    [Senate Hearing 105-809]
    [From the U.S. Government Publishing Office]

                                                      S. Hrg. 105-809

          FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS
                      APPROPRIATIONS FOR FISCAL YEAR 1999

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

                                    HEARINGS

                                    before a

                              SUBCOMMITTEE OF THE

                COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                           ONE HUNDRED FIFTH CONGRESS

                                 SECOND SESSION

                                       on

                               H.R. 4569/S. 2334

    AN ACT MAKING APPROPRIATIONS FOR FOREIGN OPERATIONS, EXPORT FINANCING,
    AND RELATED PROGRAMS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1999, AND
                               FOR OTHER PURPOSES

                                   __________

                              Part 2 (Pages 1-113)

                      Agency for International Development
                    Department of Health and Human Services
                             Department of Justice
                              Department of State
                           Department of the Treasury
                           Nondepartmental witnesses
                       Executive Office of the President
                    Overseas Private Investment Corporation
                               Export-Import Bank
                      U.S. Trade and Development Program

                                   __________

             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
    46-099 cc                   WASHINGTON : 1999

    _______________________________________________________________________
                For sale by the U.S. Government Printing Office
    Superintendent of Documents, Congressional Sales Office, Washington, DC
                                     20402
                               ISBN 0-16-057972-4

                          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
                               Jennifer Chartrand
                             Tim Rieser (Minority)

                                C O N T E N T S

                                  ----------

                             Tuesday, March 3, 1998

                                                                       Page

    Department of the Treasury: International Monetary Fund..........     1

                            Tuesday, March 31, 1998

    Department of State..............................................    43

                            Tuesday, April 21, 1998

    Department of Justice: Federal Bureau of Investigation...........    69

                            Thursday, April 23, 1998

    Agency for International Development.............................    95
    Department of Health and Human Services: Centers for Disease
      Control and Prevention.........................................    95

                             Tuesday, June 9, 1998

    Agency for International Development.............................   141

                             Tuesday, June 16, 1998

    Department of State: Office of the Secretary.....................   173
    Nondepartmental witnesses........................................   219

          FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS
                      APPROPRIATIONS FOR FISCAL YEAR 1999

                                  ----------

                             TUESDAY, MARCH 3, 1998

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:32 a.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Mitch McConnell (chairman)
    presiding.
        Present: Senators McConnell, Specter, Bennett, Stevens,
    Leahy, and Mikulski.
        Also present: Senator Faircloth.

                           DEPARTMENT OF THE TREASURY

                          International Monetary Fund

    STATEMENTS OF:
            HON. ALAN GREENSPAN, CHAIRMAN, BOARD OF GOVERNORS OF THE
                FEDERAL RESERVE SYSTEM
            HON. ROBERT E. RUBIN, SECRETARY OF THE TREASURY
    ACCOMPANIED BY LAWRENCE H. SUMMERS, DEPUTY SECRETARY OF THE TREASURY

                  opening remarks of senator mitch mc connell

        Senator McConnell. The hearing will come to order.
        We are pleased to have Secretary Rubin, Chairman Greenspan,
    and Mr. Summers with us today as well as the chairman of our
    full committee, Senator Stevens.
        As early as next week, the committee may consider the
    administration's two requests for the IMF: a $3.4 billion
    contribution to the new arrangements to borrow [NAB] and a
    $14.5 billion quota increase.
        In both instances, there is no budget outlay nor will the
    commitment increase the deficit because the transfer is
    considered an exchange of assets. In return for our commitment,
    we receive a liquid, interest bearing claim against IMF
    holdings.
        There are three points I would like to make regarding the
    request.
        First, current conditions warrant prompt action on the NAB,
    but the quota should be considered as part of the fiscal year
    1999 bill.
        Second, Congress must have the time and opportunity to
    evaluate both IMF enforcement and recipient compliance with the
    largest loan agreements recently negotiated.
        Third, the rapid and dangerous spread of this crisis
    suggests we should consider appropriate and real reforms in the
    lending and management practices of the IMF and sister
    institutions.
        Let me review each point briefly.
        As you know, the administration requested and the Senate
    passed the NAB last year. Unfortunately, White House
    negotiators decided a few million for population programs was
    more important than a few billion for this IMF emergency
    reserve. Despite the best efforts of many, including Chairman
    Stevens and my colleague, Senator Leahy, who will be here
    shortly, agreement could not be reached and the new
    arrangements to borrow was deleted from the bill.
        We should be able to move promptly on the NAB given the
    Senate's prior support.
        In addition to renewing the NAB request, the administration
    has now asked to accelerate consideration of the quota as part
    of the supplemental bill. Inclusion of the quota as a
    supplemental request in some ways comes as something of a
    surprise.
        The administration had advised us late last year to expect
    a quota due to Asian pressures combined with historical or
    cyclical lending patterns.
        While I appreciate the administration's desire to avoid
    having two votes on IMF loans, the urgency of the case for the
    quota, in my view, has not been made. In fact, all of the
    documents I have been provided by Treasury make clear that the
    IMF's liquidity ratio exceeds 50 percent, even taking the loans
    into consideration.
        The NAB, combined with prior appropriations for the general
    arrangements to borrow, would make another $48 billion
    available in the unlikely event that the Asian contagion
    continues to spread.
        The IMF's lending has been measured, producing a steady
    decline in liquid assets. This argues for congressional
    consideration of a request to replenish its resource base.
        Now I have been a strong and consistent supporter of this
    and related multilateral institutions and I certainly recognize
    their importance to U.S. exports and to U.S. growth. It is with
    a clear commitment to our mutual goal of sustaining this growth
    that I would urge a careful and thorough review of IMF and
    recipient country performance, not a rush to judgment which
    might be misunderstood as an attempt to avoid this important
    debate.
        Secretary Rubin, you have never had a ``Chicken Little''
    complex. In the interest of market stability, I think we all
    need to exercise some restraint and avoid the urge to declare
    that the sky is falling.
        To put the issue in perspective, during the Bush
    administration, when the Congress considered the last quota
    request, it took 20 months to pass that because the debate was
    mired in the unrelated issue of Israeli housing loan
    guarantees. The 1983 quota request took 8 months, even though
    IMF liquidity had fallen below 35 percent.
        We need to take time to build confidence in the IMF and
    that will be directly affected by my second concern, which
    relates to the details of the stand-by agreements which have
    been negotiated.
        There are critics who oppose the agreements reached in Asia
    as a formula response, raising taxes and interest rates and
    cutting spending. While aspects of the criticism may be
    justified, it seems the agreements in Asia reach far beyond the
    formula and address the systemic distortions and problems in
    banking, trade, and investment regulations and the practices
    which caused these economies to collapse.
        If Korea fulfills its obligations--and I have confidence
    that the new government is on the right track--we can expect
    dramatic changes which strike to the core infection of crony
    capitalism. Insolvent banks owned by good friends rather than
    good bankers will no longer be protected by government
    subsidies.
        Bankruptcy proceedings will operate independently of
    government interference. Foreign ownership, direct investment
    opportunity, and market access will expand significantly.
        International accounting and capitalization ratio standards
    will be enforced, and key data on foreign exchange debt and
    financial holdings of banks will be a matter of public record.
        Had some of these conditions been in place last year, Korea
    might not have suffered such an enormous shock.
        Support for the NAB and the quota will depend on full
    compliance with the agreements. Of the four largest loan
    programs, it seems that Korea and Thailand have worked quickly
    and effectively to meet their obligations. Unfortunately, I do
    not see the same progress in Indonesia or in Russia.
        Faced with the probability that Russia, once again, could
    not meet the IMF's targets, last week Mr. Camdessus announced
    plans to relax the terms of Russia's agreement and extend the
    length of the loan. The clear message here is: if you don't
    perform, don't worry. That is precisely the wrong message to
    send, I think, at least as far as I am concerned.
        Similarly, there appears to be little progress in
    implementing the reforms required of the Suharto government.
    With an additional disbursement of more than $3 billion
    anticipated in mid-March, I know many of us will be interested
    in your assessment of the concrete steps the government has
    taken to meet IMF conditions, including the elimination of
    trade barriers which have protected preferred enterprises, an
    end to the marketing and distribution monopolies tied to the
    Suharto family, and moving more than 3,000 off-budget revenue
    accounts into the State budget.
        As you both know better than any of us up here, compliance
    with loan agreements is essential. If the terms are not met,
    the Fund's long-term solvency can be put at risk.
        Finally, I hope the hearing today begins a serious debate
    about reforms in management and lending practices needed at the
    IMF and related international financial institutions. I am not
    sure how many people realize that many of the ideas and
    legislation circulating are already a part of the Bretton Woods
    Agreement authorizing our participation in international
    institutions.
        Just as a few examples, section 14 of the act says that it
    is U.S. policy to promote the removal of trade restrictions.
    Sections 44 and 49 tell our directors to work to eliminate
    agricultural subsidies. Section 42 instructs our directors to
    initiate discussions to gather information on the extension of
    credit by private banks and nonbank institutions to borrowers
    and make that information available to the public.
        There is no shortage of policy guidance. The problem is we
    are the only contributor paying any attention.
        This agreements and its standards are not binding on the
    IMF, its boards or its activities. We do not need to pass more
    legislation urging the administration to use our voice and vote
    to assure a loan meets congressional mandate. Instead, we need
    to see the IMF Executive Board or the Board of Governors pass
    and implement resolutions agreeing to standards already
    enunciated in U.S. law.
        Today I hope to review and discuss several specific items
    the IMF could take up to improve lending and management.
        Before action on the quota, I hope to achieve a consensus
    working with both of you toward real reform and not just more
    bland recommendations in order to assure our continued
    participation in these institutions.
        As a personal comment, let me thank both of our witnesses
    and Mr. Summers as well and their staffs for providing
    information and cooperating so fully with the subcommittee. As
    events in Asia developed, you and your staff have provided
    prompt and thorough information which has made an important
    difference in my level of confidence in this undertaking.
        We have an ambitious agenda for today, so we will start
    momentarily.
        Let me see if the chairman of the committee would like to
    make any observations.

                     opening remarks of senator ted stevens

        Senator Stevens. Thank you very much, Mr. Chairman. I
    welcome our two witnesses--three witnesses. I am sorry I will
    have to leave here and meet with Senator Byrd to discuss the
    timing for consideration of the supplemental. It is my feeling
    we will start hearings on Friday morning on the supplemental if
    it is received on Thursday afternoon, as we expect.
        I congratulate you for moving forward on this portion.
        My comment would be that I am one who believes that we
    should get the Senate on record again--we are on record
    already--as supporting these concepts that are in the
    supplemental request. I do believe that there should be
    delineation of the reforms that we expect and that we should
    find some way to assure that that will be accomplished,
    particularly with regard to the quota.
        But after just one trip to my home this last week, I found
    people who are dealing in the Pacific rim, many of them
    involved in fulfilling substantial contracts out there who are
    very worried about being paid for the deliveries that are being
    made right now.
        I think this is a virus and if we do not really demonstrate
    our willingness to help the IMF put it right, we could very
    well see some of this come back.
        I think we will hear today from some of the people from the
    Midwest and in the Grain Belt who are facing similar problems
    now with regard to payment for some of the deliveries that are
    expected to be made of our grain in the Far East this summer.
        This is not something that I think we can pass by, and I
    hope the Senate will go on record. I am not in disagreement
    with what the chairman of the subcommittee has said about the
    necessity for reforms. That is where we will have to rely on
    you gentlemen, to help us delineate what those reforms can be
    within a reasonable period of time. At least I hope we will
    have an opportunity to consider them on the floor when the time
    comes.
        I hope you will excuse me. I look forward to reading this
    record.
        Thank you.
        Senator McConnell. Thank you, Mr. Chairman.
        It has been the policy of this subcommittee to limit
    opening statements by members to the chairman of the
    subcommittee and the ranking member, that is, unless the
    chairman of the full committee shows up, in which case he can
    do anything he wants to.
        Senator Leahy will be here in a little while.
        I understand that Chairman Greenspan has to leave at 11:30
    a.m. I am completely open to which of you goes first. It is
    your call.
        Mr. Greenspan. I will be delighted to start, Mr. Chairman.
    I have a statement which I would like to read into the record
    and then at some point I would answer whatever questions I can
    in the timeframe that I have available.
        Senator McConnell. Your full statement will be made a part
    of the record, Mr. Chairman.

                    summary statement of hon. alan greenspan

        Mr. Greenspan. Thank you very much, Mr. Chairman.
        The global financial system has been evolving rapidly in
    recent years. New technology has radically reduced the costs of
    borrowing and lending across traditional national borders,
    facilitating the development of new instruments and drawing in
    new players.
        Information is transmitted instantaneously around the
    world, and huge shifts in the supply and demand for funds
    naturally follow, resulting in a massive increase in capital
    flows.
        This burgeoning global system has been demonstrated to be a
    highly efficient structure that has significantly facilitated
    cross border trade in goods and services and, accordingly, has
    made a substantial contribution to standards of living
    worldwide.
        Its efficiency exposes and punishes underlying economic
    imprudence swiftly and decisively. Regrettably, it also appears
    to have facilitated the transmission of financial disturbances
    far more effectively than ever before.
        Some 3 years ago, the Mexican crisis was the first such
    episode associated with our new high-tech international
    financial system. The current Asian crisis is the second.
        We do not as yet fully understand the new system's
    dynamics. We are learning fast and we need to update and modify
    our institutions and practices to reduce the risks inherent in
    the new regime. Meanwhile, we have to confront the current
    crisis with the institutions and techniques that we have.
        Many argue that the current crisis should be allowed to run
    its course without support from the International Monetary Fund
    or the bilateral financial backing of other nations. They
    assert that allowing this crisis to play out, while doubtless
    having additional negative effects on growth in Asia and
    engendering greater spill-overs onto the rest of the world, is
    not likely to have a large or lasting impact on the United
    States and the world economy.
        They may well be correct in their judgment.
        There is, however, a small, but not negligible, probability
    that the upset in East Asia could have unexpectedly large
    negative effects on Japan, Latin America, and Eastern and
    central Europe that, in turn, could have repercussions
    elsewhere, including the United States.
        Thus, while the probability of such an outcome may be
    small, its consequences, in my judgment, should not be left
    solely to chance. We have observed that global financial
    markets as currently organized do not always achieve an
    appropriate equilibrium or at least require time to stabilize.
        Opponents of IMF support for member countries facing
    international financial difficulties also argue that such
    substantial financial backing, by cushioning the losses of
    imprudent investors, could encourage excessive risk taking.
    There doubtless is some truth in that although, arguably, it
    has been the expectation of government support of their
    financial systems that has been the more obvious culprit, at
    least in the Asian case.
        In any event, any expectations of broad bailouts have
    turned out to have been disappointed. Many, if not most,
    investors in Asian economies have, to date, suffered
    substantial losses. Asian equity losses, excluding Japanese
    companies, since June 1997 worldwide are estimated to have
    exceeded $700 billion at the end of January, of which more than
    $30 billion have been lost by U.S. investors.
        Substantial further losses have been recorded in bonds and
    real estate.
        Moreover, the policy conditionality, associated principally
    with IMF lending, which dictates economic and financial
    discipline and structural change, helps to mitigate some of the
    inappropriate risk taking. Such conditionality is also critical
    to the success of the overall stabilization effort. At the root
    of the problems is poor public policy that has resulted in
    misguided investments and very weak financial sectors.
        Convincing a sovereign nation to alter destructive policies
    that impair its own performance and threaten contagion to its
    neighbors is best handled by an international financial
    institution, such as the IMF.
        What we have in place today to respond to crises should be
    supported even as we work to improve those mechanisms and
    institutions.
        Some observers have also expressed concern about whether we
    can be confident that IMF programs for countries, in particular
    the countries of East Asia, are likely to alter their economies
    significantly and permanently. My sense is that one consequence
    of this Asian crisis is an increasing awareness in the region
    that market capitalism, as practiced in the West, especially in
    the United States, is the superior model; that is, it provides
    greater promise of producing rising standards of living and
    continuous growth.
        Although East Asian economies have exhibited considerable
    adherence to many aspects of free market capitalism, there has,
    nonetheless, been a pronounced tendency toward government
    directed investment using the banking system to finance that
    investment.
        Given a record of real growth rates of close to 10 percent
    per annum over an extended period of time, it is not surprising
    that it has been difficult to convince anyone that the economic
    system practiced in East Asia could not continue to produce
    positive results indefinitely.
        Following the breakdown, an increasing awareness bordering
    in some cases on shock that their economic model was incomplete
    or worse has, arguably, emerged in the region. As a
    consequence, many of the leaders of these countries and their
    economic advisors are endeavoring to move their economies much
    more rapidly toward the type of economic system that we have in
    the United States.
        The IMF, whatever one may say about its policy advice in
    the past, is trying to play a critical role in this process,
    providing advice and incentives that promote sound money and
    long-term stability.
        The IMF's current approach in Asia is fully supportive of
    the views of those in the West who understand the importance of
    greater reliance on market forces, reduced government controls,
    scaling back of government directed investment, and embracing
    greater transparency--the publication of all data that are
    relevant to the activities of the central bank, the government,
    financial institutions, and private companies.
        It is a reasonable question to ask how long this conversion
    to embracing market capitalism in all its details will last in
    the countries once temporary IMF support is no longer
    necessary. We are, after all, dealing with sovereign Nations
    with long traditions not always consonant with market
    capitalism. There can be no guarantees. But my sense is that
    there is a growing understanding and appreciation of the
    benefits of market capitalism, as we practice it, that what is
    being prescribed in the IMF programs fosters their own
    interests.
        The just-inaugurated President of Korea, from what I can
    judge, is unquestionably aware of the faults of the Korean
    system that contributed to his country's crisis. He appears to
    be very strenuously endeavoring to move his economy and society
    in the direction of freer markets and a more flexible economy.
    In these efforts, he and other leaders in the region with
    similar views, have the support of many younger people, a large
    proportion educated in the West, who see the advantages of
    market capitalism and who will soon assume the mantle of
    leadership.

                               prepared statement

        Accordingly, Mr. Chairman, I fully back the
    administration's request to augment the financial resources of
    the IMF by approving as quickly as possible U.S. participation
    in the new arrangements to borrow and an increase in the U.S.
    quota in the IMF. Hopefully, neither will turn out to be needed
    and no funds will be drawn. But it is better to have it
    available if that turns out not to be the case and quick
    response to a pending crisis is essential.
        Thank you very much, Mr. Chairman.
        Senator McConnell. Thank you very much, Mr. Chairman.
        [The statement follows:]

                   Prepared Statement of Hon. Alan Greenspan

        The global financial system has been evolving rapidly in
    recent years. New technology has radically reduced the costs of
    borrowing and lending across traditional national borders,
    facilitating the development of new instruments and drawing in
    new players. Information is transmitted instantaneously around
    the world, and huge shifts in the supply and demand for funds
    naturally follow, resulting in a massive increase in capital
    flows.
        This burgeoning global system has been demonstrated to be a
    highly efficient structure that has significantly facilitated
    cross-border trade in goods and services and, accordingly, has
    made a substantial contribution to standards of living
    worldwide. Its efficiency exposes and punishes underlying
    economic imprudence swiftly and decisively. Regrettably, it
    also appears to have facilitated the transmission of financial
    disturbances far more effectively than ever before.
        Three years ago, the Mexican crisis was the first such
    episode associated with our new high-tech international
    financial system. The current Asian crisis is the second.
        We do not as yet fully understand the new system's
    dynamics. We are learning fast, and need to update and modify
    our institutions and practices to reduce the risks inherent in
    the new regime. Meanwhile, we have to confront the current
    crisis with the institutions and techniques we have.
        Many argue that the current crisis should be allowed to run
    its course without support from the International Monetary Fund
    or the bilateral financial backing of other nations. They
    assert that allowing this crisis to play out, while doubtless
    having additional negative effects on growth in Asia, and
    engendering greater spill-overs onto the rest of the world, is
    not likely to have a large or lasting impact on the United
    States and the world economy.
        They may well be correct in their judgment. There is,
    however, a small but not negligible probability that the upset
    in East Asia could have unexpectedly large negative effects on
    Japan, Latin America, and eastern and central Europe that, in
    turn, could have repercussions elsewhere, including the United
    States. Thus, while the probability of such an outcome may be
    small, its consequences, in my judgment, should not be left
    solely to chance. We have observed that global financial
    markets, as currently organized, do not always achieve an
    appropriate equilibrium, or at least require time to stabilize.
        Opponents of IMF support for member countries facing
    international financial difficulties also argue that such
    substantial financial backing, by cushioning the losses of
    imprudent investors, could encourage excessive risk-taking.
    There doubtless is some truth in that, though arguably it has
    been the expectation of governments' support of their financial
    systems that has been the more obvious culprit, at least in the
    Asian case. In any event, any expectations of broad bailouts
    have turned out to have been disappointed. Many if not most
    investors in Asian economies have to date suffered substantial
    losses. Asian equity losses, excluding Japanese companies,
    since June 1997, worldwide, are estimated to have exceeded $700
    billion, at the end of January, of which more than $30 billion
    had been lost by U.S. investors. Substantial further losses
    have been recorded in bonds and real estate.
        Moreover, the policy conditionality, associated principally
    with IMF lending, which dictates economic and financial
    discipline and structural change, helps to mitigate some of the
    inappropriate risk-taking. Such conditionality is also critical
    to the success of the overall stabilization effort. At the root
    of the problems is poor public policy that has resulted in
    misguided investments and very weak financial sectors.
    Convincing a sovereign nation to alter destructive policies
    that impair its own performance and threaten contagion to its
    neighbors is best handled by an international financial
    institution, such as the IMF. What we have in place today to
    respond to crises should be supported even as we work to
    improve those mechanisms and institutions.
        Some observers have also expressed concern about whether we
    can be confident that IMF programs for countries, in particular
    the countries of East Asia, are likely to alter their economies
    significantly and permanently. My sense is that one consequence
    of this Asian crisis is an increasing awareness in the region
    that market capitalism, as practiced in the West, especially in
    the United States, is the superior model; that is, it provides
    greater promise of producing rising standards of living and
    continuous growth.
        Although East Asian economies have exhibited considerable
    adherence to many aspects of free-market capitalism, there has,
    nonetheless, been a pronounced tendency toward government-
    directed investment, using the banking system to finance that
    investment. Given a record of real growth rates of close to 10
    percent per annum over an extended period of time, it is not
    surprising that it has been difficult to convince anyone that
    the economic system practiced in East Asia could not continue
    to produce positive results indefinitely. Following the
    breakdown, an increasing awareness, bordering in some cases on
    shock, that their economic model was incomplete, or worse, has
    arguably emerged in the region.
        As a consequence, many of the leaders of these countries
    and their economic advisors are endeavoring to move their
    economies much more rapidly toward the type of economic system
    that we have in the United States. The IMF, whatever one might
    say about its policy advice in the past, is trying to play a
    critical role in this process, providing advice and incentives
    that promote sound money and long-term stability. The IMF's
    current approach in Asia is fully supportive of the views of
    those in the West who understand the importance of greater
    reliance on market forces, reduced government controls, scaling
    back of government-directed investment, and embracing greater
    transparency--the publication of all the data that are relevant
    to the activities of the central bank, the government,
    financial institutions, and private companies.
        It is a reasonable question to ask how long this conversion
    to embracing market capitalism in all its details will last in
    countries once temporary IMF support is no longer necessary. We
    are, after all, dealing with sovereign nations with long
    traditions, not always consonant with market capitalism. There
    can be no guarantees, but my sense is that there is a growing
    understanding and appreciation of the benefits of market
    capitalism as we practice it--that what is being prescribed in
    IMF programs fosters their own interests.
        The just-inaugurated president of Korea, from what I can
    judge, is unquestionably aware of the faults of the Korean
    system that contributed to his country's crisis; he appears to
    be very strenuously endeavoring to move his economy and society
    in the direction of freer markets and a more flexible economy.
    In these efforts, he and other leaders in the region with
    similar views, have the support of many younger people, a large
    proportion educated in the West, that see the advantages of
    market capitalism and who will soon assume the mantle of
    leadership.
        Accordingly, I fully back the Administration's request to
    augment the financial resources of the IMF by approving as
    quickly as possible U.S. participation in the New Arrangements
    to Borrow and an increase in the U.S. quota in the IMF.
    Hopefully, neither will turn out to be needed, and no funds
    will be drawn. But it is better to have it available if that
    turns out not to be the case and quick response to a pending
    crisis is essential.

                   summary statement of hon. robert e. rubin

        Senator McConnell. Secretary Rubin, do you want to go ahead
    with your statement?
        Secretary Rubin. Thank you, Mr. Chairman.
        Let me say that I, too, regret that the NAB did not pass at
    the end of the last year, although our analysis of the cause
    might differ a little bit. In any event, it is a pleasure to be
    with you and to discuss funding for the IMF.
        I would like to do that, if I may, in the context of
    American leadership with respect to the global economy, the
    situation in Asia, and also briefly bring you up to date on the
    international response in the crisis and our efforts to
    modernize the architecture for the financial markets.
        As you well know, Mr. Chairman, because you have been very
    much involved in these issues, there is truly a new era. I
    lived it when I was in the private sector before coming into
    government. It is a new era of the global financial markets and
    a global economy--20 years ago, most of our businesses in this
    country were predominantly domestic. Today the large businesses
    are predominantly global entities--20 years ago, developing
    countries accounted for virtually none of our exports. Today
    they account for something over 40 percent of our exports.
        Moreover, our leadership in the international financial
    institutions, including the IMF, have contributed enormously to
    the economic wellbeing of our workers, our farmers, and our
    businesses. But, as Chairman Greenspan said, with these
    opportunities have come risks.
        I do not think there is any question but, if we are going
    to deal with these risks, we are going to have to have a strong
    and effective American leadership. In that way we can try to
    make the most of the opportunities while, at the same time,
    effectively manage the risks.
        Whether or not we provide that leadership will, in my
    judgment, profoundly affect our economic and national security
    interests in the years to come.
        This need for American leadership has been brought home by
    the recent crisis in Asia. We have critical economic and
    national security interests in Asia.
        Chairman Stevens said before he left that we have very
    substantial exports to Asia. They are now something like 30
    percent of our total exports, and we export more to Asia than
    we do to Europe. In States like California, Oregon, and
    Washington, exports to Asia represent over 50 percent of each
    State's exports.
        Financial instability, economic distress, and depreciating
    currencies all have direct effects on the pace of our exports
    to the region and on the competitiveness of our goods and
    services in world markets as a consequence of the depreciation
    of the currencies of the affected countries in that region.
        Moreover, if the problem were to spread to developing
    countries around the globe, as Chairman Greenspan mentioned,
    the potential impact to our economy could be severe. By doing
    everything sensible to help these Asian countries get back on
    track, we support our exports to the region and help strengthen
    their currencies, which, in turn, helps the competitiveness of
    our goods in world markets, and we reduce the risk that the
    financial instability will spread to other developing
    countries.
        While this particular crisis is in Asia, I think its
    characteristics are the kind of characteristics we may see in
    similar sorts of events in the future. It is precisely in order
    to protect our economic interests against the possibilities
    that exist in these kinds of crises that, in our judgment, we
    need to have a capacity, an IMF with the capacity to deal with
    a major world crisis should it occur, however low the
    probability of such a crisis may be.
        The United States has exercised strong leadership
    throughout this situation in Asia. In Thailand, we saw the
    possibility of problems early. We went to the government to try
    to obtain reforms. We went to the government with the IMF to
    try to obtain reforms. Then, when problems did develop, we
    worked with the IMF to develop a strong program.
        In Korea, the situation had deteriorated very rapidly by
    this past Christmas, and I think it would be fair to say that
    the Korean banking system was on the verge of systemic default
    which, had it occurred, could have created the risk of the kind
    of contagion that Chairman Greenspan referred to.
        The Treasury and the Federal Reserve Board worked together
    over a very few days to catalyze the participation of banks on
    three continents to refinance short-term loans in order to give
    Korea breathing room to address its economic problems.
        In Indonesia, just this week, former Vice President
    Mondale, as a personal representative of the President, has met
    with President Suharto to encourage Indonesia to make the
    critical reforms necessary to get back on the right track.
        More broadly, we have been part of an international effort,
    again working through the IMF, to encourage countries outside
    of the region to put policies in place to limit their
    vulnerability to crisis.
        Through all of this, the United States has strongly
    supported the IMF as the central institution in the effort to
    resolve financial crises such as exist in Asia.
        The IMF programs have been focused predominantly on
    structural reforms to address the specific causes of the crisis
    in each nation. These reforms include, as Chairman McConnell
    said, reshaping the relationship between banks, the government,
    and commercial entities, financial sector regulations and trade
    liberalization. These are not--I repeat, these are not--
    austerity programs, though they do involve macroeconomic policy
    regimes necessary to regain financial market confidence.
        In our view, the IMF is, without question, the right
    institution to be at the center of this effort for three
    important reasons. First, it has the expertise to shape
    effective reform programs. Second, it has the ability to
    require a country to accept conditions that, for political
    reasons, no assisting Nation could require bilaterally on its
    own. Finally, it internationalizes the burden.
        Moreover, as Chairman McConnell discussed in his opening
    remarks, funding for the IMF has not cost the taxpayer one dime
    in 50 years. When the IMF draws on our commitments, we receive
    an interest bearing, offsetting claim on the IMF of equal
    value. There are no budget outlays under CBO scoring, no
    increase in the deficit, nor reductions in resources for other
    spending priorities.
        Today, we ask you to support two critical requests--an
    increase in our IMF quota subscription and American
    participation in an augmented backup facility, the new
    arrangements to borrow, to supplement the IMF's regular
    resources, if needed, to deal with systemic crisis.
        We need this money as quickly as possible because right now
    the IMF does not have sufficient funds to deal with a truly
    major crisis, though we believe the probability of such a major
    crisis is low. It is in our economic interest to have that
    vulnerability exist for as little time as possible.
        At the moment, the IMF has about $45 billion in uncommitted
    resources, but only $10 billion to $15 billion is available
    because an amount that we estimate at $30 billion to $35
    billion must be held in reserve to accommodate withdrawal by
    members.
        In addition, the IMF has access to roughly $23 billion in
    the general arrangements to borrow, for a total of roughly $33
    billion to $38 billion of lending capacity.
        To give you a sense of how inadequate that amount could be,
    in the last 6 months alone, the IMF's commitment to these Asian
    programs amounted to some $35 billion. The IMF could well not
    have the capacity to respond effectively if that crisis were to
    deepen and to spread to developing countries throughout the
    globe or a new crisis were to develop in the near-term--low
    probability events, in our judgment, but events whose
    occurrence could have severe effects on the American economy.
        It is not sensible for us to remain vulnerable and
    unprotected with respect to such possibilities. Even if the
    $3.5 billion for the NAB alone is approved, we still remain
    exposed, with the IMF not having sufficient resources to deal
    with a truly major crisis.
        The $3.5 billion would become an additional, roughly, $21
    billion with the contributions by all others who are members.
        The U.S. contribution, totaling $18 billion, will leverage
    to a total of about $90 billion in usable resources. If we do
    not act, neither the quota nor the NAB will come into effect.
        On the other hand, once we act, the rest of the world will
    act very quickly.
        At the last IMF replenishment in 1992, all of the other
    countries acted within 6 days of action by the U.S. Congress.
    Moreover, failure to fully support the IMF now could adversely
    affect confidence in American leadership in the global economy
    just at a time when confidence in American leadership is so
    important in reestablishing stability in Asia.
        Mr. Chairman, you have suggested and many others have as
    well that, in consideration of providing new moneys to the IMF,
    we should also consider conditions with respect to the IMF and
    its reform programs. We agree with the importance of many of
    these objectives, and I believe that we can work out
    constructive approaches to deal with these purposes.
        However, there are practical limits on what can be done
    while also still accomplishing our overall objectives of
    protecting the American economy by dealing effectively with
    financial instability in other parts of the world.
        As we work to secure this funding and also to deal with the
    critical problems in Asia, we are, at the same time, working to
    strengthen the architecture of the international financial
    system. As Chairman Greenspan said, the global economy and the
    global financial markets have grown very rapidly and the
    institutions have not changed accordingly.
        At Treasury, we have been working with the Federal Reserve
    Board on these enormously complex issues and we are working to
    develop consensus around the world. But these are deeply
    complicated issues and major steps forward will take time.
        One criticism that has arisen with respect to the
    international response is the so-called ``moral hazard'' issue.
    Chairman Greenspan dealt with that fully. Let me just say that
    we are in total accord with Chairman Greenspan, and trying
    substantially to improve the international architecture is very
    high on our list of priorities as we deal with both the Federal
    Reserve Board and other Nations around the world toward
    advancing in significant ways this architecture.
        Mr. Chairman, before I conclude, let me say a few words
    about the status of the situation in Asia.
        As a result, in our view, of American leadership and prompt
    action by the IMF and other international organizations, the
    spread of instability to other developing nations was limited
    after an initial burst. In the countries where instability has
    occurred, there was a long way to go and a great deal to do
    before we could feel secure that the period of instability is
    over, that these countries are back on a path of solid growth.
        The countries in the region have great underlying
    strengths--a commitment to education, a strong work ethic, and
    high savings rates--and those, combined with strong reform
    programs, should provide the basis for a successful resolution
    over time.
        Thailand and Korea are in a constructive path of reform,
    though there are certainly great challenges ahead. Such a path
    is most certainly the best path for Indonesia as well.

