much. And now, I would be happy to respond
    to any questions you might have.

                      reduction in aid to israel and egypt

        Senator McConnell. Thank you, Madam Secretary.
        Given the attendance at the hearing today of members, we
    are going to have 5-minute rounds, and I will lead off by just
    referring to this morning's paper in which Bob Novak and
    Rowland Evans suggest the administration is considering a
    reduction in aid to Israel and aid to Egypt in order to provide
    Jordan with roughly $100 million. I was curious, Madam
    Secretary, whether that is something you are pursuing.

                     assistance for jordan and middle east

        Secretary Albright. Mr. Chairman, we have for some time now
    been seeking ways to provide substantial additional assistance
    for Jordan and other friends of peace in the Middle East. The
    President has asked us to do that. King Hussein has taken
    genuine risks for peace and he deserves our support.
        The President has had discussions with Prime Minister
    Netanyahu who supports the establishment of a Middle East peace
    and stability fund for this purpose. We are still examining
    with Israel and Egypt the details of how to accomplish this,
    and when our discussions reach a conclusion, we will consult
    with you more closely. But we do very much believe that Jordan
    and King Hussein, who have played such a crucial role, do in
    fact need some assistance in this area.
        Senator McConnell. We will look forward to discussing that
    with you further.
        I would like to shift to the NATO issue, upon which you
    spent some time in your statement. I think it is accurate to
    say that I was a supporter of expansion of NATO even before it
    was Clinton administration policy, so I am very much in
    sympathy with the direction that the administration is finally
    taking.
        You are familiar with the arguments that are being advanced
    against NATO expansion, much of it related to the potential
    cost to the United States. So, in the area of infrastructure
    the suggestion has been made that the defense capabilities of
    applicants are simply inadequate and that we would probably
    have to fund a significant proportion of the increase in these
    capabilities.
        We have been told that our costs; that is, the American
    costs associated with infrastructure could be roughly $150
    million to $200 million annually and drawn from the defense
    account. Is that your understanding of where that money is to
    come from?

                                 nato expansion

        Secretary Albright. Yes, sir.
        Let me just say, first of all, I appreciate very much what
    you said in terms of support for the policy because I think
    this is one of the major initiatives of our time and one that
    we should be discussing and one that we truly do believe will
    complete for central and Eastern Europe what was done for
    Western Europe 50 years ago.
        We are making it quite clear that NATO enlargement is not
    cost free and that, as with many aspects of American security,
    it is not free. We estimate that it will cost the United States
    somewhere between $1.5 billion and $2 billion over a 10-year
    period, which does come down to around $200 million a year, and
    it would not come out of our budget, but the defense budget.
        Senator McConnell. Is it your understanding that the
    modernization of forces costs were to be borne by the new
    members coming in?
        Secretary Albright. Yes; and let me just also make that
    clear, Mr. Chairman. First of all, one of the considerations
    that is going to be taken into account in inviting new members
    is the extent to which their national budgets do reflect a
    commitment to modernizing their forces and having an
    appropriate expenditure for defense.
        Second, we are also not going to be the country bearing the
    lion's share of the cost for NATO expansion. Other NATO
    members, the European members, we expect will be picking up the
    lion's share. So, the new members will pay for their
    modernization. Other NATO members will pick up their share and
    our cost is as I stated.
        Senator McConnell. Is it further the assumption that most
    of these armies are bigger than they should be, that the
    reductions in forces in these countries should produce the
    money that they need for modernization? Is that another
    assumption?
        Secretary Albright. That is one part of the assumption. I
    think that they clearly have to restructure their forces and
    some savings will be produced.
        We are concerned, as I am sure you are, that they develop a
    balance between what they are going to be spending on defense
    and modernization versus what they need for their economic
    advancement. But we are looking with them at an appropriate
    percentage of their budget and urging them to either get up to
    that point or come down to it. But we do think that some of
    their restructuring of their forces should produce some savings
    for them.
        Senator McConnell. It is not clear that it will, though, is
    it? The chairman and I recently were in Hungary and we were
    talking to the Defense Minister. He said they had already
    reduced their force by one-third, and it was not producing the
    savings that they had anticipated. So, this may or may not
    provide the money for modernization. Is that a correct
    assumption?
        Secretary Albright. That is true, but let me just say again
    NATO enlargement is not a scholarship program. They are going
    to have to pay their way and also be responsible members of the
    foremost alliance of our time. So, one of the considerations
    here is their ability to perform within the NATO alliance and
    to modernize their forces and to pay their way.
        Senator McConnell. I think it is important that we not let
    that be used as a reason, however, not to expand NATO. Is it
    safe to assume that the militaries of the countries currently
    in NATO are not all exactly equal in capability?
        Secretary Albright. I think that is safe to assume, but
    they play their role. I think that it is a privilege to be a
    part of NATO and these countries know that, and we believe that
    the countries that would be under consideration would be those
    that could in fact play their role on a calibrated basis as we
    all do in NATO.
        Senator McConnell. I see my red light is on, but I am going
    to fudge here for 1 minute because Senator Leahy really is
    entitled to go second as ranking member, assuming he gets here
    fairly soon.
        While we are on NATO, we all have followed with a good deal
    of interest the agreement, if that is the proper terminology,
    that has been concluded conceptually between Russia and NATO.
    Are there any codicils, letters of intent, or other side
    agreements with reference to that conceptual agreement that
    exist and that need to be commented upon?
        Secretary Albright. We are calling this the Founding Act,
    and it is very straightforward. What you see is what you get.
    What it does, Mr. Chairman, is basically codifies a lot of
    existing NATO policy and states principles such as that we have
    no intention, reason, or plan to station nuclear forces within
    the new countries, which is a NATO doctrinal point. It creates
    a joint council which is the mechanism whereby the cooperation
    will take place. It restates generalized principles about no
    subordination of NATO to other organizations, no second class
    citizenship. It is a straightforward document which does not
    have any side letters or codicils.
        Senator McConnell. What has been the reaction of the former
    Soviet republics and the Baltic countries to this agreement?

                   soviet/baltic reaction to nato enlargement

        Secretary Albright. I think the reaction to the agreement
    has been good. It is no secret that their reaction to NATO
    enlargement is not good. They are making no secret of the fact
    that they do not favor NATO enlargement. We know that and we
    have operated on that basis.
        Also, when I spoke with both President Yeltsin and Foreign
    Minister Primakov, I made quite clear that our going forward
    with NATO enlargement was not dependent upon them signing this
    founding act. We had been prepared to go on to Madrid--that is
    the conference where the invitations will be made to the new
    members--whether there was a NATO/Russia document or not. We
    now do not have to do that because they in fact are prepared to
    sign such a document on May 27 in Paris.
        I think their reaction to the document is positive. They
    see it, as we do, as a way for the Russians to be part of a
    European system.
        Senator McConnell. I meant the reaction of the former
    Soviet republics to the Russia/NATO agreement.
        Secretary Albright. I am sorry. I think there we have not
    heard anything specifically against the NATO/Russia document. I
    think that others would like to have similar agreements with
    either us or NATO. Ukraine, for instance. We are pursuing a
    Ukraine/NATO document at the same time. We are developing a
    relationship with the Baltics that I think shows our desire to
    include them increasingly in all European activities and in a
    Baltic plan.
        Senator McConnell. What about as candidates for admission
    to NATO themselves?
        Secretary Albright. Well, we have said all along that the
    first shall not be last, that NATO is open to all democracies
    and market economies, and have made very clear that there are
    no members that are automatically excluded. That includes the
    former Soviet republics.
        Senator McConnell. I may want to come back to NATO.
        I am going to turn to Senator Lautenberg.
        Senator Lautenberg. Thank you very much, Mr. Chairman. I
    will be fairly brief.
        I am delighted to see you, Madam Secretary, as usual and
    continue to be impressed with your energy and your ability and
    would encourage you onward and upward, to keep going.
        I am working on a subject of interest to all of us here and
    that is the budget, so I am sorry that I was not here earlier
    to hear your full remarks.
        You know a subject of significant interest to me is what is
    happening with those accused of war crimes in the former
    Yugoslavia, particularly where we have an ability to reach to
    these people. I know that you met with the Croatian Foreign
    Minister Granic last week. I appreciated the tough message that
    you delivered about Croatia's need to cooperate with the War
    Crimes Tribunal.
        Now, following your meeting, a State Department spokesman,
    Nick Burns, stated that there are individuals who are on
    Croatian soil who are indicted and have not been turned over
    and that you raised specific names of people who need to be
    turned over to The Hague for the work of the crimes tribunal.
    Burns reiterated those points at a later time.
        Did you deliver specific names of war criminals? And I ask
    you that because Burns has spoken about the many occasions in
    the plural. So, were you able to identify any better who they
    were, where we were looking to pick them up? Their availability
    apparently is fairly obvious to lots of people and nothing is
    happening. I wonder if you might be able to tell me whether----
        Secretary Albright. Yes; first of all, Senator, I really
    would like to thank you personally for all the tremendous work
    you have done on the budget, and I think that we have all
    recognized here this morning the pleasure that we are having
    with the 150 account being prioritized. I think that makes a
    big difference, and I am very grateful to you for what you have
    done.
        Senator Lautenberg. Senator McConnell as well in this
    regard I must say.

                              war crimes tribunal

        Secretary Albright. On your question, first of all, let me
    say that this is an issue that we and I specifically take very
    seriously. I delivered a very tough message to the Croatian
    Foreign Minister generally, not just on the war crimes, but the
    need for them to cooperate better in Eastern Slavonia and to be
    generally more cooperative in supporting the Dayton accords.
        What I said was that they needed to cooperate in greater
    degree with the War Crimes Tribunal and a name that I used as
    an example of the need for further cooperation was Kordic, and
    they know the other names. I was using more as examples of the
    kinds of things they needed to do to cooperate.
        I did say to them that we were pleased that they had
    finally transferred Mr. Aleksovski and that this was the kind
    of cooperation that was required. It had taken them too long to
    do that but I made it very clear that they needed to do more.
        He and his delegation committed to apprehend any indicted
    persons on Croatian territory and to use his Government's
    influence with the Bosnian Croats because Kordic is not in
    Croatia itself.
        I think that what we need to do--and as I said, I am
    delivering a speech on this tonight--is to be much more
    assertive in terms of supporting the War Crimes Tribunal and
    that is our intention.
        Senator Lautenberg. As a matter of fact, if we complete our
    work on the budget, I will hear your speech directly tonight in
    New York.
        You know that my view has been that any engagements with
    multilaterals and bilaterals that are part of an aid program or
    a development program with Croatia ought to be carefully
    reviewed before we consent with our representatives. I am
    trying to figure out why the State Department gave the go-ahead
    for the United States to vote in favor of the $100 million
    enterprise and the financial sector adjustment loan for Croatia
    at the World Bank on May 13. It was just days before your
    meeting in Croatia with the Croatians.
        Secretary Albright. Let me explain that a little bit. First
    of all, we had in fact held back on a previous vote in order to
    get them to try to use that leverage on the Aleksovski
    turnover. They in fact then did that and we felt it was a good
    idea to show that if they cooperated, there was a sign that we
    approved. I think we have other ways of maintaining leverage.
    We will continue to do that.
        I am going to go, Senator, to the region as soon as I
    finish these meetings in Europe at the end of next week. I will
    again deliver this message, but I think that it is wise to do
    sticks and carrots a little bit here and that is our
    opportunity to do it.
        Senator Lautenberg. So, is it the stick's turn next?
        Secretary Albright. Well, if we do not get something for
    the carrot, there will be a stick; yes.
        Senator Lautenberg. I would urge you to make sure that the
    law is appropriately laid down.
        I would ask one other thing, Mr. Chairman. You are
    planning, I see by the papers, to be in Banja Luka. Is the
    subject of war criminals going to be on the agenda when you are
    there?
        Secretary Albright. The subject of war criminals will be on
    my lips wherever I go. It is something that I feel very
    strongly about. I think that those of us that have followed
    this issue as carefully as you all have know that in order to
    have ultimate reconciliation and justice, it is important for
    the war criminals to be surrendered and for there to be the
    fullest support for the work of the War Crimes Tribunal. I have
    spent a lot of time with Chief Prosecutor Luis Arbor in this
    attempt.
        Senator Lautenberg. I urge you to keep the pressure on,
    Madam Secretary.
        Thank you, Mr. Chairman.
        Senator McConnell. Thank you, Senator Lautenberg.
        Senator Specter.
        Senator Specter. Thank you, Mr. Chairman.
        Secretary of State Albright, I join my colleagues in
    welcoming you here and compliment you on your extraordinary
    work in a short tenure. You come with a great background and we
    look forward to working with you.
        In the limited time available to me, I will focus on
    problems in the Mideast. You and I have talked about these
    before and I gave you a little heads-up before the session
    started after the recess. I want to talk to you about the
    Palestinians and I want to talk to you about Egypt.
        The terrorist attack in Israel which killed three Israelis
    and wounded dozens more on March 21 was preceded by activity by
    Yasser Arafat on March 9 holding a well-publicized meeting with
    Hamas leaders and shortly, thereafter, released Maqadmeh from
    prison, and Maqadmeh then made a speech on the day of the
    bombing in Tel Aviv saying: ``Nothing can stop Israel except
    holy warriors carrying explosives on their bodies to destroy
    the enemies of God.''
        Prime Minister Netanyahu then said that Arafat had given a
    green light to carrying on the terrorist activities.
        About the same time, there was a disclosure by El Ed, the
    Deputy Education Minister, who said that Arafat had prior
    knowledge of the 1993 plot to bomb New York City's World Trade
    Center. I have asked the Attorney General to follow up on that
    because if that is true, we could extradite Arafat to the
    United States under our laws.
        The question that I have is whether Arafat gave that green
    light. You have not yet responded to the letter and I am not
    saying you should have. It is not an easy question, but if it
    is determined that Arafat did give a green light, as you know,
    we have the provisions of the amendment which Senator Shelby
    and I introduced which would cut off United States aid to the
    Palestinians, the $500 million, if they do not change their
    charter, which I think they have not done. But that is not the
    more pressing issue. The more pressing issue is whether Arafat
    gave the green light for terrorism. But if that proves to be
    the case, should we not cut off United States aid to the
    Palestinians?

                                   terrorism

        Secretary Albright. Senator, you have asked me this
    question and it is a very serious question and I will do my
    best to answer it. But let me put it a little bit into context.
        I think we have to remember the remarkable achievements
    that were made in the Middle East peace process when we were
    all on the lawn at the White House, and it had a lot to do with
    the development of a new set of relationships between Arafat
    and Prime Minister Rabin and us. I think we all celebrated what
    we thought was the beginning of a new peace era. All of that
    was built on the necessity for there to be bonds of confidence
    developed among the leaders.
        Those bonds have now been very seriously stretched and
    tattered in some respects, and there is a great deal of
    frustration I think on all sides about the lack of progress in
    the peace process and the resumption of activities, terrorist
    bombings. There is absolutely no place for terrorism in the
    Middle East or anywhere. We have spoken out very loudly against
    it and see that there have been those who have said there is a
    moral equivalence between bombs and bulldozers. We do not
    accept that and believe that terrorism is totally unacceptable
    and we have made that clear.
        We have and had told Arafat privately at the time that he
    had to do everything he could to stop terrorist acts. We have
    no evidence that there was a green light. But clearly he----
        Senator Specter. Madam Secretary, are you satisfied that
    there was not a green light given by Arafat?
        Secretary Albright. To the best of my knowledge, I cannot
    show that there was a green light. What there was not was a red
    light that made it very clear that terrorist acts were
    unacceptable.
        Senator Specter. Well, Madam Secretary, if there was
    neither green nor red, it seems to me that is not acceptable. I
    think we have to expect a red light from Arafat. I think that
    is his commitment, and short of that, how can we fail to cut
    off the aid to the Palestinians?
        Secretary Albright. It is very hard to sort out all the
    facts. I think we have to keep in mind what it is we are trying
    to accomplish here, and that is ultimately some kind of a
    resumption of negotiations between the Palestinians whose
    leader is Arafat and the Israelis in order to move the process
    forward and we need to keep looking forward.
        We are all very frustrated at the moment. We have seen a
    breakdown in a process that we all applauded, and I think we
    have to be very careful in how we react at this stage to make
    sure that we do not worsen the situation, but try to get the
    peace process back on track.
        Senator Specter. Well, Madam Secretary, I agree with you
    about the importance of the peace process, but it seems to me
    we just cannot compromise on the terrorist issue. I was very
    much concerned--and this is not your bailiwick--when Marzook
    was released from detention where he had been held for months,
    years, and taken back on a military aircraft going to Jordan. I
    just think we cannot wink at terrorism. And I know you do not
    wink at terrorism. It is a tough judgment, but my own view is
    that if there is not a red light, we ought not to give the
    Palestinians the aid.
        Let me ask you one final question. I ask the chairman if I
    might raise an issue as to Egypt. Egypt has a commitment with
    Israel not to have boycotts, and there is not a warm peace
    there.
        Now, on March 31 of this year, the Arab League foreign
    ministers meeting in Cairo adopted a resolution which calls for
    an Arab boycott. President Mubarak has been a very good friend,
    very instrumental. We give $2.1 billion to Egypt along with $3
    billion to Israel as a result of Camp David, and I have always
    thought it is money well spent.
        But if Egypt is not living up to its commitments on the
    boycott issue--and that is just one of them. I will put some
    papers in the record for further amplification--should we
    consider withholding or reducing the $1.2 billion which we give
    in foreign aid to Egypt?
        [The letters follow:]
                       Letter From Senator Arlen Specter
                                                   U.S. Senate,
                                        Washington, DC, March 24, 1997.
    Hon. Madeleine Albright,
    Secretary of State,
    Washington, DC.
        Dear Secretary Albright: According to the weekend press reports,
    Israeli Prime Minister Benjamin Netanyahu has stated that Palestinian
    Chairman Yasir Arafat has indirectly given a green light to the
    terrorists resulting in the suicide bomb which killed and wounded many
    Israelis last Friday.
        According to the news reports, Chairman Arafat and the Palestinian
    authority released Ibrahim Maqadmeh. Prime Minister Netanyahu further
    stated that Chairman Arafat and the Palestinian authority have failed
    to detain known terrorists and to confiscate weaponry.
        In my judgment, it is very important for the State Department to
    make a factual determination as to whether Chairman Arafat and the
    Palestinian authority did give a green light indirectly to the
    terrorists and whether there was a failure to detain known terrorists
    and to confiscate weaponry.
        I would appreciate your advice, as promptly as possible, on your
    Department's conclusion as to whether Chairman Arafat and the
    Palestinian authority gave an indirect green light to the terrorists.
        As you know, an amendment offered by Senator Shelby and myself to
    the Middle East Peace Facilitation Act of 1995 conditions the $500
    million in U.S. aid to the Palestinian authority on presidential
    certification that the Palestinian authority is complying with all of
    its commitments under its peace accords with Israel, including its
    commitment to prevent acts of terrorism and undertake ``legal measures
    against terrorists, including the arrest and prosecution of individuals
    suspected of perpetrating acts of violence and terror''.
        The Senate Appropriations Subcommittee on Foreign Operations, on
    which I sit, will soon be considering this issue for fiscal year 1998
    so I would appreciate your prompt response.
        In addition, I would appreciate your advising me as to whether
    there is any U.S. aid in the pipeline which has not yet been turned
    over to the Palestinian authority. If so, I request that such payments
    be withheld until the determination as to whether the Palestinian
    authority is complying with the Specter-Shelby amendment.
                Sincerely,
                                                 Arlen Specter,
                                                          U.S. Senator.
                                     ______

                       Letter From Senator Arlen Specter
                                           U.S. Senate,
                                   Committee on Appropriations,
                                          Washington, DC, May 13, 1997.
    The President,
    The White House,
    Washington, DC.
        Dear Mr. President: I am writing to you in response to recent
    events in the Middle East.
        On March 21, 1997, a bomb exploded in a Tel Aviv cafe killing 3
    Israelis and wounding 40. The militant Islamic group Hamas claimed
    responsibility for this attack. According to the press reports
    following the attack, Israeli Prime Minister Benjamin Netanyahu has
    stated that Chairman Yassir Arafat indirectly gave a green light to
    terrorists resulting in this attack.
        According to the Washington Post (March 24, 1997), this attack
    followed months of warnings from your Administration to Yassir Arafat
    that he was being too lenient with Islamic extremists. It has been
    reported that in recent months Arafat has released 120 out of 200
    arrested Hamas/Islamic Jihad activists that Israel specifically
    requested be kept in jail, including Ibrahim Maqadmeh, who is regarded
    as the head of a military wing of Hamas. In addition, Prime Minister
    Netanyahu has stated that Chairman Arafat and the Palestinian authority
    have failed to detain known terrorists and to confiscate weaponry.
        In my judgment, it is very important that the United States
    Government make a factual determination as to whether Chairman Arafat
    and the Palestinian authority did give a green light indirectly to the
    terrorists and whether there was a failure to detain known terrorists
    and to confiscate weaponry. On March 24, 1997, I wrote to Secretary of
    State Madeline Albright and requested that she advise me on the State
    Department's conclusions on these issues. I have not yet received a
    response to my letter.
        Given the importance and urgency of this issue, I would appreciate
    it if you would ask your national security staff to review the evidence
    and advise me, as promptly as possible, on your conclusion as to
    whether Chairman Arafat and the Palestinian authority gave an indirect
    green light to the terrorists.
        As you know, an amendment offered by Senator Shelby and myself to
    the fiscal year 1995 Foreign Operations Appropriations Bill conditions
    the $500 million in U.S. aid to the Palestinian authority on
    presidential certification that the Palestinian authority is complying
    with all of its commitments under its peace accords with Israel,
    including its commitment to prevent acts of terrorism and undertake
    ``legal measures against terrorists, including the arrest and
    prosecution of individuals suspected of perpetrating acts of violence
    and terror''.
        The Senate Appropriations Subcommittee on Foreign Operations, on
    which I sit, will soon be considering this issue for fiscal year 1998
    so I would appreciate your prompt response.
        In addition, I would appreciate your advising me as to whether
    there is any U.S. aid in the pipeline which has not yet been turned
    over to the Palestinian authority. If so, I request that such payments
    be withheld until the determination as to whether the Palestinian
    authority is complying with the Specter-Shelby amendment.
        On a related matter, I would appreciate your review of our large
    foreign aid package to Egypt in light of Egypt's recent actions in
    obstruction of the Arab-Israeli peace process.
        On March 31, 1997, the Arab League foreign ministers meeting in
    Cairo adopted a resolution which recommended: stopping the
    normalization steps which have been taken with Israel * * * and halting
    all dealing with it [Israel], including closing offices and missions *
    * * and continuing to maintain the primary Arab boycott and
    reactivating it against Israel * * * .
        Egypt's support for this resolution appears to violate Article 3 of
    the Egyptian-Israeli Peace Treaty of March, 1979 which stipulates that:
    Each party * * * undertakes to refrain from organizing, instigating,
    inciting, assisting, or participating in acts or threats of
    belligerency, hostility, subversion or violence against the other Party
    * * * . The Parties agree that the normal relationship established
    between them will include * * * termination of economic boycotts and
    discriminatory barriers to the free movement of people and goods * * * .

        While it is my understanding that Egypt is exempt from
    participating in this economic boycott, its efforts to get other
    nations to participate in the boycott seem to violate both the spirit
    and the letter of the peace treaty.
        Unfortunately, the Arab League resolution is only the last in a
    series of provocative Egyptian actions against Israel. As you will
    recall, when fighting broke out between Israelis and Palestinians after
    Israel opened an archaeological tunnel in Jerusalem this past
    September, you invited President Mubarak, Prime Minister Netanyahu,
    Chairman Arafat and King Hussein to Washington in an effort to solve
    the crisis. President Mubarak was the only one of these leaders to
    boycott your Washington summit.
        Also, in recent years Egypt's Government-backed newspapers,
    including Al-Ahram and Al-Goumhuriwa, have published many vicious anti-
    Israel cartoons which are often nothing short of anti-Semitic. In the
    cartoons that I have seen, Israelis are frequently portrayed as blood-
    thirsty demons and Nazis. In many of these cartoons, Jews are depicted
    as dark, bearded, hook-nosed men clad in black--an image which is
    itself reminiscent of the Nazi era.
        The United States gives Egypt over $2.1 billion in foreign aid each
    year. Our country undertook this serious commitment to Egypt after
    Egypt signed the peace accords with Israel. If Egypt's actions now
    serve to undermine these accords, then the level of aid must be
    reevaluated. As with every other country, Egypt's aid package should
    reflect the extent to which Egypt's actions further U.S. policy in the
    region.
        Thank you for your attention to these important matters.
                Sincerely,
                                                 Arlen Specter,
                                                          U.S. Senator.

                                 peace process

        Secretary Albright. Let me say that I think we need to
    remember what you have said as part of your comment and
    question, that Egypt has played a very important role in the
    overall peace process. When President Clinton met with
    President Mubarak when President Mubarak was here, we made very
    clear the importance to them of playing a constructive role in
    the whole peace process.
        They continue to play a useful role and I think that we
    would make a mistake if we had unilateral cuts here at this
    time in dealing with Egypt.
        If I might, Senator, it also goes back to your first
    question. As I said, I think we are in a pretty tough patch. We
    have been in tough patches before. We need to get through it.
    We are basically optimistic because that is our nature, but
    where I would be really concerned and would lead me to
    pessimism is if we were to undue all the work that has been
    done in the previous years of bringing the parties together.
        After that meeting in Cairo, I called many Arab leaders and
    asked them not to move the process backward. It is very hard to
    unravel things, and, therefore, I would hope, even on our part
    here, that as the United States we continue to press both
    parties to get the peace process back on track, not take
    actions that would make it more difficult for us to continue to
    have our catalytic, honest broker role and to be vigilant but
    always understanding that we need to move forward and that by
    taking unilateral action in response to a specific action, we
    in effect make it more difficult for ourselves to play an
    active role, which we intend to continue to do.
        Senator Specter. Thank you very much, Madam Secretary.
        Thank you, Mr. Chairman.
        Senator McConnell. Thank you, Senator Specter.
        Senator Leahy.
        Senator Leahy. Thank you, Mr. Chairman.
        Senator Harkin had wanted to be here. His brother is quite
    ill and so was unable to be. I have some questions he had
    wanted to ask, and I would like to just submit those for the
    record.
        Senator McConnell. That will be done.
        Senator Leahy. I mention them because they were things that
    he is very, very concerned about and if it were not for the
    illness, he would be here.
        Madam Secretary, I know you talked about NATO enlargement,
    and I have not made up my mind on that question. I am watching
    it very carefully and am privileged to be part of the Senate
    observer group on this. I think you have made great progress
    with the Russians on it. My concerns have been numerous: the
    cost to the American taxpayers, and I know that has been
    discussed with Senator McConnell.
        The implications the NATO/Russian charter has for the Start
    II Treaty is another one. I am concerned about whether Start II
    is going to be a casualty of this agreement. Are we expanding
    NATO at the cost of undercutting progress in reducing a really
    dangerous threat, 20,000 Russian nuclear warheads? Do see any
    chance that Russia will ratify Start II this year?

                               ratifying start ii

        Secretary Albright. Senator, this is very much a part of
    the discussions that President Clinton and President Yeltsin
    had and that I had had prior to that in Moscow, and we have
    made very clear to the Russians the importance of their
    ratifying Start II and then moving on to Start III.
        While there clearly are complications within the Duma,
    President Yeltsin had committed himself, as had Foreign
    Minister Primakov to actively pursuing the ratification of
    Start II. So, we will press that and press them also, once that
    is done, to move on to Start III.
        I agree with you. These were very important arms control
    treaties. They are important to us. We will keep pressing the
    case.
        But what I believe has been so interesting in this phase is
    how we are moving forward in new relationships that are built
    on these kind of longstanding arms control agreements that
    allow us to move into new areas to provide better security.
        And to go into your original question, we did talk about
    the cost of NATO enlargement, but I keep remembering that it
    costs more to fight and have a war than to think about how to
    preserve the peace. Even at the cost of $200 million a year, I
    think it is a good deal for the American people.
        Senator Leahy. I understand that. My concern is it becomes
    less of a good deal if we lose major nuclear arms control
    agreements because of it. It is one of the things that concerns
    some of us who still have questions on NATO expansion. I have
    always been a strong supporter of NATO. I think it is extremely
    important.
        I said to you before my concern that NATO would have become
    irrelevant had we not bolstered it in Bosnia. Had we not made
    that a significant NATO matter, we could have ended up with an
    irrelevant meeting group that periodically would meet in
    Brussels and feel good about the world but be otherwise
    irrelevant, as compared to a situation where you could have a
    relevant and significant NATO, which I think is important. I
    think a military alliance of that nature run by democratic
    nations is in our best interest, especially in that part of the
    world.
        Speaking of Bosnia, I was pleased to see you are going back
    to Bosnia. You and I traveled there with the President about a
    year and a half ago on the trip from hell. [Laughter.]
        But actually I found it very interesting, and I think it is
    important for you to go. If we are going to withdraw our
    troops, we have got a lot of work ahead of us.
        I saw an article in last Sunday's New York Times. ``It
    would be a mistake to say there is peace in Bosnia,'' said a
    top NATO commander. ``We have only the absence of war. We gave
    the civilian officials the time and space to carry out the
    Dayton agreement, but they failed. Nothing has been
    accomplished. The moment we pack up and leave next year, the
    war could well start over again.'' It went on to say that many
    civilian administrators, while acknowledging their failures,
    say the refusal by NATO leaders to arrest people indicted on
    charges of war crimes and protect refugees who want to return,
    has left them without the power to make the parties respect the
    peace agreement.
        I am sure that you have thought about the concerns of the
    Bosnian, Serbs, and Croats, who do not want to live together.
    You have thought about what happens if we leave, NATO pulls
    out, and Karadzic is still in power.
        What do you think it is going to look like a year from now?
    I am not talking about just the date of pullout. What kind of
    progress are we going to have a year from now?
        Secretary Albright. Just one point back on the historic
    question. Just the way we do not sign on and ratify treaties
    that we do not think are in our national interests, we believe
    that the Russians will see a ratified Start in their national
    interests because if they do not do that, they are in a worse
    strategic position than they would be otherwise.
        Senator Leahy. I agree.
        Secretary Albright. So, I think that they should do it. The
    truth is that the Duma might have found objections to Start II
    whether we were enlarging NATO or not, but I think the issue
    here is that it is in their national interest.
        On the question of Bosnia, you have heard me say this
    before, but I think it does bear repeating. There are those who
    are always talking about the deadline of the withdrawal of SFOR
    without focusing enough on all the work that can and should be
    done in the intervening period. As you know, I was a professor,
    and this really reminds me of the student who comes in the
    first day of the semester and sees that there is a paper due on
    the final day and that student says, I would like an extension,
    please. [Laughter.]
        Senator Leahy. That never happened to you as a professor,
    Dr. Albright.
        Secretary Albright. And I would have said to that student,
    do not worry about that. Let us get some work done. So, that is
    what this is about and that is what my speech is about.
        Clearly the military has performed brilliantly in Bosnia.
    The civilian aspect of this has lagged, and what we need to do
    now is to reinvigorate the civilian part of the Dayton
    agreement and get full civilian/military cooperation in this
    phase.
        There is a great deal that can be done. The chairman, in
    his opening statement, asked about what kind of programs there
    were. Was there conditionality? How were we dealing with this
    issue? What I will be talking about tonight is basically a way
    to use our assistance to bring about our goals and that is a
    multiethnic state, so that assistance would go to, for
    instance, one initiative, open cities, where we would pick
    certain cities, towns and support their projects that in fact
    help to bring the various ethnic groups together. We obviously
    favor the return of refugees, not only to majority areas, but
    to minority where they are in the minority and that is where
    these open cities are.
        On the war criminals issues, I have made very clear that we
    understand the cancerous effect that continues when there are
    war criminals and the difficulty of having true reconciliation.
    We are pledging our full, aggressive support to the War Crimes
    Tribunal.
        Senator McConnell. Thanks, Senator Leahy.
        Senator Bennett.
        Senator Bennett. Thanks, Mr. Chairman, and welcome, Madam
    Secretary.
        I would like to talk to you about the Iranian buildup in
    the gulf. I talked to others from your Department about this
    before, and I do not know whether they told you about it or
    not, but we will go through some of the same ground.
        Since the last hearing there has been a publication called
    Worldwide Maritime Challenges, 1997, put out by the Office of
    Naval Intelligence. I would like to turn to page 22 of that and
    here is a copy of it so that you can read along. It says,
    ``Discoveries after the gulf war clearly indicate that Iraq
    maintained an aggressive WMD procurement program.'' For those
    in the audience, WMD means weapons of mass destruction,
    nuclear, chemical, and biological weapons. Now, that is fine.
    That is history.
        Now, it goes on. ``A similar situation exists today in
    Iran''--I underline the word ``today''--``with a steady flow of
    materials and technologies from China to Iran. This exchange is
    one of the most active WMD programs in the Third World, and is
    taking place''--again the present tense, ``is taking place''--
    ``in a region of great strategic interest to the United
    States.''
        Do you agree with that assessment by the Office of Naval
    Intelligence?

                          weapons of mass destruction

        Secretary Albright. Well, let me say that we do share your
    deep concern about what is going on in this area. We have
    expressed our concerns to China and we will continue to do so.
        We also are continuously monitoring, through all means
    available to us, all advanced weapons transfers whether from
    China to Iran and Iraq, or whether from China or any other
    nation. We are watching the situation very, very carefully. We
    are concerned. There is no question about it.
        I do not know whether I would agree specifically with the
    way that this is worded, but I can assure you that this is of
    major concern to us.
        Senator Bennett. Are there any new developments regarding
    Chinese weapons transfers to Iran that you can share with us?
        Secretary Albright. Well, let me go through this with you a
    little bit. We have been concerned about China's sales of
    chemical weapons, and yesterday we imposed sanctions on seven
    Chinese entities for their export of chemical goods and
    equipment to Iran which we believe could be used in Iran's
    chemical weapons program.
        The sanctions are against specific individuals and
    companies and not against the Government of China and we have
    no evidence that the Chinese Government was involved in these
    exports.
        The sanctions prohibit the U.S. Government from procuring
    goods from the sanctioned entities and also prohibit the
    importation into the United States of any products produced by
    the sanctioned entities.
        The Chinese Government has stated publicly its commitment
    to the Chemical Weapons Convention, and we hope that this
    action on our part will serve to encourage the Chinese
    Government to improve its export controls so that these kinds
    of entities are prevented in the future from assisting Iran's
    chemical weapons program. This is to be published in the
    Federal Register today.
        Senator Bennett. Thank you. I find that very encouraging
    and I appreciate your sharing that with the committee.
        If I could shift now to advanced conventional weapons, I
    would like to do with you the same thing I did with Mr. Bader
    when he was here and just elevate the awareness, if I might.
        This is a picture of the U.S.S. Stark, the American escort
    vessel that was struck by a cruise missile 10 years ago this
    month, and 37 American sailors died.
        Now, here is a picture of Chinese missile boats that are
    capable of carrying missiles equivalent or better than the
    Exocet missile that struck the Stark. You see there are five
    such missile boats on the back of this Chinese cargo ship. Each
    one of those has four missile launchers on it, and they are
    capable of launching the C-802 missile which is described by
    Chinese missile salesmen as being available for use against
    escort vessels. And that is exactly what the Stark was, an
    escort vessel.
        Now, if the Office of Naval Intelligence is right and the
    Iranians are now receiving land-based versions of the C-802--we
    know they have 60 C-802's in sea-based version. Here is the
    land-based version of the C-802--they would then be capable of
    attacking American naval vessels, escort vessels, from both the
    sea and the land.
        Now, it is against American law, namely, the Gore-McCain
    Act, to deliver cruise missiles to Iran. What is the
    administration's position on Gore-McCain and Chinese cruise
    missile sales? I asked this question of Mr. Bader and he has
    not yet responded.
        One of the questions I asked him was, Have you asked the
    Navy for its opinion as to whether or not the presence of these
    missiles in the area is destabilizing? So, I would repeat to
    you, have you asked the Navy if they think the presence of
    these missiles are destabilizing, and if you have any comment
    on the overall situation.

                              conventional weapons

        Secretary Albright. Thank you very much, Senator.
        We do in fact again share your deep concern about China's
    transfers of sophisticated conventional weapons, particularly
    this C-802 antiship cruise missile. As I expressed to you in a
    response to a letter on April 17 that you sent to me, we have
    expressed our concerns to China and we will continue to do
    that.
        We also continuously monitor through all the means
    available to us all advanced conventional weapons transfers to
    Iran and Iraq, as I said, whether from China or any other
    nation, and we carefully examine every report and take
    appropriate action when the information warrants.
        As you know, the Gore-McCain Act provides for the
    imposition of sanctions when a foreign person or country
    transfers goods or technology so as to contribute knowingly and
    materially to the efforts by Iran and Iraq to acquire
    destabilizing numbers and types of certain advanced
    conventional weapons.
        I take very seriously our need to prevent Iran and Iraq
    from becoming any more of a threat to regional stability than
    they already pose, and you can be certain that we will--and I
    personally will--continue to monitor any further development on
    this issue. We remain vigilant and will continue to review this
    with the appropriate agencies, including the Departments of
    Defense and the Navy whether these transfers have met the
    threshold specified in the Gore-McCain Act.
        If I might, Senator, take advantage of both the questions
    that you have asked to give a little bit of a broader context.
    There clearly is a very serious problem in our society or in
    the international system today about the transfer of weapons.
    We are in a situation where there are a number of countries
    that have sophisticated weapons systems that are selling them
    to other countries and there is much more of a movement of
    these kinds of weapons than previously because of the greater
    availability.
        We see it as a problem and we are doing everything we can
    to control such movements. We have developed a variety of
    international regimes to try, No. 1, to develop a system to
    monitor them, and then No. 2, to develop a system of action
    once that has been discovered. It is not perfect. It is far
    from perfect. I think these are the major challenges we have as
    we enter the 21st century.
        It is a very different world and the United States has to
    be out there up front creating these new missile controls or
    conventional regimes, but it is a problem. And I am not here to
    tell you that we have a perfect system. What we do have is a
    functioning international system where we are the leaders and
    we have to make sure that the others abide by it. I just want
    to tell you that we are on the same side on this. We have to do
    everything we can but it is very hard, and I am here to tell
    you it is very hard.
        Senator Bennett. Thank you.
        If I could quickly, Mr. Chairman, in view of the
    Secretary's response about sanctions brought against
    individuals on the chemical transfer--and I am, as I say,
    delighted to hear that. Are you aware of the allegation that
    polytechnologies is the entity that brokered the Chinese
    missile deal and are you looking at the possibility of
    sanctions there? You can answer that for the record if you do
    not have that.
        Secretary Albright. I will have to answer that for the
    record, sir.
        Senator Bennett. And I have some other questions for the
    record, but I thank the chair.
        Senator McConnell. Thank you, Senator Bennett.
        Senator Specter asked a couple of questions about the
    Palestinian authorities. As you may know, Madam Secretary,
    there is a current specific problem relating to an American
    citizen--a Mr. Kuttab I think is his name--who has been tossed
    in prison by the Palestinian authority. His crime was to
    broadcast over an American-financed television network
    proceedings of the Palestinian Legislature. So, as far as I
    know, unless something has happened this morning, he is in jail
    for this crime. I wonder if you are familiar with this case,
    and if you are, what if anything we are doing to get this
    American citizen out.

                            american citizen jailed

        Secretary Albright. Yes, sir; we have been dealing with it
    this morning. We obviously think it is unjustified. The Consul
    General there has been to visit the journalist in question and
    we have demarched the Palestinians on this and we will continue
    to do so. We consider this a serious issue and will stay on top
    of it.
        What is troublesome I think is generally a sense that there
    is not enough of an attempt to have a rule of law. This is a
    problem, but on the specific case we are using all our
    diplomatic channels to getting this person released.
        Senator McConnell. I wish you well.
        Turning to Burma, a subject you and I have discussed off
    and on for years, first let me congratulate you for the step
    that the administration took recently in implementing the
    provisions of a law that I actually voted against because I
    thought it was too weak--that was the Cohen-Feinstein measure.
    The administration has responded to that and implemented a
    variety of different sanctions including the bar on new
    investment.
        I might tell you, though, Madam Secretary, I am now hearing
    the people who fought against sanctions earlier saying give
    sanctions a chance, meaning I gather that they think they can
    live with what has been done so far and it is not going to
    pinch too much and their concern that we may go further, we
    meaning either the Congress or the administration or both of us
    working together.
        So, my question really is this. Where do we go from here?
    Are you going to lead an active effort to encourage the ASEAN
    countries and other countries to follow our lead? What is the
    next step? How are we going to try to influence the restoration
    of democracy in Burma?

                                burma sanctions

        Secretary Albright. Mr. Chairman, we have indeed discussed
    the subject often and at length, and I am very pleased that we
    were in fact able to get these sanctions imposed. They went
    into effect at 12:01 a.m. yesterday. We want to make sure that
    they are properly carried out.
        Let me, if I might, just quite openly share with you a
    concern. I read today that Aung San Suu Kyi is under even
    greater pressure, that they are about to hold a congress or a
    convention of her party, that a number of people have been
    arrested, 50 I think, and others are being watched, and that
    there is every indication that the SLORC is reacting to the
    sanctions as well by putting additional pressure on her. It is
    clear to me that they have no intention of responding to her
    efforts in a dialog.
        I think what we need to do is discuss with you and with
    other sources about how to proceed on this because she in fact,
    obviously, believes that the international pressure helps. But
    at some stage, she is under increasing threats, and I think we
    have to watch this carefully and I will.
        As far as the other nations are concerned, we have not----
        Senator McConnell. If I may interject, as you and I both
    know, she would like for us to go further than we have gone.
        Secretary Albright. I think she would. Having this
    discussion right here is not the best idea, but I do think that
    we need to talk about this because they are brutal. The SLORC's
    are genuinely immoral, brutal leaders who do not seem to care.
    So, I think we need to look at how these sanctions are going to
    be carried out and the next steps.
        As far as the ASEAN countries are concerned, I have written
    to the various leaders. We would very much like to slow down
    the possibility of Burma coming into the ASEAN. Their approach
    to this, quite frankly, is different from ours. They believe
    that they need to engage with Burma. We have obviously taken a
    completely different step.
        But I would welcome our continuing dialog on this. I am not
    sure that taking further steps at this stage would improve the
    situation, but here we have only had 24 hours. This is the
    reaction that we are seeing.
        But the only thing I can assure you of--and I have been
    true to my word--is I will stay on this case with you.
        Senator McConnell. Well, I do not want to put words in your
    mouth, but do I correctly hear you saying that it is not your
    current intention to encourage the ASEAN countries to follow us
    in the steps that we have taken?
        Secretary Albright. No; I mean, we have been in touch in a
    variety of ways with the other ASEAN countries and we have
    tried very hard to get them to follow our steps. They do not
    seem to be interested in it because they have a different
    approach.
        But this subject will be very much on our minds as we talk
    to them, and I will relook at whether we should take some
    further action in terms of encouraging them further. We have
    tried, Senator.
        Senator McConnell. I want to stay in that part of the world
    and turn to Cambodia. There is a growing fear among
    international observers that the Easter Sunday grenade attack
    is an early warning of a slide toward civil war in that
    country. At the very least, the escalating problems are going
    to delay or potentially delay national elections which are
    scheduled for late 1998.
        It is increasingly clear that unless steps are taken soon,
    the democratic progress Cambodia has made could well be
    destroyed by intimidation, terror, and political killings, all
    of which that country is all too familiar with.
        My first question is, What specifically is the United
    States Government doing to bolster the democratic movement in
    Cambodia?

                              violence in cambodia

        Secretary Albright. First of all, again, Senator, I agree
    with your assessment of the situation. We have done what we can
    in terms of trying to help the Cambodian democratic forces. We
    are concerned by these acts of violence and we have condemned
    the attack and warned Cambodia's leaders that political
    violence would jeopardize international support.
        Mr. Chairman, I am planning to go to Cambodia on my way to
    Hong Kong, also to Vietnam, and I will make very clear that it
    is important for them to proceed down the democratic path and
    will be happy to report to you on our return.
        Senator McConnell. Let me go a little further. You may or
    may not be ready to respond or actually know yourself the
    answers to the following questions, but there have been
    accusations made that the second prime minister Hun Sen and the
    Cambodia People's Party were responsible for that particular
    terrorist attack.
        Do you know or your people know if there has been any
    concrete evidence to back the assertions that Hun Sen or any of
    his officials were directly responsible for that attack.
        Secretary Albright. I will have to look that up, Senator.
    We will get back to you.
        Senator McConnell. I wish you would. I am going to be
    interested in the status of the investigation into that matter.
        We just talked about the ASEAN meeting in July in reference
    to Burma. What is the administration's position on Cambodia's
    inclusion in that organization?

                          including cambodia in asean

        Secretary Albright. Well, again I think that our general
    feeling had been that there would not be a problem about them
    coming in, though I gather that what ASEAN wants is to bring
    them in as a group. But I think we need to assess exactly where
    they are as a result of the statements that we have just
    exchanged about what is going on there now.
        I do think that we should all remember what a remarkable
    step forward the Cambodian elections were. I had been to
    Cambodia shortly after those elections, and was proud of the
    great job that the United Nations did in Cambodia where I think
    over 90 percent of the people voted. Nevertheless, it is a
    fragile democracy. We need to do whatever we can to support the
    democratic forces, and if inclusion in ASEAN would assist them
    at this stage, I think that it bears support. But I think we
    have to see what the effect of these most recent problems are
    and also to respond to your question as to who and how the
    violence is sponsored.
        Senator McConnell. Finally, on Cambodia the President
    certified that Cambodia had cooperated fully with the United
    States to meet international counternarcotics performance
    standards. However, the Far Eastern Economic Review ran a
    detailed cover story just recently questioning whether Cambodia
    was the new narcostate in Asia. Specific evidence was presented
    tying senior government officials to heroin traffickers.
        Any observations about that?
        Secretary Albright. I think, Mr. Chairman, we are very
    careful in the way that we do the certifications. If there is
    something different, we will look at it again, but I feel
    fairly confident in the way that we certify.
        Senator McConnell. Senator Leahy?
        Senator Leahy. Thank you, Mr. Chairman.
        I share your concern about Cambodia. I mention the donors'
    meeting in July, to consider World Bank funding for Cambodia. I
    worry that we are going to see them return to civil war and the
    $3 billion we spent there down the drain and the terrible
    killings that are going to take place.
        I would be interested--it does not necessarily have to be
    today, but I would be interested in knowing what the United
    States position is going to be at the donors' meeting in July
    because I think this is probably one of the last real chances
    to send a very good message, a strong, unambiguous message to
    Cambodia.
        Secretary Albright. I do not have a position right now. I
    will get back to you.
        Senator Leahy. I understand. I just throw it out to follow
    along the lines of what the chairman was saying because I think
    it is a serious matter. In fact, I look forward to talking with
    you when you get back from Cambodia, Vietnam, and Hong Kong,
    all areas I have a great deal of interest in. We used the Leahy
    war victims fund in both countries. Both countries have gone
    through an awful lot. I suspect a lot more stability in Vietnam
    now than in Cambodia, but your observations I think will be
    important to all of us.
        Just a couple of other points I want to make. In February
    your very active help on the international family planning vote
    was critical. I suspect we will see more votes on that. I would
    encourage you to keep engaged in it.
        I cannot understand those who want to keep cutting family
    planning funds. It has reduced unwanted pregnancies. We showed
    in one country tens of thousands of abortions were avoided
    because of family planning.
        I am going to keep in touch with your office. If you ever
    hear anything more about Ngawang Choephel, the Tibetan arrested
    by the Chinese--he was a former Fulbright scholar at Middlebury
    College in Vermont. He is in a Chinese prison for making a
    documentary film about traditional Tibetan music and dance. I
    raised his case with President Jiang Zemin and others last fall
    in China. They sentenced him to 18 years. It is ridiculous. I
    pointed out that it was on the 50th anniversary of the
    Fulbright Program which began with a scholarship to China, and
    they sentenced a Fulbright scholar to 18 years. I would urge
    our representatives to continue to raise it at the highest
    levels.
        Last--and this will be a question--we passed a law last
    year that withheld antinarcotics aid to any unit of the
    security forces of a foreign country whose members have been
    implicated in gross violation of human rights unless the
    government has taken steps to bring those people to justice.
    The administration has worked to carry out the letter but the
    spirit of the law, and I applaud you for that.
        I wonder why we should not have the same law on all aid we
    give and not just antinarcotics aid, but if you've got a
    security forces unit of a foreign country implicated in gross
    violation of human rights and the government is not taking
    steps to bring the individuals to justice, why not hold all aid
    to the police unit, or army unit? Would you give thought to
    that?
        Secretary Albright. I will. I have instructed all our posts
    to monitor compliance with your amendment very closely,
    including by seeking out information about suspected human
    rights violations, and we will not be passive. We have put in
    place also protections against the misuse of our funds.
        Senators, you both have asked about Cambodia and some other
    new democracies. What I really see is that the first wave of
    democratization is one of euphoria and we somehow feel that
    many countries have kind of gotten over the hump and we think
    to ourselves, OK, the job is done. What I think we are seeing
    more and more is that this is a very complex process as
    countries emerge from civil wars or from totalitarian
    repression or any number of very difficult periods, and that
    while the United States cannot do everything for everybody and
    it is essential that the parties, whatever the case is, do
    things for themselves, we have to be aware of the very
    important role we can play in getting countries over more than
    the initial hump and the extent to which our funds serve as a
    magnet for the attraction of other international funds.
        That is why I am so grateful to you for everything that has
    happened in terms of trying to get--not preserving our money
    but for once that we have finally taken a step forward. I think
    that American power is vital and we need to know exactly how to
    use it. In this year of the anniversary of the Marshall plan,
    we have a lot to learn about what role America can play in
    putting democracies on their feet and how long a process it is.
    We and the American people are beneficiaries when there are
    stable countries that are good markets and do not support
    narcotrafficking, a whole series of issues. So, I am very
    grateful to you.
        But what I think our questions really are--and you have
    addressed them--is we get a country to a certain level and we
    think that they have achieved something and like Cambodia there
    still continue to be threats.
        Senator McConnell. One final question here before we wrap
    it up. I want to go back to Korea. You touched on Korea in your
    opening statement.
        I have accepted the conventional wisdom that food
    assistance should not be held hostage to a change of direction
    in the North Korean regime. But, it is interesting to note that
    every time the food assistance is offered, nothing happens. It
    is my view--and I suspect it is your view, and I am going to
    ask you to comment on it--that there is no real hope of
    progress there on the peninsula until the North and South speak
    to each other. It will be very, very difficult to impose a
    settlement from outside.
        I wonder where we go from here because nothing we have done
    to date--not that the things we have done to date are
    necessarily a mistake--but nothing we have done to date has
    produced bilateral discussions or, for that matter, four-party
    discussions. Where are we and where do we go from here?
        Secretary Albright. Well, first of all, on the four-party
    talks, interestingly enough I think that there has been
    progress, not definitive, but there has been. As you know, the
    talks were proposed in April 1996 and we offered a joint United
    States-Republic of Korea [ROK] briefing to the DPRK and that
    was held March 5 this year.
        Then on April 16, in response to the joint briefing, the
    DPRK agreed in principle to the four-party talks, but then
    stopped short of agreeing to the practical steps, such as dates
    for the first meeting, and need to realize the talks.
        We, with the ROK, have agreed to continue contacts with the
    goal of beginning the four-party talks as soon as possible.
    Obviously the reason for those is to replace the armistice
    agreement with a permanent agreement. We are doing our best to
    get those back on track.
        We also are doing everything we can to encourage North/
    South dialog in itself. I was in Seoul earlier this year. It
    was a major subject of discussion, and we are going to keep
    pressing. But as you know, the situation is difficult in the
    DPRK and the Republic of Korea at this stage is also going
    through an electoral process, but it is something that is very
    much on our minds. We are very concerned about the stability of
    the Korean peninsula and consider it one of our priority items.
        Senator McConnell. Well, thank you very much, Madam
    Secretary, for being here today. I congratulate you again on
    your good work within the administration with regard to the 150
    account request, and Senator Leahy and I are going to do the
    best we can to see to it that when the smoke clears up here,
    the money is still there. [Laughter.]
        Thank you very much.
        Secretary Albright. We are very grateful to you. Thank you
    very much.

                         additional committee questions

        Senator McConnell. There will be some additional questions
    which will be submitted for your response in the record.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]
                         Additional Committee Questions
        Question. There have been accusations made that the Second Prime
    Minister Hun Sen and the Cambodian People's Party were responsible for
    the Easter Sunday grenade attack. I am curious as to whether you or
    your people know if there has been any concrete evidence to back the
    assertions that Hun Sen or any of his officials were directly
    responsible for the attack.
        Answer. The State Department called in the Cambodian Ambassador on
    March 31. We condemned the attack and urged the Cambodian Government to
    take steps now to prevent further political violence and bring to
    justice those responsible. Similar demarches were delivered in Phnom
    Penh to Foreign Minister Ung Huot and to the Co-ministers of the
    Interior. Deputy Secretary of State Strobe Talbott met with Mr. Sam
    Rainsy and his wife on April 9. Mr. Talbott expressed relief that Sam
    Rainsy had escaped without serious injury and outrage that others had
    not. We have called on Cambodia to conduct a speedy credible
    investigation of the incident and to identify and punish the
    perpetrators.
        We do not have concrete evidence indicating who was responsible for
    the attack. The FBI investigation of the incident is still pending.
                                     ______

                      Questions Submitted by Senator Leahy
                          cambodia-world bank meeting
        Question. I believe that the donors' meeting in July will consider
    the World Bank funding for Cambodia. I worry that we are going to see
    them going right back into civil war and the $3 billion we spent there
    down the drain and the terrible killings that are going to take place.
        I would be interested in knowing what the U.S. position is going to
    be at the donors' meeting in July because I think this is probably one
    of the last clear chances to send a very good message, a strong
    unambiguous message to Cambodia.
        Answer. At the Consultative Group meeting on Cambodia hosted by the
    World Bank in Paris, the United States expressed serious concern about
    lack of progress on election preparations, violence, threats and
    continued human rights abuses. We noted that effective assistance
    programs could not go forward in the face of political polarization and
    fears of a return to violence.
        In an informal political meeting on June 30, the U.S. reiterated
    our core concerns about Cambodia's ability to protect human rights,
    maintain political stability, conduct free and fair elections in 1998,
    and foster economic growth. The U.S. urged all Cambodians to settle
    their differences peacefully and reject violence and intimidation. We
    condemned the March 30 grenade attack on a peaceful political
    demonstration. The U.S. emphasized our policy that senior Khmer Rouge
    leaders should not be brought into the Cambodian government and that
    all those suspected of committing crimes against humanity from 1975-79
    should be brought to justice.
        Other bilateral and multilateral donors expressed similar concerns,
    calling for political stability and emphasizing the importance of free
    and fair elections in 1998.
        Despite this clear message from the international donor community,
    Cambodia was again plunged into violence during the weekend of July 5.
    We have condemned the use of force to overturn the results of the 1993
    elections and called on all parties to resolve their differences
    peacefully. We have unequivocally condemned the execution of FUNCINPEC
    officials and the intimidation of journalists, human rights workers and
    others in the wake of the fighting. The U.S. is actively involved with
    ASEAN and other signatories of the Paris Accords in an attempt to find
    a solution to the crisis.
        The U.S. has suspended assistance to Cambodia for 30 days
    (beginning July 9). During this period our programs will be limited to
    those activities that provide humanitarian assistance or support
    democracy. All programs that provide direct support to the Cambodian
    government are suspended.
                                     ______

                     Questions Submitted by Senator Bennett
                            expropriation sanctions
        Question. Will you initiate sanctions against U.S. treaty partners
    who expropriate the property of U.S. citizens without appropriate
    compensation, and do you have adequate resources to ensure compliance
    with our treaty partners' obligations in this area?
        Answer. The United States has an active and vigorous policy of
    protecting U.S. citizens' property abroad from unlawful expropriation.
    Under international law, a state may lawfully expropriate the property
    of a foreign national only if it does so for a public purpose, in a
    non-discriminatory manner, affords due process, consistent with its
    other commitments, and provides prompt, adequate, and effective
    compensation for the property. The Department of State will continue to
    press other countries to provide U.S. citizens with treatment that is
    consistent with established principles of customary international law
    and obligations under international agreements.
        Specifically, the Department's expropriation policy has four
    primary elements: (1) active negotiation of Bilateral Investment
    Treaties and other international agreements to help protect the
    interests of U.S. investors; (2) provision of general consular
    assistance to U.S. businesses and property owners abroad; (3) active
    diplomacy emphasizing to foreign governments the importance of
    resolving expropriation claims involving U.S. nationals; and (4) formal
    settlement of claims via government-to-government agreements where all
    other avenues of redress have failed. The steps taken by the Department
    in any particular claim or investment dispute depend upon the
    circumstances and our judgment as to what would be the most effective
    course of action to help resolve the dispute. In addition, Section 527
    of the 1994-1995 Foreign Relations Authorization Acts provides that
    certain types of bilateral assistance shall not be provided to a
    government that has expropriated the property of a U.S. national in
    violation of international law. Section 527 also requires the United
    States to vote against loans by multilateral development banks and
    international financial institutions to those governments unless such
    assistance serves the basic human needs of the citizens of that
    country.
        The State Department and our diplomatic and consular posts closely
    monitor U.S. citizen claims of expropriation and U.S. investor
    disputes, bringing concerns to the attention of foreign governments on
    a regular basis. As part of that effort, the Department annually
    compiles the report required under Section 527(d). We believe that the
    Department has sufficient resources to continue to pursue the
    longstanding policy of protecting U.S. citizens abroad.
                                     ______

                    Questions Submitted by Senator Campbell
                            women in foreign policy
    Vital voices: women in democracy
        Question. Madame Secretary, you have gone on record as saying that
    the advancement of women is in the interest of U.S. foreign policy.
    That makes good sense to me, not only from a humanitarian viewpoint,
    but also because women play a key role in building a civil society.
        I've heard about 150 women leaders of formerly communist European
    countries, who are coming to Vienna in July to learn how women in the
    West are dealing with business, law, and politics. This sounds like a
    good idea to me, and it will have a big, long-term payoff in terms of
    building democracy.
        I understand our Embassy in Vienna is putting this event together.
    Can you tell us more about it?
        Answer. This conference, which Ambassador Swanee Hunt has
    organized, will convene women leaders from governmental and private
    sectors of central and eastern Europe, the United States and the
    European Union. Three hundred participants (approximately 75 from the
    U.S.) will explore ways to strengthen the role of women in developing
    open, democratic societies. First Lady Hillary Rodham Clinton will give
    the keynote speech to start the conference. It will run July 9-11 in
    Vienna, Austria.
      --Sponsored by the U.S. and European Union governments, with
            extensive private sector participation, the conference serves
            important U.S. foreign policy goals.
      --The ``Vital Voices Conference'' supports President Clinton's and
            Secretary Albright's commitment to expand the circle of
            democracy by incorporating themes related to women into the
            mainstream of American foreign policy.
      --U.S. participation in this conference is one of partnership, an
            expression of our alliance of common values with the women of
            central and eastern Europe.
      --The U.S. acknowledges that much progress has been made to date in
            these countries and that transition is difficult. However, true
            democracy, which gives women access to the levers of economic
            and political power, is worth striving for.
      --Civil society, with women as equal participants, needs to take root
            at all levels of society.
        The conference's objectives are:
      --to define the common challenges women face in the emerging
            democracies and to explore concrete policy initiatives to meet
            those challenges;
      --to energize and equip women leaders to assert their influence in
            their home countries;
      --to establish wider East-West networks of women leaders in support
            of democracy-building efforts in central and eastern Europe;
            and
      --to increase public understanding about the economic, political, and
            social contributions women make to a democratic society.
        There are three tracks of workshops--Law and Leadership, Politics
    and Persuasion, and Business and Beyond. Presentations by high level
    public figures will underscore the priority of empowering women as a
    foreign policy goal.
        The ``Vital Voices'' Conference puts into action many of the ideas
    that came out of the UN Fourth World Conference on Women in Beijing.
        By bringing women under thirty to the conference, we are
    acknowledging the important role the next generation will play in these
    democratic societies.
        U.S. participants are strongly encouraged to explore ways to
    maintain their connections with European participants after the
    conference. ``Vital Voices'' is an event in the process of the
    advancement of women and will generate much follow-up activity.
        The State Department will work with U.S. participants and U.S.
    Embassies in central and eastern Europe on follow-up to the conference.
                                     ______

                     Questions Submitted by Senator Harkin
                                  child labor
        Question. What kind of plans do you and the Administration have to
    raise this issue of abusive and exploitative child labor? Do you bring
    it up in bi-lateral and multi-lateral talks or do you leave it to the
    Ambassadorial or lower diplomatic levels?
        Answer. We have been and will continue to be very active in both
    multilateral and bilateral meetings--and at every level.
        On the multilateral level, we have urged the World Trade
    Organization (WTO) to establish a working group to study the link
    between labor standards and trade. Last December, at the WTO's
    Ministerial conference in Singapore, we gained an explicitly political
    statement reaffirming WTO members' commitment to observe
    internationally recognized core labor standards. Since there is no ILO
    Convention specifically prohibiting child labor, we have taken the lead
    in the International Labor Organization (ILO) to create one. The new
    Convention, which we are currently working on, will prohibit
    exploitative child labor, and we expect it will be adopted in 1999,
    after a two year-discussion. Our early and substantive contributions to
    this drafting process should yield a Convention that we can recommend
    to the Senate for advice and consent to ratification. We are also key
    participants in the ILO's Working Party on the Social Dimensions of the
    Liberalization of Trade, a policy level group that is designing
    strategies for ensuring that adherence to core labor standards,
    including those applying to child labor, accompanies a country's
    increasing access to international trade. We also provide our views,
    encouragement, and support to work being done on child labor by UNICEF
    and in the OECD.
        In addition to these multilateral forums, U.S. Ambassadors in
    countries where the problem of child labor has been egregious have been
    closely engaged. Our Ambassadors, particularly in Pakistan, Nepal, and
    Bangladesh, have communicated both official U.S. Government concern and
    noted, for local manufacturers and exporters, the adverse reaction of
    American consumers to purchasing goods made by child labor. Our
    Ambassadors' efforts have resulted in programs to turn the problem
    around and have raised public, business, and governmental awareness of
    the issue.
        Work at the ground level is also important. Our labor attaches and
    other mission officers are in contact on a daily basis with host
    country trade unions, NGO's, journalists, and other public opinion
    formers. They are helping raise the awareness and supporting the
    activism of host country citizens--who are equally concerned at the
    waste of their children's future and want to see their countries
    substitute a generation of educated adults for one of illiterates.
        Question. Given your active role in bringing foreign policy to the
    American people, I would like to know if you plan to use the bully
    pulpit to inform American consumers that goods they purchase may have
    been made with abusive and exploitative child labor, such as hand-
    knotted carpets and wearing apparel? Do you believe that labeling goods
    made without abusive and exploitative child labor will help American
    consumers make informed decisions?
        Answer. Senator, you may rest assured that I will engage the
    American public on this issue. And I would like to take this
    opportunity to recognize your steadfast leadership and continuing
    efforts to highlight and solve the problem of child labor. Your
    appearance at the child labor labeling and codes of conduct workshop
    that the Department of Labor sponsored at the International Labor
    Conference on June 13 helped focus international attention on this
    promising new approach. My colleagues and I in the State Department
    appreciate the attention you have given this matter. We look forward to
    continuing to work closely with you and other Members of Congress in
    fashioning better responses to this problem.
        Effective voluntary programs to label goods made without child
    labor can be one way to empower consumers, and let them make informed
    choices when they buy a soccer ball for their youngsters or other
    articles for their family's use. Those consumer choices can encourage
    manufacturers to pay adults to work and enable children to attend
    school--if they want their products to be attractive to the American
    consumer.
        With White House encouragement, American businesses, trade unions,
    consumer groups, and NGOs have put together the Apparel Industry
    Partnership. As part of this ``No Sweat'' initiative, that group is now
    grappling with the issues surrounding labeling of goods and monitoring
    of labor conditions by U.S. businesses. I see this effort, which is
    non-governmental and purely voluntary, as an excellent example of the
    importance of Americans being informed and involved on U.S. foreign
    policy. U.S. consumer pressure has helped encourage our businesses to
    engage on child labor and bring home the point that the right of
    workers to fair treatment must be respected.
        Engaging consumers and NGOs in raising awareness about child labor
    and encouraging its elimination is important. We believe that any
    parent would rather see children receive an education, to expand their
    opportunities in life ahead, than to toil now. These are values which
    we hold in the United States and, as consumer and NGO groups are
    demonstrating abroad, they also are values that have universal appeal.
        Question. Does child labor make a difference in our relations with
    other countries? When a country has a large child worker population,
    does the administration take that into account when negotiating trade
    agreements, granting access to our market, granting foreign aid, and in
    working with international organizations, such as the ILO and UNICEF,
    on projects in the region? Do you believe that a rider on foreign aid
    funds linking progress on eradicating child labor to the release of
    funds would be helpful? How would you feel about that? Do you think we
    have the moral and economic strength to raise this issue with
    meaningful effect?
        Answer. In accordance with existing provisions of law, the U.S.
    Government takes basic worker rights factors into account when
    extending or denying preferential trade benefits under the Generalized
    System of Preferences (GSP), the Andean Trade Preference Act, and the
    Caribbean Basin Economic Recovery Act. Several countries have had GSP
    benefits suspended for lack of progress on basic worker rights. The
    Overseas Private Investment Corporation (OPIC) similarly takes basic
    worker rights into account and has suspended coverage in several
    countries on worker rights grounds.
        A key element in our approach to eliminating child labor is to work
    cooperatively with countries around the world that are interested in
    resolving their child labor problems. As you know, strong Congressional
    support has made possible U.S. Government participation in the ILO's
    International Program on the Elimination of Child Labor (IPEC). The
    U.S. Government contributed to IPEC in each of the last three fiscal
    years--a total of $5.1 million. We strongly support maintaining these
    contributions in fiscal year 1998 and fiscal year 1999 authorizations.
    These funds enabled us to support IPEC projects in Bangladesh, the
    Philippines, Brazil, Thailand, and Pakistan and to consider further
    IPEC projects in several other countries. We also support the efforts
    in this area of UNICEF, whose work complements that of the ILO. UNICEF,
    along with the ILO, played a critical role in launching ``Rugmark'' in
    India and Nepal and in signing an agreement with the Bangladesh Garment
    Manufacturers and Exporters Association to phase out child labor from
    the garment industry in that country.
        We believe consumer/industry partnerships, along the model of the
    ``No Sweat'' initiative, have enormous promise in harnessing the power
    of the market in behalf of worker rights. Such initiatives have the
    advantage of focusing tightly on worker rights abuses in specific
    countries and industries, can empower activist NGOs that promote worker
    rights abroad, and are flexible enough to increase or decrease public
    pressure in accordance with a targeted industry's demonstrated
    willingness to reform. On the other hand, measures that seek to punish
    countries where child labor persists run the risk of targeting the
    innocent along with the guilty, inflicting pain on disadvantaged groups
    along with those who exploit both children and adult workers.
        Question. Do you think it would be helpful in raising the issue of
    child labor in bilateral talks if you had more statutory authority
    behind the issue of child labor? For instance, do you believe report
    language calling on the Secretary of State to raise the issue of
    abusive and exploitative child labor would aid you in raising this
    issue? Or do you feel you already have enough power or authority to
    raise this issue effectively? Do you believe the laws in other
    countries pertaining to child labor have been effective? Do you believe
    a law banning the importation of goods made with child labor would be
    effective? Do you believe such a law would be bad for U.S. interests?
        Answer. We welcome the participation of Congress, as well as of the
    American public, in devising solutions to foreign policy issues that
    trouble us in common. The persistence of exploitative child labor is
    one such issue. However, regardless of whether or not Congress
    reiterates again its abhorrence, this Administration will continue to
    press for the speedy elimination of child labor wherever it is found.
    As with all human rights issues, we will not be content to evaluate a
    country's performance based solely on a superficial reading of its
    laws. Laws are important in setting a standard. Unfortunately, such
    standards are not always enforced. The bottom line is, and must remain,
    a country's actual performance.
        It is difficult for me to address the matter of changing U.S. law
    in the abstract. While I suspect we could quickly reach agreement on
    basic principles, finding the specific means of implementing those
    principles--without, at the same time, inflicting harm on others--is
    more difficult. Additional statutory requirements could raise questions
    with respect to existing U.S. international obligations and policy in
    other areas. I look forward to working with concerned Members of
    Congress, along with representatives from the business community,
    labor, academia, and other non-governmental organizations on this
    issue.
                                     ______