                               prepared statement

        Mr. Chairman, to conclude, as I said at the beginning of my
    remarks, we live in an era of global financial markets and a
    global economy which present enormous opportunities for
    American workers, farmers, and businessmen but also new risks.
    Within that context, to come again to the point of this
    hearing, in our judgment we cannot afford to take the risk,
    however small the probability, that a major crisis develop
    while the IMF is without the capacity to respond. So we
    strongly recommend providing the full $18 billion funding
    request that we have submitted to this Congress.
        Thank you very much.
        We would be delighted to respond to your questions.
        [The statement follows:]

                   Prepared Statement of Hon. Robert E. Rubin

        Mr. Chairman, members of this Committee, it is a pleasure
    to appear before you today to discuss funding for the
    International Monetary Fund in the context of U.S. leadership
    in the global economy and the situation in Asia. I would also
    like to bring you up to date on the international response to
    the crisis and our efforts to modernize the architecture of the
    international financial markets to better prevent financial
    crises, or better manage them should they occur.
        Mr. Chairman, as you well know, we live in a new era of the
    global economy and global financial markets. Twenty years ago,
    the vast majority of our businesses were predominantly
    domestic. Now many are global entities. Developing countries
    have gone from having little impact on our economic well being
    to absorbing over 40 percent of our exports. Our leadership in
    international financial institutions such as the IMF has played
    a key role in these developments that have contributed so much
    to the economic well being of our workers, farmers, and
    businesses.
        But with the opportunities have come risks. Strong and
    effective U.S. leadership on the issues of the global economy
    is essential if we are to make the most of these opportunities,
    and effectively manage the risks; and whether or not we provide
    that leadership will profoundly affect our national economic
    and security interests in the years ahead.
        The need to exercise U.S. leadership in the global economy
    to protect and promote our interests has been brought home by
    the recent situation in Asia. We have critical economic and
    national security interests in Asia. Thirty percent of U.S.
    exports go to Asia, supporting millions of U.S. jobs, and we
    now export more to Asia than Europe. In States like California,
    Oregon, and Washington, exports to Asia account for more than
    half of each state's total exports. Financial instability,
    economic distress, and depreciating currencies all have direct
    effects on the pace of our exports to the region, the
    competitiveness of our goods and services in world markets, the
    growth of our economy and, ultimately, the well-being of
    American workers. Moreover, if the problem were to spread to
    developing countries around the globe, the potential impact to
    our economy could be severe. By doing everything sensible to
    help these Asian countries get back on track, we support our
    exports to the region and help strengthen their currencies,
    which helps the competitiveness of our goods in world markets
    and we reduce the risk that financial instability will spread
    to other developing countries.
        In addition, the United States also has critical national
    security interests in seeing a restoration of financial
    stability in the region. We have 100,000 troops based in Asia,
    37,000 on the Korean peninsula alone. As the members of this
    committee know well, financial stability and prosperity
    promotes social stability and peace--both in Asia and
    throughout the globe.
        The United States has exercised very strong leadership
    throughout this situation to help resolve the Asian crises. In
    Thailand, we saw the signs of problems early on and we moved
    with the IMF to put into place a reform program which the Thai
    government is currently implementing. In Korea, the situation
    deteriorated very rapidly and by Christmas the Korean banking
    sector was on the verge of systematic default. Treasury and the
    Fed worked together over a very few days to catalyze the
    participation of banks on three continents to refinance short
    term loans in order to give Korea breathing room to address its
    economic problems. In Indonesia, just this week President
    Clinton has sent former Vice-President Mondale as a personal
    representative to encourage Indonesia to make the critical
    reforms necessary to succeed. More broadly, we also have been
    part of an important international effort to encourage
    countries outside of the region to put policies in place to
    limit their vulnerability to crises.
        Through all of this, the United States has strongly
    supported the IMF, as the central institution in the effort to
    resolve the financial crises in Asia. The IMF programs have
    been focused predominantly on structural reforms, to address
    the specific causes of the crisis in each nation. These reforms
    include reshaping the relationships between banks, the
    government, and commercial entities; financial sector
    regulations; trade liberalization; and appropriate monetary and
    fiscal policies. These are not austerity programs, though they
    do involve macro-economic policy regimes necessary to regain
    financial market confidence.
        The IMF is the right institution to be at the center of
    this effort for three important reasons. First, it has the
    expertise to shape effective reform programs. Second, it has
    the leverage to require a country to accept conditions that no
    assisting nation could require on its own. Finally, it
    internationalizes the burden. Moreover, our contributions to
    the IMF have not cost the taxpayer one dime in fifty years.
    When the IMF draws on our commitments, we receive an interest
    bearing offsetting claim on the IMF of equal value. There are
    no budget outlays under CBO scoring and no increase in the
    deficit, or reduction in resources for other spending
    priorities.
        Today we ask you to support two critical requests: an
    increase in our IMF quota subscription, and U.S. participation
    in an augmented back-up facility, the New Arrangements to
    Borrow, to supplement the IMF's resources, if needed, to deal
    with crises such as this one.
        We need this money as quickly as possible, because right
    now the IMF does not have sufficient funds to deal with a truly
    major crisis and it is in our economic interest to have that
    vulnerability exist for as little time as possible. As a result
    of the recent situation in Asia, the IMF's normal financial
    resources are approaching a historically low level. At the
    moment, the IMF has about $45 billion in uncommitted resources,
    but only $10-15 billion is available because an amount we
    estimate at $30-35 billion must be held in reserve to
    accommodate withdrawals by members. In addition, the IMF has
    access to roughly $23 billion in the General Arrangements to
    Borrow, for a total of $33 to $38 billion of total lending
    capacity. To give you a sense of how inadequate that amount
    could be, in the last six months alone the IMF's commitment in
    these Asia programs amounted to some $35 billion. The IMF might
    not have the capacity to respond effectively if that crisis
    were to deepen, spread to developing countries throughout the
    globe, or a new crisis were to develop in the near term. Even
    if the $3.5 billion for the NAB alone is approved, we still
    remain exposed with the IMF not having sufficient resources to
    deal with a truly major crisis. The U.S. contribution totaling
    $18 billion will leverage a total amount of about $90 billion
    in usable resources. If we don't act, neither the quota nor the
    NAB will come into effect. However, once we act the rest of the
    world will act very quickly. At the last IMF replenishment, in
    1992, all of the other countries acted within six days of
    action by the U.S. Congress.
        The probability of a serious reversal in the Asia situation
    and contagion to developing countries around the world, or of a
    new crisis in the short term, may be small. But, these
    occurrences are possible and the consequences could be immense.
    We cannot afford to take the risk that such events could start
    to unfold and the IMF not have the capacity to try to cope
    effectively. Again, the full IMF funding is needed now, to
    protect our interests. Moreover, failure to support fully the
    IMF now could shake confidence in American leadership in the
    global economy just at a time when confidence and American
    leadership are so important in re-establishing stability in
    Asia.
        Some have suggested that we should not advance new monies
    to the IMF unless it agrees to attach certain conditions to its
    reform programs. We agree with the importance of many of their
    objectives, and I believe we can work out constructive measures
    responsive to them. However, there are also practical
    limitations on what can be done while still accomplishing the
    overall objective of protecting the American economy as fully
    as possible from the effects of financial instability in other
    parts of the world.
        Mr. Chairman, even as we work to secure this funding and to
    solve the immediate problems in Asia, we are working to
    strengthen the architecture for the international financial
    system. While the global economy and the global financial
    markets have grown very rapidly and become very sophisticated
    in recent years, the institutions for preventing and dealing
    with these crisis has changed far less. We need to make that
    architecture as modern as the markets. At Treasury, we have
    been working with the Federal Reserve Board on these enormously
    complex issues. And we are working to develop international
    consensus. But, these are deeply complicated problems and major
    steps forward will take time.
        One criticism that has arisen with respect to the
    international response to the situation is that providing
    financial assistance to these countries shields investors from
    the consequences of bad decisions. This, the so-called moral
    hazard issue, concerns us as well. We do not believe that
    international efforts to resolve financial crises should
    protect investors or creditors from the consequences of their
    actions and as you know numerous banks, investors and creditors
    have taken or will take huge losses in Asia. However, a
    byproduct of the international assistance effort may be that
    some creditors will be shielded from the full consequences of
    their actions. Addressing this issue is a high priority for us
    as we work to strengthen the international architecture, but is
    also extremely complicated.
        Mr. Chairman, before I conclude, let me say a few words
    about the status of the situation in Asia. As a result of U.S.
    leadership and prompt action by the IMF and other international
    organizations, the spread of instability to other developing
    nations was limited after an initial burst. In the countries
    where instability has occurred, there is a long way to go and a
    great deal to do before we can feel secure that the period of
    instability is over and these countries are back on a path of
    solid growth. The countries in the region have great underlying
    strengths, such as high savings rates, a strong work ethic, and
    a commitment to education and that combined with strong reform
    programs, should provide the basis for a successful resolution
    over time. Thailand and Korea are on a constructive path of
    reform--though there are great challenges ahead--and that is
    the best path for Indonesia as well. In the meantime, it is
    critical that we have an IMF with the capacity to respond
    further--or in other developing countries--if necessary.
        Mr. Chairman, as I said earlier, we live in an era of
    global financial markets and a global economy which presents
    both opportunities and risks for American workers, farmers and
    businessmen. Within that context, and to come again to the
    point of this hearing, we cannot afford to take the risk--
    however small the probability--that a major crisis develops
    while the IMF is without the capacity to respond, and so we
    should provide the full $18 billion IMF funding requested now.

                                recovery in asia

        Senator McConnell. Thank you. What I would like to do, in
    order to give all four of us an opportunity to question
    Chairman Greenspan before he leaves is limit the first round of
    questioning to 5 minutes each. This should give everybody an
    opportunity to interact with Chairman Greenspan before he
    leaves. Then subsequent rounds will be 10 minutes.
        Chairman Greenspan, it seems that there are two
    components--maybe many more--but at least two components,
    central to a regional recovery in Asia: a Japanese budget
    stimulus package enabling absorption of more exports and China
    maintaining its pledge not to devalue its currency.
        What are the implications for the latter if the Japanese do
    not move swiftly to stimulate their economy?
        Mr. Greenspan. Do you mean what are the implications to
    China if the Japanese do not do so?
        Senator McConnell. Yes.
        Mr. Greenspan. I think, as the Deputy Secretary, who met
    with Zhu Rongji and publicly discussed the strong commitment to
    hold the exchange rate can testify, all of our contacts have
    indicated that they recognize that sustaining their exchange
    rate is important both to them and to the region generally. I
    see no reason that any significant pressures will emerge in the
    near-term to break them off that path.
        I would suspect that, even were the Japanese not to engage
    in some strong fiscal expansion, the Chinese would respond in a
    negative way to that.
        Having said that, however, I want to emphasize that Japan
    is a very large player in the Asian system and, indeed,
    dominates virtually all aspects of it. A necessary condition
    for the stability of East Asia is the restabilization and
    growth of Japan.
        Japan has two problems, as I see it. One, they have a
    financial system which is bloated with nonperforming loans and,
    unless and until those are excised from the system, it is going
    to be difficult to expand, even with significant fiscal
    actions. So there is, essentially, a two-stage issue, which I
    have discussed elsewhere, with respect to Japanese recovery.
    One is the rectification of the financial imbalances which they
    are now finally beginning to address after a long number of
    years of poor financial performance. Second is to come to grips
    with what I suspect is going to be significant further
    financial impetus from the tax side.
        Senator McConnell. Senator Mikulski, I am going to hold my
    questions to one and would see if you would like to ask
    Chairman Greenspan a question.
        Senator Mikulski. Thank you, Mr. Chairman.
        First, to both Mr. Greenspan and Mr. Rubin, we normally
    would be inclined to take your advice. Mr. Greenspan, you have
    presided and led over a monetary policy that has helped create
    a tremendous, robust economy in the United States of America.
    Mr. Rubin, you, through being Secretary of the Treasury and
    your advice to the President and the Congress, helped us arrive
    at a balanced budget, helped us get through a Mexico crisis
    that was fiscally sound and that enhanced the dignity of both
    Nations in the way it was handled. So we would normally be
    inclined to take your advice.
        But there are a couple of yellow, flashing lights. This,
    then, goes to you, Mr. Greenspan, and perhaps the Secretary
    could comment.

                                crony capitalism

        We have nations that are in difficulty because they
    practiced crony capitalism, and there was no push for reform
    until Western financial institutions started to take
    significant and large losses. Then they cried out for help and
    went to the IMF, which has been a stabilizer and a leader in
    reform.
        So, then, this takes me to the question. Everybody was
    content with crony capitalism as long as the banks did not take
    a hit, nor did any Western financial institution that was
    making very heavy investments in East Asia.
        So here is the question. With asking the American people to
    do this, many of whom have lost their jobs to Asia,
    particularly in shipbuilding, garments, steel--my core
    constituency--what, then, can we say to them if we follow the
    two requests being made under your advice, Mr. Greenspan and
    the Secretary, for coming in with the supplemental, raising the
    quota, and supporting IMF? How do you really think we could go
    back to our constituents and say, No. 1, we are going to clean
    up crony capitalism so that it not only does not happen here
    but is it in a lot of the other aspects of the world? Second is
    that the banks or financial institutions do have to eat a
    substantial amount of their loss, the so-called moral hazard.
    Third is in doing this, we continue to enhance jobs in their
    countries even though we have had irrevocable losses in
    manufacturing such as shipbuilding and steel over here.
        Mr. Greenspan. Senator, the problem that I think we had is
    not the issue of nobody getting losses. Rather, it was very
    difficult to look at what seemed to be a very odd form of
    economic organization in East Asia prospering or ostensibly
    prospering as strongly as it was for so many years.
        I can sit and look at that phenomenon as an economist and
    say I don't know what the levitation is that is keeping it
    going. I think we do know in retrospect how it was done. But it
    is very difficult to argue against the economic policies of
    sovereign nations which have engendered near 10 percent growth
    for two or three decades and say that you are doing it wrong.
        What has happened is that that system inevitably broke
    down, and what we are now beginning to see is a really
    extraordinary comparison between the types of institutions that
    we have in the West and they had in the East, and we can see
    why it doesn't work. Far more importantly they are beginning to
    see that as well.
        Senator Mikulski. That is what I was going to say. Do they
    have a sense of urgency?
        Mr. Greenspan. Yes; but not fully.
        Senator Mikulski. I know that Indonesia is separate.
        Mr. Greenspan. I do not think that one can realistically
    expect that you can have regimes, which have been very
    successful for a very long period of time, run into one serious
    crisis and all of a sudden their whole sense of what makes the
    world run gets changed.
        I do think, however, that what we are seeing, for example,
    in Korea is a very major change because the new incoming
    government has always been very questioning of the stability of
    what that regime was.
        I do think that is true increasingly in Thailand. I cannot
    say to you it is evidently true in Indonesia. Nor can I say
    with any degree of certainty that it will continue.
        All I am saying is that there is a very dramatic shock that
    has occurred. It is having a significant impact on the views of
    the people, especially the younger people who are coming up in
    the ranks and who have been largely educated in the West.
        There are no guarantees. But I would say that I am far more
    encouraged now, that they are going to restructure their
    systems in a far more viable, open manner, which will be far
    more beneficial to the world trading system than it has been in
    the past. Certainly our assistance and the assistance of the
    IMF are crucial players in making certain that occurs.
        Senator Mikulski. Thank you.
        Senator McConnell. Senator Faircloth.
        Senator  Faircloth. Thank you, Mr. Chairman.
        Chairman Greenspan, thank you again for being before the
    Congress.
        As you say, the systems were doing well there for a good
    while, the Asian systems. Plonsit did well for a while.
        Mr. Greenspan. I said ``ostensibly well.'' I think I did. I
    hope I said that.

                                 global markets

        Senator  Faircloth. They appeared to be.
        I have a couple of questions. First, we have global
    markets, as you said. It is a very global market. And we have
    very, very global banking with all sorts of potential for
    information and insight as to what is happening.
        Why did we not suspect or see? The IMF wrote a great report
    on how wonderful things were in South Korea just moments before
    the collapse. It was somewhat like playing tennis before the
    Khymer Rouge took the club.
        Would you explain why we knew so little?
        Mr. Greenspan. That is a very important point, Senator. I
    think the answer to that is in the nature of these apparently
    newly developing types of financial crises which are associated
    with this new, high tech financial structure.
        I look at these various, different episodes which nobody
    forecast--we had some general views of excess flows of funds
    into these countries; we had concerns about very large current
    account deficits in Thailand--and a lot of people in retrospect
    are saying well, you know, we saw it coming. The truth of the
    matter is nobody saw the virulence of what this is.
        The reason why not, is there is something that is extremely
    difficult to forecast, and that is the onset of a vicious
    cycle. It is almost a type of phenomenon which, so long as
    confidence seems to be in place, even with distorted and not
    terribly well functioning economies, you do have equilibrium.
    You have balance. The system does not break apart.
        But there comes a point every once in a while when you go
    over the edge, and it is like breaching a dam. All of a sudden
    the confidence just flows out radically and everything turns
    180 degrees in a very short period of time.
        I think we know the necessary conditions for that type of
    phenomenon occurring. We do not know the sufficient conditions.
    In other words, I do not believe that we will ever be in a
    position where we can effectively forecast in advance those
    types of crises. What we can do is put into place a series of
    preventive measures which lowers the probability that that type
    of event will occur.
        But I do not believe we can ever reduce that probability to
    zero nor have any technical capability through some
    sophisticated set of indicators or some great financial insight
    in being able to predict those things in advance.
        So I fully agree with you. I think if you go back and read
    that South Korean report, you have characterized it exactly
    right. What they should not have done is make the presumption,
    which was implicit in that report, that, therefore, everything
    is fine.
        It is one thing to report what is happening; it is another
    thing to say what you think is going to happen all the time in
    the future.
        Senator  Faircloth. Thank you, Mr. Chairman.
        Senator McConnell. Senator Bennett.
        Senator Bennett. Thank you, Mr. Chairman.
        Senator Faircloth asked the question I wanted to ask.
        Senator  Faircloth. You can ask it again. [Laughter.]
        Senator Bennett. No; no; you have made your point. It leads
    to the next question, though, dealing with the IMF itself.
        I can accept that no one has a crystal ball that is
    infallible and we can, with hindsight, say well, they have
    missed it. Now we are talking about the IMF playing a very
    significant role in making policy in these countries. They come
    in with a very big stick and they say you do as we tell you or
    we will beat you with our stick.
        The question of the personnel of the IMF, how many and how
    good in the face of this crisis, becomes a question we have to
    ask ourselves.
        I have information--I am not sure that it is correct--that
    the IMF personnel with any degree of expertise in these areas
    is stretched pretty thin over the Asian crisis; that the number
    available for any one particular country of people who really
    know what they are doing is relatively small. Also I hear that
    they are harried and they are driven.
        We speak of the IMF as if it were a monolithic entity
    capable of doing all of these things and producing all of these
    reforms. It's kind of the way we speak of the U.S. military.
        Well, the U.S. military breaks down into commanders and
    divisions, and sometimes we have good commanders and sometimes
    we have bad ones.
        Can any of you speak to this issue of the capability and
    size, the numbers, of the IMF personnel to carry on this
    particular challenge, particularly back to the comments of
    Senator Mikulski, with respect to Indonesia? I mean, we have a
    glowing IMF report about Indonesia, too, about how wonderful it
    is. It was not quite as current as the one in Korea. But that
    is the area where I am most concerned about crony capitalism.
        I have asked the question is any of this money going to go
    to the Lippo Group. Going back to my other incarnation, knowing
    what I now know about the Lippo Group, I get very, very
    concerned about that. Do the IMF people care about these kinds
    of things?
        Can we address this whole general area?
        Mr. Greenspan. Let me start off, Senator, but first with
    the very important stipulation that this new, high tech
    international financial system is qualitatively different from
    what existed before we had this huge proliferation of various
    different types of financial products and extraordinary
    expansion in cross border finance and trade.
        We do not have enough in the way of observation to really
    fully sense that we know exactly how it works--the dynamics of
    it. We are beginning to get a sense, having enough examples and
    seeing what happened in Mexico, Thailand, Indonesia, and Korea.
    We are beginning to learn what the mechanisms are and,
    consequently, to what extent an international organization with
    liquidity, which I presume, Senator, is not browbeating the
    individual nations but is merely saying if you want our help,
    you do X, Y, and Z. I presume there is a voluntary aspect in
    there. Sometimes I grant you that it does not appear that way.
        The major issue is that we are all groping along our way to
    learn as quickly as we can from these experiences, and I think
    the IMF is, also. In other words, the IMF has been functioning
    in a manner to try to understand what is going on, clearly more
    intensively than we who have other things to do as well.
        Are they fully successful? I think not. I think we are not
    fully successful, either. Are we more positive than negative? I
    would say yes to that. I think that the situation is improving,
    our knowledge is improving, the techniques of handling these
    situations are improving. But there is a long way to go, and I
    do suspect that you are probably right that resources are
    stretched thin.
        I don't know of any organization whose resources would not
    be stretched thin confronting this size problem.
        I would like to say to you that everything is in great
    shape, that everyone knows exactly what they are doing, that
    nobody has made any mistakes. That would be false.
        Senator Bennett. That would be false in any organization I
    can think of.
        Mr. Greenspan. It would be false of any organization and
    particularly when confronted with something as difficult to
    handle as this particular problem.
        Senator McConnell. Senator Specter, we are having a 5-
    minute round here because Chairman Greenspan needs to leave.
    You lucked out. It looks to me like you may get the last 5
    minutes.
        Senator Specter. Thank you very much, Mr. Chairman.
        Dr. Greenspan, when you were in the Republican caucus some
    time ago, I had asked you about the U.S. contribution compared
    to our voting shares and you commented that we had an 18-
    percent voting interest and we would be contributing 18 percent
    of the funding.
        Secretary Rubin, although this is not your round of
    questions, I had written to you on February 12 inquiring about
    that and a number of other matters.
        Secretary Rubin. We have responded. I don't know if you got
    the letter yet, but I signed it, I think yesterday.
        Senator Specter. When did you respond?
        Secretary Rubin. When?
        Senator Specter. Yes.
        Secretary Rubin. Senator, it was in the last couple of
    days. I remember signing the letter.
        Senator Specter. Well, the mails are slow, I guess.
        Secretary Rubin. The mails are slow or whatever.
        Senator Specter. Are the contributions being made by others
    proportionate to their shares so that we are contributing 18
    percent, which is our voting interest, and others are carrying
    their proportionate share of the burden?
        Mr. Greenspan. That is my understanding.

                                new arrangements

        Secretary Rubin. I can give you a very quick answer,
    Senator.
        We expect, my recollection is that in the new arrangements
    we will have a 17.5 percent, or thereabouts, voting share, and
    we will be contributing about 21 percent or something like
    that. So it is roughly equivalent.
        The reason for the differential is there is a whole host of
    member countries who cannot afford to contribute funds and who
    yet have a vote. There is a rough correspondence, though not
    exact.
        Senator Specter. Well, there are a lot of dollars between
    17.5 percent and 21 percent. Why isn't it adjusted on the basis
    of what people contribute financially?
        Secretary Rubin. Because the judgment was made when the IMF
    was set up at Bretton Woods 50 years ago that there should be a
    much broader membership than just those who could afford to
    contribute. There are estimated to be about 35 countries who
    can afford to contribute of the 182 members. So, as I say, the
    difference is between--I won't swear to these numbers--but I
    think it is roughly 17.5 and 21 percent, something like that.
        Mr. Greenspan. The crucial issue, Senator, is the fact that
    there are a number of policy questions which come before the
    IMF which require 85 percent majorities. We, therefore, have a
    veto, and the veto would exist whether it were 17 or 20
    percent.
        Senator Specter. We would still have the veto at 17.5
    percent and might have to contribute less money if the
    proportions were identical.
        Mr. Summers. Senator Specter?
        Senator Specter. I only have 5 minutes. But I will let you
    comment on the chairman's time.
        There is an enormous problem, obviously, with markets being
    closed to the United States, the issue of reciprocity, and that
    comes up with a great many of the countries where the IMF is
    helping them.
        Dr. Greenspan, is it realistic to try to use this
    situation, which might be to their benefit economically, to say
    that a condition is that there is reciprocity on markets being
    opened where we are helping to bail out these countries, that
    they should at least open their markets to the extent our
    markets are open to them?
        Mr. Greenspan. Well, I would not even say whether it
    reflects the fact of whether our markets are open to them. It
    is a question of whether it is to their advantage to have open
    markets. I would say one of the important aspects of a full,
    free market system is that the real beneficiaries of open
    markets are those who open their own markets first.
        But in answer to your question, I would prefer to let the
    Secretary answer that specifically because that gets into
    conditionality questions with respect to this legislation.
        Senator Specter. How about the Deputy Secretary.
        Mr. Greenspan. Or the Deputy Secretary.
        Senator Specter. I'll give you some speaking room, Mr.
    Summers.
        Mr. Summers. On the trade question, I think there is no
    question that it is appropriate, as the chairman's reference to
    the Bretton Woods legislation suggested, for the IMF to impose
    conditions directed at broad liberalization because that is
    very much in these countries' interests. It is very much in the
    interests of all the IMF members to avoid, for example, the
    kind of distortion you have seen of, to take two examples, the
    world's semiconductor and the world's chemical markets because
    of subsidized credits in these countries.
        Senator Specter. Could we use this occasion of the bailout
    to have access to their markets one way or another?
        Mr. Summers. The Korean program, for example, involved
    significant reductions in Korean tariffs and also, and I think
    very significantly, involved a commitment by the Korean
    Government which will be monitored closely by the IMF going
    forward to end the practice of subsidized credits. Subsidized
    credits have led Korean firms to get cheap access to capital
    and build very large excess capacity which in steel,
    semiconductors, and a number of other industries has quite
    significantly distorted world markets and put our firms at a
    very substantial competitive disadvantage.
        Senator Specter. But that does not go directly to the issue
    of our having access to their markets. How about that issue
    head-on?

                               tariff reductions

        Mr. Summers. Tariff reductions I think do go directly to
    that, tariff reductions and reductions in quotas. For example,
    in Indonesia there were significant reductions in the quotas
    that were put on a number of agricultural products, which I
    think goes very directly to the question of market access.
        Senator Specter. My yellow light is still on, Mr. Summers.
    Would you care to make a comment about our percentage of voting
    compared to our percentage of contributions?
        Mr. Summers. Thank you. Thank you, Senator Specter.
        I just wanted to make the point that countries can all
    contribute, and they all do contribute their own currencies.
    Some countries' currencies are more suitable to provide a loan
    in than other countries' currencies.
        For example, when we contribute dollars, those dollars can
    then be lent. Other countries, who are not in the kind of
    strong financial position we are, are not able to provide a
    currency which is suitable for lending.
        Senator Specter. Why not? Their currencies, whatever they
    are, have some value, don't they?
        Mr. Summers. Well, in many cases they are not freely
    convertible on international markets or those countries
    themselves are facing a balance of payments crisis.
        Senator McConnell. You need to wrap it up, Secretary
    Summers. We will be coming back on this I am sure.
        Thank you, Senator Specter.
        Thank you, Chairman Greenspan. We appreciate your being
    here.
        Mr. Greenspan. Thank you, Mr. Chairman, Senators.
        Senator McConnell. I think we all know what the real nub of
    the issue is here in the Senate. I am unaware of anyone--there
    may be someone, but I am unaware of anyone--at least on the
    Republican side of the aisle--who is not willing to go along
    with the new arrangements to borrow, which passed the Senate
    last year and was lost in the course of discussions between the
    House and the administration toward the end of the year.
        So, fundamentally, the question is what kind of conditions,
    if any, would the Congress hope the administration could
    deliver as a condition for the $14.5 billion quota.
        Mr. Secretary, it is my understanding that important
    reforms can be implemented at the IMF by a vote of the
    Executive Board of the Board of Governors on a resolution. As
    we have discussed over the last couple of months and as I have
    just said, I believe the Congress expects explicit action like
    this, rather than, once again, sort of bland policy statements
    urging the administration to make its best effort to use the
    voice and vote to change policy.
        The basic question affecting support for the quota is what
    reforms can you support and secure in the IMF and when can you
    get them? In other words, what can you get and when can you get
    it?

                                      imf

        Secretary Rubin. Well, as you and I have discussed, Mr.
    Chairman, I think that there are many reforms that people have
    focused on. I know that transparency, transparency with respect
    to the IMF operations themselves, has gotten a lot of focus. I
    might add that there is a great deal more IMF transparency, I
    think, than most people realize. They have an audited financial
    statement each year of their financial condition. We are now
    encouraging countries to put out their letters of intent. In
    the case of Korea, Thailand, and Indonesia, they all did put
    out their letters of intent.
        I think once a year now, the IMF puts out a statement on
    about 45 countries with respect to their economic conditions.
    These are called PINS.
        With respect to ESAF, the IMF has now agreed to have, and,
    in fact, at the present time does have an outside board
    reviewing their operations. So there has been a lot of progress
    in this area.
        Having said that, we are clearly prepared to support
    additional progress.
        As you may know, the Senate Foreign Relations Committee has
    raised the question of a possible GAO review with respect to
    the IMF and we are in the process of seeing what can be
    arranged in that regard right now.
        I think the question is what mechanisms we can develop to
    try to create measures that meet the various kinds of concerns
    that people have as they talk about conditions. Many of those
    concerns are concerns that we share, and many of those
    objectives are objectives that we share. But at the same time,
    they are practical to get done in a very short, a reasonable
    period of time.
        We have some thoughts on this. We are in the process of
    trying to develop them to see whether they are practical or
    not. Whether it is possible to get Executive Board votes or
    Board of Governors votes in a relatively brief period of time I
    would tend to doubt. The problem with that is that you have to
    work your way through the countries that are members.
        I will tell you, having worked in these international
    organizations, these international fora, is a very time
    consuming process because every country has its own parliament,
    has its own concerns, its own interests, and its own views.
        But, having said that, we are attempting to work with
    members who have expressed these concerns and who are deeply
    involved in these issues in trying to see what we can do to
    provide measures responsive to these concerns in ways that are
    practical in the context of the organization we are dealing
    with.
        Let me add, in fairness I think I should add one more
    thing.
        Michel Camdessus, who is the Managing Director of the IMF,
    is also very much committed, I think, to trying to work with us
    to see what is the maximum that we can do to meet the kinds of
    concerns that have been raised.
        Senator McConnell. Let me make another run at it.
        Section 42 requires you to work with the IMF to establish
    procedures for the public dissemination of information. Do you
    believe either board would support a resolution--and you were
    talking earlier about transparency--to create transparency by
    requiring that a full-disclosure clause be included in all loan
    agreements?
        What is your assessment of the prospects for a resolution
    that would make it a matter of IMF policy not to lend to
    countries in which governments have established trade and
    investment barriers inconsistent with open markets and free
    competition? That is another question. Those are really two
    questions.
        Secretary Rubin. Well, every country has trade
    restrictions. The United States, for example, although we have
    a very open market, and I totally agree with Chairman Greenspan
    that the primary beneficiary of having open markets is the
    country that has the open market. But all countries have trade
    restrictions of one sort or another.
        So I think that, as you framed it, at least, would not be
    answerable.
        Senator McConnell. Well what about the full-disclosure
    clause being required in all loan agreements?
        Secretary Rubin. And that is full disclosure of what?
        Senator McConnell. Of the loan agreement.
        Secretary Rubin. Oh, do you mean disclosure of the letter
    of intent?
        Senator McConnell. Yes; my understanding is that this
    happens now only if the recipient agrees to public disclosure.
    Is that right?
        Secretary Rubin. Yes; and in the case of the three--we are
    in favor of disclosing letters of intent. I think you are going
    to see that become more and more the practice.
        Now what you are asking me is can we get an Executive Board
    or Board of Governors approval within some reasonable period of
    time.
        Larry, do you have a view on that?
        Mr. Summers. I don't know whether it is possible.
        Secretary Rubin. I'll tell you where you might run into
    trouble.
        Senator McConnell. You know, there are a lot of us who
    really would like to help you on this.
        Secretary Rubin. Oh, Mr. Chairman, you are not helping us.
    We all agree the United States has some very substantial
    economic interests at stake here. This is not helping us. I
    think the problem, though, is like anything else. The question
    is what is practical in the context of the organization you are
    dealing with.
        If somebody comes to the United States and says we want you
    to do certain things, they have to deal with the context of the
    realities of our administration, our Congress, and all the
    other ways in which we function. We have exactly the same
    problem with respect to the IMF. What is the most that we can
    accomplish in the context of an organization of 182 member
    countries, each of which has its own parliament, its own
    administration, and all the rest?
        I think you are going to find that we will do everything
    possible to try to accomplish these purposes within those
    limits.
        Larry, do you have anything to add to that?
        Mr. Summers. I think it is the right thing to do. I think
    we have achieved very substantial increases in transparency
    with many of the letters of intent now being published, with
    many countries making available the IMF's annual surveillance
    report with much freer dissemination of IMF views on countries.
        We would support publication of letters of intent. Whether
    it is possible that there is an international consensus on
    that, given that the content of letters of intent in many cases
    goes to questions about executive branch strategies for seeking
    to pass legislation, for example, or subsequent activities of
    central banks, or possible future changes in exchange rate
    regimes, whether we could get a vote in favor of full
    transparency with respect to letters of intent I am not
    entirely certain. I am not certain whether that could happen.
        Senator McConnell. Let me come at it another way.
        What kind of latitude does Mr. Camdessus have? I am just
    thinking that consistency may be the hobgoblin of little minds.
    We have heard that all of our lives. But I think, for example,
    of the approach in Russia.
        Some 2 weeks ago, Yeltsin urged the Duma to pass his budget
    or face suspension of the IMF loans. They did not pass the
    budget. Mr. Camdessus arrived and announced the terms would be
    relaxed and the length of the loan extended by at least a year.
        Some would argue that this might have been a largely
    political decision. But it illustrates what I am trying to get
    at. How much latitude does he have? Could he just unilaterally
    adopt, as a practical matter, an operational matter, the kinds
    of reforms that we are suggesting here? Then that would short-
    circuit this 18 months, 2 years, all of this other elaborate
    procedure that you are suggesting we would have to go through
    in order to--I mean, could he just say that henceforth this is
    the way we are going to operate?