                    Questions Submitted by Senator Mikulski
        Question. One of the reasons for NATO's success is that it is a
    true partnership with allies who share our values and interests. There
    are no second class members. And every member is expected to pay his
    way.
        There have been disagreements over what the cost of NATO
    enlargement will be.
        In your discussions with potential new members do they recognize
    that they will have to pay their own way? They will have to upgrade
    their own infrastructure, modernize and restructure their own forces
    and supply them with the necessary equipment.
        Do our current and future NATO allies fully understand that the
    United States will not bear the full cost of NATO enlargement?
        Answer. We are confident that both current and new members will
    bear their fair share of the costs. The Madrid declaration, signed by
    all 16 NATO allies at the recent summit, acknowledges that enlargement
    will entail resource implications but also expresses confidence that
    the costs will be manageable and that the resources necessary to meet
    those costs will be provided.
        As noted in the Madrid Summit declaration, NATO will undertake its
    own costs analysis now that the countries to be invited are known and
    will report its results to NATO ministers at the December North
    Atlantic Council meeting. We expect NATO's report will confirm the
    essential elements of the U.S. government analysis.
        Question. Last week, NATO and Russia reached an agreement on
    Russia's role in NATO. As you have said, Russia will have a voice but
    not a veto in NATO.
        Would you discuss this agreement and how it will strengthen NATO?
        Answer. The NATO-Russia Founding Act provides the basis for an
    enduring and robust partnership between the Alliance and Russia. Under
    the terms of the Act, NATO and Russia will consult and coordinate
    regularly and, where possible and appropriate, act jointly--as they are
    doing in Bosnia now. The Act has five principal sections:
        The preamble notes that NATO and Russia do not consider one another
    adversaries and cites the sweeping transformations in NATO and Russia
    that make possible this new relationship.
        Section I describes the principles governing the relationship,
    e.g., restatement of the norms of international conduct in the UN
    Charter and OSCE Helsinki Final Act and explicit commitments, such as
    respecting the sovereignty, independence and territorial integrity of
    states and settling disputes peacefully.
        Section II creates a new forum, called the NATO-Russia Permanent
    Joint Council, for NATO-Russia meetings and describes how this Council
    will function.
        Section III describes a host of issues that NATO and Russia will
    discuss, including conflict prevention, peacekeeping, prevention of
    weapons proliferation, and exchange of information on security policies
    and defense forces.
        Section IV describes the military dimensions of the relationship.
    In this section, NATO reiterates aspects of its current defense policy
    and strategy; references its March 14 statement concerning how the
    Alliance will carry out its collective defense and other missions;
    recognizes that NATO will require adequate infrastructure on new
    members' territories commensurate with NATO's collective defense and
    other missions, and commits NATO and Russia to work for prompt
    adaptation of the CFE Treaty.
        Section IV also provides mechanisms to foster closer military-to-
    military cooperation between NATO and Russian militaries, including
    creating military liaison missions in respective NATO and Russian
    military headquarters.
        Under this agreement, NATO retains its full prerogatives. While
    Russia will work closely with NATO, it will not work within NATO. The
    Act makes clear that Russia has a voice, not a veto in NATO, and that
    the Alliance retains the right to act independently when it so chooses.
                                     cyprus
        Question. Last year, we all expected great progress to be made in
    ending the occupation on Cyprus. But the crisis broke out over the
    island of Imia--and the U.S. had to intervene to prevent an actual war
    in the Aegean.
        There is general agreement among all parties that Cyprus should
    become a federation that is not occupied by any foreign force. But
    still, an agreement eludes us.
        We have another opportunity today. Thanks to your efforts since
    your visit to Cyprus last summer, there has been some progress in
    reducing military overflights of Cyprus.
        In addition, the prospect of possible European Union membership may
    lead to greater moderation.
        What can we do to take advantage of these generally positive
    conditions to reach a peaceful settlement to the issue of Cyprus? What
    can we do to jump start the negotiations?
        Answer. We agree that there are positive factors at play which
    could contribute to the achievement of a Cyprus settlement. Prospective
    EU accession for Cyprus is a particularly promising incentive for an
    agreement. The recent naming of Ambassador Richard Holbrooke as the
    Special Presidential Emissary for Cyprus manifests our strong
    commitment to promoting intercommunal reconciliation. Ambassador
    Holbrooke will be undertaking U.S. efforts toward this end and will
    support the UN Secretary General's mandate to facilitate negotiations
    between the Cypriot parties.
        The first direct talks between the two Cypriot leaders since 1994
    will open in Amenia, New York on July 9, under UN auspices. The session
    will enjoy unprecedented international representation, including that
    of the United States. Nonetheless, the essential requirement for
    success will be no different in 1997 than in previous years: the desire
    of the parties themselves for an agreement. As July 9 nears, we are
    urging flexibility by the parties so we can achieve real progress
    toward a settlement that will be acceptable to all involved. Acting
    Special Cyprus Coordinator Carey Cavanaugh will represent the United
    States in Amenia. Ambassador Holbrooke is meeting with both Cypriot
    leaders while they are in New York.
            israel/u.s. economic, science and technology cooperation
        Question. What can we do to strengthen economic links and
    scientific and technological research and development between the U.S.
    and Israel.
        Answer. The U.S. and Israel have a long and enduring history of
    economic links and science and technology cooperation, and we are
    strongly committed to expanding these ties. The United States-Israel
    Free Trade Area Agreement (FTAA) was signed in 1985 and eliminated all
    duties by January 1, 1995. The agreement eliminated many trade barriers
    between the United States and Israel, substantially liberalizing and
    thus encouraging trade between the United States and Israel. A follow-
    on agricultural trade accord, signed in 1996, is providing steady
    improvement in market access for agricultural products as well.
        Exports to and imports from Israel have more than tripled since
    1985 as a result of these agreements. The U.S. is Israel's largest
    single trading partner and Israel is the U.S.'s twentieth most
    important export market. U.S. market penetration in Israel (over 20
    percent of Israel's imports) is the fifth highest of our major markets
    in the world. Only Canada and the UK have more companies traded on Wall
    Street.
        In addition, since the mid-1980's the U.S. and Israel have engaged
    in periodic economic consultations under the auspices of the Joint
    Economic Development Group (JEDG). This group has a mandate to examine
    and discuss Israeli economic policy at a high level, and played a key
    role in shaping the successful 1984 economic stabilization program for
    Israel.
        On the science and technology front, the U.S. and Israel for many
    years have had and will continue to have a very strong cooperative
    relationship in research and development, reflecting the President's
    commitment to sustain and enhance Israel's hi-tech edge. Three
    binational foundations--the Binational Science Foundation (BSF), the
    Binational Industrial Research and Development Foundation (BIRD), and
    the Binational Agricultural Research and Development Foundation
    (BARD)--which each have an endowment of $100-110 million, have been
    funding cooperative projects between Israeli and U.S. scientists for
    the last 15-25 years. Projects supported by BIRD--which funds the
    development and commercialization of joint hi-tech industrial
    projects--have provided measurable economic benefit to both countries
    through increased sales, market access and job creation for
    participating companies. The U.S.-Israel S&T Commission also focuses on
    the private sector by funding support for joint S&T business ventures.
        A number of U.S. technical agencies, including EPA, NOAA, the
    Bureau of Reclamation, U.S. Geological Survey, HHS and NASA, also have
    cooperative agreements with counterpart agencies in Israel to address
    issues of common interest. Recently initiated cooperative activities
    include the National Cancer Institute's efforts working with Israel and
    its neighbors to establish the Middle East Cancer Consortium.
                        international drug interdiction
        Question. Baltimore has the second highest per capita use of heroin
    in the country--second only to San Francisco. Ending this epidemic must
    be a priority of all sectors of our government--and a priority in our
    foreign policy. The Administration is requesting $230 million for its
    international narcotics and crime programs. Could you describe how
    these funds would be used and how the State Department coordinates its
    efforts with the FBI and other federal agencies to combat international
    crime and drugs?
        Answer. The illegal drug trade and growing transnational criminal
    enterprises around the world are among the most serious threats to the
    United States in the post-Cold War era. In response, President Clinton
    has placed combating international narcotics and organized crime high
    on our national security and foreign policy agendas. Within the State
    Department, the Bureau for International Narcotics and Law Enforcement
    Affairs (INL)--established nearly four years ago--has broad
    responsibility for federal law enforcement policy and program
    coordination in the foreign arena.
        The President has directed the Administration to act aggressively
    to neutralize and, where possible, eliminate international drug and
    criminal activities at the source. For drug syndicates and other
    criminal organizations, this means making it impossible for them to
    ship their products, launder money, or carry out any other
    international financial transactions. For the drug producing and
    transit countries, it means eliminating illegal drug crops entirely or
    reducing them to levels consistent with legitimate global medical
    requirements. Programs in Latin America are heavily focussed at coca
    crop reduction in the Andes. Political considerations preclude direct
    engagement with Burma and Afghanistan, the world's largest producers of
    opium poppies. However, bilateral crop eradication efforts are underway
    in Pakistan, and we work through a variety of international and
    regional fora, especially the U.N. Drug Control Program, to tackle the
    heroin problem elsewhere in Asia.
        The State Department and U.S. Embassies are working with all
    federal law enforcement agencies to assure that a variety of criminal
    justice assistance programs (training, technical assistance and non-
    lethal equipment) complements overall U.S. Government foreign policy
    interests. The INL-chaired Law Enforcement Inter-Agency Working Group
    (LEIWG) is the mechanism by which all agencies' interests are
    considered. U.S. embassy law enforcement teams ensure that the programs
    offered adequately address the needs of host governments. In fiscal
    year 1997, INL funded $20 million in crime programs to the federal law
    enforcement agencies to conduct coordinated country and regional
    programs. The breakdown is approximately as follows (in thousands): to
    the Department of Justice $12,500, OPDAT/ICITAP $7,500, FBI $4,000, DEA
    $1,000) and to the Department of the Treasury $7,100 (Treasury $2,000,
    ATF $1,500, FLETC $1,000, INS $1,400, IRS $700, USSS $400, USCS $100);
    in addition, $400 is provided to the U.S. Coast Guard. The programs
    focus on criminal justice sector enhancements and confront the threats
    posed by drugs and crime. Particular focus is on alien smuggling,
    firearms trafficking, stolen vehicles, financial crimes and money
    laundering, organized crime and racketeering, and community police
    programs. Much of the criminal justice focus is on regional levels and
    through the International Law Enforcement Academy (ILEA) in Budapest;
    additional such academies are being established in Latin America and in
    Asia.
        INL would expect to provide federal law enforcement agencies with
    approximately the same proportion of funding in fiscal year 1998.
    Additional detail on INL programs and cooperation with U.S. law
    enforcement agencies is contained in State's Congressional Presentation
    Document.
                                     ______

                     Questions Submitted by Senator Murray
                                     china
        Question. I was recently in China. And one of my observations from
    the trip continues to disturb me. And that was the message America
    projects by our presence in that country. Our facilities are totally
    inadequate--it's my understanding that we occupy space that was
    abandoned by the Pakistani's.
        In my mind, our relationship with China is among our most
    important. We need to project an image in that country consistent with
    the image of the United States. I also think our China facilities are
    discouraging some of our best foreign service officers--particularly
    those with young families--from seeking to serve in China.
        What is the State Department going to do to address this clear
    deficiency?
        Answer. We agree that our facilities in China are in many ways
    substandard and we are taking steps to rectify the problem. During
    fiscal years 1994-96 the Department provided about $95.5 million in
    direct support of facility requirements there. We are completing a
    proposal to construct a cleared American Annex and refurbish the
    Chancery in Beijing. Numerous projects related to fire and workplace
    safety, including asbestos removal, have been undertaken in the
    building. Some of our residential units in Beijing will be upgraded at
    a cost of $30,000 each, and land has been purchased for construction of
    a housing compound. Other projects in China include refurbishing the
    Consulate Office buildings and upgrading the communications systems in
    Shenyang and Hong Kong. We are striving to establish a family-friendly
    infrastructure in China that will allow our officers to pursue their
    professional interests without undue personal sacrifice to themselves
    or family members.
        Question. I also came away from China with the impression that we
    do not have enough personnel fluent in Mandarin. Do we also have a
    language deficiency in China?
        Answer. A 1996 review of our worldwide language requirements
    indicated that, of the 77 occupied positions which had been designated
    as requiring full professional competence in Chinese, 62 were filled by
    individuals at or above the required level of competence. Of the 15
    incumbents who fell short of the mark, most were close to the desired
    proficiency, and all had achieved minimal professional competence. The
    fact that 80 percent of the incumbents had fully satisfied our language
    requirements makes our performance in Chinese consistent with the
    worldwide average for all officers assigned to language designated
    positions.
        In citing the above statistics, however, I do not intend to imply
    that the Department is satisfied with the level and distribution of
    Chinese language expertise in the Foreign Service Officer corps. We
    readily acknowledge that we face problems in filling our positions, and
    that we are especially concerned by the lack of Chinese language
    expertise in our senior ranks. Living and health conditions in the
    People's Republic of China further complicate the situation, especially
    with respect to more senior officers. As officers progress through
    their careers, medical conditions and family concerns are more likely
    to preclude service in China, even though the officer is language
    qualified and would otherwise be willing to serve. Improving living
    conditions for our personnel will alleviate this situation to a certain
    extent, but the unique challenges of life in China will continue to be
    a problem as we seek to fill positions there.
        Question. What does the State Department plan to do to address this
    language deficiency? I am wondering if the State Department's
    recruitment process is adequately meeting your needs for Chinese
    language speakers?
        Answer. We are working to build a cadre of Chinese speakers at the
    lower to middle ranks who will continue to use their language skills as
    they rise to senior positions. Our goal is to increase the number of
    Chinese speakers at the junior levels to increase the chances of repeat
    tours and to guarantee there will be a larger base of qualified senior
    officers to fill key leadership roles in our mission. Our career
    counselors are on the lookout for bright, flexible and linguistically
    gifted officers who can make a contribution to our efforts in China.
    Such prospects may be specially urged to consider vacancies at Chinese-
    speaking posts. We have also recognized that our existing Language
    Incentive program, which was established to encourage officers to
    acquire, use and reuse skills in critical languages such as Chinese,
    has not been fully effective. We are undertaking a review of the
    program to make it more effective in terms of cost and results.
        Our recruiting materials note that officer candidates with a
    demonstrated proficiency in foreign languages are awarded ``bonus
    points'' which give them an advantage with respect to their position on
    the hiring register. We are also examining ways to better utilize the
    linguistic skills of entering officers by more carefully matching these
    skills with their first or second assignment. As business opportunities
    increase in China, we face increasing competition from the private
    sector in recruiting qualified linguists. Almost all of our most recent
    entering classes of Foreign Service Officer candidates have included at
    least one Mandarin speaker, and several classes have had two or three.
    Even when these individuals require additional language training,
    experience has shown their prior knowledge is a significant advantage
    both to themselves and to the Department.
        Question. I am also concerned that a number of key Asia posts at
    the State Department and the Administration remain unfilled. When can
    we expect to see a nominee for the Assistant Secretary for Asia post?
    And when might we expect to see the Administration move to fill vacant
    ambassadorial posts in Korea and Tokyo. These are all key posts and
    they need to be filled as soon as possible.
        Answer. We share your concern that these key positions be filled.
    The White House has announced the President's intent to nominate
    Stanley Roth for the position of Assistant Secretary for East Asian
    Affairs. Once appropriate clearances are completed, the selectees for
    the Tokyo and Seoul posts will also be announced and nominated by the
    White House. I hope we can work together to ensure these candidates
    receive swift and favorable consideration by the Senate so they are
    able to begin their official duties.
                                 pacific salmon
        Question. I understand that the government-to-government talks on
    the Pacific Salmon Treaty broke down with Canada earlier this week.
    Where does this leave things? Where do we go from here?
        Answer. At this point the U.S. has publicly stressed our
    commitment, despite lack of an agreement, to restrained and responsible
    fisheries in 1997. We hope Canada will exercise similar restraint,
    although recent Canadian pronouncements on its planned Canadian fishing
    activity indicate the intention to fish heavily on the Fraser River
    stocks. Canadian Foreign Minister Axworthy has proposed binding
    arbitration. We are considering our response, but have made clear to
    Canada that this option has previously been rejected. We have also made
    clear to Canada that we continue to believe the stakeholder talks offer
    the most likely avenue for progress on these difficult issues.
        Question. I am concerned about the Canadians once again escalating
    this issue with dramatic actions such as the transit fees of 1994. Are
    we prepared to respond to these type of actions? If so, how?
        Answer. We are exploring our options for responding, should Canada
    take aggressive action. A number of options are under consideration.
    Foreign Minister Axworthy has stressed this week that Pacific salmon
    problems should not be linked to other issues. We hope that this
    attitude will prevail within the Canadian Government.
        Question. I am interested in ways we can continue at the
    government-to-government level the progress made by the stakeholders
    process. Does the State Department know what the next step might be?
        Answer. The stakeholders developed creative and far-reaching
    proposals. We hope that the two nations can find a way to re-invigorate
    the stakeholders process or at least to build on the contributions made
    by the stakeholders. The earliest the stakeholder groups could
    reconvene, however, would be in September after the summer fishing
    season. Meanwhile we are remaining in contact with both the
    stakeholders and the Pacific Salmon Commission as we discuss how to
    proceed.

                             conclusion of hearings

        Senator McConnell. That concludes our hearings, the
    subcommittee will stand in recess subject to the call of the
    Chair.
        [Whereupon, at 12:28 p.m., Thursday, May 22 the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

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

                                  ----------

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.

                           NONDEPARTMENTAL WITNESSES

        [Clerk's note.--The subcommittee was unable to hold
    hearings on nondepartmental witnesses, the statements and
    letters of those submitting written testimony are as follows.]
        [The statements and letters follow:]

                    Prepared Statement of Amoco Corporation

        Amoco Corporation is pleased to submit this statement for the
    record to highlight the strategic importance of the Caspian Sea region,
    specifically Azerbaijan, for U.S. commercial and national security
    reasons.
        Amoco Corporation ranks as one of the largest U.S. industrial
    companies based on total assets. Domestically, we are a leading
    producer of crude oil and natural gas and the nation's leading gasoline
    retail marketer. The corporation, which is based in Chicago, oversees
    and coordinates worldwide operations of its business groups. Its core
    business segments are Exploration and Production, Petroleum Products,
    and Chemicals. A subsidiary, Amoco Eurasia Petroleum Company, together
    with its affiliates, is active in the Newly Independent States (NIS),
    specifically, Azerbaijan, Kazakstan and Russia, with its most
    significant investments in Azerbaijan.
        Because of the importance of the Caspian Region to the economic and
    political interests of the United States, Amoco requests that Congress
    lift restrictions on aid to Azerbaijan, currently imposed by Section
    907 of the Freedom Support Act.
        Mr. Chairman, we urge you to consider the facts below in your
    fiscal year 1998 Appropriations deliberations, and in any changes or
    amendments to the Freedom Support Act or related legislation which may
    impact (1) the viability of U.S. firms competing in the region, (2) the
    ability to export the vast oil resources out of the Caspian region, (3)
    peace and stability in the region, (4) resolution of the Nagorno-
    Karabakh conflict; or (5) the political and economic independence of
    Azerbaijan.
        Over the last twenty years it has become clear that the United
    States has a national interest in developing diversified sources of
    energy outside of the volatile Persian Gulf region. We believe that
    investment opportunities in Azerbaijan and the Caspian Region will
    allow the United States such an opportunity for diversification.
    Development of the Caspian reserves will also bring substantial and
    desperately needed economic growth to the states in the Caucasus and
    promote the transition to democratic, market-based economies.
    Azerbaijan is aspiring to market-based principles and is the only state
    in the Caspian region without a Russian military presence.
        Since the breakup of the former Soviet Union and the turmoil that
    followed with the war between Armenia and Azerbaijan, Russia and Iran
    continue to inflict political and economic pressure on the Caspian
    region. The resulting instability requires increased involvement by the
    United States Government to encourage and support U.S. companies
    proceeding with critically needed investments.
        Unfortunately, America's ability to act is impeded by Section 907
    of the Freedom Support Act, which denies humanitarian aid to Azerbaijan
    and prevents participation in the region by government agencies such as
    OPIC and the ExIm Bank. Section 907 also hurts the U.S. ability to act
    as an honest broker in the OSCE process for peace in the region.
    Restrictions also hinder Azerbaijan's evolution into a full free market
    economy by curbing essential U.S. technical and financial assistance.
    Section 907 puts U.S. businesses at a distinct competitive disadvantage
    and contradicts the strategic interests of the United States. Foreign
    competition is high for Caspian resources and foreign governments are
    supporting their national companies to the hilt. Aggressive U.S.
    Government support of American investments in the region would greatly
    enhance U.S. industry's competitive position. But without changes in
    current U.S. policies toward Azerbaijan, American economic interest
    will ultimately lose to foreign competition.
        Strengthened U.S. Government support for American investment in the
    Caspian area, including Azerbaijan, would also contribute to
    stabilizing the potentially volatile political environment of the
    region. This would further encourage U.S. investments and provide an
    opportunity to increase U.S. exports of technology, equipment and
    services. An increase in exports will translate to an increase in jobs
    for Americans.
        Amoco's first contract in Azerbaijan was finalized and approved in
    late 1994, under which the Azerbaijan International Operating Company
    (AIOC) operates and develops the Azeri--Chirag Fields and deep water
    portion of Gunashli Field in the Caspian Sea. Amoco is one of ten oil
    companies that make up the multi-national consortium working with the
    State Oil Company of Azerbaijan (SOCAR) on this project. Amoco is the
    leading United States participant with a 17.01 percent interest in the
    production sharing contract, and total American share amounts to 40
    percent. The full field development will require approximately $8
    billion investment to produce the projected 4 billion barrels of oil
    reserves. Peak production of the fields is expected to be greater than
    700,000 barrels a day which is equivalent to 10 percent of today's U.S.
    imports.
        Since the signing of the first contract, Azerbaijan has taken an
    aggressive approach to attracting foreign investment and initially was
    very receptive to U.S. business. Four additional contracts have been
    signed on exploration prospects. One of these contracts involved the
    Ashrafi and Dan Ulduzu structures in the Azerbaijan Sector of the
    Caspian Sea with Amoco at 30 percent ownership and Unocal at 25.5
    percent ownership, giving American business a 55.5 percent total share.
    However, participation by non-U.S. companies has increased
    significantly in other contracts to approximately 80 percent. This drop
    in the American share is due to an increase in competition from
    British, Japanese, Italian, Norwegian and French companies who enjoy
    the aggressive support of their governments. Despite Azerbaijan's clear
    preference for American participation, U.S. business interests have
    been hurt due to the Azerbaijani's perception that the United States
    has been unfair in singling out Azerbaijan as the only country
    precluded by Congressional mandate from receiving direct humanitarian
    assistance (Section 907 of the Freedom Support Act).
        Export of Caspian Sea resources is a key issue with many countries
    in the region vying for control over, or participation in, the
    pipelines to be built. Enormous investments will be needed to bring
    these resources to world markets. Achieving export solutions that
    ensure American access to the resources and enhance regional stability
    and prosperity will be a great challenge. Azerbaijan, as one of the
    greatest resource countries, will play a central role in this process.
    Constructive American policies toward Azerbaijan, and the whole Caspian
    region, are essential to achieving success.
        Mr. Chairman and members of the Subcommittee: Amoco hopes that,
    upon consideration of the facts brought forth above, you will agree
    that Section 907 of the Freedom Support Act serves neither American
    national interests nor the interests of peace and prosperity in Central
    Asia. We hope you will agree that it is time to repeal section 907.
                                     ______

                     Prepared Statement of Pennzoil Company

        Pennzoil Company (``Pennzoil'') is an integrated oil and gas
    company, headquartered in Houston, Texas. Its core business segments
    are engaged in the exploration and production of oil and gas, the
    refining/processing and marketing of motor oil and other refined
    products and in quick lube operations, both domestically and abroad.
    The oil and gas subsidiary, in addition to its domestic activity, is
    actively engaged in several petroleum ventures in the Former Soviet
    Union/Newly Independent States (FSU/NIS). The comments submitted in
    connection with the appropriations deliberations reflect our
    substantial investments in oil/gas production sharing arrangements in
    the Caspian Sea region, particularly in the Republic of Azerbaijan and
    the Azerbaijani sector of the Caspian Sea offshore Baku.
        In particular, we would like to urge the committee, in the context
    of the upcoming appropriations deliberations, to thoughtfully consider
    any amendments/requests for changes in the Freedom Support Act or
    related legislation, particularly as these measures affect Azerbaijan
    or United States-Azerbaijani bilateral arrangements/relations to
    determine the potential impact of such actions on the republic's
    sovereignty, its territorial integrity and ability to govern, the
    related implications for settlement of the Nagorno-Karabakh conflict
    (consistent with international norms) and the promotion of regional
    peace and stability, as well as the impacts of such amendments on
    existing and prospective U.S. investments in the region and the effects
    on regional energy and infrastructure development to move those
    supplies to market.
        Pennzoil Company has been involved in energy projects in Azerbaijan
    since the early 1990s, first in connection with the Gas Utilization
    Project (GUP) and more recently with the signing of production sharing
    agreements (PSAs) aimed at developing the Azeri-Chirag-Guneshli (ACG)
    structures and the Karabakh prospect. The Caspian region is thought to
    contain as much as 200 billion barrels of recoverable reserves, ranking
    it comparable to the largest middle east producers. The timely
    development of these Caspian energy supplies will concurrently support
    the continued independence and economic development of the various
    Caspian republics and significantly contribute to world-wide non-OPEC
    energy supplies. The economic and infrastructure improvements
    coincident with the development of these resources will bring benefits
    to the entire region and can be used to further the goals of regional
    peace and stability. In fact, in addition to the vast energy potential
    of the region, Baku's strategic importance is becoming increasingly
    evident as a key transit point in the emerging Eurasian Transit
    Corridor (ETC) that will ultimately link central Asia with the west.
        From a U.S. foreign policy perspective, the success of these
    ventures with American participation will serve multiple objectives,
    including the fostering of improved ties to the new republics, the
    diversification of (non-OPEC) energy sources, the reduced reliance on
    oil imports from the Persian Gulf and the identification of regional
    gas supplies as an alternative to Iranian sources.
        American energy companies, including Pennzoil, Amoco, Unocal and
    Exxon currently comprise some 40 percent of the international AIOC
    consortium engaged in the development of the ACG block. This consortium
    expects to expend between $8-10 billion (U.S.) over the life of the
    project. In addition, American firms are also participating in various
    other (multi-billion dollar) exploration/development ventures in
    Azerbaijan (e.g., Karabakh, Ashrafi-Dan Ulduzu) and American suppliers
    and service companies stand ready to assist these and other development
    efforts. Notwithstanding these substantial investments in Caspian oil
    development ventures, the restrictions placed on the provision of
    direct U.S. bilateral aid to Azerbaijan by Section 907 of the Freedom
    Support Act (adopted by Congress in 1992 over the objections of the
    Bush Administration and opposed by the Clinton Administration) have
    adversely affected U.S. activity in the region. From a strictly
    commercial standpoint, having the United States as the only western
    entity applying sanctions/restrictions on aid to Azerbaijan has clearly
    had a dampening effect on American companies' ability to compete
    against other foreign investors, whose host government policies are
    more conducive to bilateral relations with Baku. And on a diplomatic
    level, the 907 restrictions have adversely affected the U.S.
    government's ability to serve as an honest broker to advance the peace
    talks between Armenia and Azerbaijan. In addition, the restrictions
    have precluded the United States from providing technical and financial
    advisory assistance to Azerbaijan, competencies which would facilitate
    Baku's ability to transform their economy and enter the international
    marketplace. Democracy building assistance has also been restricted by
    the 907 provisions.
        Beyond the 907 issue, however, Pennzoil and other similarly
    situated American companies operating or desiring to operate in
    Azerbaijan have also been hamstrung by persistent efforts to complicate
    or undermine the peace and investment opportunities by introducing
    legislation aimed at redirecting U.S. policy to advantage specific
    regional players. Our experience and observations of these misguided
    efforts, regardless of their intentions appears only to produce a net
    result of driving regional players further apart, making subsequent
    efforts at peace even more elusive and difficult. We respectfully
    suggest that efforts such as the Porter amendment to last year's
    (fiscal year 1997) appropriations bill (which had the laudable
    objective of providing humanitarian assistance to needy individuals in
    the enclave of Nagorno-Karabakh, but overstepped by attempting to carve
    out a special status for the region) and the recently-adopted Pallone
    amendment to H.R. 1486 (a non-binding resolution calling for the
    Administration to promote a specific Caspian pipeline route running
    from Azerbaijan to Turkey via Armenia) are two such examples of
    ``remedies'' that need to be avoided in order to preserve the viability
    of the patient.
        Mr. Chairman, Pennzoil remains foresquare behind governmental
    efforts (whether legislative or administrative) aimed at promoting
    peace and stability in the Caucasus and supporting the independence and
    economic prosperity of the various republics contained therein. We urge
    the Congress and the Administration to take all available actions to
    promote improved ties between the United States and Azerbaijan and
    Armenia and to support efforts to promote regional peace and a
    sustainable solution to the Nagorno-Karabakh conflict. At the same
    time, however, we would urge our government to promote and protect
    strategic American investments in the region and to work with the
    private sector and qualified NGOs to advance bona fide commercial and
    diplomatic objectives and positive regional relationships. We would
    further recommend that as a significant first step, Congress repeal the
    onerous restrictions imposed by Section 907 of the FSA, a recognized
    impediment to our ability to affect positive change in the region in an
    unbiased and even-handed manner.
                                     ______

         Prepared Statement of Father Julio Giulietti, S.J., Director,
        Georgetown University's Center for Intercultural Education and
                Development [CIED], and Father Bill George, S.J.

        Mr. Chairman and Members of the Subcommittee: We are Father Julio
    Giulietti, SJ., Director of Georgetown University's Center for
    Intercultural Education and Development (CIED), and Father Bill George,
    S.J. We appreciate the opportunity to testify before this Subcommittee
    on the following topics: (1) The Cooperative Association of States for
    Scholarships (CASS); and, (2) The East Central European Scholarship
    Program (ECESP).
        Thank you and your Subcommittee for your generous support for the
    cost-sharing program, the Cooperative Association of States for
    Scholarships (CASS). We would also like to thank you for your
    encouragement to the East Central European Scholarship Program (ECESP)
    which provides scholarships for Poland, Hungary, the Czech Republic and
    Slovakia.
        We are grateful to the Subcommittee for its support of $13.75
    million for Central America and the Caribbean and $2.75 million for
    East Central Europe. We request of the Subcommittee that you recommend
    the same amount of funding for fiscal year 1998.
         (1) cooperative association of states for scholarships (cass)
        Under a Cooperative Agreement with USAID, Georgetown University
    administers CASS. The University's mission in fulfilling the will of
    Congress is to provide peace scholarships to capable, economically
    disadvantaged students from Central America and the Caribbean who
    attend United States community-based institutions for academic
    education and technical training.
        CASS has been designed to contribute to the formation of more
    effective work force resources and to foster the leadership and
    technical skills required to meet social, economic, and democratic
    needs in Central America and the Caribbean. CASS works closely with in-
    country experts, support network members, United States PVOs, USAID
    Missions and USAID Washington to determine which fields of study can
    best support strategic objectives and contribute to the economies of
    participating countries.
        United States community-based institutions then develop or adapt
    programs to provide students with the technical skills and experience
    that are in demand in the region. Needs analysis and follow-up studies
    of alumni are conducted periodically to modify course offerings based
    on current and projected economic realities in the region.
        ``Experience America'' is an essential phase of the program. Its
    three major components--academic training, experiential opportunities,
    and personal and professional development--reinforce self-reliance,
    self-responsibility, and commitment. Living with American families and
    studying at community-based institutions, peace scholars develop an
    understanding of U.S. culture and values, and our democratic processes.
    These students in turn have a positive impact on their host
    communities, heightening cultural awareness, geographical knowledge,
    and political and personal insights about the Americas. The result is
    the formation of lasting social, economic, and cultural links between
    the United States and future leaders of Central America and the
    Caribbean.
        In 1991, 179 CASS participants arrived to begin two-year programs
    of study. Eighty-five percent of these students successfully completed
    their program and returned to their home countries in 1993. The
    uncertain situation in Haiti had a direct impact on our success with
    scholars from that nation. CASS' successful completion rate in 1993 for
    non-Haitian CASS students is 92 percent.
        In 1992, 311 CASS participants arrived in the U.S. to begin two-
    year programs of study. Ninety-one percent of these students (284)
    successfully completed their program and returned to their home
    countries in 1994. This is a 6 percent improvement over the previous
    year.
        In 1993, 325 CASS participants came to the U.S. for two years of
    technical training. Eighty-seven percent of these students (285)
    graduated and returned to their home countries in 1995.
        In 1994, 305 CASS participants arrived in the U.S. for two-year
    training programs. 91.8 percent successfully completed their program of
    study and returned home in 1996. It was the most successful of the
    seven CASS cycles since 1989.
        Today, 511 CASS participants in Cycles 95 and 96 are enrolled at 22
    community-based institutions in 15 states. An additional 3 participants
    are earning bachelor degrees under a cost-sharing program with
    participating colleges in the State of Florida.
        In 1997, 323 students will participate in CASS programs. 224
    participants will begin two years of study at 14 community-based
    institutions in the U.S. In addition, 30 more CASS participants from
    Haiti will come to the U.S. for six-month programs in the fields of
    health and education administration. Another 18 participants from
    Central America and the Dominican Republic already arrived in the U.S.
    in January for a special six-month program for strengthening of math
    and science teachers. An additional 51 NPSP participants will be
    selected as a part of Cycle 97 for a total of 323 CASS and NPSP
    participants to be trained for Cycle 97.
        In Nicaragua, CASS designed the Nicaragua Peace Scholarship Program
    (NPSP). NPSP is an innovative program designed to teach young adults
    who, because of social and/or economic circumstances, could not
    complete secondary school educations during the past decade of civil
    strife in Nicaragua. A small number of veterans from both sides of the
    conflict are included in the target population. Training is focused to
    equip Nicaraguan youth with technical and democratic leadership skills
    so that they may increase their opportunities to be productive in their
    communities upon return. Today a total of 96 NPSP participants are in
    the U.S. studying English as a Second Language, courses leading to the
    GED, and technical courses in public health, X-ray technology, solid
    waste management, food science, industrial manufacturing management,
    and electronic communication technology. They are placed at four
    community-based institutions in four states.
        Prior to U.S. studies, a three-month Academic Upgrading program is
    conducted in Nicaragua emphasizing not only basic math and Spanish
    skills, but personal development, self-esteem enhancement, leadership
    practice and practice to participate in a culture of peace rather than
    a culture of war. Two hundred twenty-five NPSP graduates returned home
    between 1992 and 1996. Fifty Cycle 96 NPSP participants initiated their
    18-month technical training in January 1997 and 46 Cycle 95
    participants will complete studies and return home in June 1997.
        It is noteworthy that in 1996, CASS and NPSP trained 64
    participants in programs at Historically Black Colleges and
    Universities (HBCUs), namely Harris-Stowe State College in St. Louis,
    Kentucky State University in Frankfort, and St. Philip's College in San
    Antonio. This is an increase of 25 percent over 1995.
        Federal funds for CASS are being supplemented by states and private
    sector contributions, increasing the total number of students served.
    After an intensive effort in the first two years of CASS to identify a
    model for cost-sharing funds to maximize the federal dollars allocated
    to the program, we learned that no one policy or plan for state or
    regional support of the program will evolve. Each participating CASS
    state has its own funding formula for higher education which simply
    means no one legislative approach can be applied to all states.
    Colleges in our network are effective partners in providing significant
    cost-sharing resources for CASS. We require all participating colleges
    to contribute 25 percent of the total costs of the program. Colleges
    are exceeding this goal. From 1990 through September 1996, we have
    received $21.4 million (40 percent) cost-sharing from our colleges in
    the form of tuition waivers, indirect cost waivers, and the funding of
    other program components. The program has also received over $430,000
    of in-kind support from private donors in the countries in which CASS
    operates.
        This year's follow-up survey of alumni activities solidly
    demonstrates the success of the CASS program through sustainable
    employment levels, continuance of education in-country and community
    service. Data collected over the last three years shows that between 91
    percent and 92 percent of all CASS alumni in the 8 participating
    Central American and Caribbean countries are employed in their
    countries. This figure is in stark contrast to the massive unemployment
    in the region. One in ten CASS graduates owns his or her own business.
    Of the 225 NPSP alumni, 94 percent are occupied as mid-level
    technicians and managers and/or studying in a national economy where 56
    percent of the working population are unemployed.
        CASS has pioneered training opportunities for economically
    disadvantaged disabled persons and is achieving impressive results. In
    1990, CASS began a pilot program to offer computer business
    applications training to hearing impaired students from Central America
    and the Caribbean. Seventy-six percent of the CASS deaf alumni are
    employed in their countries. Twenty-six percent of the deaf alumni
    continue their studies; 73 percent are involved in community service
    activities.
        Since 1990, CASS has negotiated 19 credit transfer agreements for
    CASS alumni with universities in Central America and the Dominican
    Republic. This year, 23 percent of CASS alumni reported they are
    currently continuing their studies, most working full-time and studying
    concurrently. This is up 10 percent from last year.
        Finally, 65 percent of all CASS alumni responded that in addition
    to their work and/or studies, they continue to actively participate in
    community leadership and service activities. This is up seven percent
    (7 percent) from last year.
                       georgetown cass distance education
        The Cooperative Association of States for Scholars (CASS) delivered
    an innovative international distance education business program via the
    Internet in 1996. Designed in 1995, the results of this creative
    application of Internet technologies to education and training has been
    a catalyst for providing continuing professional and personal
    development opportunities to large numbers of people who because of
    their employment, economic, or geographic location in Central America
    do not have access to traditional classes. The program is called
    ``Tecnicas en Soluciones Empresariales'' (TSE).
        The TSE program is offered to companies and organizations in
    Central America who are employers of CASS graduates. Participants do
    not have to leave the workplace to go to a classroom or university;
    instead, they access class lectures and group discussions from their
    computers at work. In 1996, the TSE course in business solution
    techniques targeted mid-level managers and technicians to solve chronic
    problems in real time. In 1997, the target was expanded to include
    their supervisors. These new work groups, incorporating supervisors,
    more effectively implement quality management strategies in the work
    place.
        Georgetown University administers TSE in Guatemala, Nicaragua, El
    Salvador and Panama. In 1996, forty-four companies and 88 students
    received 9-month training in Guatemala, Panama, and Nicaragua. In 1997,
    TSE will have 150 participants, expanded to El Salvador and has
    lengthened the training period to twelve months. The new 12-month TSE
    program comprises three modules. Employers have input into the training
    and a clearly defined responsibility to work with students to ensure
    that training is applicable to their jobs. In addition to theory,
    students are required to select topics for study and solution from
    among chronic job-related issues that impact their performance as
    employees and supervisors as well as the achievement of company goals.
    Each project team is responsible for defining and researching the
    selected project, recommending the solution and leading it's
    implementation.
        Instruction is delivered through the Internet, written books and
    publications. It is supported by local instruction teams. Students
    access class lectures and assignments from the Internet and use
    ListServes for group discussions among participants in the four
    countries. E-mail is the primary vehicle of communication between TSE
    teams and participants.
        Administered by Georgetown University and funded by the U.S. Agency
    for International Development, CASS is now among the first to combine
    training and Internet technologies, having devoted eleven years to the
    invention and successful conduct of traditionally-managed technical and
    leadership training for thousands of disadvantaged Central American and
    Caribbean young adults.
           (2) the east central european scholarship program (ecesp)
        Founded in response to the rapid political, social and economic
    changes in post-communist Visegrad countries, the East Central European
    Scholarship Program (ECESP) became the first educational/training
    program to be funded and implemented under a 1989 initiative of the
    United States Congress to support democratization and privatization in
    the Czech Republic, Hungary, Poland and Slovakia.
        The goal of the program is to educate a core group of public
    administrators and experts in regional/rural development, marketing,
    trade, finance, banking and health care administration, who are
    dedicated to accelerating the processes of democratization and
    privatization in their native countries. Over the past years, these
    experts have included: administrators of central institutions (high
    ranking civil servants from the Ministry of Finance, Privatization,
    Agriculture, Health, Environment, and Labor/Social Services, and from
    State Property Agencies); members of provincial and local self
    governments (governors, councilmen and councilwomen, as well as mayors
    and vice-mayors); administrators of key state and private sector
    financial institutions; managers and administrators of non-government
    and non-profit institutions, including institutions of higher
    education; educators involved in educational reform and planning,
    curriculum evaluation, teacher training, minority and disability
    education; and faculty from universities, colleges, and professional
    schools working to introduce new courses into the curriculum of their
    schools. In an effort to meet the ever-changing needs of the four
    participating countries, ECESP introduced in 1995 a health care policy
    and administration program designed to aid the processes of privatizing
    and reforming the health care sector. In 1996, ECESP initiated a short
    term training program for the National Bank of Poland with the aim of
    building a stronger and more transparent banking industry in Poland.
    The program cooperates with the U.S. Federal Reserve and the Office of
    the Comptroller of Currency.
        ECESP hopes that as a result of its education and training, the
    four participating countries will reap the benefits of a more open and
    structured policy-making process, an increased number of civic-minded
    citizens, a better educated and skilled body of government officials,
    and a pattern of cooperation between civil society and government in
    solving key social, political and economic problems.
        Since its founding in 1990, ECESP has sponsored 543 Czech,
    Hungarian, Polish and Slovak participants. An additional 110
    participants are scheduled for training in 1997.
        On behalf of our President, the Reverend Leo J. O'Donovan, S.J., we
    thank you for your support and leadership in the development of these
    innovative programs.
     participating institutions by state cooperative association of states
               for scholarships (cass) including nicaragua peace
    Scholarship Program (NPSP)
        California: Kings River Community College, Modesto Junior College.
        Florida: Florida Community College at Jacksonville; Santa Fe
    Community College St. Petersburg; and Junior College.
        Iowa: Iowa Western Community College; Kirkwood Community College;
    and Scott Community College.
        Kansas: Coffeyville Community College and Hesston College.
        Kentucky: Kentucky State University (HBCU).\1\
    ---------------------------------------------------------------------------
        \1\ (HBCU) Historically Black College/University.
    ---------------------------------------------------------------------------
        Massachusetts: Berkshire Community College.
        Missouri: Harris-Stowe State College (HBCU); \1\ and St. Louis
    Community College.
        New York: Broome Community College.
        Ohio: Hocking Technical College.
        Oregon: Mt. Hood Community College.
        Pennsylvania: Mount Aloysius College.
        South Carolina: University of South Carolina at Sumter.
        Texas: Alamo Community College and District with St. Philip's
    College (HBCU).\1\
        Utah: Utah Valley State College.
        Wisconsin: Fox Valley Technical College; Northcentral Technical
    College; and University of Wisconsin Center-Marinette County.
        Washington: Edmonds Community College.
    East Central European Scholarship Program (ECESP)
        Kentucky: University of Kentucky and Eastern Kentucky University.
        Wisconsin: University of Wisconsin (La Crosse) and University of
    Wisconsin (River Falls).
        New York: Rensselaer Polytechnic Institute and State University of
    New York (Syracuse).
        Washington DC: George Washington University and Georgetown
    University.
                                     ______

        Prepared Statement of Claudine Schneider on Behalf of the U.S.
                               Committee for UNDP

        Thank you for the opportunity to submit this testimony. My name is
    Claudine Schneider and I am a former Republican member of Congress from
    the Second District of Rhode Island, which I represented for ten years,
    from 1980-1990. I submit these comments today as a founding member of
    the U.S. Committee for UNDP--the United Nations Development Program.
    But I also speak as an American citizen who is concerned about the
    direction of U.S. development assistance and about U.S. standing in the
    international community.
        With this testimony, I would like to explain to the Senate
    Appropriations Committee's Subcommittee on Foreign Operations why UNDP
    is uniquely positioned to serve both the world's poor and American
    interests in a way that no other organization or agency can, and how
    agreeing to the President's request level of $100 million for UNDP will
    not only go to help the world's poor, but will translate into real
    returns for the United States in terms of investment and trade. It will
    also save money that might otherwise be spent dealing with crises that
    can be prevented.
        I would like to start by pointing out that while a contribution of
    $100 million to UNDP from the United States represents less than 10
    percent of UNDP's total budget, that same $100 million has resulted in
    purchases of American goods and services by the UNDP equivalent to
    twice that amount. In simple financial terms, UNDP represents a very
    good investment for the United States.
        It is also important to note that UNDP is an independent agency of
    the United Nations, which--since its inception in 1966--has always been
    headed by an American. Traditionally, the United States has been the
    largest of all the donors supporting UNDP. While this has changed
    recently, and the United States slipped to seventh place last year, we
    still have tremendous influence in UNDP and in the UN. Support for the
    $100 million request will help to insure continued American leadership
    of UNDP, and will support the critical role UNDP is expected to play in
    a reformed United Nations. This testimony will explain how.
        First, UNDP's mandate is to support sustainable human development
    globally. This means helping countries--especially the poorest
    countries--help themselves. UNDP does this by working with countries to
    build indigenous capacities, enabling them to achieve important
    development goals. These goals include: reducing the scourge of
    poverty, creating jobs, regenerating and protecting the environment,
    empowering women, instituting the rule of law, establishing systems of
    accountable governance, and other democratic practices. Within the UN
    system, UNDP is leading the effort to eradicate poverty throughout the
    developing world, in particular by channeling 90 percent of its
    resources to countries with a per capita income of less than $750 a
    year. UNDP's role at the country level emphasizes the design and
    implementation of national strategies based upon sustainable economic
    growth, working at the country level to address the root causes of
    poverty, and making extensive use of other UN agencies and
    international and local NGOs to carry out these strategies.
        UNDP brings this multi-sectoral approach to a system where the UNDP
    representative serves simultaneously as UN Resident Coordinator.
    Through the support of UNDP, the UN Resident Coordinator works
    tirelessly to bring the various UN funds, programs and specialized
    agencies together around the table, making it possible to design a
    coordinated response to a country's development needs, while building
    on the strengths of these agencies in fields like health, child
    survival, food production, food security, and employment generation.
    This is consistent with efforts currently underway by the new UN
    Secretary-General to rationalize and consolidate the development
    operations which the United Nations undertakes at the country level,
    thereby avoiding duplication and inefficiency. UNDP can be seen as the
    ``glue'' which holds the system together. Hence an investment by the
    United States in UNDP should be seen not simply as an investment in
    UNDP per se, but rather as an investment which can reap benefits in
    terms of a more effective and efficient United Nations presence in all
    the countries which UNDP serves.
        Second, the vast majority of developing countries, including the
    countries of the former Soviet Union, have embraced democratic
    institutions and free market principles, and UNDP is at the forefront
    of the drive to help these countries deal with the transition from a
    command to a market economy. UNDP has provided technical assistance to
    some 70 developing countries to hold free and fair elections. This has
    been followed by UNDP support to establish and strengthen executive,
    legislative, judicial, and electoral institutions; in short, ``the
    deepening of democracy.'' UNDP gives special attention to establishing
    the ``rule of law'', which as we know is a ``sine qua non'' for
    increasing foreign direct investment--including U.S. investment--in
    those countries.
        From the Baltics to Southeast Asia, in countries as diverse as
    Latvia and Viet Nam, for example, UNDP is helping to strengthen
    democratic institutions and promote democracy, while creating jobs and
    employment opportunities. For example, UNDP is strengthening the
    National Assembly, the Supreme Court, and the Ministry of Justice in
    Viet Nam, rendering them more effective and transparent, while
    sustaining the economic reform process. Also, UNDP has been at the
    forefront of helping countries to ``reinvent government'' by
    streamlining often bloated bureaucracies and introducing modern
    management practices, thereby reducing the possibilities for corruption
    and facilitating private investment. All these things are vital to U.S.
    strategic and economic interests.
        Third, UNDP plays an active, coordinating role in countries such as
    Guatemala, Cambodia, and Rwanda, countries which are only now emerging
    from years--and in some cases decades--of civil strife. While other UN
    agencies like the UN Refugee Program and the World Food Program provide
    the necessary humanitarian and emergency relief to these countries,
    UNDP takes the lead in building viable and sustainable societies and
    moving them along the road to self-reliance.
        What truly distinguishes UNDP from the other agencies in the UN
    system is that UNDP was created to approach development problems from a
    broad-based, multi-sectoral, coordinated perspective; hence, UNDP is
    not a ``single theme'' agency. It is uniquely placed, through its
    worldwide network of 136 offices, to bring greater coherence to the UN
    system at the country level. Striking examples of this role can be
    found in Central America and the Middle East, where UNDP has
    coordinated a broad-based, UN and bilateral effort, moving beyond
    peacemaking and humanitarian relief to development which is
    economically, financially and environmentally sustainable.
        Finally, it is important to recognize that the United States and
    UNDP have common objectives on issues such as democratization,
    promotion of free market economies, the advancement of ``good
    governance'' and of an environmentally sustainable world. Hence, for a
    fairly modest investment, the U.S. can find in UNDP a trusted and
    valued partner which serves to advance American values and interests
    abroad. All of this has recently been confirmed by a GAO report on UNDP
    which was released on May 1st of this year, which I commend to the
    attention of all the members of the committee. ``In sum,'' reads that
    report: ``UNDP is a cost-effective tool in our development arsenal.
    Full funding of UNDP by the United States is the best way of stretching
    our development dollar to promote U.S. interests.''
                                     ______

        Prepared Statement of the International Education and Training
                                   Coalition

                                  introduction
        The International Education and Training Coalition represents over
    50 organizations with interests in areas such as child development,
    basic education, literacy, higher education, vocational education and
    work force training. The members of the Coalition include non-profit
    organizations, commercial organizations, universities, and associations
    with thousands of members throughout the United States.
        The organizations of the Coalition share a common mission: to
    enhance and strengthen human capacity within the developing world the
    fundamental building block of United States and global prosperity and
    peace. The Coalition believes that the United States should remain a
    leader in international education and training. Furthermore, the
    Coalition believes that these activities should command a higher
    profile and more resources within the U.S. bilateral development agenda
    than in recent years.
        Human Capacity Development is a continuum of life-long learning.
    Education provides the foundation in literacy, numeracy, and problem
    solving skills. Education also transmits culture and establishes a
    sense of civic responsibility, equipping people to play stronger roles
    within their communities. Training provides specific skills needed for
    an individual or institution to do a job and respond to constantly
    changing economic environments.
        It is a well documented fact that an educated and trained populace
    is an essential prerequisite for sustained economic growth, political
    stability and improved quality of life. Strengthening human capacity
    through education and training enhances the achievement of every goal
    of U.S. development assistance. Increased human capacity creates new
    export markets, reduces poverty, promotes democratic government,
    protects the environment, reduces population growth rates, and improves
    child and family health.
        The ultimate purpose of human capacity development is to establish
    conditions which permit individual well being and growth. Knowledge and
    skills empower people to participate directly in decisions which affect
    their lives and improve their prospects.
        While education influences all sectors of development, it also
    represents a separate, unique sector that requires specialized programs
    and skilled personnel. Understanding education as simply supportive of
    other development objectives risks devaluing its importance as an
    independent objective. The United States has a unique educational
    system that reflects our democratic values, and U.S. educational
    institutions play a crucial role in development assistance. Educational
    institutions of nations throughout the world seek to work with their
    U.S. counterparts to gain from our technical expertise and copy our
    successful education model.
        The U.S. Agency for International Development (AID) is in the
    process of consulting with Congress and the public, as required by the
    Government Performance and Results Act, about a strategic plan for the
    agency. AID is considering adding ``building human capacity through
    education and training'' as one of the top strategic goals of
    development assistance. The Coalition believes the current position of
    only basic education as a sub-objective under the ``economic growth''
    goal has contributed to the inadequate attention and resources
    dedicated to education and training. The Coalition supports the
    addition of an international education and training goal as a way to
    help ensure the continuation of U.S. leadership and capacity in this
    area that is vital to successful development.
                  sustainable development: evidence of success
        Despite progress over the last four decades in the provision of
    education around the world, immense need persists. The average literacy
    level in the least developed countries is a mere 46.5 per cent. The
    numbers are declining not improving: enrollments of children in grades
    1-3 in these countries is only 34 per cent. Meanwhile, 80 million new
    people in need of education are added to the globe each year, 95 per
    cent of them in the developing world.
        Studies on factors contributing to economic growth have
    consistently concluded that education and training are essential both
    to create and sustain economic growth. A recent United Nations
    Development Program (UNDP) report states that ``economic growth is not
    sustainable without human development,'' and that ``a determined effort
    to expand human capabilities--through improved education, health, and
    nutrition--can help transform the prospects for economic growth''
    especially in the poorest nations.
        That same UNDP report concluded that ``high employment economies
    have generally invested heavily in the development of human
    capabilities--particularly education, health and skills. They have also
    constantly upgraded technical skills to enable workers to adapt to
    rapidly changing international conditions.'' In Ireland for example,
    education has been widely credited as a major factor in its dramatic
    economic growth over the past several decades. In 1961, when the Irish
    government began an aggressive education reform effort, its Gross
    Domestic Product (GDP) was less than 60 per cent of the European Union
    average; in 1997, it has reached 100.7 per cent. At the same time, high
    school enrollment has risen from 20 per cent to 80 per cent and college
    and university attendance has risen from 7 per cent to 46 per cent.
        The often cited ``East Asian economic miracle'' was also fueled by
    significant investments in education by national governments. A World
    Bank Report concluded that one of the critical factors of the economic
    growth in the countries of this region was human resource development
    and that growth in this region resulted from strong public policies
    that ``were augmented with high household investments in education.''
    U.S. assistance to countries such as Thailand and Korea, particularly
    in the areas of education and training, aided the successful
    transformation of those nations into valuable trading partners of the
    United States. Congress has repeatedly emphasized the need for U.S.
    foreign aid programs to be structured to create self-sufficiency in the
    recipient countries so that they will eventually be able to
    ``graduate'' from international assistance. Korea is an excellent
    example of the crucial role education plays in creating the conditions
    necessary for self-sufficiency. From the 1960's successive Korean
    governments invested heavily in education, and by 1985 adult literacy
    had reached almost 92 per cent. As a result of this tremendous
    investment in the education of its people, in just one generation Korea
    left the ranks of countries qualifying for World Bank loans.
        Thailand is another country where investments in education and
    training helped produce a vital and successful economy. A study of the
    role played by international assistance in Thailand's economic success
    concluded that ``when one asks Thais in business, government, or
    academia what they think has been the most important contribution of
    the U.S. aid program to the country's development, the answer is
    virtually always the same: training.''
        As the experiences of Korea and Thailand illustrate, nations that
    establish strong educational systems develop the human capital
    necessary both to improve domestic conditions and collaborate with
    other nations in solving global development problems. A comprehensive
    educational system that includes primary, secondary, and higher
    education creates the conditions necessary for developing indigenous
    experts in areas from economics to agriculture experts who increase the
    self-sufficiency of their own nations and are able to cooperate with
    the United States to solve global problems such as environmental
    degradation, emerging diseases, and food security.
        Education and training are also essential components of equitable
    development. Investments in human capital, particularly in education,
    contribute to the equitable distribution of wealth and broad
    participation in the governance of a country by providing opportunity
    to individuals otherwise barred from participation by the shackles of
    illiteracy and innumeracy. Focusing assistance on education and
    training programs has proven an effective tool for improving the lives
    of the world's poorest individuals. A recent study in Malawi of rates
    of return on investment in education showed that increasing public
    spending on primary education had ``a tremendous impact on alleviating
    poverty as well as on decreasing inequality.''
        U.S. investments in education and training are highly cost
    effective, because, unlike many other development investments,
    recipient countries regularly match education funds 10 to 1 by
    providing funding for schools and paying teacher salaries. Furthermore,
    the long-term return on investments in basic education average over 20
    per cent in the developing world double the return from capital
    investment projects. New theories on economic growth developed in the
    1990's determined that, because educated people use capital more
    effectively and spread those benefits more readily to coworkers,
    raising the level of education in a society causes a rise in the
    efficiency of all factors of production.
        The returns on investments in education are especially obvious in
    the case of girls' and women's education. The female literacy rate for
    developing countries is three-fourths that of males. Evidence has shown
    that even minor increases in the level of education of girls and women
    have wide ranging positive effects on areas from economic growth to
    child survival in addition to improving the status and incomes of
    women. A study conducted in 13 African countries shows that a 10 per
    cent increase in female literacy leads to a 10 per cent decline in
    child mortality. Another study showed that four years of schooling
    boosts farmers' annual productivity by an average of nine per cent.
                           u.s. comparative advantage
        The United States currently enjoys a comparative advantage in
    education. Our education system with its emphasis on interactive
    learning, democratic principles, and decentralized management is
    respected as a model throughout the developing world. U.S. institutions
    of higher education are considered premier sources for research and
    technical expertise in a broad range of development areas. U.S.
    expertise in training has helped us to build partnerships with emerging
    leaders in developing and transitional countries. United States
    leadership in international education and training promotes our foreign
    policy goals and brings economic benefits to communities throughout the
    United States. Education is our fifth largest earner of foreign
    exchange in the service sector, and the Commerce Department estimates
    that foreign students spend nearly $8 billion dollars a year in the
    United States producing over 150,000 jobs.
        The U.S. is a leader in innovative approaches to addressing
    development challenges in the fields of literacy and basic education
    for children. Areas of U.S. expertise include improving classroom level
    quality; curriculum development; alleviating resource inequities,
    especially for girls and the poor; mobilization of community and parent
    involvement in schools; decentralization of decision-making and
    accountability; and application of cost-effective information
    technology. In Guatemala where the government estimated in 1990 that
    fewer than one quarter of its female population had completed grade 3,
    an innovative AID-funded project has increased girls' enrollment in
    grades 3 to 6 to an average of 37 per cent per class.
        U.S. institutions of higher education work with developing
    countries to address long-term problems related to agriculture, health,
    population, and the environment. They also build innovative
    partnerships among government, academic and business institutions. A
    community college in Phoenix utilized a sister city relationship with
    Chengdu, China and partnered with Motorola to provide training on
    modern business practices to managers of state-owned enterprises. This
    has helped generate a number of potentially lucrative investment
    opportunities for Phoenix businesses in Asia
        Participant training programs funded through AID have helped to
    democratize societies and open up new markets to U.S. goods. For
    example a Romanian who learned about community organizing through a
    training program is engaged in a grass roots effort to reform election
    laws in his country. After a Lithuanian newspaper editor came to the
    U.S. on a training program, he has substantially increased reporting
    about the U.S. in his paper and purchased over $700,000 in printing
    equipment from a U.S. company.
                          u.s. leadership and capacity
        Despite the tremendous benefits that accrue from America's
    leadership in education, U.S. leadership and technical capacity has
    been eroding. AID's resources for international education and training
    have been dramatically reduced by over 30 per cent since the early
    1990's. Although the Coalition recognizes that overall foreign aid
    spending was cut back significantly during this same period of time,
    the cuts sustained by education and training programs have been
    disproportionate to cuts sustained in other areas. In addition to
    program reductions, technical education staff within AID have also been
    laid off disproportionately. Over the past several years, AID has not
    signaled the critical importance of human capacity development to its
    overseas missions. As a result, few overseas missions embrace education
    and training as priority objectives and the United States' ability to
    maintain its role providing critical and unique leadership in education
    and skills training is in jeopardy.
        The United States has pledged its support to the OECD's Development
    Assistance Committee's goals on education for the 21st century. They
    call for achieving universal primary education in all countries by 2015
    and the elimination of gender disparity in primary and secondary
    education in all countries by 2005. Other donors, including Japan, have
    made education a centerpiece of their development assistance. Without
    U.S. leadership in this area, however, these ambitious goals will not
    be met. Given President Clinton's strong commitment to education as a
    policy priority, it is appropriate that the U.S. should maintain its
    leadership position in articulating the role of education for global
    development.
        As the examples here illustrate, building human capacity through
    education and training is vital to U.S. development and broader foreign
    policy objectives. Efforts to create new export markets, reduce
    poverty, promote democratic government, protect the environment, reduce
    population growth rates, and improve child and family health, are all
    enhanced by raising the educational level of citizens in developing
    societies. Moreover, investments in education and training,
    particularly girls' education, are extremely cost-effective and produce
    enormous benefits for developing countries and the United States. In
    the past, Congress has encouraged AID to maintain at least a modest
    level of support for education and training programs. There has never
    been a more critical time for Congress to emphasize international
    education and training programs, and their continuing role as a top
    priority of U.S. development assistance.
        The members of the International Education and Training Coalition
    thank you for your thoughtful consideration of these concerns. We ask
    the committee to encourage AID to increase funding in these areas, and
    to continue to call on AID to identify education and training as a
    priority in U.S. development assistance.
                                     ______

        Statement of Alexander F. Watson, Vice President and Executive
         Director, Latin American and Caribbean Programs of the Nature
                                  Conservancy

        The Nature Conservancy appreciates this opportunity to submit
    testimony for the record concerning our views on foreign assistance
    appropriations for fiscal year 1998. Our principal request is that the
    Subcommittee strongly support continued funding for biological
    diversity protection programs at the U.S. Agency for International
    Development.
                                    summary
        Madeleine Albright, in some of her first statements as Secretary of
    State, strongly endorsed former Secretary Christopher's environmental
    initiative to ``integrate environmental issues into the mainstream of
    our foreign policy.'' In testimony before the House Foreign Operations
    Subcommittee on February 12, she called for funding AID's environmental
    efforts at $290 million in fiscal year 1998 and also for funding of the
    Global Environment Fund (GEF) at the full $100 million pledge level.
    The Nature Conservancy commends this environmental activism and
    believes that a U.S. leadership role remains critical in defending the
    international environment in general and biodiversity in particular.
        The Nature Conservancy is one of the world's foremost conservation
    organizations. Supported by our 900,000 individual U.S. members and
    1,300 corporate sponsors, we manage the world's largest system of
    privately-held nature preserves. Less well known is the fact that the
    Conservancy is also working in 24 other countries in Latin America, the
    Caribbean, and the Asia and Pacific region. Since the beginning of our
    international program in 1981, we have worked with local partners in
    these countries to protect more than 74 million acres of biologically
    significant land in the Western Hemisphere alone.
        AID has been a critical partner in this effort through its funding
    of the Parks in Peril (PIP) program, the Biodiversity Support Program
    and its Biodiversity Conservation Network. These programs receive a
    small share of the foreign aid budget, but deliver cost-effective,
    innovative solutions and measurable results through partnerships with
    the private sector. They also leverage private resources and funding
    from the multilateral development banks.
        For example, PiP--a program that has been extremely effective in
    addressing the decline of biodiversity in this hemisphere while
    promoting private enterprise and democracy--has received $23 million
    from AID since its beginnings in 1989. TNC has matched this
    contribution with $5 million. In addition, local in-country partners
    and governments have contributed more than $10. 1 million.
        Biological diversity does not respect national boundaries. One-half
    of the bird species in the United States rely on winter migration to
    Central America, the Caribbean, or South America. If they decline
    there, typically because of loss of habitat, then we feel it here.
    Species extinction and loss of biological diversity in developing
    countries has rapidly accelerated in recent years. Each year an area of
    tropical habitat the size of New York State is seriously degraded or
    destroyed. Scientists estimate that, at current rates of deforestation,
    tropical forests are likely to shrink to less than 10 percent of their
    original size over the next fifty years. According to noted biologist
    and author E. O. Wilson, present and future generations will lose one-
    fifth of all living species by the year 2020, most of them in the
    tropics.
        It is in our national interest to fight against this sharp decline.
    This ought to be a key foreign policy goal for the United States. TNC,
    AID, and our allies at home and abroad are achieving real progress by
    cooperating with private organizations in other countries and with
    their governments. Later, in the body of this testimony, we give
    chapter and verse to document the progress being achieved.
        For now, we simply wish to emphasize that the leverage and
    credibility provided by U.S. Government involvement at a policy level,
    and the financial support of AID, are crucial to TNC's prospects for
    continued success. We recognize that the Subcommittee is operating
    under extremely tight budgetary constraints, as has become inevitable
    in recent years. However, AID's biodiversity programs are a very small
    portion of the foreign aid budget. They are doing big things in terms
    of leveraging private funds and support, promoting democracy in the
    developing world, and protecting globally critical areas which, once
    lost, can never be retrieved. The Nature Conservancy urges the
    Subcommittee to support the Parks in Peril Program, the Biodiversity
    Support Program and the Biodiversity Conservation Network, as well as
    the rest of AID's biodiversity programs in the fiscal year 1998
    appropriations process. We also strongly endorse U.S. Government
    support for the Global Environment Facility (GEF), which includes
    biodiversity among its four planet-wide concerns. Thank you for the
    opportunity to share our views with you.
            the importance of international biodiversity protection
        People in developing countries rely on natural resources for a
    multitude of benefits: off-shore reefs support healthy fish populations
    for fisheries; parks and natural areas attract tourism from around the
    world; and forest cover keeps soil from eroding into waterways that
    provide drinking water, irrigation, and transportation to millions of
    people. Indigenous communities struggling to maintain their traditional
    cultures rely on tropical rain forests for hunting and gathering
    grounds, and use local plants for a wide range of medicinal purposes.
        The world as a whole benefits from the biodiversity found in
    developing countries. Mounting evidence shows that tropical forests are
    essential for the regulation of climate and atmosphere. Biodiversity is
    critical for the pharmaceutical industry, agriculture and a wide
    variety of other industrial processes. According to the World Resources
    Institute, 4.5 percent of the U.S. Gross Domestic Product is due to
    economic benefits from wild species. Genetic diversity used in plant
    breeding accounted for about one-half of all the gains in agricultural
    yields in the U.S. between 1930 and 1980. All major U.S. crops now
    depend on infusions of new genes from other countries. When U.S. corn
    was struck by blight some years ago, scientists responded by breeding
    for resistance using ``heritage'' strains from the wild. Our
    agriculture needs to have continued access to renewal from natural
    biodiversity, for direct immediate benefits and as a hedge against
    disaster.
        One quarter to one third of all the prescriptions drugs in the U.S.
    contain compounds derived from wild species. According to research
    published in the April 1997 edition of ``Scientific American'', 120
    prescription drugs currently come from about 95 species of plants; of
    these, 39 grow in tropical forests. The plant species that have been
    used by indigenous peoples to treat their own maladies are vital in the
    development of new pharmaceutical products. Botanists believe that more
    than 35,000 plant species (mostly drawn from tropical forests) provide
    traditional medicines to local peoples, hence are good candidates for
    future pharmaceutical research. There is no way to know what new cures
    we may be losing with each species that goes extinct or what the health
    care costs can be of remedies never developed.
        Moreover, the destruction of natural ecosystems in the developing
    world is now widely viewed as a major threat to social and economic
    stability. The degradation of resources and desertification leads to
    poverty, hunger, disease and civil unrest. Massive shifts in population
    density may occur when affected peoples migrate from areas that once
    were productive but now cannot support them. The linkages between
    natural resource depletion and national security are just now beginning
    to be understood.
                 usaid's commitment to biodiversity protection
        The Foreign Assistance Act states that the protection of tropical
    forests and biological diversity is a goal of U.S. foreign policy. AID
    is active in implementing this goal, and its biodiversity conservation
    program has expanded in recent years in response to growing concerns
    about the environmental and human consequences of the degradation and
    loss of natural resources in developing countries.
        AID has launched biodiversity conservation activities in more than
    60 countries. These programs focus on developing sustainable economic
    uses of biological resources; building local capacity for the
    management of biologically diverse areas, including parks, protected
    areas and buffer zones; supporting innovative programs for non-
    governmental organizations in conservation and resource use;
    encouraging participation of stakeholders, including women, indigenous
    peoples, and local communities at every stage of decision making; and
    facilitating the setting of conservation priorities at the local,
    national and regional level.
        TNC strongly believes that the U.S. Government should continue to
    devote significant resources to the protection of biodiversity.
    Administrator Brian Atwood has indicated that AID will look to
    partnerships with NGO's in order to achieve AID's goals in the most
    cost-effective manner possible. Some of AID's most successful and
    innovative biodiversity programs, conducted in partnership with NGO's--
    Parks in Peril, the Biodiversity Support Program and the Biodiversity
    Conservation Network--are highlighted below.
                                 parks in peril
        During recent decades, many nations of Latin America and the
    Caribbean have taken important steps to conserve their natural
    resources by establishing protected area systems to safeguard critical
    watersheds, coastal and marine ecosystems, wildlife, scenic
    attractions, and other areas of significance. Unfortunately, these
    nations often had not budgeted sufficient funds to hire personnel to
    manage these areas and truly protect them from threats. Although their
    boundaries had been legally decreed, many of these areas had not been
    surveyed and remained unmanaged and unprotected--in effect, they were
    ``paper parks.''
        To address this serious problem, in 1990 AID began supporting one
    of the most successful environmental programs in the history of the
    Agency--Parks in Peril. PiP is a public-private partnership that seeks
    to protect the most threatened national parks and reserves in this
    hemisphere. Parks in Peril was designed to secure minimum critical
    management for a series of sites, transforming them from mere ``paper
    parks'' to functional protected areas.
        Parks in Peril is administered for the Agency by The Nature
    Conservancy and its Latin American and Caribbean partners. The program
    provides short-term grants to local non-governmental organizations so
    that they may assist local government organizations in the
    establishment of a permanent management presence in each protected
    area. Parks in Peril is based on building a collaborative partnership
    among national, international, public and private organizations. The
    program has been widely supported by other governmental and non-
    governmental constituencies in the U.S., Latin America, and the
    Caribbean and many consider it to be one of the most important
    collective actions taken to assure the preservation of biological
    diversity and the conservation of tropical forests in our hemisphere.
        Parks in Peril is designed to achieve four important objectives:
        (1) To build on-site protection and management infrastructure for
    the hemisphere's most imperiled ecosystems of outstanding ecological
    significance.
        Since merely declaring an area ``protected'' does not guarantee its
    protection, the PiP program takes as its starting point areas that
    already have some legal basis for protection and builds on that
    foundation to make protection real and lasting. Parks in Peril attempts
    to strengthen the local institutional capacity (both governmental and
    non-governmental) to build infrastructure and implement on-the-ground
    protection and management of these sites.
        (2) To integrate these protected areas with the human societies
    inhabiting their surrounding regions.
        To succeed, any protected area must become an integral part of the
    local economy and culture. Protected areas must be valued by people.
    This will only happen when they receive tangible economic benefits from
    them. PiP provides support for compatible resource-use opportunities by
    promoting local and indigenous communities' direct participation in
    resource management decisions and activities on the sites and in
    adjacent buffer zones.
        (3) To create long-term funding and policy mechanisms to sustain
    the local management of the Parks in Peril sites.
        The PiP approach is fundamentally different from one-time grants
    for park protection, because it seeks to develop continuous funding
    mechanisms to ensure the viability of parks over the long term. The
    program also assists local NGO's to develop diversified local,
    national, and international funding mechanisms such as debt-for-nature
    swaps and promote policy revisions that support protected areas. The
    AID commitment to PiP has already proven to be catalytic in promoting
    other hi-and multi-lateral investments in the conservation of these
    sites.
        (4) To use the Parks in Peril site-based activities to influence
    conservation in other sites in the region's most imperiled ecosystems.
        The PiP program seeks to leverage the knowledge gained over the
    past six years through a series of publications, case studies and
    learning products, and the selection of a limited number of PiP sites
    as ``learning centers''. These learning centers will serve both as
    training grounds for those interested in successful park-based
    conservation, as well as testing grounds for new techniques and
    approaches.
        A major tenet of the PiP program is that each park will ultimately
    graduate (or be ``consolidated'', to use the technical term) from
    receiving direct assistance out of the centralized AID program. In
    order to achieve ``consolidation,'' a site must meet specific criteria
    in the following categories: the establishment of minimum protection
    activities to deter immediate threats; long-term management planning;
    long-term financing; and the development of a supportive local
    constituency. Therefore, while AID will not divest itself from PiP
    projects without ensuring they are ready to be self-sufficient, the
    goal from the outset is to eliminate the need for such an assistance
    program. To date, 10 sites, totaling 7.919 million acres, have been
    successfully ``consolidated'' from the program. These parks are in
    Belize, Bolivia, Colombia, Costa Rica, Dominica, the Dominican
    Republic, Panama, Paraguay, and Peru. Initial approval has been given
    by AID to shift focus toward new sites, totaling more than 7 million
    acres; these are located in Brazil, the Dominican Republic, Honduras,
    Jamaica, Mexico, and Paraguay. Other sites are also being considered.
        The Parks in Peril Program also has benefits that extend beyond
    biodiversity conservation. Latin America has historically lacked strong
    intermediary institutions by which ordinary citizens could, between
    elections, communicate their wishes and concerns to their governments.
    This lack was one reason for the repeated fragility of democracy in the
    region. The assistance that AID and TNC give to NGO's in the region
    helps them gain a stronger voice and empowers them to play an increased
    role in influencing their national policies. Thousands of people are
    becoming engaged in influencing the environmental issues that affect
    their daily lives, such as clean water and healthy forests. The
    development of such organized, non-partisan representation is making a
    significant contribution to consolidating democracy in these countries.
        Since PiP's inception, AID has obligated a total of $23 million on
    the program. While this is a major commitment of dollars, on an annual
    basis it makes up only about .04 percent of the entire foreign aid
    budget. This relatively small investment by the U.S. government has
    stimulated a total match of over $15 million by private organizations
    (in the U.S., Latin America, and the Caribbean) and host-country
    governments.
        The Senate, in its fiscal year 1997 report on the Foreign
    Operations appropriations bill, noted its ``strong support'' for Parks
    in Peril; similar language was adopted also by the House.
        The Parks in Peril Program has become the largest in-situ
    biodiversity conservation project in the tropical world. The portion of
    PiP that has received central AID support has recently been working in
    28 protected areas, comprising 19 million acres in 12 countries. Over
    150 headquarters buildings, visitor centers and other protection
    facilities have been constructed or renovated and hundreds of rangers
    and other staff have been hired and trained. Often, through
    arrangements between the local government and the local NGO that is the
    PiP partner organization, these park employees are private--hired,
    trained, and paid by private organizations, hence bringing to their
    duties the flexibility and accountability of private control.
        PiP has worked to protect cloud forests, coral reefs, tropical
    forests, and savannas. We note parenthetically that there are other PiP
    sites that do not receive support from the central AID budget; that
    portion of PiP works at more than 30 additional sites, helping to
    protect more than 50 million additional acres.
        PiP funding has supported efforts to demarcate critical boundaries;
    recruit, train and equip rangers and community extensionists; build
    protection infrastructure and provide transportation and communication
    technology; promote compatible natural-resource use in local
    communities; carry out baseline studies and biodiversity monitoring;
    and establish sources of long-term financing for reserve operations. At
    all PiP sites, local peoples have been involved in management
    decisions, fostering support and pride for the preservation of their
    natural heritage. In short, this program has increasingly become a
    model towards which the rest of the world is looking.
        A few recent examples of the many PiP success stories include:
        Parks in Peril support laid the groundwork that enabled TNC's
    partner organization Fundacion Amigos de la Naturaleza (FAN) to add
    333,459 acres of critical habitat to the Noel Kempff Mercado National
    Park in Bolivia, the first crucial step in a 1.8 million-acre expansion
    that will nearly double the park's original 2.3 million acre size.
    Institutional strengthening provided through Parks in Peril was a key
    factor in ensuring that FAN had the capability to negotiate this
    significant enlargement of the park. The Government of Bolivia has
    awarded FAN a 10-year contract to manage the Noel Kempff park. The
    Nature Conservancy also worked closely with FAN and Bolivian
    authorities to achieve a greenhouse gas mitigation pilot project, by
    which an American electric utility, American Electric Power (AEP), has
    signed a long-term contract that provides Noel Kempff park with $7
    million over the course of 30 years. Having attained its original PiP
    goals, Noel Kempff has been consolidated.
        Through the efforts of PiP's Paraguay partner, the Fundacion Moises
    Bertoni, thousands of additional acres have been added to the Mbaracayu
    Reserve in that country. Mbaracayu is one of the last remaining large
    areas in the Americas of humid subtropical Atlantic forest. It shelters
    thousands of endemic species that evolved to survive conditions that
    can range from extreme heat to below freezing; hence, the genetic
    material in Mbaracayu (particularly the flora) is of exceptional
    interest and potential value. Once threatened with imminent
    destruction, Mbaracayu is now a contiguous area covering nearly 160,000
    acres. Over the entire course of PIP/AID involvement with Mbaracayu,
    the park received $1.1 million from central AID/PIP funding. Building
    on this base, the Moises Bertoni Foundation has raised over $7 million
    of additional funds from groups including TNC itself, the MacArthur
    Foundation, the European Union, the Netherlands, Japan, the United
    Kingdom, and the Inter-American Development Bank (IDB). We plan to keep
    a continued friendly eye on the Mbaracayu park, but it has met the
    goals established under Parks in Peril and has been consolidated.
        In Belize, the Rio Bravo Conservation and Management Area has
    created necessary on-site infrastructure and trained park personnel.
    The local PiP partner, Programme For Belize (PFB), enjoys an
    exceptional level of public and private support. The park, totaling
    over 228,000 acres, contains hundreds of bird species, flourishing
    tropical hardwood forests, and the best jaguar habitat in Central
    America. It is a private land trust held by PFB under an agreement with
    the Government of Belize. The land was in danger of clear-cutting,
    before it was acquired in the late 1980's with the help of grants from
    TNC, the Coca Cola Company, the Audubon Society, and AID. Today, eco-
    tourism is growing. Long-term planning has been completed and long-term
    financial support (including a greenhouse gas mitigation project) has
    been lined up. As a result, Rio Bravo also has been consolidated.
        As we look ahead to the future of Parks in Peril, we are pleased
    that success--leading to the consolidation of ten (10) sites covering
    nearly eight (8) million acres--is opening the way for expansion of PiP
    to new sites. We deeply appreciate the AID support which helps make
    activities of this nature possible. Among the proposed new sites are
    the Guaraquecaba park (Brazil, 774,000 acres), the Blue and Crow
    Mountains (Jamaica, 196,000 acres), the Chaco (Paraguay, 1.926 million
    acres), and the Pantanal in Brazil (the world's largest continuous
    fresh-water wetland). These are typically places where TNC has already
    begun work, and the initial steps toward making them functional
    protected areas are already being taken. In the case of the Pantanal,
    for example, TNC used $2 million of its own funds to acquire two large
    ranches on the boundaries of the existing 338,000 acre park and has
    donated them to a respected Brazilian environmental NGO, Ecotropica.
    The former ranch land contains the only dry forest area within the
    Pantanal, hence is expected to provide the locations for future park
    infrastructure and eco-tourism. We are looking forward very much to
    working with Ecotropica and IBAMA (the Brazilian park agency) to secure
    the future of the Pantanal.
                        the biodiversity support program
        In 1988, in an effort to respond to the global crisis of
    Biodiversity loss, AID helped develop the Biodiversity Support Program
    (BSP), a consortium of the World Wildlife Fund, The Nature Conservancy,
    and the World Resources Institute. To date, the Biodiversity Support
    Program has successfully facilitated Biodiversity conservation in
    developing countries by supporting innovative, on-the-ground projects
    that integrate conservation with social and economic development,
    research and analysis of conservation and development techniques, and
    information exchange and outreach.
        The goal of the Biodiversity Support Program is improved
    conservation of Biodiversity through integration of conservation and
    development. In pursuit of this goal, the Biodiversity Support Program
    works in AID-assisted countries in close collaboration with the local
    AID country Missions and with central support from AID's Global (and
    other) Bureaus, to facilitate conservation activities, as well as to
    strengthen the capacities of individuals, local communities, non-
    governmental organizations, governmental institutions and AID
    assistance programs to conserve biological diversity.
        Over the last seven years, AID has invested $42.9 million in the
    Biodiversity Support Program supporting, assisting some 240 projects in
    59 countries. Following are several examples of Biodiversity Support
    Program projects:
      --BSP has supported some 75 local NGO's and peoples' organizations in
            six countries of Asia and Latin America to secure indigenous
            peoples' rights to natural resources. Local NGO partners in
            Asia have successfully used community-based maps (supported by
            BSP) to convince national policy makers to respect traditional
            homelands when making logging and mining concessions. A global
            survey of more than 60 community-based mapping projects has
            been produced.
      --To better direct conservation investments in Latin America and the
            Caribbean, the Biodiversity Support Program developed and
            applied a regional Biodiversity priority setting exercise. The
            resulting document ``A Regional Analysis of Geographic
            Priorities for Biodiversity Conservation in Latin America and
            the Caribbean'' is helping AID, governments in Latin America
            and the Caribbean, and NGO's set priorities for conservation
            action. BSP's consortium partners have adopted the methods from
            this terrestrial exercise to their own planning and have
            participated in companion exercises to determine freshwater and
            coastal/marine priorities.
      --In preparation for the Bolivia Summit on Sustainable development,
            BSP convened biodiversity experts and key stakeholders from
            throughout the Americas to form the Inter-American Commission
            on Biodiversity and Sustainable Development. The Commission
            proposed five hemispheric initiatives, and their final report
            was adopted as the official technical paper on biodiversity. In
            Santa Cruz, Bolivia, the Heads of State incorporated four of
            the Commission's initiatives into the Summit's Action Plan.
      --In Asia and the Pacific, BSP's projects spread the use of sound
            knowledge and technologies to support a scientific basis for
            conservation decision-making and to legitimize the role of
            local communities in Biodiversity conservation.
      --BSP's Conservation Initiatives Grants Program in the Ukraine is
            helping scientists and NGO activists in that country bring
            Biodiversity issues to the forefront. Over the next year,
            grants of up to $5,000 will support applied conservation
            initiatives in existing and potential protected areas. The
            Ukrainian advisory panel formed to help select the grantees
            represents a range of stakeholders with divergent views on
            conservation. Through the process facilitated by SP, Ukrainians
            are working together in an open and democratic process toward
            common goals.
      --In Mexico, the Biodiversity Support Program helped establish a
            community forest reserve network in indigenous Tarahumara and
            Tepehuan communities, protecting over 75,000 hectares of pine-
            oak forests in the globally important Sierra Madre Occidental
            mountains of Chihuahua. This work led to Mexican Federal
            recognition of a 17,000 hectare reserve, with other reserves
            planned. Last year, a survey to locate high-biodiversity, old-
            growth forest remnants in the Sierra Madre identified the
            15,000 hectare ``Carricito del Huichol'' as one of the last
            remaining examples. The Mexican NGO ``CIPA-Mex'' is leading a
            fight for its protection and, with the help of the Mexican
            environment ministry, recently thwarted yet another attempt to
            illegally log the area. Studies leading to declaration of
            formal protected area status are under way.
      --In Indonesia, BSP's KEMALA program encourages local Indonesian
            NGO's and people's organizations to forge alliances and
            undertake such activities as joint management of protected
            areas, winning recognition of traditional forest and marine
            management regimes, and establishing community-based businesses
            whose viability depends on conserving local biodiversity. Also
            in Indonesia, BSP assisted AID in establishing the Indonesia
            Biodiversity Foundation (KEHATI), which administers an
            endowment of $16.5 million to support conservation efforts by a
            broad range of Indonesian institutions.
      --In Papua New Guinea, BSP is currently working with The Nature
            Conservancy to support background analysis and technical
            studies necessary for development of a future Conservation
            Trust Fund for that country.
      --In India, BSP catalyzed the Biodiversity Conservation
            Prioritization Project, which to an unprecedented degree is
            bringing together multiple Indian stakeholders to develop
            participatory methods for establishing conservation priorities.
            This two-year effort will produce a set of Indian plans for
            priority conservation strategies, sites, and species.
      --In Africa, BSP assessed the training needs of more than 200
            protected area managers working in 15 countries, established a
            cross-regional network of protected area authorities, and
            fostered unprecedented levels of conservation, collaboration,
            and communication among the conservation NGO's working in
            Africa.
                       biodiversity conservation network
        In the early 1990's, staff at the Biodiversity Support Program and
    their AID colleagues noted that if products from a biologically rich
    area could be recognized for their economic value, then the community
    living in that area would likely conserve Biodiversity in order to
    secure some of those economic benefits. This observation provided the
    incentive to evaluate enterprise-based approaches towards conserving
    Biodiversity in greater depth. As a result, in late 1992, the United
    States-Asia Environmental Partnership, a program led by AID, created
    the Biodiversity Conservation Network, a $20 million, 6.5-year
    environmental conservation program. Specifically, the Biodiversity
    Conservation Network was established to measure the effectiveness of
    enterprise-oriented approaches to conservation and to support
    conservation efforts at specific sites throughout Asia and the Pacific
    region.
        As part of the Biodiversity Support Program, the Biodiversity
    Conservation Network maintains a close partnership with The Nature
    Conservancy. Currently, TNC is working on the following two enterprise-
    oriented conservation projects:
      --In Lore Lindu National Park, located in Central Sulawesi, we are
            working with the Biodiversity Conservation Network and the
            government of Indonesia (on both a local and national level) to
            examine the feasibility and potential conservation impact of
            two wildlife enterprises and a nature-based tourism enterprise.
      --In the Arnavon Islands, located in the Solomon Islands, we are
            working with the Biodiversity Conservation Network, local
            community groups and the provincial and national government to
            demonstrate the potential economic and ecological benefits of a
            community marine conservation area. Local stakeholder
            communities have obtained legal designation for the area,
            developed a management plan, established a sustainable deep-
            water fishing enterprise, and formed a group to advise
            neighboring communities on starting similar projects. The
            communities' regulations regarding the hunting of endangered
            sea turtles are pending adoption at the national level.
        We also take this occasion to note with approval the essential role
    of the Global Environment Facility (GEF). A key lesson from many years
    of conservation activism, and especially from protection of
    biodiversity, is that the environment is ultimately a global issue. The
    GEF is an essential financial mechanism, concentrating on projects and
    programs in developing countries to protect the global environment and
    promote sustainable economic growth. The GEF thus far has committed
    $1.2 billion for 220 projects in 85 countries. The GEF can be more than
    a short-term grant and loan disbursing agency. It is potentially a
    strategic mechanism to assist countries to develop innovative and
    effective means to deal with environmental threats, especially as it
    develops new approaches to involving a broader array of stakeholders
    through such efforts as its mid-size projects initiative. We hope that
    the Subcommittee is able to fund GEF at the full $100 million pledge
    level--a level proportionate to the grave threats that face the global
    environment.
                                 in conclusion
        The Nature Conservancy urges the Subcommittee to support the Parks
    in Peril Program, the Biodiversity Support Program and its Biodiversity
    Conservation Network, the Global Environment Facility (GEF), as well as
    the rest of AID's Biodiversity programs in the fiscal year 1998
    appropriations process. Thank you for the opportunity to share our
    views with you.
                                     ______

     Prepared Statement of Fred Haynes, President, American-Turkish Council

        On behalf of the American-Turkish Council, I am pleased to present
    our views on Turkish-United States relations within the context of the
    post-Cold War environment.
        I. First, let us consider the evolution of Turkish-US relations:
        Turkey's multi-party democratic tradition--spanning a half
    century--has indeed fostered a unique partnership with the United
    States. Turkey is the only predominantly Muslim secular democracy with
    a free market economy.
        During the Cold War, Turkey helped protect vital Western interests
    in the volatile Middle East. Turkey contained potential Soviet access
    routes to the Mediterranean through the Turkish straits.
        Turkish troops fought alongside United States troops in Korea, in
    support of the United Nations effort to control communist expansion in
    the Pacific.
        During the Gulf War, Turkey stood with the United Nations and the
    United States to combat Iraqi aggression. Turkey's role was critical to
    Allied success and sent a strong message to future aggressors. To date,
    Turkey's cost of applying sanctions against Iraq totals roughly $30
    billion.
        Turkey hosted Operation Provide Comfort, the international program
    using Turkish bases to deter Iraqi attacks against the Kurds of
    Northern Iraq from 1991 through 1996. Turkey is now cooperating in
    establishing a follow-up program to continue Allied flights over
    Northern Iraq.
        Turkey provided full support for the evacuation of Iraqi citizens
    from Northern Iraq at the end of 1996.
        Turkey continues to play a critical role in securing peace in many
    of today's trouble-spots, including Bosnia, the Middle East, and the
    Caucasus. Currently, Turkish troops are serving alongside US troops in
    the NATO mission in Bosnia. Turkey is the only member of NATO to train
    the Bosnian Army with the United States so as to preserve peace in the
    region through military parity.
        Turkey recognized Israel in 1949, and for three decades remained
    the only Muslim country to have full diplomatic representation in Tel
    Aviv.
        In February 1996, Turkey signed an agreement with Israel, providing
    for joint military training. In August 1996, Turkey signed a second
    defense agreement with Israel which permits the two countries to
    exchange military technology and conduct joint intelligence operations.
        Turkey's secular democracy serves as an example to countries in the
    Middle East, the Caucasus, and Central Asia, in stemming the tide of
    extremism and religious fundamentalism. Turkey is dedicated to working
    with the United States both in the Middle East Peace Process and the
    Minsk Process.
        Turkey's liberal market economy serves as a model for those
    countries trying to make the difficult transition from communism to a
    free market.
        Turkey shares common traditions and languages with five Turkic
    republics of Central Asia that emerged from the disintegration of the
    Soviet Union. Enhanced relations with Turkey provide these countries
    with an alternative to Russian dependence and expand the potential for
    economic viability.
        Turkey's government is committed to carrying out structural
    reforms, including further privatization. With the realization of these
    and human rights reforms, Turkey hopes to attain full membership in the
    European Union (Turkey is already a member of the European Customs
    Union).
        In 1995, the US Department of Commerce designated Turkey as one of
    ten ``Big Emerging Markets.'' It is projected that Turkey, with a
    market of 62 million consumers, will match the performance of the East
    Asian economies.
        Turkey can be very instrumental in providing a secure outlet for
    Caspian oil and gas reserves. The abundance of Caspian reserves will
    provide the international community with an important alternative to
    OPEC oil. Turkey's stability, location, and existing facilities on the
    Mediterranean will best serve economic and commercial interests and
    facilitate peace and cooperation in the region on a multilateral basis.
        With the end of the Cold War, new threats to security emerged and
    Turkey's role in the international arena was further enhanced. Today,
    we are faced with ethnic and nationalist extremism, religious
    fundamentalism, the revival of historic hatreds, international drug
    trafficking, and terrorism. Turkey and the US can and do work
    cooperatively in the name of shared values and principles to curb these
    international threats and to preserve the rule of law.
        II. Second, in addition to the numerous strides Turkey and the US
    have taken and continue to take in promoting regional stability, a
    number of factors highlight Turkey's relevance to the US and serve as
    the rationale for strengthening Turkish-United States relations:
        Turkey's critical geographic location is of major importance to the
    United States. Turkey serves as a bridge between East and West in
    geography, religion, culture and politics.
        With respect to human rights, significant changes have been made in
    Turkish law concerning pre-trial confinement, effectively reducing the
    detention period.
        Turkey has a large, young, well-educated population.
        Turkey shares common ideals, values, and interests with the West in
    general and the US in particular. In addition, this nation borders on
    several countries of major interest to the United States. Three of
    these countries are accused of sponsoring international terrorism and
    have an involvement with weapons of mass destruction.
        Turkey increasingly plays a role with respect to the sea lanes in
    the Black Sea, the Aegean and the Eastern Mediterranean, which includes
    a key role in the transit of oil and gas from the Gulf and Central
    Asia.
        In a region where water resources are scarce, Turkey has vast
    quantities of fresh water available for export.
        Turkey itself is an emerging commercial market for energy,
    aerospace, defense, agriculture, environment, telecommunications,
    transportation, construction, financial services, franchising, and
    other key areas. US businesses are investing in Turkey and using the
    country as a base of operations for regional investment.
        Turkey is an important regional actor, contributing to peace,
    stability and prosperity. In this framework, Turkey has long attached
    great importance to fostering relations with Greece, a neighbor and
    fellow NATO ally, as well as other countries in the area. Private
    Turkish business executives have been working directly with Greek
    private business executives to develop trade and investment between the
    two countries, Turkey has similar private sector business councils with
    virtually all her neighbors.
        III. Third, US assistance to Turkey should be viewed within its
    proper context:
        Turkey has not received military grant assistance from the United
    States since 1992. All military financial aid to Turkey in the last
    four years has been in the form of loans, not grants. In fact, the
    terms of the loans have evolved from concessional rates to Treasury
    rates to market rates.
        Unfortunately, Americans have been led to believe that Turkey
    continues to receive large amounts of United States funding at a great
    expense to the taxpayer. Nothing could be further from the truth.
    United States loans to Turkey are mutually beneficial and are by no
    means foreign policy ``give-aways.''
        Since the United States instituted loans to Turkey, Turkey has
    consistently adhered to pay-back schedules. Moreover, these loans
    create jobs in the United States, as the funds are returned to the
    United States through the purchase of American equipment. The equipment
    is transported to Turkey via American shipping companies.
        Excess Defense Articles provided to Turkey, which would otherwise
    incur United States storage costs, are refurbished by United States
    companies and transported by United States ships. Turkey assumes these
    costs, which benefit the United States economy.
        The United States receives a net cash flow from issuing military
    loans to Turkey. For instance, in 1996, Turkey received $320 million
    worth of loans, but will pay back $504 million in principal and
    interest to the United States Government.
        Most importantly, providing loans to Turkey serves international
    security. This is not a one-way process. Fostering an atmosphere of
    cooperation creates mutual benefits in the pursuit of common goals for
    regional and international peace and stability.
        IV. Finally, Mr. Chairman, there are several recent developments
    that should be of interest to the Committee:
        Visit by Mustafa Kalemli, speaker of the Turkish Grand National
    Assembly, to Athens, Greece.
        Visits by leading Turkish industrialists to Athens, Greece in
    support of bilateral commercial and industrial relations. A successful
    conference of the Black Sea Economic Cooperation Business Council,
    which included participation by Greece and Turkey, was recently
    completed in Istanbul.
        Turkey supports the latest European Union initiative to establish
    an independent Commission of Arbitration composed of ``wise men,''
    including members from both Turkey and Greece, to come up with
    solutions for Turkish-Greek differences.
        The Turkish and Greek Foreign Ministers have met three times within
    last two months, as have the Undersecretaries of the respective Foreign
    Ministries.
        Leaders of the Turkish Military have extended a friendly hand to
    the Greek Military in past weeks.
        In short, issues in the Black Sea, the Aegean and the Eastern
    Mediterranean are being addressed in a very encouraging manner.
        Thank you, Mr. Chairman, for allowing us the opportunity to present
    these views.
                                     ______

     Prepared Statement of Lane Vanderslice, on Behalf of the World Hunger
                               Education Service

        ``We are firmly convinced, and we act on that conviction, that with
    nations, as with individuals, our interests soundly calculated will
    ever be found inseparable from our moral duties''
                --Thomas Jefferson, March 4, 1805

        I am Lane Vanderslice, representing the World Hunger Education
    Service (WHES). WHES is a non-profit educational organization providing
    information and facilitating communication on issues of world poverty
    and hunger. Its principal publication, Hunger Notes, has been providing
    information and analysis on hunger issues for 21 years, and is now
    beginning an edition on the World Wide Web. Our testimony will be on
    three steps that the United States and this committee can take to
    reduce hunger and improve the situation of poor people of the world.
    Father Robert Drinan of our board, originally scheduled to appear,
    regrets his inability to be here at this time.
        1. We need country-by-country assessments of progress in major
    areas, such as improving food security, as well as evaluations of major
    programs of multilateral and bilateral assistance to improve the lives
    of poor people, including programs of UN organizations such as UNICEF
    and WHO, and bilateral programs such as USAID.
        2. The most important problem facing the people of the world is
    that they can be dominated by groups that have managed to achieve
    dominance over them by--at bottom--military/physical threat means. We
    need sustained attention to this problem by everyone, including the
    people and political institutions of the United States.
        3. We think the financial and intellectual commitment of the people
    and political institutions of the United States to the poor people of
    the world needs to be increased, not diminished, with the end of the
    Cold War. The U.S. commitment to preventing world hunger, in
    particular, needs strengthening. In our testimony to this committee we
    will focus on the financial commitment.
        1. The U.S. public, indeed the people of the world, need a more
    accurate assessment of progress and performance on issues such as world
    hunger and child survival.--We need: (a) a fuller description of where
    we are with respect to major issues, and, (b) evaluations of major
    programs. Let us explain.
        A fuller description of where we are with respect to major
    issues.--The various descriptions of these issues, such as UNICEF's
    annual State of the World's Children Report and USAID's Report to
    Congress on Child Survival are fine as far as they go. They do not get
    down to ``where the rubber hits the road''--the country level. We have
    recently read two reports, both of which we consider to be good
    studies--the FAO studies on the world food situation prepared for the
    World Food Summit, and the USAID study, ``Investments in Agriculture.''
    The USAID study essentially says that if you don't have a good country
    policy framework, money spent on agriculture will be wasted. We believe
    this to be a key point. But where are the evaluations of ``country
    frameworks'' on a country-by-country basis to be found? They do not
    exist in a form that is accessible to the public. Yet surely the World
    Bank, the Food and Agriculture Organization, and the United States
    Agency for International Development have such assessments of progress
    and problems or can prepare them relatively easily. Or independent,
    relatively low cost ``delphi style'' evaluations can be done. It is
    time to make them available. We would suggest starting with two key
    issues: (1) food security/world hunger, and (2) child survival, and
    limit the evaluation to countries that are the most food insecure and
    with the highest rates of child mortality. These assessments needn't be
    done every year necessarily, but they should be done every two years.
    The Internet provides a way to make these assessments widely available
    and at low cost. Once they are available, hunger advocacy and education
    institutions can ensure even wider dissemination of the information.
    Our recommendation to you is report language suggesting that those
    institutions for which your subcommittee provide funding (or the U.S.
    agency responsible for administering that funding, e.g., the treasury
    for the World Bank) devise a plan for providing country policy and
    performance information on a regular basis for the key areas of world
    hunger and child survival.
        Good publicly-available evaluations of the programs of major
    institutions helping to combat hunger and poverty.--There are many
    institutions to which we entrust taxpayer money in order to help those
    in developed countries combat hunger and poverty. Hundreds of millions
    and overall billions of dollars have been appropriated to UNICEF, the
    United Nations Development Program, the World Bank, the International
    Fund for Agriculture Development, the World Health Organization, and
    the United States Agency for International Development. Hunger Notes is
    very interested in such evaluations because of their importance and
    tries to publish excerpts from them when available. For example we
    published an evaluation of IFAD, and are about to publish excerpts from
    the recently published GAO report on child survival Yet, as far as we
    are able to determine, these evaluations are done much rarely than they
    should be. This makes it very difficult to assess progress, evaluate
    institutions and programs, and when, after discussion, it is seen to be
    desirable, make changes. We are faced with situations like the
    following. In the mid-1980s and into the 1990s WHO played a large role,
    with significant appropriations from the United States, in the world
    effort to prevent AIDS. Yet several years later--lo and behold--the
    responsibility has been taken away from WHO and given to a new program,
    UNAIDS, with, as far as we are able to determine, a substantial
    decrease in donor funding. We didn't see any publicly available
    evaluations of WHO's AIDS program? Did you? It seems to us that issues
    of administration and program direction are best evaluated and
    discussed on a regular basis with all the multilateral and bilateral
    aid agencies, and we urge you to adopt report language suggesting this.
    Congress must take this greater amount of evaluative material into
    consideration but not, if negative, immediately use it as an excuse to
    cut programs. The business of large international organizations is
    complicated and worldwide in scope and it is possible for evaluations
    to be mistaken or focus on different aspects of a complicated reality.
    The parable of the five blind men examining an elephant is appropriate
    here.
        2. The most important problem facing the people of the world is
    that they can be dominated by a group that has managed to achieve
    dominance over them by--at bottom--military/physical threat means.--
    Armed military groups in Somalia. Organized killing by those in charge
    of the government in Rwanda. Death squads associated with those in
    power in Guatemala and previously other Latin American countries. Often
    the situation can be less dramatic but still very injurious to people's
    welfare. Government corruption in Mexico, for example, is an important
    part of the process, but by no means the only part whereby income is
    steered to those with political power and away from the average person.
        There has been progress in some regions and countries, such as
    South Africa and many countries of Latin America. No longer does the
    Argentinian military take people with whom it has political differences
    and drop them from airplanes! The military in many countries, such as
    Argentina, Bolivia and Chile, is permitting civilian elections, (though
    the military in these countries still has a far greater political role
    than would be considered appropriate in the United States). Though
    there has been substantial attention to humanitarian emergencies/
    conflict situations/emerging democracies around the world, there has
    not been enough.
        Table 1, abridged from the 1996 Freedom House survey, shows the
    magnitude of the problem. We wish to point out two major aspects of
    this table: A significant amount of the world's population--40
    percent!--lives in countries that are not free. The percentage of the
    population that lives in countries that are free has dropped
    substantially, while those that live in countries that are only
    partially free has risen significantly.

                        TABLE 1.--FREEDOM OF THE WORLD'S POPULATION AS ESTIMATED BY FREEDOM HOUSE
    ----------------------------------------------------------------------------------------------------------------
                                                              Free               Partly free           Not free
                          Date                       ---------------------------------------------------------------
                                                        Number    Percent     Number    Percent     Number   Percent
    ----------------------------------------------------------------------------------------------------------------
    1981............................................    1,163.0     35.9        970.9     21.6      1,911.9     42.5
    1988............................................    1,924.6     38.3      1,205.4     24.0      1,896.0     37.7
    1996............................................    1,114.5     19.55     2,365.8     41.49     2,221.2     39.0
    ----------------------------------------------------------------------------------------------------------------

        This is very possibly the most important part of the world hunger
    problem. It has meant famine in the most extreme cases, and hunger and
    poverty for many in a large number of other cases. Though this issue
    has received significant attention over the years, it needs much more
    attention, and from all of us.
        Hunger Notes and the World Hunger Education Service is making this
    a priority. We have, for example, undertaken a special issue on Rwanda,
    ``What Have Humanitarians Learned,'' which was an attempt to see what
    PVOs and others interested in Rwanda might have done beforehand to
    analyze and act to defuse violence, and what this might mean in terms
    of a code of conduct that PVOs, bilateral aid agencies, and others
    might begin to form and act on in other countries. We are, as well,
    planning an issue on human rights approaches to development assistance.
        From the Congress we ask the following:
        We must understand the possibility and actuality of wrongful
    violence against others as a fundamental part of human life, and must
    be prepared to make a contribution to reducing it, as a key part of our
    foreign policy. We have to realize it is an important problem that is
    by no means confined to other countries. It is universal. It happens
    frequently in Washington, for example, where ``crews'' sell drugs, rob,
    and kill, and thus terrorize neighborhoods.
        We have to realize on an international level that we cannot ``go it
    alone'' but must in fact involve ourselves in cooperation with others.
    This includes the United Nations. We have to understand that our
    national sovereignty is not being usurped when we work in collaboration
    with others, which is what part of Congress at least still does not
    seem to have fully understood.
        We must realize that progress will be imperfect and ``messy.'' We
    must adopt to the greatest extent possible a bipartisan approach to the
    situation of wrongful violence. We need much discussion on this issue
    on the one hand, and on the other for fingerpointing to be kept to a
    minimum.
        3. We need a significant increase in support for programs that work
    to end hunger and poverty.--The reduction in Cold War tensions should
    have released intellectual and financial resources to address other
    major world problems, such as violence, hunger, and poverty. For the
    United States government, on balance, it seems to have done no such
    thing. Three key points with respect to U.S. support for hunger and
    poverty are:
        1. The United States cut funding for foreign aid, including
    initiatives to assist the world's poor, in fiscal 1996, and has
    essentially not restored that cut subsequently. USAID development
    assistance funding was cut by 24 percent, for example.
        2. U.S. foreign assistance devoted to agriculture in particular is
    down sharply. Table 2 gives the details.

        TABLE 2.--ALLOCATION OF USAID RESOURCES TO AGRICULTURE, IN MILLIONS OF DOLLARS AND AS A PERCENT OF TOTAL
                                        ECONOMIC ASSISTANCE, FISCAL YEAR 1989-94
    ----------------------------------------------------------------------------------------------------------------
                                                                  1989     1990     1991     1992     1993     1994
    ----------------------------------------------------------------------------------------------------------------
    Agriculture allocation....................................     $806     $577     $674     $626     $589     $418
    Total economic assistance.................................   $5,900   $6,684   $7,543   $6,572   $6,776   $6,641
    Percent of total..........................................       14       18       16       18       14       19
    ----------------------------------------------------------------------------------------------------------------

        3. The United States contribution to development has continued to
    decline as a percentage of GNP. Moreover, the United States is dead
    last in its share of GNP devoted to foreign aid, as Figure 1 indicates.
        We believe that the $70 million increase in development assistance
    proposed by the Administration should be granted and, in fact,
    increased by the committee. A key area should be programs to reduce
    world hunger.
        The United States and 180 other nations made worthwhile commitments
    at the World Food Summit, the most important being the commitment to
    reduce the number of undernourished people to half their present number
    by 2015. However, this commitment does not seem to have shown up in an
    overall increase in U.S. funding for the reduction of world hunger.
        Two areas of increase that we would support are USAID's African
    food security initiative and restoration of funding for the
    International Fund for Agricultural Development (IFAD).
        The African food security initiative is not a large initiative at
    this point: five countries and $25 million, when compared to a total
    $336 million request for ``encouraging broad-based economic growth'' in
    Africa. It should be bigger.
        In 1994, all of IFAD's member countries, including the United
    States, agreed to an overall replenishment level of $600 million. The
    United States was supposed to give just over $30 million a year for
    three years, totaling $92 million. Unfortunately, the Administration
    finally agreed to pledge just $5 million over six years, totalling $30
    million.
        We would also support increases, not reductions, in child survival
    and microenterprise.
                                     ______

      Prepared Statement of the American Society of Tropical Medicine and
                                    Hygiene

        The American Society of Tropical Medicine and Hygiene (ASTMH), a
    professional society of 3,100 researchers and practitioners dedicated
    to the prevention and treatment of tropical infectious diseases, is
    pleased to submit the following public witness testimony in support of
    the tropical infectious disease research and control activities of the
    Agency for International Development.
        ``Tropical diseases'' can be defined as those major public health
    problems caused by infectious agents that disproportionately affect
    people living in developing regions. Infectious diseases, including
    tropical infectious diseases, are world's leading cause of death,
    killing 17 million people (most of them young children) every year.
    They are responsible for one-third of all deaths and in 1990 they
    killed more people than cancer, heart diseases, and cerebrovascular
    diseases combined. In the developing world, the chance of dying is 40
    times greater for a child than it is for his or her counterpart living
    in an industrialized nation. Furthermore, these diseases take
    tremendous health, economic, social, and emotional tolls on their
    victims, communities, and countries.
        America must care about tropical infectious diseases for three
    reasons. These are the threats of emerging infections, exploding
    population, and erosion of our humanity if we fail to provide effective
    humanitarian (including health) assistance abroad.
        1. Emerging Infections.--The threat of emerging infections is
    increasingly recognized by the public as a result of the emergence of
    major killers such as HIV (which has infected an estimated 20 million
    adults worldwide) and by news accounts of exotic tropical infectious
    diseases such as Ebola. As such, it is very fitting that the theme of
    this year's World Health Day was ``Emerging Infectious Diseases.''
    Despite remarkable advances in science, medicine, and public health
    throughout this century, the threat of tropical infectious diseases
    remains as serious as ever.
        Approximately 2.5 billion people worldwide are at daily risk of
    tropical infectious diseases and 500 million people presently suffer
    from them. Parasites, bacteria, and viruses are becoming resistant to
    our drugs. Approximately 30 new infectious diseases have been
    discovered in the last 20 years and previously recognized diseases are
    returning with new vigor. For example, dengue fever was reported at
    approximately 30,00 cases annually from 1956-1980, at approximately
    138,000 cases per year in 1981-1985, and at almost 268,000 annually in
    1986-1990. This is nearly a ten-fold increase in less than 40 years.
    Dengue is very common in Latin America and it is now seen in Mexico and
    is lapping at America's shores.
        Infectious and tropical infectious diseases are not solely a
    ``third world problem.'' The globalization of our food supply and
    international travel bring increasingly worrisome infectious diseases
    to our doorstep. While the average American supermarket had only 300
    items on its shelf 40 years ago, it now exceeds 30,000 items, with
    demands for fresh produce from tropical areas increasing each year.
    Last year's outbreak of Cyclospora infection in over 800 people in 14
    States and Canada was traced to Guatemalan raspberries. Ebola was
    imported to the United States by research primates from the
    Philippines. AIDS originated in central Africa and arrived in the
    United States via Haiti. Further, the United States has been the site
    of the emergence of serious infectious diseases in recent decades, such
    as hantavirus pulmonary syndrome, drug-resistant streptococcal
    infections, and chlorine-resistant cryptosporidial parasites. Between
    1980 and 1992, the death rate due to infectious diseases increased 58
    percent in the United States, making it the third leading cause of
    death in the country (only half of this increase is attributable to
    HIV).
        There are many factors behind the increasing incidence of and
    threat of infectious diseases. One of the factors is the overall
    weakening of public health activities worldwide, including surveillance
    activities and a deterioration of laboratory facilities. Population
    shifts from rural areas to urban areas (200 million people worldwide
    live in cities with populations greater than 10 million) and increased
    international travel (500 million travellers annually) are also
    factors. It took over a year for the lethal strain of influenza which
    claimed millions of lives in the global pandemic of 1918-1919 to spread
    from Southeast Asia, where it originated, to Western Europe. Today,
    that flu bug could circumvent the globe in less than 2 weeks.
        2. Exploding Population.--Exploding population in the absence of
    good health poses a tremendous threat. Good health plays a critical
    role in population control. In contrast to the widespread Malthusian
    notion that only disease and famine will necessarily control population
    overgrowth, in the modern world it is good health, not bad health, that
    has consistently brought population growth under control. In
    prospective surveillance for diarrhea in northeast Brazil, researchers
    learned to their surprise that high childhood mortality and morbidity
    was associated with the greatest population overgrowth. In contrast to
    1 of 23 mothers in ``better'' homes, 17 of 32 mothers in the poorer
    homes had a baby during a two and a half year study (American Journal
    of Tropical Medicine Hygiene, Vol 51, pg 26-35, 1994). It is obvious
    that the high rates of childhood illness and staggering 25 percent
    mortality did not control but rather was associated with high birth
    rates. The dramatic association of improved health with voluntary
    reductions in population growth is apparent throughout countries across
    the globe as well as in single villages throughout the histories of
    developed countries.
        3. Erosion of our Humanity. Controlling diseases is in our
    humanitarian interest--it is our duty and our responsibility as a world
    leader.--A recent report by the Institute of Medicine (IOM) reiterates
    the importance of U.S. assistance from both a humanitarian viewpoint
    and an economic viewpoint. In America's Vital Interest in Global
    Health, the IOM Board on International Health notes that the current
    level of foreign aid by the U.S. government is at its lowest point
    since 1950, as measured by gross domestic product, and that the
    proportion is lower than that of the other top 20 industrialized
    nations. America's response and willingness to lead will determine if a
    free system of government that recognizes the dignity of the individual
    can effectively deal with the worsening plight of the disadvantaged.
        Controlling infectious and tropical infectious diseases is also in
    the United States's best economic interests. The IOM report appeals to
    the self-interests of the United States, noting that developing nations
    must have a healthy, productive population if their economies are to
    flourish (and hence provide a new market for U.S. exports). A
    prosperous international economy is beneficial to the U.S. with its
    tremendous potential for exports and other business opportunities and
    developing nations will ultimately require less assistance from the
    U.S. and other developed nations as their economies improve. Further,
    the economic impact of tropical infectious diseases on developing
    nations is tremendous.
                         a.i.d. child survival program
        The Agency for International Development's Child Survival Program
    has long been at the forefront of international efforts to alleviate
    morbidity and mortality among the world's most vulnerable populations--
    children under 5 years of age. In collaboration with the international
    community, including WHO and UNICEF, tremendous progress has been made.
    For example:
      --Since 1960, infant mortality has fallen from 130 to 60 per 1000
            live births, and child mortality has fallen from 180 to 80 per
            1000 live births.
      --By 1995, the goal of 80 percent coverage against the vaccine-
            preventable diseases of diphtheria, pertussis, measles,
            tuberculosis and polio had been achieved globally (although it
            was not achieved in every country).
      --In 1980, 76 countries reported less than one neonatal tetanus death
            per 1000 live births annually; by 1995 this had increased to
            122 nations.
      --Immunization programs have helped reduce the number of measles
            cases by 70 percent and the number of measles deaths by 83
            percent. Measles is targeted for elimination in the Americas by
            the year 2000.
        However, the Child Survival Program must not be cut, as much
    remains to be done to save lives and build healthier, more independent
    and productive lives.--For example, 25 countries reported coverage
    below 50 percent for diphtheria, pertussis, measles, tuberculosis and
    polio. Every year, 12 million children less than 5 years of age die of
    infectious and tropical infectious diseases. Four diseases alone--acute
    respiratory infection, diarrheal diseases, malaria, and measles--
    account for two-thirds of this total. Further, approximately 25 percent
    of these 12 million children suffer from malnutrition. Two of these
    diseases, diarrheal diseases and malaria, are among the most common
    causes of morbidity and death in children under the age of 5. For these
    reasons, we are strongly opposed to the Administration's estimated $25-
    30 million reduction in population, health and nutrition activities in
    fiscal year 1998.
                      diarrheal diseases and malnutrition
        Diarrheal diseases, which are primarily spread by contaminated
    water or food, kill 3 to 4 million children annually. For example, in
    some areas of Brazil 1 child in every 4 may never reach his or her 5th
    birthday, over half of whom die of diarrheal diseases. The morbidity
    from diarrhea and malnutrition may be even greater than their
    staggering mortality--many children who survive experience 8 to 10
    dehydrating, malnourishing diarrheal illnesses each year in their
    critical developmental first 2 years of life.
        New research is showing that malnutrition is in fact an emerging
    infectious disease. Impaired intestinal absorptive function due to
    enteric pathogens may be equally or even more important than inadequate
    food intake as a determinant of malnutrition. Malnutrition is
    associated with increased diarrhea incidence and duration among
    children in tropical developing areas. Research advances are providing
    novel interventions to address these threats.
                                    malaria
        Malaria was once a serious health problem in America, including
    right here in our Nation's Capital. Many lives were lost to malaria
    during the construction of Washington, D.C. Malaria remains one of the
    world's most important parasitic diseases, taking a tremendous toll in
    lives lost as well as in medical costs, days of work lost, and social
    impact. While more than 90 percent of all cases are in sub-Sahara
    Africa, malaria is a problem in almost 100 countries with 2.5 billion
    people--40 percent of the world's population. An estimated 200 to 300
    million cases occur annually and at least 1.5 million of these--and
    perhaps more than 2.5 million--are fatal. Mosquito resistance to
    pesticides and parasite resistance to drugs have resulted in a dramatic
    resurgence of malaria. Resistance to chloroquine, sulfadoxine-
    pyrimethamine, and mefloquine is emerging. Further, economic activities
    such as logging, agricultural projects, and road building are resulting
    in a spread of malaria.
        The ASTMH is very encouraged by recent renewed attention to this
    major killer. The complexity and importance of this disease requires
    leadership from the U.S. and other developed nations and we were very
    pleased by National Institutes of Health (NIH) Director Dr. Harold
    Varmus's role in a recent gathering of international scientific leaders
    in Dakar, Senegal. In 1998, the NIH will launch a new malaria clinical
    research initiative to expand our understanding of human immunity to
    Plasmodium falciparum, the etiologic agent of the most severe form of
    malaria. Earlier this year, researchers at the Walter Reed Army
    Institute of Research reported that an experimental vaccine devised by
    the U.S. Army and a private pharmaceutical company worked well in a
    preliminary test. This vaccine has been largely based on experimental
    work done at New York University, supported until recently by the
    A.I.D.
        One of the most challenging problems is the general lack of
    involvement by pharmaceutical companies in antimalarial drug
    development, an issue that was discussed in Dakar. The ASTMH believes
    that the A.I.D. should support the involvement of pharmaceutical
    companies in this drug development. Further, we agree with the
    recommendation of the Dakar Antimalarials Working Group that
    departments of pharmacology, pharmacy and traditional medicines at
    universities in sub-Saharan Africa should play an expanded role in
    antimalarial research. We urge A.I.D. to provide support for malaria
    vaccine research in 1998. With renewed international interest and with
    scientific leadership from the United States, investigators can take
    advantage of the promising research opportunities that exist to stem
    the tremendous burden of malaria. However, it needs to be recognized
    that the currently existing financial support is inadequate for
    accomplishing this task.
                                    summary
        The global burden of age-old infectious diseases such as malaria,
    diarrheal diseases, and tuberculosis is well documented, and new
    infectious agents will continue to be discovered. Previously recognized
    pathogens will also continue to reemerge as serious public health
    problems in the developed and developing world. However, many
    uncertainties exist. We do not know where or when they will appear,
    what they will look like, or how they will behave. To be prepared, we
    must have an adequate surveillance system and modern infrastructure
    facilities, coupled with scientific expertise in both basic and applied
    areas, to develop whatever tools are necessary to rapidly respond to
    and control the threats posed by these diseases.
        Through your leadership and commitment, Congress has provided
    significant support for child survival and disease activities during
    the last two fiscal years, and the ASTMH urges your continued support
    of these indispensable activities. Further, we request that you provide
    increased emphasis on the research and prevention activities for
    tropical infectious diseases, particularly the most prevalent and
    severe microbial diseases such as malaria and diarrhea. The impact of
    these diseases is significant in health, economic, and social terms to
    developing nations. Further, the United States has health, economic,
    and humanitarian interests in these diseases. Research in this area is
    progressing and with additional support we are optimistic that
    significant improvements can be made in prevention and treatment.
        Thank you for your consideration of our request.
                                     ______

       Prepared Statement of the Johns Hopkins University, Paul H. Nitze
                    School of Advanced International Studies

        The Johns Hopkins University Paul H. Nitze School of Advanced
    International Studies (SAIS) is pleased to have this opportunity to
    submit written testimony in support of fiscal year 1998 funding for the
    American Schools and Hospitals Abroad (ASHA) Program.
        We strongly believe that the ASHA Program serves U.S. interests. It
    does so by supporting liberal arts institutions around the world that
    promote freedom of expression, private initiative, and tolerance. ASHA-
    funded institutions train a cadre of individuals who can communicate,
    share values, and work with Americans in business, government, the
    sciences, and other mutually beneficial endeavors, thus providing the
    crucial educated human resource base necessary for any long-term
    development.
        Two of the Johns Hopkins programs have benefitted greatly from ASHA
    support in the past.
     the johns hopkins university-nanjing university center of chinese and
                                american studies
        The Hopkins-Nanjing Center, a bi-lingual graduate school in the
    People's Republic of China, has been bringing an American educational
    experience to top Chinese professionals and pre-professionals since
    1986. SAIS designed and administers the American component of the
    Hopkins-Nanjing Center. Each year Chinese and American postgraduates
    from all parts of China and the United States are selected for an
    academic year at the Center through a merit-based (academic credentials
    and language ability) application process. Each Chinese student is
    paired with an American roommate in the Center's facility in Nanjing, a
    feature that is unique to China where most foreign students are housed
    separately from the Chinese students.
        Johns Hopkins also brings to Nanjing a faculty of five American
    professors who reside at the Center and teach the Chinese students
    about the United States: U.S. history, government and politics,
    society, economics, foreign policy. In turn, the American students
    learn about contemporary China from Chinese professors and from their
    Chinese roommates. Chinese students learn about American values and
    institutions not only in the classroom but also from their American
    roommates and peers in the Center. An integral part of this intensive
    immersion of the students in each other's culture is the Center's
    uncensored, open-stacks library, again unique in China.
        The Hopkins-Nanjing Center provides its Chinese students with
    unparalleled exposure to American ideas and educational practices. It
    is an opportunity publicly advertised and open to anyone in China who
    wishes to apply. With the severe restraints placed on Chinese academic
    programs, it is more important than ever that the Center remain as a
    resource of information for its Chinese students and as a forum of open
    discussion and frank exchange of views among the Chinese and American
    participants. Because fewer and fewer Chinese who travel to the United
    States for study return to China, the Center becomes all the more
    valuable as a place where Chinese can receive a solid American
    educational experience on their own soil. They are then able to bring
    that experience and their increased understanding of the United States
    back to their home institutions and into their careers either in the
    public sector or in the growing private sector in China.
        The Hopkins-Nanjing Center serves U.S. policy interests and ASHA
    goals in a number of significant ways:
      --propagates American political ideals with the sanction of the
            existing regime in China;
      --keeps a window open to a select group of the new generation of
            Chinese intellectuals who must not be isolated from the West;
      --trains together young Chinese and American postgraduates who will
            manage the United States-China relationship for decades to
            come;
      --provides Chinese intellectuals with an uncensored, open stacks
            library that contains the most current western language
            collection of books and periodicals on American studies in
            China and on U.S. scholarship on China;
      --exposes key Chinese to western economic principles and practices;
      --produces China-savvy Americans for the American Corporate community
            doing business in China; and
      --trains U.S. government personnel for China duty.
        The Center serves the U.S. national agenda in a uniquely effective
    way by ``reflecting favorably upon and increasing understanding of the
    United States'' and in ``demonstrating American ideas and practices''
    to the talented young future leaders of a country important to the
    United States now and for the long term.
                  the johns hopkins university bologna center
        Established in 1955, The Johns Hopkins Bologna Center is unique in
    that, unlike most U.S. educational institutions overseas, it is theory
    full-time resident American graduate school of international relations
    in Europe. As an integral part of SAIS, the Center offers an
    interdisciplinary program of studies in international economics,
    politics, history and law, with special emphasis on European studies.
        The Center serves as a living example abroad of the American form
    of graduate education with its small classes, low ratio of students to
    faculty, and close, informal communication among students, teachers,
    and administration. Academically, the Center exposes non-American
    students to contemporary American approaches to the social sciences.
    The Bologna Center is neither a vocational school--in the sense of
    providing training for specific jobs--nor a purely liberal arts or
    scientific school. Rather, it seeks to relate its academic instruction
    to the expanding variety of private and public activities involved in
    relations among governments and national societies.
        The Bologna Center aims to promote the exchange of cultures and to
    provide exposure to the basic tenants of free-market economics. The
    current objectives of the Center are to reinforce its position in these
    specific areas: European-American relations, East-West European
    cooperation, and Mediterranean issues, the latter including both the
    troubled Balkan region and Europe's relations with the developing
    countries of the Middle East and North Africa. The ongoing attempts at
    transformation to democracy and market economy in Central and Eastern
    Europe, and the difficulties experienced in the moves to a single,
    unified market in Western Europe give the Center a unique, bridge-
    building position as educator to students from all over the world, who
    in time will themselves assume top-ranking roles in government and
    business. This endows the Center with a bold and essential role in
    America's endeavors to maintain a constructive, positive profile and
    relevance abroad.
        Since its creation, the Bologna Center has been at the cutting edge
    of political and economic developments in Western and Eastern Europe.
    In fact, it was the American academic institution to establish close
    ties with universities in Eastern Europe during the 1950's. The Center
    currently has exchange agreements with institutions in Central and
    Eastern Europe, including Poland, Hungary, Bulgaria, the Czech Republic
    and Russia. These relationships have come about as a result of the
    Center's efforts to expand its academic program to include all of
    Europe and to encourage greater communication and cooperation between
    Eastern and Western European institutions of higher learning.
        In addition to providing graduate level education to train a new
    generation of international leaders, the Bologna Center serves as a
    meeting place for students of various nationalities to come together to
    learn each other's history and culture, thereby increasing
    international understanding. The Center conveys to future international
    leaders a sense of American society and ideas which can only help to
    facilitate communication and understanding with partner countries
    around the globe.
        Especially noteworthy is the international composition of the
    faculty and the student body, which together represent 30 countries,
    with more than half of the students being non-American. Since 1975,
    more than seventy students from Eastern Europe and the former Soviet
    Union have been educated in Bologna, and an increasing number of
    students have been accepted from these countries. Significant numbers
    of students also come from Canada and countries in the Middle East, the
    Far East, Africa, and Latin America. Special efforts continue to be
    made to enroll more students from developing countries.
        This international atmosphere alters inaccurate preconceptions held
    by U.S. and non-U.S. students alike, stimulating a greater
    understanding of one another based on interaction, education, and
    experience. By exposing its students to the American system of graduate
    education and providing them with the experience of living and studying
    together in Europe in a truly international environment, the Center
    strengthens the bonds among future leaders of the United States,
    Europe, and other areas of the world including developing countries.
        Bologna Center graduates are in positions of importance worldwide
    in foreign offices and ministries of foreign affairs, in other
    governmental agencies, and in international and regional organizations.
    Thus far the Center had educated more than 280 European specialists in
    the U.S. government, more than 186 officials of West European
    governments, and more than 170 international civil servants. Bologna
    Center alumni are also employed in the private sector with
    international corporations and commercial firms, in banks and other
    financial institutions, non-profit organizations, media organizations,
    and research centers and universities around the world. The notable
    achievements of the Centers alumni, who come from 85 different
    countries, clearly demonstrate the significance of the Bologna Center's
    leadership role in the formation of future world leaders and in the
    promotion of democracy and international market economics.
                        fiscal year 1998 funding request
        We recognize and appreciate the Committee's support of the ASHA
    program in past years. We are concerned that the Agency for
    International Development (AID) continues to disregard the Congress'
    intentions to ensure the continuation of this program, and hope you
    will continue to take a strong position with AID to ensure that the
    ASHA program is not terminated and continues to receive adequate
    funding to conduct the competitive grant program. Therefore, we
    respectfully request that you consider a direct appropriation for ASHA
    in fiscal year 1998 of at least $15 million.
        Thank you for your consideration of this request. Please do not
    hesitate to contact us if you have any questions or require any further
    information.
                                     ______

                 Prepared Statement of the World Wildlife Fund

        World Wildlife Fund appreciates the opportunity to submit testimony
    on the fiscal year 1998 Foreign Operations Appropriations legislation.
        WWF supports the modest increase in the administration's fiscal
    year 1998 budgets for bilateral and multilateral assistance in the
    Department of State, the Agency for International Development and the
    Department of Treasury. This increase will help ensure the
    effectiveness of key environmental programs that had been threatened by
    drastic cuts made in fiscal year 1996.
                              bilateral assistance
    U.S. Agency for International Development
        WWF strongly supports the president's proposed $998 million for
    development assistance and $700 million for the Development Fund for
    Africa. Of these amounts, $290 million is proposed for environmental
    programs globally, an increase of $62 million over fiscal year 1997
    levels ($227.6 million).
        USAID's integrated approach to biodiversity conservation and
    sustainable use recognizes the interdependency of humans, wildlife, and
    their environments. USAID provides technical and financial support for
    conservation projects around the world that emphasize community-based
    conservation.
        WWF applauds the administration's earmark of $700 million for the
    Development Fund for Africa, as it assures U.S. commitment to the
    countries of Africa to help achieve broad-based, sustainable economic
    growth. Given the acute environmental problems in many African nations,
    biodiversity has long been an integral part of the DFA's goals. Some
    USAID-funded projects are:
      --The WWF-managed L.I.F.E. project (Living in a Finite Environment)
            funds several programs in Southern Africa, including one in
            Namibia that teaches communities how to sustainably manage and
            exploit their natural resource base. For example, in Caprivi
            last year over $80,000 was generated for construction of
            thatched grass roofs for tourist sites. In addition, to address
            crop destruction by elephants, buffalos and other wildlife, the
            program was instrumental in the construction of electric
            fences. As a result, an estimated $6,000 was saved in crop
            productivity in 1996.
      --The Rwenzori Mountains Conservation Development Project, co-funded
            by WWF and DFA, straddles the Uganda-Zaire border and
            encompasses some of the highest peaks and richest biodiversity
            in Africa. Project goals include collaborating with Rwenzori
            Mountains National Park staff to develop a park management
            plan, working with the community to pursue sustainable forest
            use, and agricultural activities such as tree planting and bee
            keeping to reduce human pressure on the park. For example, as
            an alternative to collecting honey from wild bees in the
            reserve which often resulted in burning the land and destroying
            trees, bee keeping and tree planting have been taught. Better
            relationships between the community and park staff have
            decreased tension over such issues as burials in the park and
            imposing fees on local inhabitants for crossing through the
            park.
        Of the $290 million USAID proposes for environmental programs in
    fiscal year 1998, WWF strongly urges the increase in funding over
    fiscal year 1997 be proportionally reflected in the agency's critical
    work related to global climate change and biodiversity. This would
    include increased funding for the Bureau for Global Programs, Field
    Support and Research, which not only funds climate change and
    biodiversity programs, but also acts as a catalyst to integrate
    environmental concerns in USAID programs globally.
        One example of the many successful programs supported by the Global
    Bureau is the Biodiversity Support Program (BSP). A consortium of three
    leading U.S. environmental organizations WWF, The Nature Conservancy
    and World Resources Institute BSP supports innovative, on-the-ground
    initiatives that seek to integrate conservation with social and
    economic development. Since its establishment in 1988, BSP has worked
    with over 95 local organizations to support more than 400 projects in
    59 countries around the world.
      --In Mexico, for example, the ORGANIZATE! project, funded by BSP, has
            helped residents develop alternative, environmentally
            sustainable livelihoods in the area of the El Cielo Reserve in
            Northern Mexico, while raising awareness about the reserve's
            importance. As a result, many of the reserve residents last
            year opposed a logging enterprise proposal to resume logging in
            El Cielo. Pressure from the local residents influenced the
            Mexican government to deny the logging company permission to
            resume logging.
      --Last year, BSP's Peoples and Forests Programs assisted communities
            and organizations from 25 localities in six countries. The
            program, for example, supports an Indonesian NGO working with
            the Bentian Dayak people of Indonesia to map their forest areas
            and document traditional resource management practices which
            preserve local rainforest ecosystems, meet subsistence needs
            and generate cash income through the sale of forest-cultivated
            rattan. As a result of this work, government officials were
            persuaded to exclude the Bentian forest areas and rattan
            gardens from a proposed reforestation site for a logging
            concession.
      --BSP's analyses of global climate change in Central Africa and its
            initiative in creating new partnerships has led to the Central
            African Regional Program on the Environment (CARPE). This new
            partnership of five NGOs and four U.S. government agencies will
            address deforestation in the second largest tropical rainforest
            in the world.
        BSP exemplifies the type of USAID/PVO partnership that successfully
    and cost effectively uses U.S. taxpayer support to assist in
    integrating conservation with social and economic development.
                            multilateral assistance
    Department of State
        While we support the administration's request for an increase in
    the International Organizations and Programs account, WWF opposes the
    Department of State's fiscal year 1998 request for no increase from
    fiscal year 1997 levels for International Conservation Programs. At the
    proposed level of $3.75 million, the U.S. last year was unable to
    contribute its $1.3 million commitment to the core budget of the
    Convention on International Trade in Endangered Species of Wild Fauna
    and Flora (CITES). The department was only able to fulfill its
    commitment to CITES through an additional amount resulting from the
    reallocation of funds within International Organizations and Programs
    account.
        CITES is arguably the largest and most successful wildlife
    conservation agreement. One hundred thirty-five countries are now
    parties to the convention; the United States was one of the first
    nations to sign in 1973. CITES has become an effective forum for
    addressing broad wildlife conservation issues and needs, playing a
    critical role in preventing the extinction of thousands of species in
    trade. The U.S. contribution to CITES is critical to continue this
    important work.
        The continued U.S. contribution of $750,000 to the Ramsar
    Convention also is important. The convention is a critical tool for not
    only conserving but also promoting sustainable use of aquatic
    ecosystems globally. More than 770 sites totalling over 52 million
    hectares in over 90 contracting countries are designated as wetlands of
    international importance and protected under the Ramsar Convention.
        WWF urges the Congress to require the Department of State to fully
    fund its obligations to CITES, the Ramsar Convention and other
    international conservation programs.
    United Nations Development Program
        WWF supports the president's request for $100 million for the
    United Nations Development Program (UNDP). For the past ten years, WWF
    and UNDP have collaborated with considerable success to help national
    governments and local communities develop and implement programs
    supporting the long-term protection of Asia's biological diversity.
        Specifically, WWF has closely worked with UNDP country programs in
    Bhutan, pre-SLORC Burma, Cambodia, China, India, Nepal, Pakistan, Papua
    New Guinea, Philippines, and Vietnam. In several of these countries,
    UNDP support was critical to initiating innovative, sustainable
    conservation efforts that otherwise would never have been realized. WWF
    effectively engaged the credibility and resources of UNDP to kick off
    outstanding conservation programs such as the world's first
    environmental trust fund in Bhutan, the Indo-China Forum for
    Biodiversity Conservation, Nepal's People and Parks Project, the
    Vietnam Environmental Business Council, and current efforts to initiate
    a Ecoregional Biodiversity Initiative in the Himalayas.
    G-7 Pilot Program (PPG-7) to Conserve the Brazilian Rain Forest
        WWF supports the Department of State's effort to organize U.S.
    government funding support for the PPG-7's Rain Forest Trust Fund at $3
    million to $10 million over the next three years.
        The Brazil Pilot Program is a collaborative effort to reduce the
    degradation of Brazil's Amazon and Atlantic forests, which cover an
    area nearly the size of the U.S.'s lower 48 states. It was conceived at
    the 1990 G-7 summit in Houston, Texas. In December 1991, a number of
    donor nations pledged $250 million as initial support. Part of these
    funds are managed by the World Bank through its Rain Forest Trust Fund
    and the remaining funds comprise bilateral donor co-financing.
        The PPG-7 is unique for its integrated participation by all sectors
    of Brazilian civil society, the leadership provided by the federal
    government of Brazil, and for its diverse international support. It is
    the first instance in which the global community has joined hands to
    address a local environmental challenge that is of worldwide
    significance. This initiative has set a precedent for addressing the
    global issues of greenhouse gas emissions, biodiversity conservation,
    tropical deforestation, and sustainable development in ways instructive
    to other localized but globally important environmental issues.
        The United States has provided $7.5 million to PPG-7 over the past
    five years (compared with Germany's $80 million). Each donor chooses
    one or more components to finance. The United States has chosen applied
    research, while Germany, for example, has chosen the small grants
    component.
        Most of the WWF staff in Brazil has participated in designing and
    commenting on the different components of the project, e.g., small
    grants for NGOs, forestry, environmental education, and state policies.
    Most of the examples that the World Bank uses to showcase its future
    plans under the project are current projects managed by WWF.
        WWF urges the subcommittee to support the Brazil Pilot Program and
    request the State Department to provide adequate funding for the PPG-
    7's Rain Forest Trust Fund over the next three years.
                         multilateral development banks
    International Development Association (IDA)
        WWF supports the administration's request of $800 million for the
    full scheduled payment to the eleventh replenishment of the
    International Development Association (IDA) and payment of $234.5
    million to clear accumulated arrearages.
        IDA, the concessional window of the World Bank, is the single most
    important source of development finance for the world's poorest
    countries. Support for IDA is an attractive vehicle for U.S.
    development assistance. Through investment in specific projects and
    economy-wide or sector-specific reform programs, IDA can help to
    address the root causes of political and economic instability such as
    extreme poverty, environmental degradation, and weak institutions of
    government and civil society.
        IDA is also cost-effective: every U.S. dollar contribution
    leverages several additional dollars from other donors. Finally, IDA is
    responsive to U.S. leadership, which has been responsible for recent
    reforms to make the institution more transparent and accountable.
        While IDA and the World Bank more generally have been criticized
    for failing to pay adequate attention to poverty reduction and to the
    environment in its policies and loan-funded operations, WWF believes
    that U.S.-led progress toward reform is sufficient to justify continued
    support. Moreover, prospects for continued reform are strong: the World
    Bank's Board of Executive Directors has recently approved a ``Strategic
    Compact'' with Bank management to invest resources in improving the
    Bank's efficiency and effectiveness as well as to focus its efforts in
    such critical areas as social analysis, rural development, and
    capacity-building in Africa.
        Finally, from WWF's perspective, there is unexploited potential for
    IDA and the World Bank Group to play a more proactive role in promoting
    environmental sustainability in the context of individual borrower
    countries and the global community as a whole. Indications that the
    Bank is moving in this direction are ongoing discussions between the
    Bank and the government of Kenya regarding the first-ever
    ``environmental adjustment'' loan, in which IDA resources would be
    utilized to support macroeconomic and institutional change necessary
    for sound environmental management. WWF believes that meeting the
    administration's request for IDA funding this year would provide a
    signal of support for such initiatives and for the important new
    directions being taken by the institution as a whole.
    Global environment facility
        World Wildlife Fund supports the administration's fiscal year 1998
    request of $100 million for the Global Environment Facility (GEF).
        The focus of the GEF has been the protection of biodiversity,
    reduction of global warming, protection of international waters, and
    prevention of depletion of the ozone layer.
        The GEF has a unique role in its funding mechanism in the
    international system: it is the only multilateral funding institution
    devoted exclusively to the protection of the global environment. It
    serves as a potent symbol of the global community's shared commitment
    to the goals of environmental protection and sustainable development.
        The GEF serves two broad functions, both of which are critical to
    declared U.S. national interests. The first of these functions is as
    the funding mechanism for the Convention on Biological Diversity (CDB)
    and the Framework Convention on Climate Change (FCCC). Money allocated
    by governments is channeled through the GEF to support activities
    called for in these treaties, both of which have been signed by the
    United States (the CDB awaits confirmation by the Senate).
        The second important function played by the GEF is as a catalyst
    for reform in the policies and operations of its implementing agencies.
    The United States has always supported a reform agenda within these
    agencies, including issues of transparency, information sharing, and
    NGO access. While widespread reform within these institutions has not
    been fully realized, the GEF has played a modest but important role in
    what progress has been achieved in setting policies and standards that
    are slowly being internalized by the implementing agencies.
        GEF is not without its problems. Disbursement of funds has been
    hampered by a number of factors, including the slow development of
    strategies and project criteria. These have now been put into place
    and, along with GEF's new procedures to streamline NGO access to its
    fund, hopefully will speed the flow of resources to critical
    environmental problems.
        U.S. leadership is crucial in the GEF's continued roles as a
    catalyst for reform and as a funding mechanism for the two conventions
    described above. U.S. funding to the GEF over this replenishment period
    has fallen well short of the commitments made. Failure to meet these
    commitments risks other donors following suit as permitted by GEF's
    burden sharing agreement. This shortfall is starting to seriously erode
    the U.S.'s capacity and voice in shaping the GEF, which has been
    critical to date. Also threatened is the progress being achieved in the
    Facility's roles outlined above. Insufficient funding would constitute
    a serious setback to the pursuit of global sustainable development and
    environmental protection. Full funding of the fiscal year 1998
    Administration request would go a long way toward offsetting this trend
    and restoring the U.S.'s preeminent role in this institution's
    operations.
        Some members of Congress have called for increased funding above
    the administration's request for a number of important programs in the
    150 account such as Child Survival, Newly Independent States and
    Refugee and Migration Assistance. WWF urges the committee, in
    considering these increased levels, to ensure that equally significant
    conservation programs administered by the Department of State and
    USAID, such as those outlined above, are not consequently underfunded.
    Failure to adequately fund these environmental programs will deal a
    serious setback to international environmental initiatives that affect
    U.S. interests.
        For more than three decades, the United States has been a key
    participant and catalyst in global efforts to protect endangered and
    threatened wildlife, to promote international cooperation on
    environment and science, and to support community-based efforts in
    conservation and biodiversity. In the past few years, drastic cuts by
    the Congress in the foreign affairs budget have seriously undermined
    the government's international role in environment-related activities.
    WWF urges the subcommittee to support the administration's efforts to
    restore much of past years' budget loss, thereby helping to regain U.S.
    prominence in global environmental programs.
        World Wildlife Fund looks forward to working with the subcommittee
    on the Foreign Operations bill. Thank you.
    appendix i.--proposed committee report language on biodiversity support
                                    program
        The Subcommittee commends USAID for its work in integrating the
    conservation of biodiversity in its development assistance programs.
    Conservation of biodiversity, the variety of all forms of life on
    earth, not only is essential to human survival, but is also important
    to the global economy. For example, the 20 best-selling pharmaceuticals
    in the U.S., with combined revenues of about $6 billion worldwide in a
    given year, all relied on plants, microbes, and animals for their
    development.
        USAID's Bureau for Global Programs, Field Support and Research has
    played a pivotal role in ensuring that USAID bureaus and missions
    successfully address environmental problems around the world.
        Accordingly, the Committee requests that the Bureau for Global
    Programs, Field Support and Research continue to be adequately funded
    for programs promoting biodiversity and climate change. Specifically,
    the Committee requests the Bureau's Center for Environment be funded
    for $50 million in fiscal year 1998, of which $3.5 million fund the
    successful Biodiversity Support Program (BSP), a consortium of three
    leading U.S. environmental organizations--World Wildlife Fund, The
    Nature Conservancy, and World Resources Institute. BSP exemplifies the
    type of USAID/Private Voluntary Organization partnership that
    successfully and cost-effectively uses U.S. taxpayer support to assist
    countries with conservation of biodiversity linked with social and
    economic development. BSP has effectively leveraged core funding from
    the Bureau on Global Programs with many times more funding from USAID
    missions overseas and regional bureaus.
       appendix ii.--proposed committee report language on international
                             conservation programs
        The Committee recognizes the importance of international
    organizations and programs as crucial to protecting the health and
    environment of the American people. These activities, such as the
    Ramsar Convention on Wetlands of International Importance and the
    Convention on International Trade in Endangered Species of Wild Fauna
    and Flora (CITES), represent sound investments toward preserving fish,
    wildlife and habitats for the benefit of future generations. The
    Committee expects that committed funds be provided for these crucial
    activities.
                                     ______