                                     russia

        Secretary Rubin. One of the issues we are exploring, Mr.
    Chairman--I would like, if I may, to have Larry Summers respond
    on Russia because I think it is a very important issue--but one
    of the issues we are exploring is how much the managing
    director can do on his own volition within the context of the
    bylaws and the founding agreement of the IMF. That is an issue
    that we are exploring right now.
        Larry, do you want to respond on Russia?
        Mr. Summers. Mr. Chairman, in Russia, the Russians had not
    met the conditions for the disbursement of a tranche at the end
    of the fourth quarter, and the managing director did not
    indicate that those conditions had been met or authorize a
    disbursement of that tranche.
        That would depend upon a subsequent, thorough review by the
    IMF staff of the situation in Russia which, in turn, would
    require board approval before any action could be taken; nor
    was he able to make any absolute commitment to the Fund because
    that also depends on board approval.
        What he did indicate was, assuming Russia comes back into
    compliance--a judgment he did not make as to whether they had
    come back into compliance or not--he would be prepared to call
    for Russia to be in an IMF program continuing into 1999. He
    didn't indicate that any money that was owed could be deferred
    in its repayment. He only held open the prospect of an IMF
    program being continued into 1999.
        Senator McConnell. So he didn't have the authority to say
    what he said? Or he was misquoted? Or what?
        Mr. Summers. Of course he had the authority to say what he
    said. But I think what he said in each case referenced the
    recommendations he would make to the board, the suggestions he
    would make to the board. But it was all contingent upon board
    approval.
        Senator McConnell. All right. I am about to run out of time
    on this round. But I will get back to this question. Would it
    be possible to get certain kinds of unilateral assurances, Mr.
    Secretary? If so, how enforceable are those if they are from
    the Director himself?
        Secretary Rubin. I understand. I think the answer to the
    question, Mr. Chairman, is, given the enormous influence that
    we have, which we do have, and given the managing director's
    position, and I don't know what the managing director would be
    prepared to do in these areas because he has 182 members--we
    are not the only members and we have about 18 percent of the
    votes, as indicated before--I think we could probably create a
    situation that is not legally binding but that practically has
    a very substantial effect, that is, if the managing director
    felt comfortable--and I don't know whether he would or would
    not because he has a lot of other constituencies to worry
    about--but if he felt comfortable in certain areas--and whether
    this area would be one of them or not, I don't know--if he felt
    comfortable issuing a policy statement.
        Senator McConnell. We need to keep exploring, as you and I
    have been before today, ways in which we might raise the
    comfort level of the Senate----
        Secretary Rubin. Correct.
        Senator McConnell [continuing]. As a precondition for us
    supporting the quota.
        Secretary Rubin. As I say, I have tried to be very careful
    in the way I have responded. We are exploring this and as we
    get greater definition, we will obviously share that with you.
    We will try to get the greatest comfort that we can within the
    practicalities that we have.
        Senator McConnell. The ranking member of the subcommittee
    has arrived.
        I would just say, Senator Leahy, that we are having 10
    minute rounds. You are welcome to do your 10 minutes and then
    we will come back to the Republican side.
        Senator Leahy. Thank you, Mr. Chairman. I appreciate that
    offer. Unfortunately, as often happens, I am in another hearing
    upstairs with members of the computer industry from Microsoft,
    Netscape, and so on.
        I did want to come here to say that I know what the
    Secretary and Mr. Summers are speaking about is primarily the
    IMF. There are a lot of other things, and I will submit my
    questions for the record, from the global environment facility
    to the World Bank's support for family planning and health.
        I have discussed the IMF situation with the Secretary and
    with Mr. Summers. I do feel, with the Asian financial crisis
    threatening to spread to China, Russia, and even this
    hemisphere, these are two people in the government that we need
    to hear from I am sorry I missed Mr. Greenspan.
        The $3.5 billion request for the new arrangements to borrow
    will be in the supplemental. The real question, of course, is
    the IMF quota increase.
        In a perfect world, I would say let's just put it in right
    now. In fact, that is what I would like to see. I think the
    difficulty is going to be what happens with the IMF and people
    there who are seen as being too stuck in their ways, who seem
    to feel what we don't know won't hurt us. I know that the
    Secretary and the Deputy Secretary have been working hard to
    get them to open up.
        I also know that there is a limit to what kind of
    conditionality we can impose on a multilateral institution. But
    I think we are going to have to work a lot closer both in the
    Congress and with the administration to find out what is
    possible--policy directives on the environment, on information
    disclosure, rights of workers, and so on. These are already in
    U.S. law. We have to see how they get adopted by the IMF Board.
        One part of me, I must admit, finds it very easy to say the
    heck with them, we'll hold back the money, just straighten it
    out--to make sure they know we are serious. But I have come to
    the conclusion that is not the responsible way. It would be
    gratifying but it is not the responsible thing to do.
        I would like to see us go with the full amount of money now
    with a very, very strong message about what changes we expect
    to see. I take that position, Mr. Chairman, partly as an ad
    hominem because of my respect for the Secretary and the Deputy
    Secretary, and knowing that they will work hard to get some of
    the changes made.
        I think the IMF is important. I think that we have to have
    the ability to move far more quickly than sometimes we can move
    here with congressional actions in a world where trillions of
    dollars can be literally moved around over a weekend just by
    keystrokes.
        So that is where I am, Mr. Chairman. It is not so much to
    ask questions. I know that you have taken one of the most
    responsible views on these issues of anyone I have worked with
    and I would suggest that perhaps prior to the markup we may
    want to meet together, as we always do anyway, perhaps to
    discuss these issues further with the Secretary.
        That is not a question. [Laughter.]
        Secretary Rubin. I wasn't going to respond to it.
        Senator Leahy. But feel free if you want to say anything.
        Secretary Rubin. Oh, no. Senator, we had a little
    discussion before you came in and Chairman Greenspan was here
    as well. We all feel that there are changes that could be made.
        I happen to think the IMF does a very good job in a very
    difficult situation. And, as Chairman Greenspan said, this is a
    new world. This is a new era. I have been, as you know, in
    investment banking for 26 years. The issues that we are dealing
    with now are not issues that I saw back then. I think they
    actually do a very good job.
        Having said that, these are new issues. This is a
    pioneering world that we are in right now. I think all of us
    can look to areas where we wished, or thought that the IMF
    should perhaps function differently. I think transparency, for
    example, Mr. Chairman, is one place where I think the more the
    better up to the point where it perhaps has its
    disfunctionalities.
        But we will need to work with this committee and with
    others to see what we can accomplish in these areas.
        Senator Leahy. The IMF can try the patience of a saint,
    and, with the exception of the chairman, there are not many
    saints in the Senate. [Laughter.]
        Senator McConnell. Thank you, Senator Leahy. I will
    certainly agree with that observation.
        Secretary Rubin. We will stipulate as to the chairman.
    [Laughter.]
        Senator McConnell. Senator Faircloth.
        Senator  Faircloth. Thank you, Mr. Chairman and also, Mr.
    Secretary, thank you. I have not been, to put it mildly,
    supportive of the IMF. But in no way does that lessen the
    admiration I have for the job you have done and that you do. We
    don't agree on everything, but I have the greatest respect for
    the job that you have done and the position you have.
        Let me ask you this. As has been mentioned here, we all
    have very good hindsight. But in the bailout in Mexico, if we
    had left it alone and allowed the private sector to function,
    which we really did, would it not have worked itself out? No.
    2, right after going into Mexico as quickly as we did, and then
    almost immediately coming with the new arrangements to borrow,
    did that send the wrong signal to the lenders around the world
    that we will, to get with it, boys, we are going to jump in?
        Secretary Rubin. Let me try to answer the questions in the
    order you posed them.
        My view on Mexico, Senator, and reasonable people can
    disagree on this, is I feel very strongly, and I think this is,
    far and away, the predominant view, that Mexico was probably
    days away from default when we announced our support plan with
    the IMF. I think, had we not gotten involved, Mexico almost
    surely would have gone into some form of default, whether
    technical default I am not sure, but some form of default.
        Senator  Faircloth. I'm sorry. What was that?
        Secretary Rubin. That if we had not gotten involved with a
    support plan, I think Mexico almost surely would have gone into
    a default. Whether it would have been technical default or not,
    I don't know, but it would have been at least a de facto
    default. I think, had they done that, not only would they have
    been mired in a far deeper recession for a vastly longer period
    of time than they wound up being involved in, but, as you may
    remember, at the time, the Argentinean markets, the Brazilian
    markets, even markets in central Europe were being affected by
    what was happening in Mexico.
        So I think for a brief period of time there, there was a
    real risk. That is what animated a lot of the work that the
    chairman, that Larry Summers and I did. There was a real risk
    that this could have spread around the globe and had enormous
    impacts on other countries and on us.
        Senator  Faircloth. I think we encouraged more risky
    lending. I have heard the term and words get flipped around,
    but would you tell me what ``moral hazard'' means?
        Secretary Rubin. Sure. Moral hazard is a concern--and it is
    a concern we share. I might add this. Could I just say one
    thing before that, though, on moral hazard?
        I speak to an awful lot of people involved in credit
    markets, investors, and the like, and I have heard the chairman
    say the same thing, but I do not believe what we did in Mexico
    had an effect when creditors and investors decided to function
    in Asia. I do think people over-invested and over-extended
    credit in Asia, but I don't think it was affected by what
    happened in Mexico. I think it was affected by the kinds of
    things that always affect markets when they go to extremes, and
    in my judgment they always do.
        Moral hazard is, basically, the notion that if undesirable
    behavior, one way of looking at it is if undesirable behavior
    is not punished, or, to put it differently, is rewarded, then
    it is likely to repeat itself.
        Senator  Faircloth. I'm sorry. Say that again.
        Secretary Rubin. If creditors lend into a country, as an
    example, and those credits would have gone bad but for, say,
    the help of the IMF, then, because of the help of the IMF and
    the fact the people were made whole on loans that otherwise
    would not otherwise been made whole on, they will be encouraged
    to worry less about risk than they should in the future.

                                asian situation

        Mr. Fisher. All right.
        Secretary Rubin. I don't think in the Asian situation,
    however--as I say, I speak to an awful lot of people and I
    don't believe that what happened in Mexico did influence people
    in Asia. But, having said that, we share the moral hazard
    concern. I think one can feel, if one wants to feel good about
    losses, I think--not I think--there have been huge losses in
    Asia and I think an awful lot of creditors and investors found
    out what it means not to take appropriate cognizance of risk
    when they lend.
        Senator  Faircloth. It's what we used to call cold comfort.
        We have been talking about opening the trade doors. I have
    been hearing it for 50-good odd years, and we have scarcely
    cracked more than one or two.
        The IMF and Mr. Camdessus talk about changing the
    government, the problems that were created by the collusion and
    cronyism between government and the opaqueness of any sort of
    financial institution and our inabilities, and the trade
    problems just simply mount. They go on and on.
        Mr. Camdessus tells us what is going to happen, and if the
    company does not do this, it changes. In Peru, he has changed
    it 17 times; in Russia, 2 or 3 times. If you don't do this--in
    other words, whatever they do, he moves to it.
        Take Suharto. What are his options? You cannot spank him.
    [Laughter.]
        You cannot take his dating privileges away. I mean, what do
    you do if he does not comply? What do we do?
        Secretary Rubin. Leaving aside those two possibilities--
    which I think I will leave to the chairman or others--Indonesia
    is a very complicated situation. I think in South Korea to a
    far greater degree it has been the key country in this whole
    thing. It is the 11th largest country in the world. I will tell
    you that around Christmastime it was very troubling. It really
    was for reasons I said in my remarks.
        Had South Korea gone into default in the private banking
    sector, we might have had a crisis on our hands of a dimension
    far greater than anything we have ever seen. Fortunately, South
    Korea is back on a constructive path and, hopefully, the
    probability of that sort of thing is very low now.
        Indonesia is a very complicated situation. The reason I
    contrast it is in South Korea I think there are a lot of
    reasons to feel good about what is happening. This is not to
    say that there are not a lot of problems ahead, though. But I
    think Indonesia is a very troubling and very complicated
    situation. I do not have great wisdom for you at this moment,
    Senator, about that. We are waiting for Mr. Mondale to come
    back. I have seen his report from his visit, obviously, but we
    have not had a chance to speak to him yet.
        I do think that Deputy Secretary Summers spoke to Under
    Secretary Lipton, who was with Mr. Mondale and he may have
    something to add to this. But the general principle is that the
    IMF provides resources to countries that implement the kinds of
    strong reform programs that the IMF and the rest of us working
    together construct. I think that the IMF is going to have to
    make a very difficult judgment when it comes to the middle of
    March. I do not want to try to foretell what that might be. But
    I think Indonesia is a very difficult situation. But it is one
    that is of great consequence both economically and sort of
    geopolitically, if you will. It is the reason, or it is one of
    the reasons that Secretary Cohen went and briefed the
    Republican House leadership on these issues and testified
    before the House Banking Committee.
        We have enormous stakes there. But having said that, I
    think it is a very difficult and very complicated situation.
        You are very right to raise it as a focus of concern.
        Larry.
        Mr. Summers. Senator Faircloth, I think you do raise the
    critical question of is there really conditionality or does the
    IMF just follow what the countries do.
        My own reading is that there are a number of examples in
    which IMF conditionality has been quite effective.
        Senator  Faircloth. Give them to me.
        Mr. Summers. I will give you a couple. In Russia, at
    several points in the last 4 years the IMF has cut Russia off
    and has said that until they come back on track, there would be
    no further disbursements. There is a great deal of problems
    that remain in Russia. The fact is in a way that looked
    extraordinarily unlikely 3 years ago Russia has now achieved a
    stable currency.
        Senator  Faircloth. Excuse me. You say Russia is safe and
    stable now?
        Mr. Summers. No, Senator.
        Senator  Faircloth. What did you say?
        Mr. Summers. I said that Russia has had a stable currency
    for the last 2 years and I think that is in substantial part
    because of the kick they received from conditionality.
        Senator  Faircloth. One quick question while we are on
    Russia. What would you say the likelihood of a financial
    problem is there--I mean like big time?
        Mr. Summers. Those kinds of questions are awkward to answer
    in this kind of session about any country.
        Senator  Faircloth. All right. But I want to talk to you
    further about that.
        Mr. Summers. Senator Faircloth, may I just make two other
    points very quickly?
        One is that I think the IMF's conditions and the possibly
    of a withdrawal of IMF funds had a great deal to do with a
    rather sharp turn in the direction of Thai policy that took
    place in late October that has brought about a situation with
    the new government in Thailand where Thailand is moving back
    toward making very substantial progress. I think it is also
    important to emphasize, as the Secretary did, that the IMF has
    not made any disbursement to Indonesia since the first
    disbursement that was made at the time the program was agreed
    nearly 4 months ago. And any subsequent disbursement would be
    based on a very careful review.
        There are other examples in Kenya, in Egypt, where you have
    seen countries that have fallen off IMF programs. The IMF has
    recognized that until they, the country, wanted to do what it
    had to do, there was no way in which financial support could be
    useful and that served as an important spur to reform.
        Senator McConnell. Senator Bennett.
        Senator Bennett. Thank you, Mr. Chairman.
        Mr. Rubin, I am sure you have seen the Wall Street Journal
    editorial about you and the rupiah.
        Secretary Rubin. I noticed it.

                                 mexican issue

        Senator Bennett. We have been through this before in the
    Mexican issue. I disagree with my friend from North Carolina
    and agree more with you that the Mexican experience was a
    productive one. It was, for me, a very instructive one.
        As the leader, Senator Dole, for whatever reason, gave me
    the assignment to handle that on his behalf. I found out more
    about tesobonos and pesos than I ever thought I wanted to know.
        I find that this is a similar kind of experience. And yet,
    there are significant differences. I want to outline some of
    both of those to help you understand why I am having some
    trouble going beyond the $3.5 billion that the chairman
    referred to.
        In the difference category, with Mexico we knew who was
    going to get the money. We knew where it was going to go and we
    knew what Mexico was going to do. Mexican officials were here
    often. I remember meetings in Senate Dole's office with the
    Finance Minister, with the Foreign Minister, meetings in
    Speaker Gingrich's office with Mexican officials--not once but
    several times. We could tell them directly how we felt about
    the reforms that had to take place in Mexico before we would
    get involved with American money.
        When I finally recommended to the Speaker and the leader
    that they move ahead in the direction in which we all
    ultimately moved, it was from that basis of direct information,
    not necessarily just to me but to the other participants in the
    meeting--I do not want to imply in any sense that I was alone
    on that. There were members of the House Banking Committee,
    Chairman Leach and others, heavily involved in all of those
    discussions.
        Necessarily in this situation we do not have that. I have
    never met anybody from the Indonesian Government other than
    when Senator Specter and I were with President Suharto down
    there and that was in the period when everything was going
    wonderfully well and they were instructing us as to how we
    should handle our economy.
        I do not have a sense of where the money is going to go. I
    get questions. Secretary Summers, you and I talked about this
    in my office. I get questions from constituents who are saying
    we don't want American money to bail out our competitors. We
    have been facing a tough competitive situation in the
    international market with people who have been State
    subsidized. Now they have gone under and you are going to take
    our tax money and spend it to put our competitors back on their
    feet. We absolutely are not going to stand for that.
        That is a simplified and perhaps erroneous view, but it is
    certainly out there because we don't know where the money is
    going to go.
        I have raised the question here: Is the Lippo Group going
    to get any of this money? This comes out of my experience in
    the Governmental Affairs Committee of who the Lippo Group is
    and what they do.
        So the thing of concern about the IMF in this situation, as
    with respect to the Mexican situation, is that they stand
    almost as a shield between American policymakers and the people
    who are going to get the money whereas in Mexico that was not
    the case. There was no shield. The IMF was off to the side. We
    were dealing directly with the Mexicans and we knew exactly
    what we were getting when we took the steps that we took.
        So until that greater sense of comfort that we really know
    what is going on and that it is not being filtered through a
    shield can take place, you are going to have problems up here
    with the request.
        Now, over on the side of similarities, the reference that
    you made, Secretary Summers, to Senator Faircloth about Russia
    and the stable currency there is the best touchpoint to talk
    about similarities.
        One thing that I was very, very insistent on in the Mexican
    situation--and you will recall all of the telephone
    conversations we had about this plus some face to face
    meetings--was that the Mexicans focus on a stable currency;
    that the Mexican Central Bank should do whatever they could to
    see to it that there was a stable currency. That comes back to
    the Wall Street Journal piece, Mr. Secretary. They are in favor
    of a Currency Board. I am perfectly willing to suggest that the
    Currency Board may not be the best way to get a stable currency
    and give you the benefit of the doubt that there are other ways
    to do that.
        But I think the issue of saying that we have to fix the
    money at the same time as we concentrate on fixing the banking
    system is an issue we have to address. If the Currency Board is
    not the way to do it--and it was not in Mexico; we used the
    Central Bank and our power to get at them directly to make that
    point--it is, nonetheless, for me an overriding factor here.
        My experience with the IMF is that they are not as
    dedicated to a stable currency as certainly I am. They didn't
    seem to be in Mexico, but it didn't matter in Mexico because we
    were able to make our points directly.
        They do not seem to be here. They seem to put the stable
    currency far down the list of things that they are after. They
    pay lip service to it, but they have a bunch of other things
    that they want first.
        With that background of the differences and the
    similarities, can you give an old Mexican warrior a little bit
    of comfort as to where we are going here because at the moment,
    I do not have it?
        Secretary Rubin. Let me, if I may, Senator, take a first
    shot at this. Then, if I could, I would ask Deputy Secretary
    Summers to do the same.
        There are differences and similarities, as you say, and we
    have been struck a little bit by the same thing. We are dealing
    now with a number of countries, not just one country. We are
    dealing even beyond the numbers that are involved in the crisis
    because we have been very concerned about the possibility of
    contagion, about the possibility of this becoming a worldwide
    problem. So we actually have been focused on and involved with
    the countries way beyond the ones that are just involved here.
        I do not think, though--at least I will speak for myself--I
    do not feel as if we are shielded by the IMF. We at Treasury
    and the people at the Federal Reserve Board as well have a
    constant interaction with the troubled countries, certainly
    with South Korea and Thailand, though to a somewhat lesser
    extent with Indonesia, but with South Korea and Thailand.
        I spoke to the Finance Minister of Thailand at 9 o'clock
    last night our time. So I would say that we have a great deal
    of interaction and also have a great deal of impact on the IMF,
    although they have many other members and we are only one, as I
    mentioned before.
        In terms of where the money goes and all the rest, I
    think----
        Senator Bennett. Let's focus on Indonesia because that is
    one I am very concerned about.
        Secretary Rubin. It is worth both focusing on but also
    distinguishing Indonesia.
        We are very troubled about Indonesia as well, Senator. I
    would say that with South Korea and Thailand, at least in our
    view, you have governments--and it so happens in both cases new
    governments--that, in our judgment, are very carefully focused
    on the structural issues, on the crony capitalism, on a lot of
    the issues that have created the subsidized trade problems that
    you are worried about.
        On Indonesia, I think we have a very complicated situation.
    As I say, I would like to wait for Mr. Mondale to come back to
    have a more fully developed view. But as Larry Summers said,
    the IMF has not disbursed to them since, I guess it was early
    November. I think on the money, so far you can feel
    comfortable.
        My recollection--you can check me, but I think I am right
    on this--is that we disbursed, the IMF disbursed a little over
    $3 billion and Indonesia spent well over $5 billion on
    interventions. So they spent more than was disbursed. In fact,
    I remember you and I discussed this before. They spent far more
    than was disbursed.
        Money is fungible. But I would say that in excess of what
    has been disbursed has been used on intervention.

                                  central bank

        The money does go to the Central Bank. Then it is supposed
    to be used from the Central Bank in ways that are consistent
    with the IMF program.
        I think with Korea and Thailand, although we do not have
    the constant interaction there that we had with the Mexican
    Government, the IMF has resident people certainly in South
    Korea and I think they have them in both countries. We have a
    lot of contact with both the officials of the countries and the
    IMF.
        In terms of stability of currency, you have an interesting
    thing here. We are very focused on stability of currency and I
    think it would be fair to say that the IMF is very focused. The
    idea, the notion is that as long as these countries are
    suffering financial instability, the currencies are going to
    continue to depreciate and that affects us around the world. It
    is very bad for them and it is very bad for us. So if we could
    reestablish financial stability, we could reestablish stable
    currencies, and you can see that the baht and some of these
    other currencies have come back a fair bit.
        There is a conflict, though, in this Congress between the
    kinds of monetary policy that we believe in and that you need
    if you are going to provide support to the currency and the
    criticism that these are austerity programs. I do not believe
    they are austerity programs. I think they are structural
    programs. But they are very much focused on reestablishing
    financial stability, and, by reestablishing financial
    stability, establishing stable currencies and having associated
    with them a disciplined monetary and fiscal regime.
        Is there time, Mr. Chairman, for Deputy Secretary Summers
    to respond as well?
        Senator McConnell. Yes; go ahead.
        Mr. Summers. Thank you. Thank you very much.
        Senator Bennett, let me focus on the situation in
    Indonesia.
        The first keystone Secretary Rubin laid down with respect
    to our policy with respect to all of these countries is we
    cannot want them to reform their economies more than they want
    to reform their economies, and support cannot flow unless they
    are doing the right things.
        Obviously, since we were putting up a large part of the
    money in the Mexican thing, the situation was different than it
    is in Indonesia. But, as I speak to you, there are a number of
    people from the Treasury who are in Indonesia right now who
    have been there speaking with Indonesian economic officials and
    reporting back to us with great frequency.
        My children have been awakened often enough at 1 a.m., to
    provide testament to the fact that we do speak very frequently
    with senior Indonesian economic officials and that takes place
    at all levels within our Government.
        I do not think there is any disagreement on the question of
    a stable currency just as in Mexico. There is no possible
    success in Indonesia without a stable currency.
        But what I think is also true, is that, in order to achieve
    a stable currency, it is necessary to credibly attack some of
    the problems of crony capitalism that Senator Faircloth
    referred to in his question.
        So, as we speak about the approach, the approach is an
    approach that has a number of elements. But the other elements
    can all be thought of as necessary preconditions for achieving
    a currency that is stable in the same sense that currency
    stability was achieved in Mexico.
        But what is ultimately decisive and what we are watching
    for very carefully, and what will determine our response is the
    kind of policy commitment there is to doing the things that are
    necessary to make a stable currency possible. At a certain
    stage, that commitment became very clear in Mexico. It was on
    the basis of that commitment that we were in a position to
    provide support.
        There were periods when that commitment was not there,
    frankly, at the very beginning in Mexico. But when that
    commitment was there and when we could monitor it, that is when
    support was able to flow.
        There has not been, as I mentioned, a flow of support since
    November and what will happen going forward depends on what
    happens in Indonesia.
        Senator McConnell. Let me, if I may, just pick right up on
    where we are.
        It is my understanding that $3 billion is scheduled for
    release March 15. What criteria are you looking to be met, or
    is IMF looking to be met? Even though there has been no
    disbursement since November, there is supposed to be one next
    week. So, the question is, ``What are you looking for? What is
    IMF looking for? What do you expect to hear from Vice President
    Mondale that is going to make you comfortable about releasing
    this $3 billion next week?''

                                budget policies

        Mr. Summers. The IMF will review compliance with the
    program. That will include at least four areas, Mr. Chairman.
    First, it will include compliance with certain key provisions
    having to do with structural policy, monopolies of various
    kinds, where there was a commitment that those monopolies would
    be broken up.
        Second is budget policies. A number of indications
    suggested that, for example, certain off-budget funds were
    being used in ways that were hidden and were not part of the
    budget. They will be looking for clear evidence that all of
    those funds have been fully accounted for.
        Senator McConnell. Could I interrupt you?
        What I suspect will happen is that, having raised the straw
    man of the Currency Board, Suharto just gives up on the
    Currency Board and IMF says gee, that's great, and just goes
    ahead.
        What do you think is the likelihood of that?
        Mr. Summers. It will not go ahead with American support,
    support of the American executive branch, unless it is possible
    to demonstrate much more than that the Currency Board is not
    there, but that it is also possible to demonstrate a
    satisfactory position with respect to the issues that I was
    outlining--monopolies, subsidies, monetary policies and
    approach to the financial system. Appropriate progress in those
    things would be prerequisite for our support.
        This is not different in Indonesia, by the way, than in
    other countries where the IMF completes a review. It has to
    make a report on the progress under the program and that forms
    the basis for judgments about what will happen.
        Senator McConnell. So the release of funds is not going to
    be in any way connected to the Currency Board decision?
        Secretary Rubin. Let me just comment. Maybe this is adding
    too much or repeating. I am not sure which.
        The Currency Board issue is one issue. That is here. Then
    there are the criteria which the Deputy Secretary outlined and
    the IMF is going to make a very difficult judgment.
        Mr. Mondale's coming back is yet a third factor. But he is
    not going to be able to give us, I don't think--well, we will
    see what he says when he comes back. I just saw a cable this
    morning. But, basically, it is the IMF that is going to have to
    try to make a judgment on what is going on there.
        It is an interesting problem, Mr. Chairman. The IMF faces a
    very difficult issue. On the one hand, it seems to me that you
    do have to have compliance with their conditions if they are
    going to release. On the other hand, I don't think any of us
    should have illusions about the seriousness of this decision
    because Indonesia is in a very difficult situation and there
    are all sorts of very serious consequences that can come from
    that situation.
        So this is a very complex situation, a very great moment in
    terms of its possible consequences. But, having said that, I
    will go back to what I said before. The Currency Board is one
    issue and then the criteria they need to meet is a separate
    issue.
        Had they done the Currency Board on their own--this was not
    a U.S. situation. Theo Waigel, the Finance Minister of West
    Germany, now Germany, said that that was not something they
    should do and many other countries have similar views.
        Senator Bennett. Mr. Chairman?
        Senator McConnell. Yes, Senator Bennett.
        Senator Bennett. I have just one summary point here.
        The Currency Board to me is not the issue because the
    Currency Board is simply a means to an end. I am perfectly
    willing to reach that end by some other means. But I do not
    want us to lose sight of the end, which is fix the currency.
        I think you have to fix the currency now. I don't think you
    can wait for a stable currency being a by-product of other
    things because, if you don't fix the currency, the riots, the
    killings that occurred the last time the currency went crazy,
    will happen again.
        I made this point to the Mexican minister who said: ``Oh,
    with our devaluation, we are now more competitive in the
    world.'' I said you have never run a business because when your
    employees cannot pay their bills, they come home to wives who
    are upset because they are going to lose their homes because
    they cannot pay their mortgages. The middle class is wiped out
    because the money is worthless. Such workers are not
    automatically more productive.
        That is the human toll here if we don't get the currency
    stable. That is the only point I want to make. Forget whether
    it is a Currency Board or anything else. A stable currency is
    the end that we should be focusing on as one of our major,
    first, up-front kind of challenges in Indonesia.
        I hope you tell the IMF that.
        Secretary Rubin. Senator, we agree with that. I still think
    Indonesia is a very special case because of all the problems.
    But it is worth talking about. I know we have had this
    discussion many times in the Mexican context and others.
        There are only two ways--no, three ways--to try to create a
    stable currency. I think there are three. Maybe there are
    others, but three come to my mind, forgetting the Currency
    Board for a moment. One is to reestablish financial stability.
    Another is to intervene, but I, at least, think that has its
    limits because the global market is going to overwhelm your
    intervention. The third is to have very tight money and
    extremely high interest rates.
        As you know, we were very strong proponents in the Mexican
    context of high interest rates. But as you also remember, there
    was always the threat that if you had them too high for too
    long, they could overwhelm the economy.
        So, we agree with your purpose. But these are very
    complicated balances we all have to make.
        Senator Bennett. I just wanted to make the point one more
    time.
        Senator McConnell. Secretary Summers mentioned four things:
    structural, budgetary, monetary, and financial. They are not
    anywhere near in compliance on any of these yet, right? Are
    they on any of the four?
        Mr. Summers. I would not, until the IMF team has completed
    its review, want to pass judgment on this. I don't think it
    would be appropriate for me to pass judgment on where they are
    with respect to each of those issues.
        Certainly there have been a number of troubling reports and
    we are concerned about the situation.
        Senator McConnell. And so, what you are saying, I gather,
    is that you do not expect this $3 billion release to go forward
    unless all four of these are met? In a week?
        Mr. Summers. I think, Mr. Chairman, what I said was that,
    unless there was adequate progress with respect to each of
    those----
        Senator McConnell. Is that one of them, two of them, three
    of them? How many?
        Mr. Summers [continuing]. Adequate progress with respect to
    each of, within each of the four areas. I could not imagine a
    program going forward with a totally unsuitable structural
    policy, or a totally unsuitable banking policy.
        Senator McConnell. So a little bit of progress in each of
    the four categories?
        Mr. Summers. Adequate progress.
        Secretary Rubin. Mr. Chairman, let me say that I think the
    IMF is going to have to make a judgment as to what constitutes
    adequate progress with respect to the totality and each
    individually. That is the what they are working, will be doing
    between now and March 15.
        Senator McConnell. That gets back to the point we were
    discussing earlier about the latitude of the Director. He seems
    to have been rather flexible, shall we say, in Russia.
        Secretary Rubin. Well, no.
        Senator McConnell. And should we anticipate the same degree
    of flexibility here?
        Secretary Rubin. First, as Deputy Secretary Summers said,
    in a number of instances he actually has discontinued a program
    in Russia and I think with good effect.
        Mr. Summers. He did not disburse a penny on his recent trip
    to Russia, Mr. Chairman.
        Secretary Rubin. I think in this situation, Mr. Chairman,
    he is facing an extremely difficult judgment. We all remember
    the circumstances in the history of Indonesia that have
    occurred. I think that he just has a very difficult set of
    judgments to make and that is what he has to do.
        Senator McConnell. At the risk of being redundant, then, if
    he has that kind of latitude, we may be looking forward to
    having a number of our requirements for passing the quota
    addressed by the Director himself. Is that something we are
    going to explore?
        Secretary Rubin. I think, as you suggested, and as----
        Senator McConnell. He seems to have a good deal more power
    here.
        Secretary Rubin. Well, let me respond in two respects.
        First, I think that, as you and I discussed yesterday, we
    have to discuss this with the managing director because he has
    a lot of other members, as I said before. But I think one
    possibility is to work with him in terms of policy statements
    he would be prepared to make.
        Second, we have enormous influence at the IMF, Mr.
    Chairman, and I think it would be fair to say that we and a
    number of other countries, who are the principal providers of
    resource, will express some views on these subjects.
        Mr. Summers. Mr. Chairman, may I be clear on one point?
        Senator McConnell. Yes.
        Mr. Summers. Any recommendation that the managing director
    would make with respect to completion of a review or financial
    support to any country would, to be operative, require approval
    by the Board. He has no capacity to make a unilateral
    commitment on his own of financial resources. Any such
    commitment, or any judgment about a review, or any waiver of a
    condition, all of that requires the approval of the Board.
        Senator McConnell. I want to switch to one other country
    very quickly and Senator Faircloth and Senator Bennett are
    still here.
        Senator  Faircloth. That's all right. I'm in no hurry.
        Senator McConnell. I want to just switch to Burma for 1
    minute. This has probably not been on your radar screen lately.
    It is not on anybody's radar screen except it is an outrageous
    military junta that exploits its own people and nobody seems to
    care.
        This week, Japan announced plans to restore bilateral aid
    to Burma. I am concerned about bank assistance to the junta in
    Rangoon.
        I see blank faces back there, so I am not sure anybody has
    been following this.
        Mr. Summers. Not only is it not on our radar screen, it is
    not in our briefing book.
        Senator McConnell. Oh, then you are in deep trouble.
    [Laughter.]
        Well, let me just tell you the question I want to ask and
    you all can get me an answer when you can.
        We have just been spending an enormous amount of time
    talking about the struggling economies in Asia. Aung San Suu
    Kyi, who some of you may remember is the Nobel Prize winning
    duly elected leader of Burma who was cooling her heels in jail
    for 6 years, is more adamant than ever that now is not the time
    to relax pressure on the regime in Burma. What I am seeking--
    and you don't have to answer this today since it is not in the
    briefing book, as you indicated--is your commitment to sustain
    the multilateral ban that has been in existence on bank loans
    to the junta in Rangoon.
        If you would take a look at that, I would appreciate it.
        Senator Faircloth.
        Senator Faircloth. Thank you, Mr. Chairman. I will be very
    brief.
        As we so often do, I have more of a statement than a
    question.
        We have been talking about Mr. Camdessus and I have looked
    at what the IMF and particularly under him how it has wavered
    and vacillated around the world. I somewhat feel that to
    compare him and Suharto is like putting a boa constrictor and a
    rabbit in a battle. I think we are going to wind up with
    Suharto coming right back to where we are. He will make some
    little minor change. He is going to get the money and will move
    on.
        That has somewhat been the history of many, many IMF
    bailouts around the world. I read of 30 or 40 of them where
    they get the money and then do not make the change. I think
    that is exactly what we are looking at in Indonesia.
        I don't think there is any reason for us to think it is
    going to be different. That is the problem that you are having,
    that the IMF or whatever is having, the money. It is that we
    don't have confidence in the IMF.
        Now I saw that they had the French at the G-7 meeting.
        Mr. Dominic Strauss-Kahn said, and the Japanese are saying
    the same thing, that we need to increase international
    regulations of cross border bank lending and slow the flow of
    capital into developing countries until they have the financial
    and regulatory structure to handle it.
        Now what we have done is flowed the money in and hoped that
    the financial and regulatory structure would be put in place to
    handle it. Almost without exception, it has not. Some 40
    countries that IMF has loaned to, roughly one-half of the
    countries, are in worse shape, in worse debt, than they were
    when they started.
        Now the French Finance Minister says that: ``It is our
    responsibility to invent a new system for international
    regulations.'' Strauss-Kahn wrote that in a letter to the other
    ministers that provided a framework for the discussion.
        As long as we keep sending the money first, the reforms are
    not going to happen.
        Secretary Rubin. Senator, his comments with respect to the
    money were not flows of IMF money. What he was saying was--and
    this, I think, is an issue that needs to be very carefully
    discussed and analyzed; I am not sure what we think about it,
    frankly--his view was that there are vast flows in the global
    financial markets--which is true--which are going into
    developing countries that have immature financial sectors. What
    the IMF has been doing is focusing on trying to make those
    financial sectors better and stronger so that they can absorb
    these flows of capital.
        What he was saying, and I think someone else said it as
    well--it may have been the Japanese; I don't remember--was that
    it may be that we need to have some kind of restraints on these
    flows of private sector capital until these systems become
    strong enough to absorb them.
        We happen to be great believers in freedom of flows of
    capital. So we have, I would say, a rebuttal presumption
    against that. But, nevertheless, we are not opposed to it
    dispositively. We have to analyze it.
        In terms of his comment with respect to the financial
    structure and architecture and so forth, we are all--Chairman
    Greenspan, Secretary Summers, and myself--all of us are
    convinced that there have to be major steps forward. That is
    not going to happen quickly. These are enormously complex
    issues.
        We are spending a tremendous amount of time on it and so is
    the Fed, so is the group of countries called the G-10. We have
    a meeting of finance ministers here sometime in the spring to
    attempt to carry this forward.
        There is a tremendous focus on this and a tremendous energy
    around it around the world.
        Senator  Faircloth. Mr. Secretary, I understand exactly
    what you are saying. I know what you are saying. But the
    Congress needs to hold the money until it is done. If we do
    not, it will never be done.
        We talk about it. We have been talking about better, you
    know, access to foreign markets. A little here, a little there,
    but it's all very little. What we are saying here is--and the
    same thing the IMF to the countries--is give us the money and
    then we'll reform. The IMF says to this country give us the
    money and we are going to change the rules.
        But once the money is gone, the countries go back to where
    they were, and once we send the money to the IMF, it changes
    nothing, just maybe something cosmetic.
        That is the reason I am not for sending the money until
    reforms are in place--at least a structure for them to be in
    place so we know where we are going.
        Thank you.
        Senator McConnell. Thank you, Senator Faircloth.
        Secretary Rubin has already stayed a good deal beyond where
    he indicated he was going to earlier.
        Senator Bennett, do you have any sort of closing thoughts?
    Then we will let the Secretary go.
        Senator Bennett. I have made my points, none of which will
    surprise the Secretary.
        Thank you.
        Senator McConnell. Mr. Secretary, we would like to figure
    out a way to help you, and I think you now know what we are
    looking for.
        We thank you very much for coming up here and you, too,
    Secretary Summers.
        Thank you very much.

                              subcommittee recess

        The subcommittee will stand in recess until 3:30 p.m., on
    Tuesday March 31, when we will hear from Hon. Strobe Talbott,
    Deputy Secretary of State and Hon. Stuart Eizenstat, Under
    Secretary For Economic, Business, and Agricultural Affairs.
        [Whereupon, at 12:35 p.m., Tuesday, March 3, the
    subcommittee was recessed, to reconvene at 3:30 p.m., Tuesday,
    March 31.]

          FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS
                      APPROPRIATIONS FOR FISCAL YEAR 1999

                                  ----------

                            TUESDAY, MARCH 31, 1998

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 3:30 p.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Mitch McConnell (chairman)
    presiding.
        Present: Senators McConnell, Gregg, Campbell, and Leahy.

                              DEPARTMENT OF STATE

             Caucasus and Caspian: Economic and Political Security

    STATEMENTS OF:
            HON. STROBE TALBOTT, DEPUTY SECRETARY OF STATE
            HON. STUART EIZENSTAT, UNDER SECRETARY FOR ECONOMIC, BUSINESS,
                AND AGRICULTURAL AFFAIRS

                  opening remarks of senator mitch mc connell

        Senator McConnell. Good afternoon everyone. I want to thank
    Secretary Talbott and Ambassador Eizenstat for accommodating a
    problem we had this morning and for rescheduling to the
    afternoon. Welcome to you both.
        Mr. Talbott, as cochair of the Minsk Group, I thought it
    would be helpful to the subcommittee to hear your view on the
    status of that effort as well as gain your sense of regional
    stability, particularly in light of the recent Armenian and
    Ukrainian elections--actually, you may be able to give us an
    update on those--the assassination attempt on President
    Shevardnadze, and the dramatic shakeup of the Russian
    Government. In short, lots has been happening in your area of
    responsibility.
        There is an old saying that the more things change, the
    more they stay the same.
        When you appeared before the committee in 1995 to offer the
    Department's perspective on the New Independent States, NATO
    expansion was center stage and the disaster in Chechnya was
    causing considerable unease throughout the Caucasus, the
    Kremlin had just experienced a personnel shakeup, leaving
    doubts about the fate of reformers and reforms, the head of the
    Russian Security Services was arguing against foreign ownership
    or access to oil pipelines, and George Soros was accused of
    being a spy.
        Here we are, 3 years later, and the debate over NATO
    expansion is on the Senate's agenda shortly. There is quiet,
    but not peace, in the Caucasus. We have just witnessed an even
    more dramatic shakeup at the Kremlin, and the question of
    pipeline routes, ownership, and access is the issue of the day.
        I guess we can take comfort that Mr. Soros' status has
    changed.
        Russia's role, for better or for worse, continues to
    dominate regional developments. Each leader in the area with
    whom I talk attached great significance to President Yeltsin's
    statement, issued in the wake of Ter-Petrossian's resignation.
    He said:

        New leaders will walk on to the scene which everyone must
    take into account. They may be tough, but everyone understands
    that they must deal with and maintain friendly relations with
    Russia. Armenia is in the field of Russia's strategic interest.
    It is an orthodox State and we cannot and will not lose it.

        That is a quote from President Yeltsin.
        I am not sure Georgia, Ukraine, Armenia, or any other
    nation believes that they should be cast as Russia's to lose.
    To the extent that this attitude plays out in the Minsk
    process, I question the possibility of ever achieving a
    permanent and peaceful settlement between Armenia and
    Azerbaijan.
        With the elections behind Yerevan, there is obviously a new
    opportunity to settle issues surrounding the conflict. However,
    it is my sense that a settlement and stability may not serve
    Russian interests of maintaining exclusive control over
    pipeline transportation of Caspian oil.
        Uncertainty over Nagorno-Karabakh yields to Russian
    interests and dominance, but it is a formula that also holds
    true in Georgia. Although the assassins in the most recent
    attempt on President Shevardnadze's life claimed allegiance to
    his old rival, I understand they carried Russian passports and
    those who managed to escape, fled to a Russian base.
        As we all know, the criminal guilty of the last attempt on
    his life continues to live in Russia free from the fear of
    extradition.
        As energy fields are developed and transportation routes
    negotiated, regional politics are bound to become more complex.
    It is important for us to understand how you define United
    States interests separate and apart from Russian ambitions.
        There is one other problem I want to address before turning
    to your comments. The most troubling issue, which has
    implications far beyond the region, is Iran's aggressive plans
    to acquire a nuclear weapons capability. It took enormous
    courage for President Kuchma to withstand the considerable
    pressure from Moscow to provide a turbine for the Iranian
    reactor, especially in view of the employment impact on the
    factory which lost its business.
        Unfortunately, the Russian-Iranian relationship has
    expanded substantially over the past several years. Press
    reports suggest Iran may be able to conduct test flights on a
    missile launcher later this year, thanks to extensive
    cooperation between Russian and Iranian nuclear engineers as
    well as the transfer of equipment and technology.
        This program directly undermines American security
    interests. While Ambassador Wisner succeeded in focusing
    Moscow's attention on this problem, real, permanent results are
    slim.
        It strikes me that the Gazprom/Total/Petronas investment in
    Iran only serves to finance this lethal effort, which is
    precisely why the sanctions legislation was passed. This is one
    of several areas in which I hope you may be able to clarify the
    administration's position.
        We have a great deal of ground we want to cover here this
    afternoon. So why don't we go to your statement, Mr. Talbott
    and to yours as well, Mr. Eizenstat, if you have one.

                    summary statement of hon. strobe talbott

        Mr. Talbott. Thank you, Mr. Chairman. I hope it is in the
    spirit of this event for me to begin by congratulating you for
    the second time today on a great occurrence for the State of
    Kentucky last night.
        Senator McConnell. Yes; it was a marvelous ballgame. It is
    getting to be something we are used to every year, being No. 1.
    I can't wait till next year. [Laughter.]
        Mr. Talbott. Some of my colleagues will be distressed to
    hear that. [Laughter.]
        Mr. Chairman, I truly do welcome the opportunity to meet
    with you and any of your colleagues who can be present this
    afternoon for a chance to talk about the administration's
    strategy toward the Caucasus and the Caspian Basin. I am
    joined, as you have already noted, by my friend and colleague,
    Stu Eizenstat, and in my opening statement, which will be, by
    the way, an abbreviation of what I am submitting for the
    record, I will focus on the American determination to help
    bring peace to the South Caucasus and then Secretary Eizenstat
    will address American efforts to insure that the vast energy
    resources of the Caspian Basin are developed and transported in
    a way that conforms with U.S. strategic and commercial
    interests.

                           introduction of Associates

        Let me also, if I may, introduce two other colleagues who
    are here today: Lynn Pascoe, who is the special negotiator for
    Nagorno-Karabakh and regional conflicts in the New Independent
    States, and Bill Taylor, Deputy Coordinator for U.S. Assistance
    to the NIS. They are available to answer in detail any
    questions that you, Senator Campbell, and any of your other
    colleagues may have about our diplomatic and assistance
    efforts.
        In our view, the South Caucasus, by which I mean the area
    covered by Armenia, Georgia, and Azerbaijan, has the potential
    to become one of the real success stories of the next century.
    As you know, Mr. Chairman, from your own visit to the area last
    year--and we talked about it immediately after your return--
    these countries are blessed with both human and natural
    resources. However, history has not been so kind.
        While the people of the region have gained, or in some
    cases regained, their freedom, they are struggling against what
    might be called the opportunity cost of a lost century--that
    is, the inadequacy of the social, political, and economic
    institutions that they inherited and the difficulty of building
    new ones that will allow them to develop as modern states.
        Seeing that the ranking member has joined the subcommittee,
    Mr. Chairman, I had complimented the chairman, Senator Leahy,
    on an event last night and I congratulate you on a great
    birthday for your State today.
        Senator Leahy. Now that I have reached the ripe old age of
    58, Mr. Secretary, I want to be reminded of past birthdays not
    current ones. But thank you, though. [Laughter.]
        Mr. Talbott. The chairman has asked me to look to the
    future, but I will certainly pay obeisance to the past, as
    well.
        The United States has made it a priority to help these
    three countries--Armenia, Azerbaijan, and Georgia--overcome the
    burdens that I just described. Our assistance programs support
    democratic institution building, economic reforms, and numerous
    programs that are aimed at strengthening the rule of law and
    civil society.
        It is against that backdrop that, with the leadership of
    Stu Eizenstat and also the extensive work and participation of
    the Departments of Commerce and Energy, the United States is
    promoting an East-West Eurasian Transportation Corridor for the
    export of Caspian energy resources.
        Azerbaijan, a Caspian littoral State, will profit from
    development of its oil reserves. Georgia and Armenia, even
    though they are not, as the journalistic cliche would have it,
    ``oil rich,'' do stand to benefit from being part of a robust
    economic hub fueled by the petroleum of their neighbors.
        But none of those objectives stands a chance if the people
    of the Caucasus are living and, too often, dying in a state of
    hostility. That is why our efforts on behalf of regional peace
    are so essential.
        Let me concentrate on the enterprise to which we have
    devoted the most energy, Nagorno-Karabakh. This is not just a
    dangerous and potentially contagious conflict in its own right.
    It is also emblematic of one of the most vexing challenges of
    the post-cold-war world. From Slovenia, on the border of Italy,
    to Kyrgyzstan on the border of China, the 1990's have seen the
    eruption of ethnic and religious animosities that had been
    mostly dormant during the ice age of Communist rule.
        Another manifestation of this threat to international peace
    requires the presence today of approximately 8,000 American
    troops helping to keep the peace in Bosnia and another threat
    still imperils Europe anew in Kosovo.
        We have been involved in the quest for a negotiated
    settlement to the Nagorno-Karabakh conflict since 1992. Today,
    the United States is working with France and Russia, under the
    auspices of the Organization for Security and Cooperation in
    Europe to help the parties negotiate a settlement.
        I serve as the American cochair of the so-called Minsk
    Conference and I rely heavily on Ambassador Pascoe, who works
    full-time on this immensely thorny and important problem.
        He and his Russian and French partners worked especially
    hard last summer and fall to develop a sound and promising
    approach that concentrated on the security aspects of ending
    the armed conflict in the first place with talks on status
    issues to follow.
        President Aliyev of Azerbaijan and then President Ter-
    Petrossian of Armenia agreed to this approach. But the Nagorno-
    Karabakh authorities refused to participate in negotiations on
    the basis of this proposal.
        The resignation of President Ter-Petrossian on February 3
    and the Armenian presidential elections, the second round of
    which were held yesterday, have forced a pause in the peace
    process. But a pause does not mean a halt. We are not giving
    up. We owe it to ourselves and to the parties to persist.
        We have made clear that we hope and expect the new Armenian
    Government to take a serious approach to negotiations aimed at
    achieving real progress toward a lasting, fair settlement.
        We are also actively engaged in the quest for a solution to
    another nearby dispute, and that is the one in Georgia--the
    simmering on again/off again conflict in Abkhazia. The effort
    is under the auspices of the United Nations and Ambassador
    Pascoe is hard at work on this project as well.
        Mr. Chairman, Senators, I would like to stress that our
    assistance programs are an important component of our diplomacy
    in the Caucasus. The $12.5 million earmarked by Congress for
    the victims of the Nagorno-Karabakh conflict and the $5 million
    appropriated for the relief of victims of the Abkhazia conflict
    are both welcome and useful.
        United States assistance also contributed to the monitoring
    of yesterday's elections in Armenia. There is, however, one
    congressionally imposed obstacle to our diplomacy and that is
    section 907 of the Freedom Support Act, which prohibits certain
    assistance to the Government of Azerbaijan.
        I would only reiterate Secretary Albright's urging before
    the Foreign Relations Committee on February 10 to lift legal
    restrictions on nonmilitary assistance to Azerbaijan while
    maintaining support for aid to Armenia. But I would also say
    that, thanks to the further loosening of 907 restrictions
    contained in the fiscal year 1998 Foreign Operations
    Appropriations legislation, we will have the means to work with
    the Azerbaijanis to make sure that this fall's presidential
    elections are as free and fair as possible.
        Let me now turn to the question that you stressed in your
    opening comments, Mr. Chairman, about other States that have an
    active interest in the region.
        We believe that the zero-sum rivalries among large powers
    trying to impose their will on smaller States are or at least
    should be a relic of history. There is more than enough wealth
    and economic opportunity in the Caspian Basin to go around if
    all the States of the region, large and small, cooperate in an
    open, mutually beneficial and mutually respectful manner, and
    if they play by today's rules of international life. That
    principle applies particularly to Russia.
        We believe it is in everyone's interest for Russia to build
    strong relations with its neighbors so long as those relations
    are founded on respect for the rights, the sovereignty, and the
    independence of all concerned.
        Since the breakup of the U.S.S.R. 7 years ago, Russia has
    demonstrated what I would call strategic ambivalence about the
    region that we are discussing here today. Some forces in that
    country are nostalgic for the Soviet and Russian empires. But
    there are also other forces at play in the great drama of
    Russian politics today--and, as you noted, they have been
    particularly dramatic in recent days--that want to see their
    country adapt itself to the challenges and opportunities of the
    21st century rather than replaying the ``Great Game'' of the
    19th.
        In our own policy toward the Caucasus and Central Asia, as
    well as in every other aspect of our policy toward the former
    Soviet Union, we are doing what we can to create conditions in
    which those committed to Russia's transformation into a normal,
    modern State will prevail over those that are bucking the tide
    of history.
        With respect to the conflicts that are roiling in the South
    Caucasus, Russia has, over the past several years, been both
    part of the problem and, more recently, part of the solution.
    Earlier Russian attempts to exploit the indigenous trouble in
    the region not only failed to enhance Russia's security along
    its southern flank, they may even have contributed to the
    outbreak of Russia's single greatest trauma within its own
    borders--the devastating war in Chechnya.
        Today, as I indicated earlier, Russia is working
    cooperatively with the OSCE on Nagorno-Karabakh and with the
    U.N. in Georgia.
        Let me say a final word, if I could, about another regional
    power, Iran.
        We continue to caution nations throughout the region about
    the development of close relations with Iran. We will continue
    to work with all the States of the Caucasus to thwart the
    growth of Iran's influence in the region while those States
    strengthen their ties to Europe and the transAtlantic
    community.

                               prepared statement

        Secretary Eizenstat has been the administration's point man
    in maximizing cooperation between the United States and its
    friends and allies with regard to Iran. So I think this would
    be a good point for me to turn the microphone over to him.
        [The statement follows:]
                      Prepared Statement of Strobe Talbott
        Thank you, Mr. Chairman, for the opportunity to discuss with you
    and your subcommittee the Administration's strategy toward the Caucasus
    and the Caspian Basin. I am joined by my friend and colleague, Stuart
    Eizenstat, Under Secretary of State for Economic, Business, and
    Agricultural Affairs.
        In my opening statement, I will focus on the American determination
    to help bring peace to the Caucasus; then Secretary Eizenstat will
    address American efforts to ensure that the vast energy resources of
    the Caspian Basin are developed and transported in ways that serve U.S.
    strategic and commercial interests.
        Let me first introduce two other colleagues with us here today:
    Lynn Pascoe, Special Negotiator for Nagorno-Karabakh and Regional
    Conflicts in the New Independent States; and Bill Taylor, Deputy
    Coordinator for U.S. Assistance to the NIS. They are available to
    answer in detail any questions you may have about our diplomatic and
    assistance efforts.
        Since the collapse of the U.S.S.R. 7 years ago and the birth of
    independent states where before there had been Soviet republics, the
    U.S. has worked aggressively to foster peace, prosperity, democracy,
    and respect for human rights.
        In 1992, within months of the Soviet Union's collapse, the United
    States, under the Bush Administration, opened embassies in all 11 non-
    Russian New Independent States, including the eight of Central Asia and
    the Caucasus. Since then, under President Clinton, our engagement in
    the region has intensified.
        Let me concentrate on three of those states in particular: Armenia,
    Georgia, and Azerbaijan. In our view, the South Caucasus has the
    potential to become one of the real success stories of the next
    century. The area is blessed with both human and natural resources.
    History, however, has not been so kind. In the 19th century, the region
    was a battleground for Great Powers encroaching from all points of the
    compass. And, of course, for most of the 20th century, Armenians,
    Georgians, and Azerbaijanis labored under a stultifying and repressive
    Soviet Communist system imposed by Moscow. Today, while they have
    gained--or in some cases, regained--their freedom, they are struggling
    against what might be called the opportunity cost of a lost century--
    the inadequacy of the social, political, and economic institutions they
    inherited and the difficulty of building new ones that will allow them
    to develop as modern states.
        The United States has made it a priority to help these three
    countries overcome those burdens. Our assistance programs support
    democratic institution-building, economic reforms, and numerous
    programs aimed at strengthening the rule of law and civil society.
        It is against this backdrop that, with leadership from Stu
    Eizenstat and the Departments of Commerce and Energy, the U.S. is also
    promoting an east-west Eurasian transportation corridor for the export
    of Caspian energy resources. This commitment is a vital element in
    promoting the prosperity of the Caucasus, as it is for central Asia.
    Azerbaijan, a Caspian littoral state, will profit from development of
    its oil reserves. Georgia and Armenia, while not, in the journalistic
    cliche, ``oil-rich,'' will benefit from being part of a robust economic
    hub fueled by the petroleum of their neighbors.
        The political and economic dimensions of our policy are mutually
    reinforcing; they are integral to a single strategy. The nations of the
    South Caucasus can achieve their potential only if democracy and civil
    society thrive and only if their physical and economic
    infrastructures--that is, their pipelines and their markets, their oil
    fields and their legal and regulatory structures--open them to the
    outside world.
        But none of those objectives stands a chance if the people of the
    Caucasus are living and too often dying in a state of hostility. That's
    why our efforts on behalf of regional peace are so essential.
        Let me concentrate on the enterprise to which we have devoted the
    most energy: Nagorno-Karabakh. This is not just a dangerous,
    potentially contagious conflict in its own right. It is also emblematic
    of one of the most vexing challenges of the post-Cold War world: From
    Slovenia on the border of Italy to Kyrgyzstan on the border of China,
    the 1990's have seen the eruption of ethnic and religious animosities
    that had been mostly dormant during the ice age of communist rule.
    Another manifestation of this threat to international peace requires
    the presence of approximately 8,000 American troops to help keep the
    peace in Bosnia today, and another still imperils Europe anew in
    Kosovo.
        We have been involved in the quest for a negotiated settlement to
    the Nagorno-Karabakh conflict since 1992, when the Organization for
    Security and Cooperation in Europe (then known as the CSCE) called for
    a peace conference to take place in Minsk. The conference never took
    place, but the Minsk Group has become a standing body, including the
    U.S., seeking a negotiated peace in the conflict.
        In early 1997, we strengthened our direct involvement by becoming a
    co-chair of the OSCE process, along with Russia and France. I serve as
    the American co-chair of the Minsk Conference, and Ambassador Pascoe is
    co-chair of the Minsk Group, which works full-time on this immensely
    thorny and important problem. He and his Russian and French partners
    worked especially hard last summer and fall to develop a sound and
    promising approach that concentrated on the security aspects of ending
    the armed conflict in the first phase, with talks on status issues to
    follow.
        The rationale was this: At present, there is no status for Nagorno-
    Karabakh that would be acceptable to all sides. Short of imposing a
    solution on one side or another--something we have vowed not to do--
    discussion of status could take many years. During that time, the life
    of the region would be disrupted and the threat of war ever-present.
    The stunted economic development, especially of Armenia, would continue
    to deprive the people of the Caucasus of the well-being and stability
    we seek and they deserve.
        President Aliyev of Azerbaijan and then-President Ter-Petrossian of
    Armenia had hoped to sign a first-phase agreement that would have done
    the following: Ended the threat of renewed fighting and allowed
    hundreds of thousands of refugees to go home; returned to each side
    much of the territory occupied by the other; opened up borders and
    lines of communication and trade; lifted all embargoes; left the land
    connection between Nagorno-Karabakh and Armenia intact and secure; and
    provided international peacekeeping forces and security guarantees.
        This security would allow Azerbaijan and Nagorno-Karabakh to
    discuss status issues without preconditions, free of any military,
    political, or economic pressure to sign a deal until both sides found a
    settlement on which they could agree.
        Unfortunately, the Nagorno-Karabakh authorities refused to
    participate in negotiations on this proposal. They insist on discussing
    status from the beginning. Our concern is that concentrating on status
    first would return the talks to the endless exchanges of maximalist
    positions that characterized the negotiations before we became co-
    chairs. Meanwhile, the vast number of displaced persons would remain in
    camps, miserable and increasingly radicalized. Neither Russia, France,
    nor the U.S. is willing to sponsor such negotiations. This is not out
    of impatience--we are prepared to be patient. But we are only prepared
    to sponsor negotiations seriously aimed at achieving a settlement, not
    an exercise in futility.
        As I said, Presidents Aliyev and Ter-Petrossian were prepared to
    proceed on what we regarded as a constructive and promising basis. The
    Nagorno-Karabakh authorities were not.
        The resignation of President Ter-Petrossian on February 3 and the
    Armenian presidential elections--the second round was held yesterday--
    have forced a pause in the peace process.
        But a pause does not mean a halt. We are not giving up. We owe it
    to ourselves and to the parties to persist. The co-chairs plan to
    return to the region in April. We have made clear that we hope and
    expect the new Armenian Government to take a serious approach to
    negotiations aimed at achieving real progress toward a lasting, fair
    settlement.
        The quest for a solution to another dispute nearby, in Georgia,
    also has our active support and participation. This is the simmering,
    on-again/off-again conflict in Abkhazia. In the last year we have
    worked hard to open up the negotiating process so that U.N.-sponsored
    talks might be more successful than the stalled Russian-led effort.
    Frustrated by lack of progress, Russia has also recently welcomed an
    increased role for the U.N. in peace negotiations. Ambassador Pascoe is
    hard at work on this project as well.
        The U.S., as one of the so-called Friends of the Secretary General
    on this issue, has become more directly involved in efforts toward an
    international settlement, led by the U.N. Secretary General's Special
    Representative, Liviu Bota. The most recent round of negotiations, in
    Geneva last November, produced a series of working groups that have
    begun to address the pressing problems of economic and humanitarian
    cooperation, refugee return and security issues. Ambassador Bota and
    the Friends are meeting today in Sukhumi with representatives of the
    parties to assess the progress of the working groups and to set
    concrete goals for another Geneva meeting later this spring.
        The U.S. also contributes observers to the U.N. peacekeeping
    mission in Abkhazia--UNOMIG. In the wake of recent violence, including
    the attempted assassination of President Shevardnadze on February 9, we
    have decided to pull back our presence from Abkhazia itself. We now
    have two U.S. military observers in Tbilisi. Two other American
    military observers will be redeployed to Abkhazia once we are confident
    that the security arrangements for UNOMIG are adequate. The U.N. is
    currently working on a proposal to provide adequate force protection
    for the U.N. observers that would allow the United States to resume
    full participation in UNOMIG.
        Mr. Chairman, I would like to stress that our assistance programs
    are an important component of our diplomacy in the Caucasus. We are
    moving forthwith to utilize the $12.5 million earmarked by Congress for
    the victims of the Nagorno-Karabakh conflict and the $5 million
    Congress has appropriated for the relief of victims of the Abkhazia
    conflict.
        This contribution on the part of the U.S. has been a key tool in
    inducing the Abkhaz to participate in a broader, multilateral effort on
    peace negotiations. USAID and our embassy in Tbilisi have sent an
    assessment team to Abkhazia to determine how best to use this
    assistance. Spurred on by our efforts, the U.N. and international
    financial institutions have sent teams of their own in to work on post-
    conflict reconstruction.
        In addition to these high-profile humanitarian assistance programs,
    American funds have helped make it possible for reformers in Armenia
    and Georgia to institute judicial reform and to draft economic
    legislation and electoral laws. U.S. assistance contributed to the
    monitoring of yesterday's election in Armenia. Overall, U.S. assistance
    to Armenia and Georgia is among the highest in the world on a per
    capita basis.
        There is, however, one congressionally imposed obstacle to our
    diplomacy. That is Section 907 of the FREEDOM Support Act, which
    prohibits certain assistance to the Government of Azerbaijan. I would
    only reiterate Secretary Albright's urging before the Foreign Relations
    Committee on February 10 to lift legal restrictions on non-military
    assistance to Azerbaijan while maintaining support for aid to Armenia.
    But I would also say that, thanks to the further loosening of Section
    907 restrictions contained in the fiscal year 1998 foreign operations
    appropriations legislation, we will have the means to work with the
    Azerbaijanis to make sure that this fall's presidential elections there
    are free and fair.
        Let me now turn to the question of other states that have an active
    interest in the region. We believe that the zero-sum rivalries among
    large powers trying to impose their will on smaller states are--or at
    least should be--a relic of history. There is more than enough wealth
    and economic opportunity in the Caspian Basin to go around if all the
    states of the region, large and small, cooperate in an open, mutually
    beneficial and mutually respectful manner and if they play by today's
    rules of international life.
        That principle particularly applies to Russia. We believe it is in
    everyone's interest for Russia to build strong relations with its
    neighbors--so long as those relations are founded on respect for the
    rights of sovereignty and independence of all concerned.
        Since the breakup of the U.S.S.R. 7 years ago, Russia has
    demonstrated what I would call strategic ambivalence about the region
    we are discussing. Some forces in that country are nostalgic for the
    Soviet and Russian empires. But there are also other forces at play in
    the great drama of Russian politics today that want to see their
    country adapt itself to the challenges and opportunities of the 21st
    century rather than replay the ``Great Game'' of the 19th.
        In our own policy toward the Caucasus and Central Asia, as well as
    in every other respect of our policy toward the former Soviet Union, we
    are doing what we can to create conditions in which those committed to
    Russia's transformation into a normal, modern state prevail over those
    that are bucking the tide of history.
        With respect to the conflicts roiling in the South Caucasus, Russia
    has, over the past several years, been both part of the problem and
    part of the solution. Earlier Russian attempts to exploit the
    indigenous trouble in the region not only failed to enhance Russia's
    security along its southern flank, they may even have contributed to
    the outbreak of Russia's single greatest trauma within its own
    borders--the devastating war in Chechnya.
        Today, as I indicated earlier, Russia is working cooperatively with
    the OSCE on Nagorno-Karabakh and with the U.N. in Georgia.
        A final word, if I might, about another regional power: Iran. We
    continue to caution nations throughout the region about the development
    of close relations with Iran. As a state-sponsor of terrorism and a
    nation bent on the development of weapons of mass destruction, Iran
    still poses a threat to all its neighbors.
        Moreover, we are against any state in the region being allowed to
    dominate the region, politically or economically. We will continue to
    work with all the states of the Caucasus to thwart the growth of Iran's
    influence in the region while those states strengthen their ties to
    Europe and the Trans-Atlantic Community.
        Secretary Eizenstat has been the Administration's point man in
    maximizing cooperation between the United States and its friends and
    Allies with regard to Iran. So this, I think, is a good point to turn
    the microphone over to him.
        Thank you.