     Prepared Statement of Thomas A. Nassif, Chairman, American Task Force
                                  for Lebanon

        The American Task Force for Lebanon is an organization whose goal
    is to work towards reestablishing a secure, stable, independent, and
    sovereign Lebanon with full control over all its territory. Our members
    reflect most religious groups in Lebanon and include a prominent roster
    of American talent in business, law, medicine, the professions, and the
    arts, as well as public officials, including two members of Congress.
        During its fifteen-year civil war, Lebanon sustained $25 billion in
    direct damage to its infrastructure, according to a 1991 United Nations
    assessment. This is an enormous burden on a country with an estimated
    1996 GDP of $8 billion and a public debt of over $11 billion. This debt
    is a direct result of the legacy of war, a weak tax base, and the
    financial requirements of a reconstruction program in the absence of
    sufficient concessional finance. The mounting debt is raising serious
    concerns regarding its sustainability and its adverse impact on
    development. Lebanon's reconstruction of infrastructure is designed to
    accommodate an economy geared toward an era of Middle East peace, which
    has unfortunately not been realized.
        We are grateful that the United States hosted the Friends of
    Lebanon Conference to assist Lebanon's reconstruction in Washington on
    December 16, 1996. The Friends of Lebanon Conference was important
    because the United States lent its prestige in assembling donor
    countries and multilateral lending institutions. During the Conference,
    the United States pledged $20 million to Lebanon.
        For fiscal year 1997, Lebanon received only $2 million in spite of
    its great need. Before the Friends of Lebanon Conference, plans were to
    phase out all assistance to Lebanon by 1999. Let me say, Mr. Chairman,
    that this would not be a welcome development, as it undercuts U.S.
    efforts at promoting the peace process and democracy in the Middle
    East. The Lebanese-American community will be vigilant in ensuring that
    Lebanon continues to receive foreign assistance while it is
    redeveloping, because it is in the interest of the United States.
        The United States Agency for International Development has
    projected a development program for Lebanon of $12 million per annum
    over the next five years. USAID feels that much can be accomplished
    with this level of foreign assistance. We concur. All USAID projects in
    Lebanon are administered by U.S.-registered PVO's. Also, by the end of
    May, USAID will permanently station an officer in Lebanon. The presence
    of a USAID officer will enhance the level of cooperation between PVO's
    and other donors and ensure that accountability meets Congressional
    standards during this period of budget cutbacks.
        The new USAID strategy has three objectives which we feel cover
    niches receiving little attention from other foreign donors, who have
    mainly targeted infrastructure. The objectives are reconstruction and
    expanded economic opportunity; democracy and governance; and, improved
    environmental practice. We especially want to applaud the work that
    USAID is doing in the areas of rural community development, the Beirut
    Stock Exchange, the Environmental Center for Research and Development
    at the American University of Beirut, and the reorganization and
    computerization of the central control agencies, such as the general
    accounting office, central inspection board, and the civil service
    board.
        A proposal that the World Bank is considering has the potential to
    address some of Lebanon's socioeconomic problems. Although Lebanon has
    a prosperous banking sector, Lebanese banks have historically been
    commercial banks offering trade finance. Long-term credit is almost
    nonexistent. Banks are required to keep 10 percent of total deposits on
    reserve with the Central Bank of Lebanon. It has been proposed that the
    Central Bank make available 1 percent of this idle money for long-term
    loans of between $5000 and $20,000 for small-and medium-size
    enterprises outside of Greater Beirut. The loans would be administered
    by commercial banks, which have over 200 branches in the villages. This
    project is critical because 1.6 million out of Lebanon's 3.1 million
    people reside in Greater Beirut due to lopsided development and rural
    unemployment. Viable economic activity outside of Greater Beirut would
    alleviate the tremendous strain on Beirut's physical and social
    infrastructure. If this project proceeds, the U.S. could provide $2
    million in start-up capital.
        We urge direct funding of the American Schools and Hospitals Abroad
    Program for fiscal year 1998. This program supports such fine
    institutions in Lebanon as the American University of Beirut, Lebanese-
    American University, and International College. In recognition of the
    Lebanese army's role as the symbol of national sovereignty, we urge
    continued training of Lebanese Army personnel under the International
    Military Education and Training program and we urge that nonlethal
    equipment continue to go to the Lebanese Army under Excess Defense
    Articles.
                                     ______

    Prepared Statement of Sidonie Chiapetta and Erik Haunreiter, on Behalf
                      of the National Wildlife Federation

                               executive summary
        The National Wildlife Federation urges the Subcommittee to
    appropriate $2 billion for bilateral Development Assistance, of which
    $600 million should be available for population assistance, and $108
    million for education, with programmatic emphasis on women and girls.
    In the Multilateral arena NWF recommends appropriations at the level of
    the President's request: $1.034 billion for the International
    Development Association of the World Bank, $100 million for the Global
    Environmental Facility, and $365 million for the International
    Organizations and Programs account.
                              bilateral assistance
        In our view the most urgent task facing your Subcommittee is to
    increase levels of long-term development assistance. Long term
    development assistance helps to prevent ecological disasters; and it
    enhances U.S. security in very tangible ways: by reducing immigration
    pressures, and by ensuring the stability of our trading partners
    overseas. It also answers to the fundamental belief of the American
    people that ours is a wealthy nation, and should do its share to help
    those in need. Our recommendation is a return to the fiscal year 1995
    level of $2 billion for development assistance, with special priority
    on two areas: international population assistance, and education for
    girls and women.
    Population assistance
        In previous years, NWF has addressed the Subcommittee on the urgent
    need to stabilize human population; we have cited the importance of
    this goal for U.S. food security, and for the protection of precious
    biological assets like genetic diversity, and renewable resources, like
    fresh water and forest cover. As the largest-ever generation of young
    people enters its reproductive years, these concerns are with us, as
    ever. However, this year, we wish to highlight the importance of
    population assistance from a purely human perspective: that of its
    impact on women's health.
        NWF believes that U.S. population assistance is administered
    responsibly, and with due concern for human rights. One cannot
    overstate the need for a wide variety of contraceptive choices; for
    patients to be completely informed about the possible ill-effects of
    contraceptives (particularly when long-lasting methods are in question)
    and for adequate follow-up to identify and deal with problems. The
    potential negative impacts of contraception on women's health should
    always be closely monitored, and we believe that USAID and its
    Cooperating Agencies do so, and that they respond quickly to problems
    and reports of problems.
        The other aspect of this charge is that the state of women's
    reproductive health in general should be monitored, and there should be
    a response to the information that comes to light. New information has
    come to light.
        This past year, in its annual ``Progress of Nations'' report,
    UNICEF published new data from a variety of sources about the incidence
    of maternal mortality, and maternal morbidity around the world. This
    report made such an unforgettable statement of the facts that we will
    quote from it at length. UNICEF is an agency that has always had the
    highest reputation within the U.N. system and on Capitol Hill. Even
    during the current difficulties of the U.S.-U.N. relationship, it has
    enjoyed immunity from major funding cuts, and from criticism. The
    interesting thing about this is that UNICEF, in a circumstance where
    parochialism could be expected to run rampant, has in effect used its
    protected status to advocate on behalf of two other UN agencies: the
    World Health Organization and UNFPA. There is certainly no particular
    institutional advantage for UNICEF in producing a report that
    highlights the lamentable state of womens' reproductive health. It
    follows therefore, that the leaders of UNICEF want women to be healthy,
    even if the dollars to do that work go to two different UN agencies. It
    follows that they see a deep link between the health of mothers and the
    health of children, and they wanted to use their most public
    opportunity to say so. This truly is leadership.
        What follows is remarkable not only for the new statistics, but for
    the way it spells out what ``maternal mortality'' actually means. Men
    who read this should realize that the information comes as shocking
    news to most women as well. The problems it describes are so alien to
    our experience that it seems almost improper to talk about them.
    Fortunately, UNICEF was not too squeamish to bring us this information,
    so we feel we have a duty to highlight it for members of the
    Congressional Subcommittee that can actually make the situation better.
    What follows is an excerpt from Peter Adamson's essay ``A Failure of
    Imagination'' in the Progress of Nations Report.\1\
        ``For a decade, the figure of 500,000 maternal deaths a year has
    been part of the statistical liturgy. In 1996, new estimates are
    showing that the number of women who die each year in pregnancy and
    childbirth is probably closer to 600,000 * * *
        But before the new estimates replace the old as a way of packaging
    up the problem, it should be said that a mistake has been made in
    allowing statistics such as these to slip into easy usage. For these
    are not deaths like other deaths, and death is only a part of the story
    they have to tell.
        They die, these hundreds of thousands of women whose lives come to
    an end in their teens and twenties and thirties, in ways that set them
    apart from the normal run of human experience.
        Over 140,000 die of hemorrhaging, violently pumping blood onto the
    floor of the bus or bullock cart or blood-soaked stretcher as their
    families and friends search in vain for help.
        About 75,000 more die from attempting to abort themselves. Some
    have taken drugs. Others have submitted to violent massage. Many more
    have inserted a sharp object--a straightened coat-hanger, a knitting-
    needle or a sharpened stick--through the vagina into the uterus. Fifty
    thousand women and girls attempt such procedures every day. Most
    survive, though often with crippling discomfort, pelvic inflammatory
    disease, and a continuing foul discharge. But many do not survive: with
    punctured uterus, infected wound and creeping sepsis, they die in pain
    and alone, bleeding and frightened and ashamed.
        Perhaps 75,000 more die with brain and kidney damage in the
    convulsions of eclampsia, a condition that is described by a survivor
    as ``the worst feeling in the world that can possibly be imagined.''
        Another 100,000 die of sepsis, the bloodstream poisoned by a rising
    infection from an unhealed uterus or from retaining pieces of placenta,
    bringing fever and hallucinations and appalling pain.
        Smaller but still significant numbers die of an anaemia so severe
    that the muscles of the heart fail.
        And as many as 40,000 a year die of obstructed labor--days of
    futile contractions repeatedly grinding down the skull of an already-
    asphyxiated baby onto the soft tissues of a pelvis that is just too
    small.
        In the 1990's so far, 3 million young women have died in one or
    more of these ways. And they continue to die at the rate of 1,600 every
    day, yesterday and today and tomorrow.
    Ratio of injuries
        For the most part, these are the deaths not of the ill, or of the
    very old, or of the very young, but of healthy women in the prime of
    their lives upon whom both old and young may depend.
        But the numbers of the dead alone do not reveal the full scale of
    this tragedy. For every woman who dies, approximately 30 more incur
    injuries, infections, and disabilities which are usually untreated and
    unspoken of, and which are often humiliating and painful, debilitating
    and lifelong.
        It is part of the silence that has for so long surrounded the issue
    of maternal morbidity that there is so little research into its
    prevalence. But based on a few studies and many assumptions, the best
    estimate that can be made puts the ratio of injuries to deaths at about
    30 to 1.
        This means that at least 15 million women a year sustain the kind
    of damage in pregnancy and childbirth that will have a profound effect
    on their lives. And even allowing for the fact that some women will
    suffer such injuries more than once during their child-bearing years,
    the cumulative total of those affected can be conservatively estimated
    at some 300 million women, or more than a quarter of the adult women
    now alive in the developing world.
        It is therefore no exaggeration to say that the issue of maternal
    mortality and morbidity, fast in its conspiracy of silence, is in scale
    and severity the most neglected tragedy of our times.
    Obvious signs
        Many of the injuries sustained during pregnancy and childbirth are
    distressingly obvious. Rupture of the uterus, prolapse,\2\ pelvic
    inflammatory disease, and lower genital tract injuries, make life
    miserable for millions.
        Most obvious and distressing of all is fistula.
        Fistula occurs when the tissues of the birth canal are deadened by
    prolonged labor and days of pressure from the baby's skull. In the days
    and weeks after the birth, the dead tissue falls away, leaving holes
    which allow leakage from the bladder and rectum, or both, into the
    vagina. Urine and feces now bypass the muscles that normally control
    the flow. The woman is incontinent. And without an operation to repair
    the fistula, she will remain so all her life. Special clothing is not
    available. She must make do with cloths and rags which quickly become
    soaked and soiled. The constant leaking abrades the skin of the genital
    area and produces a permanent and painful rash. Washing is difficult.
    Frequent bathing is impossible.
        Soon, the woman is excluded from her husband's bed, and then, from
    his home. Living in an outhouse or animal shed, she cannot visit anyone
    or travel anywhere except by walking. Each year, unknown numbers decide
    that suicide is preferable to such a life.
        The best available estimates suggest that 80,000 women develop
    fistula every year. Most cases go untreated, and somewhere between
    500,000 and 1 million women are living with the problem at this
    moment.''
        The essay goes on to discuss a few of the more widespread chronic
    health problems associated with childbirth, such as acute anaemia, and
    the reasons why these dreadful problems so often go untreated. Then it
    asks ``What can be done?''
        ``The first and most obvious step towards reducing the toll of
    maternal mortality and morbidity is to make high-quality family
    planning services available to all who need them. With today's
    knowledge, it is possible to do this in ways that are acceptable to all
    countries and cultures.
        Meeting only the existing demand for family planning would reduce
    pregnancies in the developing world by up to a fifth, bringing at least
    an equivalent reduction in maternal deaths and injuries. Add in the
    many other benefits of family planning for all--fewer abortions, better
    health and nutrition of women and children, faster progress towards
    gender equality, slower population growth, reduced environmental
    pressures--and the costs are almost derisory.''
        The rest of the recommendations involve educating birth attendants
    to identify the pregnancies with complications, and arrange for skilled
    obstetric care to be available; ensuring that all surgeons have
    training in the correct way to perform a caesarean section, and other
    measures. The report also has a special side-bar on how maternal
    mortality and morbidity impact children:
        ``About half of infant deaths occur in the first month of life--and
    most of those in the first week. Those lives can only be saved by clean
    and safe births, maintenance of body temperature, initiation of
    spontaneous breathing, and an almost immediate beginning of
    breastfeeding. This comes down to the availability of the right skills
    and care in pregnancy and childbirth. There is therefore a significant
    overlap between the action needed to protect women and the action
    needed to protect newborns. An even more obvious implication is that
    the 585,000 women who die each year in childbirth leave behind them at
    least a million motherless children. The physical and emotional cost is
    immeasurable. But it is hinted at by one study in Bangladesh showing
    very significant differences in the survival rates of children with and
    without mothers (particularly for girls).''
        On the positive side, birth spacing, through the use of family
    planning, greatly enhances infant survival: babies born less than two
    years after their next-older sibling have almost twice the chance of
    dying in infancy, relative to babies born after a hiatus of more than
    two years. This is because infants conceived too soon after a previous
    pregnancy are more likely to have a low birth-weight. The heavy drain
    of childbearing on the mother's body may also mean that her milk is
    less abundant or less nourishing, giving the newborn two strikes
    against it from the outset.
        Clearly, providing family planning is a humanitarian mission of the
    first importance. The long-term environmental benefits of stabilizing
    population will be inestimable; and there is no trade-off between the
    two: individuals can be saved now, and future generations' interests
    can be safeguarded at the same time.
        NWF proposes an expanded appropriation for bilateral activities in
    Population and Health, such that $600 million could be allocated to
    family planning and other population programs in fiscal year 1998. This
    is not even half of what would be required if the U.S. were to attempt
    to meet its 1998 share for the goal of universal access to family
    planning by the year 2000. However, it would be a start in the right
    direction.
    Education
        According to UNICEF, simply meeting the unmet demand for family
    planning would prevent as much as one-fifth of pregnancies in the
    developing world each year. However, surveys show that a much higher
    proportion--between one-quarter and one-half--of all births in the
    developing countries are either unwanted or mis-timed.\3\ This means
    that there is a significant subset of those couples who have unwanted
    or mis-timed pregnancies who aren't aware that contraception could
    offer them a way out of their problem. The gap is one that can only be
    closed by education--and particularly by educating women to the point
    where they feel entitled to assert their rights as regards marriage and
    childbearing: the right not to be coerced into marriage or into sexual
    relations, and the right to control the timing and number of their
    pregnancies. Education emancipates a girl or a woman personally, and it
    also enhances her earning power. What is more, educating women seems to
    impact directly on family size, and on the survival prospects of
    children. In Asia, Africa and Latin America, women with seven or more
    years of schooling have two to three fewer children than women with
    only three years of schooling. Even very small amounts of schooling
    seem to have an impact on family health: if a woman has just one to
    three years of education, the likelihood that her children will die in
    infancy declines by 15 percent relative to a woman with no schooling at
    all.\4\
        NWF urges that a total of $108 million to be allocated for basic
    education activities through USAID, and that at least one tenth of that
    should be spent on programs focused on women and girls.
                            multilateral assistance
    The Multilateral Development Banks
        Mr. Chairman, as you know, in the past, the National Wildlife
    Federation has been a vocal critic of the policies and practices of the
    multilateral development banks (MDB's) and an advocate for change in
    these institutions. By coordinating our efforts with non-governmental
    organizations in the U.S. and in affected countries, combined with
    pressure by members of congress, we have succeeded in bringing about
    many important changes in the MDBs. Although there has been progress
    made in the policies of the MDBs, especially in areas of improved local
    public participation and transparency, full implementation of these
    policies has yet to occur. If the MDBs are to remain effective as
    institutions committed to poverty alleviation, the pace of reform must
    quicken.
        Presently, there are many efforts, both within the MDBs and
    outside, to bring about further change within the banks and to ensure
    their adherence to their own progressive policies. In a recent draft
    report entitled ``The United States and the Multilateral Development
    Banks,'' to be released by the Center for Strategic and International
    Studies, a number of recommendations for reforming the MDB's and U.S.
    policy towards these institutions were outlined. Among recommendations
    included were: greater efforts at ``graduating'' countries from MDB
    loans, improved local participation in MDB projects, improved
    transparency, and ``fixing the gap between rhetoric and reality.'' \5\
    The task force, which included NWF's International Office Director,
    Barbara Bramble, argued that the cycle of dependency which persists for
    so many borrower nations can be broken by (1) a more efficient
    allocation of resources and (2) by limiting the time frame for loans.
    This would allow the MDBs to return to their traditional role of
    facilitating the transition from aid-dependency to economic self-
    reliance. It would also allow them to become more active in non-lending
    activities such as consulting.\6\
        At the most well known and influential of the MDBs, the World Bank,
    a number of important new policies and initiatives have been formulated
    under the leadership of World Bank president James Wolfensohn, which
    have the potential to make the Bank more effective in achieving its
    goal of alleviating poverty in the world's poorest countries. Some
    examples include: the Heavily Indebted Poor Countries Debt Initiative,
    a project to help the poorest countries alleviate the debt burdens
    which have impeded progress on development; the ``partnership for
    capacity building'' to expand the Bank's efforts to train local experts
    in the Africa region; and the Bank's Participation Mainstreaming
    initiative, a program to encourage and facilitate stakeholder
    participation which has been shown to increase prospects for project
    success. Implementation of these projects has been slow at best. The
    Bank has, however, recently committed itself to further reform through
    its Strategic Compact, a document which outlines the Bank's goal to
    become ``more efficient and to increase the development effectiveness
    of everything it does.'' \7\
    United States interests in the MDB's
        In outlining the U.S. interests in the MDBs, the CSIS draft report
    states:

         ``The MDB's objectives of reducing poverty, stimulating broad-
    based economic growth, and promoting environmental sustainability in
    developing countries continue to be important U.S. interests. They are
    key prerequisites to reducing political and social instability abroad,
    which, if left unchecked, has enormous security, economic, and social
    costs for the United States and the developing world. The United States
    has a very large stake in the environmental choices made by developing
    countries, and pervasive poverty often results in migration, drug
    production, and crime.''

        As we have argued in the past, we feel that it is in our nation's
    economic and security interests to maintain continued support for the
    MDB's and their efforts in alleviating poverty, achieving economic and
    social stability, and improving natural resource management policies.
    The United States can benefit greatly from a stable international
    political climate that is conducive to trade and foreign investment,
    and the MDB's will continue to play an influential role in this arena.
    Implementation of reforms
        The National Wildlife Federation supports the new policies being
    formulated by the MDB's, and we believe that these institutions are
    continuing to move in the right direction. We feel, however, that the
    pace at which these policies are being implemented is inadequate. A
    case in point is the World Bank's evaluation of country performance.
    Aware that conventional measures of Gross Domestic Product (GDP) do not
    tell the full development story of a country, the Bank has developed
    measures that better account for social and environmental factors and
    their contribution to a prosperous economy. However, the Bank has
    failed up to now to include its own important research, which was
    initiated in 1989, in its advisory and lending operations. Without full
    and immediate implementation, the commitments made by these
    institutions may never be realized. The commitments have been made; now
    its time to follow through.
        It is therefore important that the U.S. maintain pressure and play
    a leadership role in getting these institutions to carry through with
    their commitments and make changes that really count. The only way the
    U.S. can continue to remain influential in the MDB's, and to ensure
    that our global interests are served, is to fully support these
    institutions and to meet our own obligations. This includes, most
    importantly, our financial obligations toward the International
    Development Association (IDA), the branch of the World Bank that lends
    to the world's poorest countries. Currently, we are not meeting our
    pledges for the 11th replenishment of IDA, nor have we paid our arrears
    for the 10th replenishment. It is absolutely essential that the U.S.
    meet its financial obligations toward IDA. NWF therefore urges the
    Subcommittee to appropriate the President's request of $1.034 billion
    to meet our commitments to the International Development Association.
    By fulfilling our obligations, the U.S. can continue to play an active
    role in IDA, and bring about positive change.
    International organizations and programs account
        NWF supports the President's request of $365 million for the
    International Organizations and Programs Account.--Although the
    programs in this account amount to a small percentage of the entire
    foreign operations budget, they enable the United States to meet its
    global commitments to environmental protection as agreed to in
    international treaties and conferences. The potential benefits to be
    gained from supporting agreements such as the Convention on
    International Trade in Endangered Species (CITES), the Montreal
    Protocol for the protection of the ozone layer, and the Ramsar Wetlands
    Conservation Agreement far outweigh the relatively small expenditures
    required. In addition, NWF strongly supports appropriating the
    President's request for the UN Development Program and the UN
    Environment Program to their fiscal year 1995 levels. Both agencies
    have long needed reform, but they are now engaged in that process. In
    the case of UNDP reform is happening under the enlightened leadership
    of Gus Speth. The United Nations Environment Program is responding to
    sensible prodding by the Department of State. As with the World Bank,
    such leadership cannot be exercised if the U.S. is not a major
    financial player among the member governments.
    Global environment facility (GEF)
        NWF supports the President's request of $100 million for the GEF.--
    The GEF is the major funding mechanism for realizing the goals
    expressed in international environmental treaties on climate change,
    biodiversity conservation, ozone depletion and the conservation of
    international waters. The GEF has established funding subcategories or
    ``Operational Programs'' in three of the four areas, and has funded
    what it calls ``Short-term response measures'' in the area of Ozone
    depletion. In our view, the most valuable work of the GEF has been its
    support of pilot projects in energy technologies with low greenhouse
    gas emissions rates, and its portfolio of projects in renewable energy
    technologies for rural electrification. It has also funded a number of
    significant projects in the management of biological diversity reserve
    areas, and buffer zones around ecological reserves. Over the last three
    years, the GEF has organized 20 workshops helping representatives from
    60 recipient countries to develop project designs that will meet its
    guidelines for environmental protection. It has worked closely with the
    Conferences of the Parties to two of the major environmental accords
    (the Framework Convention on Climate Change, the Convention on
    Biodiversity) to develop Operational Programs that will best promote
    environmental goals. As it was hoped, the availability of funding
    through the GEF has stimulated governments' interest in (and technical
    capacity for) implementing development projects that try to maximize
    the efficiency of natural resource use while minimizing ecosystem
    damage.
    Conclusion
        National Wildlife Federation urges you, Mr. Chairman, and all the
    members of the Subcommittee to reflect on the tremendous power that you
    have to right the wrongs we have spoken about. We urge you to be bold
    in exercising your power. The U.S. budget will never be balanced by
    cutting the foreign aid programs mentioned here, programs which the
    majority of your constituents support. On the other hand, increasing
    the levels of assistance by the very modest amounts we suggest will do
    inestimable good. Be generous in framing your Bill.
                                    endnotes
        1. The Progress of Nations: The nations of the world ranked
    according to their achievements in child health, nutrition, education,
    family planning and progress for women, 1996, UNICEF.
        2. Prolapse of the uterus is a condition in which the musculature
    and ligaments supporting the uterus are so weakened (usually by
    excessive childbearing or by obstructed labor) that the uterus
    partially or wholly slides out of the body through the vagina. A woman
    with the most severe form of prolapse is unable to sit or squat down
    normally, but must hold her uterus back with her hand. This condition
    is almost never seen in industrialized nations because fertility is
    lower here, and the strain of an obstructed labor is usually relieved
    by a caesarean section.
        3. ``A Response to Concerns About Population Assistance'' Susan A.
    Cohen, Alan Guttmacher Institute, 1997.
        4. ``Accelerating Girls' Education: A Priority for Governments''
    fact sheet published by the Population Council, quoted in ``High
    Stakes'' a report by the Rockefeller Foundation, 1997.
        5. ``The United States and the Multilateral Development Banks''
    Draft Final Report, Center for Strategic and International Studies,
    March 1997.
        6. Ibid.
        7. ``The Strategic Compact: A Summary Note.'' The World Bank, 1997.
                   appendix i. selected letters from citizens
                                        Scottsdale, AZ, April 23, 1997.
    Hon. Senator Mitch McConnell,
    Chairman, Foreign Operations Subcommittee, Senate Appropriations
            Committee, U.S. Senate, Washington DC.
        Dear Mr. Chairman: I am writing this letter to express my concern
    and support for funding for the overseas population programs which are
    currently being reviewed by you and your subcommittee. I feel very
    strongly that it is important that every government of every country on
    this earth, recognize the need for population planning in an effort to
    reduce the impact that humans have on the environment. I urge you and
    your committee to carefully consider the consequences of your decision.
    This goes beyond a quality of life issue to a matter of existence.
    Let's not wait until more plant and animal species become extinct as a
    result of our inability to realize our responsibility as humans to
    limit the impact we have on this planet. Thank you for your
    consideration.
                Sincerely,
                                                        Teresa Steimle.
                                     ______

                              Oklahoma State University, April 7, 1997.
    Hon. Mitch McConnell,
    Chairman, Foreign Operations Subcommittee, Senate Appropriations
            Committee, U.S. Senate, Washington, DC.
        Dear Senator McConnell: I urge you and your committee to support
    extensive funding for family planning programs, both in the United
    States and in the international arena.
        Family planning programs prevent women from having more babies than
    can be supported and they represent freedom and a chance at a better
    life for millions upon millions of women and children.
        Married women, with the help of well-funded family planning
    programming, can have fewer babies, allowing the family to concentrate
    often-scarce resources on a smaller number of children. This greatly
    increases the chances that those children will receive nutritious food,
    medical care, sufficient housing and clothing, and a chance at social
    mobility. Without family planning for poor families, the limited money
    available is spread even more sparingly over an increasing number of
    children, all of whom have a diminished chance at a good, healthy life.
        Even from an economic standpoint, spending more on family planning
    now makes sense. It is less expensive to pay now for contraceptives
    than to pay later for another million starving adults in countries with
    disastrously high birth rates and disastrously low contraceptive
    availability. As a world leader, it is the United States'
    responsibility to prevent imminent starvation (not to mention a
    dangerous strain to the world's natural resources) by allowing parents
    the opportunity to sensibly limit the number of babies they bring into
    the world to a number that they can support.
        Thank you for your time and consideration.
                Sincerely,
                                                            Eva Foster.
                                     ______

                                     St. Augustine, FL, April 21, 1997.
    Hon. Mitch McConnell,
    Chairman Foreign Operations Subcommittee, Senate Appropriations
            Committee, U.S. Senate, Washington, DC.
        Dear Senator McConnell: Please show your support by voting to
    expend additional funds for voluntary family planning programs that
    will stabilize world population, and protect the environment. If a
    safe, voluntary family planning is made accessible to all, we will go a
    long way towards ensuring more abundant resources and a clean
    environment for future generations.
                Sincerely,
                                                     Sarah G. Thompson.
                                     ______

                                        Miamisburg, OH, April 20, 1997.
    Hon. Senator Mitch McConnell,
    Chairman, Foreign Operations Subcommittee, Senate Appropriations
            Committee, U.S. Senate, Washington DC.
        Dear Senator McConnell: I am writing concerning the budgeting of
    crucial family planning funds overseas. I feel it is extremely
    important to support more funds for voluntary planning programs that
    will stabilize world population, thus aiding in the protection of our
    environment. It is our duty to aid in population control around the
    world. As the population increases and the land and sea are destroyed
    to satisfy the rising global demand needed in order to feed the rapidly
    growing countries, the damages are not only to their countries but also
    to our world. We must aid in not only providing much-needed
    contraceptive devices but also in educating women. For the reasons
    above, Rep. Callahan, please support making voluntary family planning
    available to all so that future generations can experience the same
    clean and beautiful environment that we are able to enjoy today.
                Thank you,
                                                          Laura Sennet.
                                     ______

                                             Columbus, OH, May 4, 1997.
    Hon. Mitch McConnell,
    Chairman, Foreign Operations Subcommittee, Senate Appropriations
            Committee, U.S. Senate, Washington, DC.
        Dear Senator McConnell: I am writing express my support for
    continued U.S. funding of international family planning. I think
    America should continue to help the poor and uneducated folks that we
    share the planet with. If we don't continue to invest in such an
    important program, overpopulation of the earth will only bring about
    its demise sooner than necessary.
        Rapid human population growth is having detrimental effects on
    natural resources, because growth is happening faster than nature can
    adjust. Overfishing of our oceans and destruction of the tropical rain
    forests are just two examples of what can happen. Population growth
    must be curtailed to give people time to learn how to do things in a
    sustainable manner. I became so worried about environmental problems, I
    enrolled in the School of Natural Resources at The Ohio State
    University. Here I'm learning not only about natural resources, but
    about other values held by society as well.
        A sensible way to settle disagreements is to come to a compromise.
    Since it is illegal to use funds allotted family planning for abortion,
    a compromise has already been reached with anti-abortionists. Since no
    religious morals are now being broken, education for family planning
    should continue. Funding for family planning actually needs to be
    increased to account for the vast numbers of people now living on the
    planet. World population ``clocks'' now estimate that there are at
    least 5.8 billion people living on the planet. Approximately 80 million
    people have been added within a year's time.
        I've learned that insect populations will grow quickly past
    outbreak levels until their source of food becomes exhausted.
    Populations may reach an equilibrium if there is a continued, limited
    supply. If we don't control of our reproductive rate, we run the risk
    of exhausting our base of support. I shudder when I think that we may
    be no more intelligent than the rest of the organisms on the planet,
    and when realizing that we also do more damage. Please continue to
    support international family planning. Thank you.
                Sincerely,
                                                             T. Hissom.
                                     ______

     Winona State University, Communication Studies Department,
                                            Winona, MN, April 27, 1997.
    Hon. Mitch McConnell,
    Chairman, Foreign Operations Subcommittee, Senate Appropriations
            Committee, U.S. Senate, Washington DC.
        Dear Senator McConnell: I understand that the Foreign Operations
    Subcommittee will hold public hearings soon about U.S. support for
    population programs, like family planning and better education for
    girls, in many parts of the world. This is a letter of support for
    maintaining U.S. aid to programs that will help save the environment
    from population pressure that are killing coral reefs, rain forests,
    and humane human communities.
        International family planning programs have been attacked by
    Congressional foes of family planning. They are determined to choke off
    these services overseas because of a misguided fear that family
    planning funds will be used for abortion, which is illegal in most
    developing countries. It is irresponsible and short sighted to suspend,
    cut, and restrict U.S. funding for much-needed contraceptive services
    in developing countries. Please continue to support family planning
    programs overseas.
                Sincerely,
                                                         Bruce Dorries.
                                     ______

                                          Columbia, MD, April 22, 1997.
    Hon. Mitch McConnell,
    Chairman, Foreign Operations Subcommittee, Senate Appropriations
            Committee, U.S. Senate, Washington DC.
        Dear Senator McConnell: This letter is to express my concern over
    the crisis in regards to the world population. The tremendous increase
    in the number of people in the past few decades and the continued
    increase in the rate of population expansion is very alarming. The
    continued increase in world population may seriously deplete the
    world's natural resources and diminish the quality of life for all. We
    as a caring nation should do all we can to help other nations and our
    own people to understand the seriousness of the situation. I urge you
    to support more funds for voluntary family planning programs. These
    programs will help stabilize the world population, protect the
    environment, and in the end ensure that future generations will have a
    healthy environment in which to live.
                Sincerely,
                                                    William J. Kautter.
                                     ______

                                          Dumfries, VA, April 19, 1997.
    Hon. Mitch McConnell,
    Chairman, Foreign Operations Subcommittee, Senate Appropriations
            Committee, U.S. Senate, Washington, DC.
        Dear Senator McConnell: We need to appropriate more money for
    overseas population programs in 1998. Despite impressive family
    planning successes over the past 25 years, the world population
    continues to grow. Significant cuts and unnecessary delays made in the
    past two years have disrupted family planning services and women are
    suffering.
        Unchecked population growth means depletion of water resources,
    vanishing fish stocks, eroding agricultural lands, disappearing
    forests, fuel wood scarcity, famine and suffering. It forces people to
    graze on land that cannot support it and clear rain forests which leads
    to expansion of deserts worldwide. Continued rapid growth imperils
    species and habitats around the globe.
        World population continues to grow at 90 million people a year. We
    need to ensure that those want to limit the size of their families can
    do so safely and cheaply. We are already damaging and wasting precious
    natural resources in our struggle to sustain our current population of
    5.8 billion. Improving the overall standard of living and conserving
    wild places can only be harder when the population doubles, as it is
    expected to.
        Lower population growth means fewer women and children suffering
    and dying, a healthier environment and enhanced protection of our
    natural resources. The U.S. should do more to educate girls and women
    in the poorest countries, as well as provide more and better family
    planning services. Family planning saves lives, reduces suffering and
    prevents abortions.
                Thank you,
                                                       Brian Hotchkiss.
                                     ______

                                                           May 9, 1997.
        Dear Senator McConnell: Please support more funds for voluntary
    family planning programs that will help to stabilize the world's
    growing population thereby taking pressure off of the environment.
        Thank you for your support.
                Sincerely,
                                                           Shana Wales.
                                     ______

                                                         April 5, 1997.
    Hon. Mitch McConnell
    Chairman, Subcommittee on Foreign Operations, Senate Appropriations
            Committee, U.S. Senate, Washington DC.
        Dear Senator McConnell: Human population growth is by FAR the
    greatest threat to ecosystems, human happiness and political systems. I
    urge you to take whatever steps possible to encourage people everywhere
    in the world to curtail the growth in human population. Even with the
    most optimistic estimates and the best plans in place, it will not be
    long before the growth will be checked by very unpleasant natural means
    and/or severe and draconian political solutions.
        The costs of dealing with the problems of overpopulation will be
    huge compared to the cost of any plan to reduce the growth.
        The immediate goal should be inform every woman on earth that she
    need not bear any children SHE doesn't want, and to educate every one
    that there are many other routes to an enjoyable, happy life.
        ALL legal, cultural, educational and economic barriers to women's
    ability to choose any kind of life they desire should be eliminated.
                Sincerely,
                                                          James Henkel.
                                     ______

                                            Fairfax, VA, April 8, 1997.
    Hon. Mitch McConnell,
    Chairman, Foreign Operations Subcommittee, Senate Appropriations
            Committee, U.S. Senate, Washington DC.
        Dear Chairman McConnell: Please support increased funding for
    voluntary family planning programs. By doing this you will be helping
    to stabilize the world population and protect the environment, thereby
    ensuring more abundant resources and a cleaner world for future
    generations.
        Thank you for your support.
                Sincerely,
                                                        Bryant Bullock.
                                     ______

                                         Alexandria, VA, April 9, 1997.
    Hon. Mitch McConnell,
    Chairman, Foreign Operations Subcommittee, Senate Appropriations
            Committee, U.S. Senate, Washington DC.
        Dear Chairman McConnell: Please support increased funding for
    voluntary family planning programs. By doing this you will be helping
    to stabilize the world population and protect the environment, thereby
    ensuring more abundant resources and a cleaner world for future
    generations.
        Thank you for your support.
                Sincerely,
                                                         Scott Francis.
                                     ______

                                                        April 11, 1997.
    Hon. Mitch McConnell,
    Chairman, Foreign Operations Subcommittee, Senate Appropriations
            Committee, U.S. Senate, Washington DC.
        Dear Senator McConnell: There are many very important issues facing
    the world today, but a fundamental one is population growth. This
    problem affects everything from natural resources to personal well-
    being. In the next couple of weeks, you and other representatives will
    be debating the importance of funding voluntary international family
    planning. I hope that you will agree with me about the importance of
    providing more funding to these vital programs.
        As the population in a region increases, the need for land, energy,
    food, educational opportunities and other basics increases as well.
    Unlike the population rate, which seems to be an inexhaustible
    resource, the other resources are finite--and disappearing. The by-
    products of too many people in a region include pollution, over-
    cultivation of land which reduces the fertility and productivity of the
    soil, clearing of natural areas and over-hunting which leads to
    extinction of many animals and plants, and many other negatives.
    Failing to make a concerted effort now to slow the population growth
    promises more irreparable damage to the earth and the natural resources
    that we all need.
        Women who receive education about family planning (along with
    traditional subjects) tend to make choices to have children later and
    to have fewer children. They also usually have jobs which allow them to
    support their children (with or without spouses). They are better able
    to care for and educate the children they have--which begins a positive
    cycle of smaller families and prioritizing education for children. This
    is the kind of cycle that we need to foster and to encourage. This is
    the kind of cycle that will lead out of the cycles of poverty and
    starvation that grip many families in many countries.
        It is imperative that we continue to fund voluntary international
    family planning. I appreciate your attention to this issue.
                Yours very sincerely,
                                                      Emily Shortridge.
                                     ______

                                                        April 16, 1997.
    Hon. Mitch McConnell,
    Chairman, Foreign Operations Subcommittee, Senate Appropriations
            Committee, U.S. Senate, Washington, DC.
        Dear Mr. Chairman: It is very important that you support more funds
    for voluntary family planning programs that will stabilize world
    population, and protect the environment. Safe, voluntary family
    planning is one great way to help provide more abundant resources and a
    clean environment for future generations.
        Thank you for supporting this great and worthy cause.
                Sincerely,
                                                    Christopher Tovell.
                                     ______

                                                        April 20, 1997.
        To Members of the House and Senate Committees: I strongly support
    continued funding of population programs as part of the U.S. Foreign
    Policy. Such programs are CRITICALLY important in checking the most
    dangerous threat to the world: man.
        Funding for population programs help countries to control their own
    population growth. Countries such as Mexico and the Philippines, to
    name two, have populations that are growing at unsustainable levels.
        Uncontrolled population growth correlates directly to increased
    levels of poverty, and accelerated levels of environmental damage. The
    National Wildlife Federation can quote the statistics to you, but I
    wish to express my support of this program.
        Senators and Congressmen, you need to consider not only the short
    term interests of the United States, but its long term interests and
    needs, and those of the world community. The U.S.' strategic needs are
    increasingly coupled with those of the world at large, and to deny
    funding for population programs is both short-sighted, and
    irresponsible in light of the long-term interests of this country. Not
    appropriating and spending funds for population planning means that
    this country would have to spend even more money later for resources
    that have become in increasingly short supply, such as fish stocks, and
    have to provide even more money in economic aid for those countries
    that we support, because those countries will probably not be able to
    even afford to feed themselves, among other problems.
                Sincerely,
                                                        Jeffrey Harris.
                                     ______

    Prepared Statement of the Faith Action for People-Centered Development
                                     Policy

                                    overview
        The development paradigm of the past twenty-five years is
    undergoing a fundamental revision. An approach in which government is
    the dominant actor is giving way to a more dynamic process in which
    both the market and civil society sectors assume greater leadership and
    responsibilities.
        Market and civil society sectors are bringing to bear the lessons
    and experiences garnered over recent decades. The approaches of these
    two sectors are compatible in some respects, but are in tension in
    others. Although the market approach has tended to dominate recent
    debate, it is important that policy makers give equal consideration to
    the perspectives of civil society.
        The two sectors differ in their view of the role of government. The
    market sector advocates minimal regulation and a well-defined and
    circumscribed role for government. Civil society, while supporting
    efforts to reform government institutions to improve their governance
    capacity, insist that government must fulfill its role in protecting
    human rights and ensuring the common good. Specifically, government
    must regulate the market and work to facilitate greater market access
    for those otherwise excluded and to address market failures and
    limitations.
        Proponents emphasize the dynamism and creative potential markets
    bring to economic growth and development. They call for government
    policies and institutions that will give the market freedom of movement
    and opportunity.
        Civil society organizations are helping construct a new paradigm at
    the global level that begins with the conviction that the productive
    and sustainable development potential of local communities and
    grassroots groups are key. Resources, technical assistance, and
    policies that help to unleash and strengthen the productive capacity of
    men, women, and youth directly improve the quality of their lives and
    contribute to economic growth and development for society as a whole.
    At a national and global level responsive, transparent and accountable
    institutions are needed that will support development efforts at the
    local level.
        In this model, foreign aid should support developing country
    efforts to expand access to the market and mobilize the productive
    potential of local groups. Donor governments can help to create the
    conditions that would make these efforts both possible and effective.
    Resources should be targeted to those countries and peoples who are on
    the margins of national and global economies or whose rights may be
    threatened by unregulated market forces.
        Failure of donor governments to target assistance in this way will
    strengthen the trend toward new and greater disparities at the global
    level and within developing countries. While private entities are now
    the greatest source of financial resources for development, the vast
    majority of this private finance has gone to a handful of countries
    including China, Indonesia, Malaysia, and Thailand. By contrast, ``many
    of the world's poorest countries are still virtually unable to access
    the $159 billion in private finance that the developing countries as a
    whole received in 1995. They attracted almost no foreign direct
    investment or loans from international banks.'' \1\
        Official aid agencies, including the U.S. Agency for International
    Development, need to keep a people-focus at the center of their
    efforts. Concern about the quality, structure, and distribution of
    economic growth should be integral to all efforts to develop markets
    and promote growth. This concern also should extend beyond aid programs
    to market development activities of other U.S. government agencies,
    including the Departments of Agriculture and Commerce.
                                moral principles
        We are convinced that it is both appropriate and necessary to
    reflect on the moral underpinnings of government policy decisions.
    These decisions embody moral values that reflect our national
    character. The ability of the U.S. to ensure ``liberty and justice for
    all'' depends on the strength of the moral fabric that holds us
    together as a people. As churches and faith-based organizations, we
    offer the following moral principles as guidelines for foreign
    assistance.
        1. All people--male and female--are created in the image of God,
    loved by God and equal in worth, dignity and fundamental rights.--
    Bearing the divine image, everyone is entitled to participate
    meaningfully in the political, social and economic decisions that shape
    society. In harmony with the rest of creation, all people are entitled
    to an equitable share of the fruits of the earth. The economy exists
    for the people, not people for the economy.
        Development aid, therefore, should enhance human dignity, equity
    and basic human rights. Aid should strengthen human potential and
    foster universal access to resources and employment. It must assist and
    equip people and communities to select, design and implement their own
    plans for sustainable development. Aid programs should be accountable
    to the political, civil, economic, social and cultural rights codified
    in international treaties.
        2. As redeemer and liberator, God calls all human beings to
    demonstrate a special concern for people living in poverty and
    oppression.--Nations will be judged on the basis of how they treat the
    hungry, homeless, and other vulnerable members of society. Thus,
    economies must give preference to the dignity of those who labor, to
    human rights, gender equity and sustaining the earth, above the
    interests of capital. As instruments of the common good, governments
    have a duty to regulate national and global economies so that all
    people are ensured equitable access to dignified, sustainable
    livelihoods and the basic necessities of life.
        Development aid, therefore should express our nation's historic
    commitment to the emancipation of people who are oppressed. Aid should
    be directed toward freeing people trapped in poverty and empowering
    people who are disenfranchised. It should be focused in areas and with
    groups that the market cannot or does not serve, or that have been
    marginalized or harmed by market mechanisms. Aid must not, however, be
    a substitute for public actions which appropriately regulate the market
    so that the fundamental rights and basic needs of all are served.
    Programs to promote democracy should be aimed at enfranchising those
    who are most marginalized.
        3. Human beings are persons-in-community, intended to live in
    covenant relationships according to the norms of love and justice.--
    They are neither isolated individuals nor faceless members of
    totalitarian collectivities. All people are created and called to love
    God and neighbor--across the divisions of ethnicity, class and nation.
    ``Justice is love distributed'' and requires that everyone have access
    to sufficient resources to live in dignity, meet their family's needs
    and fully participate in the shared life of their community. This means
    that great extremes in the distribution of income and wealth must be
    avoided. Our covenant with God and one another is violated when a few
    people have much more than they need while many others lack the basic
    necessities.
        Development aid, therefore should express love of neighbor and
    covenant community among the human family. Aid should foster people-
    centered development that increases the equitable distribution of
    resources and helps overcome vast disparities of wealth among nations
    and peoples. It should support and strengthen local communities and
    cooperative development processes. It should not undermine existing
    forms of community and cooperation.
            recommendations for fiscal year 1998 foreign assistance
        Based on the principles outlined above we offer recommendations on
    fiscal year 1998 foreign assistance funding and policies.
    I. Funding: Overall level, priorities, and offsets
                A. Overall assistance level
        We urge the subcommittee to approve the Administration's total
    request of $13.4 billion. The proposed $1 billion (or 8.8 percent)
    increase over fiscal year 1997 represents a modest but essential
    recognition of the importance of international engagement. We are
    keenly aware that in the past lower overall levels of foreign aid
    invariably have resulted in lower levels of development assistance.
                B. Priorities
        We urge the subcommittee and the Administration to give greater
    priority to those regions and sectors that are increasingly
    marginalized in the world and national economies. We suggest below
    specific regions and sectors that we believe should be given priority
    consideration in foreign aid funding.
         1. Low-income developing countries and poor people within them,
    with particular attention to sub-saharan Africa.--Only $3.1 billion or
    34 percent of bilateral assistance \2\ requested for fiscal year 1998
    is designated for low-income countries.\3\ Two-thirds of that aid goes
    to Egypt ($2.1 billion), leaving just over $1 billion (of the total
    $9.2 billion) for the more than forty low-income aid recipient
    countries. Israel, with a per capita income of $13,920, receives three
    times the amount allocated to these poor countries.
        While there is tremendous variation in levels of development among
    African countries, over half (33 out of 56) of the low-income countries
    in the world are in sub-Saharan Africa. U.S. foreign aid priorities, as
    reflected by aid allocations, require a radical revision.
        In contrast with bilateral aid programs, concessional lending by
    the World Bank and regional development banks, including the Inter-
    American Development Bank's Fund for Special Operations, represent the
    most important source of development finance for most low-income
    countries. These are precisely the countries that are least likely to
    have access to private sources of finance. While we share long-standing
    concerns about the quality of the programs of these institutions, we
    believe strongly that the external finance they provide poor countries
    needs to be maintained, even as we intensify our work with others to
    bring about reform of the institutions.
        Faith Action recommends that the Committee:
        Reallocate significant amounts of bilateral assistance away from
    high income countries in favor of low-income countries in Africa, Latin
    America and the Caribbean, and Asia and to poor people within those
    countries. We urge an increase in funding for the Development Fund for
    Africa to the fiscal year 1995 level of $781 million.
        Approve the President's full request for the World Bank
    International Development Association (IDA) and the Inter-American
    Development Bank Fund for Special Operations (FSO).
        Approve the Administration's request for funding for International
    Organizations and Programs, including $100 million for the U.N.
    Development Programme, to strengthen coordinated follow-up to the U.N.
    summits and conferences.
        Consider the proposals presented in the Microcredit for Self-
    Reliance Act of 1997 (H.R. 1129) introduced by Reps. Hall and Houghton.
    Of particular interest is the proposed $20 million for a special
    initiative for the support of community-based micro-finance
    institutions through the International Fund for Agricultural
    Development (IFAD), which has been a pioneer in this area.
        2. Support for food security programs.--Last year's World Food
    Summit refocused world attention on the plight of the more than 800
    million people who are chronically undernourished and living on the
    margins of human existence. The assembled world leaders declared that,
    ``The problems of hunger and food insecurity have global dimensions and
    are likely to persist, and even increase dramatically in some regions,
    unless urgent, determined and concerted action is taken, given the
    anticipated increase in the world's population and the stress on
    natural resources.'' \4\
        The Summit Plan of Action emphasizes the importance of
    participatory development and recognizes the critical role of women in
    achieving food security. It also emphasizes the importance of access by
    poor family farmers to land, technical assistance, credit and other
    production assistance. The community of nations agreed to various ways
    of mobilizing additional resources for food security efforts.
        AID funding for agricultural activities has decreased dramatically
    in recent years. We believe that this decline must be reversed and that
    additional resources must be dedicated to achieving global food
    security. The Administration's proposed Africa Food Security Initiative
    is an important step in this direction. We urge Congress to renew and
    strengthen U.S. support for the International Fund for Agricultural
    Development, with its decades of effective work with poor farmers. We
    note Congress' past efforts to provide adequate funding for IFAD, most
    recently by authorizing the transfer of funds from AID development
    assistance. We would urge instead of earmarking AID funds to be
    disbursed at the discretion of the Administration, that the U.S.
    contribution be appropriated specifically for IFAD at a level
    consistent with past contributions.
        Faith Action recommends that the Committee:
        Increase resources for agricultural development including approval
    of USAID's proposed $30 million African Food Security Initiative.
        Restore a separate funding line for the International Fund for
    Agricultural Development (IFAD) in the International Organizations and
    Programs account and increase the U.S. contribution to $17.5 million,
    the ceiling level authorized for transfer from development assistance
    in the fiscal year 1997 appropriations legislation.
        3. Support debt relief for highly indebted poor countries.--We
    recognize the Heavily Indebted Poor Country Initiative (HIPC) approved
    by the World Bank and International Monetary Fund last year as a
    potentially helpful first step toward authentic relief for poor
    countries from unjust debts. The initiative would provide bilateral and
    multilateral relief to poor countries with debts deemed unsustainable.
    We are, however, concerned that the relief offered under the Initiative
    will be substantially less than the level needed to free up resources
    for investments in human development. In our view, the eligibility
    requirements are too narrow, the conditions attached to debt relief are
    too stringent and the requirements are not sufficiently focused on
    poverty reduction. Further, the length of time before an eligible
    country gets debt relief is far too long.
        Experience in the initial cases of Uganda and Bolivia suggest that
    the World Bank/IMF analyses are overly optimistic about countries'
    potential to grow and reduce their debt to sustainable levels. Despite
    extremely high levels of poverty, government commitment to improve
    health, education, and nutrition and ten years of successful economic
    stabilization and restructuring programs, the debt relief for these
    countries may amount to only 10 percent or less of their total debt
    stock.
        Faith Action recommends that the Committee:
        Approve full funding of the Administration's $22 million request
    for bilateral debt relief under the HIPC initiative.
        Encourage the Administration to use its leadership in the World
    Bank and IMF to support substantial and ``up-front'' multilateral debt
    relief within the HIPC Initiative for the full range of heavily
    indebted poor countries. Further, the Committee should urge the
    Administration to take into account the precarious situation of poor
    countries, especially those in sub-Saharan Africa and Latin America,
    when assessing their need for debt relief. Finally, it should call on
    the Administration to take the lead within the Paris Club to revise the
    Naples Terms, which currently govern bilateral debt reduction, to allow
    more debt stock to be eligible for rescheduling and reduction.
        4. Support programs that provide an alternative to child labor.--
    The quest by transnational corporations to lower production costs has
    led increasingly to the use of child labor, at a fraction of the
    already low wages paid adults in developing countries. Too often the
    result is exploitation of children as docile, underpaid workers who
    labor long hours in unsafe and unhealthy working environments, and are
    unable to attend school. Increased exploitation of child workers points
    to the need for mechanisms that ensure protection of children's basic
    human rights. In the end, governments are responsible for these
    protections. In this regard, we will follow with interest the
    implementation of the Workplace Code of Conduct developed by the
    Apparel Industry Partnership, which was recently announced with the
    backing of the Clinton Administration.
        The Foreign Operations Subcommittee has supported increased funding
    for child survival activities. We urge the Committee to extend that
    concern for children beyond the early years when their very survival is
    tenuous, to their later years, when many are deprived of opportunities
    for schooling and the possibility of fully developing their human
    potential.
        Faith Action recommends that the Committee:
        Look into the serious problem of child labor and to talk with the
    Administration about additional efforts that could be made to address
    this problem. AID should consider the possibility of targeting some of
    the educational programs for girls in areas where child labor
    conditions are particularly problematic.
                C. Funding offsets
        We urge the committee to offset increases recommended above by
    shifting funds from the following programs, which we oppose.
        1. Foreign military finance (FMF) and international military
    education and training (IMET).--Together, these represent the single
    largest expenditure in the foreign aid appropriation. Two countries,
    Israel ($1.8 billion) and Egypt ($1.2 billion), account for 90 percent
    of FMF.
        While the defense of strategic allies throughout the world against
    foreign attack may be the rationale for the FMF and IMET, the weapons
    and skills acquired often create invulnerable militaries that become
    the enemies of their own people and violate human rights of dissenters
    with impunity. IMET, for example, has helped to finance the School of
    the Americas, which has been implicated in training of Latin American
    military officers known to be responsible for human rights violations
    in their countries.
        Looking at these programs in their larger context, military aid
    comes on top of $266 billion defense budget, much of which is used to
    project U.S. military force overseas. This Cold War strategy, fostered
    as a check on the expansion of the Soviet Union and its regional
    allies, is an anachronism in a world where the threat of nuclear
    annihilation has diminished markedly and where several regional wars or
    threats of such wars, have been set aside in favor of negotiations.
        It is time for a new foreign policy more in keeping with new global
    and regional realities. Some of the military aid to Israel and Egypt
    should be redirected to support conflict resolution, peace processes,
    sustainable development and regional economic development within the
    Middle East, and eventually redistributed toward development aid for
    other parts of the world. Increased efforts are needed to deal with the
    scourge of the 100 million anti-personnel landmines remaining in the
    ground in more than 60 countries, which continue to maim and cripple
    people and societies long after the fighting ends.
        Faith Action recommends that the Committee:
        Approve the $15 million FMF requested for demining operations. We
    hope the Committee will urge the administration to participate in
    negotiations and sign a treaty banning landmines before the end of
    1997.
        Reject the Administration's request for an FMF increase and instead
    reduce FMF by 10 percent annually for seven years, with those funds
    being added to development assistance.
        Reject the Administration's request for an increase in IMET and
    reduce funding except for ``expanded IMET,'' which goes toward training
    military officers and civilians in, human rights, responsible resource
    management and principles of civilian oversight of the military.
        2. Anti-narcotics aid.--This is by far the fastest growing account
    in the foreign aid bill, with the fiscal year 1998 request of $230
    million representing a more than 100 percent increase over the fiscal
    year 1995 level of $110 million. In our view, these increases are
    attributable in large part to political opportunism around an issue
    about which the electorate is deeply concerned. While sharing this
    concern, we oppose much of the funding for this program both on the
    basis of its lack of effectiveness and its negative effect on the human
    rights situation in source countries. We support funding for
    multilateral institutions and agencies working to combat international
    narcotics trafficking and believe more progress could be achieved
    through increased efforts to control money laundering, precursor
    chemicals and firearms, and to establish well-functioning justice
    systems in source and transit countries.
        Drugs continue to enter the United States in large amounts. Cocaine
    and heroin remained ``readily available in all major U.S. metropolitan
    areas during 1995'' according to a report by the National Narcotics
    Intelligence Consumers Committee, as cited by GAO.\5\ Constant
    adaptations by narcotics producers and traffickers means that
    reductions in one area may simply result in increases elsewhere. For
    example, the Administration reports an 18 percent reduction of coca
    cultivation in Peru in 1996 while also citing a 32 percent increase in
    cultivation in Colombia.\6\
        The GAO report cites a number of obstacles to the success of these
    anti-narcotics efforts, including a lack of oversight in the use of the
    assistance. This is particularly troubling because some 40 percent of
    the assistance is used to support government agencies, including
    security and military forces in the source countries. The militaries of
    Peru, Colombia, and Mexico are responsible for serious on-going human
    rights abuses. Anti-narcotics assistance seeks to strengthen these
    forces, but does not address human rights concerns.
        Faith Action recommends that the Committee:
        Transfer resources for alternative development projects aimed at
    reduction of coca cultivation to the Agency for International
    Development.
        Reduce dramatically the funding for International Narcotics control
    and strengthen prohibitions on anti-narcotics assistance to military
    and security forces responsible for human rights abuses.
        3. Middle East development bank.--While we are not opposed in
    principle to U.S. participation in and support for the Bank, we believe
    that any U.S. contribution should come from existing resources to the
    Middle East.
        Faith Action recommends that the Committee:
        Reject the Administration's request for $52.5 million in ESF for a
    U.S. contribution to the Middle East Development Bank. The Committee
    should require the Administration to use existing resources to the
    Middle East for any U.S. contribution to the Bank.
        4. Export promotion programs.--The Administration is requesting
    more than $800 million for the Export-Import Bank, the Overseas Private
    Investment Corporation and the Trade and Development Agency for fiscal
    year 1998. The effectiveness of these programs in enhancing U.S.
    exports and creating jobs in the United States has been questioned by
    the GAO. The programs tend to concentrate resources in upper-middle
    income countries rather than poorer countries in Africa, Latin America,
    and Asia. During a time of scarce budget resources, U.S. taxpayer
    dollars should not give priority to programs that subsidize
    corporations. The market itself can and should provide the needed
    incentive for these companies to invest and develop new markets abroad.
        Faith Action recommends that the Committee:
        Reduce funding for the Export-Import Bank, the Overseas Private
    Investment Corporation, and the Trade and Development Agency below the
    Administration's request level, and shift the resources to the priority
    programs outlined above.
    II. Institutional reform
        Agency for International Development.--We believe that reform
    efforts at AID need to be intensified. Current efforts to develop a new
    strategic plan provide an opportunity for AID to focus its mission and
    goals more sharply. We urge AID to formulate its mission and goals with
    a clear commitment to poverty reduction and people-centered
    development.
        We also believe that AID should accelerate the development of new
    working relations and methods of collaboration with other governmental
    and non-governmental actors. We favor the cooperative partnership
    approach advocated by the Development Assistance Committee of the
    Organization for Economic Cooperation and Development. We believe AID's
    New Partnership Initiative has developed important conceptual
    frameworks and methods for supporting local development. We urge AID
    leadership to move quickly to integrate these methods throughout the
    agency and to provide necessary resources to ensure widespread
    implementation of the Initiative.
        World Bank International Development Association.--While reform of
    the World Bank has moved ahead under the leadership of President
    Wolfensohn there continues to be a gap between the discourse coming
    from the headquarters and the programs on the ground. An assessment by
    OXFAM International gives highest marks for attention to the need for
    debt reduction and promoting greater participation and conclude that
    much greater efforts are needed in the area of equity, poverty
    reduction and increased transparency and accountability of Bank
    operations.
        One important area in which non-governmental organizations are
    pressing for change at the Bank concerns the participation by groups
    and communities in the borrowing countries that are affected by Bank
    operations in the identification, design, implementation and evaluation
    of projects and policies. The Bank has carried out a learning process
    on participation over the past decade and steps are being taken to
    establish methods to increase participation, but it must now take steps
    to ensure consultation with affected peoples, especially at the
    earliest stages of its lending, with necessary resources made available
    for such consultation.
        We also would like to draw the Committee's attention to a new
    effort just getting underway. The Structural Adjustment Participatory
    Review Initiative (SAPRI) is a joint World Bank--civil society exercise
    to assess the impact of the Bank's structural adjustment programs from
    a grassroots perspective. Reviews will be carried out in ten countries,
    including El Salvador, Ghana, Mali, Uganda, Zimbabwe and Bangladesh. We
    believe that this effort will help to advance civil society-Bank
    dialogue on an issue that has been of profound concern to our
    organizations.
        Inter-American and African Development Foundations.--Since their
    inception, these Foundations have been on the leading edge of effective
    methods to promote and support grassroots development. In recent years,
    bilateral and multilateral official aid agencies have been trying to
    reform their structures and methods to emulate the approach of the
    Foundations. Thus far, however, they have not been able to address the
    obstacles inherent in their size, complexity, and lack of familiarity,
    knowledge, and experience at the grassroots level. Among government
    institutions, the Foundations remain in the forefront of the people-
    centered approach that our organizations advocate.
        Faith Action urges the Committee to approve the requested level of
    funding for the Foundations and together with U.S. non-governmental and
    private and voluntary organizations to engage the Foundations in
    identifying and responding to the new challenges of grassroots
    development in a changing global environment.
                                   conclusion
        Changes in the global economy, accompanied by corresponding
    political and social changes recast the development process in ways
    that require careful thought and insight. Moral underpinnings are
    especially important at a time when missions and goals are being
    reconsidered. We hope that the moral principles outlined above will
    provide useful guidance to the Committee as it decides foreign aid
    priorities this year. We would like to work with the Committee to
    ensure that improved quality of life for poor people around the world
    is the measure of effectiveness of our foreign assistance.
                                    endnotes
        1. OECD Development Assistance Committee. ``Efforts and Policies of
    the Members of the Development Assistance Committee:'' 1994 Report.
    Paris: OECD, 1997.
        2. Including development assistance, ESF, military assistance, NIS/
    SEED, international narcotics control, and debt restructuring.
        3. GNP per capita of $694 and below in 1993.
        4. World Food Summit, ``Rome Declaration of World Food Security,''
    Rome, 1996.
        5. U.S. General Accounting Office. ``Drug Control: Long-Standing
    Problems Hinder U.S. International Efforts.'' GAO/NSIAD-97-75, February
    1997.
        6. International Narcotics control Strategy Report, 1996.
        7. Op.cit.
        8. OXFAM INTERNATIONAL, ``Report Card on James D. Wolfensohn and
    The World Bank, June 1995-August 1996.''
                                     ______

      Prepared Statement of the National Council for International Health

        ``No matter how selfish our motives, we can no longer be
    indifferent to the suffering of others. The microbe that felled one
    child in a distant country yesterday can reach yours today, and seed a
    global pandemic tomorrow.''

    --Nobel Laureate Dr. Joshua Lederberg, 1996

        Thank you for allowing the National Council for International
    Health (NCIH) to submit public testimony regarding the prioritization
    of US foreign aid appropriations. NCIH is a membership organization
    with over 100 member organizations including the American Medical
    Association, the American Public Health Association, American Dental
    Association, the American College of Preventive Medicine, the American
    Nurses Association, the American Association of Critical Care Nurses,
    the Association of Schools of Public Health (representing 28 Schools)
    and dozens of other international health and development organizations.
    Most of these organizations, and thousands of individual health
    professionals are in support of this Subcommittee re-examining its
    fundamental priorities in light of both pressing human needs around the
    world and the rapidly growing threat to our nation's security from new
    and re-emerging infectious diseases.
        A serious and growing threat to US security.--Four esteemed reports
    over the last 6 years have identified `new and re-emerging' diseases as
    a serious threat to Americans. More than a threat, these pathogens are
    already costing more lives, both American and foreign, than any other
    `threat' humanity has known. Over 150,000 Americans died last year from
    infectious diseases, raising it from the fifth greatest killer of
    Americans to third place in just 12 years. HIV/AIDS represents only
    half of this increase. Another 24,000 Americans died from `unknown'
    causes that were `likely' due to infectious agents. These numbers are
    climbing and unlike the top two causes of death in America, heart
    disease and cancer, reducing our risk to infectious diseases will
    require a global and multi-dimensional approach.
        Fifty years ago the Marshall Plan was launched to control the
    spread of Communism. Today, overwhelming evidence suggests a new
    initiative of comparable commitment is needed to protect Americans from
    the global spread of infectious diseases. Foreign aid and the
    appropriations of this subcommittee will play a decisive role in waging
    this new `hot war'. Slowing and stopping the global spread of
    infectious diseases can rationally become a primary directive of US
    foreign policy. The evidence is overwhelming and American lives are
    already being lost with a rapidly growing potential for assured
    catastrophic consequences if we continue to delay an adequate response.
    A more far reaching approach to human welfare by the US in the previous
    decades could have lead to the early detection of the emergence of HIV/
    AIDS. In the mid-1960's African doctors were noting the effects of the
    ``Slims diseases'' along the Kinshasa hiway. Our interest then, would
    have given our scientific community as much as a 20 year head start in
    combating this virulent and rapidly mutating virus. Hundreds of
    thousand of US lives may have been saved as well as the $30 billion or
    more now annually spend in the US fighting this one disease.
        This testimony will not focus on documenting the problem already
    detailed in the numberous prestigious reports, journals, books,
    articles and documentaries over the last few years and the panelist you
    will hear from today. We will instead highlight solutions. Particularly
    those solutions that could be implemented with adequate funding by this
    Subcommittee.
        Domestic problem/global Solutions.--We have basically three places
    to address the global spread of infectious diseases. We can go on as we
    are, addressing each disease as it reaches our lungs, our schools, our
    blood supply or our hospitals. We could react to isolationist ideas and
    try endlessly to close or restrict microbial entry at US borders and
    airports. Or, we can take the cheapest and most effective approach of
    launching pre-emptive strikes on the microbes home turf--the conditions
    of poverty, hunger, illiteracy, squalor and chaos in which the majority
    of pathogens prolifically breed and mutate.
        * * * the emergence of the most harmful diseases can be countered
    not only for pathogens that are recognized as threats but also for
    those posing threats that are not yet recognized. Providing pure water
    supplies, reducing attendant-borne transmission, reducing vector-borne
    transmission preferentially from ill people (e.g., by providing
    mosquito-proof houses) should guard against the emergence of virulent
    pathogens, whether the pathogens are unidentified or are highly
    virulent variants of identified human pathogens.