                   summary statement of hon. stuart eizenstat

        Senator McConnell. Go right ahead, Secretary Eizenstat.
        Ambassador Eizenstat. Thank you, Mr. Chairman, members of
    the committee. With your permission, I would like to
    concentrate my testimony on energy issues in the Caspian region
    that have a profound impact on the long-term economic
    development and political stability of the States in the
    region.
        As a key element of our broader foreign policy objectives
    in the Caucasus and Central Asia, the United States is actively
    promoting the establishment of an East-West or Eurasian transit
    corridor for the export of oil and gas resources from the
    Caspian region.
        Realization of such a corridor will support our strategic
    and economic interests. We have three strategic concerns.
    First, it is essential to the independence and sovereignty of
    the New Independent States to avoid a monopoly on export routes
    from the region. We have supported a policy of multiple
    pipelines from the region so that Caspian oil and gas resources
    can enjoy unfettered access to world markets, not subject to
    undue influence by other exporters or any other country.
        Second, we want Caspian energy to diversify world energy
    supplies. The United States, as a matter of policy, strongly
    opposes any pipeline across Iran due to Iran's support for
    terrorism and its drive to acquire weapons of mass destruction
    and missile technology.
        Third, we want to avoid creating a bottleneck in the
    Bosporus in terms of getting Caspian energy out. We share
    Turkey's concerns about the environmental and safety impact of
    putting large volumes of oil through the Bosporus Straits. It
    is, therefore, important to find long-term solutions that avoid
    the Bosporus.
        To address these three concerns, the United States has
    supported the development of an east-west, or Eurasian, energy
    transportation corridor for export of the region's oil and gas.
    A key element of this corridor is an oil pipeline from Baku, in
    Azerbaijan, to Ceyhan, on Turkey's Mediterranean coast. A Baku-
    Ceyhan pipeline will promote a diversification of export
    routes, will allow Caspian oil to get to world markets without
    transiting Iran, and will avoid putting more oil through the
    Bosporus.
        A second key element of our strategy is Trans-Caspian gas
    and oil pipelines, which will link together the states on both
    sides of the Caspian. In particular, we believe that a gas
    pipeline across the Caspian Sea and through the Caucasus to
    Turkey will provide a much needed outlet for Turkmenistan's
    energy. Ultimately, it could also accommodate gas from
    Uzbekistan, Kazakhstan, Azerbaijan, and Russia.
        In recent months, with the very strong leadership of the
    Vice President's office and an interagency group, we have made
    significant progress in promoting this east-west corridor. We
    have been working with Turkey, for example, to make this Baku-
    Ceyhan pipeline a commercially attractive option for private
    companies. Turkey has embraced taking a leading role in
    promoting this pipeline. It is finishing its own feasibility
    study and our own Export-Import Bank and OPIC are actively
    considering their appropriate role in financing such a
    pipeline.
        We have also urged the countries of the region to increase
    their levels of regional cooperation. We are very pleased that
    recently the foreign ministers of Turkey, Kazakhstan,
    Azerbaijan, Turkmenistan, and Georgia met in Istanbul and
    issued a communique supporting an east-west corridor.
        We also have urged the littoral States surrounding the
    Caspian to adopt a legal regime conducive to the investment
    which will be required for energy development. Our efforts to
    help resolve the Turkmenistan-Azerbaijan border dispute,
    including sending a team of experts to the region, is beginning
    to bear fruit. We are also encouraged by efforts between
    Kazakhstan and Russia to delimit their Caspian boundary.
        We are also continuing to work with Russia to find common
    ground on Caspian energy development. Our strategy is not
    intended to exclude Russia. We support, for example, the
    Caspian Pipeline Consortium project through Russia.
        Finally, we have had a number of discussions with our
    allies in Europe and Japan regarding the Caspian and, based on
    these discussions, I believe that our allies understand our
    shared interests in this important part of the world to insure
    Caspian resources which will enhance world energy security.

                               prepared statement

        In closing, Mr. Chairman and members of the committee, we
    appreciate the support Congress has provided to us in this
    region. We welcome the fact that congressional delegations are
    scheduled to visit the region over the Easter recess, and we
    look forward to working with you.
        Senator McConnell. Thank you, Mr. Secretary.
        [The statement follows:]
                     Prepared Statement of Stuart Eizenstat
        Thank you, Mr. Chairman, for inviting me to testify before the
    Subcommittee. Secretary Talbott has laid out the Administration's broad
    views on political developments in the Caucasus and Central Asia. I
    thought it might be helpful to concentrate my testimony on energy
    issues in the Caspian region since they have such a profound impact on
    the long-term economic development and political stability of these
    states--and will thus directly affect important American interests that
    Secretary Talbott just discussed.
        As a key element of our broader foreign policy objectives in the
    Caucasus and Central Asia, the United States is actively promoting the
    establishment of an East-West, or Eurasian, transit corridor for the
    export of oil and gas resources from the Caspian region. We believe
    that the realization of such a corridor will support our strategic and
    economic interests in the region if it is done in the right way. In
    this regard, while we do not want to intervene in the commercial
    decisions of private companies, we have three strategic concerns with
    respect to the routing of pipelines.
        First, it is essential to the independence and sovereignty of the
    newly independent states of the Caucasus and Central Asia to avoid a
    monopoly on export routes from the region. For several years now, we
    have supported a policy of multiple pipelines from the region so that
    Caspian oil and gas resources can enjoy unfettered access to world
    markets, not subject to undue influence from or commercial
    vulnerabilities to other exporters.
        Second, we want Caspian energy to diversify world energy supplies.
    The United States, as a matter of policy, strongly opposes any
    pipelines across Iran due to Iran's support for terrorism and drive to
    acquire weapons of mass destruction and missile technology. It would be
    important to avoid pipelines across Iran from an energy security
    standpoint--we simply do not need a greater share of the world's oil to
    transit the Straits of Hormuz.
        Third, we want to avoid creating a bottleneck in the Bosporus.
    Moving Caspian oil to the Black Sea and then by tanker through the
    Turkish Straits is a commercially attractive option. We share Turkey's
    concern, however, about the environmental and safety impact of putting
    large volumes of oil through the Bosporus Straits. We think it is
    important, therefore, to find long-term solutions that avoid the
    Bosporus altogether.
        In order to address these three concerns, the United States has
    supported the development of an East-West, or Eurasian, energy
    transportation corridor for export of the region's oil and gas. A key
    element of this corridor is an oil pipeline from Baku, Azerbaijan, to
    Ceyhan, on Turkey's Mediterranean coast. A Baku-Ceyhan pipeline will
    provide a diversification of export routes, will allow Caspian oil to
    get to world markets without transiting Iran and will avoid putting
    more oil through the Bosporus.
        A second key element of our strategy are Trans-Caspian gas and oil
    pipelines, which can link together the states on both sides of the
    Caspian. We believe, in particular, that a gas pipeline across the
    Caspian and through the Caucasus to Turkey would provide a much-needed
    outlet for Turkmenistan's energy. Ultimately, it could also accommodate
    gas from Uzbekistan, Kazakhstan, Azerbaijan and Russia. Moving Caspian
    and Russian gas through the Caucasus could help address the energy
    shortages that have plagued Georgia and Armenia and give all the states
    in the region a stake in pipeline security, for both oil and gas
    pipelines.
        The State Department has been working, in a coordinated effort with
    several other agencies led by the Vice President's Office, to implement
    this strategy. In recent months, we have made significant progress.
      --We have been working with Turkey to make a Baku-Ceyhan pipeline a
            commercially attractive option for private companies. Turkey
            has embraced taking a leading role in promoting this pipeline.
            Turkey is finishing a comprehensive feasibility study for this
            pipeline and EXIM and OPIC are actively considering what role
            they might play in financing such a pipeline.
      --We have urged the countries of the region to increase their levels
            of regional cooperation with one another. We were pleased to
            see that the foreign ministers of Turkey, Kazakhstan,
            Azerbaijan, Turkmenistan and Georgia met earlier this month in
            Istanbul and issued a communique supporting an east-west
            corridor. They also scheduled a follow-on meeting to be held in
            Tbilisi in May.
      --We have urged the littoral states surrounding the Caspian to adopt
            a legal regime that is conducive to the investment, which will
            be required for energy development. Our efforts to help resolve
            the Turkmenistan-Azerbaijan border dispute, including sending a
            team of experts to the region, is beginning to bear fruit. We
            have seen some signs that Azerbaijan and Turkmenistan are
            moving toward resolution of their boundary dispute and are also
            encouraged by efforts between Kazakhstan and Russia to delimit
            their Caspian boundary.
      --We are continuing to work with Russia to find common ground on
            Caspian energy development. Let me emphasize that our strategy
            is not intended to exclude Russia. We support the Caspian
            Pipeline Consortium project through Russia, and USAID has even
            funded a study that looks at ways to move more Caspian oil
            through Russia's existing pipeline network. Caspian issues were
            discussed at the most recent Gore-Chernomyrdin Commission
            meetings and the G-8 energy ministerial, which is currently
            taking place in Moscow, will provide other opportunities for
            dialogue.
      --Finally, we have had a number of discussions with our allies in
            Europe and Japan regarding the Caspian and, based on those
            discussions, I believe our allies understand our shared
            interests in this important part of the world, including a
            desire for peace and stability in the region and ensuring that
            Caspian resources enhance world energy security.
        In closing, we appreciate the support that Congress has provided
    the Administration's policy in this region; we welcome the
    congressional delegations that are scheduled to visit the region over
    the Easter recess.
        Finally, let me reiterate the point made by Secretary Talbott
    regarding Section 907 of the Freedom Support Act. We need your help in
    lifting legal restrictions on non-military assistance to Azerbaijan so
    that we can continue to make progress in this region.

                        remarks of senator patrick leahy

        Senator McConnell. Senator Leahy has an opening statement
    and then we have two votes beginning at 4 o'clock. What I think
    we will do is try to catch them at the end of the first 15
    minutes and at the beginning of the second, which would require
    just a brief recess, sometime like around 4:10 to 4:20 p.m.
        Senator Leahy.
        Senator Leahy. Thank you, Mr. Chairman. Most Americans have
    not heard of the countries that surround the Caspian Sea and I
    don't think too many are aware of the conflict in Nagorno-
    Karabakh. But, as you both said, the Caucasus region is an area
    of rapidly growing economic and strategic importance. We see
    this in all of our briefings.
        Mr. Secretary, you have done as much as anyone to shape
    policy in the administration, but, Mr. Chairman, you have done
    an enormous amount to shape our policy here in the Congress in
    a way that emphasizes our national interests. I commend you for
    that.
        Senator McConnell. Thank you.
        Senator Leahy. The problem we have is these newly
    independent countries face every kind of problem there is. The
    situation changes so rapidly that nobody in this room is going
    to try to predict where it is going to be a year or two year
    from now.
        We have strong ties to Armenia. We have broad interests in
    promoting prosperity and democracy throughout the Caucasus and
    Central Asia. We obviously have an interest in the cooperative
    development of the vast oil and gas reserves in the area.
        But look at the obstacles. There are unresolved conflicts
    in Nagorno-Karabakh, Abkhazia, and Tajikistan. These threaten
    the stability of the entire region.
        Last year, Ambassador Eizenstat described how in another
    century Central Asia and the Caucasus were the subject of the
    ``Great Game,'' where, as I recall you saying, Russia and Great
    Britain vied to see who could have the most control over some
    weak, local regimes.
        I think that kind of external manipulation and dominance is
    still a threat. There are maybe different parties, but it is
    still a threat.
        Russia still continues to meddle in the affairs of former
    territories. Perhaps that is predictable, but, unfortunately,
    it is a reality.
        There is the proximity of Iran and I suspect their motives.
    We continue to have very serious concerns about Russia's
    support for Iran's nuclear and ballistic missile progress. At
    the same time, as Secretary Talbott knows, there are examples
    of how we are working cooperatively with Russia, sometimes in
    ways that we probably had not foreseen but are very happy to
    have.
        But you see corruption and organized crime flourishing
    throughout the region. That makes it very difficult for our own
    companies to compete fairly. There is a history of
    environmental neglect. In fact, if you want to increase oil
    production, you could almost guarantee if the past is any
    prologue, it could be an environmental disaster that is going
    to happen. It is going to be worse than our own gold rush of a
    century ago.
        Section 907 you have already talked about. It has become a
    rallying cry for people on both sides of the Armenia-Azerbaijan
    debate. I am sympathetic to the arguments of the Armenians, but
    we have been very generous in our aid to them. I think it is
    the second highest per capita aid we give to any country, even
    though elections there have been marred by fraud.
        I also strongly support helping the victims of the Nagorno-
    Karabakh conflict, although it does not appear the situation
    there amounts to the humanitarian emergency that some have
    described.
        But I also know that section 907 has impeded our ability to
    pursue our own interests in the region.
        The administration's goals are such that you could not
    disagree with them: to support market economies, democratic
    reform, resolve regional conflicts, cooperative development of
    Caspian energy resources, strengthening the stakes for Russia
    and Turkey to cooperate. Less obvious is how effective we are
    in pursuing these goals.
        I don't think the Minsk Group negotiation on Nagorno-
    Karabakh is really going much of anywhere. The Caucasus are a
    turning point. They have weak, authoritarian, corrupt
    governments. They seem quite capable of squandering what could
    be a great opportunity to those who show more enlightened
    views.
        I think we have to treat them with a lot more attention and
    assertiveness because, unfortunately, some of the people there
    are not doing it.
        Thank you, Mr. Chairman.
        Senator McConnell. Thank you, Senator Leahy.
        It has been the policy of the subcommittee to have opening
    statements only from the chairman and the ranking member. I see
    Senator Gregg here as well. But in order to try to accommodate
    those who have questions, we will limit our questions to 10
    minutes each and, hopefully, that will give everybody a chance
    to ask both of you questions.
        We all referred to the elections. I gather in Armenia
    Kocharian won roughly 59 to 41 percent. Is that accurate? If it
    is, do we have any early reports from the international
    monitors as to whether or not this election is going to, shall
    we say, pass the smell test?

                              elections in armenia

        Mr. Talbott. The vote counting does continue. The results I
    have show 72 percent of the precincts counted with Mr.
    Kocharian at 60 percent, as you say, and Mr. Demergian at 40
    percent.
        The elections are being very thoroughly monitored by the
    international community. There are 160 OSCE monitors there, and
    90 of those are Americans, by the way.
        I would be loath, Mr. Chairman, to prejudge or predict the
    ruling that the monitors will make. I think it is fair to say,
    though, that we have seen an improvement in Armenia's ability
    to carry out elections since the 1996 presidential elections
    where there were some serious troubles. There were still some
    difficulties in the first round of this election. But let's
    hope that the trend continues in the right direction.
        Senator McConnell. And over in Ukraine, can you give us an
    evaluation of the Rada elections?
        Mr. Talbott. Well, again, the results are still coming in.
    Here one has to be particularly careful. But there are some
    preliminary indications that those parties which the Ukrainians
    themselves describe as leftist are doing somewhat better than
    in the last election, which is to say in 1994.
        But it is certainly impossible to predict at this point
    what kind of a new Rada the executive branch of the Ukrainian
    Government will be dealing with.
        The turn-out, by the way, so far has been 70 percent. That
    is down a bit from 1994, when it was 74 percent.
        Once again, the Ukrainian authorities are to be
    congratulated for allowing a very high and intense degree of
    international monitoring. The OSCE, once again, which had the
    largest number of international observers on the ground, has
    issued a positive preliminary assessment of the conduct of the
    voting while, at the same time, noting that there were some
    fairly serious shortcomings and deficiencies in the conduct of
    the campaign itself.
        But once again, I think we need to watch and wait.

                                  section 907

        Senator McConnell. Shifting back to Armenia, you mentioned
    section 907 and Senator Leahy did as well.
        Administration officials have always come up to the Hill
    and complained about 907, and you did not disappoint me today
    by failing to do that. I am curious as to how much of a
    handicap it really is. Why haven't you just simply waived the
    restrictions?
        What would you think would amount to demonstrable steps by
    Baku to qualify to lift the blockade?
        Mr. Talbott. We never complain, of course, Mr. Chairman. We
    suggest and consult with you and work together to bring our
    positions as close together as possible.
        Senator McConnell. Well, whining is actually the word I
    would have used. [Laughter.]
        Mr. Talbott. Never that. Never that. [Laughter.]
        As somebody who has been involved, myself, in the diplomacy
    there, I can tell you that the continuation of 907 is something
    of a handicap for us. It undercuts us, by no means
    devastatingly, but nonetheless in a way that is discernible as
    Ambassador Pascoe and I go about our business in that part of
    the world. It undercuts our claim and conviction that we are
    using our good offices and we are doing so in a way that is
    fair to all parties.
        Senator McConnell. That is my question: why have you not
    waived it? Could it not be argued that Aliyev's willingness to
    sign an agreement last year was a demonstrable step under the
    bill that would have given you the ability to waive 907 had you
    wished to?
        Mr. Talbott. Our feeling is that the right thing to do is
    to repeal it and to take it off of the books altogether.
        Now the most trenchant issue here, of course, is the
    continuation of the Azerbaijani embargo against Armenia. We
    have made some progress in that regard, which is to say when
    President Aliyev was in Washington last year, he did indicate,
    as he put it, that his government would be prepared to
    normalize all relations, including commerce, with Armenia, with
    the successful conclusion of the first stage of the Nagorno-
    Karabakh negotiations that we are now trying to get started
    again once the Armenian elections are behind us.
        But let me, in a spirit of comity here, say that the
    alleviation of the stringency in 907, which has now taken place
    2 years in a row, has definitely helped, not least in that it
    has allowed us to address the problem of humanitarian needs
    within Azerbaijan and also to provide assistance to
    nongovernmental organizations that are working within
    Azerbaijan to promote democracy. That I think will be
    particularly useful to us as we approach an election in
    Azerbaijan itself.
        Senator McConnell. I listened to your answer, but it seems
    to me that 907 must be useful to you or you would have waived
    it because of the efforts by Aliyev to enter into the peace
    agreement last year.
        Mr. Talbott. The Azerbaijanis, quite simply, under the
    terms of the legislation, have not met the conditions for a
    waiver.
        Senator McConnell. So, obviously, the answer to my question
    is you don't think Aliyev's step in the direction of peace last
    year was a demonstrable step under the legislation?
        Mr. Talbott. We think 907 is a mistake and is not a useful
    tool for trying to move the parties forward. We feel that,
    until the pause that I mentioned earlier, because of the
    workings of Armenian democracy, we were making some progress
    toward a comprehensive settlement of the Nagorno-Karabakh
    conflict. Both President Aliyev and former President Ter-
    Petrossian had agreed to proceed on the basis of the proposal
    that the Minsk Group had put forward.
        Now we have to see if we can't get back to that now that
    there is a new leadership in Yerevan.
        Senator McConnell. So is this a sort of general reluctance
    to use waivers? Is that what you are suggesting?
        Mr. Talbott. I think it is a preference on our part to
    persuade you and your colleagues of the lack of wisdom of this
    particular piece of legislation and to take it off the books.
        Senator McConnell. So you don't have any problem between
    your decision not to waive here and your decision to waive
    restrictions we had on Russia regarding nuclear cooperation
    with Iran?
        Mr. Talbott. Are you referring to the issue of
    sanctionability?
        Senator McConnell. Yes.
        Mr. Talbott. Could you be a little more specific with your
    question?
        Senator McConnell. Well, you did exercise a waiver to
    override restrictions we have had in previous bills on Russian
    assistance if they continued nuclear cooperation with Iran. I
    gather that must have been a 614 waiver that you used in that
    situation?
        Mr. Talbott. I'm sorry, Senator.
        Senator McConnell. We have had in this bill in previous
    years restrictions against aid to Russia related to Russia's
    cooperation with Iran in the area of nuclear power. You have
    exercised a waiver to get around that restriction so that
    Russian aid could continue to flow.
        Admittedly, a 614 waiver may be different from a waiver of
    907. But I am just trying to get a sense of what is waivable
    here and what is not. In that particular instance, you did not
    seem to be troubled by exercising the waiver.
        Mr. Talbott. We felt in that particular instance that the
    activity, the pattern of activity, the direction of Russian
    behavior met the terms of a waiver, which we do not feel is the
    case under the terms of 907 with respect to Azerbaijan.
        Senator McConnell. So in that particular instance, you used
    a 614 national interest waiver, is that right?
        [Pause.]
        Senator McConnell. I am told by staff that it was actually
    built into the legislation.
        Ambassador Eizenstat. May I just mention----
        Senator McConnell. Yes.
        Ambassador Eizenstat [continuing]. On the 907 that there
    are two conditions that Azerbaijan has to meet. They have to
    take demonstrable steps to cease offensive uses of force and
    lift their embargoes. While they have made significant strides
    in the first condition, that is not the case with the second.
        So, as Secretary Talbott was saying, it is a question of
    simply not meeting the statutory requirements.
        Senator McConnell. We are getting close to when Senator
    Leahy and I need to run to cast two votes. But let me try to
    get in one more question.
        In a recent staff briefing, Ambassador Pascoe could not
    recall whether we had suggested, encouraged, or agreed formally
    or informally to a Russian leadership role in a peacekeeping
    force related to settlement of the Nagorno-Karabakh dispute.
        How do you envision this peacekeeping force? What do you
    envision the composition of this peacekeeping force should we
    get a deal on the Nagorno-Karabakh between the Azeris and the
    Armenians?

                               peacekeeping force

        Mr. Talbott. Well, first, it will have to be a genuine
    peacekeeping force, which is to say there must be a peace to
    keep.
        Senator McConnell. Obviously I am assuming there is a peace
    to keep. I am asking you about the composition of some
    peacekeeping force in the wake of such an agreement----
        Mr. Talbott. I understand.
        Senator McConnell [continuing]. That would be mutually
    comforting to the Azeris and the Armenians.
        Mr. Talbott. From my own dealings with the three parties to
    this conflict, I think one of the requirements would be that it
    be genuinely international. This is to say that the composition
    of the peacekeeping force include representatives of
    significant diversity of countries.
        Senator McConnell. Would it be a majority Russian?
        Mr. Talbott. I would think not because that would raise
    concerns on the part of those in the area who are worried about
    excessive Russian influence.
        Senator McConnell. Would it include Americans?
        Mr. Talbott. We do not foresee that it would involve any
    American combat forces.
        Senator McConnell. Combat forces.
        Mr. Talbott. In Georgia, for example, in Abkhazia, we have
    a strong number of American officers there in a monitoring
    capacity. We are nowhere near the point of deciding on the
    composition of a peacekeeping force for Nagorno-Karabakh. But
    soldiers, I think, would not be envisioned.
        Senator McConnell. Senator Leahy, I think I am going to go
    and vote. I don't know whether you would like to go now and
    come back.
        Senator Leahy. I will stay for a couple of minutes and then
    will leave, too.
        Senator McConnell. I am going to let Senator Leahy take
    over for a while.
        Senator Leahy. Do you want me to just recess the hearing
    when I am through if you have not returned?
        Senator McConnell. Yes; and I will then come right back.
        Senator Leahy [presiding]. Let me follow up a little bit on
    this because I know on the law, in the 1998 foreign operations
    bill we withheld 50 percent of the assistance to the Government
    of Russia unless the President certified that they had
    terminated their support for the development of Iran's nuclear
    ballistic missile program. You also had some other ways you
    could do that.
        I assume Russia has not ended its support completely for
    these programs. I now see that the Minsk Group made a proposal
    for an interim settlement for Nagorno-Karabakh. The Azerbaijan
    and Armenian Governments, at least their former governments,
    said they would accept it, but Nagorno-Karabakh has not. So I
    am wondering if that means it is not settled and, if it is not,
    our law provides up to $43 million in assistance for the
    Caucasus region may be shifted to other areas in the former
    Soviet Union if the settlement proposed is not agreed to by May
    1998.
        It appears that will not happen. Do we shift the money?
        Mr. Talbott. You ask would we shift the money elsewhere in
    the NIS?
        Senator Leahy. Yes.
        Mr. Talbott. I think the short answer is that would
    probably be the best use of the money. We have until the end of
    May. The Secretary of State specifically has until the end of
    May.
        Senator Leahy. That is just 2 months away.
        Mr. Talbott. Pardon?
        Senator Leahy. That's 2 months away.
        Mr. Talbott. Well, the Armenians have now had their
    election and soon we will know who the next President of
    Armenia is going to be. Ambassador Pascoe and his colleagues
    from the Minsk Group will be returning to the area quite soon--
    I would guess probably after the inauguration of the new
    president. They will make the case, which we find to be very
    compelling, that we should get these negotiations going again.
        So I would certainly not rule out that the Secretary might
    be in a position to decide that this earmarked money could go
    forward.
        Senator Leahy. Well we say that you have to agree to it by
    May 1998. Can Nagorno-Karabakh block a settlement? They are not
    a country, but can they block a settlement?
        Mr. Talbott. It is difficult to see how there can be
    progress in these negotiations if all three parties are not
    agreed on the basis for the ongoing negotiations. The essence
    of the problem to date has been that two of the parties, the
    Governments of Armenia and Azerbaijan, have been prepared to
    negotiate on the basis of the suggestions that the Minsk Group
    made. But the Nagorno-Karabakh authorities were not.
        We think that this is contrary to their own interests and
    now we have to see how the equation will change with a new
    president in Armenia and without wanting to prejudge.
        Senator Leahy. But Kocharian has already said that there is
    no compromise on Nagorno-Karabakh.
        Mr. Talbott. But, Senator, the last votes are not in. So
    pardon me if I do more than just stand on a formality here.
        Senator Leahy. I understand. I am just thinking out loud.
        Mr. Talbott. As a general rule, as you know from our past
    conversations, I try to avoid hypotheticals. But I think it is
    safe to say if the next President of Armenia is Mr. Kocharian,
    he knows the Nagorno-Karabakh issue very, very well. He was, of
    course, the principal leader in Nagorno-Karabakh.
        Senator Leahy. We will wait for those elections.
        I have only saved in 30 years in office three items from
    the press about me. I actually liked them enough to frame them.
    Two are a pair of headlines that appeared 5 days apart, the
    first time I ran for the Senate. The first one said, in huge
    type--it was the State's largest newspaper--``Poll Dooms
    Leahy.'' The next one, 5 days later, same sized type, same
    placement, said, ``Leahy Wins Senate Seat.'' The other article
    is a family item. Everything else got trashed, which is
    probably just as well.
        So I always wait until the final results are in.
        I am going to recess and go to vote. The chairman or I will
    return very briefly.
        It is good to have you both here.
        [A brief recess was taken.]
        Senator McConnell [presiding]. The hearing will resume. I
    apologize for the delay, but these things do happen. We have to
    vote once in a while.
        Let me go back, if I could--not to keep you all much
    longer--to the possibility of a peacekeeping force. Let me just
    say, as someone you might expect to be unalterably opposed to
    any kind of American participation in a peacekeeping force of
    some size in that area, I am not opposed to that, assuming, as
    you indicated, Secretary Talbott, that there was a peace
    agreement worth keeping.
        On that assumption, if a small complement of Americans in
    the multinational force were sufficiently reassuring to the
    parties, I, for one, would not object to that. This comes from
    somebody who is, frankly, a little bit jaded at this point
    about the Bosnia deployment given how expensive it is and the
    fact that it may seem to last into the next millennium.
        I do not envision the size deployment in and around
    Nagorno-Karabakh that we have had in Bosnia. Therefore, from a
    cost point of view, presumably this would be a smaller force.
        Let me ask you about cost. What would be sufficient, do you
    think, to reassure both sides in terms of the numbers of
    personnel involved?
        Mr. Talbott. In conferring, I am cheating ever so slightly.
        Senator McConnell. That's fine. I confer occasionally
    myself.
        Mr. Talbott. Ambassador Pascoe says that it is notional at
    this stage, as you have already made very clear, Senator. It is
    no more than 1,000 troops, a maximum of 1,500 observers on the
    ground.
        But may I respond a bit to the general proposition you have
    put forward?
        Senator McConnell. Yes.
        Mr. Talbott. First of all, when I started to answer your
    question earlier, I didn't mean to seem to be belaboring the
    obvious. We have had cases where peacekeeping missions, and the
    environment of the circumstances of the peacekeeping missions
    have deteriorated so that peacekeepers are in harm's way.
        Senator McConnell. Yes.
        Mr. Talbott. We have had that in Georgia.
        Now the situation in Georgia has returned to a condition of
    normal and calm. But as I indicated earlier, we have an over-
    arching responsibility to the protection of our own forces,
    whether it is four officers or considerably more than that.
    Therefore, one of the points that we are making to the parties
    in the Nagorno-Karabakh conflict is that they must undertake
    steps that will insure the international community that they,
    the parties, are committed to a peaceful environment into which
    the peacekeeping force will then go.
        This sounds self-evident as an abstraction, but in practice
    it can be one of the toughest issues facing us in the period
    ahead.
        I am very interested, obviously, to hear what you say,
    Senator, on the subject of your own willingness to consider
    American participation. We have simply come nowhere near that
    point.
        Senator McConnell. Yes; I understand that. We can stipulate
    that we are not to that point.
        Mr. Talbott. But one of the reasons that Secretary
    Eizenstat and I welcomed your invitation to appear here today
    is that it is very important for everybody who hears the
    proceedings here today to understand that the United States
    does have a very real stake in peace and security in that
    region. This is a case that we need to make over time, and we
    do not want to introduce the subject of Nagorno-Karabakh for
    the first time to the attention of the American people some
    point down the road. That is one of the reasons we are glad to
    have a chance to talk about it today.
        Senator McConnell. As you know or may recall, because we
    have had this conversation before though it has been some
    months, my own personal view is that we have considerably more
    interest in the Caucasus than we do in Bosnia, for example.
    Certainly our NATO allies have a consuming interest in Bosnia,
    and, now we do as a result of the administration's commitment
    to it.
        But, when I think of the Caucasus and the economic impact
    on the world of that region developing successfully and,
    hopefully, independently, it seems to me that the United States
    has a good deal more interest in that, than it does in Bosnia.
    So, therefore, I wanted to make sure that you knew that there
    were at least some of us who were open to some kind of American
    participation, particularly now that we are talking about the
    size of the force being about what I had anticipated. This is
    not, I would think, a hugely expensive proposition.
        I understand, as you indicated, that any time you use
    American troops in any deployment anywhere, we are all equally
    concerned about their wellbeing. But we have a significant
    number still in Bosnia.
        How many do we have in Bosnia now?
        Mr. Talbott. It's 8,000, I think.
        Senator McConnell. Yes, 8,000. And here we would be talking
    about some percentage of that, roughly 1,500.
        Finally, let me say with regard to such a peacekeeping
    force, am I correct in saying that the United States would not
    be interested--I asked this earlier but I don't think I asked
    it the way I want to ask it now--that it is not envisioned that
    a majority of that force would be Russian? Is that correct?
        Mr. Talbott. That is correct. Our strong feeling is that it
    would be to the wishes and in the interests of the parties that
    it be a genuinely international force and that it not be like
    any other aspect of policy or events in this region,
    monopolized by one country.
        Senator McConnell. Let me shift in our remaining moments to
    Iran.
        Over the past several months, the administration has been
    reviewing Total's investment in Iran's oilfields to determine
    if it should be subject to the Iran/Libya Sanctions Act [ILSA],
    typically referred to as ILSA.
        Given ILSA requirements, why is there any question about
    whether this investment is sanctionable and when can we expect
    a decision?