        --Paul W. Ewald, Dept. of Biology, Amherst College. ``Guarding
    Against the most Dangerous Emerging Pathogens: Insights from
    Evolutionary Biology'', Emerging Infectious Diseases, CDC, Vol. 2, No.
    4, Oct.-Dec. 1996.

        There are risks and costs to a program of action. But they are far
    less than the long-range risks and costs of comfortable inaction.

        --John F. Kennedy

        The CISET Report's recommended actions.--The Committee on
    International Science, Engineering, and Technology (CISET) Working
    Group (including specialists from the Department of Defense, the
    National Security Council and the Center for Disease Control and
    Prevention, and more than a dozen other federal agencies) outlined four
    basic strategies needed to safeguard our nation. These actions include:
      --A. Surveillance (a global health network of adequately trained
            health workers and adequate supplied clinics with access to the
            Internet).
      --B. Response (fully trained and supplied response teams).
      --C. Research and Development. (sufficient knowledge base, research
            and production capacity.)
      --D. Prevention (universal access to primary health services, clean
            water, safe sanitation, basic education, adequate nutrition,
            income generating opportunities and a safe political and
            natural environment).
        (CISET report is available: http://www.whitehouse.gov.White__House/
    EOP/OSTP/CISET/html/ciset.html For a copy of the report call CDC, 404-
    639-2603 or fax your request to 404-639-3039.)
        Appropriations by this Subcommittee have the greatest application
    in the first and last actions noted above--surveillance and prevention.
    While existing foreign aid funds directed in these areas are extremely
    inadequate, the total amount needed is not beyond the capacity of this
    committee to appropriate. A shift of approximately 20 percent of the
    existing aid budget (approximately what the Department of Defense
    spends for a single B-2 Bomber) could provide Americans with
    significant protection against global microbial threats, be they
    introduced by nature, by accident or by hostile human antagonists. The
    US economic benefits from the early global eradication of polio and
    measles, the significant global reduction of malnutrition, illiteracy,
    Tuberculosis (TB), HIV/AIDS, cholera, malaria, Hepatitis A, and dozens
    of other lethal and disabling diseases, would alone make such an
    investment worth while.
        Solutions (in more detail):
        A. Surveillance.--A global health network of adequately trained
    health workers and adequate supplied clinics with Internet access would
    be our nation's early warning system regarding the emergence of any new
    or old microbial threats as well as being our first strike force for
    preventing or combating their initial spread.
        Appropriations from this Subcommittee provides support to: Foreign
    Government Health Departments; USAID Missions; NGO/PVO organizations;
    University Training & Research facilities; WHO Collaborative Centers.
    (Other Subcommittees support DOD and CDC programs also important in
    these efforts).
        B. Response--As with fires, response time is critical in
    controlling a microbial blaze. Our capacity to rapidly deploy fully
    trained and adequately supplied teams of experts into `hot zones' is
    well worth the investment. Some appropriations from this subcommittee
    for WHO, Schools of Public Health and USAID field capacity contribute
    greatly to overcoming technical, logistical or cultural barriers.
    (Appropriations from other Subcommittees support CDC, DOD, or PHS
    collaborative efforts)
        C. Research and Development.--The number one rule in any war is
    `know your enemy'. Our ability to identify and understand each pathogen
    is essential in developing a timely and effective medicine or method
    for dealing with it. Expanded research efforts can provide us with a
    sufficient knowledge base to do both rapid genetic identification and
    development of effective technological/social treatment or control.
    Technological advances have given US troops an overwhelming advantage
    on regular battle fields. The best pharmaceutical weapons we can afford
    will now be valuable from both a military and a civilian perspective on
    every battle field we must now prepare for. In addition, short term and
    long term cross disciplinary strategic studies are needed. Such studies
    should be carried out cooperatively between government and universities
    with extensive input from corporations, industry and communities.
    Progress now will enable effective response to the natural, accidental
    or intentional release of many different pathogens. This subcommittee
    has played an important role in funding efforts through US Universities
    research programs. Pharmaceutical Companies, NIH, and CDC will also be
    critically important.
        D. Prevention.--It is within this arena that the appropriations of
    this subcommittee can have the most impact on preventing or reducing
    the global spread of many infectious diseases. WHO estimates that 80
    percent of all human disease in the developing world is caused by lack
    of clean water and proper sanitation. Current appropriations for such
    programs are now minimal. Some may argue that universal access to clean
    water and safe sanitation is a desirable goal, but the development of
    vaccines to combat infections of water born diseases would be more cost
    effective. On a `dollar spent/life saved' criteria this is true. But
    such a limited investment will do nothing to protect us (or those
    without such basic services) from the new pathogens that may emerge or
    old pathogens that may adapt under such inadequate hygienic conditions.
        Universal access to adequate nutrition.--Adequate nutrition is the
    human body's first line of defense against the majority of the world's
    pathogens. Malnutrition is a preventable, underlying cause of a high
    proportion of infectious diseases. Congress has already undertaken
    substantial action to address this problem in the Food, Agriculture,
    Conservation, and Trade Act of 1990, which established food security
    for the poorest and the prevention of malnutrition as priorities in
    food assistance programs administered by the United States Agency for
    International Development (USAID) under the Agriculture Trade
    Development and Assistance Act of 1954. More is needed.
        Micronutrients.--Preventing key micronutrient deficiencies of
    vitamin A, iodine, iron and zinc is a low-cost, practical and effective
    approach to boosting the human immune system and building the human
    capacity to protect the health of billions of people throughout the
    world.
        Vitamin A deficiency is a scourge of approximately a quarter of a
    billion children in poor countries. Vitamin A helps the body build an
    effective barrier against pathogens entering via the skin, respiratory
    or digestive systems. Research financed by the USAID and other donors
    has convincingly demonstrated that vitamin A supplementation and
    fortification can reduce childhood infections and thus reduce childhood
    mortality by 30 percent or more. An estimated 20,000,000 children are
    likely to die and 3,500,000 children are likely to go blind in the next
    decade if access to vitamin A is not available. The World Bank has
    estimated that vitamin A supplementation only costs approximately $9
    for every life year saved adjusted for disability. A single capsule of
    Vitamin A costs only five cents and a single dose administered only 3-4
    times a year per child, will provide maximum protection. Not less than
    $17,000,000 for fiscal year 1998 and not less than $20,000,000 for
    fiscal year 1999 should be made available only for implementing Vitamin
    A deficiency prevention strategies, especially supplementation and
    fortification programs.
        Iodine, Iron and Zinc.--Today 1,600,000,000 people are at risk of
    iodine deficiency disorders, with the fetus and infant being the most
    vulnerable to permanent brain damage. Iodine deficiency is the most
    prevalent cause of mental retardation world-wide. Iodizing salt can go
    far in preventing this tragedy and thus enhancing the intellectual and
    economic performance of future generations. The World Bank estimates
    that iodizing salt only costs $8 for every year of life saved adjusted
    for disability. Nearly 2,000,000,000 people are iron deficient,
    particularly women of child bearing age and young children,
    approximately 1,000,000,000 of whom suffer from anemia. Iron deficiency
    anemia during pregnancy can increase the risk of both maternal and
    infant illness and mortality. Moreover, iron deficiency can hinder
    learning among school age children and work productivity among adults.
    The World Bank has estimated that iron supplementation costs only $4 to
    $13 for every year of life saved adjusted for disability. With adequate
    support for the necessary interventions, vitamin A and iodine
    deficiencies could be virtually eliminated, and iron deficiency anemia
    reduced by one-third, by the first decade of the 21st century. New
    studies show that diarrhea, pneumonia and malaria may be reduced by the
    correction of zinc deficiencies. In addition to amounts available for
    micronutrient programs we recommend this subcommittee appropriate
    $13,000,000 for fiscal year 1998 and $15,000,000 for fiscal year 1999
    for iodine and iron deficiency prevention programs, especially
    fortification and supplementation programs, with particular emphasis on
    alleviating deficiencies in pregnant women.
        Breastfeeding.--Increased funding for the promotion of
    breastfeeding alone may be as productive in boosting the immune system
    as micronutrients with breastfed infants four times less likely to die
    of acute respiratory infections and up to 25 times less likely to die
    from diarrheal disease. Breastfeeding also helps to delay conception
    which leads to fewer and delayed births which in turn contributes to
    the health of the mother and ultimately the family. We recommend a ten-
    fold increase in efforts to promote the use of breastfeeding in the
    developing world.
        Universal access to primary health services.--Antibiotics,
    Immunization, ORT, reproductive health services, health information,
    growth charts * * *. We recommend no less than $200 million be
    committed to establishing a global network of basic health clinics,
    with trained staff, adequate supplies, and Internet capabilities.
        Reducing antibiotic resistance.--While more outbreaks of new exotic
    pathogens like Ebola or Lassa Fever will most certainly occur, WHO and
    CDC insist that the greatest threat to our health is from the gradual
    loss of our antibiotic arsenal. While much needs to be done within the
    US, control and appropriate use of antibiotics in developing nations is
    also critical. Increasing global trade, global travel and urban
    crowding in developing countries with weak health systems will lead to
    the increased rise and spread of resistant microorganisms. At least two
    development programs funded by this committee play a direct and
    enormously significant role in the early detection of resistant strains
    and in reducing the factors that lead to newer drug-resistant strains.
    The training of public health workers and basic education. These will
    best leverage the basic research that is also needed.
        Training of health workers is essential to the proper diagnostics
    and treatment of infectious diseases and other health problems.
    Intensive instruction for health practitioners in infectious disease
    management and prevention here and in developing countries is a vital
    weapon against infectious diseases. Of over 5000 students graduating
    from US schools of Public Health in 1996, only 200 specialized in
    international health. Time is crucial in an outbreak and persons in or
    from developing areas who can pacify the spread of disease before it
    reaches unmanageable proportions will be the first line of defense in
    secondary prevention of diseases outbreaks.
        Infant and child mortality.--Child survival (CS) activities which
    utilize simple, available technologies have proven to be particularly
    effective in saving lives and improving child health. Both UNICEF and
    the USAID have provided strong leadership as well as financial and
    technical support for these efforts. Interventions at all levels of
    society will be required to improve and sustain the health of children.
    Child survival programs implemented by United States-based Private
    Voluntary Organizations (PVOs) and other Non-Governmental Organizations
    (NGOs) are documented to be extremely effective in reaching the very
    poor at the community level and in achieving long-term reductions in
    child mortality and morbidity. `Not-for-profit' PVO/NGOs implementing
    CS projects leverage significant amounts of private resources, a
    minimum of 25 percent, to match public funds. We recommend UNICEF for
    an appropriation of $100,000,000 for fiscal year 1998, and $105,000,000
    for fiscal year 1999. For other CS activities we recommend no less than
    $350,000,000 for fiscal year 1998 and no less than $380,000,000 for
    fiscal year 1999 for activities with a direct measurable impact on the
    reduction in the rates of child death and disease, focusing on the poor
    with a particular emphasis on delivery of community-based primary
    health care and health education services. These activities should
    primarily be limited to the direct provision of health services, such
    as improved and expanded immunization programs, oral rehydration to
    combat diarrheal disease, and health education programs aimed at
    improving nutrition and sanitation and at promoting child spacing,
    which all have a direct measurable impact on the rates of child death
    and disease. A special focus on the poor in communities with a
    particular emphasis on delivery of community-based primary health care
    should also be mandatory. Only on an exceptional basis should these
    appropriations be used for purposes other than the direct provision of
    these basic health services. Of the total recommended, not less than
    $40,000,000 for fiscal year 1998 and not less than $60,000,000 for
    fiscal year 1999 should be provided to private and voluntary
    organizations under the PVO Child Survival grants program carried out
    by USAID. All of these CS funds should be in addition to the funding
    directed at micronutrient efforts, international disaster assistance,
    AIDS prevention and control, or any other appropriations for health,
    migration or refugee assistance.
        These US investments in international child survival efforts will
    be paid back to the US many times over with the accelerated global
    eradication of polio and measles alone. The $32 million US investment
    in the global eradication effort of Smallpox 20 years ago has already
    saved the US over $3 billion in domestic expenses.
        More emphasis should also be put on getting resources where they
    are most needed. The two regions of the world where infectious disease
    deaths are still highest receive the least amounts of US aid--Africa
    and Asia. Vaccines, ORT, antibiotics and Vitamin A are essential but
    not enough to sustain child survival and development. Other health and
    development programs are also essential.
        Tuberculosis (TB).--It is estimated that 15,000,000 individuals in
    the United States are infected with TB. Last year, a single patient
    from another country who was hospitalized in California passed the TB
    bacillus on to 12 of the 17 health care providers who took care of her,
    two of whom developed full blown TB, and we may never know if they in
    turn passed the disease on to other patients before it was realized the
    infection had been transmitted to them. And we have no idea how many
    people this patient infected on public transportation. The TB threat to
    Americans consists of two elements: (A) The global spread of TB in
    general, including its resurgence in the United States, and (B) the
    emergence and spread of strains of TB that are multi-drug resistant.
    The elimination of TB in the United States can only be achieved by
    controlling the disease in developing countries were TB is spreading as
    a result of inadequate treatment. TB is the largest infectious killer
    of adults, causing more deaths than AIDS, cholera, malaria, tetanus,
    meningitis and typhoid fever combined and takes many individuals in
    their most productive years of life. No other infectious disease
    creates as many orphans as TB. Nearly 170,000 children die of TB
    annually, because of infection usually by an adult family member. The
    World Health Organization has stated that the best curative method for
    TB is Directly Observed Treatment (DOT), in which health workers
    directly monitor that patients with TB for the purpose of ensuring that
    such patients take their full course of medicine. By guaranteeing that
    the treatment regimens are completed, DOT prevents the further spread
    of infection and development of strains of TB that are multi-drug-
    resistant. Few public health expenditures provide so much value for so
    little money as expenditures for the prevention and treatment of TB. In
    some parts of the world, the cost of curing TB is as little as 90 cents
    for every year added to the life of the patient. Drugs for the
    treatment of TB cost as little as $11 per person in some parts of the
    world and such drugs are more than 95 percent effective. Deficient TB
    treatment practices anywhere in the world can cause the TB bacteria to
    become multi-drug resistant. Strains then imported into the US will
    cost as much as $250,000 per patient to cure. In the developing world
    TB can be prevented for well under $100 per patient. Treatment of TB in
    the US now costs hundreds of millions of dollars per year while our
    international efforts at TB control are virtually non-existent.
    According to the World Bank, the control of TB is among the most cost-
    effective of all health interventions. In order to control TB in the
    United States in a more effective manner, it is necessary to ensure the
    effectiveness of TB control programs worldwide. US funding for the
    global control of TB should be no less than $40,000,000 for fiscal year
    1998 and $50,000,000 for fiscal year 1999.
        Maternal survival and health, which are vital in and of themselves
    and also vital for child survival, are not currently a fiscal priority
    of our international aid package. Universal access to nurse-midwives
    and essential obstetric care could help prevent a significant number of
    the 580,000 women who will die this year as a result of complications
    in pregnancy or child birth. No less than $25 million should be made
    available for this.
        Maternal and child mortality resulting from AIDS.--As of 1992,
    nearly 5,000,000 women of childbearing age and over 1,000,000 children
    were infected with the human immunodeficiency virus (HIV), the virus
    that causes the acquired immune deficiency syndrome (AIDS). The vast
    majority of these women and children live in developing countries. We
    can expect the maternal and child mortality rate in many developing
    countries to increase dramatically, as will the number of orphans with
    HIV/AIDS, until HIV/AIDS prevention and control efforts are successful.
    HIV/AIDS is renowned for its ability to mutate. There are already over
    100 minor variations of the virus with nearly half a dozen major
    subtypes. Preventing the emergence of new strains is highly desirable.
    Development of a vaccine is critical, but public education, protected
    sex and economic alternatives for sex-industry workers (women and
    children) are also needed. The most effective efforts to respond to
    HIV/AIDS are based at the community level and involve non-governmental
    organizations as well as government agencies. USAID should expand its
    assistance to developing countries for community-based prevention, care
    and control programs and activities relating to HIV/AIDS, and should
    participate in coordinated efforts with other donors. Coordination of
    efforts of bilateral, multilateral and non-governmental agencies is
    essential. While highly controversial, AIDS vaccine trials will most
    likely be conducted in the developing nations. Progress anywhere should
    bring direct benefits to both the US population and people in
    developing nations. International AIDS Prevention and Control Fund--
    Section 104(c) of the Foreign Assistance Act of 1961 (22 U.S.C.
    2151b(c); relating to development assistance for health related
    activities) should be amended by adding at the end the following new
    paragraph: ``(4)(A) In carrying out this subsection, the President
    shall promote, encourage, and undertake community-based prevention, and
    control programs and activities relating to the human immunodeficiency
    virus (HIV) and acquired immune deficiency syndrome (AIDS) in
    developing countries.'' This subcommittee should appropriate
    $140,000,000 for fiscal year 1998 and $150,000,000 for fiscal year 1999
    for use in carrying out this paragraph, which shall be in addition to
    other amounts made for health purpose. Amounts appropriated for these
    efforts should be authorized to remain available until expended. The US
    government was one of the main proponents of the creation of The Joint
    United Nations Programme on HIV/AIDS in 1996. It is successfully
    coordinating multilateral activities and working with communities and
    countries in national strategic planning which makes bilateral aid
    better directed. It should receive financial backing from the US at no
    less than $20,000,000.
        Basic education.--Primary education, early childhood development
    activities, and programs to achieve literacy are essential for
    increasing the productive capacity of people and their ability to earn
    income and improve family health. Basic education, usually defined as
    early childhood education, primary and lower secondary schooling, as
    well as adult literacy, has been shown to be the one of the most
    economically productive investments that brings numerous beneficial
    health and social impacts. Widespread education leads to more equitable
    income distribution and ultimately, to political stability. Wars and
    political instability are a significant contributor to the spread of
    infectious diseases.
        More than 100,000,000 school aged children, the majority of them
    girls, are not enrolled in primary school. Basic education, especially
    for girls, contributes to increased child health, survival and overall
    life expectancy and lower birth rates. It is estimated that every
    additional year of schooling for girls lowers child death rates by 5 to
    10 percent. US assistance for basic education in developing countries
    has accounted for less than 2 percent of US foreign assistance in
    recent years. We recommend that no less than $120,000,000 for fiscal
    year 1998 and not less than $140,000,000 for fiscal year 1999 be
    appropriated for basic education.
        Universal access to clean water and safe sanitation.--Not less than
    $200 million.
        International family planning and child spacing.--Universal access
    to quality voluntary family planning will significantly help prevent
    the spread of HIV/AIDS and other Sexually Transmitted Diseases (STDs).
    It could also helps improve child health by reducing the occurrence of
    prematurity and low birthweight and allowing longer breastfeeding. The
    risk of maternal death or illness in the developing world is highest
    for women who bear children when they are under the age of 18 or over
    age 35, for pregnancies spaced less than two years apart, and for women
    who already have 4 or more children. Universal access to voluntary
    family planning could prevent up to one-third of the 585,000 maternal
    deaths annually. The inability of couples to plan births decreases
    undermines women's opportunities for education, for earning income, for
    improving the care of existing children, and for community activities
    and personal development. We suggest appropriations of no less than
    $550,000,000 for fiscal year 1998 and no less than $600,000,000 for
    fiscal year 1999.
        Universal access to affordable credit for income generating
    opportunities.--A families ability to earn is directly related to their
    access to health care. We urge this subcommittee to appropriate and
    earmark $85 million for microcredit programs serving the poorest and
    $170 million for microcredit overall.
        Refugees.--In 1997 there are 27 million people of concern in
    refugee-like situations in areas from Northern Iraq, to Angola, to the
    former Yugoslavia. Additionally there are estimated to be more than
    20,000,000 internally displaced persons. Whenever they travel,
    illnesses travel with them. Funding for Refugee Assistance Programs
    should not be less than $730,000,000 for fiscal year 1998 and
    $780,000,000 for fiscal year 1999, and should be appropriated for the
    ``Migration and Refugee Assistance'' account, of which not less than
    $470,000,000 for fiscal year 1998 and $500,000,000 for fiscal year 1999
    should be available only for programs of refugee assistance overseas
    (in addition to the amounts available for programs for refugees from
    the former Soviet Union, Eastern Europe, and elsewhere who resettle in
    Israel). Not less than $100,000,000 for each of the fiscal years 1998
    and 1999 should be appropriated for the ``Emergency Refugee and
    Migration Assistance Fund'' account.
        Debt relief.--Debt Relief to countries like Uganda will assist
    political leaders to better meet the health and education needs of
    their own people.
        Multilateral programs.--NCIH supports $1.035 billion for the
    International Development Association (IDA) of the World Bank to cover
    both fiscal year 1998 contributions and past arrears. We are also
    hopeful Congress will press the World Bank to promote popular
    participation in Bank operations, especially by consulting local
    communities prior to approving loans.
     other important considerations for the control of infectious diseases
        Freedom from war and violence.--War is a very significant factor
    contributing to the migration of people and the destruction of existing
    health efforts. Both war and migration are significant factors in the
    spread of disease. Civil wars bring with them refugee camps, mass
    internal migrations, disruption of medical and health services, a lack
    of food and sometimes rape (i.e. unprotected sex). It should not go
    unnoticed that the current conflict in Zaire resembles a simulation
    exercise carried out in 1989 by the American Society of Tropical
    Medicine & Hygiene in Honolulu. In their simulation an airborne Ebola
    is detected--but not before some infected westerners have returned home
    to New York, Paris, Montreal, etc.
        The worst-ever outbreak of Lassa fever, a deadly hemorrhagic
    disease, is now threatening to spread to Sierra Leone's capital,
    Freetown. Britain's Medical Emergency Relief International (MERLIN)
    said the case numbers had doubled since December. Refugees fleeing the
    6-year old civil war were packing into the town of Kenema, 60 miles
    from the capital, and conditions are appropriate for the spread of this
    highly virulent disease. ``This is the worst outbreak of Lassa fever
    since records began,'' said Richard Allen, medical adviser to MERLIN.
    ``Now we are concerned that Lassa fever may spread from the bush to the
    capital city, Freetown. The first suspected case of Lassa fever was
    admitted to a Freetown hospital this week.''
        Reducing military aid can free up valuable resources for improving
    health and development conditions.
        Control of land mines.--Land mines kill and maim hundreds of
    thousands of people a year. Each non-fatal injury requires the use of
    antibiotics. The elimination of land mines is ideal but additional
    lives and limbs can be saved and resistant pathogens prevented with
    access basic health services.
        Reducing STD's.--War and sexually transmitted diseases (STDs) go
    hand in hand. The Vietnam War produced a drug resistant form of
    Gonorrhea, now a major US problem.
        One of the most dangerous activities for US troops outside of
    waging war is trying to stop a war or quell civil unrest. Given the
    escalating cost and risk of peace keeping, preventing the breakdown of
    nation states deserves increased attention. A recent CIA report studied
    the factors related to the breakdown of nation states in order to
    predict and possibly prevent future conflicts where US troops might be
    needed. After looking at hundreds of variables, the CIA identified the
    infant mortality rate as the number one indicator. While it is obvious
    that child survival programs alone are insufficient to keep nations
    from imploding, the value of reducing child deaths should not be
    underestimated as a critical factor in keeping populations more docile.
    Exposing US troops to chaos does expose them to higher rates of
    infectious diseases but, not sending US troops to quell conflicts could
    result in even greater chaos spurring increased microbial travel.
        The intentional use of biological weapons by terrorists is perhaps
    the most frightening future prospect. There is really no way to defend
    against such an attack if an agitated force is committed to delivering
    pathogens to US citizens. While the threat of retaliation by a powerful
    US military force might prevent major adversaries from using biological
    weapons, the same US military force of unconfrontable power will force
    smaller aggressor groups into covert actions to achieve their
    objectives. The smaller the force, the more likely it could immunize
    its members against an infectious agent and then deliver that agent,
    undetected, to its target population. Essentially, the US should be
    very hesitant in causing harm to any group except the microbes. It is
    not possible to overstate our vulnerability to use of biological
    weapons. Even trying to defend against biologicals may carry serious
    health side effects as now possibly manifested by the Gulf War
    Syndrome. Adequately supporting the four basic recommendations of the
    CISET report would help neutralize the effects of an intentional
    biological attack. Just as important, this Subcommittee should not
    overlook the degree to which US leadership in helping the world meet
    the most basic of human needs globally will reduce the likely hood of
    future conflicts and covert aggression.

        History has taught us that wars produce hunger, but we are less
    aware that mass poverty can lead to war or end in chaos. While hunger
    rules, peace cannot prevail.

        --Willie Brandt, Chairperson of the Brandt Commission. 1981

        Freedom from environmental degradation.--Human movement into
    previously undisturbed environments increase the risk of coming into
    contact with exotic pathogens. Destruction of natural habitats also
    reduces the number of species that may provide humanity with genetic
    information to produce newer miracle drugs. Toxic substances in the
    environment increase the mutinogenic factor for all pathogens as well
    as debilitating human and animal immune systems. Environmental
    alterations will result in increased migration of both infectious
    agents and human populations. Appropriations by this committee to
    protect and restore environmental habitats is also crucial.
        From peace keeping, to conflict resolution, to the clearing of land
    mines, creating livable and sustainable environments must become a much
    higher priority. To date, too small a portion of US foreign aid has
    been directed at improving human health, economic and environmental
    conditions where they are most lacking. To make matters worse,
    development programs have received deeper and more disproportionate
    cuts than any other sector in the foreign aid budget. This must be
    reversed.
        Social and behavioral changes.--Long-term solutions to improving
    human health will ultimately involve more than the right pill, world
    peace, alleviating poverty or protecting the environment. Without
    profound social and behavioral change the full potential for human
    health will not be achieved. Generations of culture and tradition can
    have as much influence on health as the availability of technology.
    Funding for the involvement of cultural anthropologists, psychologists
    and sociologists in the battle for worldwide health is something this
    subcommittee should not shy away from.
        With a focus on prevention, this Subcommittee can do more to
    protect the security of Americans than any other government agency,
    including the Department of Defense. Secretary of State Madeline
    Albright recently said that foreign aid represents only 1 percent of
    our federal budget but it will determine 50 percent of our history. In
    the context of infectious diseases, 50 percent could be an
    underestimate. Given the severity of the situation, there has never
    been a more profound rationale for shifting foreign aid priorities and
    funds.
        There are basically three ways to provide more resources.--(1) From
    within the existing foreign aid budget; (2) From with in the existing
    federal budget; or (3) from an additional tax or levy specifically for
    such a purpose. If sufficient money is not added to the foreign aid
    appropriations budget to meet this new security need, this Subcommittee
    will have to make the tough decisions on where it will be found within
    the existing aid budget. A shift of 20 percent of the current foreign
    aid appropriations could accomplish significant international health
    and development objectives the Preamble of our Constitution aligns
    with:

        ``We the people of the United States in order to form a more
    perfect Union, establish justice, insure domestic tranquillity, provide
    for the common defense, promote the general welfare, and secure the
    blessings of liberty to ourselves and our posterity, do ordain and
    establish this Constitution for the United States of America.''

        Some aid constituencies will not be happy with such a shift; but
    they can make their case to the American people if their needs are
    indeed more urgent or important than this.
        If this Congress cannot find the money within the existing budget
    to implement these essential security measures then the powers of the
    US Constitution sanction you to generate the resources.
        Article 1. Section 8. of the Constitution says that ``The Congress
    shall have Power to lay and collect taxes, duties, imposts and excises,
    to pay the debts and provide for the common defense and general welfare
    of the United States * * *''
        Taxing air travel.--In all fairness, it is the global trade and the
    traveling public (approximately 10 percent of the US population) and
    the millions of foreign visitors to the US each year that most closely
    link the rest of the US population with the infectious diseases found
    scattered throughout the rest of the world. It is estimated that over
    25 million people travel virtually unrestricted between the developing
    world and North America each year and that number is growing rapidly.
    While diseases are imported into the US on a regular basis it must also
    be noted that lethal drug resistant pathogens are also exported from
    the US to other parts of the world where limited or non-existent
    medical facilities are unable to deal with them. A 2 percent increase
    in the current 10 percent air travel tax could generate much of the
    revenue needed ($2 billion annually) to dramatically reduce the global
    impact of infectious disease. While the idea of any `new' tax is
    repulsive to most members of Congress, the idea of a global epidemic
    taking the lives of 2 million to 5 million Americans should generate
    far more concern. There is nothing preventing the resurgence of a flu
    virus (or some other pathogen like TB) with the same or higher
    virulence as the ``Spanish'' flu that killed nearly 700,000 Americans
    at the early part of this century. A similar 1`bug' today, with the
    advantage of modern air travel, could take out 1-3 percent of the US
    population in the matter of months. Such an plague will be catastrophic
    by any measure. An additional dollar or two per air flight would not be
    beyond the majority of flyers to afford to ensure better health
    security for the rest of the US population. Food imports are another
    source of infectious agents and also deserve consideration. While such
    a tax is not within the jurisdiction of this subcommittee, such an idea
    deserves close public scrutiny and debate.
        Other creative funding mechanisms could generate addition millions
    for our common defense. The domestic savings from the not-to-distant-
    future global eradication of Polio and Measles, and the reduction of
    TB, could now be targeted for future domestic and international health
    and development efforts. Minor US global expenditures yield enormous
    domestic savings as demonstrated by the eradication of Small Pox
    mentioned earlier. This year, protecting US children against polio will
    cost Americans $231 million, plus an additional $14.3 million for a
    second vaccine to prevent ``7 to 8'' Americans from getting polio as a
    rare reaction to the first vaccine. All of these current expenditures
    will be saved when polio is eradicated. Eradication of measles will
    save Americans over $250 million a year while reduction of TB could be
    saving us up to $500 million annually.
        We support the President's request for a $1.45 billion increase in
    the foreign aid budget. We strongly disagree, however, with the
    President's fiscal year 1998 budget for USAID, where funds for
    population, health and nutrition have been targeted for a reduction of
    approximately $25-30 million dollars. This is unacceptable. While other
    categories in the USAID budget, such as agriculture and environment or
    aid to the former Soviet states, must certainly be increased, these
    increases should not come at the expense of health and child survival
    programs. We strongly urge any budget increase to be applied in a fair
    and proportional manner.
        More US aid is needed to address global poverty. According to
    Church World Service/Lutheran World Relief, ``Only 34 percent of
    bilateral assistance (including development assistance, ESF, military
    assistance, NIS/SEED, international narcotics control, and debt
    restructuring) requested for fiscal year 1998 is designated for low-
    income countries (GNP per capita $695 and below in 1993). Two thirds of
    that aid goes to Egypt ($2.1 billion), leaving just over $1 billion (of
    the total $9.2 billion) for the more than forty low-income aid
    recipient countries. Israel, with a per capita income of $13,920,
    receives three times the amount allocated to these poor countries.''
    While it may be obvious for political reasons why two nations receive
    over $5 billion in US aid, it is indefensible that development efforts
    focused on the poorest half of the world would receive so little. The
    old national security approach of `peace-through-strength' must now be
    tempered with `containment' by prevention and compassion. Given the
    potential for human (American and foreign) devastation, we must
    reorient our appropriations to achieving a broader security and lasting
    peace.
                                   conclusion
        Previous warnings unheeded.--Nearly two decades ago, Congress was
    given a clear warning by no less than a Presidential Commission after
    an exhaustive study of the issue of world hunger. At the end of the
    Carter Administration, this prestigious group of experts concluded:

        In the final analysis, unless Americans--as citizens of an
    increasingly interdependent world--place far higher priority on
    overcoming world hunger, its effects will no longer remain remote or
    unfamiliar. Nor can we wait until we reach the brink of the precipice;
    the major actions required do not lend themselves to crisis planning,
    patchwork management, or emergency financing * * *. The hour is late.
    Age-old forces of poverty, disease, inequity, and hunger continue to
    challenge the world. Our humanity demands that we act upon these
    challenges now * * * .

        --Presidential Commission on World Hunger, 1980.

        Policy makers then failed to respond to that warning but the
    microbes didn't. They were already in the process of fulfilling on the
    Commission's prophecy. Less than 2 years after the release of the
    Commission's report, our nation began to feel the sting of the HIV/AIDS
    pandemic. Now, science, wisdom, experience and the Bible tell us of the
    consequences of failing to follow the golden rule. HIV/AIDS was not the
    first disease in modern times to be brought into America and it will
    not be the last. More will come. A new strains of HIV, Polio, or
    Tuberculosis? Or an infectious disease we've not seen before. In
    whatever form, they will come and this Subcommittee funds our first
    lines of defense.
        Wide spread poverty and chaos, and the associated lack of basic
    health services, clean water, sanitation, nutrition, and education, are
    perhaps the greatest contributors to the vitality and virulence of
    pathogens. These fertile microbial breeding grounds, combined with the
    modern air travel of over a million people a day across all national
    borders, creates a truly `global village' where political, economic, or
    social boundaries become nothing more than a figment of our human
    imagination. Microbes are indiscriminate predators of the human family.
    Until we become as indiscriminate in caring for one another, we will
    continue to give advantage to their numbers and their virulence.

        ``Public health is purchasable. Within natural limitations, any
    community can determine its own death rate.''

        --Herman M. Biggs, MD, Msc, LLD (1859-1923).
                                     ______

     Prepared Statement of Lucinda A. Low, Chair, American Bar Association
     Section of International Law and Practice, on Behalf of the American
                                Bar Association

        Mr. Chairman and Members of the Committee: Mr. Chairman and members
    of the Committee, the American Bar Association (ABA) appreciates the
    opportunity to present testimony on the fiscal year 1998 Foreign
    Operations Appropriations budget. My name is Lucinda Low and I am the
    Chair of the American Bar Association's Section of International Law
    and Practice. This written testimony is being submitted on behalf of
    the ABA at the request of N. Lee Cooper, President of the Association.
        In my non-volunteer life, I am a member of the Washington, D.C.-
    based law firm of Miller & Chevalier. As the attached curriculum vitae
    indicates, I practice in the area of international business law,
    representing principally U.S. companies doing business overseas.
        This testimony describes the ABA's global Rule of Law projects
    that, through development of ``legal infrastructure,'' promote
    democracy around the world. With over 348,000 members, the ABA is the
    world's largest professional voluntary organization. Through these
    projects, our lawyers, judges, law professors, and sister institutions
    have achieved extraordinary results. Due in large part to a
    sophisticated volunteer network, the ABA has been able to play a
    crucial role in ensuring that the U.S. maintains its commitment to
    engagement and leadership in the international arena in a very cost-
    effective manner. It is our hope that these programs continue to
    receive U.S. contributions.
                                   background
        Embracing the rule of law through respect for and commitment to
    legal institutions is the linchpin of the democratization process. The
    benefits of a credible and predictable legal system, anchored by
    institutions committed to the rule of law, cannot be underestimated. To
    the extent that U.S. businesses can depend on a country's legal system,
    foreign markets become a much more attractive export opportunity.
    Conversely, where there is no rule of law, corruption and favoritism
    may flourish, often to the detriment of U.S. interests.
        The ABA's global Rule of Law projects have been important in
    fostering legal reforms and democracy which have in turn increased U.S.
    exports in emerging markets. Even so, the vast human potential and
    contribution of developing countries has largely been unrealized.
    Because of the central role democracy and legal infrastructure play in
    protecting fundamental freedoms, human rights, and liberties,
    continuing effort to strengthen the rule of law is necessary. But for
    the development of legal infrastructure, many transitional societies
    would never realize democracy. These are the goals to which ABA
    projects are committed.
                                  aba projects
        All ABA rule of law projects have been guided by three principles.
    First, these projects are designed to be responsive to the needs and
    priorities of the host countries; the countries, not the ABA, define
    the need. Second, the design of these programs recognizes that U.S.
    legal experience and traditions offer only one approach that
    participating countries may wish to consider. Third, these projects are
    public service endeavors, not avenues for developing business
    opportunities. The result of these programs has always been to take a
    modest grant and leverage those sums to yield a much larger benefit for
    the host governments and people.
    A. The Central and East European law initiative (``CEELI'')
        The most comprehensive technical legal assistance project of the
    ABA is the Central and East European Law Initiative, or ``CEELI''.
    Shortly after the fall of the Berlin Wall in 1990, CEELI was conceived
    and organized by the ABA Section of International Law and Practice to
    provide technical legal assistance to the emerging democracies in
    Central and Eastern Europe. Our Section also provided the initial seed
    capital for CEELI. By 1992, CEELI began to provide assistance to the
    Newly Independent States of the former Soviet Union (``NIS'').
        Through a variety of program components, CEELI is making available
    U.S. legal expertise to assist countries that are modifying or
    restructuring their laws and legal systems. CEELI has focused on work
    in several critical priority areas: constitutional reform; judicial
    restructuring; bar reform; criminal law and procedure reform;
    commercial law; and legal education reform. CEELI has also helped
    develop and/or institutionalize self-sustaining indigenous non-
    governmental organizations (NGOs) in more than 22 countries.
        Designed to respond to the needs of the countries, CEELI has
    emphasized long-term engagement and nurtured projects that facilitate
    extensive consultations with policy makers, legal scholars, judges, and
    attorneys in each country. Accordingly, CEELI has developed individual
    country plans that address the particularized circumstances of each
    locale. CEELI accomplishes its work primarily through resident liaisons
    and legal specialists, working pro bono, who spend one to two years
    working on a daily and continuous basis with local partners. CEELI
    liaisons often live and work in places where the comforts of life that
    you and I often take for granted do not exist.
        Over the course of the past four years, CEELI has established
    itself as a fundamental force for law reform in Central and Eastern
    Europe and the NIS. To date, CEELI has conducted 241 Technical Legal
    Assistance Workshops; assessed over 305 draft laws; placed 139 long-
    term liaisons and 146 legal specialists in the region; hosted 47
    Central and Eastern European law school deans; sent dozens of U.S.
    legal reform experts to assist in law school reform; and has placed
    over 50 students from the NIS in LLM programs throughout the United
    States. The credit for this remarkable achievement goes to the over
    5,000 American attorneys, judges, legal scholars, and private
    practitioners, who have, as acts of public service, given their time
    and expertise to make this project successful.
        When calculating the in-kind contributions of volunteer legal
    professionals at an understated rate of $150 per hour, CEELI has
    yielded over $77 million of pro bono service. Considering the modest
    CEELI budget in comparison to funding allocated to consulting firms,
    the exceptional programmatic impact and financial leverage that an NGO
    can achieve by using qualified volunteer professionals in a public
    service project is indisputable. This model of a volunteer professional
    assistance project is a viable and cost-effective alternative to other
    uses of U.S. government funding by, for example, for-profit firms.
    Congress has voiced strong support for programs like CEELI and their
    ability to leverage U.S. taxpayer dollars (H.R. Rep. No. 524, 103d
    Cong., 2d Sess., 82 (1994); S. Rep. No. 287, 103d Cong., 2d Sess., 76
    (1994); H.R. Rep. No. 128, 104 Cong., 1st Sess., 80 (1995); H.R. Rep.
    No. 143, 104th Cong., 1st Sess., 31 (1995); S. Rep. No. 143, 104th
    Cong., 1st Sess., 42 (1995); S. Rep. No. 000, 104th Cong., 1st Sess.,
    40 (1995); H.R. Rep. No. 600, 104th Cong., 2d Sess., 31 (1996)).
    B. The ABA Cambodia democracy & law project
        The Cambodia Law and Democracy Project (``Cambodia Project'') was
    launched by the ABA Section of International Law and Practice during
    1992 at the request of Cambodian institutions seeking assistance with
    Cambodia's law modernization process. The principal purpose of the
    Cambodia Project is to assist Cambodia in planning and implementing
    legal and judicial reforms to promote democracy, a market economy, and
    the rule of law, and in building the other infrastructure (e.g., bar
    associations) necessary to support the legal system. In reality, the
    Cambodian legal system is being reconstituted from the ground up.
    Breaking from its past, Cambodia, since the formation of its new
    government, has embraced the common law system. U.S. input is therefore
    particularly critical.
        Under a grant from the Asia Foundation in 1993, the Cambodia
    Project provided a collection of legal materials in Phnom Penh
    principally through ABA donations. In late 1996, the Cambodia Project
    established a Legal Research and Documentation Center at the Bar
    Association of the Kingdom of Cambodia (BAKC) which has now secured
    over 1,800 donated books and publications, which include Khmer laws and
    selected translations, the Official Journal of the Kingdom of Cambodia,
    and foreign and American legal materials. Since its official opening in
    March of 1997, the Center--which I had the privilege to visit last
    month--is fulfilling requests for information from lawyers, law
    students, NGOs, and the National Assembly Legal Research and
    Documentation Center.
        During 1993-94, the ABA Constitutional Law Advisors assisted in
    drafting the new Constitution, and legal education advisors provided a
    needs assessment of Cambodia's legal education programs and
    institutions. Short-term advisors traveled to Cambodia to assist in the
    areas of foreign investment, contract law, and commercial arbitration.
    U.S. legal experts provided commentary in the areas of border disputes,
    intellectual property, penal code issues, environmental law, family
    law, and bar association development. During this period, an ABA
    resident legal advisor was placed in Phnom Penh to oversee all ABA and
    Asia Foundation legal initiatives. This action led to a request from
    USAID that the ABA take on a larger role in the law development process
    in Cambodia, which resulted in a cooperative agreement between USAID/
    Cambodia and the ABA in 1995.
        The Cambodia Project currently has three long-term resident
    advisors in Cambodia. They assist the Ministry of Commerce and the
    BAKC, providing institution-building, teaching, and legal drafting
    assistance. By working in close coordination with the Ministry of
    Commerce, the Cambodia Project has effectively extended efforts to
    improve Cambodia's legal system into Cambodia's market economy. The
    completion of Cambodia's Bankruptcy Law, Business Organizations and
    Contract Law, Products Liability Law, and Contracts Law is evidence of
    the project's successful advancement. In addition to the their roles in
    law drafting, the advisors have conducted classes at a local
    university, seminars in the provinces, and daily discussion and
    training sessions at the Ministry of Commerce. The purpose of these
    events has been to train Cambodian officials and lawyers to understand
    and utilize the laws created to advance the rule of law and foster
    Cambodian social and economic prosperity.
        As with all legal technical assistance programs, the ABA Cambodia
    Law and Democracy Project develops all program components at the
    request of, and in close consultation with, participating country
    institutions. The bulk of the assistance continues to be provided by
    U.S. lawyers on a pro bono basis utilizing donated materials, allowing
    a small grant to be leveraged for the benefit of democracy in the host
    country. The Cambodia Project has received $1,639,679 over the last
    four years, and the ABA has contributed an additional $1,033,360 to
    this project.
    C. African initiatives
                1. U.S./Africa judicial exchange program
        The Robert A. Shuker USIA U.S./Africa Judicial Exchange Program
    grew out of a proposal by Mr. R. William Ide, III, a former president
    of the American Bar Association. After an official trip to Africa
    during which he met with judges, lawyers, and government officials, Mr.
    Ide suggested that the United States Information Agency develop
    programs so that African judges, public defenders, and bar association
    officials could learn from each other and from their American
    counterparts. The ABA sponsored the effort with the National Judicial
    College, and the Superior Court of the District of Columbia joining as
    cosponsors. The main goals of the program were to enhance the
    development of the participating countries' legal systems, strengthen
    the rule of law and the independence of the judiciary, and create long-
    term linkages between African and American participants. The United
    States Information Agency provided $250,000 with the other sponsoring
    organizations providing contributions of over $400,000.
        Phase I took the form of a one-month study tour. In April 1995,
    twelve judges from the four participating countries Tanzania, Malawi,
    Uganda, and Zambia traveled to the United States to study and work
    together for over a month to identify innovations that could improve
    the quality of justice in their courts back home. Ten days were spent
    in Reno, Nevada, at the National Judicial College (NJC) in specialized
    workshops led by faculty of the National Judicial College. The
    remaining twenty days hosted by the American Bar Association (ABA) and
    the District of Columbia Superior Court in Washington, DC included
    panel discussions, seminars, and court visits.
        For Phase II, an American delegation of judges and of
    representatives from the NJC and ABA traveled to Malawi, Tanzania,
    Uganda to conduct a series of specialized seminars and training
    sessions with justices, magistrates, judicial officers and
    administrative personnel, legal educators, and attorneys. At the end of
    each visit, the delegation submitted detailed recommendations on
    improving legal system of the participating country. Particular
    attention was given to Alternative Dispute Resolution.
        For Phase III, an American assessment team visited each country to
    assess the effectiveness of Phases I and II and identify future needs
    of their respective judiciaries. The Phase III team also provided Phase
    II training for Zambia. All parties United States officials in Africa,
    the delegation team, the judiciaries of the four hosting countries, and
    members of the respective African bar associations concluded that the
    overall program had exceeded all expectations. Malawi and Uganda had
    already implemented the recommended new rules and procedures, while
    Zambia and Tanzania were expected to implement similar changes in the
    near future.
                2. African law initiative sister law school program
        An indispensable part of the foundation for a sustainable rule of
    law in countries transitioning to democracy is the legal education
    system. The ABA has received three successive grants from the USIA
    Office of Citizen Exchanges to assist law schools in Africa. The
    African Law Initiative Sister Law School Program was initiated in 1994
    and continues to assist eleven law schools in eight African countries:
    Eritrea, Ethiopia, Ghana, Kenya, Tanzania, Uganda, and Zambia. Over
    thirty United States law schools have been involved with this program.
    The program has created and supported links between US and African law
    schools and helped to improve the capacity of the African law schools
    to train lawyers able to respond to the new needs brought about by
    democratic and free-market reforms in their countries. Solid links have
    emerged over the course of the program.
        In addition to bringing African and American law school deans and
    professors together to lay the groundwork for linkages, the program has
    assisted with faculty training and curriculum development, most
    recently in the area of clinical legal education. The program has
    shipped or facilitated the shipment of many law books and journals,
    helping to update the collections at the law libraries. The newest USIA
    grant will support a program that will create or strengthen courses in
    areas of law, such as human rights law, constitutional law, commercial
    law, and others that are vital to the training of lawyers in these
    societies. US law schools have been generous with their time and
    resources, with professors and deans participating on a pro bono basis,
    so that the project has had a significantly wider impact than would be
    possible only with the USIA funds.
                3. Other developing projects
        The Section of International Law and Practice, together with two
    other ABA sections, provided partial funding for a recent trip of
    Ambassador Robert van Lierop to Rwanda to observe the work of the
    Rwandan war crimes tribunals, and to assess the needs of the Rwandan
    legal system for technical assistance. We are in the process of
    reviewing his recommendations and have also been asked to evaluate the
    feasibility of several other proposed projects in Africa.
    D. Arab legal institute
        A new rule of law project of the Association since we reported to
    this Committee last year is the Arab Legal Institute. Initiated and
    organized by the ABA's Section of International Law and Practice and
    its Standing Committee on World Order Under Law, the Arab Legal
    Institute (``ALI'') is the first pan-Arab effort to promote the rule of
    law in the Arab states of the Middle East and North Africa, to train
    Arab lawyers, to train judges as independent adjudicators, and to
    promote human rights. Since the Institute itself will be led by the
    Arab Lawyers Union (which includes a number of Arabs of high standing)
    its significance will be substantial.
        While technical assistance to the Palestinians will be offered,
    what is most important is that the Arab Lawyers Union (representing the
    legal profession in the Middle East and North Africa) has agreed to
    lead a pan-Arab project designed to educate and to consider reforms
    conforming to internationally accepted standards. Such a program is
    critical to creating conditions for economic stability and opportunity
    and respect for the rule of law, principal ingredients for regional
    development and civil society. The strong pan-Arab support is
    exemplified in ALI's board which is made up of members of the Arab
    Lawyers Union. We are confident that such strong Arab involvement means
    that the project will have a sustained and continuously substantial
    regional effect.
        The Arab Lawyers Union will lead ALI, supported by a coalition of
    international bar associations. Since this is the first Arab-directed
    rule of law project, it is almost certain to have a positive impact. In
    fact, our Arab partners are so committed to this effort that they and
    several of their governments have offered material assistance
    regardless of current events in the region.
        We are planning to open the Arab Legal Institute in May 1997 at a
    meeting of the Arab Lawyers Union in Tunisia. ALI's headquarters will
    be in Cairo with additional facilities in Tunis, Amman and perhaps
    elsewhere. Rather than restricting itself solely to Gaza and the West
    Bank, the Institute will be concerned with all Arab states of the
    Middle East and North Africa. It is agreed, however, that the West Bank
    and Gaza will be among the Institute's first projects. This early
    attention to a particularly sensitive region will contribute to the
    success of Builders for Peace and other U.S. initiatives directed
    toward stabilizing the Palestinian economy and promoting investment. It
    will also furnish essential support to our Government's program to
    provide for duty-free treatment to products of the West Bank and Gaza
    and qualifying industrial zones.
        The Arab Legal Institute has united the legal profession in the
    Arab states of the Middle East and North Africa in a common effort to
    upgrade the legal education of the profession and the judiciary, and to
    conduct research and to provide counseling on different aspects of the
    law and legal systems prevailing in the Arab states. The underlying
    premise is the common recognition that regional peace and prosperity
    depend in part on educating those who develop the laws and administer
    the legal system and on looking at ways to improve the legal structure.
        The Arab Lawyers Union has invited the U.N. High Commissioner for
    Human Rights to participate in the project. The International Bar
    Association, the Law Society of England and Wales and the Paris Bar are
    also joining with the ABA to provide technical assistance and to secure
    financial support.
        Our Arab colleagues believe this project will enable them to
    address fundamental problems existing throughout the Arab world. In
    varying degrees from state to state, their history and contemporary
    concerns have left Arab states with legal systems and institutions that
    cannot cope effectively with some important problems and that cannot
    take advantage of opportunities, particularly in areas of economic
    development. Progress is inhibited by the lack of a legal profession
    equipped to deal with trade, economic development, privatization and
    capital market issues as well as insufficient acceptance of the role of
    a judiciary in enforcing legal rights and in settling public and
    private disputes. The Institute will contribute to the prospects for
    fundamental reform by equipping the Arab legal profession with critical
    resources to pursue its own agenda and at its own pace. The functions
    of the Institute will be educational and not political.
        The Constitution for the Institute was agreed upon at a meeting in
    Berlin in Fall 1996, and bylaws and final documents were approved early
    in 1997 at a meeting of the Permanent Bureau of the Arab Lawyers Union
    and by the participating non-Arab bar associations. Now, the Institute
    will be established as its own legal entity by a protocol with the
    Egyptian government. Land near Cairo is being furnished for the
    Institute's headquarters. Facilities also are being contributed in
    Tunis and Amman. The government of Lebanon has indicated its wish to
    participate and its willingness to offer support.
        According to the agreed Constitution, the Board of Directors'
    members will be from Arab states, and a Board of Trustees will be
    composed of Arab and non-Arab representatives of the supporting bar
    associations. We have agreed to establish an Academic Advisory
    Committee composed of Arab and non-Arab lawyers, judges, law
    professors, and others with relevant experience of high standing and
    expertise. The Academic Advisory Committee will be responsible for
    advising on matters relating to the academic programs, including the
    appointment of lecturers and professors, the establishment of courses,
    and more generally to facilitate the development of rule of law
    programs in the Arab states.
        Funds or services have already been donated by several of the
    collaborating bar associations. Most recently, the International Bar
    Association (``IBA'') has developed a list of projects which it is
    committed to undertake to support the Arab Legal Institute. Among the
    initiatives proposed by the IBA are a series of workshops addressing
    the independence of the judiciary, of the bar association and of legal
    practitioners; translation into Arabic of the IBA International Code of
    Ethics, IBA General Principles of Ethics, and other similar documents;
    and articles on selected human rights issues written for insertion into
    Arab journals and newspapers.
        European governments likely will furnish grant funding. The ABA has
    dedicated a portion of its staff time and resources to seeking grant
    funds in the U.S. for this important endeavor. Thus far, the U.S.
    government has not committed any funding, although we understand the
    State Department is supportive of the project.
        We estimate that the value of the facilities offered by the Arab
    states is in excess of one million dollars. We expect to receive
    shortly non-U.S. grants in excess of $500,000. Pro bono time and
    expense outlays by representatives of the American Bar Association have
    exceeded $200,000. For every dollar contributed to the project's
    support, approximately $3 in pro bono time can be expected to be
    contributed.
        The Association anticipates that this initiative, which unites
    Arab, European and American lawyers in shared principles of
    professionalism and respect for the rule of law, will advance our
    mutual interests. We are looking forward to the commencement of the
    initial programs, the first of many we expect will flourish under the
    aegis of the Arab Legal Institute. We believe that this effort will
    positively affect the present dynamics in the Arab states and will
    contribute to a future based on accepted rule of law principles. We
    hope the U.S. government will join with other governments and financial
    sponsors to support ALI's courageous Arab leaders and this ABA-
    initiated rule of law program.
    E. Latin America
        Over the years, the ABA has conducted a number of rule-of-law
    projects in Latin America. These have included a series of programs in
    Central America in the late 1980's on the judicial system and
    alternative dispute resolution, a Latin American Sister Law School
    Program in 1993-94, and others. One current project and one developing
    project in the region, both involving regulatory reform, are described
    below.
                1. Latin America administrative law project
        This project is designed as technical assistance to CITEL (the
    Inter-American Telecommunication Commission), which functions under the
    auspices of the OAS. The specific counterpart within CITEL for this
    project is the Joint Working Group on Legal Matters, with participation
    from each of the three standing committees of CITEL. This project is
    jointly sponsored between the ABA Section of International Law and
    Practice and the Inter-American Bar Association (IABA), and ultimately
    may include participation by other ABA sections as well as other
    regional bar associations within Central and South America.
        The focus of the project is the creation of information resources
    and the publication of a report summarizing the salient structural and
    procedural features of developing telecommunications regulatory
    authorities in Latin America. The original impetus for this project,
    which was initiated in 1994, was the increasing emergence within the
    region of new telecommunications regulatory frameworks and authorities
    as an outgrowth of the privatization and liberalization in the
    telecommunications sector. The interest in this project originally
    reflected a recognition that: (i) the success of telecommunications
    reform would be dependent in large measure on the perception by private
    sector investors of the stability and fairness of regulatory processes;
    (ii) the best available models for telecommunications regulation were
    from countries with other legal and political systems such as the U.S.
    and the U.K.; and (iii) a wide diversity of approaches was emerging in
    the countries of common legal and political systems in the region,
    creating a need for a common basis of understanding of the significance
    of the differences.
        Since the inception of the project, the effort has gained
    additional importance due to the focus of the Summit of the Americas on
    the development of the telecommunications sector and the critical role
    of transparent regulatory frameworks in the implementation of the new
    WTO Agreement on Basic Telecommunications Services.
        The project consists of two parts: The first is the creation of a
    database of information on telecom regulatory structures and procedures
    in each country of the region. A questionnaire is currently being
    prepared by CITEL. The resulting information will be available for
    reference in the drafting of the report. The report itself constitutes
    the second part of the project. The report will be a descriptive
    reference, and is not intended to include any specific proposals or
    model rules. A detailed outline of the report has been prepared and
    approved by the CITEL Joint Working Group. Specific drafting
    assignments are now being made and drafting has begun. A preliminary
    draft will be presented to the next Joint Working Group meeting which
    is scheduled to take place the first week of August 1997.
        At this stage, the project is being funded and staffed entirely
    from internal resources.
                2. CONASEV--National Securities Exchange Commission of Peru
        In October 1996, the Council of the Section of International Law
    and Practice approved a project proposal regarding the preliminary
    drafting of a cooperative agreement. This agreement establishes the
    basis for technical assistance and exchange of information between
    CONASEV (National Securities Exchange Commission of Peru) and the
    Section. The purpose of the agreement would be to provide assistance in
    the areas of securities and capital markets regulation.
        A steering committee formed by members of the Section was created
    to supervise the drafting of an agreement in close collaboration with
    representatives of CONASEV. The Steering Committee has finished
    reviewing the Spanish version of the agreement and has started working
    on the English version. Additionally, the Steering Committee is in the
    process of identifying potential funding sources to develop a tentative
    project to provide technical assistance to CONASEV.
    F. Other projects
                1. Hong Kong and the People's Republic of China
        This Spring, an ABA delegation which I led visited Hong Kong to
    study the implications of the impending reversion of sovereignty for
    the rule of law. The delegation met with government officials,
    opposition leaders, business leaders, and bar groups to discuss the
    effect of the reversion on the legislative body, the courts,
    independent agencies such as the Independent Commission on Corruption,
    and the legal system in general. The trip was funded by the ABA and by
    the participants themselves; a report of the meetings and our
    conclusions is in preparation. Next week, our Council will be reviewing
    a proposal to seek outside funding for several follow-up visits to Hong
    Kong in each of the three years following the reversion.
        We are also in discussions with outside funding sources concerning
    possible rule of law projects in mainland China. Our Section sustained
    a substantial loss three years ago when a joint seminar with the All-
    China Lawyers Association in China was unilaterally cancelled by the
    Chinese on the eve of the program; as a result, we have been cautious
    about projects in China. However, it is apparent that the continued
    development of the rule of law in China is an important priority, both
    for China itself and for the future of Hong Kong. We will therefore be
    looking closely at project opportunities in China over the next year.
                                   conclusion
        Foreign assistance is very much maligned and misunderstood, partly
    because its benefits are not often apparent. The ABA appreciates the
    difficult task your Subcommittee has in dealing with the fiscal year
    1998 Foreign Operations Appropriations bill. Yet Mr. Chairman, we hope
    that your decisions will be guided by the goal of protecting America's
    vital interests. Since the United States is the only country capable of
    providing effective global leadership, it is more important now than
    ever for our own self-interest to accept this challenge. Accordingly,
    for this nation to function as a super power, we must fully participate
    in the global economy through engagement and a commitment to foreign
    assistance.
        Only one percent of the federal budget is devoted to foreign
    assistance, to programs which yield an enormous return for American
    taxpayers. Internationally, these programs foster democracy and human
    rights, build free markets and free trade, combat corruption, and
    promote sustainable development. Here at home, U.S. foreign assistance
    leads to increased exports, high quality American jobs, and greater
    economic and national security.
        The ABA believes that its global rule of law projects are one means
    to this end. Our programs have yielded tremendous leverage on a
    relatively modest U.S. financial investment. This is largely due to the
    vast amount of free legal technical assistance available to us. A
    strong commitment to legal and commercial infrastructures supports the
    ability of emerging markets to purchase U.S. products.
        Mr. Chairman, let me conclude by reiterating how important foreign
    assistance is to America's success. Our national interests are
    increasingly becoming more intertwined with the political stability of
    other nations, whose policies can promote or disrupt the free flow of
    goods and services. In that regard, countless American workers and
    businesses depend on trade and a thriving global economy for their
    livelihoods, which is fostered by the support of rule of law projects.
    There has been a tremendous movement in recent years toward economic
    and political openness. We cannot afford to reverse the tremendous
    gains that rule of law democracy projects have made in fostering growth
    in the global economy. For the aforementioned reasons, we urge this
    committee to continue its support for the ABA's technical legal
    assistance programs through the appropriations process.
                                     ______

         Prepared Statement of Hobart C. Gardiner, President and CEO,
                     International Executive Service Corps

        The International Executive Service Corps accelerates the sound
    growth of a free enterprise system in the world's developing countries
    and emerging democracies. Long-term sustainable development in
    developing and emerging countries depends upon economic growth. The
    private sector is widely recognized as the engine of growth and is the
    most reliable source of efficiency and innovation, giving rise to a
    healthy, educated populace.
        IESC supports this private sector development by supplying
    managerial and professional skills and knowledge rather than financial
    aid. We make American executives available to individual enterprises in
    the countries we want to help. As a business-to-business (and people-
    to-people) kind of foreign aid, we furnish three elements frequently
    lacking in large scale government-to-government assistance. First, we
    present to the American private sector, both individuals and U.S.
    companies, an opportunity to participate directly in the building of a
    strong private sector overseas. Second, we draw on the vast resources
    of managerial and professional talent that have built the American
    economy and for which financial aid alone is no substitute. Third, we
    foster stable foreign business climates for direct foreign investment
    by U.S. companies.
        Over the past 32 years, we have helped create new businesses,
    increase sales, increase employment and raise standards of living in
    over 120 countries. During this time, 20,000 clients have been served,
    one million jobs have been created or saved overseas, and our clients
    have purchased three billion dollars worth of American goods, equipment
    and services. Two hundred eighty clients have entered into joint
    ventures or other alliances with American businesses.
        Historically, forty percent of our activity is repeat business. The
    reason is the quality of our volunteers. For instance, early on, the
    Hungarians asked IESC to help them establish a stock exchange in
    Budapest. We sent Bob Bishop, who retired from the New York Stock
    Exchange as Senior Vice President. He did a magnificent job--teaching
    them to set up and manage a stock exchange, and the importance of SEC-
    type rules. He told them what to watch our for and what to insist on.
    They were very pleased. As the project was coming to an end, they asked
    Bob if he would conduct a seminar on ``capital formation'' at the local
    university. He said he would be delighted to, what university? They
    said, ``Karl Marx University.'' Since then, they changed its name to
    the University of Budapest.
        The International Executive Service Corps is the most effective
    business-development organization of its kind in the world. Our
    business is not just doing good, but doing good business. We have
    taught African women to support themselves and their families by
    carving and selling wooden sculptures. We have shown Russians how to
    manage formerly state-owned manufacturing plants. We have coached the
    new owners of a sawmill in Ghana. We have built a hydroponic greenhouse
    in Egypt and taught mentally-handicapped adults to grow and sell
    lettuce to major hotels in Cairo and Alexandria. We helped a retailer
    in Guatemala become a creative merchandiser who just opened the first
    full-fledged modern department store in Guatemala.
        IESC assistance is cost-effective because our experts are not paid.
    Over the past 32 years, one million executive days have been
    contributed to IESC projects. This contribution has leveraged the
    funding we have received from AID, from other grants, contributions and
    the fees we charge our clients. In 1996, 62 percent of the cost of the
    IESC operation came from the private sector and 38 percent came from
    the public sector.
        IESC makes sure that the world knows about U.S. business
    leadership, initiative and creativity. Recognizing our impact, nineteen
    other industrial countries around the world have formed their own
    versions of IESC, and are now sending their own business executives to
    teach modern business techniques to the developing world. The Japanese,
    for example, have studied IESC and created their own service corps in
    order, as they put it, to be sure ``Japan's face is visible.''
    Incidentally, these foreign organizations now have aggressively active
    programs in Latin America and the Caribbean while IESC has had to
    curtail our operations there because of a lack of funding from AID.
    Imitation, indeed, may be the sincerest form of flattery, but it is
    ironic and sad that as other industrialized countries copy our program
    AID is reducing support for our activities right in our own backyard.
    This retreat jeopardizes U.S. trade and investment opportunities which
    IESC could foster for U.S. business.
        We do, however, have one new program in Panama. We recently signed
    an agreement to assist the Panamanians make appropriate use of the U.S.
    properties there that will revert to Panamanian control. It will also
    provide linkage for U.S. business to participate in this
    transformation. We were happy to do this because of the importance of
    the Canal to our shipping interests and in the interests of a
    successful transition.
        IESC believes that giving a hand out is one thing: giving a hand-up
    is another. We break the cycle of dependency in developing countries by
    teaching self-sufficiency, independence, competence and responsibility.
    We also teach realistic business practices by charging our clients a
    fee. So far, we have collected over $200 million in fees from our
    clients, which has allowed us to do more projects.
        In the former communist countries, a primary barrier to foreign
    business has been the government's unfamiliarity with the need to
    create an enabling environment. Therefore, IESC's public administration
    program is designed to teach local, regional and national government
    officials to understand the most effective role of government in a
    market economy. Since ``open governments and open markets go hand-in-
    hand,'' the public administrators trained by IESC offer critical
    support to the private sector in a free market economy. We have sent
    359 leaders from municipal, and federal government to help accomplish
    this objective.
        IESC has also been active in the former Soviet Union in defense
    conversion activities. In fact, you probably recall when listening
    devices were found in the American Embassy in Moscow. IESC was assigned
    the task of converting the manufacturer of these listening devices from
    military to other uses. Thanks to the hard work and creativity of
    several IESC volunteer experts, that plant is now a major manufacturer
    of hearing aids in Russia.
        More important, our defense conversion activities have changed
    attitudes. Thomas Reed, former Secretary of the Air Force, served as an
    IESC volunteer on several of these projects. Tom pointed out the long-
    term importance of IESC's programs in this area when he noted ``The
    point of all this is that Defense Conversion has little to do with the
    conversion of facilities. It has everything to do with the conversion
    of the mindset of the leadership of these societies. In this
    undertaking, IESC has played a historic role. From my experience, IESC
    has set the stage for a winding down of the Cold War, defusing the
    Soviet threat, and in opening new vistas to the Soviet old timers.
    That's the best part, because they are basically good people who
    deserve a better system.''
        The new deputy prime minister of Russia, Boris Nemtsov, who had
    been governor of Nizhny Novgorod, wrote the following to the U.S.
    embassy in Moscow: ``Despite the occasional appearance here of other
    sources of technical assistance, IESC's efforts offer an unmatched
    mixture of knowledge of our people and region; knowledgeable Russian
    staff with invaluable data on Russian enterprises to assist potential
    investors; and evidence of understanding the importance of long-term
    strategies and relationships.''
        IESC operates efficiently. We just finished surveying the companies
    we helped in 1995. According to these studies, every dollar that IESC
    spent on business assistance projects in 1995 increased sales for our
    overseas clients by almost $6, generated $2 in new financing, and
    almost $4 in capital investments--all in just the first year after IESC
    assistance. IESC also helps American business. During that same period,
    in the first year after we worked with them, those companies bought $38
    minion worth of U.S.-made goods and services--more than the total cost
    of IESC assistance that year.
        IESC itself operates ``lean and mean.'' Last year we reduced our
    headquarters payroll by 15 percent without reducing the number of
    projects. We employ for ourselves the same good business practices that
    we urge for our business clients. In fact, we recently received
    recognition from Independent Sector and AID for our cutting-edge
    approach to quantitative measurements of our effectiveness. IESC is the
    leader among business volunteer organizations in tracking the
    performance and developmental impact of our programs.
        IESC is a people-to-people program. Our major resource is the
    13,000 industry experts who have registered with us, offering to go
    abroad on one of our projects for up to three months of intense
    management and professional assistance. They don't get paid--in money.
    They do get paid in the satisfaction of helping those who need it--and
    appreciate it. The value of these donated services has been estimated
    at over half a billion dollars over the life of the organization.
        In summary, IESC is good for the United States, is good for
    American business, and is good for people around the world who are
    struggling to make better lives for themselves and their children. It
    is efficient and effective. It supports American foreign policy
    objectives and extends America's commercial reach. It shows America's
    real self to the world--its knowledge, experience and generosity. It is
    a balanced approach to business--not just for profit, but for human
    development.
                                     ______

    Prepared Statement of John H. Costello, President, the Citizens Network
                              for Foreign Affairs

                                    overview
        Mr. Chairman, I am John H. Costello, President of The Citizens
    Network for Foreign Affairs. I appreciate the opportunity submit this
    written testimony on the U.S. foreign assistance program.
        The Citizen's Network for Foreign Affairs is a unique international
    economic development organization dedicated to stimulating economic
    growth and policy reform in the world's emerging economies. Founded in
    1985 on the idea that global economic growth is critical to future
    American prosperity and that American private enterprise is essential
    to promoting it effectively, CNFA champions the catalytic role of
    investment and technical assistance as one of the most potent and
    sustainable engines of development.
        Through innovative partnerships CNFA creates market-oriented,
    economically-viable enterprises where none or few existed before.
    Public-private partnerships match U.S. firms interested in market
    expansion with local organizations that want to increase capacity and
    production, improve technologies and expand the number of jobs.
    Volunteer partnerships match Americans with technical know-how and
    practical experience to emerging country organizations in need of
    business, association and agricultural expertise. Taken together,
    CNFA's partnerships strengthen the economic well-being of both emerging
    country and American citizens. As vehicles for delivering American
    foreign economic assistance, there is no other idea or mechanism as
    powerful.
        Working with leading American agribusiness firms, CNFA manages
    programs on behalf of the U.S. Agency for International Development to
    innovatively create private enterprise as a means of restructuring
    outdated, inadequate, and inefficient food and agricultural systems.
    Its results-oriented win-win projects combine the goal of achieving
    economic development in emerging economies and new democracies with the
    private sector's desire to expand markets. Since the public-private
    partnership program's ground-breaking inception in 1993, CNFA has
    leveraged more than $150 million in direct private investment and
    technical assistance from U.S. agribusiness with $45 million from
    public sources to replace aging and inefficient state-owned communist-
    style enterprises with privately-owned and operated joint ventures.
    CNFA's latest project is expected to leverage an additional $100
    million in private sector assets, with $30 million of appropriated
    development assistance funds. The participating American agribusinesses
    two-thirds of which are small businesses say their anticipated long-
    term return has the potential to justify their continued commitment to
    the business they have helped create in the target countries.
        Equally important is the role CNFA plays in generating a
    governmental policy and legislative environment that is fostering
    private enterprise by linking policy reform to the incentives of
    substantial new investment and technology. At the request of U.S. firms
    with operations in the target countries, CNFA undertakes a range of
    initiatives to encourage government at the local and national levels to
    pursue legal, bureaucratic and regulatory policies that are conducive
    to private farming and that encourage foreign trade and investment.
    Nowhere has this been more important than in Ukraine.
                  foreign assistance in the post cold war era
        The end of the Cold War and dismantling of state-managed economies
    across the globe has ushered in a new era of democratic regimes and
    economic expansion, one based on less government intervention and
    greater reliance on the marketplace. It has emerged from the
    convergence of two powerful forces in the post World War II period: a
    transportation revolution that has made the world's geographic barriers
    irrelevant and an information revolution in terms of computers and
    other forms of communications that has contributed mightily to breaking
    down repressive political barriers. Together they have done much to
    accelerate the pace of economic growth, even among the world's poorest
    peoples. And today's market liberalizing multilateral and regional
    trade pacts, which are rapidly expanding the world's middle class, are
    doing much to ensure that future economic growth is widely shared.
        The Citizen's Network recognizes the critical significance of these
    changes. As the federal government ponders over how to reinvent its
    traditional role in delivering foreign assistance in the absence of the
    Soviet menace, CNFA has forged ahead, in effect, creating a new model
    in the post Cold War period. This model recognizes the crucial role of
    U.S. assistance as the catalyst in persuading the U.S. private sector
    to invest, trade and form joint ventures to achieve economic
    development more rapidly and sustainably. In the end this is arguably
    the best way to put and keep dollars in the pockets of people.
    Government neither has the expertise nor the capacity to go it alone in
    assisting the world's less developed economies. Long lasting economic
    and per capita income growth occurs best when government and the
    marketplace work in partnership to achieve mutual goals.
        But for the past twenty years, indeed as far back as President
    Truman's Point Four Program, U.S. economic development has largely left
    American business out of the economic development process. While
    universities, non-governmental organizations and other development
    specialists have practiced ``development,'' we have largely excluded
    the energy, capital and creativity of the American enterprise sector
    from the development process. It is not that private voluntary
    organizations and universities do not have an important role to play in
    economic development. It is not an either orscenario. However, if we
    are interested in achieving a significant, sustainable impact in
    promoting economic opportunity for millions of people everywhere, poor
    and rich alike, then there is an overwhelming case for linking trade
    and development.
        The last decade has witnessed unprecedented change. We have seen
    the collapse of communism, and the failure of centrally planned
    economies. The free market is in ascendancy everywhere and the results
    are striking. A recent series detailing the importance of trade and
    investment and its links to economic development in The Washington Post
    said it plainly: ``More than any other government program, more than
    any aid agency or any international bank, the rapid spread of free
    trade, free markets and investment across borders by private companies
    and investors a phenomenon economists are calling globalization is
    proving to be an effective weapon against poverty in many nations
    around the world and, in some places, arguably the most effective anti-
    poverty measure ever known.''
        Between 1987 and 1994, according to the World Bank, the number of
    poor people in China decreased by more that 50 million. Today
    investment flows into the developing world represent 72 percent of all
    financial flows dwarfing aid flows which have fallen from 53 percent in
    1984 to 28 percent in 1995. In 1995, the flow of private capital into
    the third world totaled more than $170 billion, a 200 percent increase
    in just five years!
        This concept not only results in real and sustainable
    ``development,'' it is an idea that the American public understands. It
    produces win-win partnerships. If we are to see any change in reversing
    the shrinking ``development pie'' we must find creative ways to link
    development resources, trade, and investment by leveraging the
    dwindling public resources with private capital. Aid, trade and
    investment results in real and sustainable development. It works.
        The win-win approach also challenges the zero-sum opinion of aid.
    Many Americans believe that aid even when they support it takes
    something off the American balance sheet. It is often viewed as a cost
    which provides little or no economic return to Americans. Until we
    clearly appreciate that investing in development is effective and
    results in an economic returns to the United States we will be faced
    with a fading horizon of resources and opportunities. Also, investing
    in development and leveraging the creativity, energy and capital of the
    enterprise sector increases economic opportunity for American workers.
    The new economy is global and it is competitive. The emerging markets
    are the most dynamic potential opportunity for growth for just about
    every sector of the U.S. economy from corn flakes to sneakers. It is a
    factor of demographics. We will add an additional 12 billion people by
    2025 just 28 years away. This is not a zero sum game; we need economic
    development to provide economic opportunity jobs for Americans.
        The ingredients for development, technology, capital and trade are
    readily available from our allies in the G-7 and from the Asian tigers.
    It is our choice. We can win and the emerging economies can win. But we
    must be a player.
    cnfa model is the right approach for foreign assistance in 21st century
        We believe the CNFA model has broad, fundamental indeed historic
    implications for how foreign assistance should be delivered and
    measured in the post Cold War era where the ubiquitous ascendancy of
    the global marketplace is transcending geopolitical concerns and
    redefining our notions of national security. Put simply, the model's
    bottom-up, public-private cooperative approach brings together the
    public interest and the profit-motive of the marketplace to leverage
    investment, technology transfer and income-generation quicker and
    stronger than if the same resources were tendered by the public sector
    alone.
        At the end of the day we have found nothing to match the
    creativity, entrepreneurial spirit and tenacity the private sector
    whether its companies or individuals who volunteer their expertise
    brings to bear on achieving rapid and sustainable developmental change.
    We at the Citizens Network are proud of our role in creating win-win
    private-public partnerships in emerging economies countries that link
    trade, investment, technology and know-how to create long-lasting,
    financially viable private sector food and agricultural systems. The
    fact is, economically-viable partnerships that require a financial
    stake in ventures by all potential beneficiaries Western firms that
    wish to establish new markets, emerging-country organizations that want
    to increase capacity and production, improve technologies and expand
    the number of jobs, and the helping hand of U.S. assistance programs
    will yield extraordinary results.
        The CNFA partnership model is a proven and effective way to
    strengthen economic systems, quality of life, and the prosperity of
    citizens everywhere in emerging countries as well as in America. Thank
    you.
                                     ______

       Prepared Statement of Ihor Gawdiak, Director, Washington Office,
                    Ukrainian American Coordinating Council

        The following statement is submitted on behalf of the Ukrainian-
    American Coordinating Council by Ihor Gawdiak, its Director of the
    Washington Office. The UACC is one of two Ukrainian-American umbrella
    organizations and represents the two largest Ukrainian-American
    fraternal organizations, the Ukrainian National Association and the
    Ukrainian Fraternal Association, with a total membership of over
    75,000, as well as a number of the most prominent civic, social,
    charitable, and cultural organizations in the Ukrainian-American
    community nation-wide. Our constituents are very active in and support
    both the Democratic and Republican parties.
        Recently, significant attention has been given in the House of
    Representatives to some of Ukraine's most pressing problems. Likewise,
    there has been much press attention given to Ukraine's difficulties in
    implementing economic reform and overcoming public corruption.
        The Ukrainian-American community is also disappointed in the lack
    of progress in these areas and is much aware of the need for Ukraine to
    solve quickly pressing problems. We share our American government's
    frustration over the continuing corruption and the slow pace of reforms
    in Ukraine. We also share the sense of frustration with Ukraine's own
    reformers who face daily the task of overcoming the legacy of Soviet
    Communism and its systemic corruption.
        Like you, however, we see an independent and democratic Ukraine as
    vital to American interests and expect Ukraine to develop into a truly
    democratic, law abiding, stable, and economically strong nation. We
    believe, therefore, that it is critical for the United States to show
    its support for Ukraine by continuing the ``strategic partnership''
    begun only in the last few years. Such a partnership must include aid
    to Ukraine at current or increased levels. Frustration with the
    difficulties experienced by American businesses, while of critical
    importance and the proper subject for diplomatic intercession, must not
    overwhelm the vital interests the United States has in encouraging the
    growth of independent and democratic Ukraine.
        We believe that in your discussion of aid to Ukraine you should
    consider carefully many factors in the evolution of Ukraine, successes
    and failures. Corruption is endemic not only to Ukraine, but to the
    entire region. The pace of reforms has been excruciatingly slow
    throughout the region. Ukraine, unlike Russia and some of the other INS
    countries, faces particular difficulties--the enormous burden of the
    Chornobyl catastrophe cleanup, extensive dependence on Russian oil for
    its energy needs, an entrenched communist dominated bureaucracy, and
    constant pressure from Russia to rejoin it in some sort of a Russian
    dominated union. Nevertheless, Ukraine has made remarkable strides in
    maintaining its international obligations and advancing domestic
    reforms. Ukraine has voluntarily given up its arsenal of nuclear
    weapons, has participated very closely with NATO in its Partnership for
    Peace program, has joined the European Union and has promised to end
    the death penalty, has by far the best record on human rights issues of
    any NIS country, and its treatment of minorities has won praise
    throughout the world. On the domestic front, Ukraine, despite
    tremendous difficulties, has been making slow but steady progress as
    well. It has had a peaceful transfer of power in two presidential
    elections, it has enacted a new constitution, it has introduced a new
    and stable currency, it has reduced inflation by almost 10,000 percent,
    and it has privatized almost 50,000 enterprises.
        In spite of great political pressures against it, Ukraine's
    President Leonid Kuchma has steadfastly maintained a course of
    developing close ties with the West and strengthening the strategic
    partnership with the United States. He has been equally firm, despite a
    strong leftist opposition in the Parliament, in promoting reforms in
    Ukraine. There are presently a number of bills before the Parliament
    that if passed would go a long way to create a better climate for
    investment in Ukraine and would make it possible to more effectively
    fight crime and corruption. Only in the last few days, President Kuchma
    has created an agency akin to our FBI with specific instructions to
    combat crime and corruption.
        Ukraine is unique in its importance to European security, and the
    international self interest of the United States. It is not unique,
    however, in the hurdles of economic reform and public corruption it
    faces. Of all the countries in the region, Ukraine should not be
    singled out for discipline because of such shortcomings.
        Cuts in U.S. foreign assistance to Ukraine at this point would
    critically undermine President Kuchma's efforts and the efforts of
    other, less well known but equally dedicated, reformers in Ukraine.
    Withholding aid would send the wrong message to reformers and would
    give comfort to the very interests responsible for many of the
    problems. In the next two years Ukraine faces two critical elections,
    parliamentary elections in March 1998 and presidential elections a year
    later. The President and the pro-Western, democratic forces must
    convince voters across Ukraine and especially a skeptical pro-Russian
    electorate in Ukraine's eastern and southern oblasts (provinces) that
    their pro-Western, reform and market oriented policies are in the best
    interest of Ukraine and all its citizens. They can do so only with U.S.
    help, including substantial and well-thought out foreign aid. A victory
    of the leftist, communist forces in the next parliamentary elections
    would significantly delay further meaningful reforms in Ukraine, would
    drastically change its pro-Western, pro-NATO foreign policy, and could
    push Ukraine into a Belarusian-type union with Russia. The United
    States and the West would lose a pivotal strategic partner in Eastern
    Europe, and peace and security in the region could be greatly
    endangered.
        While we must work to help Ukraine reform, the U.S. Congress and
    the Executive Branch must show greater patience and understanding
    toward Ukraine. The development of a law-abiding citizenry and a
    society and governmental infrastructure that does not operate on graft
    and corruption takes a long time under the best of circumstances. It is
    not a process that can be easily legislated, especially not from
    abroad. It must evolve gradually and over time. Let us not forget our
    own American experience with the ``robber barons'' of the 1890s,
    Prohibition era crime lords, and subsequent recurring episodes of
    corruption in public life. While we must encourage and push reform, we
    cannot expect Ukraine to achieve developments in five years that took
    many decades in our own country. The systemic evil and corruption that
    permeated Soviet society cannot be swept away overnight. The United
    States called for the ``strategic partnership'' with Ukraine. We must
    have a commitment to that partnership and to those in Ukraine fighting
    to build democratic institutions and the rule of law.
        The people of Ukraine, by and large, have shown a desire to live in
    a democratic lawful society, and they are capable of democratic
    governance. Withholding or cutting aid to Ukraine could result in a
    disastrous economic regression, would punish the segments of Ukraine's
    society and government who are most committed to reform and cooperation
    with the United States, and, worst of all, could possibly force Ukraine
    toward a political course that is the least desirable for the national
    interests of the United States.
                                     ______

        Prepared Statement of Joseph Lemire, President, Gala Radio & TV
     Company, Olympic Champions, Ltd., Kiev, Ukraine, and on behalf of the
         Several Members of the American Chamber of Commerce in Ukraine

                                    synopsis
        On July 18, 1996, three thugs broke into the studio of Kiev's Gala
    Radio, the first Voice of America (VOA) affiliate in Ukraine, to steal
    the station's equipment, its music library of CDs, Gala's sign-on and
    jingles. The men threatened to hurt employees who tried to stop them.
    Less than an hour later, the same men broke into my private residence
    and repeated the action. Within two hours these same men were
    broadcasting as ``Gala Radio'' and have continued to this day to
    broadcast with the full support of the Ukrainian government, working in
    conjunction with the son of the personal advisor to the President of
    Ukraine.
        On January 17, 1997, Ukrainian police walked into Ukrainian
    Olympian Oksana Baiul's Beauty Salon in Kiev and padlocked the door.
    They provided no explanation for their actions other than that we had
    refused to pay a ``questionable payment'' a few days before.
        Our company, the Gala Radio and TV Company, is an American-
    Ukrainian joint venture with more than $1 million in direct U.S.
    investment, which was the basis for what was to become a Gala Radio
    network in 12 Ukrainian cities. The Gala Radio FM station in Kiev was
    expropriated in July 1996 by the Ukrainian government a month after
    Gala Radio turned its first profit. Our plight has been reported in a
    number of newspapers, including the Wall Street Journal, New York
    Times, International Herald Tribune, and Los Angeles Times. We decided
    to invest in Gala Radio because of its VOA affiliation.
        Retrieving only part of our investment in Gala Radio (and the
    retrieval is tenuous) has entailed nearly 100 pages of reports from the
    American embassy in Kiev (the reports can be consulted for details);
    one Supreme Court of Ukraine decision in our favor that has been
    ignored by the Ukrainian government; innumerable meetings in Kiev among
    embassy officials, my company representatives, and Ukrainian government
    officials; and more than 30 trips in the last year on my part to the
    United States to talk with officials from the U.S. Congress, the White
    House, the State Department, the World Bank, the Ukrainian embassy, and
    other institutions.
        Our other company, Olympic Champions, Ltd. (OCL), is a wholly owned
    subsidiary of our American company with ownership interest by Oksana
    Baiul, Viktor Petrenko, and other Ukrainians involved in the Olympics.
    Half a dozen Ukrainian Olympians hoped to become investors in the Gala
    Radio network, which in turn would have employed several hundred wage-
    earning, tax-paying Ukrainian citizens.
        Our OCL Beauty Salon investment in Ukraine was expropriated in
    January of this year after we refused to pay a ``questionable payment''
    which was outside of our legal lease to purchase agreement. Shortly
    thereafter, the Ukrainian government literally walked in without notice
    and padlocked the entrance, refusing us access. The government then
    moved our equipment out and has moved another company into the
    location. We have invested more than $200,000 in this venture.
        After the considerable attention our matters have received, several
    high level Ukrainian officials are now saying our matter has been
    resolved when in reality, and as setforth in the detail Chronology of
    Events, it has not been resolved. The following problems continue to
    exist:
        1. The Ukrainian Government allows another company to broadcast and
    to use our name, stolen equipment, jingles and signon.
        2. The Ukrainian government refuses to issue the other 11 broadcast
    licenses we had paid to be allocated to us and were the basis of our
    investment.
         3. The Ukrainian government refuses to honor our damage claim
    based on the Ukrainian Supreme Court decision.
        4. The Ukrainian government refuses to honor our agreement on the
    Oksana Bauil Beauty Salon and return the location and our equipment.
        These problems are similar to problems being encountered in Ukraine
    on a daily basis by small companies like R&J Trading and Perekhid Media
    Enterprises, to large companies like Dupont, Motorola, Monsanto and
    Luscent Technologies. These are not isolated instances nor are they the
    result of a ``few bad Ukrainian partners.'' All these problems exist
    because of the Ukrainian government's refusal to honor contracts,
    establish a rule of law and enforce their own law and court decisions.
                              criminal complaints
        Individuals have been identified who unlawfully and forcibly took
    property belonging to the Gala Radio Company, including equipment, its
    jingles, sign-on, and much of its CD library. Affidavits and criminal
    complaints have been filed with the Kiev police, and the American
    embassy has officially requested that these matters be investigated by
    the procurator's office. We have filed other criminal complaints as
    well. Yet all the complaints have been dropped or ignored by the
    procurator general of Ukraine. In addition, the procurator general
    refused to enforce the Supreme Court decision in our case, which was in
    his power to implement.
        I have received intermittent death threats over the phone since
    August 1996. In November 1996 I was stopped in my car at gunpoint by
    off-duty police officers in uniform, who demanded that I accompany
    them. I refused. I was told in that same month, by a member of the
    Ministry of Internal Affairs, in the presence of American Embassy
    officials, that the ministry could not guarantee my safety.
        At present, an elite police unit is keeping a presence in the
    vicinity of my Kiev residence and radio studio. I am assuming that they
    are there to protect me and my employees. Perhaps their presence is to
    provide Gala Radio with protection against retaliation in light of
    impending action by the government of Ukraine to resolve our matter. I
    have no idea.
        Also at present, the procurator general is preparing to visit the
    United States at U.S. taxpayer expense. This is wrong. He first should
    be held accountable for his actions--or lack thereof--in the Gala Radio
    case and other matters, such as the case of the U.S. company R&J
    Trading, which also has numerous court rulings in its favor that are
    not being enforced. I believe a number of you ladies and gentlemen are
    familiar with R&J's problems in Ukraine.
                   the mendacity of the ukrainian government
        Even though the high court in Ukraine ruled last December in favor
    of the Gala Radio Company regarding one area of our investment
    problems, the court's ruling was long ignored while we continued to
    fight the Ukrainian government's breathtaking mendacity at all levels.
    When Vice President Gore broached the Gala matter with Ukrainian
    President Leonid Kuchma last December, the vice president was not told
    the truth. When Secretary of State Albright broached the Gala matter
    with Ukrainian Foreign Minister Hennadiy Udovenko in March, she was not
    told the truth. When Ambassadors Richard Morningstar and William Green
    Miller have broached the Gala matter with various Ukrainian officials
    over past months, they were not told the truth.
        Believe me when I say that this account of Gala's difficulties is
    far from exhaustive, but this narrative alone should give you ladies
    and gentlemen some idea of the effort required to stay on top of this
    situation. The government's bad faith runs so deep, mendacity and
    distortions are so pervasive, that any U.S. official trying to resolve
    this matter would need to be familiar with more than 100 pages of
    documentation to set straight the continuous onslaught of Ukrainian
    excuses. Thankfully, our Ukrainian attorneys are tremendous, and have
    been very diligent.
        This behavior on the part of the Ukrainian government is far from
    an isolated event. Many foreign companies cite ``changing conditions,''
    ``telephone law,'' lack of contract sanctity in Ukraine, enabling
    Ukrainian officials to change the story when they are pinned down on
    violations of their own laws. The so-called ``grain ban'' of last year
    is a case in point. The government expropriated grain slated for sale
    to countries around the world, affecting the U.S. firms of Monsanto,
    Dupont, and Kiev Atlantic Ukraine (an EBRD backed venture), to say
    nothing of what the ban did to the farmers of Ukraine and other
    international buyers. Incredibly, a recent statement from the Ukrainian
    Cabinet of Ministers published on April 18 in Kiev, responding to a New
    York Times story of April 9, stated that there was no proof of the
    alleged ``grain ban.'' Denying the existence of the grain ban, which
    affected a vast portion of Ukraine, is not unlike denying the explosion
    at Chornobyl--a refutation tried and abandoned by the Soviets in 1986.
    But if changing the story does not work, then documents may be changed
    and backdated, as happened in the cases of Gala Radio and R&J Trading.
                    current investment situation in ukraine
        Other American investors in Ukraine are fighting similar battles,
    while some of the largest U.S. companies, such as Marathon Oil and
    Motorola, have come to Ukraine, surveyed the business landscape, and
    gone elsewhere. Smaller companies, attracted to Ukraine several years
    ago by favorable investment laws that have since turned sour, find
    themselves in protracted, messy, and expensive predicaments. I am not
    the only investor who has reason to be concerned about his safety in
    Ukraine. As a result of Ukraine's treatment of foreign investors, that
    nation's total foreign investment after nearly six years of
    independence is a paltry $1.4 billion--in a country with 52 million
    citizens that is the largest country in Europe after Russia. Both large
    and small investors are needed in Ukraine on a massive scale, but the
    government of Ukraine is impeding its development. Ukraine, at $25 per
    person, has the lowest foreign investment per capita of any former
    Soviet Union country other than Belarus. Yet the Ukrainian government
    declares it needs foreign investment at the same time it forces foreign
    companies out of the country. The adage among investors in Kiev is,
    ``Ukraine wants foreign money all right--minus the foreign investors.''
                        problems of other u.s. companies
        On April 18, 15 U.S. companies met at the American Chamber of
    Commerce (AmCham) to discuss problems in Ukraine. Some of these wish to
    go on the record today; their statements are contained in attachments
    or have been provided to your staff. In addition, several multinational
    companies provided background material for the AmCham to present to
    this committee. These companies are Dupont, Monsanto, Arthur Andersen,
    PME, R&J Trading, Grand Hotel, and several others.
        Bill Sinkew, managing partner of Arthur Andersen Ukraine, recently
    noted that in Ukraine ``it is not three steps forward and two steps
    back in Ukraine. It is 101 steps forward and 100 steps back--and that
    is considerable effort for just one step.'' He went onto to say that
    the biggest obstacles for business in Ukraine are retroactivity of tax
    laws, arbitrary licensing and quotas, lack of respect for any laws--
    theirs or international laws, excessive penalties, and the lack of
    accounting reform and a reasonable tax system.
        Luscent Technologies noted that it participated in a tender to
    modernize a telephone network in Ukraine. After properly following
    tender rules and actually being announced the winner, President Kuchma
    himself announced another tender with new rules. Luscent has been
    working on this tender for almost one year.
        Several multinationals are saying ``this is a make-or-break year''
    for them in Ukraine. One multinational said it is ``surprisingly
    difficult to work with the Ukrainian government to promote our
    enterprise and create the business environment we need to be
    successful. We deal every day with stonewalling by government
    officials, from high levels right on down to the last man in customs.
    We see constantly changing legislation, which rarely seems to change in
    favor of promotion of industry. And as for existing rules and
    regulations, the ability to have an Ukrainian official interpret these
    rules and regulations logically seems to be tied to the amount of money
    one is willing to put into the official's pocket.'' Many multinationals
    are afraid to go on the record for fear of their employees' safety,
    among other reasons. Nonetheless, they have provided us with
    considerable background material.
        Finally, I remind the Senate that every failed U.S. investment in
    Ukraine--from Motorola to Marathon Oil to Gala Radio and R&J Trading--
    is more American assistance in the form of tax write-offs, which cost
    the U.S. Treasury millions of dollars in indirect subsidies sacrificed
    to unlawful and unethical business practices in Ukraine. Every
    successful venture is good for the United States and the foreign
    partner. A multinational communications company has five investment
    projects in Russia and one in Belarus, but it can't get one investment
    project off the ground in Ukraine. Am I pleased to report these facts?
    Not at all because this investment climate makes return of our
    investment near impossible.
                    the message is not getting to washington
        On April 19, during a visit to Kiev, Harvard economist Jeffrey
    Sachs said, ``I meet more foreigners leaving Ukraine than I do coming
    into Ukraine right now. There are too many bribes, too many taxes, and
    too much instability'' (Reuters, April 19). It is unclear to
    businessmen why Washington is not getting this message. During a
    meeting with American businesses in February 1997 in Kiev, members of a
    congressional delegation headed by Sen. Roth and Rep. Solomon noted
    their dismay at learning of U.S. business problems in Ukraine only
    after the delegation had met with Ukrainian officials. The businessmen
    raised issues of nationalization by the Ukrainian government of a
    telephone investment by an American multinational, expropriation of a
    TV contract, threats of violence, and other matters. The Wall Street
    Journal on April 23 noted that 24 of 34 companies that are registered
    with the American Embassy in Ukraine are having ``serious
    difficulties'' in Ukraine.
        While business problems were flaring up in Ukraine last summer and
    fall, a concurrent resolution was passed on September 4, 1996 in the
    U.S. Congress congratulating Ukraine on its progress pursing economic
    reforms. Ironically, on that date, U.S. embassy officials were meeting
    with Gala Radio representatives and the Ukrainian Cabinet of Ministers
    on the illegal actions taken against my company. At that time, the
    grain ban was at its peak. Other U.S. investor problems were mounting.
        In the Gala case, there have been more than 10 official letters
    from the U.S. administration and its embassy in Kiev to President
    Kuchma and other high level officials of the Ukrainian government. But
    there has not been one written response involving Gala Radio or Olympic
    Champion's Beauty Salon.
                      all we ask is a level playing field
        A level playing field for business is not achieved when special
    treatment is allowed to Ukrainian companies in violation of tender
    rules, local laws, or when the Ukrainian government fails to prosecute
    criminal violations. It is worse when U.S. assistance goes to support
    the old system. For example, U.S. assistance helped train Ukrainian tax
    inspectors. This practice assisted a venal, corrupt tax system, the
    vindictiveness of which can be attested to by any American or other
    foreign company operating in Ukraine. Instead of first using U.S.
    assistance to improve the tax code, tax inspectors were out harassing
    and auditing businesses (in some cases resorting to 10 audits per
    year).
                  the u.s.-ukraine bilateral investment treaty
        Gala and Olympic Champions have made a decision at present to go
    forward with an action under the U.S.-Ukraine Bilateral Investment
    Treaty (BIT) to pursue our additional claims. With little news on the
    regional licenses, another company using our name, and the Ukrainian
    government refusing to return our Beauty Salon location we are left
    with limited alternatives. This expropriation is near criminal
    according to our lawyers.
        Based on our prior experience with enforcing a Ukrainian court
    decision we will immediately be pursuing these matters pursuant to the
    BIT if they are not resolved prior to President Kuchma's visit to
    Washington next week. We are working with the U.S. Administration to
    resolve these matters prior to that date and hope they will be. However
    we have been promised resolution by the Ukrainian government for almost
    one year and we are not hopeful. However we are hopeful that our
    message will get to Washington and at a minimum help other American and
    foreign investors in Ukraine.
                 what happens if the free money stops flowing?
        Last year the U.S. Congress appropriated $225 million in assistance
    for Ukraine with no strings attached, while there is a litany of
    American investor problems that has been ignored by the Ukrainian
    government. We need an oversight mechanism to connect American
    assistance to Ukrainian progress.
        As one company put it, ``as long as the United States pays lip
    service to reform and continues to dump money in Ukraine, there is no
    incentive to develop the infrastructure of the country. There is only
    incentive to continue to misdirect money to buy the new Mercedes
    automobiles, build the dachas, and siphon excess cash out of the
    country. The continued flow of Western assistance, especially when
    coupled with weak admonitions to reform, has not encouraged the kind of
    restructuring that Ukraine needs. It never will. Not until the
    officials who are supposed to nurture Ukraine to health are forced to
    rely on Ukraine's own resources, and this means forced to create an
    environment in which there is incentive to develop the industrial bases
    that must be the foundation of the economy, will there be any reason
    for officials to change their old Soviet ways or get out of the way so
    that those who do want to help Ukraine may have the chance to do so.''
        U.S. assistance to Ukraine should therefore be conditional. So
    should the assistance offered by the World Bank, EBRD, IMF, and other
    multilateral financial organizations. To quote a recent Kiev Post
    editorial, ``If the [Ukrainian] economy needs any help reforming, that
    is the task for multilateral lenders like the International Monetary
    Fund and the World Bank. To the degree that these have any real calling
    it is to ease the pain of real economic change. Quietly, the United
    States can and should stop arm-twisting the multilaterals into issuing
    loans Ukraine does not merit. Let it compete for the IMF's goodwill
    with regimes genuinely interested in the welfare of their subjects.''
        Conditions on U.S. and Multilateral Assistance:
        1. U.S. assistance to Ukraine should be tied to demonstrable
    progress against corruption and resolution of American investors'
    problems.
        2. The United States should use its influence to condition IMF,
    World Bank, and EBRD loans to similar progress in Ukraine.
        3. An efficient reporting system needs to be set up to inform
    Washington expeditiously of problems being faced by American investors
    in Ukraine.
        4. A mechanism should be funded immediately to address the 20 or so
    American investor problems in Ukraine. At present such a mechanism does
    not exist at the U.S. embassy in Kiev, while the Gore-Kuchma Commission
    has not yet proved to be the answer.
        In closing, I would like to thank you for the opportunity to
    present these matters on behalf of Gala Radio, Olympic Champions, Ltd.,
    and other U.S. companies under the auspices of the American Chamber of
    Commerce.
             chronology of events involving the gala radio company
        In July 1995, U.S. and Ukrainian investors bought out the previous
    Ukrainian shareholders in a VOA-affiliate radio station in Kiev, which
    had a 24-hour broadcast license. The U.S. investors had a maximum 30
    percent interest in Gala Radio by law, though they provided the lion's
    share of capitalization, with an initial contribution of nearly
    $200,000 and subsequent investment of more than $1 million.
        On July 18, 1995, the Ukrainian government's National Council for
    Television and Radio Broadcasting (Ukraine's version of the FCC) issued
    an order instructing that to facilitate foreign investment, Gala Radio
    would receive a license for a frequency in Kiev and a regional license
    for frequencies in 11 Ukrainian cities. Gala had paid money to help
    clear the frequencies in these cities. In the same month of July, Gala
    Radio began broadcasting in Kiev from 5:30 a.m. to midnight. In October
    1995, the National Council issued Gala a letter with permission to
    broadcast 24 hours per day on a lower band frequency, similar to an AM
    frequency. Things looked promising.
        But on July 29, 1995, unbeknownst to the U.S. investors, the
    National Council proposed that it would issue 12-hour broadcast
    licenses at a cost of $12,000 each and has proceeded to sell multiple
    and even overlapping licenses to stations on the same frequencies. The
    licenses often do not give specific broadcast hours but allow only for
    various numbers of hours of ``unspecified broadcast time.''
        In September 1995 Gala Radio paid $30,000 for a 24-hour broadcast
    license for its FM frequency. The National Council insisted on payment
    because Gala's previous license had been issued by a state agency
    preceding the existence of the National Council. However, Gala Radio
    was given a license for only 12 hours of unspecified broadcast time.
    Gala Radio demanded that the license be changed to reflect its payment
    for 24 hours. The National Council told Gala that the license would be
    changed in January 1996, when more hours would be allocated to
    broadcasters. In the meantime, the National Council told Gala that it
    needed the money that Gala was paying for the 24-hour license, and that
    if Gala did not pay for the additional 12 hours now, those hours would
    be sold to someone else.
        In January 1996, Gala Radio began broadcasting from 5:30 a.m. to
    3:30 a.m with the agreement of the National Council. The Ukrainian
    government, however, did not change Gala Radio's license to reflect
    payment for 24 hours, despite Gala Radio's repeated requests.
        In February 1996, unbeknownst to Gala Radio, the National Council
    allowed the registration of a radio station called ``Leader'' by one of
    Gala Radio's employees, who was also Gala Radio's representative to the
    National Council. The National Council two months earlier had refused
    to allow anyone but this employee to represent Gala Radio at the
    National Council. The Leader company is apparently connected to high-
    level officials in the Ukrainian government. He showed up at my
    personal residence at 2:00 am one morning with the son of the personal
    advisor to the President of Ukraine. The son demanded 30 percent of
    Gala Radio otherwise ``we were to have problems''. We refused to bow to
    such extortion.
        Five months later, in the beginning of July 1996, also unbeknownst
    to Gala Radio, the National Council issued a 12-hour broadcast license
    to Leader Radio on Gala Radio's frequency.
        On July 18, 1996, Gala Radio's accredited reporter at the Atlanta
    Olympic Games was preparing for direct remote coverage of the games for
    Gala Radio's Kiev audience. Gala Radio was an official sponsor of the
    Ukrainian Olympic Team and had spent considerable sums to support the
    team and to advertise its coverage. But on that same day--a month after
    Gala Radio turned its first profit--the Ukrainian government terminated
    Gala Radio's prime-time broadcasts, giving the most lucrative hours of
    8:00 a.m to 8:00 p.m. on Gala Radio's frequency to Leader Radio. After
    breaking into Gala's studios to steal equipment and its music library,
    Leader Radio immediately began broadcasting as ``Gala Radio,'' using
    Gala's jingles and sign-on in violation of international copyright and
    trademark conventions.
        Within several weeks, Gala Radio went from revenues of $27,000 per
    month to $0 dollars per month and is suffering losses of approximately
    $1 million and loss of a regional radio network estimated to be worth
    $15 million.
        Myriad Ukrainian government officials, including the prime
    minister, continually promised that our problems would be resolved
    shortly. But weeks dragged on into months; promises turned into
    refusals to meet with us. And then, right in the middle of a visit by
    Ambassador Richard Morningstar to Kiev in October 1996, Gala Radio was
    taken off the air completely on the FM and lower bands. Ambassador
    Morningstar and U.S. Ambassador to Ukraine William Green Miller met
    with Ukrainian officials, including Ukrainian President Leonid Kuchma,
    to resolve the Gala Radio matter. No resolution was achieved other than
    promises to look into the issue. Only on November 15 was Gala returned
    to the air with the intervention of the American embassy, while we had
    suffered tremendous financial losses. And we continued to suffer losses
    when we returned to the air, since the Leader company continued to
    broadcast on our frequency during the most lucrative 12 hours of the
    day.
        On or about December 2, Vice President Gore raised the Gala issue
    with President Kuchma in Lisbon. President Kuchma said he was under the
    impression that Gala Radio owed taxes to the Ukrainian government.
    Immediately after President Kuchma's remarks, tax inspectors descended
    on Gala Radio only to discover that Gala Radio was not the entity that
    owed taxes; in fact, the government of Ukraine owed Gala Radio $12,000
    in excess VAT paid by the company in 1996. Gala Radio was informed by
    President Kuchma's office on December 26 that the president had been
    ``misinformed'' during his meeting with Vice President Gore.
        On December 9, 1996, the Supreme Arbitration Court of Ukraine ruled
    in Gala Radio's favor, stating that the National Council had violated
    Ukrainian law by granting a license to Leader Radio and by allowing
    Leader to broadcast on Gala's frequency. The decision also allowed Gala
    to pursue damages against the government of Ukraine. On December 17,
    1996, the National Council appealed the court's ruling and also
    rejected the court's jurisdiction.
        In January 1997, U.S. Commerce Department Ombudsman Jan Kalicki
    raised the Gala issue with President Kuchma per a letter from Vice
    President Gore. In February 1997, a U.S. congressional delegation in
    Kiev, headed by Sen. William Roth and Rep. Gerald Solomon, gave a press
    conference, during which Rep. Herb Bateman noted that though the
    delegation was not expert in the details of the Gala Radio case, it was
    nonetheless inconceivable to the delegation that the court order in the
    case was being ignored by the Ukrainian government.
        On February 26, 1997, the Supreme Arbitration Court of Ukraine
    rejected the appeal of the National Council and left all elements of
    its December 9, 1996 ruling in place. Subsequent to this ruling,
    pressure was applied to the Ukrainian government, and after the Gala
    Radio matter was raised at a Congressional hearing, Gala on March 11
    returned to 24-hour broadcasts on the FM band.
        But in April 1997, the Leader company with the backing of the
    Ukrainian government began broadcasting on another FM frequency in Kiev
    using the Gala Radio name, jingles, and stolen equipment. Although
    Leader's use of our company name is also a violation of Ukrainian law,
    the Leader company broadcasts its own telephone number to call for the
    purchase of advertising on ``Gala,'' noting that ``no other telephone
    number for Gala Radio exists.'' Leader is also duplicating Gala's
    programming and is advertising itself throughout the city on billboards
    and in promotional material as the ``new'' Gala Radio. These actions
    have materially damaged my company's efforts to recoup the near million
    dollars lost over the past 10 months by wreaking havoc among
    advertisers and listeners. My company recently lost a $30,000
    advertising contract negotiated a month ago due to the existence of two
    FM stations in Kiev calling themselves ``Gala Radio.'' The government
    of Ukraine has actually managed to accomplish expropriation on top of
    expropriation.
        The National Council also informs us that despite a court ruling
    allowing us to pursue damages, the National Council is not liable for
    them. Further, the National Council refuses to issue the Gala Radio
    Company licenses for frequencies in the other 11 cities in Ukraine that
    were to make up the Gala Radio network.
                                     ______

      Prepared Statement of Eugene T. Rossides, on behalf of the American
        Hellenic Institute Public Affairs Committee, Inc.; the Hellenic
    American National Council; the Cyprus Federation of America, Inc.; the
         Pan Laconian Federation of U.S.A. and Canada; the Pan Cretan
    Association of America; and the Pan Karpathian Educational Progressive
                                  Association

        Chairman McConnell, Senator Leahy and Members of the Subcommittee:
    I am pleased to present testimony to the Subcommittee on behalf of the
    organizations listed above on the Administration's foreign aid
    proposals.
        We stand at a diplomatic crossroads in the Aegean and Eastern
    Mediterranean. The Clinton Administration's support of Berisha in
    Albania, Gligorov in FYROM and the appeasement of Turkey have proven a
    failure. It is past time for the United States to reevaluate its
    policies in the region. The United States must now ensure that the
    policies it follows will advance American interests. Specifically, the
    U.S. should work with the sensible, moderate, pro-American governments
    of Greece and Cyprus to promote its regional interests.
        The appeasement of Turkey by the White House and the State and
    Defense Departments is the main obstacle to the settlement of the
    Cyprus problem and tensions in the Aegean.
        Greece is the strategic and economic key for the U.S. in the
    Balkans and Eastern Mediterranean to bring peace, stability, economic
    progress and democracy to the region.
        In the interests of the United States:
        1. We oppose all military and economic aid to Turkey because of its
    horrendous violations of internationally recognized human rights, its
    violations of the rule of law, its threats against Greece and Cyprus,
    its unreliability as an ally and its minimal strategic value to the
    United States.
        Turkey, as demonstrated by the record, was an unreliable ally
    before Prime Minister Erbakan took office. Since Necmettin Erbakan
    became Prime Minister, Turkey has more openly opposed the U.S.
    particularly in its relations with Iran, Libya and Iraq. Turkey's deals
    with Iran and Libya are in violation of U.S. laws, including the
    D'Amato Act. Turkey is the cause of the tensions in its region, not the
    solution.
        We particularly oppose any military or economic aid to Turkey at
    this time of diplomatic tension in the region. U.S. military sales
    would exacerbate the tension and set back efforts for reaching a
    solution to the region's long standing problems.
        Turkey is highly militarized and U.S. military aid simply adds to
    the arms buildup by Greece and Turkey to the detriment of the people of
    Greece, Turkey and Cyprus.
        Where is the threat to Turkey? There is none. Who is threatening
    Turkey? No one.
        As a matter of law, Turkey is presently ineligible for foreign aid
    under Sections 116 and 502B of the Foreign Assistance Act of 1961, as
    amended, because of its ``consistent pattern of gross violations of
    internationally recognized human rights'' in Turkey and in Cyprus.
        Turkey is the destabilizing country in the region with its massive
    ethnic cleansing amounting to a genocidal war on its Kurdish citizens,
    its violations of human rights in Turkey generally, including the
    widespread use of torture, its irredentist threats against Greece, its
    illegal occupation of Cyprus (now in its 23rd year), its illegal
    economic blockade of Armenia, its supplying of arms to Azerbaijan and
    its maneuvering in the Balkans.
        In considering aid to Turkey, the U.S. Government report released
    last week titled, ``U.S. and Allied Efforts To Recover and Restore Gold
    and Other Assets Stolen or Hidden by Germany During World War II,''
    should be taken into account. The report documents that Turkey held $44
    million in Nazi assets and $5 million in looted gold, but made no
    restitution. The report also documents Turkey's collaboration with Nazi
    Germany by supplying Hitler's armaments industry with the vital alloy,
    chrome. Albert Speer, Hitler's armaments chief, provided Hitler a
    memorandum in November, 1943 on ``Alloys in Armaments Production and
    the Importance of Chromium Imports from the Balkans and Turkey,'' which
    stated that the loss of chromium supplies from Turkey would end the war
    in about 10 months. (A. Speer, Inside the Third Reich 316-17, 405, 550
    n.10 (1970)). It has been estimated that Turkey's supplies of chromium
    to Nazi Germany prolonged World War II by seven months.
        2. We support military aid for Greece as long as Turkey keeps its
    illegal 35,000 man army of occupation and its 80,000 illegal colonists/
    settlers in the occupied territory of Cyprus, and maintains its 125,000
    man Army of the Aegean aimed at Greece's Aegean islands.
        We condemn Turkey's threats on Greece's national sovereignty over
    the islets of Imia in the Aegean, Turkey's threats of war against
    Greece in the Aegean regarding Greece's internationally recognized
    right to extend its territorial waters from 6 to 12 miles (see infra,
    section on Aegean) and Turkey's threats of military action against
    Cyprus regarding the purchase by Cyprus of defensive anti-aircraft
    missiles.
        Turkey is the main security threat to Greece. For anyone to this is
    to deny reality.
        3. We support the amount of $15 million in humanitarian aid for
    Cyprus and the demilitarization of Cyprus. We are dismayed at the
    Clinton Administration's condemnation of the purchase by the government
    of Cyprus of anti-aircraft defensive missiles, the refusal of the U.S.
    to sell such equipment to Cyprus, and the Administration's refusal to
    support the immediate demilitarization of Cyprus. The appeasement of
    Turkey by the White House and the State and Defense Departments is the
    main obstacle to the settlement of the Cyprus problem.
        4. The current crisis in Albania has created a dangerous situation.
    Greece has been particularly helpful in trying to bring order,
    stability, and humanitarian aid to Albania and its efforts have been
    recognized and commended by the U.S. and European governments. Greek
    peacekeeping troops are presently in Albania alongside Italian troops.
    They are part of a 6,000-member multinational force sent to safeguard
    aid shipments to Albania.
        The Berisha government has been discredited and practically all
    parties and groups want him removed from office. Elections are
    scheduled for June 29, 1997. The current crisis highlights the errors
    in U.S. policy in Albania. The Executive Branch backed Berisha, a
    hardline communist and brushed aside Greece's concerns for the minority
    and human rights of the substantial Greek minority.
        5. We oppose any sale of advanced U.S. weapons to the Turkish
    Government as contrary to the best interests of the U.S. (see infra,
    Arms Sales to Turkey).
        6. We oppose any assistance to Turkey, of whatever nature, until
    the Turkish Government:
      --(a) removes all Turkish troops including Turkey's illegal
            occupation forces from Cyprus;
      --(b) removes all illegal Turkish colonists from Cyprus and
            authorizes a census of the illegal Turkish colonists under UN
            auspices;
      --(c) restores to their original condition the churches illegally
            converted to mosques in violation of the 1949 Geneva
            Convention;
      --(d) returns to the government of Cyprus under United Nations
            auspices the occupied areas of Famagusta/Varosha and Morphou
            for the immediate resettlement of displaced persons.
      --(e) releases, returns, or accounts for the 5 American citizens who
            were abducted by the Turkish invasion forces in 1974 and the
            1,614 Greek Cypriots who have been missing since the Turkish
            invasion; (See infra, Denktash statement on missing Americans
            and Greeks);
      --(f) ensures the proper protection and safety for the Patriarchate,
            the Ecumenical Patriarch, the Patriarchate and its personnel,
            and establishes conditions to ensure that the Patriarchate is
            free to carry out its religious mission, and provides for
            religious freedom generally for all Christians and Jews
            residing in Turkey;
      --(g) authorizes the reopening of the Halki Patriarchal School of
            Theology; and
      --(h) stops its state terrorism (massive ethnic cleansing amounting
            to genocide) against its 20 percent Kurdish minority and grants
            them full minority and human rights.
        7. We believe the Congress should consider economic sanctions
    against Turkey.
        8. We support the brave Turkish citizens struggling for human
    rights and the rule of law. Our dispute is not with the Turkish people,
    but with the Turkish military, political and diplomatic leadership.
        9. We call on the Senate Foreign Relations Committee to hold
    hearings on a critical review of U.S. policy towards Turkey. Such a
    review should deal with:
      --(a) Turkey's violations of law and human rights;
      --(b) U.S. violations of law regarding Turkey and the failure to
            apply the law to Turkey's actions;
      --(c) the myth and reality of Turkey's alleged value and reliability
            as an ally;
      --(d) the right of the Kurdish citizens in Turkey to human rights,
            the rule of law and autonomy;
      --(e) Prime Minister Erbakan's deals with Iran and Libya which
            violate U.S. law;
      --(f) the anti-Christian and anti-Semitic rhetoric of Erbakan's
            supporters;
      --(g) the actions of those brave Turkish citizens and human rights
            activists who are struggling daily for human rights and the
            rule of law for all Turkish citizens;
      --(h) a re-examination of the lifting in 1978 of the rule of law arms
            embargo on Turkey; and
      --(i) Turkey's retention of $44 million in Nazi assets and $5 million
            in looted gold with no restitution, and Turkey's extensive
            collaboration with Nazi Germany.
        The Clinton Administration's failure to apply the rule of law in
    international relations to Turkey will come back to haunt us elsewhere
    in the world. Instead of supporting the basic American values of
    democracy, the rule of law, protection of minority and human rights,
    the Clinton Administration is supporting the law of the jungle by
    Turkey.
        Following this statement is a memorandum on Greek American Policy
    Statements which is submitted to the Subommittee as part of my
    testimony as Exhibit I. These policy statements were prepared by the
    American Hellenic Institute and approved by the Order of AHEPA and the
    Hellenic American National Council. These organizations are the three
    major Greek American membership organizations. Other organizations
    approving the Policy Statements are listed in the memorandum.
        I also refer the Members of the Subcommittee to my testimony of May
    1, 1996 before this Subcommittee which extensively documents the
    positions stated herein. The table of contents to that testimony is
    attached hereto as Exhibit II.
        There have been and there are currently in progress congressional
    investigations into potential unlawful conduct by Administration
    officials regarding domestic matters.
        We urge the Congress to investigate the failure of Administration
    officials to apply the rule of law in international matters regarding
    Turkey.
        The following are several examples of the United States not
    applying the rule of law to Turkey, all to the detriment of U.S.
    interests:
      --(1) the failure to apply U.S. and international law to Turkey's
            ethnic cleansing and genocidal war against its 20 percent
            Kurdish minority;
      --(2) the failure to apply U.S. law and international law to Turkey's
            several invasions of northern Iraq, including a massive
            invasion with 35,000 troops;
      --(3) the periodic bombing of Kurds in Iraq;
      --(4) the failure to apply international law to the Aegean Imia
            islets crisis;
      --(5) the failure to apply the D'Amato Act to Turkey's deals with
            Iran and Libya;
      --(6) the failure to apply U.S. and international law to Turkey's
            violations of religious freedom against Christians and Jews in
            Turkey, including the illegal closing of the Halki Patriarchal
            School of Theology;
      --(7) the failure to denounce Turkey's anti-Christian and anti-
            Semitic policies and actions;
      --(8) the failure to apply international law to Turkey's illegal
            embargo on Armenia;
      --(9) the failure to apply U.S. and international law to Turkey's
            continuing occupation of 37.3 percent of Cyprus with 35,000
            troops;
      --(10) the failure to apply the Geneva Convention of 1949 to Turkey's
            80,000 illegal settlers;
      --(11) the failure to apply the terms of the NATO Treaty to Turkey
            for its invasion of Cyprus;
      --(12) the failure to condemn Turkey's violation of the UN Charter by
            Turkey's threats of war against Greece in the Aegean regarding
            Greece's internationally recognized right to extend its
            territorial waters from 6 to 12 miles.
        Ms. Elaine Sciolino, the distinguished diplomatic correspondent of
    The New York Times and former chief of its United Nations bureau,
    authored The Outlaw State, Saddam Hussein's Quest for Power and the
    Gulf Crisis (1991) stemming from Hussein's invasion of Kuwait and the
    conflict that followed. Ms. Sciolino could just as easily have written
    a book titled Turkey-The Outlaw State dealing with Turkey's invasion of
    Cyprus and violations of law and human rights in Turkey. Turkey's
    violations of law exceed those of Iraq under Saddam Hussein.
        Thank you Mr. Chairman.

                  Exhibit I.--Greek American Policy Statements

        The following Policy Statements were prepared by the American
    Hellenic Institute (AHI) and approved by the Order of AHEPA and the
    Hellenic American National Council (HANC). AHEPA, HANC, and AHI
    comprise the three major Greek American membership organizations. Also
    approving the Policy Statements are the Cyprus Federation of America,
    Panepirotic Federation of America, Pan Cretan Association of America,
    Pan-Macedonian Association, Pan Laconian Federation of U.S.A. and
    Canada, the Pan Karpathian Educational Progressive Association, and a
    number of Greek American leaders. These statements were also reviewed
    at three Legislative Policy Conferences held in New York City, January
    11; Los Angeles, January 25; and Chicago, February 11, 1997.
                                  main themes
    Greece
        Greece is the key to stability and peace in the Eastern
    Mediterranean and the Balkans. We call upon the United States to
    develop a ``special relationship'' with Greece commensurate with this
    reality.
    Cyprus
        The continuation of the Cyprus problem is an affront to
    international law and to U.S. values, as well as a threat to regional
    stability. We call upon the United States to intensify efforts to reach
    a fair settlement based on democratic principles that respect the
    rights of all Cypriots.
    The Aegean
        The territorial disposition of the Aegean Islands and islets as
    between Greece and Turkey has been settled in a series of treaties and
    agreements, including the 1923 Lausanne Treaty, the 1932 Italy-Turkey
    agreements, and the 1947 Paris Peace Treaty. We support adherence to
    these treaties and call upon the United States to recognize and uphold
    them. We call upon the United States to oppose any unilateral challenge
    to these documents.
    Turkey
        We believe that Turkey's continuing violations of international
    law, its unreliability as an ally, its destabilizing actions toward
    Greece and Cyprus, and its recent anti-western foreign policy
    initiatives require a critical review of United States-Turkey
    relations.
                                 list of issues
        The following issues facing the United States are of particular
    concern to Greek Americans: 1. Aegean; 2. Albania; 3. Armenia; 4. Arms
    Sales; 5. Cyprus; 6. Ecumenical Patriarchate and the Halki Patriarchal
    School of Theology; 7. Former Yugoslav Republic of Macedonia (FYROM);
    8. Greece; 9. Kurds; 10. Turkey; 11. NATO
                               policy statements
        The policies set forth herein are based in each case on the
    question of what is in the best interests of the United States.
    Aegean
        1. We support the adherence to internationally recognized law,
    treaties and agreements regarding the territorial integrity and
    sovereign rights of a state, including the United Nations Charter and
    the NATO Treaty. Regarding the Aegean, we specifically refer to the
    1947 Paris Peace Treaty, under which the Dodecanese Islands and
    adjacent islets were ceded by Italy to Greece, the 1932 Italy-Turkey
    agreements which delineated Turkish and Italian borders, the Lausanne
    Treaty of 1923, and the Law of the Seas Convention.
        2. We call upon the U.S. Government to recognize and uphold the
    aforementioned treaties and agreements, specifically in regard to
    Turkey in the Aegean.
        3. We condemn Turkey for its numerous and continuous threats on the
    territorial integrity of Greece, including the January 30-31, 1996
    incident over the islets of Imia in the Aegean (see below) and the May
    31, 1996 Turkish dispute of Greek sovereignty over the island of Gavdos
    (see below).
        4. We call upon the U.S. Government to recognize the islets of Imia
    as Greek sovereign territory in accordance with the 1947 Paris Peace
    Treaty under which the Dodecanese Islands and adjacent islets were
    ceded by Italy to Greece, the 1932 Italy-Turkey agreements which
    clearly state that Imia belonged to Italy, the Lausanne Treaty of 1923,
    and international law. On February 15, 1996 the European Parliament
    passed a resolution (342 to 21 with 11 abstentions) stating the islets
    of Imia belong to Greece and condemned Turkey's aggressive threats to
    established sovereignty in the Aegean. In a February 1, 1996 statement
    to Greece, Italy supported the Greek legal position regarding the 1932
    Italy-Turkey Protocol. Also, on February 7, 1996 France stated that it
    unequivocally recognized Greece's sovereignty over the Imia islets.
        5. We call on Congress to pass a joint congressional resolution
    stating that the islets of Imia are Greek sovereign territory based on
    the aforementioned treaties and agreements.
        6. We condemn Turkey's threats of war against Greece in the Aegean
    regarding Greece's internationally recognized right to extend its
    territorial waters from 6 to 12 miles, and note that Turkey itself has
    exercised this right by extending its territorial waters from 6 to 12
    miles in the Mediterranean Sea and Black Sea despite the fact that it
    is not a signatory of the Law of the Seas Convention. The United States
    has also extended its territorial waters to 12 miles. The Turkish Grand
    National Assembly passed a resolution on June 8, 1995, authorizing the
    Turkish government to use force if Greece extends its territorial
    waters to 12 miles.
        7. We note that Turkish threats of war and the June 8, 1995 Turkish
    National Assembly resolution are violations of the United Nations
    Charter, article 2 paragraph 4, and the NATO Treaty preamble and
    article 1. The U.N. Charter, article 2 (4) states: ``All members shall
    refrain in their international relations from the threat or use of
    force against the territorial integrity or political independence of
    any state, or in any other manner inconsistent with the Purposes of the
    United Nations.''
        The NATO Treaty contains similar language.
        8. We call on the U.S. Government, in its own self interests and as
    the world's leader, to make a formal protest of Turkey's threats of war
    (causa belli) regarding the Aegean, made on a number of occasions.
        9. We refute the Turkish claims concerning the application of the
    Law of the Seas Convention to the continental shelf and territorial
    waters, and questions pertaining to national air space. Turkey is free
    to go to the International Court of Justice at the Hague, if it thinks
    it has a supportable case.
    Albania
        1. We are concerned with the campaign of the Albanian government to
    drive out of the country the Greek Orthodox community by denying and
    restricting the full legal, educational, religious, and employment
    rights guaranteed to the minority by international agreements signed by
    Albania.
        2. We condemn the efforts of the Albanian government to persecute
    Greek Orthodox Christians in the country by restricting the Orthodox
    Autocephalus Church of Albania and denying its leader, Archbishop
    Anastasios, legal status. We call on Tirana to return to the Church all
    property, sacred religious articles and records seized and still being
    held by the former Stalinist regime.
        3. We denounce the Albanian government for trying to restrict the
    right of ethnic Greeks in Albania to learn and study their mother
    tongue, and we call on Tirana to authorize the establishment of
    minority schools, both public and private, and to offer Greek language
    instruction in existing schools at all grade levels and in all areas
    where Greek communities exist, not just in arbitrarily designated
    ``minority zones.''
        4. We condemn the harassment and forced resignations of ethnic
    Greeks in public service, and call on Tirana to offer equal opportunity
    in the armed forces, the police, the judiciary, and in public
    administration to all minorities.
        5. We call on the Albanian government to seriously engage in the
    democratization process so as to allow equal access to state media by
    the Greek minority.
        6. We call on the United States government, in its own interest and
    the interest of maintaining peace and stability in the southern
    Balkans, to halt all assistance to Albania, of whatever nature, until
    all issues of the rule of law and human rights cited above are
    resolved.
    Armenia
        1. We support the Humanitarian Aid Corridor Act which was passed by
    the Congress and signed into permanent law as part of the 1997 Foreign
    Aid Bill. The act calls for a halt in U.S. economic and military
    assistance to any country blocking U.S. assistance to another country,
    which consequently includes the Turkish blockade of U.S. assistance to
    Armenia. The Turkish embargo on aid to Armenia includes U.S.
    humanitarian and pharmaceutical aid.
        2. We believe it is in the interests of the United States to insist
    that the Turkish government lift its blockade of Armenia.
        3. We strongly disagree with President Clinton's waiver, on
    national security grounds, of the Humanitarian Aid Corridor Act as it
    applies to Turkey. The application of this waiver is contrary to the
    national security interests of the United States. We urge Congress to
    pass legislation removing economic aid from the President's waiver
    authority.
        4. We believe it is in the interests of the United States to
    commemorate on a regular basis the Armenian Genocide of 1915-23 and to
    strongly urge Turkey to recognize this tragic historical event it its
    past.
        5. We support legislation similar to H. Con. Res. 47 in the 104th
    Congress and other efforts which commemorate the Armenian Genocide, and
    call for the recognition of the Genocide by the Government of Turkey.
    This includes initiatives which place sanctions on U.S. aid to Turkey
    until the Turkish Government takes all appropriate steps to acknowledge
    and commemorate the Genocide committed against the Armenian population
    of the Ottoman Empire from 1915 to 1923.
    Arms sales
        1. We oppose any sale of advanced U.S. weapons to the Turkish
    Government as contrary to the best interests of the United States and
    to order in the region.
        2. We believe the continued sale of advanced U.S. weapons to the
    Turkish Government jeopardizes the balance of military power between
    Greece and Turkey and threatens regional stability.
        3. We oppose the sale of any U.S. arms to the Turkish government as
    such sales violate U.S. laws because of Turkey's massive human rights
    violations in Turkey and Cyprus and the continuing illegal occupation
    of 37 percent of Cyprus, now in its 23rd year.
        4. U.S. arms deliveries to Turkey have stimulated an arms race
    between Greece and Turkey to the detriment of both nations and to
    regional stability. We deplore this and call upon the United States to
    do everything possible to halt the arms race.
        5. We support the reintroduction of S.326 and H.R. 772, ``The Code
    of Conduct on Arms Transfers Act'' introduced by Senate Appropriations
    Committee Chairman Mark Hatfield (R-OR) and Representative Cynthia
    McKinney (D-GA), respectively, on February 1, 1995. This legislation
    would condition arms exports on certain minimum good behavior: basic
    respect for human rights; non-aggression; democratic form of
    governance; and participation in the U.N. Register of Conventional
    Arms.
        6. We congratulate the congressional and grassroots efforts against
    the sale of 10 U.S. ``Super Cobra'' helicopters to Turkey due to the
    documented evidence by the U.S. State Department, Human Rights Watch,
    and Amnesty International of the use of these helicopters by Turkey
    against its Kurdish citizens (including the loss of civilian life and
    destruction of villages) in Southeastern Turkey. Turkey cancelled its
    purchase of these attack helicopters. The Washington Post reported that
    Turkey rescinded its bid to purchase the helicopters, citing
    frustration by the Turkish General Staff with the ``months-long
    stalling'' of the sale. Wash. Post, Nov. 28, 1996, A40. However, the
    grassroots community must remain alert to any Turkish attempts to
    revive the purchase of such helicopters, or any other advanced weapons
    systems beyond the amounts stipulated by U.S. laws.
        We oppose the sale of four U.S. Navy Sea Hawk helicopters to
    Turkey;
        8. We congratulate the efforts of Senator Paul Sarbanes (D-MD) and
    the Greek American community for their successful opposition to the
    delivery of 3 U.S. Navy ``Perry'' class frigates to Turkey. The issue
    still remains however, as Turkey is continuing its efforts to obtain
    these ships. We call on the Greek American community to remain vigilant
    on any action to move this sale forward.
    Cyprus
        1. We support the unity, sovereignty, independence and territorial
    integrity of the Republic of Cyprus.
        2. We support a settlement for the Republic of Cyprus based on a
    constitutional democracy with key American principles of majority rule,
    the rule of law, and the protection of minority/human rights, as called
    for by former President George Bush, and the provision for and
    implementation of the three basic freedoms, namely, freedom of
    movement, of property and of settlement. A constitutional settlement in
    Cyprus should be based on democratic principles that respect the rights
    of all Cypriots. AHI supports efforts by the international community to
    reach a practical formulation of these principles.
        3. The Cyprus problem is fundamentally a question of invasion and
    occupation by Turkish armed forces with the illegal use of American-
    supplied arms and equipment. There is no legal difference between
    Turkey's invasion and occupation of Cyprus and Iraq's invasion and
    occupation of Kuwait.
        4. We call for: the removal of all Turkish troops including
    Turkey's illegal occupation forces from Cyprus; the removal of all
    illegal Turkish colonists from Cyprus and a census of the illegal
    Turkish colonists under UN auspices; the restoration to their original
    condition of the churches illegally converted to mosques in violation
    of the 1949 Geneva Convention; the speedy return to the government of
    Cyprus under United Nations auspices the occupied areas of Morphou and
    Famagusta/Varosha for the immediate resettlement of displaced persons.
        5. We support the introduction of legislation similar to S. Con.
    Res. 11, introduced by Senator Olympia Snowe (R-ME), and H. Con. Res.
    42, introduced by Congressman Elliot Engel (D-NY), known as ``The
    Cyprus Demilitarization Bill,'' which calls for the complete
    demilitarization of Cyprus. We support the use of NATO forces for
    security purposes in Cyprus upon the demilitarization of Cyprus.
        6. Pending demilitarization we support the fundamental right of the
    Republic of Cyprus to acquire arms to defend itself. We condemn the
    State Department's condemnation of the Republic of Cyprus for
    purchasing defensive anti-aircraft missiles. We call on the U.S. to
    supply sufficient arms and equipment to the Republic of Cyprus to deter
    any potential attack by Turkey.
        7. We call on President Bill Clinton and the U.S. Congress in the
    interests of the United States to halt all assistance to Turkey, of
    whatever nature, until the issues cited above are resolved, and to
    consider sanctions if Turkey fails to cooperate. We support the
    introduction of legislation similar to S. 578 introduced on March 20,
    1995 by Senator Al D'Amato and the companion bill in the House H.R.
    1274 introduced on March 21, by Congressman Rob Andrews (D-NJ) for
    himself and representatives Bilirakis (R-FL), Maloney (D-NY), Manton
    (D-NY) and Zimmer (R-NJ), which call, among other things, for
    conditions on all aid to Turkey.
        8. We applaud the European Court of Human Rights for its December
    18, 1996 decision which found Turkey accountable for the continuing
    violation of human rights by its 1974 invasion and present day
    occupation of 37.3 percent of Cyprus. The 11 votes to 6 ruling in the
    case of Loizidou vs. Turkey stated that the denial of access to the
    applicant's (Loizidou) property and consequent control thereof is
    imputable to Turkey, and amounts to a violation of the applicants
    property rights under Article 1 of Protocol No. 1 of the European
    Convention on Human Rights.
        9. We strongly condemn the four murders and the actions of the
    illegal Turkish Cypriot regime, the Turkish military commander in
    Cyprus, and the Turkish Government and military leadership, for their
    illegal and barbaric recent actions in Cyprus. The incidents include:
    October 13, 1996, Turkish troops shot and killed Mr. Petros Kakoullis,
    58, a Greek Cypriot who accidentally wandered into the zone illegally
    occupied by Turkey while collecting snails with his son-in-law.
    According to eye-witness reports, Mr. Kakoullis was observed standing
    stationary and with his hands up. He was shot by two Turkish soldiers.
    After he fell to the ground he was shot again. August 11-14, 1996--
    Turkish Cypriot security forces, led by the Turkish military, murdered
    two Greek Cypriots during a peaceful demonstration at the Green Line.
    Tassos Isaac was beaten to death on August 11 by a ravenous gang of
    Turks, the Grey Wolves, with Turkish security forces looking on.
    Solomos Spirou Solomou (Isaaks cousin) was shot to death, also by
    Turkish Cypriot security forces on August 14. June 3, 1996--Turkish
    troops shot and killed an unarmed Greek Cypriot guardsman inside the
    U.N. buffer zone.
        10. We call on the U.S. government to publicly condemn the recent
    murders of the four Greek Cypriots and call for the apprehension and
    trial of the perpetrators.
        11. We note the statement by Turkish Cypriot leader, Rauf Denktash,
    that members of the Turkish Cypriot militia, which was and is today
    under his control, in 1974 killed all the missing 1614 Greek Cypriots
    and 5 Americans in their custody. We call on the U.S. Government to
    thoroughly investigate the validity of the Denktash statement and
    determine the whereabouts of the 5 missing Americans who were abducted
    by the Turkish invasion forces and the Turkish Cypriot militia in 1974
    and the 1614 Greek Cypriots who have been missing since the Turkish
    invasion.
        12. We condemn Turkey's attempts to hinder the negotiations
    concerning accession of the Republic of Cyprus into the European Union,
    and further condemn the Turkish threat of annexation of the occupied
    part of Cyprus with Turkey if such accession transpires.
    Ecumenical Patriarchate and the Halki Patriarchal School of Theology
        1. We condemn the chronic persecution of Orthodox Christians in
    Turkey, the harassment of the Ecumenical Patriarch and the attacks on
    the Patriarchate in Istanbul, including the: September 29, 1996, hand
    grenade explodes in the early morning, damaging the physical structure
    of the grounds, most notably the Agios Georgios Church. May 28, 1994,
    three bombs discovered in the living quarters of the Patriarch,
    subsequently diffused; March 30, 1994, molotov bomb thrown by unknown
    perpetrators inside the back court-yard of the Patriarchate.
        2. We condemn the desecration of Orthodox Christian cemeteries in
    Istanbul.
        3. We condemn the recent concerted effort by Islamic politicians to
    step up the rhetoric against the Patriarchate. On September 12, 1996,
    Ahmet Jamil Tudc, Turkish Minister to the Prime Minister, made promises
    that the Agia Sofia Byzantine cathedral would be converted into a
    mosque. These threats are a clear attack on the religious freedom of
    and basic respect for Orthodox Christians worldwide.
        4. We condemn the inflammatory remarks of the fundamentalist Mayor
    of the Fatih District of Istanbul where the Patriarchate is located,
    who declared to the press on March 31, 1994 following his election,
    that under his mayorship all ``activities'' of the Patriarchate will
    stop. He also announced his intention to enter the Ecumenical
    Patriarchate through its main gate under which, in 1821, the Ecumenical
    Patriarch Gregorius V was hanged and which remains closed since then.
        5. We condemn the restrictions imposed by the Turkish Government on
    the celebrations of the Saint Nicholas Festival, a saint worshipped by
    Christians throughout the world.
        6. We call on the U.S. government to protest these actions and to
    call on the government of Turkey:
      --(a) to ensure religious freedom in Turkey;
      --(b) to provide for the proper protection of the Patriarchate and
            the Ecumenical Patriarch;
      --(c) to establish conditions which would prevent the recurrence of
            threats against the Patriarch and ``to ensure that the
            Patriarchate is free to carry out its mission;'' and
      --(d) to permit persons to work at the Patriarchate without being
            Turkish citizens.
        7. We condemn the illegal closing by the Turkish Government in 1971
    of the Halki Patriarchal School of Theology, which closing is also in
    violation of Turkey's obligations under the UN Charter and other
    international agreements, and call on the U.S. Government to make a
    formal request to Turkey to reopen the Halki Patriarchal School. We
    call for the halt of all aid to Turkey until the Halki Patriarchal
    School is reopened.
        8. We support the introduction in the 105th Congress of H. Con.
    Res. 6 on January 9, 1997 by Congressman Mike Bilirakis (R-FL), which
    calls on the United States to use its influence with the Turkish
    government and as a permanent member of the United Nations Security
    Council to suggest that the Turkish government:
      --(A) ensure the proper protection for the Patriarchate and all
            Orthodox faithful residing in Turkey; reopen the Halki
            Patriarchal School of Theology; provide for the proper
            protection and safety of the Ecumenical Patriarch and the
            Patriarchate personnel; establish conditions that would prevent
            the recurrence of past terrorist activities and vandalism and
            other personal threats against the Patriarch; establish
            conditions to ensure that the Patriarchate is free to carry out
            its religious mission; and do everything possible to find and
            punish the perpetrators of any provocative and terrorist acts
            against the Patriarchate.
      --(B) the Administration should report to the Congress the status and
            progress of the concerns in subsection A on an annual or semi-
            annual basis.
        H. Con. Res. 6 is similar to legislation introduced in the 104th
    Congress; H. Con. Res. 50 introduced on March 28, 1995 by Congressman
    Michael Bilirakis (R-Fl), and S.Con.Res. 25 introduced by Olympia Snowe
    (R-ME) and Carol Moseley-Braun (D-IL) on August 11, 1995.
        9. We call for legislation similar to S. 578 introduced on March
    20, 1995 by Senator Al D'Amato, and the companion bill in the House
    H.R. 1274 introduced on March 21 by Congressman Rob Andrews (D-NJ) for
    himself and Representatives Bilirakis (R-FL), Maloney (D-NY), Manton
    (D-NY) and Zimmer (R-NJ), which call, among other things, on the United
    States to halt all assistance to Turkey, of whatever nature, until
    Turkey removes official restrictions on Christian churches and schools,
    and protects Christian clergy and property from acts of violence.
        10. We support the introduction in the 105th Congress of
    legislation similar to S. Con. Res. 71, introduced by Senator Don
    Nickles (R-OK) for himself and Senators Sam Nunn (D-GA), Dan Coats (R-
    IN), John Ashcroft (R-MO) and Jesse Helms (R-NC), on September 17, 1996
    regarding the persecution of Christians worldwide.
    Former Yugoslav Republic of Macedonia (FYROM)
        1. We support the introduction, in the 105th Congress, of
    legislation similar to H. Con. Res. 31 introduced in the House by
    Congresswoman Carolyn Maloney (D-NY) and Michael Bilirakis (R-FL) which
    expresses the sense of Congress that the U.S. should support the
    efforts of Greece in its negotiations with the FYROM, to find a
    solution which promotes a solid, cooperative relationship between these
    two neighboring countries.
        2. We call on the United States, in its own self interest, to
    support a name for this Former Yugoslav Republic which does not include
    the word ``Macedonia.''
        3. Classical Macedonia's Hellenic Heritage is well documented by
    archaeological evidence and the writings of internationally known
    historians. Since antiquity, the name Macedonia has referred to a
    geographic region and not to a specific nationality.
    Greece
        1. We call on the United States to develop a ``special
    relationship'' with Greece as it has with the U.K. and Israel. The
    United States and Greece share common interests in the Eastern
    Mediterranean and Balkans. Greece is the key source of stability and
    peace in the Eastern Mediterranean and the key nation in the Balkans
    for the advancement of U.S. strategic, democratic, economic and
    stability interests in the Balkans.
        2. Greece, a proven ally since WW I, played a crucial role in the
    defeat of Hitler in World War II and an historic turning point role in
    the defeat of communism in the Greek civil war (1946-49) with U.S. aid
    under the Truman Doctrine but no U.S. combat troops. Greece, Great
    Britain and France are the only nations which were allies of the U.S.
    in the four wars in this century.
        3. The main security threat to Greece is Turkey. Foreign military
    aid to Greece should be sufficient to deter aggression from Turkey and,
    at a minimum, to ensure a military balance in accordance with
    congressional policy and the U.S.-Greece Defense Cooperation Agreement.
    Kurds
        1. We believe the United States should support greater cultural
    autonomy, political freedom and the right to self determination for the
    Kurds in Turkey and Iraq
        2. We believe it is in the best interests of the United States and
    to stability in the region, to support the political rights of the
    Kurdish minorities in Turkey, Iraq, Syria and Iran. If the popular will
    of the Kurds call for a federal solution to their problem, the U.S.
    government should honor that decision. Such a decision will bring
    stability to a volatile region, and help establish the foundations of
    the civil society and economic progress. We note that Turkey refuses to
    give minority rights and human rights to its 20 percent Kurdish
    minority, while claiming equality for the 18 percent Turkish Cypriot
    minority.
        3. We call for the immediate halt by the government of Turkey of
    its military and paramilitary operations (with the use of U.S. designed
    and produced weapons) against the Kurdish minority and its massive
    violations of the human rights and ethnic cleansing of its Kurdish
    minority which is genocidal in nature.
        4. We cite the recent reports by the U.S. State Department, Human
    Rights Watch, and Amnesty International which highlight Turkey's use of
    U.S. weapons in committing human rights violations against its Kurdish
    citizens.
        5. We call on the United States Government to stop supplying arms
    to the government of Turkey based on the stated reports.
        6. We call on the United States in its own self-interest to halt
    all assistance to Turkey, of whatever nature, until Turkey ceases its
    military and paramilitary operations and its massive human rights
    violations against its Kurdish minority. Turkey's actions against its
    Kurdish minority is ``state terrorism'' on a massive scale.
    Turkey
        1. We believe that Turkey's continuing violations of international
    law, its unreliability as an ally, and recent foreign policy
    initiatives, require a critical review of United States-Turkey
    relations. Such a review is long overdue.
        2. We call on the U.S. Government to conduct: a reassessment of the
    thesis that Turkey's strategic value to the U.S. is such that the U.S.
    must acquiesce in all aspects of Turkish policies; a reassessment of
    the U.S. policy of appeasing Turkey in current issues of dispute
    between Turkey and Greece and between Turkey and Cyprus.
        3. We offer the following recent actions by the Turkish government
    as reasons for such a review: In January 1996 Turkey sought to provoke
    hostilities with Greece over Aegean territories that are overwhelmingly
    accepted by the international community as Greek. (See section on
    Aegean); In August 1996 Foreign Minister Tansu Ciller claimed that the
    green line between the Government controlled area of Cyprus and the
    illegally occupied northern zone represented one of Turkey's
    international boundaries; From August to December 1996 Turkey concluded
    significant commercial contracts with Iran and Libya in violation of
    U.S. laws and policy; and concluded a trade agreement with Cuba in
    opposition to U.S. policy; In September 1996 Turkey refused to assist
    the U.S. in its operations against Iraq. In October 1996 shoot-to-kill
    policies by Turkish troops in Cyprus claimed another Greek Cypriot
    civilian life. (See section on Cyprus).
        4. Turkey's numerous and continuing violations of United States
    laws, the United Nations Charter, the North Atlantic Treaty and
    international law by its continuing aggression in and occupation of
    Cyprus, its illegal shipment of arms to the Azerbaijanis and to the
    Balkans, its threats against Greece in the Aegean and Western Thrace,
    its massive and horrendous human rights violations against its Kurdish
    citizens and its policy of torture nationwide, must not be tolerated or
    condoned any longer. The appeasement of Turkey's violations of the rule
    of law and the application of a double standard on the rule of law and
    human rights to Turkey must end. Turkey is the source of tension in its
    region, not the solution.
        5. Turkey has publicly stated that its goal is to be the ``regional
    superpower from the Adriatic to the Wall of China.'' It is not in the
    interests of the United States, Israel and the Arab countries in the
    Middle East to have Turkey, or anyone else, as a regional superpower in
    the Middle East.
        6. We oppose the U.S. plan to allow Turkey to lead the equip and
    train mission to the Bosnian Muslims. Foreign affairs expert Katherine
    A. Wilkins, in a commentary titled, ``A New Balkan Blunder--Turkey
    Shouldn't Be Training the Bosnian Army'' (Wash. Post, Feb. 11, 1996, p.
    C2) strongly argues against such a plan. In her analysis, Ms. Wilkins
    states that ``The current plan to let Turkey lead the `equip and train'
    mission is a badly misguided one and should be scrapped immediately * *
    *. Handing the training and arming of the Bosnian army over to Turkey
    could be likened to putting Germany in charge of training the
    Palestinian police force.''
        As support she offers (1) the historically ``provocative nature''
    of the Turks in the Balkans, (2) the open support of the Bosnian
    Muslims by Turkey throughout the war, (3) the recent Anti-Western
    Islamic party victory in the Turkish elections, (4) ``Turkish
    nationalism'' i.e. Cyprus, Aegean, etc., and (5) continued and
    ``rampant'' human rights abuses by Turkey.
        7. We call for the introduction of legislation similar to S. 578
    introduced on March 20, 1995 by Senator Al D'Amato and the companion
    bill in the House H.R. 1274 introduced on March 21, by Congressman Rob
    Andrews (D-NJ) which would call for a halt on all aid to Turkey and
    economic sanctions against Turkey until:
      --Turkey allows free and unfettered monitoring of the human rights
            environment within its territory by domestic and international
            human rights monitoring organizations, including but not
            limited to the Turkish Human Rights Association, the Conference
            on Security and Cooperation in Europe, Amnesty International,
            and Human Rights Watch;
      --Turkey recognizes the civil, cultural, and human rights of its
            Kurdish citizens, ceases its military operations against
            Kurdish civilians, and takes demonstrable steps towards a
            peaceful resolution of the Kurdish issue;
      --Turkey takes demonstrable steps toward the total withdrawal of its
            military forces, and illegal Turkish settlers from Cyprus and
            demonstrates its support for a fair settlement recognizing the
            sovereignty, independence and territorial integrity of Cyprus
            with a constitutional democracy based on majority rule, the
            rule of law and the protection of minority/human rights;
      --Turkey completely lifts its blockade of U.S. and international
            assistance to Armenia;
      --Turkey lifts official restrictions on Christian churches and
            schools, and offers sufficient protection against acts of
            violence and harassment against the clergy and vandalism
            against church and school property; and
      --is in compliance with the United Nations Charter and relevant UN
            resolutions, the North Atlantic Treaty, the Helsinki Final Act
            of the Conference on Security and Cooperation in Europe, the UN
            Universal Declaration of Human Rights, the European Convention
            on Human Rights and is not engaged in a consistent pattern of
            gross violations of internationally recognized human rights
            (within the meaning of sections 116 and 502B of the United
            States Foreign Assistance Act of 1961, as amended).
    NATO
        We call on the U.S. Ambassador to NATO to propose the suspension of
    Turkey from NATO until the government of Turkey is in compliance with
    the clear and unambiguous language of the NATO Treaty.
                                     ______