                                   sanctions

        Ambassador Eizenstat. We have done a very thorough
    investigation according to both the spirit and the letter of
    the law, and within the next couple of weeks, Deputy Assistant
    Secretary of State Ramsey will be going back to Asia to look at
    the issue of how far the Asian partners in two deals, Mr.
    Chairman--the Bow Valley-Bakrie deal, which involves an
    Indonesian company and a Canadian company, and the Malaysian
    company Petronas, which is involved in the Gazprom/Total deal--
    the extent to which the Asian financial crisis may have
    affected the terms of that contract and their capacity to go
    forward.
        We think it is prudent to do that before any decisions are
    made.
        We continue to make progress on this. It is a difficult
    decision and we would expect that there will be decisions made
    sometime in the near future.
        Senator McConnell. News accounts last week quoted the
    Deputy National Security Advisor as stating you are rethinking
    sanctions on Iran, which I gather is what you are saying right
    now.
        I noticed on the maps that you provided there is an Iranian
    oil pipeline route. Yet your statement, Secretary Eizenstat,
    appears to oppose such an option.
        I understand you are now considering waiving the sanctions
    on Russia and may leave open the question of sanctions on other
    partners. There seems to be a lot of confusion with the
    perverse impact of such a kind of half-sanctions decision being
    that hard currency would flow to a terrorist State and the only
    penalty would fall on American companies keeping them out of
    the region.
        Maybe you feel like you have said all you can say on this
    issue, but I guess I am groping for more.
        Ambassador Eizenstat. No, sir; I would be glad to address
    that.
        First, I have talked to Mr. Steinberg, the Deputy National
    Security Adviser. The headline in the paper said that we were
    rethinking sanctions, not Mr. Steinberg. He made it very clear
    that we were continuing to hold out sanctions as a very real
    option.
        Under the statute as Congress passed it, if a particular
    transaction is viewed as covered by the act, the Secretary of
    State then has three options. She can either sanction
    immediately, waive immediately, or begin a 90-day consultative
    period.
        Since we have not made a decision about whether these
    transactions are subject to the act and will go forward, we
    have obviously not made a decision with respect to which of
    those options.
        But I can tell you, Senator, that sanctions remain as they
    have from the beginning, a very real option under the statute
    and as a practical matter, and Mr. Steinberg said nothing to
    the contrary.
        Senator McConnell. And you expect a decision when?
        Ambassador Eizenstat. Well, we first have to make a
    decision about whether or not this is covered and that will be
    made as quickly as we can.
        Senator McConnell. A recent Post article, datelined Moscow,
    indicated Russian intelligence agents have recruited scientists
    to go to Iran to teach missile technology. Moscow denies any
    formal role, suggesting government funded engineers are
    freelancing.
        I frankly share the view expressed by a diplomat in a Post
    article that, if it was not government policy before, how can
    they stop it, and if it was a government effort, someone is not
    telling the truth. So why should we now believe they would
    really stop this program?
        Ambassador Eizenstat. First, may I say that the Iran/Libya
    Sanctions Act is not only an act imposing sanctions. It
    specifically and directly admonishes the administration to do
    precisely what we are now doing and have been doing for some
    many months, and that is to try to build a multilateral regime
    which will deny Iran the capacity to develop weapons of mass
    destruction and the missile systems to deliver those weapons of
    mass destruction. That is built into the statute and that is
    what we are trying to do both with respect to Russia and the
    European Union.
        With respect to Russia, there have been, obviously,
    concerns that private scientists or institutes may have been
    engaged in that kind of activity. That is why Secretary
    Talbott, the Secretary of State, Vice President Gore in his
    meetings with former Prime Minister Chernomyrdin, the President
    in direct contacts with President Yeltsin, the Wisner-Koptev
    and now the Gallucci-Koptev follow-up meetings--all of these
    have been directed toward making sure that the Russian
    Government took additional steps.
        Now a very important step forward was made on January 22,
    and that is when the Prime Minister signed an executive order
    at the direction of President Yeltsin which will require
    Russian exporters to seek an export license before exporting
    any goods or technology which they have reason to believe could
    be transferred to a ballistic missile program or a program
    involving weapons of mass destruction.
        This decree is similar to catch-all legislation which this
    country has had in place since 1991 and is precisely what we
    wanted the Russian Government to do.
        Now what is key now, Mr. Chairman, is clearly the
    implementation of that. We now have a legally binding
    obligation and, even with the change in government in terms of
    the prime minister, we have had a reassurance by Foreign
    Minister Primakov to the Secretary of State and at other very
    high levels. This was something that was specifically endorsed
    by the President, who very much remains in office, that this
    policy will continue.
        So what we want to see now is effective implementation. But
    this catch-all decree is a very significant step forward, a
    very real breakthrough, and if it is implemented, as we have
    been assured it will be, we will have been following precisely
    what ILSA requires, that is, building this multilateral regime
    and making it much more difficult for Iran to acquire weapons
    of mass destruction.
        Senator McConnell. Has the Russian Government directly or
    indirectly supported the Iranian nuclear and ballistic missile
    program?
        Ambassador Eizenstat. We do not believe that the Russian
    Government is directly doing so, that these are private
    interests. There is a question of the enforcement by the
    Russian Government. We believe now, as a result of the decree,
    which came from very intensive discussions that our
    administration had--and, if I may say so, also interventions by
    the European Union, which was very helpful, at very senior
    levels in European Governments--they have turned a corner in
    terms of their willingness to enforce a law that will make it
    more difficult.
        Senator McConnell. How many Russian scientists are involved
    in this undertaking, do you think?
        Ambassador Eizenstat. Well, I think that if we wanted to
    get into those details, perhaps we ought to have a private
    briefing.
        Senator McConnell. In concluding, I want to go back to the
    pipeline issue for a minute.
        When I was in the Caucasus last summer--and Secretary
    Talbott and I talked about this, I think, after I got back--of
    course there is the very real danger that Armenia will be left
    out entirely if there is not some peace agreement sometime in
    the near future. I think that would be clearly a step back for
    the Armenian people, to miss out on whatever prosperity might
    be forthcoming as a result of having a pipeline come through
    your country.
        This raises the question: how many pipelines are there
    going to be? I gather there is one that will go into Russia
    through Chechnya--is that correct; one that will go from
    Azerbaijan through Georgia to the Black Sea; and then there is
    a third, which is the one I think you were speaking about,
    Secretary Eizenstat----
        Ambassador Eizenstat. Yes, sir.
        Senator McConnell [continuing]. That I gather would end up
    at Ceyhan. But as to how it gets there is an open question.
    That actually would be a shorter route, to go through Armenia,
    wouldn't it, to come out in the Mediterranean at Ceyhan? And
    how do you pronounce that?

                                    pipeline

        Ambassador Eizenstat. It's ``jay-han.''
        There are several planned, and ultimately the number of
    pipelines will depend purely on market driven demand. The more
    oil and gas that can be produced from the Caspian region which,
    in turn, will increase the independence and viability of the
    Caucasus and Central Asian States, the more oil and gas that
    can be produced, the more pipelines there will be.
        Senator McConnell. I understand that. But assuming there is
    enough demand and the Turks are certainly correct in that they
    do not want even more tankers going through the Bosporus than
    they are going to have in any event----
        Ambassador Eizenstat. That is correct.
        Senator McConnell [continuing]. And that it is desirable
    from an environmental point of view to have one of those come
    out in the Mediterranean across Turkey, is it not actually
    closer to go through Armenia?
        Ambassador Eizenstat. On technical grounds, a pipeline from
    Azerbaijan to the West that transits Armenia could be a viable
    option. There are other routes, as well.
        You could go, for example, through Azerbaijan and Georgia,
    and then down, but also going through Armenia to Ceyhan is
    certainly a very real possibility.
        This is one of the reasons why it is so important to
    resolve this conflict, because, as you say so accurately, this
    would give Armenia the capacity to get transit fees and it
    would be a very important part of their own economic viability.
        Senator McConnell. That is certainly the message that I
    tried to carry and that I hope you are carrying as well, that
    peace brings not only the absence of loss of life----
        Ambassador Eizenstat. Absolutely.
        Senator McConnell [continuing]. But more widely disbursed
    prosperity for everyone. And, hopefully, the new President in
    Armenia will have the authority and the legitimacy as a result
    of the election, which we hope will be certified by
    international observers as at least as clean as elections in
    Eastern Kentucky. [Laughter.]
        Ambassador Eizenstat. But the other thing we are trying to
    avoid, of course, is not only to be able to help countries like
    this but to avoid the alternative of a pipeline which transits
    through Iran and gives Iran greater control.
        Senator McConnell. Yes; of course.
        Finally, in conclusion, if I could, I will ask Secretary
    Talbott to just give us a few of his thoughts on the recent
    shakeup in the Kremlin. We don't expect too high a level of
    candor here. [Laughter.]
        Mr. Talbott. Oh, you know what the most candid of all
    answers would be, I think.
        Senator McConnell. That you don't know. [Laughter.]
        Mr. Talbott. In your opening remarks, you recalled our
    conversations back in 1995 and how much things change and yet
    how much they stay the same.
        You could have recalled our conversations back in 1993, at
    the beginning of our association.
        The evolution of Russian democracy is full of surprises.
    Obviously, we have seen one of those recently. I think the key
    point here, that is, what can be said on the basis of what has
    already happened, is that the Russian President and the Russian
    body politic are playing by constitutional rules.
        That is quite something given where that country was not
    that long ago.
        As for what happens next, all parties to this, again, seem
    to be committed to following the construction and the rules of
    the checks and balances relationship between the executive
    branch and the legislative branch.
        As you know, President Yeltsin has decided to submit Acting
    Prime Minister Kiriyenko's name to the parliament. There is, as
    there always is with the Russian Parliament, a lot of vigorous
    debate and quite open criticism. It is, basically, a three
    strikes and the Parliament is out ruled.
        We have no such mechanism, of course, in our own system.
        Senator McConnell. It does have some appeal to you, doesn't
    it?
        Mr. Talbott. It is interesting to ponder, though.
    [Laughter.]
        Senator McConnell. From time to time you have thought, no
    doubt, what a great idea. [Laughter.]
        Mr. Talbott. Obviously, it is not appropriate for any
    official of the American Government to get too deep into
    commenting on personalities or, indeed, on the dynamics of
    Russian politics. But I will make an observation.
        Mr. Kiriyenko is not totally unknown to us, even though he
    is, as has been pointed out, a relative newcomer to the power
    structure in Moscow. He was in Washington not long ago as an
    important part of the Russian delegation to the most recent
    Gore-Chernomyrdin Commission meetings--I guess it is the last
    of the Gore-Chernomyrdin Commission meetings, by definition.
    But we hope the institution will certainly continue.
        He is somebody of very real and proven reformist
    credentials. I would point out something else.
        He is young and that has been much commented on, not always
    favorably, either in Russia or abroad. But going back to some
    of the conversations you and I have had, Senator, I have felt
    for a very long time that a key factor in the continuing
    transformation of Russia is the changing of generations.
        I do think it is of some significance that President
    Yeltsin would turn for this critical job to somebody who was a
    very young man, indeed, when the Soviet Union and the Communist
    Party of the Soviet Union ceased to exist. Yes, he is not,
    obviously, objectively anywhere near as seasoned as many of the
    more familiar figures. But in the context of Russia as it tries
    to put behind it the past and move on to the future, I am not
    sure that is entirely a bad thing.

                              subcommittee recess

        Senator McConnell. Thank you both very much for your time.
    The subcommittee will stand in recess until 3:30 p.m., on
    Tuesday, April 21, when we will hear from Hon. Louis Freeh,
    Director, Federal Bureau of Investigation, and Gen. Ihor
    Smeshko, director, Center for Strategic Studies and Analysis,
    Ukrainian National Security and Defense Council.
        [Whereupon, at 4:58 p.m., Tuesday, March 31, the
    subcommittee was recessed, to reconvene at 3:30 p.m., Tuesday,
    April 21.]

          FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS
                      APPROPRIATIONS FOR FISCAL YEAR 1999

                                  ----------

                            TUESDAY, APRIL 21, 1998

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 3:38 p.m., in room SD-116, Dirksen
    Senate Office Building, Hon. Mitch McConnell (chairman)
    presiding.
        Present: Senators McConnell and Leahy.

                             DEPARTMENT OF JUSTICE

                        Federal Bureau of Investigation

    STATEMENT OF LOUIS J. FREEH, DIRECTOR
    ACCOMPANIED BY:
            IHOR SMESHKO, DIRECTOR, CENTER FOR STRATEGIC STUDIES AND
                ANALYSIS, UKRAINIAN NATIONAL SECURITY AND DEFENSE COUNCIL
            EVGEN KOSTYUCHENCKO, COUNCIL MEMBER
            MICHAEL PYSZCZYMUKA, SPECIAL AGENT

                 opening statement of senator mitch mc connell

        Senator McConnell. I want to apologize not only to the
    witnesses but to the others who may be interested in today's
    topic. We were originally going to have the hearing this
    morning, and all of a sudden we had votes at precisely the time
    we were going to go. And then, this afternoon, we shifted it
    only to end up with votes scheduled for that time, too. So I
    apologize, particularly to our out-of-town guests, for the
    delay.
        Judge Freeh, we welcome you and General Smeshko before the
    subcommittee today to discuss the coordination of efforts to
    combat international crime. Judge Freeh, you have appeared
    twice before this subcommittee, and always have been frank in
    your assessment of the threat our Nation faces as criminal
    enterprises, largely based in Russia, have expanded their
    lethal reach. Your testimony has prompted an increase in
    support for law enforcement initiatives around the world, most
    notably the International Law Enforcement Academy in Budapest,
    which I have had the pleasure to visit and found very
    impressive.
        One of the hallmarks of your tenure as Director is a
    commitment to improve and expand the working relationships
    between the FBI and its foreign counterpart agencies. Today
    Judge Freeh is joined by one of his partners, General Smeshko,
    Ukraine's director for both the military intelligence agency
    and for strategic planning and analysis on the National
    Security Council.
        General, we are glad to have you. Your reputation and your
    portfolio of responsibilities are impressive. I appreciate your
    participation today and want to note how remarkable it is that
    you are here to discuss your concerns about international crime
    and joint law enforcement efforts.
        Who could have imagined such a session a mere 10 years ago?
    It is a tribute to the strength of the relationship between the
    FBI and your agency, and, for that matter, the United States
    and Ukraine. Your efforts are vital to Ukraine's future, as
    well as to U.S. interests.
        Judge, over the past 2 years, you have drawn attention to
    the growing threat of Russian criminal organizations operating
    here in the United States, which are engaged in fraud and money
    laundering, murder, extortion, drug trafficking, and related
    offenses. What we have not focused as much time on is the fact
    that these enterprises have developed regional partners and
    networks, which pose a direct threat to the survival of the
    fragile new democracies.
        It is my sense that the explosion of criminal enterprises
    has given democracy in the New Independent States a bad name.
    The fear of corruption, harassment and extortion, which
    characterized life under Communist regimes, has new masters,
    but the experience for the average citizen unfortunately
    remains largely the same. Little else that we do matters as
    much as combating crime and supporting the legal, judicial and
    law enforcement reform efforts which are the lifeblood of
    democracy. If these criminal enterprises are allowed to expand
    and take greater control, every other development initiative we
    have invested in will have been a waste of resources.
        Privatization of State-owned enterprises is pointless if
    the Mafia is buying up the nation's assets. Agricultural
    programs, transferring land ownership to individuals makes no
    sense if corrupt officials are seizing harvests and profits.
    Tackling these problems now is the only way to give supporters
    of democratic and free market principles the opportunity to
    build nations which share our values and our goals.
        To address these issues, we must deepen and strengthen ties
    with law enforcement agencies in the New Independent States.
    Cooperation and coordination clearly serves our interests and
    theirs. It is obviously in our interest to have the strongest
    first line of defense deployed in countries where these
    criminal organizations are based. If we can work with agencies
    in the NIS to destroy the root of these enterprises, the
    branches here hopefully will wither.
        The New Independent States have a great deal at stake, as
    well. Democracy is under siege from ruthless, well financed,
    well organized criminal organizations. To sustain support for
    crucial political and economic reforms, individuals and
    communities must be convinced that their government works well
    and can protect their property, their assets and their families
    from crime and from the Mafia.
        I hope today's session gives us a better sense of how we
    are coordinating this important international effort and, more
    specifically, what we can do to help support key friends and
    allies, such as Ukraine, in carrying out its law enforcement
    activities. General Smeshko, your work is vital to Ukraine's
    security and United States interests, and we are looking
    forward to what you have to say.
        We have been joined by my good friend and colleague, the
    ranking member of the subcommittee, Senator Leahy. And I would
    like to call on him now for whatever observations he would like
    to make, and then, Judge Freeh, we will go to you.

                  opening remarks of senator patrick j. leahy

        Senator Leahy. I thank you, Mr. Chairman. I will make a
    brief statement and put my full statement in the record.
        You are to be commended, Mr. Chairman, for using the
    subcommittee to discuss the problem issues of organized crime
    in the former Soviet Union. Obviously we are not going to see
    real democratic development in any of these countries if
    bribery and intimidation are the rule rather than courts and
    the rule of law. We know what can happen when organized crime
    corrupts governments. And here we are talking about even lapses
    of security at civilian nuclear facilities.
        Director Freeh and General Smeshko, I am delighted to have
    you here.

                               prepared statement

        Rather than go on at length, as I said, I will put my
    statement in the record. I think it is important that we are
    having this hearing and important to see how we can help, and
    how the dollars that we have set aside for this are being
    spent.
        Thank you.
        Senator McConnell. Thank you, Senator Leahy.
        [The statement follows:]

                  Prepared Statement of Senator Patrick Leahy

        Mr. Chairman, I want to commend you for consistently using
    this subcommittee to focus attention and resources on the
    extremely serious problem of organized crime in the former
    Soviet republics.
        These are issues that go to the heart of the development of
    democratic government and the rule of law. They also bear
    enormously on the ability of American companies to do business
    in these countries, where bribery and intimidation are rampant.
    Frankly, if this subcommittee had not made these issues a
    priority I am not sure anyone would have.
        We know a lot about international criminal organizations.
    They have huge amounts of cash, sophisticated weapons, state-
    of-the art communications technology, and a global workforce.
    Corruption of government officials, money laundering,
    counterfeiting, and drug trafficking are all commonplace. The
    possibility of nuclear material falling into the hands of
    terrorists strikes me as one of the most frightening threats we
    face, especially when we hear of the lapses in security at
    civilian nuclear facilities.
        Hundreds of foreign gangs are operating in this country. It
    is staggering to think of the amount of resources, manpower and
    ingenuity it will take to counter this threat.
        It has been two years since our last hearing on this
    subject, and I am very pleased to see Director Freeh and
    General Ihor Smeshko here together. We do not stand a chance of
    solving problems as serious and complicated as this unless we
    cooperate closely. I was a prosecutor for eight years and I
    know how difficult it can be to work together with law
    enforcement officers of another state, not to mention another
    country with different languages, different laws and
    traditions. The United States has a lot to offer, but we also
    have a lot to learn from countries like Ukraine. This needs to
    be a partnership. We both have everything to gain by working
    together.
        In our Fiscal 1998 legislation, we directed that not less
    than $9 million be made available for law enforcement training,
    and not less than $20 million be made available for anti-crime
    programs. We also earmarked $5 million for the Western
    Hemisphere Law Enforcement Academy. These are small amounts,
    but we count on you to make the most of it.
        Mr. Chairman, I will wait until it is my time to ask
    questions to get into the specifics about what we have
    accomplished in the past two years and where we go from here.

                    summary statement of hon. louis j. freeh

        Senator McConnell. Judge, do you want to lead off?
        Judge Freeh. Thank you, Mr. Chairman and Senator Leahy. It
    is always a pleasure to be back before this committee. Let me
    also commend you, Mr. Chairman, on your leadership with respect
    to the work that has been done in this area, but particularly
    the oversight and the support that we have received from you,
    Senator Leahy, and many others. I think it is really
    significant and needs to be highlighted.
        I am very honored to be with my friend and colleague,
    General Smeshko, whom I have known for several years. I would
    like to talk a little bit, if I might, about some of the
    progress that has been made with respect to this very important
    bilateral relationship. I would also like to introduce, on my
    left, Mike Pyszczymuka, who is the FBI legal attache in Kiev.
    He spends much of his time doing the things that I am going to
    talk about and certainly not take credit for.
        The significance of the relationship established by Agent
    Pyszczymuka, who speaks fluent Ukraine, with not only General
    Smeshko, but his colleagues, is that it has given us the basic
    building blocks for a law enforcement structure not just to
    help General Smeshko, which is important, as you both noted,
    for the protection of democratic institutions in the Ukraine,
    but the impact that this has on the United States.
        Most of the cases that Agent Pyszczymuka works have a
    direct impact here in the United States. About 80 percent of
    his work is in direct support of cases which are in FBI offices
    around the country. Captain Kostyuchencko is also a critical
    part of that relationship. After he leaves the hearing today he
    is on his way to Los Angeles, to participate further in what we
    have developed as practical case training initiatives. These
    are actual joint case working assignments by FBI agents here in
    the United States and their counterparts, such as Captain
    Kostyuchencko, in the Ukraine, where we work on cases that have
    significance in both countries, which includes agents working
    in the Ukraine; it includes our colleagues coming here,
    interviewing witnesses and testifying in the grand jury.
        These are the kinds of relationships that not only help to
    solve our cases, but build the relationships that will enable
    our partners to be more successful. We also want to note, as we
    begin the appreciation we have for our Department of State
    colleagues. Ambassador Pieffer, for instance, and his staff, in
    our Embassy in Kiev have been critical, including the regional
    security officer, the chief of station, the military attaches,
    in allowing Agent Pyszczymuka and General Smeshko's colleagues
    to do the work that needs to be done.
        Just to give you a quick example and an overview, we have
    got about 95 pending investigations relating to the Ukraine at
    this time in our Kiev office. Many of these cases directly
    affect U.S. investigations--approximately 65 pending
    investigations in the United States--encompassing organized
    crime, white collar crime, violent crime, and one case of a
    weapons of mass destruction, they are directly supported by the
    assistance we receive from General Smeshko.
        To give you a couple of examples of that relationship, we
    have been working a case out of our Newark office called the
    Red Daisy case. It involves approximately $500 million of oil
    and gas reserves and proceeds being diverted illegally from
    Russia. One of the main defendants in that case, an individual
    named Broner, was a fugitive in the United States since 1993.
    Through General Smeshko and Agent Pyszczymuka's efforts, he was
    not only identified and located in the Ukraine, but he
    surrendered to Agent Pyszczymuka in the Ukraine and made
    arrangements to come back here to the United States.
        The Scherban case is another example. It deals with not
    only the assassination of a People's Deputy in the Ukraine, but
    allegations of $50 million of government fraud. Our
    cooperatioin gives us the ability to investigate in a way which
    we do not have without that.
        We do not want to underestimate the significance of the
    Russian organized crime groups and, their relationships to, as
    you pointed out, Mr. Chairman, the regional governments. There
    are approximately 54 countries around the world that now have
    active Russian organized crime presences, including of course
    the United States where approximately 25 of these groups
    operate. Thirty-four of our field offices are actively
    conducting cases that involve Russian organized crime groups;
    about 70 percent of the groups operating in the United States
    have connections to the Ukraine, which makes this relationship
    so critically important.
        The diversity of these cases is very sophisticated. They
    are not all doing what some of the earlier, traditional
    organized crime groups were known to do in the United States.
    Although 71 percent of them are organized crime-type cases, 20
    percent of them are white collar-type cases. Not only the case
    that I mentioned, but other cases--for instance, $250 million
    in diamonds taken illegally from Russia to the United States--
    are part of the portfolio of cases on which our Legal Attache
    Office in Moscow regularly works.
        Some 55 percent of the violations have to do with fraud
    cases; 22 percent money laundering cases. And the remainder
    murder, extortion and drug trafficking-type cases. As I
    mentioned before, we are directly affected in the United States
    by these cases, which is why the relationships are so
    important.
        There are approximately 8,000 Russian/Eastern European
    groups that have been identified by the Russia Minister of the
    Interior. Many of them involve very powerful and high-ranking
    organized crime members. As you know, Mr. Chairman, one of
    them, a man named Ivankov, was arrested, convicted and
    sentenced here in the United States. But without the support
    and the cooperation of the Russian MVD authorities, that case,
    like many others, might not have been possible.
        The FBI, as you well know, has three general tools that we
    use to not only support these relationships, but work these
    cases. The first one is our Legal Attache Program. We have got
    approximately 32 offices now open around the world, including
    Kiev and Moscow. We have new offices in Tallinn, Warsaw, and
    many of the other countries where, as you noted before, we
    formerly had no relationships whatsoever. Again, 80 percent of
    the work of these legal attaches is in direct support of FBI
    field cases back in the United States. The significance of the
    relationship controls the success of the case.
        About 1 month ago, two 20-year-old American Mormon
    missionaries in Russia were kidnapped. We had to respond very
    quickly in what was a life-threatening situation to see if we
    could resolve that matter. Four years ago, we would not have
    had any capability to effect the successful outcome of that
    case.
        In this particular case, which occurred in a town south of
    Moscow named Sorotov, an FBI instructor had recently instructed
    the police on hostage negotiations and kidnapping. He was on a
    plane within hours, on the ground in Moscow, and our MVD
    counterparts brought him and his colleagues right down to the
    command post. There, they gave input into what in this case was
    a fortunate rescue and apprehension of the subjects by the
    Russian MVD.
        That would have been impossible a short time ago. But those
    are the relationships upon which we now depend. We have such a
    relationship in the Ukraine, particularly with General Smeshko,
    which means not only United States lives, but United States
    interests, can quickly be protected in a manner that would have
    been impossible even a very short time ago.
        The other methodology which we use is the training programs
    that have been very successful, including as you mentioned, Mr.
    Chairman, the International Training Academy in Budapest, which
    you visited in January 1997. The success is not only the 630
    police officers from 20 countries who have trained there, it is
    the bilateral relationships which that academy is now
    fostering.
        For instance, the Ukraine and Hungary have established a
    close working relationship on their border as a result of
    student participation in the Budapest Academy. An other example
    in the Baltic region is between the Hungarians and the
    Rumanians. These are relationships which are being fostered
    because of the importance of that particular academy.
        In terms of international training, very briefly I alluded
    earlier to practical case training. We have done about 40 of
    these sessions since 1996. These are cases where our
    colleagues, not just in the Ukraine but other countries, work
    hand-in-hand with the FBI to investigate and solve cases. We
    have examples of cases from Russia, from Kazakstan, from
    Uzbekistan, from the Ukraine, and from the Czech Republic.
    These are very, very important and, we believe, successful
    endeavors that not only enhance our relationships, but actually
    solve cases and, in many cases, save lives.
        With respect to the overall international training, during
    the past 3 years the FBI has been directly involved in training
    over 18,000 foreign law enforcement officers in 60 different
    countries. This is an enormous network, not only for training
    purposes, but for the liaison that we need to perform our job.
    Many of the cases which are now regularly worked with our
    foreign police partners are done only by virtue of the training
    which your committee has supported through the SEED funding,
    through the FSA funding, through the antiterrorism training,
    and certainly the academy in Budapest.
        These are the building blocks of relationships that not
    only help preserve democracy, particularly in the Newly
    Independent States, but protect Americans and American
    interests. It is a very well and wise investment of resources
    for which we are very thankful to you both, and particularly to
    the committee here.
        I think I will just rely on the rest of my statement, Mr.
    Chairman, which I will submit for the record. Let me make just
    one final point, if I may. And that is the appreciation that we
    have here for the leadership and the dedication of our foreign
    partners and, in particular, since he is with me, today,
    General Smeshko. The leadership and the courage which he has
    shown--and he is a very modest man--but the leadership and the
    courage that he has shown in dealing with a very difficult and
    life-threatening set of circumstances--not just for him and his
    colleagues, but his family--is really a noteworthy achievement.
        The circumstances under which he operates we would not even
    contemplate operating under here in the United States. He has
    shown, through very, very difficult times, and very dangerous
    times, incredible courage and leadership. We are very proud to
    be his partner and we look for many, many ways to support him.

                               prepared statement

        He has dedicated himself to the things that we believe in
    here in the United States. He is practicing those techniques
    and leadership and protocols in the Ukraine at great sacrifice,
    and we are very thankful to him for that.
        Senator McConnell. Well, thank you, Judge. We will make
    your full statement a part of the record.
        [The statement follows:]
                   Prepared Statement of Hon. Louis J. Freeh
        Good morning, Chairman McConnell and members of the Subcommittee. I
    am honored to appear before you this morning and to be accompanied by
    General Ihor Smeshko who leads the Center for Strategic Studies and
    Analysis of the Ukrainian National Security and Defense Council and
    Captain Evgen Kostyuchencko, also of the Council. General Smeshko and
    his agency are one of the several organizations in Ukraine that are
    direct beneficiaries of the training and institution building programs
    that are the focus of this hearing and which the FBI is proud to
    present on behalf of the United States Government. Their presence here
    today stands as a testimony to the commitment by the Government of
    Ukraine to develop modern law enforcement agencies that are based upon
    the rule of law. These two individuals are representative of the
    partnerships that the FBI is developing through its international
    crime, international training, and overseas expansion initiatives,
    partnerships that are of enormous benefit to the FBI and other U.S. law
    enforcement in our collective effort to enforce U.S. law and protect
    American citizens.
        Mr. Chairman, I would like to thank you and the members of the
    Subcommittee for the opportunity to discuss the threat posed to the
    United States by international crime, including that from Russian and
    Eastern European crime groups, and the international law enforcement
    initiative and programs developed by the FBI. I would also like to
    thank you for your long-standing interest and support of law
    enforcement training world-wide, especially in Eastern Europe and the
    countries of the former Soviet Union. I know you have taken a personal
    interest in Ukraine, and I am pleased to tell you about the continued
    cooperation we have received from Ukrainian officials through our Legal
    Attache office in Kiev.
        Through our office in Kiev, the FBI has a number of ongoing money
    laundering and financial fraud cases. In addition, this joint
    cooperation led to the extradition of a United States Federal fugitive,
    despite the absence of an Extradition Treaty. Jeffrey Broner, a
    fugitive since 1993, was the only remaining defendant originally
    charged in a New York gasoline bootlegging investigation who had not
    been convicted in Federal Court. Broner is alleged to have played a
    part in a significant tax evasion scam from the late 1980s and early
    1990s. He fled the United States shortly after a warrant was issued for
    his arrest and had remained in Ukraine since that time. Thanks to the
    developing relationships with Ukrainian officials, we were able to
    bring Broner back to the United States to face this charge.
                     the need for international cooperation
        In recent years, the FBI's domestic law enforcement and national
    security missions have expanded and changed. In the first half of this
    century, the FBI earned its reputation as a preeminent law enforcement
    agency because of our success in response to the advent of interstate
    crime that swept the United States. As we approach the beginning of the
    21st Century, the United States now faces the increasing globalization
    of crime and criminal organizations. This growth of transnational
    crimes has been aided by the explosion in computer and
    telecommunications technology.
        In a global economy, the United States is increasingly affected by
    crime originating in other countries. Criminal activities ranging from
    telemarketing fraud and financial institution fraud, to the more
    traditional drug and organized crime, come regularly to our shores.
    Sadly, terrorism has come as well. The international exporters of crime
    and terrorism, who seek to capitalize on vulnerabilities in free
    societies and open markets, include South American drug cartels,
    terrorists from the Middle East, and an array of organized crime groups
    from Europe, the former Soviet Republics and Asia. Regardless of
    origin, these and other international crimes impact directly on our
    citizens, often violently, and on our economy.
        One of the most difficult challenges facing law enforcement is how
    rapidly criminals and terrorists--both domestic and international--
    adopt advanced technologies to thwart the ability of law enforcement to
    investigate those who wish to do harm to our Nation and its citizens.
    That is why encryption has become the most important technology issue
    confronting law enforcement.
        Widespread use of robust non-recoverable encryption is beginning to
    devastate our ability to fight crime and terrorism. Uncrackable
    encryption allows drug lords, terrorists, and even violent gangs to
    communicate about their criminal intentions without fear of outside
    intrusion. This type of encryption also allows these same people to
    maintain electronically stored evidence of their crimes beyond the
    reach of law enforcement.
        For example, convicted spy Aldrich Ames was instructed by his
    Soviet handlers to encrypt computer file information that was to be
    passed to them. Ramzi Yousef, convicted with others for plotting to
    blow up between five and twelve United States owned commercial
    airliners in the far east, used encryption to protect criminal
    information on his laptop computer. Major international drug
    traffickers are increasingly using telephone encryption devices to
    frustrate court-authorized electronic surveillance. Unfortunately,
    these types of situations will occur with more frequency as inexpensive
    encryption becomes more readily available to the public.
        Developing a balanced approach to robust encryption is an extremely
    serious public policy issue. The Administration has launched a focused
    initiative to work closely with the information technology industry to
    develop technical and policy solutions that represent balanced
    approaches to strong encryption. However, we need the cooperation of
    all affected parties--law enforcement, private industry, government
    officials, members of Congress, and the American public--to create a
    solution which can protect individual privacy rights and permit law
    enforcement to fulfill its duties to protect the people from illegal
    and unlawful activities.
                      international organized crime threat
        International organized crime is an immediate and increasing
    concern not only for United States law enforcement, but also for the
    worldwide law enforcement community. International organized crime
    groups are engaged in a myriad of criminal activities that include:
    murder; extortion; corruption of public officials; bribery; drug
    trafficking; money laundering; financial fraud; kidnaping;
    prostitution; arms smuggling; and alien smuggling.
        The widespread political, economic, social and technological
    changes and advances occurring within the last two decades have allowed
    these groups to become increasingly active worldwide. These criminal
    organizations are exploiting the increased ease of international
    travel, liberalization of emigration policies, expansion of free trade,
    high technology communications and sophisticated money laundering
    techniques to further their criminal efforts. The ability of
    international organized crime groups to adapt to these changes has
    hindered law enforcement efforts against them.
        Russian, Eastern European, and Eurasian criminal groups will pose a
    significant domestic problem for the U.S. in the future if they are not
    checked by law enforcement efforts. Russian Federation Ministry of
    Interior (MVD), Organized Crime Control Department officials report the
    existence of over 8,000 Russian/Eastern European/Eurasian criminal
    groups. There are allegedly over 150 ethnic-oriented criminal groups,
    including the Chechens, Georgians, Armenians and Russian-ethnic
    Koreans, of which 25 are active in the United States. Russian
    authorities also report the existence of some 750-800 so-called
    ``Thieves-in-law'', the Godfathers of the ``Russian Mafia.''
        To date, Russian/Eastern European/Eurasian criminal groups in the
    U.S. have shown an ability to work closely with established American
    criminal elements, including the American La Cosa Nostra (LCN), Italian
    organized crime groups, and drug trafficking organizations. For
    instance, ties with the LCN date to at least 1983, when the head of the
    Organizatsiya in New York forged an agreement with the Colombo,
    Gambino, Luchese, and Genovese New York LCN families. The business
    relationship was centered on gasoline excise tax schemes and a payment
    by these groups of a per-gallon ``mob tax'' for gasoline sold in LCN-
    controlled areas. In return, LCN families would settle disputes,
    provide protection, and provide stability to the ``bootleg'' fuel
    market. As law enforcement efforts against established organized crime
    groups in the U.S. has become increasingly successful, Russian/Eastern
    European/Eurasian criminal elements are moving to fill the voids left
    by the other criminal groups.
        Unlike some of the other ethnically-oriented organized crime groups
    in this country, the Russian/Eastern European/Eurasian criminal groups
    appear to gravitate at an earlier stage toward complex criminal
    activities, such as gasoline tax frauds, cyber security, bankruptcy
    fraud, insurance frauds, and health care industry frauds. That level of
    sophistication, coupled with a documented tendency toward violence,
    indicates that these criminal groups are becoming a significant
    criminal elements in the U.S.
        Russian/Eastern European/Eurasian criminal groups in the United
    States are most visibly organized in the major metropolitan areas of
    Los Angeles, San Francisco, Philadelphia, New York, Newark, Boston and
    Miami. Factions of these criminal groups have aligned themselves with
    the New York La Cosa Nostra families in certain criminal activities.
    While the so-called ``Russian Mafia'' appears to prefer economic crimes
    such as credit card, insurance, and gas excise and other tax fraud for
    larger schemes, they also engage in extortion, robbery, theft, murder,
    and drug trafficking.
        Vyacheslav Kirillovich Ivankov is a high-level Russian organized
    crime leader known to have taken up residence in the United States.
    Ivankov arrived in the United States in March 1992, reportedly to
    establish control of and direct Russian/Eurasian organized crime
    activities in this country. In 1995, Ivankov and five of his associates
    were arrested by the FBI in New York on federal charges of conspiracy
    to commit extortion. Much of the predication for this investigation was
    provided by the Russian MVD and the Canadian RCMP. In 1996, Ivankov was
    convicted and sentenced to a 9-year and 7-month term of incarceration.
    Ivankov was clearly one of the most notorious Russian organized crime
    figures operating at that time. Although he was based in New York, his
    criminal enterprise was truly global and posed serious threats to a
    number of countries.
             elements of the fbi's response to international crime
        There are three key elements to the FBI's international law
    enforcement initiative. First, the FBI must have an active overseas
    presence that fosters the establishment of effective working
    relationships with foreign law enforcement agencies. There is already a
    well-documented history of our Legal Attaches who have drawn upon their
    investigative experiences and backgrounds and enlisted the cooperation
    of foreign law enforcement on innumerable cases enabling the arrest of
    many U.S. fugitives and solving serious U.S. crimes.
        Second, training foreign law enforcement officers in both basic and
    advanced investigative techniques and principles is a powerful tool for
    promoting cooperation. We use the FBI's National Academy program as our
    model. For decades it has fostered comity with state and local law
    enforcement agencies.
        Finally, institution building is necessary to help establish and
    foster the rule of law in newly democratic republics. Establishing rule
    of law will promote greater confidence and stability in these new
    governments by their citizens. Fostering the development of democratic
    principles in these countries will not only protect United States'
    interests and citizens in those countries, but also bring stability to
    a region which has been fraught with strife throughout its history.
        These three elements draw upon my own experiences with the Italian-
    American Working Group (IAWG) when I served as an agent and a federal
    prosecutor. This group continues to show how effective the cooperative
    effort between United States and Italian law enforcement is. The IAWG
    mounted a coordinated and sustained attack against the Sicilian mafia.
    The success of the IAWG framework resulted from developing cop-to-cop
    partnerships and focusing upon a common and agreed upon strategy.
        We are working with our law enforcement partners in Central Europe
    and elsewhere to replicate this framework. The Central European Working
    Group, sponsored by the FBI, consists of 13 nations focused on the
    identification of common law enforcement threats and the establishment
    of lines of communication among partners. Through the working group, we
    are strengthening working relationships and leveraging resources
    against organized crime groups and individuals involved in
    transnational criminal activities.
        I firmly believe the FBI's initiatives in response to the problem
    of international crime are based upon sound and proven approaches that
    have been successfully used here and abroad. This approach must now be
    extended to other partners in the international arena.
                             legal attache program
        The first element of the FBI's international law enforcement
    initiative is our Legal Attache program. The FBI has long recognized
    the need for assigning personnel to American embassies abroad, and
    first began assigning personnel abroad during World War II. Agents who
    serve as Legal Attaches are among our most experienced investigators.
    They possess appropriate security clearances, and, with very few
    exceptions, are fluent in the language of the country to which they are
    posted.
        Legal Attaches are the FBI's first line of defense beyond our
    borders. They are part of a permanent presence that is alert to the
    potential perils around the world. Their goals are simple--to keep
    foreign crime as far from American shores as possible and to help solve
    as rapidly as possible those international crimes that do occur.
        Finally, it is important to emphasize that FBI Agents stationed
    overseas are not intelligence officers or shadow intelligence officers.
    They do not engage in espionage. FBI Legal Attaches are in place to
    facilitate the international battle against crime and terrorism by
    establishing operational links with foreign law enforcement and
    security agencies.
        At the present time, the FBI operates 32 Legal Attache offices
    around the world, staffed by 82 agents and 61 support employees. During
    1997, these employees handled over 19,200 investigative matters,
    ranging from kidnaping to drug trafficking, from terrorism to money
    laundering, from financial fraud to extortion. These agents and support
    staff serve as the conduit through which law enforcement information
    and cooperation flow between the United States and its foreign
    partners.
        All FBI field offices have sought Legal Attache assistance in
    covering leads, with the largest portion coming from major metropolitan
    offices. More than 80 percent of the current case load handled by Legal
    Attache offices is in direct support of domestic FBI investigation not
    only covering leads, but organizing the arrest and extradition to the
    United States of wanted criminals.
        The Legal Attache office in Moscow--opened in July 1994 as part of
    our expansion plan--provides an excellent example of the success of our
    overseas program. When our office in Moscow opened, it started with a
    caseload of approximately 35 cases; three years later, that caseload
    has grown to 185, covering some 660 leads from domestic FBI
    investigations. We opened the Moscow office after we found Russian-
    related crimes were increasing in certain United States cities. We
    quickly learned, as a result of increased inquiries from FBI field
    offices and growing cooperation with Russian authorities, that the
    problem was more extensive than we had thought.
        The cooperative professional relationships which we have worked to
    develop recently proved their worth. On March 18, two twenty-year old
    Americans serving as missionaries for the Mormon Church in Saratov,
    Russia, were assaulted and kidnaped. The victims were lured to an
    apartment by individuals posing as potential converts. After being
    assaulted, the victims were bound, gagged and blindfolded. They were
    held hostage for five days while their captors demanded $300,000 ransom
    from the Mormon Church. The Moscow Legal Attache office, in conjunction
    with the Regional Security Office of the U.S. Embassy, began
    coordinating with Russian law enforcement officials immediately. The
    FBI dispatched a Russian speaking Special Agent who was trained in
    hostage negotiations and was familiar with the Saratov area and local
    Russian law enforcement personnel to Moscow. Within hours after his
    arrival, the victims were released without any ransom being paid. Three
    days later, the Russian Federal Security Service arrested the
    kidnappers.
        In 1997, an employee of a Jacksonville, Florida, armored car
    company perpetrated a robbery of almost $19 million in cash. This
    individual was arrested crossing the Mexican border back into the
    United States. Investigation conducted by our Legal Attache in Mexico
    City identified the hiding place for the stolen money in North
    Carolina. As a direct result of the Legal Attaches efforts, 99.4
    percent of the stolen money was recovered. In this one case alone, an
    FBI Legal Attache contributed to a recovery of $19 million, almost two-
    thirds of the FBI's 1997 operating budget of $28.7 million for its
    overseas offices.
        This past December, FBI Top Ten Fugitive Thang Thanh Nguyen was
    arrested by the People's Police of Vietnam. After his arrest, Nguyen
    was transported to Bangkok, Thailand, by the People's Police, where he
    was turned over to a team of FBI Agents and then escorted back to the
    United States. Nguyen was being sought on murder charges stemming from
    a 1992 New York home invasion robbery during which he allegedly shot a
    victim in the stomach and the head.
        This arrest came about as a result of close cooperation between the
    Government of Vietnam, the United States Ambassador to Vietnam, the
    United States Ambassador to Thailand, the Diplomatic Security Service
    of the Department of State, the FBI Legal Attache in Bangkok, the
    Monroe County District Attorney's Office and Irondequoit Police
    Department in New York, and the FBI's Buffalo Field Division.
        These case examples, of which there are many more, represent a very
    sound return on Congress' confidence and investment in our Legal
    Attache Expansion Program. Legal Attaches need to be stationed where
    they can have access to information in a timely fashion, where other
    foreign law enforcement colleagues can provide this information in an
    arms-length fashion. Even if we cannot prevent a Khobar Towers bombing,
    we need the capability to respond without delay. The FBI is currently
    completing a threat-based assessment for existing and proposed Legal
    Attache offices. We hope to submit our findings to the Congress in the
    next few months.
                        international training programs
        The second element of the FBI's international law enforcement
    initiative is training. Training of foreign law enforcement officers is
    particularly critical to combating international crime. In addition,
    citizen confidence in law enforcement agencies depends upon the
    development of professional law enforcement officers who understand and
    operate under the rule of law. In return for this investment in
    training programs, the FBI is able to work cooperatively with foreign
    law enforcement agencies that share a common perspective and
    understanding of investigative procedures. During the past three years,
    the FBI has provided training for over 13,000 foreign law enforcement
    personnel from over 60 countries.
        Through a program of in-country training, the FBI conducts one and
    two-week schools which are designed to meet a country's particular
    training needs. The schools concentrate on subjects such as basic and
    advanced police operations, technical skills, ethics, and internal
    police controls. Senior FBI agents serve as instructors, bringing their
    knowledge and expertise to these programs. Their credibility is not
    only essential for effective instruction, but also very effective for
    building the cop-to-cop bridges that we so critically need.
        Practical Case Training (PCT) is also an important part of the
    FBI's international training program. Practical Case Training is an on-
    the-job training program that enables foreign police entities and FBI
    agents to work together on actual investigations of mutual interest,
    such as money laundering, bombings, bank fraud, fugitives, drug
    trafficking, and crime scene investigation. In 1997, the FBI conducted
    14 Practical Case Training initiatives.
        This program has resulted in a number of successful investigations.
    For example, under this program, Russian Federation Ministry of the
    Interior (MVD) officers traveled to the FBI's New York field office to
    participate in an unprecedented cooperative investigation targeting the
    aforementioned Russian organized crime figure Yvacheslov Kirillovich
    Ivankov. Russian MVD officers working side-by-side with FBI Agents were
    able to recognize and decipher codes used by the Ivankov organized
    crime group. This cooperation immeasurably aided the investigation and
    directly led to the conviction of Ivankov and his associates.
        Under the auspices of the Department of State's Antiterrorism
    Training Assistance program, and working with the Department of
    Defense, the FBI has also developed three training courses which
    attempt to counter threats of concern to the United States. These three
    courses include: Major Case Management, Terrorism Crime Scene
    Management, and the Criminal Justice Executive Forum. Each two-week
    course provides senior level law enforcement officials with leadership,
    management, and organizational concepts and experiences that are
    critical to the direction of national law enforcement agencies and to
    the coordination of multi-agency crisis management policy and strategy.
    In 1997, the FBI taught six courses for six countries under this
    program. We plan to conduct eight courses for eight countries during
    1998.
                     international law enforcement academy
        The third element of the FBI's international law enforcement
    initiative is the International Law Enforcement Academy, or ILEA, in
    Budapest, Hungary, which opened in April 1995. The FBI serves as the
    lead agency for coordinating activities at the ILEA in Budapest.
    Operating funds for the Academy are provided by the Department of
    State.
        The ILEA in Budapest serves as a law enforcement training center
    for officers from Eastern Europe, Russia, Ukraine and the Baltic
    states. The Academy is currently hosting its fifteenth session. After
    that class graduates in May 1998, 632 students from 20 countries will
    have completed the eight-week program at ILEA.
        Instructors at the Academy represent a true cross-section of
    federal law enforcement agencies, including subject experts from the
    FBI, Drug Enforcement Administration, Bureau of Alcohol, Tobacco, and
    Firearms, United States Customs Service, and the Federal Law
    Enforcement Training Center. We have also used law enforcement
    instructors from other countries and the European Law Enforcement
    College.
        Training at the Academy can also be customized to meet the needs of
    participating countries. In 1997, 19 specialized courses were conducted
    by 6 different United States Government Agencies. For example,
      --The FBI and the Department of Defense provided counter-
            proliferation training to law enforcement officers from the
            nations of Kazakhstan and Kyrgyzstan. This training is of
            international importance in preventing hostile nations from
            obtaining nuclear weapons capabilities and in preventing
            terrorist groups from obtaining nuclear materials that could be
            used against the United States.
      --An FBI course on organized crime was attended by 22 students from
            Austria, England, Hungary, Israel, Romania, Slovenia, and the
            United States; and,
      --The United States Secret Service taught a counterfeiting course for
            53 students from Belarus, Ukraine, Russia, the Czech Republic,
            Slovakia, and Estonia.
        Through the Academy we are building cop-to-cop relationships not
    only between law enforcement from the United States and participating
    countries, but also between officers from participating countries
    themselves. For example,
      --Hungarians and Romanians have executed various memorandums of
            understanding (MOU's) because of their introduction to various
            officials while attending ILEA. These law enforcement MOU's
            were the foundation for national treaties between the countries
            regarding human rights and minority issues;
      --Ukraine and Hungary have established a close working relationship
            on their border as a result of their students attending the
            Academy. Together, they have apprehended organized crime
            members that have ties to the United States;
      --Baltic countries have sought FBI assistance on organized crime
            matters that directly affect United States national security.
            It was former ILEA graduates who spearheaded the contacts with
            United States law enforcement; and,
      --Polish students used techniques learned at the Academy to detect
            and subsequently dismantle a clandestine drug laboratory. Some
            of these drugs were destined for the United States.
        The immense success of the ILEA in Budapest demonstrates the need
    for additional training academies. For example, the establishment of an
    ILEA to serve Asia is being negotiated with the Royal Thai Government.
    The FBI looks forward to joining the Drug Enforcement Administration in
    the leadership of ILEA Asia.
                                    summary
        We are confronted on a daily basis with the reality that the safety
    and security of American citizens is increasingly threatened here and
    abroad by criminals who know no boundaries. The only way to reduce that
    threat is to create and develop substantive international links--
    personal networks of law enforcement professionals dedicated to
    bringing these criminals to justice. The FBI is addressing the threat
    of international organized crime and terrorism through the
    international law enforcement initiatives that I have just described.
    The overseas program of the FBI is the most effective tool available in
    protecting our Nation from the threat of international organized crime
    and global terrorism. Increasingly, crime in the United States is
    influenced from outside our borders. It is essential that we have
    experienced FBI personnel posted in foreign countries to enable us to
    get the information we need to accomplish our domestic mission.
        The funding that Congress provides under the auspices of the
    Department of State's International Narcotics and Law Enforcement, the
    Freedom Support Act, the Support for Eastern European Democracies, and
    the Antiterrorism Training Assistance programs is absolutely critical
    for the FBI and other federal law enforcement agencies to provide
    necessary training and institution building support to our colleagues
    from Eastern Europe and around the world. These programs allow United
    States law enforcement to build bridges of cooperation and
    understanding with their foreign counterparts at the investigator
    level. Such bridges and relationships are among the most positive steps
    the United States Government can take to keep foreign crime problems
    from reaching the shores of America.
        In just a few, short months from today--in July--the FBI will
    celebrate its 90th birthday. Since its beginning in 1908, the FBI has
    built a distinguished record of serving the American people by
    effectively recognizing and responding to the crime and national
    security challenges of our times. As I look ahead toward the challenges
    that will face the FBI as it approaches the 21st Century, I am
    confident that the FBI's international perspective and the support of
    this Committee and Congress have given our international efforts will
    serve as major factors in our Country's ability to address the
    globalization of crime and terrorism.

                     summary statement of gen. ihor smeshko

        Senator McConnell. General, do you have some opening
    observations you would like to share with us?
        General Smeshko. Thank you, Mr. Chairman.
        Dear Mr. Chairman, Senator Leahy, ladies and gentlemen,
    first of all, I would like to express my appreciation to thank
    you very much for this kind opportunity to be together with one
    of the most respected professionals in his area in the world,
    Director Freeh, and to participate in the discussion.
        The subject of the discussion has a great deal of
    importance for my country. My country earned its newly
    independent position only 6 years ago. And the country, of
    course, right now is in a very difficult situation of
    transition to a free market economy and to democracy. This is
    integration in a civilized world. And all this is in the
    situation with change in the system of property, converting
    state property into private property, with an enormous
    explosion unfortunately of organized crime and corruption
    activity.
        My President described organized crime and corruption as
    one of the main national security issues. Right now Ukraine
    does not face any kind of military threat abroad. The main
    threat is right inside the country. If we will fulfill the task
    for transition, the country will be a free market. And if we
    will raise the level of life of our people, we will have our
    independence, and we will find at last our place with the
    civilized world.
        But to achieve this result without inviting international
    organized crime and corruption, it is impossible. I remember
    when I first heard the words mentioned by Director Freeh in
    1995 in Washington, that one of the national security
    priorities of the United States is also to combat international
    organized crime. I was struck, and right now, being in my
    position, I would say that Director Freeh was one of the first
    in the United States, one of the first who really recognized
    this new situation in the world.
        Free democracy, I would say was not prepared for the
    development in this area after the end of the cold war. All
    benefits of democracy, the possibility to freely travel around
    the country, possess a great deal of danger because crooked
    people with enormous resources of money and the criminal
    mentality can penetrate free, democratic societies. This is
    just like a cancer which might really infect, in many cases,
    the capability to expand democracy and prosperity all around
    the world.
        Unfortunately, by my experience I would say that right now
    the main organized crime group in the Ukraine and their leaders
    already have the ability to receive very easily green cards or
    citizenship in some Western countries. This is my personal
    opinion, but I think it is not very wise to have laws in which
    individuals who have made an investment in a country can get a
    green card.
        It only costs $500,000 for some mobsters. This is just like
    having lunch downtown in Washington, DC.
        Senator McConnell. Well, that is true. I have been in some
    of those restaurants. That is just about what the bill is, too.
    [Laughter.]
        General Smeshko. And unfortunately they are much faster
    than us. They have more resources. And they do not have the
    restriction of the parliaments to change information. Facing
    this threat is possible only with the international cooperation
    of the law enforcement and intelligence communities. And I am
    very proud and glad that the FBI, with Director Freeh, was the
    first service which basically gave us a hand in this area.
        Once again, I would like to thank you very much for this
    kind opportunity. This is a great honor for me to be with you.
    And I would like to assure you that my country will do its best
    to be not only a recipient of the security which is from the
    West, but a contributor to the security.
        Thank you so much, Mr. Chairman.

                          counterterrorism activities

        Senator McConnell. Thank you, General Smeshko. Again, we
    are really pleased that you are here today.
        Let me lead off, Judge Freeh, before turning to the working
    relationship with Ukraine, I wanted to ask your thoughts on
    news accounts which suggest that the National Security Council
    will have greater operational and budgetary control over
    counterterrorism activities. While I see some merit in
    improving coordination, I am troubled by the notion that White
    House staffers may become involved in decisions best left to
    law enforcement professionals.
        As we have discussed in this subcommittee before, the White
    House staff already has a questionable track record on
    personnel file searches and inappropriate requests for
    information on current FBI investigations. I for one would
    strongly oppose expanding the staff's involvement or control
    over activities such as wiretapping.
        So I am just wondering if you have any reaction to these
    news accounts?
        Judge Freeh. Senator, with respect to the issue at large,
    we have been in discussions, not only myself but the Attorney
    General, with the NSC, as well as the Department of the
    Treasury, to improve what would be the appropriate coordinating
    role that the NSC should certainly play in matters of national
    security. I have taken the position that under the existing
    authorities, particularly PDD-39--in which the FBI is
    designated as the lead U.S. agency for counterterrorism, in
    terms of operational control and decisionmaking--ought to be
    maintained because of the importance of keeping that kind of
    responsibility on an operational level as opposed to a policy
    level.
        We have some other matters that need to be resolved. We
    are, I can assure you, pursuing those matters with the National
    Security Advisor, as well as the other departments that are
    affected. And we are hopeful that the end result will be more
    coordination without diluting the operational responsibilities
    that I believe should stay where they are under PDD-39.
        Senator McConnell. OK, well, thank you for your
    observations about that. Now, let us turn to the subject at
    hand.
        General Smeshko, what kinds of crime are you seeing emerge
    today in Ukraine compared with, for example, 5 years ago? Are
    we seeing more violent crime, for example, compared with fraud?
    Or, is there growth in every area? Also, have you seen an
    increase in cases involving illegal smuggling of conventional
    or nuclear weapons or material?
        General Smeshko. Thank you, Mr. Chairman. As my best
    knowledge, really, the level of crime in Ukraine is increasing,
    unfortunately. Mostly this is connected with the money
    laundering issue. This is just like a vacuum cleaner, which is
    taking the money from the country. Some people have access to
    the privatization of the state enterprises, using this
    possibility to get the energy and other resources for much less
    than world prices and resell them for much higher prices
    abroad.

                              criminal activities

        All this combined together with unfortunately the criminal
    activities of just average criminals. This mixture together
    gives quite a lot of problem to the country, in which there is
    not established proper legislation to combat this crime. And
    the level of corruption in some government bodies is very high.
        Senator McConnell. This includes, I assume, the judiciary?
    In other words, even if you were able to apprehend these
    people, what are the chances of your getting a conviction and a
    sentence of some consequence?
        General Smeshko. In my country, there was not a revolution,
    which is just great. We are very proud that Ukraine had not a
    single drop of blood. And we are evolutionary. From 1991, we
    have developed a democratic society. We peacefully adopted the
    constitution. We peacefully changed the second president. We
    have now the third parliament. But still it gives us a great
    deal of burden on establishing a real democratic tradition.
        And the struggle for power in the country between the left
    and right side, I would say, combined together with the
    struggle and access to privatization of the hugest enterprises,
    creates a very difficult situation. We have the problem with
    the proper training on the personnel side, especially the
    youngest generation of law enforcement. The judicial system
    also is not prepared properly for acting in the free market
    economy, and with the many cases which simply were not even
    predictable in previous years.
        All this together results in a very, very difficult
    transition and distrust. For example, the National Bureau of
    Investigation was created in my country by the executive order
    of the President. Right now, the Parliament thinks that this is
    not a constitutional body. We have the second chairman, but a
    National Bureau of Investigation has not been adopted by the
    Parliament into law. And it is very difficult right now for
    many even to understand who is right. Because by the
    Constitution, the President has the right to create the
    governmental body, fulfilling the national security priority
    for the President.
        The Parliament thinks that this is supposed to be adopted
    by the Parliament. And in the Parliament you have one-half of
    the Parliament on the left side, which simply thinks about the
    new state. It is all very painful and reflects the struggle
    with organized crime and corruption.
        Senator McConnell. Is crime and corruption worse now than
    it was under the Soviet system, or is it just more apparent
    now?
        General Smeshko. During the Soviet period, there was
    corruption also. But it was not in the media. It is very
    difficult to compare. Who knows? Maybe in those days it was
    even more huge.
        I think right now the level of corruption in the government
    is really high. But I would not say that this is the red line
    under which it just might be the crisis for all governmental
    bodies.
        Senator McConnell. It certainly runs the risk of giving
    democracy a bad name, does it not?
        General Smeshko. Yes; exactly. It is very difficult to
    maintain a democratic way of development of the country, and at
    the same time to have the hard hand to fight these things. But
    right now my President is really very committed to proceeding
    with the democratic, evolutionary way of developing this. And,
    by the way, that is why he thinks that the creation of the
    National Bureau of Investigation, which would be the new
    organization taking the best professionals from other law
    enforcement and, on the new base, struggle with this evil,
    might be very beneficial to the country.
        We hope that the next Parliament, which will be elected in
    March, will adopt the law of the National Bureau of
    Investigation and will proceed with the jurisdictional reform
    in the country.

                               illegal smuggling

        Senator McConnell. Let me just turn to some specific areas
    of crime. What about illegal smuggling of conventional or
    nuclear weapons?
        General Smeshko. Sir, with the smuggling of, let us say,
    fissionable material, I would assure that Ukraine right now has
    a very good record on this. First of all, right now in the
    territory of Ukraine, there is not a single nuclear charge. We
    have fulfilled all our obligations of the START I treaty, and
    we did get rid of the third nuclear arsenal in the world.
        Right now it might deal only with fissionable material in
    the nuclear reactors. But protection is very good. And we had a
    single case in the country in which it might be a real threat.
    We had information, criminal intelligence information, that
    there was negotiations with some organized crime group just to
    know the price and possibility of distributing these
    fissionable materials to some foreign organized crime group.
        But our investigation did show that it was not originated
    with the Ukrainian fissionable materials. And until now I would
    not say that it would be the biggest problem or the real
    problem.
        Senator McConnell. How about conventional weapons?
        General Smeshko. Conventional weapons, this is really the
    question of a great deal of concern for all law enforcement and
    intelligence agencies of my country. Ukraine used to have a
    huge stockpile of the armaments which was left after the
    collapse of the former Soviet Union. And a few days ago there
    was a change of the chairman of the Opraspetz Export, the state
    enterprise which run the selling of these arms. I would say
    this is one of my priorities in my job, to check those people
    who did not have authorization to sell conventional arms to
    foreign countries.
        Right now we have had a single case in which we would
    prosecute crooked people who did a great deal of business in
    this area. But we have stopped a lot of attention by some
    businessmen, by some persons, which had negotiations in this
    area. But I can assure you, sir, that this is one of the
    highest priorities for the intelligence community and law
    enforcement. And right now, the export control system in my
    country, with the help, by the way, of the United States, I
    would say has a very good level of protection.
        Senator McConnell. At various times in this country, auto
    theft has been a big problem. What about auto theft in Ukraine,
    is that a big problem?
        General Smeshko. Yes; unfortunately, yes. You see, Ukraine
    is in the center of Europe. And we are a transit point for cars
    which might be stolen in Germany, Poland and other countries.
        Our Minister of Interior Affairs made a great deal of
    efforts right now to track the things. And, by the way, we have
    good cooperation in this area with the German police, with the
    Polish police. We recognize this problem and are trying to work
    hard. I think in the last 5 to 6 months especially, there is
    improvement in combating this kind of crime.

                          sophistication of criminals

        Senator McConnell. One final question before turning it
    over to Senator Leahy. And that is, how would you describe the
    criminals themselves these days in Ukraine? How sophisticated
    are they? Are these people talking in phone booths, using
    passwords, or do they have encryption devices for
    telecommunications and computers? Just how sophisticated are
    the criminals you are dealing with in Ukraine these days?
        General Smeshko. I see, sir. I see. You see, right now the
    criminals are becoming richer, wiser, and especially the first
    level of the real criminals which are right now, I would say,
    the mobs of the organized crime groups. They are trying to be
    more engaged not in the criminal activities just like the
    murder of other real villains, they try to buy state
    enterprises. They try to be engaged in investment in profitable
    enterprises. They are using very sophisticated equipment.
        Senator McConnell. Are they connected to organizations in
    Russia? Is there an interconnectivity between these people?
        General Smeshko. In Ukraine we have an organized crime
    group which is connected with all our neighbors and even with
    your country. And I could not right now name a single real
    organized crime group in my country which did not have a
    connection with your country or just simply did not travel here
    and have negotiations with your gangsters.
        Senator McConnell. So they are not connected with the
    United States or they are connected with the United States?
        General Smeshko. They are connected, yes.
        Senator McConnell. And with Russia?
        General Smeshko. Yes, sir; of course. There are clear
    connections between them.
        And, last, they are using more and more sophisticated
    equipment. I am personally a doctor of cybernetics. And I would
    tell you this is a great deal of danger additionally, because
    we have a very highly trained population, especially in the
    technical area. We had some information a few months ago that
    two students of the highest 5-year term at university were
    requested to make a quite sophisticated encryption device for
    the laptop. And they made this encryption program on a CD-ROM,
    a very sophisticated program, which was requested from one of
    the chiefs of the organized crime groups.
        And that is a real threat. I think in this case your
    country also was supposed to have the lead to fight this area.
    Because in the future, if they will start to use the real
    encryption devices, it would be very difficult to track and to
    prosecute this activity. They have enormous money. For them
    $100,000 is nothing to buy equipment from Motorola and Matra,
    Sejam, satellite communication, good laptop computers, or
    equipment for encryption or good-brained guys who might just do
    for them things like an encryption program.
        Senator McConnell. Senator Leahy.