    Prepared Statement Dr. Richard L. Bernal \1\ on U.S. Foreign Assistance
                       and Sustainable Growth in Jamaica

        Thank you for providing this opportunity to submit testimony
    highlighting Jamaica's views on the Clinton Administration's fiscal
    year 1998 Request for Latin America and the Caribbean.
    ---------------------------------------------------------------------------
        \1\ Dr. Richard L. Bernal is Jamaica's Ambassador to the United
    States and Permanent Representative to the Organization of American
    States.
    ---------------------------------------------------------------------------
                                i. introduction
        Over the years, the United States and the Caribbean Basin nations
    have developed an important economic partnership, partly as a result of
    U.S. assistance and trade programs. Since the 1980's, U.S. foreign aid
    to the region has averaged about $200 million. At the same time, during
    this period, U.S. exports to the Caribbean have expanded by over 150
    percent and Caribbean exports to the United States have climbed by more
    than 100 percent. The Caribbean Basin now comprises the tenth largest
    market for the United States, and it is one of the few regions where
    the United States consistently posts a trade surplus. With combined
    trade exceeding $30 billion in 1996, United States/Caribbean commercial
    links support more than 317,000 jobs in the United States and countless
    more throughout the Caribbean and Central America.
        For Jamaica, the United States is an important economic partner and
    supporter of its development program. Indeed, over the past decade,
    Jamaica has been a major recipient of U.S. foreign aid to the Caribbean
    region. The United States has been a vital source of funding for the
    following programs:
      --facilitating economic liberalization and private sector-led growth;
      --promoting institution-building and public sector efficiency;
      --supporting debt reduction;
      --providing assistance to the social sectors to cushion the effects
            of economic adjustment on the poor;
      --improving natural resource management;
      --assisting in efforts to combat the international narcotics trade;
            and
      --funding environmental protection.
        Ultimately, Jamaica is seeking to reduce its traditional reliance
    on official assistance and to finance development through a combination
    of domestic and foreign private capital flows. However, this long-term
    goal can only be achieved with continued United States support for
    Jamaica's comprehensive economic reform and development programs.
        Jamaica is acutely aware of the budgetary constraints in the United
    States. Furthermore, given the end of the Cold War and pressing
    domestic concerns, Congress and the American public opinion favor a
    reduction in foreign assistance programs. The Government of Jamaica
    welcomes the refocusing of the U.S. aid program towards sustainable
    development, with an emphasis on entrepreneurial development,
    assistance to the social sectors and popular participation in the
    development process. Nevertheless, while the rationale for this new
    approach is clearly understood, a reduction in assistance resources to
    be a phased process which is sensitive to Jamaica's development needs.
    Sudden and drastic foreign aid cuts would adversely affect Jamaica's
    structural transformation efforts.
                  ii. support for sustainable economic growth
        During the past few years, the United States has supported the
    process of economic reform and trade liberalization in Jamaica. The
    Jamaican Government is now implementing a comprehensive and
    uncompromising economic reform program which has brought positive
    results and which has created private sector-led, market-driven
    economic growth. U.S. assistance--principally in the form of Economic
    Support Funds, which now have been totally phased out--have helped
    Jamaicans make that adjustment by providing the government with
    budgetary allotments to facilitate economic reform. It should be noted
    that, as the economy has expanded, so too has our ability to import
    from the United States, our largest trading partner. Jamaica currently
    imports 70 percent of its goods and services from the United States and
    since 1985, annual growth of U.S. exports to Jamaica has averaged 13.6
    percent.
        Development Assistance (DA) has also played an important role in
    sustaining Jamaica's economic growth and reform programs. DA has helped
    Jamaica undertake critical social programmes in areas such as education
    and public health, and economic programs, through the promotion of
    micro-enterprise development. Jamaica has collaborated with USAID to
    improve financial management in the Ministry of Health, to establish
    better and more widely understood family planning practices, and to
    prevent the transmission of AIDS and other deadly diseases. U.S.
    funding has also contributed to the construction of low-cost housing
    and provided low-income families with access to potable water.
    Currently, USAID is assisting the government to address the problem of
    unemployed youth through an ``Upliftment of Adolescence'' project.
        Food aid to Jamaica through the PL480 program has been a tremendous
    success, benefitting vulnerable and disadvantaged groups. Since the
    1970's, Jamaica has graduated from the Title II grant program and now
    receives a combination of Title I (the soft loan program) and GSM, the
    credit guarantee program administered by USDA and guaranteed by the
    Commodity Credit Corporation.
    iii. supporting private sector development: the multilateral investment
                                      fund
        The United States has been an important supporter of private sector
    development via the Multilateral Investment Fund (MIF). In fact,
    Jamaica was the first country to receive funding from the MIF. The $1.5
    billion development facility is being used to support micro-enterprise
    and human resource development and strengthen private sector activities
    in Jamaica and other activities throughout the region. In fact, the
    first MIF project provided $1.8 million to support the establishment of
    an Employee Share Ownership Plan (ESOP) to expand the participation of
    Jamaica's labor unions in Jamaica's privatization program. Additional
    projects in Jamaica have included:
      --$1.27 million to establish an Office of Utilities Regulation.
      --$3.5 million to fund a human resource development pilot project--a
            unique collaboration between organized labor and employers to
            expand private sector capacity to retrain displaced workers and
            improve labor market exchange mechanisms.
      --$1.9 million for institutional strengthening of the Jamaican
            Cooperative Credit Union League.
      --$1 million for computer-aided technology and training in rural
            Jamaica--an extension of a private sector initiative: Jamaica
            2000.
        The United States' leadership in the MIF has played an important
    role in guaranteeing matching contributions from other donor
    governments, including the Japanese, thereby ensuring the success of
    this program. The Government of Jamaica supports the President's
    commitment to request continued U.S. contributions to the MIF, both in
    fiscal year 1998 and in the coming years.
     iv. supporting private sector development: private sector investment
                                     funds
        In the face of aid cuts, the government is also looking to private
    sector sources and foreign direct investment to generate additional
    capital to finance Jamaica's development needs.
        U.S. Government support has been instrumental in facilitating
    private investment in Jamaica, strengthening a complementary
    partnership that ultimately generates U.S. jobs and exports. The
    Overseas Private Investment Corporation has supported dozens of
    projects in Jamaica--to the amount of $835 million--since it opened for
    business there in 1963. OPIC provided more than $40 million in
    political risk insurance during 1996 alone. Moreover, over the past ten
    years, the Section 936 program generated more than $2 billion in
    investment throughout the Caribbean, one quarter of which was in
    Jamaica. Combined, these programs have supported much of the foreign
    direct investment targeted for Jamaica over the past decade.
    Regrettably, however, the Section 936 window was closed by the Congress
    last year while the future of OPIC remains in doubt.
        Several programs may provide a mechanism to help the Caribbean fill
    this funding gap. First, OPIC itself may provide a solution through the
    creation of an OPIC Equity Fund for the Caribbean Basin. OPIC currently
    supports 4 sector-specific funds as well as 24 regional funds operating
    in virtually every region of the world. Conspicuously absent is an
    OPIC-supported regional fund for the countries of Central America and
    the Caribbean Basin. Several investor groups are already petitioning
    for the creation of such a fund as a way to help accumulate sufficient
    capital to invest in the region. This fund would help attract the risk-
    averse investors to the Caribbean Basin economies while strengthening
    OPIC's portfolio in the region--a fact that may also benefit OPIC,
    given the widespread constituency of support for regional trade links.
        A related concept is the creation of an Enterprise Fund, which has
    recently been suggested by House Foreign Operations Subcommittee
    Chairman Sonny Callahan (R-AL). Although enterprise funds have posted
    mixed records in Eastern Europe, they have provided an important
    mechanism to encourage the development of a viable private sector in
    the former communist countries. Such a model could be replicated in
    Jamaica to encourage the development of a vibrant private sector among
    micro-entrepreneurs and the sectors of society traditionally overlooked
    by other development programs. Moreover, an enterprise fund could
    provide a structured way for Jamaicans living throughout the United
    States to participate in the development of their homeland.
                      v. the promotion of trade expansion
        In the context of the foreign aid debate, Congress should also give
    due consideration to the strengthening of our mutually beneficial
    trading partnership. In the long-term, as foreign aid is phased out, it
    can only be replaced by a sound, and commercially viable, trade and
    investment relationship. Jamaica has long recognized the importance of
    such a relationship with the United States. Bilateral trade flows have
    expanded by more than 10 percent a year since the mid-1980's. Moreover,
    U.S. investors are playing an active role in Jamaica's growing private
    sector.
        The Caribbean Basin Initiative (CBI) has formed an important basis
    for the United States/Jamaican and United States/Caribbean partnership
    to flourish. The Administration is currently developing a proposal to
    strengthen this CBI framework to help CBI countries cope with trade and
    investment diversion from Mexico under the NAFTA and prepare a road-map
    for their full participation in the FTAA. In this regard, Jamaica is
    ready and committed to further cementing that partnership by
    undertaking the obligations of a free trade agreement with the United
    States. Indeed, in the past two years alone, Jamaica and the United
    States have taken steps in that direction by signing a Bilateral
    Investment Treaty (BIT) and an Intellectual Property Rights (IPR)
    agreement. Jamaica has also led the Caribbean in negotiating tough
    textile anti-circumvention language with the United States.
                               vi. debt reduction
        Jamaica continues to face heavy debt service obligations, owed
    primarily to bilateral donors such as the United States. Recently, the
    United States. has made valuable concessions which have provided
    important debt relief to support reform efforts. This debt relief frees
    scarce foreign exchange resources for crucial imports and reduced debt
    servicing helps to lower fiscal expenditure, thereby contributing to
    Jamaica's growth. The program has also channeled local currency debt
    repayments into environmental management funds, building a sustainable
    environmental framework for development. Ultimately, because of debt
    relief, Jamaica has been one of the few countries to reduce its stock
    of external debt and debt servicing. The stock of debt currently totals
    approximately $3.23 billion, down from $4.5 billion in 1990. U.S.
    Treasury Department figures report that about $683.1 million is
    currently owed by Jamaica to the United States--about half of which
    includes concessional USAID obligations.
        Nevertheless, debt service obligations remain high and currently
    absorb approximately 49 percent of the Government's annual budget. By
    comparison, in the United States, where public debate has highlighted
    the burden of the U.S. Government budget deficit, debt service is
    roughly 14 percent. As Jamaica allocates such a high percentage of the
    public sector budget for debt servicing, it is unable to pursue other
    on-going development priorities. In this regard, Jamaica welcomes the
    enactment in recent appropriations bills of a new mechanism to effect
    debt reduction through buybacks and swaps, based on the Enterprise for
    the Americas Initiative (EAI). Jamaica endorses efforts to renew this
    program for fiscal year 1998, and has engaged in discussions with the
    Administration about how this program can be deployed to assist in
    reducing Jamaica's debt burden while providing the mechanisms to
    sustain the mutual development efforts of both Jamaica and the United
    States.
                         vii. counter-narcotics support
        The Jamaican government is irrevocably committed to maintaining a
    comprehensive anti-drug campaign based upon a two-pronged approach,
    focusing both on supply and demand reduction. To curtail the supply of
    drugs, the government is engaged in a campaign to eradicate marijuana
    growing in the remote mountainous regions of the country and to
    strengthen capabilities to interdict and punish drug offenders. Already
    Jamaica has succeeded in reducing marijuana production by nearly 75
    percent since 1990. Jamaica has also recently passed legislation on
    asset forfeiture and money laundering, implemented a Mutual Legal
    Assistance Treaty (MLAT) with the United States, and is now preparing
    to consider legislation to prevent trade in pre-cursor chemicals. The
    United States has made an important contribution through the support of
    economic and security assistance, training, and other material and
    assets, and we are actively working with U.S. government agencies to
    strengthen cooperation across a range of activities.
        Jamaica also recognizes that without a demand for illegal drugs,
    there would be no industry. To stem demand for drugs in Jamaica,
    critically acclaimed programs are being funded that focus on
    rehabilitating former drug addicts and on providing drug education to
    vulnerable groups. These supply and demand-related programs place
    considerable pressure on the Jamaican government's budget, particularly
    at a time when there is considerable effort to fund other social
    programs while curtailing the growth of fiscal expenditure. With
    continued U.S. assistance, Jamaica can maintain its aggressive efforts,
    both to stop the harmful flow of drugs into the United States and to
    provide viable alternatives for Jamaicans to induce them out of illegal
    narcotics activities.
        While we understand the U.S. domestic debate regarding counter-
    narcotics assistance, our fear is that reduced counter-narcotics
    funding may be interpreted as a signal to international drug cartels
    that Jamaica has a reduced capability to effectively engage in
    international narcotics interdiction. Similarly, such reductions would
    put additional financial burdens on the Jamaican Government at a time
    when it is undertaking critical economic reforms. U.S. assistance
    sustains an important partnership in the effort to combat international
    narcotics trafficking.
                                viii. conclusion
        Jamaica is now moving decisively to promote economic growth--both
    by attracting foreign investment and mobilizing domestic savings. In
    March 1996, the Jamaican Government finalized and issued a National
    Industrial Policy that outlines a framework under which different
    sectors of the economy--government, private firms, and organized
    labor--can work together to ensure growth and prosperity in Jamaica
    through the 21st century. This policy provides an important long-term
    blueprint for Jamaica's economic development, focusing on growth
    through investment and export promotion.
        U.S. assistance is making an important contribution to Jamaica's
    development. USAID--Jamaica has been particularly effective at the
    grassroots level, funding programs which seek to incorporate the poor
    into the economic growth process. This is crucial for sustainable
    development, which in turn will further stimulate trade and investment
    with the United States.
        The U.S. foreign assistance program in Jamaica, should be viewed as
    an investment in the economic well-being of the United States, not as
    outflows of money. The mutual benefits of foreign assistance are well-
    documented and need to be clearly recognized in order to forestall any
    further cuts in aid programs. If aid must be reduced, it must be done
    in a phased and orderly manner. One way to ensure this is through the
    creation of a Development Fund for Latin America and the Caribbean,
    which can offset aid cuts while providing a comprehensive policy
    vehicle for new types of assistance in the future. Strengthening our
    common economic relationship will provide an additional framework
    through which aid flows can be replaced by advantageous commercial
    linkages.

       NUMBER OF U.S. WORKERS DEPENDENT ON TRADE WITH THE CARIBBEAN BASIN
                                     NATIONS
    ------------------------------------------------------------------------
                                                             Number of New
                   Year                  Total number of   U.S. jobs created
                                         U.S. workers \1\       per year
    ------------------------------------------------------------------------
    1985..............................            118,840  .................
    1986..............................            127,240              8,400
    1987..............................            138,120             10,880
    1988..............................            153,800             15,680
    1989..............................            165,800             12,000
    1990..............................            191,380             25,580
    1991..............................            200,260              8,880
    1992..............................            225,262             25,002
    1993..............................            248,552             23,290
    1994..............................            268,814             20,292
    1995..............................            306,120             37,306
    1996..............................            317,400             11,280
    Average annual job creation.......                                18,051
    ------------------------------------------------------------------------
    \1\ Assuming that $1,000,000,000 in U.S. exports creates 20,000 U.S.
      trade-related jobs.

    Source: U.S. Department of Commerce and U.S. International Trade
      Commission. Updated: April 2, 1997.

                                    UNITED STATES/JAMAICAN TRADE STATISTICS (1985-96)
                                           [Millions of United States dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                          Annual United States--
                          Year                       --------------------------------   Percent of    Trade  balance
                                                          Imports         Exports      export growth
    ----------------------------------------------------------------------------------------------------------------
    1985............................................            $267            $404  ..............            $137
    1986............................................             298             457            13.1             159
    1987............................................             394             601            31.5             207
    1988............................................             441             762            26.8             321
    1989............................................             527           1,006            32.0             479
    1990............................................             564             943            -6.3             379
    1991............................................             576             963             2.1             387
    1992............................................             599             938            -2.6             339
    1993............................................             720           1,113            18.7             393
    1994............................................             747           1,066            -4.2             319
    1995............................................             847           1,421            33.3             574
    1996............................................             839           1,491             4.9             652
    Average annual U.S. export growth...............                                            13.6
    ----------------------------------------------------------------------------------------------------------------
    Note: U.S. trade surplus in 1996 is the 12th straight year of trade surpluses.

    Source: U.S. Department of Commerce and U.S. International Trade Commission. Updated: April 2, 1997.

                       U.S. FOREIGN ASSISTANCE TO JAMAICA (FISCAL YEAR 1985-FISCAL YEAR 1998) \1\
                                         [In millions of United States dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                  Public                           Peace
                    Year                     ESF         DA      Law 480      MIL        Narc      Corps      Total
                                                                   \2\                              Prog
    ----------------------------------------------------------------------------------------------------------------
    1985................................      $81.0      $34.3      $40.1       $7.6  .........       $2.4    $165.6
    1986................................       58.6       26.1       37.6        8.0       $1.5        2.6     134.3
    1987................................       26.0       18.1       39.9        3.4        3.3        2.5      93.1
    1988................................         .5       39.2       35.7         .3        1.9        3.0      80.7
    1989................................       12.9       51.8       47.1        3.8        1.0        3.0     119.6
    1990................................       13.2       14.0       44.2        1.3        1.0        2.3      76.6
    1991................................       10.0       17.2       44.7        1.9        1.4        2.4      77.6
    1992................................       15.9       22.3       32.6        3.2        1.0        2.1      77.0
    1993................................        2.0       13.7       30.0         .4        1.3        2.3      49.7
    1994................................  .........        8.9       14.0         .5         .6        2.2      26.2
    1995................................  .........       10.5  .........         .2         .6        1.9      13.2
    1996 \3\............................  .........        7.8        2.2         .5         .7        1.9      13.1
    1997 \3\............................  .........       11.2  .........         .5         .8        1.9      14.4
    1998 \3\............................  .........       11.1  .........         .5         .8        1.9      14.2
    ----------------------------------------------------------------------------------------------------------------
    \1\ 1998 request levels equal 9.6 percent of 1985 actual levels.
    \2\ Public Law 480 includes titles I, II & III.
    \3\ Figures for fiscal year 1996 represent obligations, for fiscal year 1996 represent actual appropriations.
      Figures for fiscal year 1998 are based on request levels.

    Note. Figures may not total exactly due to rounding.

    Source: USAID, Obligations and Loan Authorizations fiscal year 1946-fiscal year 1992. Congressional
      Presentation, fiscal year 1995, fiscal year 1996, fiscal year 1997, fiscal year 1998. Last Updated: April 2,
      1997.

                                     ______

     Prepared Statement of Rev. J. Bryan Hehir, Counselor, Catholic Relief
    Services, on behalf of the U.S. Catholic Conference and Catholic Relief
                                    Services

        I present this testimony on behalf of the U.S. Catholic Conference
    (USCC), the public policy agency of the Catholic bishops of the United
    States, and Catholic Relief Services (CRS), the development and relief
    agency of the bishops presently working in over eighty countries
    throughout the world.
        Today, I address the topic of U.S. foreign assistance and
    development policy. At the General Meeting of the National Conference
    of Catholic Bishops in November 1996, the bishops voted to address both
    President Clinton and the Congress on the steady decline in the 1990's
    of the U.S. foreign aid budget. The bishops are concerned that this
    pattern of declining U.S. involvement in aid to the world's poor fails
    to meet even minimal moral obligations of a country of our stature and
    resources. In addressing this vital issue of the role of foreign aid in
    the 1990's, I seek to share two of our own resources with the
    committee: the perspective on international relations and foreign aid
    found in Catholic social teaching, and the experience of CRS in its
    half-century of service to the poor beyond our shores.
        In my testimony I will address three themes: (1) a moral vision
    about international society; (2) a perspective on the choices U.S.
    policy faces on foreign aid; and (3) specific comments on foreign aid
    policy.
              I. The World of the 1990's: Framing a Moral Argument
        All analysts of international relations agree that in the 1990's
    the world is passing through a fundamental moment of change and
    realignment. The last comparable period was fifty years ago as the
    world emerged from a global war and struggled to put in place
    institutions which would prevent a third global conflict in this
    century. The consequence of the policies put in place in the 1940's has
    been the creation of the first truly global international order. A
    convergence of factors over the last fifty years--decolonization, the
    rise of modern means of transportation and communication, the emergence
    of economic and financial ties in a global market--has transformed the
    fabric of world politics. Today in the 1990's, as we struggle to
    understand and respond to both the end of the Cold War and the process
    of socio-economic globalization, we are writing another chapter in a
    story begun five decades ago.
        It was also in the 1940's, in the midst of World War II, that Pope
    Pius XII (1939-1958) grasped the depth and degree of change sweeping
    the world and recognized the need to address the moral structure of
    international relations required if states and individuals are to
    understand and assume their appropriate roles in a world order
    profoundly different from the past. In a process inaugurated by Pius
    XII but continued by every pope through John Paul II, Catholic social
    teaching has sought to develop ideas, principles and values which can
    provide moral direction to the political, military and economic forces
    shaping the post-war world. The moral vision thus developed has three
    characteristics: (a) while rooted in a religious community, it is
    shaped by concepts and principles which can be used in a pluralistic
    society; (b) it is a form of a ``realist'' moral vision in the sense
    that it takes seriously the dominant features of world politics: the
    lack of a center of political authority and a fragile legal structure;
    but, (c) it is not confined to a ``realist'' answer in addressing the
    needs of a world divided by politics and ideology, but increasingly
    united by transnational linkages and institutions. Rather, it is based
    on the conviction that moral values and principles must guide the
    political order, particularly at the level of international relations.
        This moral teaching invites states and citizens to recognize three
    fundamental moral principles. First is the human dignity inherent in
    each person, a value which is the basis for a complex fabric of human
    rights and duties that creates responsibilities and relationships
    across national borders (Pius XII). Second is the existence of an
    international common good, a set of shared interests, values and
    obligations which sovereign states can recognize and should pursue
    despite differing political systems (John XXIII). Third is a bond of
    solidarity--both an attitude toward others and a sense of duty--which
    makes it impossible to consign part of the human community to a status
    beyond our care and compassion when they are faced with threats to
    their life and dignity (John Paul II).
        These three principles--human rights, common good and solidarity--
    are the foundation of the work which the bishops of the United States,
    through the United States Catholic Conference and Catholic Relief
    Services, seek to do in the world; we are an institutional expression
    of a church which teaches and is committed to these ideas. But we
    believe the scope of these truths extends beyond religious communities
    and organizations. We are convinced that, precisely because the still
    developing status of the international community leaves an increasingly
    interdependent world in the hands of interdependent states, a vision of
    how we are related to each other and responsible for each other is an
    essential requirement for a peaceful world.
        In 1967, Pope Paul VI said that ``development is the new name for
    peace.'' That phrase causes debate among students of international
    affairs, but it expresses a profound truth, however complex its
    implementation. The truth is that peace and stability, elusive but
    necessary objectives in the world, cannot be built upon a world marked
    by radical inequality and injustice. There are undoubtedly multiple
    sources of conflict in the world, but none more troubling than an
    international order where everyone knows the benefits which science,
    technology and economy can provide, yet only a fraction of the globe
    has any real prospect of experiencing these benefits. The threat from
    that kind of world (dis)order is not only to our hope for peace but to
    our human decency.
        What do these ideas of human dignity, common good and solidarity
    say to the U.S. role in the 1990's? The argument of this testimony is
    that sustainable human development, grounded in a conception of human
    dignity, structured by an understanding of human rights and accepted by
    citizens and states as an obligation of the international community,
    should be a principal objective of U.S. foreign policy. The U.S.
    foreign assistance program is the primary way for the United States to
    express its commitment to this obligation. Hence, I seek to make the
    case that this program deserves not only consistent support but a more
    central role in U.S. foreign policy. That role can only be created by
    clear policy choices. It is to those choices that I now turn.
          ii. the united states in the world: options for foreign aid
        The U.S. foreign aid program was conceived and initiated in the
    context of the Cold War. The program always had a double objective: to
    respond to poverty, hunger and disaster and to be an instrument of U.S.
    policy in the struggle against communism. These objectives coexisted in
    a fragile alliance which guaranteed funding for foreign aid, but often
    corrupted its first goal of meeting human needs. Few doubted that there
    had to be a foreign aid component to a successful policy of countering
    communism, and most doubted that such a program could primarily be a
    humanitarian policy.
        The collapse of the Cold War swept away the foundation and
    framework in which U.S. foreign policy (including foreign aid) was
    conceived and conducted. The new setting of world politics in the
    1990's opens new possibilities for foreign aid, yet it also presents
    substantial challenges to sustaining a commitment to any foreign aid
    program.
        On the one hand, there now exists the possibility of establishing a
    truly moral rationale for U.S. foreign assistance, one directed by
    clear purpose and sufficient means to meet basic human needs among the
    world's poorest people. Such a program would not only clarify U.S.
    purpose; according to recent polling data it is also the only basis on
    which to regain public support for foreign aid. Once the idea of such
    aid is clearly stated as direct assistance to people in dire need, U.S.
    public opinion solidly supports it. In one recent study conducted by
    the University of Maryland and the Center for the Study of Policy
    Attitudes, 80 percent of Americans polled said they support foreign aid
    directed toward ``those in the world who are in great need.'' \1\
    ---------------------------------------------------------------------------
        \1\ Steven Kull, ``Americans and Foreign Aid: A Study of American
    Public Attitudes'' (Washington: Program on International Policy
    Attitudes and College Park, MD: Center for International Security
    Studies at Maryland, 1995, p.3.
    ---------------------------------------------------------------------------
        Such public support is critical because the Cold War rationale--
    that we need a foreign aid program to ward off threats to basic U.S.
    interests--has now been substantially eroded. That erosion is the
    product of new forces at work in the international system. The Cold War
    system had the artificially imposed character of a unified arena of
    competition in which the two superpowers engaged in multiple forms of
    conflict across the globe. The end of that competition has produced a
    much more fragmented pattern in world politics, which in turn poses
    quite different challenges and choices for U.S. foreign policy.
        Some U.S. policy choices are not in doubt; they concern issues
    which remain demonstrably linked to U.S. national interests. These
    issues cut across two broad dimensions of world politics: first, what
    might be called ``great power politics;'' second, foreign economic
    policy. The major powers of the post Cold War era (China, Europe,
    Russia, Japan and the United States) will clearly attend to the issues
    which either unite or divide them. These include the future of Russia
    and China, the role of a uniting Europe, the future role of NATO, the
    problem of proliferation of weapons of mass destruction and
    relationships with the United Nations. In addition, the G-7 states will
    continue to pursue the ever growing agenda of international economic
    issues which are now so central a part of foreign policy. While there
    are multiple policy decisions to be made in these two areas, there is
    no doubt that the choice to engage them is a foregone conclusion.
        The choice which remains quite open, however, is whether there will
    be a sustained, coherent, generous and just policy of the United States
    to engage countries which fall outside great power politics and beyond
    the pale of the economic interests of the advanced industrial
    democracies. More specifically, will there be a sustained interest in
    and engagement with those nations which represent the poorest 25
    percent of the global population? In the Cold War era, some resources
    were guaranteed for these nations because they fitted into the
    overarching framework of East-West competition. Today that ``strategic
    location'' is gone, but the United States' direct moral obligation to
    help rebuild societies where it had interests during the Cold War
    remains.
        There are a substantial number of states and people today who can
    neither threaten us in any classical sense of that term nor demand our
    attention--yet the human conditions of their existence lay claim to our
    conscience. The clearest example of this phenomenon is found in the
    poorest of the African states, and--to some degree--the African
    continent as a whole. Clearly I do not want to describe Africa only in
    terms of massive problems. Such a view, too common today, overlooks the
    complex reality, within states and in the continent, containing also
    success stories of people struggling against overwhelming odds to
    guarantee a future for their children. In spite of this fact, however,
    it is dramatically clear that Africa is a continent where human life
    and dignity is mortally threatened each day. The threats are multiple--
    some are military, some political--but the economic devastation is
    pervasive, cutting across governments of different orientations,
    intensifying civil conflict and stunting any effective strategy
    development. Except for South Africa, the African states which have
    been most visibly in the media in the 1990's have been ``the failed
    states'' of Somalia, Rwanda, Burundi and now the collapsing colossus of
    Zaire. These failed states pose no direct security threat to the United
    States, and they contain few attractive economic possibilities at this
    time. Hence, responding to their needs will require a clear choice on
    the part of the United States. We will be neither compelled nor
    constrained to expend time, treasure or talent on their behalf.
        Only a conscious choice, supported by both moral and empirical
    reasons, will sustain a long-term U.S. commitment to foreign aid as
    part of a broader commitment to human development. Hence, in the 1990's
    foreign aid should not be debated simply as a line item in the budget.
    Such an approach will consign it, over time, to death by diminishment.
    The fundamental foreign aid question of the 1990's resembles the
    Marshall Plan debate of the 1940's. It is a question about the U.S.
    conception of its role in the world. The U.S. role will be shaped by
    multiple factors, but a capacity for moral vision, expressed in an
    effective commitment to the poorest members of the global community,
    should be a visible part of the U.S. understanding of its role in the
    world. From this fundamental vision, policies and programs will follow.
    To ask the foreign aid question in terms less expansive than this is to
    do us all a disservice. It is not a foregone conclusion that the United
    States will support and sustain a well conceived, carefully developed,
    coherently structured and generously motivated foreign aid program. But
    we should neither forsake the program nor simply extend its marginal
    existence without a serious public debate about its political
    significance for U.S. foreign policy and its moral significance for our
    conception of a common humanity--a humanity we share with those beyond
    our shores and beyond a narrow definition of what constitutes U.S.
    interests.
        Such a broad-ranging public discussion is properly located in the
    first instance with the President, as it was fifty years ago. The
    future of a vigorous foreign aid program resides fundamentally with
    presidential commitment to a specific form of U.S. leadership in the
    world. It also resides, as it did in the 1940's, with the Congress. The
    congressional leadership supporting both NATO and the Marshall Plan is
    today remembered as having made a lasting contribution to the stability
    and peace of the world.
        The choices of the 1990's are not the same as those of the 1940's.
    While a strong foreign assistance program is certainly still in the
    U.S. national interest, the foreign aid choice today no longer is seen
    having the same imperative role for U.S. policy as was obvious in the
    1940's. To some degree, however, this means that the kind of vision
    needed to sustain a policy choice today is more demanding. When persons
    or states are not compelled to act, the reasons and motivations for
    their choices are more clearly tested and displayed.
        Finally, a choice to sustain a generous foreign aid program rests
    with the American public. Clearly the impression is abroad that foreign
    aid has few friends among policy elites or the electorate. But a hasty
    impression may overlook the documented fact that a reservoir of public
    support does exist for a foreign aid program with three
    characteristics: it meets the needs of the poor, it works, and it is a
    shared effort with other countries. Our experience as a church and in
    CRS, where we must depend in part every year for our work in the
    poorest countries on the voluntary contributions of American Catholics,
    convinces us that an approach can be made to the American public for a
    more expansive foreign aid program. In coming before this subcommittee,
    we call for a morally grounded conception of U.S. capabilities and
    duties in the world today, and we promise the support of our religious
    leadership to sustain a renewed effort for the foreign aid program.
      iii. foreign aid and human development: concepts and choice for the
                                     1990's
        The perspective of this testimony is that the U.S. foreign aid
    program now stands at a juncture similar to its founding moment in the
    1940's. Then as now, a basic systematic change in world affairs
    presents new opportunities and challenges; the Marshall Plan's response
    to the post-war world is recognized as a moment of creative genius and
    political courage. The quite different challenges of the post Cold War
    world invite us to a choice rooted in comparable vision and courage.
        A. The Nature of Development.--The process of development is a
    multi-dimensional reality. The concept of development found in recent
    Catholic teaching, in the encyclicals of Paul VI and John Paul II,
    emphasizes the moral character of development. This view roots the idea
    of development in its subject, the human person, possessed of rights
    and duties and in need of a social system which protects rights and
    facilitates the fulfillment of duties in society. Placing development
    policy within a moral framework leads to the distinction between
    economic development and human development. The economic dimensions of
    development policy are a means to a broader end; human development
    addresses the spiritual, material and social needs of the person.
    Catholic social teaching supports economic development and sees it
    contributing to, but not substituting for, human development. Economic
    growth, therefore, is one element of successful development strategy.
    Its primary objective should be poverty reduction within the context of
    an equitable growth strategy.
        In Catholic teaching, the fundamental criteria for evaluating
    development policy are the dignity of each person and the principle of
    the option for the poor. Within a strategy directed toward the dignity,
    rights and duties of all, there should be a specific priority given to
    the basic needs of the poorest and most vulnerable sectors of the
    population. The option for the poor should shape policy choices of
    nations to be assisted, as well as development policies within
    countries. With this framework in mind, the bishops continue to seek a
    refocusing of attention and resources away from military and trade
    objectives and toward the goal of eliminating poverty and promoting
    human development. Specifically, foreign assistance should be
    redirected away from military and export promotion assistance and
    toward humanitarian and development assistance.
        Around the world, as in our own country, women and children are
    disproportionately and increasingly the victims of poverty. Solving the
    problem of poverty among women and children is essential to the
    elimination of poverty in the world, and reduction in foreign aid will
    have the greatest detrimental impact on women and children. It is not
    only important to focus development programs on women and children, but
    policies and programs should empower women to improve the quality of
    their lives and those of their children. At the same time we need to
    listen to the concerns of women; they should be involved in the
    decision making processes.
        While some have invoked concern for women as a basis for giving
    priority to population control efforts, we hold that the contrary is
    true: developed nations' efforts to control population in poorer
    nations ought not substitute for real solutions to the problems of the
    poor. As the U.S. bishops said in 1966, ``it is the positive role of
    government to help bring about those conditions of family freedom which
    will relieve spouses from * * * material and physical pressures to
    limit family size.''
        B. The Elements of Development Policy.--Foreign assistance must be
    seen as part of a broader policy of measures to reduce poverty and
    assist growth and development. Several concerns should work together:
    (1) the protection and promotion of human rights; (2) securing peace
    processes and supporting democratic transitions; (3) trade policy; (4)
    a comprehensive strategy of debt relief; (5) U.S. participation in
    multilateral development institutions; (6) U.S. bilateral assistance;
    and (7) support for the United Nations. It is the coherent integration
    of these elements which yields effective development. U.S. policy
    should reflect a commitment in principle and allocation of resources to
    these dimensions of human development.
        1. Human Rights.--A strong consistent human rights policy should be
    the foundation of U.S. development policy. The protection and promotion
    of human rights (political-civil and socio-economic) is one of the
    fundamental elements of a moral conception of development policy. For
    this reason, U.S. foreign military aid should be conditioned on human
    rights criteria, and governments demonstrably involved in gross and
    systematic patterns of human rights violations should not be recipients
    of such aid. At the same time, the United States must maintain its
    ability to reach the poorest of the poor in special circumstances
    through humanitarian and development assistance programs even in
    countries where there is no effective government or where governments
    do not meet human rights criteria.
        It is necessary to distinguish two kinds of criteria as a condition
    for foreign assistance, namely, human rights and democratization. The
    United States should pursue both in its foreign aid policy, but it
    should not forsake the people of some of the very poorest countries
    which are still years away from meeting standards of democratization.
    Countries receiving U.S. foreign assistance should uphold
    internationally recognized human rights norms. Criteria which hold
    countries to standards of democratization set a higher goal; it is an
    altogether desirable goal, perhaps the best guarantee that human rights
    will be observed. But, I suggest, the democratization standards must be
    implemented with great prudence. If aid is conditioned on standards
    that are set too high or too early, they could have a perverse effect
    on the lives of the poorest populations in the world. I say this
    because it seems likely that some countries are capable of enforcing
    basic human rights policy and the rule of law but may be years away
    from the more complex task of creating democratic institutions.
        Human rights policy should respect the most basic human rights,
    especially the right to live, throughout the spectrum of human life.
    The USCC and CRS therefore favor reinstatement of the ``Mexico City''
    policy barring population assistance to organizations which perform
    abortion as a method of family planning. The United States should also
    refuse to be part of any effort to repeal other nations' laws
    protecting human life at its most vulnerable stage.
        2. Peace and Democracy.--Support for democratization is tied in
    several key countries to support for a multidimensional effort to move
    from war to peace. In view of the current impasse in the Middle East
    peace process, the need to sustain U.S. credibility, and the importance
    of building trust between the parties, it is vitally important that
    development aid to the Palestinians be allocated and released.
    Likewise, in Central America and Southern Africa, peace processes have
    been impaired by a lack of funding and insufficient political will. To
    succeed, these efforts demand the U.S. financial support and diplomatic
    assistance they were promised.
        3. Trade.--In the U.S. policy debate some contrast trade vs. aid as
    alternative strategies for responding to the problems of poverty and
    injustice in developing countries. This testimony advocates a
    correlative conception of trade and aid. The significance of trade
    policy and assuring market access for developing countries is critical.
    But it is clear that while expanding trade is a highly relevant
    possibility for some countries, others, particularly the poorer
    countries of Africa, Latin America, and Asia, will find very marginal
    improvement, or even decline, in the immediate future. Export promotion
    assistance mainly benefits upper-middle income countries and
    corporations whose primary interest is not human development. Trade
    policy should be crafted to assist the poorest countries to develop in
    a way economically most beneficial to them. A just international
    trading system should create economic benefits that enhance the life
    and dignity of all people. Trade agreements must respect the rights of
    workers and protect the environment, particularly in countries with few
    legal protections for either. Development policy without a substantial
    component of fostering trade is defective; development policy without
    aid as an essential element fails to address the needs of some of the
    most vulnerable populations in the world today. In the short term, some
    of today's poorest countries will need the support of aid before they
    can compete successfully in the world of trade.
        4. Debt Relief.--Foreign assistance without attention to debt
    relief simply gives with one hand and takes with the other. The burden
    of external debt for many developing countries is an obstacle
    preventing progress toward development goals. In many of the poorest
    countries of the world, particularly in Africa and Latin America, the
    debt burden forces governments to use scarce financial resources,
    including external aid, on debt repayments rather than on critical
    investments in health, nutrition, or education. Many indebted countries
    have already paid back the principal on their outstanding loans but are
    unable to pay the interest which grows larger over time. The
    international financial institutions and bilateral creditors have
    recognized the need for debt relief but have not yet committed
    sufficient financial resources to finance it. We urge the international
    financial institutions, particularly the World Bank and International
    Monetary Fund, to expand eligibility for debt relief to the full range
    of heavily indebted poor countries, to provide more substantial debt
    relief than currently projected, and to shorten the time frame for debt
    relief. We urge the United States to use its leadership within the
    international financial institutions to convince other governments to
    do the same. I would also like to emphasize our support for lenders
    holding governments accountable to investing in their people through
    education, health, nutrition, and other programs that support human
    development, but we do not favor conditions that force radical
    restructuring of economies in ways that cause short or long-term harm
    to the poor. Still less should debt relief or other foreign assistance
    be conditioned on programs of population control.
        5. Multilateral Assistance.--Assistance provided through
    multilateral institutions has a double benefit. On the one hand, it
    facilitates burden-sharing for development. On the other hand, it
    enhances the role of those institutions which are essential for an
    interdependent world. Multilateralism is no threat to the United
    States. As a world leader, we are obligated both morally and
    practically to participate in multilateral institutions. The fabric of
    global interdependence must be given structure, purpose and methods for
    enhanced cooperation. Interstate policies alone are not adequate to the
    challenge of development today. In particular we wish to support full
    funding for U.S. commitments, including payment of its arrears, to the
    International Development Association (IDA). As the loan fund of the
    World Bank designated for the poorest countries of the world, IDA
    provides essential funding for rural health facilities, primary
    schools, sanitation and transportation systems, and other programs
    integral to human development. IDA meets two crucial objectives of
    development policy: it is directed to the poorest populations and it
    facilitates an international covenant of collaboration in support of
    the poor. We urge you to support the full scheduled payment of $800
    million for IDA-11 and $234.5 million overdue from IDA-10, a total of
    $1.035 billion. We also urge congressional support for continued U.S.
    leadership role in the multilateral institutions.
        6. Bilateral Assistance.--We support full funding of the
    President's request for bilateral assistance. The cuts in both
    multilateral and bilateral assistance over the last four years have
    been crippling. Without U.S. foreign assistance many organizations,
    including CRS, would have to change the scope and content of their
    programs drastically. Indeed cuts in the U.S. foreign aid budget of the
    1990's have already substantially affected CRS's work. Reductions in
    the PL 480 Title II food assistance programs have had a direct effect
    on our service to the poor. From orphanages in West Africa to Mother
    Teresa's work in India and Ethiopia, CRS has had to discontinue
    programs and other activities in support of mothers and children. The
    President's request this year should be seen as a first step back
    toward a U.S. policy of assistance which corresponds to our position of
    leadership in the world. The experience CRS has had with both the Child
    Survival Program and Microenterprise Initiatives leads us to support
    full funding for these programs. USAID is funding only one of every
    four applications for child survival grants, turning down agencies with
    proven track records in places such as Kenya and Tanzania. We request
    that $40 million be set aside in fiscal year 1998 and $60 million in
    fiscal year 1999 for the child survival programs of citizen-supported
    private voluntary organizations. In both program areas, CRS is prepared
    to expand collaboration if more funds--beyond those requested--can be
    appropriated. Our hope is that both programs will grow in the future.
        Migration and Refugee Assistance.--Similarly we wish to highlight
    and support the need for generous support to migration and refugee
    programs. The USCC Office of Migration and Refugee Services (USCC/MRS)
    can attest to the critical needs of refugees in an age when internal
    conflict, generating huge flows of refugees and internally displaced
    persons, has become the most visible example of war in the world. The
    series of failed and failing states since the end of the Cold War have
    resulted in recurring complex emergencies that have sharply challenged
    the ability of the international community to respond. The cost in
    treasure has been immense and in human suffering even greater. Further,
    the international community has yet to learn how to deal effectively
    with such emergencies. Far better to deal first with their root causes,
    but once the emergency is upon us, we must learn how better to
    ameliorate its cost and suffering. As ever, U.S. leadership is critical
    to this effort and without adequate resources, effective leadership
    will be severely hampered. Like CRS, Migration and Refugees Services is
    both funded from church resources and yet enormously expanded in its
    outreach by collaborative engagement with U.S. Government programs. Of
    first importance in this respect is the admission and resettlement of
    refugees to the United States. USCC/MRS is the largest of the private
    agencies assisting in the domestic resettlement of refugees in the
    United States. In recent years, refugee admissions have dropped sharply
    from 130,000 in fiscal year 1992 to about 75,000 this year. Many,
    including concerned members of Congress, believe that these numbers
    have fallen too low, especially in light of ongoing requirements to
    complete the Indochinese refugee program and growing needs for the
    resettlement of Bosnian refugees. We believe that admission numbers
    should be restored to pre-1995 levels of 100,000-110,000 persons. We
    recognize that refugee admission numbers are set by the President in
    consultation with the judiciary committees but urge that adequate funds
    be available to fund needed admissions. We urge that you allocate at
    least $700 million for Migration and Refugee Assistance and $100
    million for Emergency Refugee and Migration Assistance.
        7. U.S. Support for the United Nations.--The President's request to
    the Congress for funds adequate to address both present U.S.
    commitments and unfulfilled U.S. debts deserves support. Recent polling
    data indicate that the U.S. public supports foreign aid only if the
    U.S. bears a ``fair share'' with others.\2\ Such burdensharing,
    however, requires institutions which can facilitate and implement a
    shared policy vision. This is one reason why U.S. policy should support
    the role of the United Nations. From a broader perspective, Catholic
    teaching has endorsed an expansive role for the United Nations since
    its inception. Three times in the last twenty years, Popes have come to
    the United Nations to attest in person to the essential moral and
    political role this institution plays in an increasingly interdependent
    world still governed by independent states. It is both possible and
    necessary to affirm the indispensable role the United Nations plays as
    well as call for reform of how it plays that role. The Holy See has
    differed with UN policy in specific instances, but never eroded its
    fundamental support for this institution. Our hope is that U.S. policy
    can strike a similar balance. Specifically, this testimony supports:
    (1) payment of U.S. arrears to the United Nations; (2) support for UN
    peacekeeping activities; (3) support for funding international
    organizations and programs, and in particular, increasing the
    contribution to the United Nations Development Program to $100 million
    and the International Fund for Agricultural Development to $20 million;
    and (4) cessation of funding for the UN Fund for Population Activities
    so long as it supports China's coercive family planning and abortion
    programs.
    ---------------------------------------------------------------------------
        \2\ Steven Kull and I.M. Destler, An emerging Consensus: A Study of
    American Public Attitudes On America's Role in the World (College Park
    Maryland: Center for International Security Studies at Maryland, 1996)
    pp. 3-7.
    ---------------------------------------------------------------------------
        In closing, I wish to mention the USCC's and CRS's appreciation for
    the positive comments often heard in congressional debate about the
    role of faith-based organizations in directly meeting the needs of the
    poor. As a church committed to the ideas outlined in this testimony, we
    will always be involved in relief and development efforts. But I can
    assure you today that the legislation you are considering makes a
    dramatic difference in how we and other citizen-supported private
    voluntary organizations function in a world of expanding human needs
    and declining budgets.
        The President's request for a higher level of foreign assistance
    than we have seen in several years gives us hope that a new discussion
    of the U.S. role in the world might begin on this fiftieth anniversary
    of the Marshall Plan. Only the combined effort of a creative foreign
    policy and renewed public support for it will be sufficient to reverse
    the damaging decline foreign aid has suffered in the 1990's. The
    Catholic Church in the United States was privileged to be part of the
    post-war reconstruction of Europe; we wish now to be part of a wider
    effort to shape a development process in the service of the human
    community and in response to basic American values.
                                     ______

        Prepared Statement of Reed Hertford, President, Association for
                International Agriculture and Rural Development

        Mr. Chairman, my name is Reed Hertford. I am submitting this
    testimony in my capacity as President of the Association for
    International Agriculture and Rural Development. AIARD is a 33 year old
    association of professionals who represent universities, private
    commercial firms, private voluntary organizations and other national
    and international organizations from both the public and the private
    sectors. Our members are from every state in the Union and have
    dedicated their careers to alleviating world hunger and advancing
    agriculture and rural development around the world.
        Request for Action.--Mr. Chairman, the purpose of this testimony is
    to submit our association's urgent request that the United States renew
    public investment in international agriculture and rural development to
    a level that: (1) accurately reflects the impressive economic benefits
    realized by the United States as a result of these programs, (2) is
    adequate to address the daunting challenge of feeding a world
    population projected to double in 20 years, and, (3) reflects the fact
    that the agriculture sector is predominant in developing nation
    economies--helping agriculture is key to stimulating overall developing
    country economic growth. Specifically, the Association for
    International Agriculture and Rural Development, in coalition with
    other public and private sector partners who will testify separately
    before your committee, requests Congressional action to:
      --Support the U. S. Campaign for Global Leadership's effort to
            increase the 150 (International Affairs) account;
      --Designate at least $500 million for international agriculture and
            rural development, in the USAID appropriation for fiscal year
            1998, continued annually at not less than this amount (in
            inflation adjusted funding). This should include calling for a
            minimum of five senior agriculture officials appointed at
            USAID;
      --Encourage multilateral development banks to strengthen
            international agriculture and rural development efforts
            dedicated to broad-based economic growth, poverty reduction and
            environmentally sustainable development, which serve U.S.
            interests and international stability. The U.S. obligation to
            the International Development Association (IDA) should be fully
            funded and used as a vehicle for agriculture and rural
            development in the poorest areas of the world;
      --Support lowering of trade and investment barriers internationally,
            inducing renewing fast track trade agreement authority.
        Rationale for Investment.--In response to pressures to re-
    prioritize and reduce U.S. foreign operations expenditures, resources
    must be re-dedicated to programs that are clearly in the best interest
    of the United States and yield a high return on investment. Public
    investment in international agriculture and rural development has a
    proven track record in meeting both criteria. And yet, paradoxically,
    U.S. involvement and leadership have fallen precipitously. This must be
    reversed so that the United States can accelerate economic growth in
    developing countries that will produce more exports, more jobs and more
    income here at home; help poor nations increase their readiness for
    private investment alleviate food insecurity, and subsequent demands
    for U.S. disaster and famine relief; and meet the World Food Summit
    commitment to help halve the number of undernourished people by 2015.
        Why should grassroots constituencies care?--You might ask ``who
    cares?'' The answer is simple: international agriculture has become an
    important local issue in cities and rural communities across America.
    As barriers to trade have come down, and the free flow of commodities,
    inputs, technologies and information has expanded, what happens in
    countries around the globe can have an economic impact on most any town
    in Kentucky, or any other state in the union.
        In 1995, U.S. agricultural exports were valued at $55.8 billion,
    representing fully one quarter of total U.S. gross farm income. These
    agricultural exports produced a total economic boost to our economy
    that has been estimated at $132 billion. About 17,300 jobs are now
    being created for each $1.0 billion of agricultural exports, with four
    fifths of these export-linked jobs being created off the farm in
    upstream or downstream agricultural industries. Mr. Chairman, in your
    own state of Kentucky, according to Economic Research Service data,
    agricultural exports grew from a total of $863.2 million in 1992 to
    well over a billion dollars in 1996.
        In addition to addressing the humanitarian concerns of Americans
    and our desire to alleviate human suffering, helping developing
    countries is key to our own economic future. About 52 percent of U.S.
    agricultural export sales are to developing countries. Sales there
    spurted by 84 percent between 1988 and 1994--more than twice the growth
    rate of exports to developed regions of the world. Most demand growth
    will occur in developing countries in the future because they have more
    room to grow than do we here at home, or than do other industrialized
    nations. As the United States helps to ``grow'' those developing
    economies through agriculture and rural development programs, we invest
    in creating our future customers.
        What should the United States do?--On January 23rd, the Association
    for International Agriculture and Rural Development sponsored a Forum
    on Capitol Hill to begin a policy dialogue in the United States and to
    entertain concrete proposals for innovative future action in
    international agriculture and rural development. Over 200 people
    attended--testimony to a growing interest in world food and agriculture
    issues. Drawing on results of the Forum, materials emerging from the
    World Food Summit, the World Bank's new vision for agriculture and
    rural development, and the reports of the National Center for Food and
    Agricultural Policy's Commission on International Trade, Development,
    and Cooperation, our Association has worked with a broad-based
    coalition of institutions to achieve agreement on the areas of emphasis
    required for future efforts in international agriculture and rural
    development.
        Overall economic growth emphasis.--The economic growth goal must be
    emphasized more strongly in all development programs. Only when
    countries have more income in hand can poverty be abolished, the
    environment protected and children nourished and cared for so they will
    survive and thrive. Because of the pivotal role of agriculture in most
    economies around the world, achieving growth requires getting the rural
    sector moving.
        That challenge cannot be met by a U.S. development assistance
    budget which assigned only 8.0 percent of its resources in fiscal year
    1996 to agriculture and rural development, down from 16 percent just
    six years earlier. The agriculture community views this sharp decline--
    to say nothing of the meager budget share now assigned to agriculture--
    with deepest alarm. The recommended $500 million for fiscal year 1998
    would partially rectify this disturbing trend and modestly raise the
    percentage that agricultural and rural development programs comprise of
    the total to 13 percent (based on USAID fiscal year 1996 figures).
        We believe that, to maximize the impact of the additional
    resources, three programs should be emphasized: agricultural
    technology, trade liberalization and reform, and human and
    institutional capital.
        Agricultural technology.--Earned rates of return on investments in
    international agriculture research and technology development are
    documented to exceed 100 percent annually and 40-50 percent
    consistently. I challenge you to find better payoffs on public
    investment. Furthermore, research conducted overseas consistently
    provides economically-important benefits to U.S. agriculture. By
    raising the productivity of each unit of land, agriculture technologies
    also conserve the natural resources upon which the future of
    agriculture depends. Yet, U.S. government investment in international
    agricultural research has dropped by two thirds in the past ten years.
        The United States, once the leader in international agricultural
    research and technology development, is underinvesting in agricultural
    research at home, in the global network of international agricultural
    research centers and in national research systems in developing
    countries. U.S. investment must be expanded to leverage stronger links
    between the United States public and private sector agricultural
    research system and the global agricultural research system. Targeted
    cooperation is necessary to assure full access to global plant and
    animal genetic resources and to information on new technologies and
    management systems.
        A major increment of funding, involving new public and private
    partnerships in the United States, as well as between this country and
    foreign advanced and developing nations, should be provided. The
    initiatives should reflect the complex challenges at hand of achieving
    growth and increased competitiveness, while preserving the natural
    resources on which the future of agriculture depends.
        Trade liberalization and reform.--Efforts by the United States to
    support an open, globalized food system, with reduced trade and
    investment barriers, should be continued and reinforced. The future
    prosperity of the U.S. food and agricultural sector will be
    increasingly dependent on the growth of markets in the developing
    nations and on our access to those markets. However, freer trade may
    impact some groups in some countries adversely, and the United States
    should be prepared to deliver expertise and resources that will help
    alleviate the adjustment costs that impact these disadvantaged groups.
    Core examples of cooperation in this field include establishing
    phytosanitary control procedures, improving trade policy and analytical
    capacity, strengthening market systems, creating mechanisms for coping
    with extreme price fluctuations, modernizing communications and
    transport, and creating private credit and accessible legal
    institutions necessary for private sector growth.
        Human and institutional capital.--Long-term U.S. investments in
    improving human and institutional capacity are a proven means of
    helping poor nations develop their economies. Successful U.S. efforts
    have strengthened people and institutions essential for private sector
    growth, international trade and participatory governance. The United
    States has earned a world leadership role in education and training
    programs related to agriculture and rural development. Expanding U.S.
    investment in human and institutional development would bring the
    strengths of this country to bear on (a) raising the quality of life
    and providing a foundation for economic growth and private investment
    in developing countries, (b) expanding markets for U.S. export sales,
    and (c) improving agricultural technology through research.
        In conclusion, I would like to underline the fact that, due to the
    nature of our work, the need for action and investment is urgent. The
    World Food Summit's major commitment, joined by the United States, is
    to halve the number of undernourished people by 2015. We know it takes
    10-15 years for new agricultural technologies to be fully developed and
    adopted. Therefore, action is urgently needed if we are to feed a
    population projected to double in 20 years and satisfy higher living
    standards.
        Thank you, Mr. Chairman, on behalf of AIARD for the opportunity to
    provide this testimony.
                                     ______

      Prepared Statement of Robert Karl Manoff, Director, Center for War,
                           Peace, and the News Media

        I very much appreciate the opportunity to provide testimony to the
    Senate Foreign Operations, Export Financing, and Related Programs
    Subcommittee of the Senate Appropriations Committee.
        The comments I am offering here are presented as the result of more
    than a decade of work with the media in Russia and the former Soviet
    Union. In fact, I have been working with the media in the former USSR
    since 1985, when the New York University Center for War, Peace, and the
    News Media (which I co-founded and head) began conferencing with and
    training Soviet journalists in order to encourage them to push the
    boundaries of press freedom which Mikhail Gorbachev was just beginning
    to expand under his policy of glasnost. In 1992, in order to provide
    nationwide assistance on a wide variety of media issues, the Center
    founded the Russian-American Press and Information Center, which is now
    one of the two principal media assistance organizations in Russia.
        The NYU Center now has the longest continuous track record of
    providing media assistance of any organization operating in Russia. By
    profession, I myself am a journalist (for example, as Managing Editor
    at Harper's) an academic (having taught journalism and/or Russian/
    Soviet studies at several universities and authored books and articles
    on the same subjects), and director of the NYU Center.
        It is against this background that I would like to touch briefly on
    four issues: First, the overall future of American assistance to
    Russia; second, the importance of assistance to the media within this
    overall program; third, the centrality of the print media to a
    successful media effort; and, lastly, the contributions that the
    Russian-American Press and Information Center (RAPIC) is prepared to
    continue to make to the success of the overall American effort in
    Russia.
                        1. american assistance to russia
        It may easily be construed as self-serving for the person in charge
    of an American program in Russia to urge support for the increased
    levels of funding for Russian assistance requested in the fiscal year
    1998 Appropriations bill. Indeed, as I note below, we do hope that the
    Russian-American Press and Information Center, which has been created
    through a partnership between the U.S. government and private
    foundations, will continue to be the recipient of Federal support.
        But I would like to note that the NYU Center had been providing
    assistance to the media in Russia for nine years before it received any
    U.S. Government funds and that its commitment to working with the media
    in Russia is, in fact, a generational one that we expect to sustain
    well after Federal assistance has come to an end under even the most
    long-term scenario. Our commitment to this activity, in other words, is
    driven by our own sense of the importance of this mission, not by the
    availability of Federal dollars.
        Indeed, it is the importance of this mission that I would like to
    emphasize here. There are experts on both sides of the aid-to-Russia
    debate, and there is little I can contribute to this complex
    geopolitical, budgetary, and realpolitik issue in a paragraph or two.
    Except, perhaps, to emphasize one point: The dozens of staff members of
    the six RAPIC Centers are on the ground across Russia day-in, day-out,
    and have been so for years. Together with the members of the RAPIC
    nationwide Media Assistance Network, we are working intimately with
    thousands of Russian managers, journalists, advertisers and business
    people of all description, almost hour-by-hour in many instances. I can
    report two things as a result of this work.
        First, a half-decade ago not even the most foolhardy optimist would
    have dared predict the extent of the changes that have since taken
    place in Russia. In our daily work with the Russian people all over the
    county we see the vibrant pulse of economic life in places where not
    long ago homo economicus was moribund. We see entrepreneurs who seem to
    have mastered the disciplines of hard work, creativity and management
    almost overnight and as though by instinct. We see tens of thousands of
    citizens' groups and independent organizations springing to life as
    individuals join together to take back control of their lives from the
    state. And among scores of millions of Russians we see a thirst for
    political and economic freedom that is literally unquenchable.
        Second, extraordinary obstacles remain on the path to full
    democracy and functioning markets. We see these, too, every day. We see
    political figures who bully their constituents and enrich themselves
    from the public trough, Russian organized-crime kingpins who terrorize
    the business community and deform the market system, and angry and
    fearful citizens inclined to accept all too readily the desperate
    programs tabled by ultranationalists and communists. Most important, we
    see how fragile the successes are, and how important it is to continue
    to nurture and protect them.
        Amidst such victories and such defeats, our daily on-the-ground
    experience everywhere in Russia has taught us that continuing,
    ambitious (and therefore costly) American engagement is an absolute
    necessity: Over the last half-decade, the U.S. and our allies in Russia
    have established numerous beachheads for democratic politics and free
    markets, and it is in the national interest of the United States that
    we continue to protect, consolidate, and expand them.
                  2. assisting the independent media in russia
        One of the most important beachheads we have established is with
    the media. As a result, a mere six years after the collapse of the
    Soviet Union, the Leninist vision of the media as the ``mass
    propagandist'' and ``mass organizer'' lies in shambles. The Russian
    press is no longer a party press; journalists have become increasingly
    professional, and have begun to master the task of truly informing
    readers and citizens; and media managers have begun to learn the
    complexities of the business side of publishing as the press everywhere
    becomes subject to market forces. The media have become just another
    product vying for the attention of Russia's new consumers.
        And yet, the media are not merely another commodity. In all mature
    industrial democracies, the press is an institution central to both
    democratic governance and free markets. Media may make money for their
    proprietors, but they make democracy possible, as well. Modern
    industrial democracies, in fact, can neither be created nor sustained
    without a free press.
        Despite the progress they have made, however, the Russian media are
    still for the most part neither economically viable nor up to the
    demands that democratization is making of them. Continuing government
    subsidies, undercapitalization, management failure, government control
    of monopolistic providers of services such as printing and
    distribution, direct and indirect political pressure, and inadequate
    journalistic and business practices are among the conditions that still
    cripple the development of the free and viable press that Russia's
    democracy and markets will require.
        Few Russian publications or broadcasters make money. As a result,
    most are still dependent on the state directly or indirectly. The
    government still dominates the flow of information and the terms of
    government debate. Journalists are being killed in alarming numbers:
    almost three-dozen have died violently in Moscow since the fall of
    Communism; the same number died countrywide in 1996 alone.
        American policymakers have recognized the fact that a free press is
    critical to the development of political democracy and free markets.
    Assistance to the independent media has been a top priority in the
    past. We believe it should continue to be a top American priority in
    the future.
               3. increasing american support for the print media
        It is important to point out that most American media-assistance
    dollars have been spent supporting Russian television stations and
    related projects. Television is important, of course. But a media
    development program that does not devote significant resources to the
    print media will neither accomplish the democratization of the news
    media as such nor be able to establish the vibrant public realm that is
    a prerequisite for a vital civil society, real democratic politics, and
    an open and informed public policy process.
        For this reason, even though the Russian-American Press and
    Information Center is a sector-wide media development program, we have
    devoted particular attention to the print media over the last several
    years and intend to continue to do so. In fact, we feel it is critical
    for the American government to support a far greater emphasis than
    previously on assistance to the print media, for the following reasons,
    among others:
      --Recent surveys have shown that most Russians get their local news
            primarily from newspapers. As the economic and political
            decentralization of Russia continues, local newspapers have
            become the locus of exchange of key economic, social,
            political, and other information necessary for the regional
            development on which Russia's future depends.
      --Studies have repeatedly shown that Russians trust their local
            newspapers more than any other source of information, a finding
            with important implications for all those interested in the
            development of democratic politics in the country.
      --The print media remain the only significant source of in-depth news
            and analysis for Russia's political, business, and intellectual
            elites. As a result, newspapers are where debates of major
            policy issues take place and the quality of their coverage can
            have a major impact on the public policy process.
      --Given the influence of the government over the major television
            networks, only newspapers support the pluralism of views and
            diverse policy viewpoints that are essential for informed
            decision-making in a democratic society. Newspapers have also
            become the principal vehicle for legitimate political
            opposition on all sides of the issues.
      --In Russia, as elsewhere, television media take their cue from print
            coverage. It is the print media that set the news agenda. In
            fact, local news broadcasting very often consists of an
            announcer reading selections from the local press.
      --The quantity and quality of television news and public affairs
            programming is and will continue to decline as television is
            integrated into the market (as has been the case in every major
            democratic market economy) and the need for high ratings drives
            stations to feature the most popular entertainment programming.
            This makes the print media all the more important to the
            process of economic and political transformation.
        4. the role of the russian-american press and information center
        RAPIC works to promote democratic politics, free markets, and the
    free expression on which both ultimately depend, through a complex of
    economic, political, professional, and legal initiatives that promote
    the political and economic independence of the entire media sector.
        Overall, RAPIC plays a unique role as the only media-sector-wide
    assistance program in Russia, promoting foreign investment, improved
    management practices and business development, and legal guarantees to
    ensure political independence and economic sustainability. We are also
    working to break the Russian government's monopoly over printing and
    distribution, as well as its domination of the information Russian
    citizens receive about such critical issues as the enlargement of NATO
    or Russian strategic, economic, or environmental policies.
        As noted above, within this media-sector-wide strategy, our
    particular focus on the print media makes us the only organization
    working on a nationwide basis with Russia's thousands of newspapers.
    Since 1992, RAPIC's efforts to help the Russian media have led to more
    than 2,000 consultancies, training workshops, conferences, and
    briefings with an aggregate participation of more than 100,000. More
    than 5,500 outside experts have taken part in over 40 cities. Managers
    from over 700 regional newspapers have gone through RAPIC's management
    training programs. Over 30,000 searches of on-line information sources
    have been conducted by RAPIC's Information Services both to strengthen
    the reporting of specific issues and to promote the virtues and
    techniques of fact-based journalism.
        But numbers do not tell the story. They cannot reflect the fact
    that RAPIC has now become a central fixture in the developing Russia-
    wide media sector--an institution run by Russians for Russians around
    which clients, participants, and colleagues have increasingly rallied.
    With program facilities in six cities, a Russian staff and nationwide
    Media Assistance Network of dozens, RAPIC has developed and refined a
    comprehensive sector-wide program that addresses economic,
    institutional, legal, professional, and educational issues. Among
    RAPIC's recent accomplishments:
      --RAPIC recently installed the first modern printing press to be
            owned by an independent regional newspaper in Russia. A
            landmark project established under the USAID-funded Media
            Development Program (MDP) for Gorodskie Vesti in Volgograd, the
            project also includes important production management training
            for sustaining the press. The project was publicly hailed by
            USAID as ``historic.''
      --Thousands of journalists throughout the country have benefited
            dramatically from RAPIC's newspaper management programs and
            direct, hands-on consulting. Evidence of success is abundant:
            For example, Gubernskie Vedomosti, in Stavropol, reported a 30
            percent increase in advertising revenue; for Rezhevskaya Vest
            in Perm Oblast, a RAPIC seminar on advertising was the turning
            point in the newspaper's dramatic transformation from a heavily
            subsidized local mouthpiece to a dynamic and fully independent
            news organization. There are numerous similar stories.
      --RAPIC's Freedom of Information Standing Commission has led the way
            in promoting free access to government-held information and
            educating journalists on exercising their information rights.
            President Yeltsin has publicly endorsed FOI Commission
            recommendations.
      --Through regional seminars, workshops, conferences, and consulting,
            RAPIC has provided mid-career training to thousands of
            journalists on topics ranging from coverage of nuclear security
            issues to election campaigns to the media's role in the
            prevention of ethnic and national conflict.
      --RAPIC paired Moscow's Skate Press with the American company
            Bloomberg LP to create a Russian news service devoted to
            providing the first detailed corporate profiles of publicly
            traded Russian companies--a significant contribution to the
            transparency which is essential for the creation of free
            markets.
      --RAPIC has worked with hundreds of American community-based
            organizations, commercial enterprises, experts, and citizens.
            For example, it has established partnerships between Russian
            and American newspapers to promote improved management and
            profitability of the papers in Russia. Among the American
            newspapers participating in just this one RAPIC project are 14
            publications in Alaska, Arkansas, California, Florida, Indiana,
            Michigan, North Carolina, Pennsylvania, and Washington.
        Through the wide geographic and substantive reach of these and many
    other programs, RAPIC has earned a reputation as one of the leading
    media NGO's in Russia, and the only one implementing a comprehensive
    sector-wide approach. Against the background of this significant record
    of accomplishment, RAPIC is now preparing for its transformation into
    the National Press Institute of the Russian Federation (NPI), a Russian
    NGO pursuing the same comprehensive media-development agenda, but now
    in partnership with American journalism organizations and community-
    based news media.
        Animated by its nationwide media-sector strategy, RAPIC/NPI will
    become a permanent institutional mechanism for the continuing
    development and consolidation of Russia's independent media
    organizations, its newspapers, and other print media. RAPIC/NPI has
    been created over the past half-decade through a partnership between
    the American government and private foundations with this agenda in
    mind. It is now poised to become an important legacy of the American
    assistance effort as this effort evolves into a framework for
    meaningful, sustained, and mutually beneficial bi-national cooperation.
        Contributing to the establishment of such a permanent NGO in the
    Russian media sector would be an important American contribution as
    assistance becomes focused on ensuring a sustainable American legacy.
    As a Russian organization working in close partnership with a huge
    number of American and Russian media companies, NGO's, and educational
    institutions, RAPIC/NPI is ideally suited to play such a role.
    Specifically, RAPIC/NPI will continue to pursue work in the following
    critical areas in the media sector:
      --Promoting Equity and Debt Financing, Leasing, and Other Mechanisms
            to Capitalize the Media Industry. Printing presses, facilities,
            and delivery vehicles are the key building blocks of economic
            and, ultimately, editorial independence, but the media are
            starved for the capital to acquire basic production and
            distribution assets. For this reason, business development, and
            specifically media debt and equity financing, will be the
            highest RAPIC/NPI priority, along with a program to promote the
            importation of American printing presses.
      --Developing Media Management Capacity. RAPIC/NPI has pioneered a
            system of intense management consulting that is addressing the
            concrete needs of struggling independent newspapers across
            Russia. Over the next years, RAPIC/NPI will continue this
            successful Targeted Consulting Team (TaCT) program, considered
            the gold standard among media management assistance initiatives
            in the country. In addition, RAPIC/NPI will develop a CD-ROM-
            based newspaper management simulation that will enable RAPIC/
            NPI to train virtually every senior newspaper manager in the
            country within several years groups at a low marginal cost.
      --Participating in the Development of the Legal and Administrative
            Infrastructure. Legal barriers to media independence and
            sustainability include lack of access to information,
            legislative obstacles to business development, the violation of
            civil rights, and ignorance or unwillingness to enforce the
            rule of law when it comes to the mass media. RAPIC/NPI will
            continue to work aggressively in all of these areas.
      --Fostering the Development of a Mature Information Culture. To
            undertake and coordinate its future work in this arena, in
            which RAPIC/NPI has long been a leader, it will establish a
            Center for Cyberjournalism in Moscow. The first of its kind of
            Russia, the RAPIC/NPI Cyberjournalism Center will offer
            training in computer-assisted reporting, will develop an
            Internet Media Service for industry professionals, will promote
            and instruct in on-line publishing, and will inaugurate
            distance-learning programs on journalism and publishing issues.
      --Promoting Industry-Wide Trade Organizations and Professional
            Associations. Accustomed to working in isolation, and
            mistrustful of the top-down control connected with associations
            and other forms of group coercion, media professionals do not
            now have the mechanisms to exhibit the strength in numbers that
            industries must develop in order to play a role in resource
            allocation through the political process. As a result, RAPIC/
            NPI will be helping to organize the trade and professional
            associations that can help the media industry pursue and
            protect its economic, legal, and professional interests.
      --Overcoming Government Domination of Information. Governmental
            domination of information and the terms of public debate must
            be overcome for two fundamental reasons. First, the
            accountability of state institutions must be established in
            principle and in fact. Second, the actors who constitute civil
            society must be able to communicate with each other and their
            government by means of the media if a democratic polity is to
            be established. Numerous RAPIC/NPI programs have been and will
            continue to be devoted to achieving these ends.
      --Raising the Level of Journalistic Professionalism. Journalistic
            professionalism is a civic issue: corrupt, poorly trained, or
            uninformed journalists short-circuit the information flow that
            is the lifeblood of democratic politics. But journalistic
            professionalism is also an economic issue because, first,
            markets must have information to function, and, second, because
            journalistic professionalism ensures the marketability of the
            product which media organizations must sell in order to
            survive. With this in mind, RAPIC/NPI will be increasing both
            its mid-career training and university journalism education
            programs.
      --Establishing the RAPIC/NPI Far East Program. The Russian Far East
            has been a RAPIC priority since 1992, and it has conducted many
            programs in the region. Now that the Far East has been
            identified under the Partnership for Freedom as one of the
            three priority regions in the country, RAPIC/NPI is seeking to
            establish a program, based in Vladivostok, that will serve the
            media throughout the region, where newspapers are subject to
            significant political pressure, prey to corruption and crime,
            and hobbled by the continuing state control of capital assets.
        As American policy toward Russia enters a new stage, RAPIC is an
    ideal American legacy to leave behind. In fact, RAPIC's strategy has
    been developed to enable it to take root as a permanent, self-
    sustaining NGO promoting the free market and democratic politics
    through the media for decades to come.
                                     ______

         Prepared Statement of the Humane Society of the United States

        The Humane Society of the United States (HSUS), this nation's
    largest animal protection organization, on behalf of its more than 4.1
    million members and constituents nationwide, thanks the members of the
    Subcommittee for considering our testimony on funding appropriations
    for the U.S. Agency for International Development (USAID).
        Although we recognize that USAID can play a constructive role in
    international development assistance, The HSUS is strongly opposed to
    USAID programs that, in the interest of pursuing development, encourage
    consumptive use of wildlife for international markets. Specifically, we
    strongly oppose the use of American tax dollars to support programs
    that promote or enable international trade in, or trophy hunting of,
    endangered or threatened species.
        Over-exploitation of wild plant and animal species for
    international commercial trade is becoming an increasingly important
    factor contributing to the loss of global biodiversity. Each year,
    thousands of species of plants and animals and their products are
    traded internationally in a marketplace worth billions of dollars. Many
    plants and animals in trade are taken from wild populations. Two
    familiar examples are the rhinoceros and African elephant. Over the
    last two decades alone, 90 percent of the world's rhinos and half of
    Africa's elephants have been killed to satisfy demand for rhino horn
    and ivory. For some species, including parrots, orchids, cacti,
    lizards, fishes and other species, unsustainable trade constitutes the
    chief threat to their survival.
        The HSUS has learned that USAID funds a number of programs, all in
    southern Africa, that encourage and enable consumptive use of wildlife
    for international markets. One such program is the Communal Areas
    Management Programme for Indigenous Resources (CAMPFIRE) in Zimbabwe,
    which is funded through USAID's Natural Resources Management Program.
    The program received over $7 million dollars from USAID between 1989
    and 1996, and USAID plans to provide another $20 million between now
    and August 1999. Through extensive research, made more difficult by
    USAID's poor response to our request for documents under the Freedom of
    Information Act, The HSUS has learned the following facts about the
    CAMPFIRE program:
      --CAMPFIRE is based primarily on trophy hunting of African elephants,
            a species considered threatened with extinction under the U.S.
            Endangered Species Act. A 1995 USAID audit of CAMPFIRE
            acknowledged that one of the purposes of the program is the
            ``establishment of viable wildlife management schemes to
            encourage income generation from safaris and hunting.'' USAID
            has also acknowledged that they used tax dollars to provide
            assistance to two Zimbabwe government officials to attend the
            an annual meeting of Safari Club International, where they
            represented the Zimbabwe trophy hunting industry. 84 percent of
            Americans oppose elephant trophy hunting and the same number
            oppose taxpayer dollars being used to promote or enable
            elephant trophy hunting. These were the results of a December
            1996 nationwide poll conducted by Penn & Schoen Associates,
            Inc. Yet, through USAID, taxpayer funds are being used to
            promote and enable elephant trophy hunting.
      --CAMPFIRE advocates the resumption of the international ivory trade.
            The ivory trade caused the continental African elephant
            population to plummet by more than 50 percent between 1979 and
            1989. In 1989, the ivory trade was banned by the Parties to the
            Convention on International Trade in Endangered Species of Wild
            Fauna and Flora. The U.S. has opposed the resumption of the
            ivory trade since 1989. Yet, through USAID, taxpayer funds are
            being used by CAMPFIRE implementing agencies to lobby for the
            ivory trade, in opposition to U.S. policy.
      --CAMPFIRE has lobbied to weaken the U.S. Endangered Species Act to
            make it easier for endangered and threatened species to be
            imported to the U.S. for commercial purposes. CAMPFIRE
            implementing agencies have misused taxpayer dollars to
            facilitate this lobbying.
      --CAMPFIRE is environmentally unsound. The methodology used to
            monitor wildlife populations is questionable and there a lack
            of quantitative assessment of the potential impacts on wildlife
            resulting from the project. More elephants are being killed on
            CAMPFIRE lands than can be sustained by the population.
      --CAMPFIRE implementing agencies, notably the Zimbabwe Department of
            National Parks and Wild Life Management as well as the Campfire
            Districts are plagued by corruption and mismanagement.
      --CAMPFIRE funds have been poorly managed by USAID-Zimbabwe which,
            according to a USAID auditor, did not always ensure that
            project commodities were properly accounted for and used as
            intended. As a result, commodities valued at about $470,000
            were not being used effectively.
      --CAMPFIRE provides more financial benefits to the implementing
            agencies than it does rural villagers.
      --CAMPFIRE is not socio-economically sound and has not successfully
            involved local people in wildlife management. CAMPFIRE is
            driven from the top-down by the Zimbabwe government and the
            implementing agencies, not from the villagers themselves. A
            consulting firm, hired by USAID to provide a mid-term
            evaluation of the program said that such an approach is subject
            to collapse once donor funding is withdrawn.
      --CAMPFIRE is a waste of taxpayer dollars. Since 1989, USAID has
            invested approximately $7 million dollars in trying to make
            CAMPFIRE work. For every taxpayer dollar USAID has spent on
            CAMPFIRE, CAMPFIRE itself has earned only 52 cents, of which
            only five cents reached village households. With no hope for
            self-sufficiency, and with villagers receiving comparatively
            little financial benefit from the program, CAMPFIRE is a waste
            of taxpayer dollars.
      --One CAMPFIRE implementing agency, Africa Resources Trust, has been
            granted approximately $600,000 per year in American taxpayer
            dollars by USAID to open offices in several important capital
            cities around the world, including in Washington DC, to
            influence national and international policies (including,
            apparently, to weaken the U.S. Endangered Species Act and to
            lobby CITES Parties for resumption of the international ivory
            trade), to produce lobbying documents, to challenge
            environmental protection organizations and causes, and to
            promote trophy hunting of threatened species in Zimbabwe. USAID
            should not be using taxpayer dollars to fund anti-environmental
            lobbying activities.
        In summary, the HSUS strongly recommends that the Subcommittee
    ensure through report language that taxpayer dollars are not used to
    promote or enable consumptive use of wildlife for international
    markets, specifically for trophy hunting of or wildlife trade in
    endangered or threatened species.
        In addition, The HSUS believes that the CAMPFIRE program cannot be
    reformed to address the concerns we have raised in this testimony.
    CAMPFIRE is not environmentally, socially, or economically, or
    ethically sound. It is a program that subsidizes trophy hunting,
    promotes the ivory trade, and uses taxpayer dollars to lobby for
    changes in U.S. laws and regulations. Therefore, HSUS recommends that
    funding for the CAMPFIRE program should be immediately terminated. The
    HSUS certainly has no objection to helping impoverished people in
    Zimbabwe or elsewhere. However, such activities must not promote or
    enable consumptive use of wildlife for international markets or provide
    taxpayer dollars to anti-environmental organizations who promote such
    wildlife use and trade.
        Across Africa, people have embraced less destructive means of
    living with and profiting from wildlife through well-planned,
    community-based ecotourism or community development programs that are
    based on development and enhancement of cottage industries that are
    unrelated to wildlife. These are the types of projects USAID should be
    funding. The are economically and biologically sustainable, and will
    help both people and wildlife in the long-term.
                                     ______

    Prepared Statement of Dr. Raymond E. Bye, Jr., Associate Vice President
                     for Research, Florida State University

        Mr. Chairman, thank you and the Members of the Subcommittee for
    this opportunity to present testimony. I would like to take a moment to
    acquaint you with Florida State University. Located in the state
    capitol of Tallahassee, we have been a university since 1950; prior to
    that, we had a long and proud history as a seminary, a college, and a
    women's college. While widely-known for our athletics teams, we have a
    rapidly-emerging reputation as one of the Nation's top public
    universities. Having been designated as a Carnagie Research I
    University several years ago, Florida State University currently
    exceeds $100 million per year in research expenditures. With no
    agricultural nor medical school, few institutions can boast of that
    kind of success. We are strong in both the sciences and the arts. We
    have high quality students; we rank in the top 25 among U. S. colleges
    and universities in attracting National Merit Scholars. Our scientists
    and engineers do excellent research, and they work closely with
    industry to commercialize those results. Florida State ranks seventh
    this year among all U. S. universities in royalties collected from its
    patents and licenses. In short, Florida State University is an exciting
    and rapidly-changing institution.
        Mr. Chairman, as you are aware, the major challenge facing the
    economies of the Caribbean Community (CARICOM) and Eastern Caribbean
    (OECS) States is learning to survive in the era of trade
    liberalization. Lawyers specializing in international trade issues are
    relatively few, and legal commentary relating to the general issues of
    trade liberalization arrangements and application of these issues to
    the CARICOM and OECS countries is relatively sparse.
        The Caribbean States have been strengthening intra-regional trade
    through CARICOM and other initiatives for several decades. The
    Caribbean Law Institute (CLI), a joint project between Florida State
    University and the University of the West Indies, has played an
    important role in this process through its law reform efforts. CLI was
    formed to promote the reform and harmonization of commercial laws in
    the Commonwealth Caribbean. As a result of this activity, company
    legislation has been passed in Trinidad and Tobago, St. Vincent,
    Grenada, Antigua, Dominica, and St. Lucia.
        Mr. Chairman, this Subcommittee has been highly supportive of
    Florida State University's efforts in this important area. Last year,
    report language supporting our discussions about our Caribbean Law
    Institute were most helpful in our proposal to USAID. With that
    proposal in its final phase for funding, and with the work of FSU's
    Caribbean Law Institute noted in the fact sheet and communique from the
    Caribbean Summit, I wanted to express my appreciation for this
    Subcommittee's efforts and support.
        The Caribbean Law Institute is currently focusing on providing
    model legislation as a basis for harmonization of laws relating to
    intellectual property. Intellectual property legislation is important;
    not only to protect domestic products from piracy and domestic markets
    from unfair competition, but also to assure reciprocal protection of
    intellectual property internationally and to enhance the status of
    Caribbean countries as trace and investment partners. In addition,
    intellectual property protection has taken on a special dimension in
    the light of developments in computer and electronic technologies--both
    hardware and software--and in the liberalization of trade in services.
        The CLI is working closely with the Caribbean and Latin American
    Bureau of the U.S. Agency for International Development to provide
    assistance to the Caribbean nations on standardizing legislation
    related to international trade. The areas being discussed cover three
    additional project areas related to international trade in the
    Caribbean region: trade in services, antidumping, and trade-related
    investment measures. In addition, the intellectual property component,
    which is being discussed with the Global Bureau of US AID, would
    provide similar legal analyses in this important area as well. It is
    expected that the overall goal for all four areas--producing model
    legislative bills--will be accomplished by December 31, 1998.
        This type of international trade project--and its support by
    USAID--means new trade and economic opportunities for the Caribbean
    States and, more importantly, new trade and enhanced economic
    opportunities for American citizens and businesses. The ability to
    trade with new partners because of standardized legislation--
    legislation that is consistent with U.S. statutes--is a major economic
    benefit for the U.S. This is a very productive and effective way to
    utilize our tax dollars.
        I commend this Subcommittee for its support of this specific
    project, and I strongly encourage broader support for these kinds of
    economically-beneficial investments by USAID. Thank you again for your
    continued support.
                                     ______

     Prepared Statement of Ambassador Robert O. Blake, Chairman, Committee
                         on Agricultural Sustainability

        I am Bob Blake, Chairman of the Committee for Agricultural
    Sustainability. The Committee is a coalition of fifty American
    organizations working to eradicate hunger around the world, a goal
    which we believe is in the highest American humanitarian tradition and
    national interest. The failure of the United States and other countries
    to recognize the frightening dimensions of the fight against hunger is,
    in our view, truly alarming. Hunger must be attacked vigorously and
    quickly. We believe the most effective way to combat hunger is not
    principally through food aid, as important as that often is. Rather it
    must, in no small part, be through helping farmers in the developing
    countries grow more food to feed their families and fellow countrymen.
    This is especially important in countries that not only do not produce
    enough food, but also do not generate enough dollars to import the food
    they need. As global populations balloon, the number of countries that
    don't generate enough foreign exchange to cover their food production
    shortfall is increasing. Somewhere around 100 developing countries now
    fit this description--some by a large amount, some less so.
        We believe that the United States has a special interest in helping
    these countries help themselves to combat hunger. Some such support is
    already being given by the United States through several development
    agencies--principally the United States Agency for International
    Development (AID), the World Bank, and the regional development banks.
    But much more must be done if we are to do our full part in defeating
    hunger. And that is why our committee urges Congress to appropriate
    $2.4 billion to AID for development assistance as requested by the
    President, and to designate at least $500 million of this sum for
    international agricultural and rural development. We also urge Congress
    to appropriate $1.04 billion to fulfill the U.S. pledge to the World
    Bank's International Development Association (IDA) plus $220.6 million
    for the regional development banks. But before I explain our reasoning
    for supporting the appropriation of these funds, I want to tell you
    about our committee.
        The Committee on Agricultural Sustainability which I chair is made
    up of fifty organizations, many of which have a considerable number of
    members among citizens of your own state. These are scientific,
    religious, environmental, and educational groups with a combined
    national membership of some seven million people. Our committee is
    totally non-partisan. We concentrate on promoting global food security,
    agricultural sustainability, and rural development in the countries of
    ``the South''. We receive no funding from any development agency or
    company.
        Prior to my becoming chairman of the Committee on Agricultural
    Sustainability, I spent thirty years in the United States Foreign
    Service including service as ambassador in top-level positions in the
    Department of State and U.S. embassies abroad. I served under seven
    presidents, Republican and Democrat. In several of my overseas posts I
    had responsibility for, and therefore saw at close hand, rural
    development programs, particularly those of AID and the World Bank.
       why our committee supports collaboration with developing countries
        Mr. Chairman, most of what I have to say today will address how we
    believe the United States can help developing countries combat hunger.
    But first I want to explain why we should care enough about doing so to
    advocate spending scarce U.S. taxpayers' money for this purpose. It has
    no doubt become as obvious to you as it has to me that with each
    succeeding year, the United States and every other country in the world
    are becoming more interdependent. The prosperity and well-being of our
    friends and trading partners is becoming increasingly important to our
    own prosperity. Their ills--hunger, sickness, drugs--all too soon
    become our ills. Combating these ills must increasingly be major
    elements in U.S. foreign policy. But there is a brighter side to this
    growing interdependence: the prosperity of our friends and allies
    clearly promotes our own prosperity--through trade and jobs for
    Americans.
        All this means we must pay more and more attention to the rapidly
    growing developing countries of Africa, Asia, and Latin America. They--
    not the countries of Europe--are the source of most of the problems
    I've just cited. They will be the principal source of illegal
    immigration to our country, and this can only increase if their poor
    and their politically oppressed cannot build decent futures in their
    own countries. On the other hand, their huge and growing number of
    consumers constitute the biggest future market for our farmers' and
    manufacturers' products. In the next decades ninety percent of the
    world's population will be in the developing countries of ``the
    South''. In ten years, developing countries' trade with the U.S. has
    tripled, with much of this growth in countries where successful
    agricultural development has through recent decades been the engine
    that has jump started broader economic development and in turn trade
    with our own country. Infinitely more opportunities for growth in U.S.
    trade and investment lie ahead in those countries.
        But increased trade is not the only interest at stake. Why should
    we give special thought and priority to hunger and rural development in
    the developing countries? Why should we care whether the hungry of
    Africa, Asia, and Latin America can feed themselves? Can't they just
    buy U.S. corn and wheat? Of course, many do. But they are the lucky
    ones who have the necessary dollars or other hard currency to pay for
    our agricultural products. Unfortunately, too many of the countries
    with large numbers of hungry people don't have the dollars. For them,
    the options are to rely on food aid (increasingly an unrealistic option
    when such big food shortfalls are involved), grow most of their own
    food, or migrate to someplace where they can feed their families.
        What I've just said, however, does not begin to capture the
    dimensions of the potential hunger crisis the world faces--and
    therefore the urgency, from the viewpoint of U.S. interests, of taking
    effective and early action to head it off. How does this urgency arise?
    First and foremost, from the world's unprecedented population growth
    and from the worrisome deterioration of the soils and the growing
    scarcity of the water needed for expanded agricultural production. Mr.
    Chairman, if there is one point I want drive home today it is this: it
    is now generally agreed that the world must double food production in
    twenty-some years in order to meet global population growth from 3.8
    billion people to 5 billion people and in order to meet demand of the
    growing middle class in the developing countries for more and better
    food--principally meat, eggs, poultry, dairy products--all foods that
    require huge quantities of feed grain to produce. And not only must
    food production be doubled, it must be doubled on less land and with
    less water: on less land because very little untilled and arable land
    is left and because about a third of the land being presently farmed
    has lost much of its productivity from erosion, salinization, and water
    logging; with less water because more and more, farmers are having to
    share finite water supplies with rapidly growing cities and industries.
    For a few decades, farmers from the United States, Europe, Canada,
    Australia, and Argentina can probably produce enough to cover food
    deficits in countries that can pay for agricultural imports. But the
    number of countries that can't pay is projected to increase. The
    situation is particularly worrisome in strife-torn sub-Saharan Africa.
    Already, most of these countries cannot feed their citizens from local
    production and are having real difficulties in filling the gap with
    imported food. Alarmingly, hunger is growing in Africa even in peaceful
    times, even in years when rainfall is good. I found this to be the case
    in Mali during the nearly three years I was there as Ambassador. Add
    bad weather and poor soils to the shocks of civil war and ethnic
    tension--particularly in the times for planting or harvesting--and you
    have the formula for famine.
        Another part of the world where agricultural production is
    predicted to fall behind population growth unless agricultural
    productivity is raised very substantially is South Asia--Pakistan,
    Bangladesh, Nepal, Sri Lanka, and particularly India. And China--with
    its record for huge crop failures--could in time be in the same
    situation. These are countries which taken together have more than half
    the world's population. Experience shows that food insecurity is a root
    cause of both disorder and suffering. The threats from food riots that
    spark political instability and from mass migration arising from famine
    must not be taken lightly. Food insecurity has already been a major
    factor in several recent breakdowns of governments in Africa. We can't
    afford not to fight to prevent such results. In addition to our moral
    compulsion to fight hunger, we need the cooperation of developing
    countries in combating drugs and crime, and in controlling threats to
    the global environment.
        I want to emphasize, Mr. Chairman, that as serious as these
    problems are, our committee does not take a ``gloom and doom'' approach
    to the possibilities of defeating hunger. The world already knows how
    to defeat hunger. The political cure is to mobilize the resources that
    can do the job. The scientific cure is to develop the technologies that
    will make this possible. Make no mistake, the United States--our
    government, our universities, our scientific institutions, and our
    great private organizations--can make a critical difference in bringing
    this about, and do so at a relatively low cost.
                        whose job is it to fight hunger?
        Of course, we recognize that AID, the World Bank, or any outside
    group can in no way do the whole job. Urgent and effective action by
    the governments and the peoples of the developing countries concerned
    is the precondition to success. They must make the political decisions,
    mobilize most of the investments, and take the inevitable risks. And
    most of all, they must support what will have to be a major
    reorientation of their country's agriculture.
        What, then, can and should we in the United States and others in
    the industrial countries do to fight hunger in time to prevent
    avoidable tragedy? What must be done to head off the need for massive
    humanitarian relief to prevent starvation? I will suggest five
    principal areas where our committee is convinced that key developing
    countries and people can be given absolutely essential and locally
    unavailable help--help which will allow them to make the massive
    transformation of doubling food production on less land and with less
    water.
        But before going into detail, I want to make two points. The first
    is to answer the question of why we advocate investing American money
    in the fight against hunger instead of leaving solutions to ``the
    market'' and private enterprise. Our answer is quite straight forward:
    we do believe in leaving economic solutions to the private sector
    whenever and wherever this is realistically possible and whenever this
    will lead to an equitable outcome for rural people. We recognize the
    need to move a maximum number of small-scale farmers (which now
    constitute the vast majority of the world's farmers) out of the
    subsistence or near-subsistence mode and into the market as quickly as
    possible. Poor farmers in India get their best chance to provide food--
    and income to buy food--when they are helped to produce to meet rising
    demand, then get their products to the market. But for geographical,
    historical, and economic reasons, agriculture in food deficit areas is
    largely the province of small-scale farmers. In fact, the number of
    places in these largely tropical countries where large or even medium-
    scale mechanized agriculture exists is very small. Moreover, where it
    does exist much of it is dedicated not to the production of food for
    local consumers, but to the growing of tropical products for export--
    coffee, tea, palm oil, pineapples, coconuts. In the view of well-
    informed American entrepreneurs this is unlikely to change, and for one
    principal reason: it's hard to realize a good enough return on
    investments in the production of food for relatively poor consumers,
    when investors can earn more elsewhere.
        This inevitably leaves, at least initially, most of the improvement
    of small-scale agriculture to the not-for-profit sector--development
    agencies, international research centers, and non-governmental
    organizations (NGOs). American organizations like Catholic Relief,
    CARE, Save The Children, World Neighbors, World Vision and many others
    do amazing work in this field. But their experience leads them to
    believe they cannot be expected to expand sufficiently to help meet the
    rural development challenges of the dimension I've suggested with just
    the funds they raise from generous private givers, let alone finance
    all their other very worthwhile activities.
        Another point that I ask you to think about is the degree to which
    almost everything we suggest for financing by public monies involves
    capacity building--training, institution-building, education, and the
    diffusion of technology. We want to be in the ``teaching people how to
    fish'' business, as opposed to just ``giving them fish'', as has been
    done in the past. This is an area of American strength. Our
    universities, our scientific organizations, are by tradition outwardly
    oriented and quite experienced in the communication of ideas and
    technologies--including very especially through the Internet. We have
    also been pioneers in bringing women into the development process more
    intimately. This is especially important in rural development, for
    women today make up a majority of the farmers in developing countries.
            how our committee proposes that americans attack hunger
        How, then, does all this translate into an American agenda for the
    fight against hunger? As I indicated, I will suggest five areas for the
    concentration of American efforts directly through AID or through
    international development agencies: 1. expanding and improving
    agricultural research; 2. helping farmers apply this research in ways
    which will increase production and better manage their soils and water;
    3. helping provide farmers with the infrastructure needed to move their
    products to profitable markets; 4. helping reform developing country
    policies that hold back rural development; and 5. helping build the
    kinds of democratic civil societies that will promote and politically
    sustain all these efforts. This is a pro-active, forward-looking, and
    admittedly ambitious agenda. However, it is one that our committee
    believes to be realistic and financially sustainable--for AID, the
    World Bank, the regional banks, and the other smaller development
    agencies and groups supported in whole or part by Congressional
    funding.
        Of course, working in the five areas I just listed is not all that
    AID and the international institutions we support should be doing to
    fight hunger. We of course strongly support emergency food aid in
    places where we have not succeeded in preventing hunger; likewise, no
    program for increasing food production is likely to be sustainable
    unless the populations of the developing countries stabilize in the
    decades ahead. That is why our committee strongly supports investment
    by AID and the World Bank in voluntary family planning. In the same way
    we also support programs by AID and the development institutions to
    improve and expand educational opportunities and health services,
    particularly rural education and health services, and even more
    particularly for women and girls. Healthier and better educated rural
    people must be the base for not only controlling population growth, but
    also for realizing the technologically complex reorientation of
    agricultural development that will be necessary. And improvements in
    the lives of rural people in the developing countries will be
    undermined unless the total ecological health of the forest, the river
    basins, and the sea coasts is sustained. That is why we strongly
    support the environmental programs of AID, the World Bank, and the
    regional development banks. I will not, however, speak about any of
    these programs in any detail because sister organizations specializing
    in these areas are testifying about them.
        What this short list suggests is that there are many interconnected
    facets in the war against hunger--the fight against rural poverty, the
    fight against environmental degradation, the fight for democracy and
    greater rural equity. They all add up to a fight to improve the well-
    being of rural peoples and their urban consumers. In our view,
    agricultural sustainability, food security, and rural welfare are links
    in the same chain. Why then does this testimony put so much emphasis on
    the importance of the farmer as the key actor in the fight against
    hunger? Why do we place such importance on finding ways to raise
    farmers' productivity and intensify food production? Because we believe
    this is the key stone in the arch. Because we believe that without
    sustainable intensification of food production, famine looms ahead for
    millions more poor people.
                             agricultural research
        Now to the five areas that our committee thinks should have greater
    priority. First, agricultural research. I've already suggested that any
    intensification of production and better protection of the land, water,
    and plants on the scale required today must be science-based and
    farmer-tested--science based, because the food plants and production
    systems available today are, by most scientists' estimates, not
    numerous enough and productive enough for the job ahead; farmer-tested,
    because farmers will accept advanced technologies only if they find
    them profitable and within the limitations of their labor. Past
    rejections of agricultural technologies developed by agricultural
    scientists were largely the result of farmers' unwillingness to adopt
    them. Today, scientists recognize that the only sure way to avoid this
    is to involve real farmers in the planning, testing and adaptation of
    their research.
        Much remains to be done in agricultural research. Today's pipeline
    of technologies could too quickly dry up unless better nourished.
    Likewise, every effort must be made to preserve and better utilize the
    fast disappearing genetic resources on which crop improvement--in the
    United States as well as in the developing countries--depends. That is
    why we believe that in the next few years, the world must at least
    double its investment in agricultural research in the developing
    countries. This is all the more urgent because it normally takes ten to
    fifteen years from the planning of agricultural research to the
    adoption of its results by an economically meaningful number of
    farmers.
        How does all this translate into U.S. action? First, we should
    increase our support for the international agricultural research
    centers operating under the aegis of the Consultative Group of
    International Agricultural Research (CGIAR) plus a few other highly
    successful international research efforts--the International Fertilizer
    Development Center in particular. The United States Government--under
    both Republican and Democratic presidents--and two great U.S.
    foundations were largely responsible for the establishment of these
    centers. The U.S. was formerly the CGIAR's largest financial supporter.
    With decreasing AID budgets, however, that has had to change.
    Recognizing the importance of these centers, AID is projecting
    increased support for them in the coming year. But that increase will
    be far from what is needed in the years just ahead.
        Fortunately, the World Bank has been willing to take the place of
    the U.S. as the principal financial supporter of the CGIAR. And, more
    and more the Bank is integrating the CGIAR centers' research results
    into its rural development programs. The Inter American Development
    Bank and the other regional banks are playing a lesser role; we are
    urging them to do more for and with the CGIAR.
        Another urgent need is to strengthen the national agricultural
    systems of the developing countries which together provide 95 percent
    of the developing world's agricultural scientists. The United States,
    formerly the leader in helping strengthen the national systems, now
    does much less than the World Bank. Strengthening the national research
    systems is necessary precisely because qualitatively and quantitatively
    the international centers cannot take on all the tasks of adapting
    successful agricultural research to all the agro-ecological situations
    that farmers in developing countries face. The national research
    systems must take on the largest part of this load. A growing number of
    willing not-for-profit, production-oriented non-governmental groups is
    beginning to do more in this regard. AID has to some extent helped to
    strengthen NGO capacity for this work. But it can and should do much
    more. The United Nations Development Programme has also supported NGOs
    engaged in agro-ecological research--not the least CLADES, an
    especially active and talented group of Latin American NGOs.
        Still another tier of support for agricultural research, a largely
    American-financed approach, is through the American land grant
    universities and AID's Collaborative Agricultural Research Programs
    (CRSPs). As many members of your Committee know, each of the CRSPs
    attacks a particular area of concern--soils, integrated pest
    management, or sorghum and millet, for example. The CRSPs are basically
    teams formed by research people from several American universities and
    non-governmental organizations. Together they set up a program for
    collaborating with research colleagues in one or more developing
    countries, and with the international agriculture research centers and
    the farm communities working on the same problem. The skill and
    ingenuity of the CRSPs in helping developing country farmers raise
    their productivity is an important asset that deserves special support
    from your Committee and the Congress in general.
        I should add that U.S. support for international agricultural
    research has had a high pay off for American agriculture in terms of
    sturdier and more productive food plants for the American farmer. If
    you consider U.S. investment in the CGIAR system alone, for every
    dollar invested by AID, American agriculture has enjoyed roughly a 40
    percent, and sometimes over a 100 percent return.
            helping farmers find better ways to produce and prosper
        The second part of the strategy to defeat hunger that our Committee
    supports is work to help farmers adopt--and adapt--to their own farm's
    plants and production systems that fellow farmers have tested and found
    useful. It's not enough for scientists in a lab to come up with a
    better way to grow corn, if the farmers don't buy into that technology.
    Farmers must be convinced that suggested changes proposed by others are
    doable and will not threaten their carefully developed ``failsafe''
    systems designed for times of hunger. So far, none of the development
    institutions has as yet done enough in bringing farmers--particularly
    women farmers--into the adaptation process. In theory, the developing
    countries' ``extension'' services should do the job. But in practice,
    most are weak, under-funded, and have too little interest in the small-
    scale farmer. The World Bank has tried--not always successfully, we
    believe--to build more efficient national extension services. It is now
    changing its approach to build more from the bottom up. We hope they
    will go further.
        We are also encouraging the World Bank and AID to do much more to
    bring the private sector--small businesses and a growing number of
    NGOs--into their strategies for helping the farmers adapt the best
    research. A number of the leading American relief and development
    organizations--CARE, Catholic Relief, Save The Children, World
    Neighbors, World Vision, to name a few--are already doing a remarkable
    job in helping organize farm communities for the many tasks of
    agricultural development. We continue to urge AID and the World Bank to
    seek out such organizations and their developing country allies as
    partners in rural development.
                          better rural infrastructure
        The third element of our strategy to defeat hunger is helping to
    provide farmers in the developing countries with the basic
    infrastructure needed to move their products to profitable markets.
    Increased production is to no avail if farmers cannot sell their crops
    profitably. This requires at least adequate rural infrastructure:
    primary and secondary roads; storage; market places; facilities to
    convert their crops into value-added products; rural credit; water and
    irrigation systems; and, on a different level, information about market
    opportunities and help in presenting agricultural products in ways that
    make them competitive. Some kinds of infrastructure are expensive,
    particularly the construction and maintenance of all-weather roads. AID
    is largely out of this business, except for helping with the building
    of some secondary roads. But appropriately the World Bank, the Inter
    American Development Bank, and the other regional banks are heavily
    involved. And interestingly, some of the big U.S.-private voluntary
    organizations, usually working through local sister organizations, are
    also beginning to help farmers build not only secondary roads, but also
    storage facilities and markets.
        The U.S. ``public foundations''--particularly Appropriate
    Technology, Incorporated, and the InterAmerican Foundation--have been
    very successfully involved in helping farmers organize to process their
    crops, as have NGOs like World Vision. They and their local allies
    deserve more support from AID, the World Bank, and the development
    banks.
                             better rural policies
        The fourth pillar of the fight against hunger is reform of
    governmental policies and institutions hurtful to rural development
    and--the other side of the coin--the establishment of policies that
    will promote agricultural sustainability, rural prosperity and rural
    equity. Few indeed are the developing country governments that don't
    show a big anti-rural bias. There are several reasons for this:
    agriculture is not considered ``modern''; governments decide they have
    higher priorities; and earlier experience with agricultural development
    may not have been that happy. But in my view, the most important reason
    is that rural people seldom have the political power to force attention
    to their problems. There are exceptions--India, for example. In
    contrast, in country after country city dwellers are usually able to
    command the attention of political leaders because leaders depend on
    them to stay in power.
        Both AID and the World Bank have for over several decades been
    engaged in providing advice and funding for policy reform. They have
    with varying degrees of success helped in securing the abolition of
    inefficient and expensive state-run agricultural enterprises and of
    price controls that punish farmers. AID and the World Bank have also
    provided governments with useful technical advice in such areas as
    trade liberalization, agricultural subsidies, and land tenure. Just a
    few years ago, both AID and the World Bank provided a considerable
    amount of funding to finance reform through structural adjustment
    programs. The World Bank and the International Monetary Fund still do.
    In the past, too many structural adjustment programs tended to penalize
    rural people and poor people in general by cutting back the few
    services governments had offered them and by too quickly or too
    drastically cutting subsidies on fertilizers and other inputs.
    Fortunately, the Bank is becoming more sensitive to the need to avoid
    reforms that hurt the poor.
        While important changes in rural policy have been made in a number
    of countries, rural reform still has a long way to go. AID and
    particularly the World Bank can and must use their leverage to bring
    about policies that are more equitable and more efficient for the poor
    and for rural people. In AID's case this largely involves technical
    assistance and institution building.
                  stronger and more democratic civil societies
        Our fifth priority in the fight against hunger is to encourage and
    help developing countries to strengthen their civil societies in ways
    that will promote and politically sustain attention to the needs of the
    poor and especially to the needs of the rural poor. We believe that in
    many subtle ways defeating hunger will depend on the political
    empowerment of rural people. It is absolutely critical to ensure that
    they get their fair share of government services. Rural people must
    also be given a voice--a deciding voice--in planning and implementing
    programs that affect their lives. And urban leaders must also be helped
    to see how their own interests will be served in helping poor rural
    people to realize their potential. Of course, rural empowerment should
    be only one part of broader programs for democratization.
        All such programs can only be built by the people of developing
    countries and must reflect their values. Even low-key and indirect
    political intervention by outsiders in the governance of any country
    must be managed tactfully. Nevertheless, we believe that the United
    States must use its leverage and influence to bring autocratic and
    corrupt governments to change their ways. If this is not possible,
    neither the United States nor the development banks should waste
    precious resources on such governments. The World Bank for its part
    seems determined---correctly we feel---not to loan funds to corrupt
    governments and is, through its programs for institution building,
    increasingly emphasizing democratic values.
        The United States has taken the lead in the fight to strengthen
    civil societies. For the most part these programs are modest and cost-
    effective. Congress established the National Democratic Institute and
    the International Republican Institute precisely, as AID says, to help
    developing countries ``build stable democracies...that have an active
    civil society.'' Our committee supports the work of these institutions
    but urges that more attention be paid by them to promoting rural
    democracy.
                        a special aid program for africa
        Finally, a word about Africa, as the problems on that continent
    have long been of special concern to members of your Committee. Our
    committee urges congressional support for AID's new initiative called
    ``Promoting Food Security: Africa & Beyond'' This is planned as a ten-
    year program to promote African food security and to help head off
    costly food crises. The proposed first year budget is $30 million. It
    is targeted at addressing major bottlenecks in agricultural policy,
    technology, rural infrastructure, and human and institutional
    development. In the first year the funds will be used in five
    countries--Ethiopia, Uganda, Mali, Malawi, and Mozambique--and will be
    carried out by a variety of organizations, including U.S. and local
    private voluntary groups, U.S. universities, and the CGIAR centers
    working in Africa. We have urged AID to work closely with the World
    Bank in its African programs since the Bank's African programs are--or
    can be--much larger and more comprehensive. We believe this initiative
    is a good one and deserves your Committee's support.
        the need for greater cooperation between aid and the world bank
        I should note here that I have spoken of AID and the World Bank as
    if the two institutions were providing somewhat equal support for rural
    development. This is quite obviously not so. If Congress meets the
    Clinton Administration's funding requests, AID will at best be able to
    invest somewhere around $500 million in rural development. Compare that
    with the $2.6 billion that the World Bank, working through the
    International Development Association, plans to invest in rural
    development in the year beginning next July 1. This represents a
    substantial and much needed increase in the Bank's investment in
    agriculture (and normally results in leveraging five times as much
    investment by others). The Bank's president, Jim Wolfensohn, has
    continually emphasized that a huge percentage of the poor of developing
    countries are rural people. Further, this increase reflects the thrust
    of the World Bank's excellent rural development strategy that was
    recently approved by the Bank's Board of Directors. If--as we believe
    it will--the Bank is able to implement this strategy aggressively--in
    no small part due to Congress' willingness to honor U.S. pledges to
    IDA--the World Bank will remain by far the largest contributor to the
    global fight to defeat hunger. This in no way means that AID's
    contribution is not important. AID and, through AID, the U.S.
    universities and American private voluntary organizations have
    unparalleled experience in rural development and continue to be leaders
    in breaking new ground that makes rural development more effective and
    more equitable.
             the urgent need to invest in the fight against hunger
        All this being said, our committee must emphasize our belief that
    nowhere near enough U.S. resources are being devoted to the fight
    against hunger. At current levels, neither the humanitarian nor the
    security interests of Americans are being well served by the paucity of
    our efforts. We must emphasize once again the urgency and the
    difficulty of doubling food production in two to three decades, and
    doing so with less land and less water. We call on your Committee--and
    the Congress as a whole--to take a hard look at the stark dimensions of
    this challenge. We recognize that the developing countries will, as we
    have said, have to make the most of the required investments. But most
    desperately need help.
        The United States can and should provide much greater leadership in
    the fight against hunger. True, U.S. representatives along with the
    leaders of 181 national governments assembled at the ``Food Summit''
    held in Rome last November did at least recognize the urgency of the
    fight against hunger by pledging to reduce the number of hungry people
    by one half by the year 2015. But while halving the number of hungry
    people may be a good start, it is not nearly good enough. To our
    committee it is shocking that world society seems willing to settle for
    this. What about the other half of the hungry? What about the nine
    hundred million people who now go to bed hungry? And how can we achieve
    even this lower standard, Mr. Chairman, unless every nation, every
    organization that has a stake in fighting hunger does a lot more--and
    quickly? As we have said time and again, the United States can and must
    be a leader in that fight. All that is why we call on the Congress,
    beginning with your Committee, to take a hard look at the problems of
    food security and to begin this year by designating at least $500
    million for AID's investment in rural development, and by appropriating
    $1.04 billion for the World Bank and $220.6 million for the regional
    development banks.
                                     ______

                   Prepared Statement of Rotary International

        The Rotary Foundation of Rotary International is grateful for this
    opportunity to submit written testimony in support of the polio
    eradication activities of the U. S. Agency for International
    Development.
        Rotary International is a global association of 28,000 Rotary
    clubs, with a membership of 1.2 million business and professional
    leaders in 155 countries. We are the world's first service club, having
    been established in Chicago in 1905. In the United States today there
    are more than 7,400 Rotary clubs with some 400,000 members. All of our
    clubs work to promote humanitarian service, high ethical standards in
    all vocations and international understanding.
        Rotary is submitting this testimony on behalf of a broad coalition
    of child health advocates, including the American Academy of
    Pediatrics, the Task Force for Child Survival and Development, the
    March of Dimes Birth Defects Foundation and the U.S. Committee for
    UNICEF, to seek your support for the global program to eradicate polio.
        Rotary and our coalition would first like to express our sincere
    gratitude. A year ago we made the case for increased funding for the
    Polio Eradication Initiative. You responded enthusiastically,
    recommending that $25 million be channeled through the U. S. Agency for
    International Development for the delivery of polio vaccine and the
    development of the infrastructure necessary to implement the program.
               progress in the global program to eradicate polio
        We would like to use this opportunity to inform you about the
    extraordinary progress toward eradicating polio that has been achieved
    during the past twelve months:
      --Some seventy-five countries conducted National Immunization Days in
            1996, taking extra measures to protect over 450 million
            children against polio--more than one half of the world's
            children under the age of five.
      --Preliminary indications are that reported polio cases for 1996 will
            be only half that of 1995--from 7,000 to approximately 3,500.
            This dramatic one-year decline is due to the tremendous success
            of National Immunization Days (NIDs) in South Asia and Africa.
      --During its second year of NIDs, India was able to immunize 113
            million children on one day in December 1996, and over 123
            million on January 18, 1997--the largest single public health
            event in history. India's tremendous success provides more
            evidence that ``Target 2000'' is a reachable goal. Pakistan and
            Bangladesh coordinated their NIDs with India's to achieve the
            maximum effect over the entire region.
      --Twenty-eight sub-Saharan African countries conducted National or
            Sub-National Immunization Days during 1996 and the first months
            of 1997, as part of the continent-wide ``Kick Polio Out of
            Africa'' campaign, reaching nearly 70 million children. Forty-
            nine African countries have agreed to undertake NIDs in 1997-
            98.
      --The third year of the ``Operation MECACAR'' immunization campaign
            is currently underway. This three-year campaign is designed to
            virtually eliminate polio from 19 contiguous countries
            stretching from the Middle East to Russia.
      --As a result of three years of successful NIDs, China reported no
            laboratory-confirmed indigenous polio cases in 1995. Reported
            polio cases in the Western Pacific are confined to the Mekong
            Delta and the region of China bordering Myanmar. The entire
            region has started on the process of certifying polio
            eradication.
           the role of the u.s. agency for international development
        USAID was one of the driving forces behind the eradication of polio
    in Latin America and the Caribbean. Since the certification of polio
    eradication in the Americas in 1994, AID has turned its attention to
    the polio-endemic countries of Africa and Asia, and to finding ways to
    use American expertise to enhance immunization services globally. A
    major breakthrough was the development of the heat-sensitive vaccine
    vial monitor, which will save $10 million annually by reducing vaccine
    wastage. AID developed the monitor in conjunction with a private US
    firm, at the request of World Health Organization and UNICEF, and it is
    now in place on every vial of oral polio vaccine produced world-wide.
        In April 1996, with the support of the 104th Congress and in
    response to the strong urging of your Subcommittee, AID launched its
    own Polio Eradication Initiative, to coordinate agency-wide efforts to
    help eradicate polio by the year 2000. Congress directed $20 million
    for AID's polio eradication efforts in fiscal year 1996, and increased
    that amount to $25 million for fiscal year 1997. Here are some of the
    reported results of AID's Polio Eradication Initiative to date:
    Fiscal year 1996
      --AID's technical and programmatic expertise were critical to the
            success of India's 1995-96 and 1996-97 National Immunization
            Days. AID, through grants to UNICEF, WHO, and Rotary, has
            helped support India's cold chain, surveillance, training, and
            social mobilization efforts. Nepal and Bangladesh have
            benefited similarly over the past year.
      --AID provided nearly $2 million for polio eradication activities in
            Egypt.
      --In fiscal year 1996, AID allocated nearly $10 million for the polio
            eradication initiative in sub-Saharan Africa. AID's support,
            through its grant to WHO and its African Missions, was critical
            to the success of NIDs in 16 countries. Activities focused on
            three priority areas: social mobilization, planning and
            training, and cold chain.
      --AID has supported the 1996-1997 NIDs in Russia and four Central
            Asian Republics by providing technical assistance to more
            effectively manage issues of vaccine supply, storage and
            delivery, improving sustainability and reducing vaccine
            wastage.
    Fiscal year 1997
      --For fiscal year 1997, AID will increase funding for the Polio
            Eradication Initiative in Africa to nearly $16 million. These
            funds will flow through WHO and UNICEF for country-level NID
            support and strengthening disease surveillance systems.
      --In 1997, AID is programming nearly $4 million to support India's
            third year of NIDs and enhance nationwide surveillance.
      --An additional $5 million is to be programmed through USAID's
            Washington office, after discussion with partner agencies to
            determine where needs are greatest.
      eradicating polio will save the united states at least $230 million
                                    annually
        Even though there has not been a case of endemic poliomyelitis in
    the United States since 1979, we cannot be complacent. Our children are
    not protected from polio unless the entire world is free of polio. If
    we succeed in eradicating polio by the target year 2005, no child will
    have to be immunized against polio ever again. The United States
    currently spends at least $230 million annually to immunize its
    newborns against polio, a disease no longer occurring naturally
    anywhere in the Western hemisphere. This figure is expected to rise as
    the U.S. switches from an immunization program using inexpensive oral
    polio vaccine (OPV-Sabin vaccine) to one based on the higher-priced
    inactivated polio vaccine (IPV-Salk vaccine). Globally, over 1.5
    billion US dollars are spent annually to immunize children against
    polio. This figure does not even include the cost of treatment and
    rehabilitation of polio victims, nor the immeasurable toll in human
    suffering which polio exacts from its victims and their families. Once
    polio is eradicated, tremendous resources will be unfettered to focus
    on other diseases.
        Humankind is on the brink of a historic opportunity. Poliomyelitis
    is the second major disease in history that is close to eradication.
    The case to invest in polio eradication is compelling. We celebrated
    the eradication of smallpox in 1979. No child in the United States or
    in the world will ever suffer from smallpox again. The annual global
    savings of nearly $1 billion per year in smallpox disease and control
    costs far exceeds the approximately $300 million that was spent over
    ten years to eradicate smallpox. The United States was a major force
    behind the successful eradication of the smallpox virus, and has
    recouped its entire investment in smallpox eradication every 2\1/2\
    months since 1971.
        In 1988 and again in 1993, the member nations of the World Health
    Assembly, including the United States, affirmed their commitment to
    eradicate polio by the year 2000 and to achieve certification of
    eradication by the year 2005. But even with these great intentions and
    with the tremendous reduction of polio cases being achieved in many
    countries, there is concern that other more pressing demands will
    divert attention and funding from this program. If we hesitate in our
    commitment to eradication, we will lose momentum and risk substantial
    setbacks in the fight against the polio virus, including the risk of
    re-introducing the wild polio virus into North or South America. The
    risk of virus importation remains high, particularly when routine
    immunization levels are allowed to fall below acceptable levels.
    eradicating polio will help develop the infrastructure needed to fight
                                 other diseases
        Investing in polio eradication means helping countries to develop
    the public health and disease surveillance systems necessary to
    effectively implement the WHO-recommended polio eradication strategies.
    Not only does a strong surveillance system help eradicate polio, but it
    helps to control the spread of other infectious diseases. Already, much
    of Latin America is free of measles, due in part to improvements in the
    public health infrastructure implemented during the war on polio. The
    campaign to eliminate polio from communities has also led to increased
    public awareness of the benefits of immunization, creating a ``culture
    of immunization'' and resulting in higher immunization rates for other
    vaccines.
            resources needed to finish the job of polio eradication
        Although most of the costs of polio eradication efforts are borne
    by the governments of polio-endemic countries themselves, the World
    Health Organization estimates that at least $140 million in special
    contributions per year, for the next four years, is needed to help
    polio-endemic countries carry out the polio eradication strategy. We
    are asking that the United States continue to take the leadership role
    in meeting this shortfall.
        The United States' commitment to polio eradication is stimulating
    other countries to increase their support as well. We are not
    requesting an increase in US funding for polio eradication this year
    because we strongly believe that as the developed nations of the world
    will gain the greatest financial benefits of polio eradication, so must
    they share its costs. The US commitment to meet over fifty percent of
    the global shortfall is sending a strong message that America cares
    about the health of the world's children, and is challenging other
    countries to follow its lead. Belgium, Canada, Finland, France, Italy,
    Norway, Sweden and Switzerland are among those countries which have
    followed America's lead and have recently announced grants for polio
    eradication campaigns in Africa, Eastern Europe, and South Asia. Japan
    and Australia have been and will continue to be major donors in
    Southeast Asia and the Western Pacific. And both Denmark and the United
    Kingdom have recently made major grants that will virtually guarantee
    that India eradicates polio by the target year 2000.
        Rotary International has been working for more than a decade to
    help eradicate polio from the world, and the end is in sight. This has
    been one of the largest private/public sector initiatives ever
    organized. By the time polio has been eradicated, Rotary International
    will have expended nearly $400 million on the effort, making it the
    largest private contribution to a public health initiative ever. Of
    this, $277 million has already been allocated for polio vaccine,
    operational costs, laboratory surveillance, cold chain, training and
    social mobilization in 118 countries. More importantly, we have
    mobilized tens of thousands of Rotarians to work together with their
    national ministries of health, UNICEF and the World Health
    Organization, and with health providers at the grassroots level in
    thousands of communities. Together with our partners, we have achieved
    some remarkable successes. The reported number of cases worldwide has
    decreased from over 38,000 cases in 1985 to an estimated 3,500 cases
    for 1996--a decline of over ninety percent! The attached chart depicts
    this dramatic progress.
                        fiscal year 1998 budget request
        For fiscal year 1998, we are again requesting a $25 million earmark
    for global polio eradication in USAID's budget, through their Polio
    Eradication Initiative, for the delivery of vaccine and the development
    of the infrastructure necessary to implement the program. This would
    maintain funding at the fiscal year 1997 level, and ensure that the USA
    remains the decisive factor in the success of the global initiative. In
    addition, we are seeking report language similar to that included in
    the fiscal year 1997 Committee report, specifying that this funding is
    meant to be in addition to the resources for the regular immunization
    program of AID, and is intended to supplement other related activities.
    Lastly, we would ask that the Committee again request a report, by
    December 1 1997, on AID's plans to fully implement this program.
        Polio eradication is an investment, but few investments are as
    risk-free or can guarantee such an immense return. The world will begin
    to ``break even'' on its investment in polio eradication only two years
    after the virus has been vanquished. And the financial and humanitarian
    benefits of polio eradication will accrue forever. This will be our
    gift to the children of the twenty-first century.
        Thank you for this opportunity to submit testimony.

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page
    Albright, Hon. Madeleine K., Secretary of State, Office of the
      Secretary, Department of State.................................   215
        Prepared statement...........................................   225
    Allard, Hon. Wayne, U.S. Senator from Colorado, questions
      submitted by...................................................    53
    American Society of Tropical Medicine and Hygiene, prepared
      statement......................................................   288
    Amoco Corp., prepared statement..................................   265
    Atwood, Hon. J. Brian, Administrator, Agency for International
      Develop- ment..................................................     1
        Prepared statement...........................................     8

    Bader, Jeffrey, Deputy Assistant Secretary, Department of State..    97
    Bennett, Hon. Robert F., U.S. Senator from Utah..................   119
        Letter from..................................................   121
        Questions submitted by.......................................
          49, 134, 182, 212, 255.....................................
    Bernal, Dr. Richard L., on behalf of U.S. Foreign Assistance and
      Sustainable Growth in Jamaica, prepared statement..............   351
    Blake, Ambassador Robert O., chairman, Committee on Agricultural
      Sustainability, prepared statement.............................   373
    Brazeal, Aurelia, Deputy Assistant Secretary, Department of State    97
    Bye, Dr. Raymond E., Jr., associate vice president for research,
      Florida State University, prepared statement...................   372

    Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado,
      questions submitted by.........................................
      43, 134, 211, 256..............................................
    Chiapetta, Sidonie, on behalf of the National Wildlife
      Federation, prepared statement.................................   298
    Costello, John H., president, the Citizens Network for Foreign
      Affairs, prepared statement....................................   332

    Dine, Hon. Thomas A., Assistant Administrator, Bureau of Europe
      and the New Independent States, Agency for International
      Development....................................................   137
        Prepared statement...........................................   156

    Faith Action for People-Centered Development Policy, prepared
      statement......................................................   308
    Freeh, Hon. Louis J., Director, Federal Bureau of Investigation,
      Department of Justice..........................................    55
        Prepared statement...........................................    60

    Gardiner, Hobart C., president and CEO, International Executive
      Service Corps, prepared statement..............................   330
    Gawdiak, Ihor, director, Washington Office, Ukrainian American
      Coordinating Council, prepared statement.......................   334
    Gelbard, Hon. Robert S., Assistant Secretary of State, Bureau of
      International Narcotics and Law Enforcement Affairs, Department
      of State.......................................................    55
        Prepared statement...........................................    67
    George, Father Bill, S.J., Georgetown University, prepared
      statement......................................................   268
    Giulietti, Father Julio S.J., director, Georgetown University's
      Center for Intercultural Education and Development [CIED],
      prepared statement.............................................   268

    Harkin, Hon. Tom, U.S. Senator from Iowa, questions submitted by.   256
    Haunreiter, Erik, on behalf of the National Wildlife Federation,
      prepared statement.............................................   298
    Haynes, Fred, president, American-Turkish Council, prepared
      statement......................................................   283
    Hehir, Rev. J. Bryan, counselor, Catholic Relief Services, on
      behalf of the U.S. Catholic Conference and Catholic Relief
      Services, prepared state- ment.................................   356
    Hertford, Reed, president, Association for International
      Agriculture and Rural Development, prepared statement..........   363
    Humane Society of the United States, prepared statement..........   370

    International Education and Training Coalition, prepared
      statement......................................................   273

    Johns Hopkins University, Paul H. Nitze School of Advanced
      International Studies, prepared statement......................   291

    Kartman, Hon. Charles, Acting Assistant Secretary of State,
      Department of State............................................    97
        Prepared statement...........................................   105

    Lautenberg, Hon. Frank, U.S. Senator from New Jersey, questions
      submitted by...................................................
      54, 207, 218...................................................
    Leahy, Hon. Patrick, U.S. Senator from Vermont...................
      72, 97, 187....................................................
        Prepared statement...........................................
          73, 168....................................................
        Questions submitted by.......................................
          38, 93, 129, 130, 180, 254.................................
    Lemire, Joseph, president, Gala Radio & TV Co., Olympic
      Champions, Ltd., Kiev, Ukraine, and on behalf of the several
      members of the American Chamber of Commerce in the Ukraine,
      prepared statement.............................................   336
    Lipton, David, Assistant Secretary for International Affairs,
      Department of the Treasury.....................................
    Low, Lucinda A., chair, American Bar Association Section of
      International Law and Practice, on behalf of the American Bar
      Association, prepared statement................................   323

    Manoff, Robert Karl, director, Center for War, Peace, and the
      News Media, prepared statement.................................   365
    McConnell, Hon. Mitch, U.S. Senator from Kentucky................
                                             1, 55, 99, 137, 185, 215
        Prepared statements..........................................
          100, 217...................................................
        Questions submitted by.......................................   129
    Mikulski, Hon. Barbara, U.S. Senator from Maryland, questions
      submitted by...................................................   259
    Morningstar, Hon. Richard L., Ambassador, Special Advisor to the
      President and Secretary of State on Assistance to the New
      Independent States, Department of State........................   137
        Prepared statement...........................................   143
    Murray, Hon. Patty, U.S. Senator from Washington, questions
      submitted by...................................................   261

    Nassif, Thomas A., chairman, American Task Force for Lebanon,
      prepared statement.............................................   297
    National Council for International Health, prepared statement....   314

    Pennzoil Co., prepared statement.................................   266

    Rossides, Eugene T., on behalf of the American Hellenic Institute
      Public Affairs Committee, Inc.; the Hellenic American National
      Council; the Cyprus Federation of America, Inc.; the Pan
      Laconian Federation of U.S.A. and Canada; the Pan Cretan
      Association of America; and the Pan Karpathian Educational
      Progressive Association, prepared statement....................   342
    Rotary International, prepared statement.........................   379
    Rubin, Hon. Robert E., Secretary of the Treasury, Department of
      the Treasury...................................................   185
        Prepared statement...........................................   191

    Schneider, Claudine on behalf of the U.S. Committee for UNDP,
      prepared statement.............................................   271
    Specter, Hon. Arlen, U.S. Senator from Pennsylvania, letters from   241
    Stevens, Hon. Ted, U.S. Senator from Alaska......................   220
        Questions submitted by.......................................    48

    Vanderslice, Lane, on behalf of the World Hunger Education
      Service, prepared statement....................................   285

    Watson, Alexander F., vice president and executive director,
      Latin American and Caribbean Programs of the Nature
      Conservancy, prepared statement................................   276
    World Wildlife Fund, prepared statement..........................   293

                                 SUBJECT INDEX

                                  ----------

                      AGENCY FOR INTERNATIONAL DEVELOPMENT

                                                                       Page
    Additional committee questions...................................    37
    Africa:
        Development fund in Africa...................................    36
        Ten-year assessment..........................................    35
    African elephants................................................    31
    Agency move......................................................     7
    Agriculture......................................................     4
    Aid, suspension of...............................................    20
    Budget request, USAID............................................    22
    Child survival and NGO's.........................................    22
    Democracies, fledgling...........................................    21
    Development assistance cuts......................................    32
    Foreign aid, changing............................................     5
    IRI rapid response request.......................................    19
    New management systems...........................................     7
    NIS assistance...................................................    30
    Programs:
        Administration of justice....................................    26
        Polio........................................................    35
    Republika Srpska.................................................    29
    Rotary International.............................................    34
    Soviet Union, former.............................................     5
    United States leadership.........................................     8
    War Crimes Tribunal..............................................    28
    West Bank and Gaza Microcredit Program...........................    33

                             DEPARTMENT OF JUSTICE

    Additional committee questions...................................    93
    Burmese drug lord................................................    85
    Chinese cooperation on counternarcotics..........................    86
    Coca production..................................................    90
    Crime:
        International................................................    73
        Russian......................................................    92
    Drug issues......................................................    87
    Heroin:
        And cocaine seizures.........................................    91
        United States consumption of.................................    89
    High Intensity Drug Trafficking Agency [HIDTA]...................    83
    Intelligence information.........................................    88
    Money laundering.................................................    84

                              DEPARTMENT OF STATE

    Additional committee questions...................................
      93, 128, 180, 254..............................................
    Aid, reduction in to Israel and Egypt............................   234
    American:
        Jailed citizen...............................................
        Values.......................................................   168
    ASEAN, including Cambodia in.....................................   251
    Burma............................................................   115
        Sanctions....................................................   249
    Burmese drug lord................................................    85
    Cambodia, violence in............................................   250
    Chinese cooperation on counternarcotics..........................    86
    Coca production..................................................    90
    Corruption.......................................................   169
    Crime:
        International................................................    73
        Organized....................................................   175
        Russian......................................................    92
    Drug issues......................................................    87
    Exchange programs................................................   173
    Georgia..........................................................   155
    Heroin:
        And cocaine seizures.........................................    91
        U.S. consumption of..........................................    89
    High Intensity Drug Trafficking Agency [HIDTA]...................    83
    Intelligence information.........................................    88
    Jordan and Middle East, assistance for...........................   234
    Money laundering.................................................    84
    NATO:
        Enlargement, Soviet/Baltic reaction to.......................   236
        Expansion....................................................   235
    New investment initiative........................................   174
    North Korea, fuel oil for........................................   122
    Partnerships.....................................................   171
    Peace process....................................................   243
    Policy reforms bring foreign investment..........................   153
    Ratifying Start III..............................................   244
    Reform progress in the region....................................   153
    Reformists' triumphs in Bulgaria and Romania.....................   172
    Russia, state-owned companies in.................................   177
    SLORC............................................................   116
    Terrorism........................................................   239
    Transfer of expertise, not cash..................................   152
    Transparency.....................................................   168
    Ukraine..........................................................
      149, 154, 170..................................................
        Contrasting Georgia to the...................................   167
        Health earmarks..............................................   179
    War Crimes Tribunal..............................................   237
    Weapons:
        Conventional.................................................
        Of mass destruction..........................................   246

                           DEPARTMENT OF THE TREASURY

    Additional committee question....................................   206
    Burma............................................................   194
    World Bank.......................................................   196