                               nuclear materials

        Senator Leahy. Thank you, Mr. Chairman. I may want to
    follow up on that, too, but first I will follow up on another
    question of Chairman McConnell's on the issue of nuclear
    material. I understand the situation in your country. And
    incidentally I have been to Kiev and I have traveled in that
    area. I worry about the lack of safeguards on nuclear material.
        As I understand it, you could make a fairly crude nuclear
    bomb with only this much plutonium. It would be hundreds of
    times more powerful than the bomb that destroyed our Federal
    building in Oklahoma City, which caused tremendous loss of
    life. And Senator Nunn, a former member of this body, called
    this the No. 1 national security challenge we face, the fact
    that terrorists might get nuclear material.
        I wonder if I could ask you both, General, both you and
    Director Freeh, which of the former Soviet Republics, besides
    Russia, currently possess highly enriched uranium and how much
    are we talking about?
        Judge Freeh. Yes; there are a number of countries, Senator.
    And I think most of that material, as far as we are privy to
    it, is confirmed by the Department of Energy as well as other
    U.S. program identification. I can harken back to your
    reference to Senator Nunn. The Nunn-Lugar funding, which the
    Senate and the House have provided, has been directed toward
    the countries where the material is available and also where
    security controls are issues to be resolved and hardened.
        For instance, that funding has been used to train police
    officers in Kazakhstan, Uzbekistan and Kyrgyzstan. In fact,
    Uzbekistan police officials are in the United States this week
    to receive Nunn-Lugar nonproliferation training. This is law
    enforcement/security-type training to not only harden and
    solidify the storage of these materials, but also to develop
    intelligence networks and protocols for investigating what I am
    sure General Smeshko could tell you about in great detail,
    which is the offering for sale of what sometimes purports to be
    fissionable material and which in most cases thankfully has
    been bogus material.
        The counterproliferation assistance program, which has been
    funded under the Nunn-Lugar program, has been made available to
    the countries, as I mentioned, where we think there is some
    jointly agreed upon need and vulnerability. As to the
    particular materials in the various countries, I would have to
    get back to you with the amounts.
        Senator Leahy. Well, in fact, one of the things to be
    concerned about is some of the lower-grade material in civilian
    nuclear plants. Some of the reports I have read describe very
    limited amount of security, perimeter defenses and checking. In
    fact, somebody suggested that some of the nightclubs in Moscow
    have stronger security than some of the places where the
    nuclear material is, some of the civilian nuclear powerplants.
        If you have got a bank in Moscow or a nightclub in Moscow
    that is better protected than a nuclear powerplant, you have to
    worry. Is it a problem? Maybe a better way of putting it, one
    of the biggest threats we could face would be nuclear blackmail
    or nuclear terrorism. And my concern is how vulnerable we are.
        Now, you have mentioned, Director Freeh, sometimes there
    are bogus sales being made, and we have heard of those. But do
    we have the kind of cooperation necessary that if any one of
    these countries gets a report that real nuclear material,
    fissionable material, is missing, can we start tracking it from
    the highest levels from country to country?

                        sharing intelligence information

        Judge Freeh. Well, that is a very poignant question. And
    those are exactly the relationships that everything we have
    discussed here are designed to foster. And I met with the head
    of the Federal Security Service [FSB] in November in Moscow,
    Director Kovalev. One of the things we discussed over a series
    of meetings was the cooperation that would be required if
    somewhere in Russia, for instance, we developed information or
    they developed information that fissionable was going to be
    sold or smuggled not only into the United States but into some
    other country. And we talked about some structures and some
    cooperative meetings by which we could react to that jointly
    and share information, particularly intelligence.
        The relationships that have been established here are
    stronger in some places than others. Part of the Nunn-Lugar
    training is to reach those countries where we do not have the
    relationship that we have, for instance, with General Smeshko,
    and even the MVD in Russia. I think, to answer your question
    precisely, the relationship is really critical in ensuring any
    kind of cooperation in those matters.
        In some countries we have developed it to a finer point. In
    other countries it is much more fluid at this point. And that
    is the whole purpose of this training initiative and the
    liaison and the extensions of cooperation that we have made
    here.
        Senator Leahy. General Smeshko, do you fear that some of
    this material might get stolen, for example, in Russia and then
    that it might be taken through your country and on to other
    areas?
        General Smeshko. Mr. Senator, first of all, I would
    completely agree with you that in the future it might be a real
    for the world. Because sooner or later--but unfortunately, with
    all our efforts to protect the proliferation of the knowledge,
    this is really the threat which we can face only with
    international exchange, international cooperation between the
    intelligence services and law enforcement.
        First of all, I would like to answer your question. You
    asked how many countries might have the nuclear materials.
    Every country of the former Soviet Union which has a nuclear
    civilian plant basically has materials which might be used in
    some way as a base for the development of a device.
        In my country, the Security Service of Ukraine has the main
    priority to work to protect any kind of leaking of any possible
    materials from these plants. That is one of the priorities. Of
    course, I could not argue with you about the protection of, let
    us say, the banks and nightclubs. Unfortunately, on payment, we
    have a severe budget problem. I think many banks are protected
    better.
        Senator Leahy. They have got more money to pay for the
    protection.
        General Smeshko. Yes; exactly. Exactly.
        But a crucial thing is cooperation and the fast exchange
    especially with the intelligence information. By my experience,
    we had twice with our foreign Western intelligence services the
    cases in which we, in a very fast manner, checked the
    information in this area. And this is very crucial to fast
    reaction on the possible threat.
        Thank you.
        Senator Leahy. And, General, my last question to you, and
    if I have questions for Director Freeh, I will submit them. I
    am told by some companies that want to go into Ukraine that
    they face so many problems--bribery, corruption, redtape,
    bureaucracy--that if they want to invest somewhere, they go to
    a different country to invest their money.
        On the other hand, when I talk to some of the leaders from
    Ukraine, they say they want investment to come to Ukraine, to
    create jobs, to help. Are we at an impasse here?
        Because I know most American companies are not going to go
    and put significant investment in a country where they face
    that. Among other things, our laws are so strict that they are
    going to get into trouble back here in the United States if
    they do.

                                     bribes

        General Smeshko. Yes, sure, sir, you are right. American
    businessmen, in some way, are not in an equal position. There
    are several countries in which you just give a bribe. Even if
    we would pass this information to the friendly service abroad,
    he would not be prosecuted. In that country, this is a
    violation. In my country this is not a violation. For the
    American businessman, this is another case. And we are very
    fortunate.
        This problem exists. And believe me, right now this
    administration is trying to do their best to improve the
    situation. Unfortunately, it is a 6-year-old democracy, which
    is only trying to establish itself.
        I would like to just take a few seconds just to tell some
    good words I had with Dr. Zbigniew Brzezinski in a conference,
    American, Polish, German, and Ukrainian in January 1997. My
    German colleagues talked about a great deal of frustration with
    the speed of the reform in Ukraine. And Dr. Brzezinski made
    this remark. He said, ``Listen, there is not another person who
    might be more frustrated if the Ukrainians did less than I
    would like in advancing the reforms.''
        But I would like to defend them before you. Just remember
    after 1945 your country started the transition. But what would
    it be if you did not have the Marshall plan, the strong
    American presence, which helped enhance the democratic
    institutions. But, moreover, what would it be if in all key
    positions there had been the old hard-liners and the center of
    the capital was the mausoleum of Hitler.
        This is not the case with Ukraine. But this is a
    transition, a transition in which old and new live together.
    Ukraine is the second largest territory in Europe on state
    property. And the government and servicemen receive salaries
    which unfortunately are not enough. All in transition, but in a
    democratic way.
        We are supposed to live through this. And we are trying to
    do our best. But sometimes, unfortunately, there is also fraud,
    believe me, and from the American side, businessmen. Not in
    every case is the fault of the bureaucrats and corruption only
    from the Ukrainian side. But we are trying our best, believe
    me. And we are facing this problem. We will do our best to
    improve the situation.
        Thank you.
        Judge Freeh. Senator, if I could just answer that very,
    very briefly, with your permission. I think the notion really
    to emphasize is the idea of change and transition. A democracy
    which is not only newly established but where everything is
    changing. The economy is changing. The notions of property are
    changing. A civil justice system is not quite in place, which
    would give not just foreign but Ukrainian business people
    rights and protections.
        One interesting note, again, just to emphasize the change.
    When I was in Moscow in 1994, which was my first visit, we met
    a number of American business representatives who were talking
    about whether they would invest in Russia or South Africa
    because of the dangers and threats both propertywise and
    safetywise in Russia. When I was there in November, the last
    meeting I had was with 50 members of the American Chamber of
    Commerce. And they said two things.
        One, the situation had dramatically improved, because the
    police, the MVD, was much more responsive to threats,
    particularly extortion threats. They also felt that the
    presence of the FBI agents and their liaison had facilitated
    that. I think the same situation is really developing in the
    Ukraine.

                               foreign investment

        And to go back to my opening statement, which is why your
    support is so important. In a region such as the Ukraine, not
    just the 52 million people who live there, but the enormous
    resources in the Caspian Basin, not just the ones that will
    transit there but the ones that are deposited there, will bring
    the foreign investment, particularly American investment. What
    we have to assure them, and what this committee has supported,
    is a law enforcement network where the American business
    interests have General Smeshko and myself to rely upon to deal
    with some of these threats. And that is the key piece in this
    that I think we are putting in place.
        Senator Leahy. I may have some more questions for the
    Director.
        Senator McConnell. Those will be submitted.
        I do think we have a tendency to be more impatient, and I
    am sure you are more impatient, than we should be. I have been
    reading a marvelous history of the United States by Paul
    Johnson, basically called ``A History of the American People.''
    And he points out that, contrary to everything that we think,
    in many ways the American Revolution did not bring about all
    that much of a change. We had been evolving in this country for
    150 years a system that involved the rule of law and
    essentially democracy in every one of the Colonies.
        So even as we think of the American Revolution, and
    certainly it was an important event--I do not mean to diminish
    the importance of it--it was not as big a change for us from
    the period before the revolution until the period after it.
    Whereas what you all are trying to achieve is a dramatic change
    in every way: economically and in terms of the rule of law. So
    I just make that point, because we all wish things were going
    faster, and I know you wish things were going faster, but it is
    not as easy when you are trying to change literally everything.
        Judge, you mentioned practical case training in your
    statement, in which you bring officers or agents over here to
    work side-by-side on specific cases with U.S. law enforcement
    officers. Tell us a little bit about how that works. How long
    are they typically here? What do you do with them?
        Judge Freeh. It depends on the case. I will give you one
    example which was actually the first one that we did with the
    MVD in Russia. It was the Ivankov case. Ivankov was identified
    as a top thief-in-law, as the term would be, a Mafia-type
    godfather, Russian in this case, who came to the United States
    to not only commit crimes on an organized basis, but to
    organize some of the disparate organized crime figures,
    particularly in the New York City region.
        He was identified to us by our Russian counterparts. And
    then, in the course of the investigation, which resulted in his
    conviction and sentencing, MVD officers from Russia came to the
    United States. They assisted us in analyzing tape recordings,
    identifying photographs. They went out into the street with FBI
    agents because they could recognize some of the associates and
    confederates from Russia that we did not know--people who were
    here illegally in some cases.
        We have done very well with respect to the practical case
    initiatives with Russia. We are doing one now with our
    counterparts in the Ukraine, which is the one that the Captain
    will work on later this week in Los Angeles.
        Senator McConnell. Where does the funding come from for
    this?
        Judge Freeh. That funding has come primarily from the
    Department of State INL funds. We have expended approximately
    $352,000 since 1996. That represents about 40 total sessions or
    events where that initiative has been practiced.
        Senator McConnell. So are you all requesting an increase
    this year in that?
        Judge Freeh. We proposed, for 1998, 12 sessions, at a cost
    of about $120,000. It is not an increase over 1997. And, again,
    those are funds that we think are put to very good use.
        Senator McConnell. Is that about all you can handle, then,
    the request?
        Judge Freeh. We would like to make sure that we have
    funding left to do some of the other training that I alluded
    to. The proposed training for the FBI courses, which are all of
    course approved by the State Department and the Embassy, have
    been reduced in 1998 because of lack of State funding. Those
    are issues which we are certainly concerned about, because we
    want to maintain at least the level of training that we have
    already exercised.
        Senator McConnell. How many investigative leads generated
    in the United States are pending in Ukraine? Is that a figure
    you might have?
        Judge Freeh. With respect to the actual cases, we have a
    total of 95--we call them pending investigations; 30 of those
    are investigations where General Smeshko and his colleagues
    have asked for our assistance. The other 65 are pending
    investigations around the United States, and they involve
    organized crime, violent crime, white collar crime. And those
    are just the actual cases. I may ask Agent Pyszczymuka if he
    wants to comment on the leads, because he has got the personal
    experience.

                            law enforcement liaison

        Senator McConnell. Right. And also how many agents do we
    have in Ukraine? And are they covering other countries as well
    as Ukraine?
        Mr. Pyszczymuka. There are two agents assigned to the Legal
    Attache Office in Kiev, Ukraine. The office is a regional
    office and, in addition to Ukraine, we also provide coverage
    and law enforcement liaison with Georgia, Azerbaijan and
    Armenia.
        In regard to the caseload, there are approximately 60 to 65
    leads still pending in all the critical violations: organized
    crime, white collar crime, violent crimes. For example, I have
    two pending leads out of the Los Angeles division in Armenia
    for homicide subjects that local police officers in the
    Glendale Police Department believe are now secreted in Yetevan,
    Armenia.
        As the Director earlier mentioned in his testimony, we were
    instrumental--that is, myself and my partner in Kiev--in
    convincing the surrender of Mr. Jeffrey Broner, who was a
    fugitive hiding out in the Ukraine for approximately 4 years.
    We were able to engineer that successful surrender, and he is
    facing prosecution now in New Jersey.
        In regard to organized crime, the Director has been very
    omniscient in predicting the problems years ago. We presently
    have, I believe, four Russian organized crime squads in the
    continental United States: New York, Miami, Los Angeles, San
    Francisco, I might have missed something, because I have been
    out of the country for 14 months. But they have been extremely
    active in developing criminal intelligence.
        This criminal intelligence that they develop on the
    different clans that control Ukraine is passed to me and, in
    turn, I refer that information to people like General Smeshko,
    to individuals and contacts in the Security Service of Ukraine,
    which is the followup agency to the KGB, to the Procuracy
    Office, border guards, Customs, and other interested entities.
        Like I said, the cases cover the entire gamut of violations
    that are worked out of the States. The investigation that
    Captain Kostyuchencko will be heading out to is a significant
    money laundering investigation that was initiated by Los
    Angeles FBI agents and men and women of the San Francisco
    division also. It has connections to high-level officials back
    in the Ukraine. We have been able to track tremendous amounts
    of money being laundered through countries such as Switzerland
    and offshore sites, into San Francisco.
        Senator McConnell. I understand we have 600 leads pending
    in Russia. Does that sound like a familiar number?
        Judge Freeh. Yes, sir; in terms of leads and the explosion
    of the caseload there from----
        Senator McConnell. So you have a manpower problem there,
    too, I guess?
        Judge Freeh. We have just added third agent, with the
    approval of the Department of State. But that is just enough to
    meet what is a growing caseload.
        Senator McConnell. Is the State Department generally open
    to these larger legal attache offices when the caseload appears
    to warrant it?
        Judge Freeh. We have to go through a justifiable and
    important authorization process, the NSDD-38 process as we call
    it. They are generally supportive of it, particularly on the
    Ambassador level, with rare exception. They understand the need
    and the importance of having that law enforcement capability
    and liaison.
        We have generally enjoyed very, very good support in terms
    of expansion. It is a lengthy process. And the process has been
    further lengthened by congressional requirements for an
    additional threat assessment--the process which we are going
    through now, particularly with the House committee.
        Senator McConnell. Thinking back to the academy in
    Budapest, which I visited as you indicated, Judge Freeh, how
    many Ukrainians have been through that program?
        General Smeshko. About 20, sir.
        Senator McConnell. Twenty.
        General Smeshko. Yes.
        Senator McConnell. And do we keep in contact with them
    after they leave?
        General Smeshko. Yes.
        Senator McConnell. And when they graduate from there, do we
    have an ongoing, sort of, alumni relations effort here?
        Judge Freeh. Yes, sir; there is.
        We have a National Academy Associates Program, but we also
    have developed, through the academy in Budapest, an alumni
    networker association. The purpose of that is to maintain the
    contacts because these young officers will become the
    commandants and the generals 10, 20 years from now. And that is
    the benefit that we all get from that.

                                  prosecutions

        Senator McConnell. General Smeshko, my notes indicate that
    we have a serious issue in your country with regard to
    prosecutions. I am told there has not been a single major case
    prosecuted in the last few years involving corruption. Is that
    the case, not a single one, or is that an exaggeration?
        General Smeshko. Right now we have adopted by the
    Parliament a law on corruption. But, unfortunately, to the best
    of my knowledge, there was not a single case when this law was
    really used.
        Senator McConnell. So the law is not adequate or the will
    to prosecute is not there, or both?
        General Smeshko. The law was adopted by the Parliament, a
    special law on corruption. But the chapter which defines
    corruption is very difficult to use for the prosecution. This
    is left with the law and the real jurisdictional system which
    might use this law. Unfortunately, to the best of my knowledge,
    there were about 400 cases when there was open charges on
    corruption, but I honestly do not remember when there was a
    successful story in the court.
        Judge Freeh. Mr. Chairman, I would mention just--and
    General Smeshko is aware of this--there is a case that we are
    working with the Ukrainians--in fact, it is part of the
    practical case initiative effort. It is called the Kirichenko
    case. And it does involve an individual who was a high-ranking
    Ministry of Foreign Affairs official in the Ukraine, who is
    being investigated. He probably will be prosecuted for
    corruption charges. And it is a case we have worked through our
    San Francisco office.
        Senator McConnell. Well, good luck. Because in the absence
    of any prosecutions at all, that sends a discouraging message
    to foreign investors. Particularly, United States investors I
    think find that very depressing.
        That one bell that went off means that we are having a
    vote. I think we are about to the end of the session anyway. I
    am going to see if either of you would like to make kind of a
    final observation, rather briefly. Either of you have anything
    you want to add here at the end of our hearing?

                                   corruption

        General Smeshko. Thank you so much. Thank you, once again,
    Mr. Chairman, for this kind opportunity, really, to be here for
    this discussion and to present the point of view of my country.
    Really, many things are not so encouraging right now. And it is
    a very difficult area for my country. We are combatting the
    corruption, especially at the highest level of the government
    and the organized crime.
        But, still, even if there was not a successful story in the
    court against corruption in the government, there are already a
    lot of examples where corrupt persons were fired from their
    position, from the highest level of positions. And every week
    you might see in the newspapers that regional level,
    administration minister level, administration, are removed from
    their positions by executive order of the President.
        Unfortunately, the jurisdictional system is not robust
    enough right now to face this new challenge--even to just
    enforce the law which was already adopted by the Parliament.
    Still, believe me, the leadership of my country does recognize
    this problem.
        Senator McConnell. Yes; I was in Ukraine last summer. I met
    with President Kuchma down in Sevastopol and I went up to Kiev
    briefly. My view is that we need to continue to try to do the
    very best that we can. We need to stay engaged. We need to
    understand what a difficult transition this is going to be.
        And I particularly think that what you are doing, Judge
    Freeh, is making an important contribution not only at the
    academy in Budapest, which I think is a spectacular example of
    international cooperation, but I think we all just need to stay
    the course. I know you would agree, Judge Freeh, to find
    someone like General Smeshko in an important position, that is
    encouraging in itself. I think the United States has a
    longstanding and a long-range interest in the success of
    Ukraine. And as far as this subcommittee is concerned, we are
    going to stick with you.
        Thank you very much.
        Judge Freeh. Thank you very much, Mr. Chairman.

                              subcommittee recess

        Senator McConnell. The subcommittee will stand in recess
    until 10:30 a.m., on Thursday April 23, when we will hear
    testimony from Dr. James Hughes, of the Centers for Disease
    Control; Dr. David Heyman, World Health Organization; Dr. Nils
    Daulaire, Agency for International Development; and Dr. Gail
    Cassell, Eli Lilly, Inc.
        [Whereupon, at 4:53 p.m., Tuesday, April 21, the
    subcommittee, was recessed, to reconvene at 10:30 p.m.,
    Thursday, April 23.]

          FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS
                      APPROPRIATIONS FOR FISCAL YEAR 1999

                                  ----------

                            THURSDAY, APRIL 23, 1998

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 11:13 a.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Mitch McConnell (chairman)
    presiding.
        Present: Senators McConnell, Campbell, and Leahy.

                      AGENCY FOR INTERNATIONAL DEVELOPMENT

    STATEMENT OF HON. NILS M.P. DAULAIRE, M.D., M.P.H.,
                SENIOR HEALTH ADVISER

                    DEPARTMENT OF HEALTH AND HUMAN SERVICES

                   Centers for Disease Control and Prevention

    STATEMENT OF HON. JAMES M. HUGHES, M.D., DIRECTOR,
                NATIONAL CENTER FOR INFECTIOUS DISEASES

                           NONDEPARTMENTAL WITNESSES

    STATEMENTS OF:
            DAVID L. HEYMANN, M.D., DIRECTOR, EMERGING AND OTHER
                COMMUNICABLE DISEASES, SURVEILLANCE AND CONTROL, WORLD
                HEALTH ORGANIZATION
            GAIL H. CASSELL, Ph.D., VICE PRESIDENT, INFECTIOUS DISEASE
                DISCOVERY RESEARCH AND CLINICAL INVESTIGATION, ELI LILLY
                CO.

                  opening remarks of senator mitch mc connell

        Senator McConnell. Good morning, everyone. Thank you for
    being here.
        This hearing is being held largely at the request of my
    senior colleague, Senator Leahy, who has been very active in
    the field over the years.
        Over the past couple of years, outbreaks of mad cow
    disease, Ebola, Asian avian flu, and human monkeypox have
    captured headlines and raised the public interest in the global
    resurgence of life-threatening infectious diseases. While these
    outbreaks have been serious, they have been effectively
    contained by the rapid reaction of the international health
    community.
        Unfortunately, these exotic sounding, unusual incidents
    have eclipsed the public's concern or interest in the real
    killers; 17 million people die of common diseases, most of
    which could be prevented or effectively treated. Malaria, TB,
    cholera, and measles still prematurely rob far too many people
    of life.
        Lest anyone believe this is a threat confined to some
    remote island in a distant hemisphere, these diseases have come
    home to kill. Potent new strains of TB have been detected in
    the Commonwealth of Kentucky; 10 years ago, I doubt five adults
    knew what E. coli was. Today young parents are ever alert to
    symptoms, given the toll it has taken on our children and the
    elderly.
        Last year, the subcommittee recognized the time had come to
    invest in a serious and sustained global commitment to combat
    the spread of infectious disease. To fulfill this commitment,
    there are two tracks which are mutually reinforcing, which we
    must proceed along.
        First, we should set up monitoring and detection of disease
    to contain outbreaks before they become epidemic. This requires
    developing and putting in place a comprehensive global
    information system to afford specialists early warning and the
    opportunity to respond quickly and effectively to problems.
    Although this has been discussed for the last 2 years, I do not
    have the sense that a global, or even regional, electronic
    network is up and operating. I will be interested in hearing
    current and future plans to address this issue.
        Early warning and detection must be complemented by
    effective treatment. The second track represents real
    challenges, as microbes have mutated and become resistant to
    the available drug therapies. Fortunately, the revolution in
    technology and genetic research have opened new avenues for
    solving microbial medicine mysteries. However, high-tech
    solutions must be enhanced by basic education.
        The international health community must develop a strategy
    to educate and address the resistant problems, exacerbated by
    the over-prescription of antibiotics and their extensive use to
    produce animal growth. We need to be confident that what seems
    to be modern medical miracles are not in fact sowing the seeds
    of our own destruction.
        I think everyone here will agree on the scope of the
    problem and the general outlines of a solution. However, I am
    concerned that current planning is not keeping pace with the
    explosive growth in the problem. I think we would all agree on
    a strategy which improves information sharing, coordination of
    international response mechanisms, and our understanding of
    drug-resistant viruses and bacteria.
        But I think we must also accelerate the process of testing
    and introducing effective drugs and vaccines. My staff was
    recently on a trip to the Thai-Burma border, visiting refugee
    camps where malaria is a serious problem. Virtually all cases--
    Thai, Burmese, and American alike--were being treated with a
    wonder drug from China, which everyone acknowledged was
    unlikely to see market shelves anywhere outside the region.
    Clearly we must take public safety into account when
    considering new products. But it seems we must increase
    emphasis on reducing barriers which have impeded the timely
    availability of successful drug therapies.
        We have a number of witnesses and only an hour and a half
    to cover the ground, so I am going to turn this over to Senator
    Leahy, who will preside for the balance of the time. And I
    thank him very much for his interest and commitment to this
    issue over the years. And I welcome all of you to the committee
    today.

                  opening remarks of senator patrick j. LEAHY

        Senator Leahy [presiding]. I want to thank Senator
    McConnell for scheduling this hearing. It is the second hearing
    he has scheduled this week. It has been a very busy week, and I
    do appreciate it.
        In a way, we are picking up where we left off almost 1 year
    ago when we had a hearing on the same subject. The interest
    since then on the threat posed by infectious disease has grown
    dramatically. Two months ago, the Centers for Disease Control
    and Prevention [CDC] held their first international conference
    on emerging infectious diseases, and by all accounts it was a
    resounding success. And yesterday, the judiciary and the
    intelligence committees held a joint hearing on biological
    terrorism, which pose many of the same challenges.
        Other committees have focused on other aspects of it. I do
    not think we can take sole credit for the surge in interest.
    The Hong Kong flu and Iraq's biological warfare program both
    had something to do with it. But there is no question that this
    subcommittee had a part in this as have all of you here.
        Last year, we wanted to call attention to the fact that
    despite numerous studies that have identified serious
    weaknesses in the way we and other countries respond to
    infectious disease, and despite many recommendations for
    strengthening and coordinating our response, little had been
    done. There are too few resources, too little coordination and
    not nearly enough trained people in the developing countries,
    where epidemics often originate.
        With the exception of childhood diseases and HIV/AIDS, the
    Agency for International Development was spending a pittance to
    combat other infectious diseases. The CDC has only a few
    million dollars to spend on international activities. But all
    of you, and certainly our witnesses testifying here today, know
    that infectious diseases know no boundaries. The Hong Kong flu
    is just an airplane's flight away from Los Angeles or
    Burlington, VT.
        The resurgence of tuberculosis a few years ago is a
    textbook example of how easily diseases, once thought to be
    under control, can reemerge if public health systems
    deteriorate and if drug resistance spreads. And as the latest
    confrontation with Iraq reminds us, deadly microbes could be
    intentionally spread. If that were to happen the results could
    be catastrophic. At least nine other countries are suspected of
    having biological warfare programs. A handful of anthrax could
    wipe out a city of millions.
        To make a long story short, we recognize the threat to the
    American public from microbes that are transported here from
    abroad. We saw the need for stronger U.S. support for a global
    response. And it was time to stop talking and do something.
        That is why we decided to appropriate an additional $50
    million as a first installment in a multiyear U.S. strategy to
    combat infectious disease. Now, that strategy, which was
    publicly released by AID 6 weeks ago at the CDC conference in
    Atlanta, is why we are having this hearing. We want to focus on
    building the human capacity and the public health
    infrastructure in the developing countries so they are capable
    of conducting proper surveillance. We want them to be able to
    respond effectively to infectious disease. The goal is an
    integrated set of global networks that work.
        We recognize this is an immense task. We are not going to
    do it this month or next month. It will take years. But at
    least we are letting everybody know it is needed, and we are
    starting to do it.
        So we are going to look at what we have done in the past
    year. We want to know how the strategy was developed, what it
    consists of, and then if each of you could tell us what you see
    as the greatest challenges and opportunities for your agencies.
        There is only so much government can do. The private sector
    is at least as important. That is why we have invited and we
    are privileged to have as one of our witnesses Dr. Gail
    Cassell. She is vice president for infectious disease research
    at Eli Lilly. Dr. Cassell will discuss some of the impediments
    to the development of new drugs and vaccines for use in the
    developing countries. There may some ways we can help get rid
    of those impediments.
        We are also fortunate to have my good friend Dr. Nils
    Daulaire. He is a fellow Vermonter. Nils is one of our
    Government's most effective advocates for international health
    programs. And we have Dr. David Heymann, from WHO, sitting
    beside him. He is responsible for surveillance and control of
    emerging and other communicable diseases anywhere WHO operates,
    which is just about everywhere. They have both been enormously
    helpful in advising the subcommittee.
        And Dr. Jim Hughes, of the CDC, who knows as much as anyone
    in the world about infectious diseases.
        What we know is this: 50,000 people die every day of
    infectious diseases. Let me repeat that. Every day, 50,000
    people die of infectious diseases. To put that in context, the
    largest city in my home State of Vermont is about 40,000
    people. That is 17 million people each year. It is 1,500 times
    the number of people that were killed by landmines last year--
    an issue that we have had great concern about.
        I have spent the past 8 years trying to ban landmines, and
    I do not plan to stop. They are hideous. They are
    indiscriminate weapons. They maim and kill innocents. They
    disrupt whole societies. But this number puts things in
    perspective. We have another landmine out there, only 1,500
    times more lethal.
        And the irony is that many of these infectious diseases
    could be prevented or cured, often for as little as $1 per
    person. But millions of people die because they cannot afford
    the cost of the drugs or vaccines, or there is not the public
    health system to deliver them.
        We want to change that. I want to end with a quote by
    Laurie Garrett, the Pulitzer Prize-winning author of ``The
    Coming Plague.'' She wrote:

        As the world approaches the millennium, it seems, from the
    microbes' point of view, as if the entire planet, occupied by
    nearly 6 billion mostly impoverished people, is like Rome in 5
    BC. Our tolerance of disease in any place in the world is at
    our peril. While the human race battles itself--the advantage
    moves to the microbes' court. They are our predators and they
    will be victorious if we do not learn to live in a rational
    world that affords the microbes few opportunities. It's either
    that or we brace ourselves for the coming plague.

        That probably says it as well as anyone could.

                     summary statement of dr. nils daulaire

        So if we might start, Dr. Daulaire, with you. I am
    delighted to have you here. I would note for the record that
    you have advised this subcommittee on many occasions, and I
    have appreciated it.
        Dr. Daulaire. Thank you very much, Senator.
        As you have asked, what I would like to do in a few minutes
    today is to run through some of the major things that have
    developed since last year's hearing, put a few things in
    context, and then move to my colleagues, so that we can get
    into a useful exchange. My extended testimony is available at
    the back of the room.
        As this committee's chairman is well aware, the United
    States, four decades ago, led the world community in starting
    the process to deal with a scourge of terrifying proportions
    here in the United States and elsewhere, which was polio. And
    we are now only a few short years away from the final
    eradication of the polio virus from the face of the Earth. This
    is a case of real U.S. leadership, carried out over the course
    of nearly half a century.
        Today, thanks to the vision of this committee, particularly
    your leadership, Senator Leahy, and the commitment of President
    Clinton's administration, to addressing global problems, we are
    again helping to lead the world in a struggle of enormous
    importance to humanity--the war against infectious diseases--
    which, as Laurie Garrett points out, is in fact the true
    biological war that we all face.
        Now, you made the decision in the appropriations process
    last year that USAID would be the appropriate vehicle for this
    appropriation and that we would serve as a coordinating body,
    with many other institutions, several of them seated here,
    particularly my colleagues from WHO and CDC, who have been very
    active in this.
        We recognized from the beginning what you made note of.
    Every 2 seconds a man, woman or child dies of an infectious
    disease. And for the most part, those who die are the young and
    the poor, the hungry, the powerless, the people whom this
    committee has taken as their special charge. But beyond those
    outside our borders who are at risk, Americans themselves are
    at enormous risk. And we will be talking about that this
    morning.
        Now, USAID, as you well know, is an agency that has as its
    foremost task building sustainable development in the poorest
    countries of this world. And we have taken this initiative
    within the context of this charge of sustainable development.
    What we see as our fundamental task is to build the capacity of
    people and societies to address their own problems. We
    recognize the problems. We have enormous expertise in this
    country.
        But American physicians cannot treat every case of disease
    around the world. American public health workers cannot
    immunize every child, cannot run every health program. And the
    only way that these issues are going to be resolved for the
    long term is going to be by building the lasting capacity of
    the countries that we assist to do this on their own.
        You gave us the mandate. You gave us the funding, which was
    of critical importance, back in the fall of last year. And I
    would like to tell you what we did. Within a month of this
    appropriation being signed into law, we had called together a
    meeting of the world's leading experts on infectious diseases,
    several of my colleagues here at the table with me, but close
    to 100 others who came to Washington for a remarkable 2-day
    conference, which you addressed, Senator Leahy, to look at what
    has been accomplished and, more importantly, what is still
    needed to address the problem of infectious diseases.
        And I would like to address your attention to the chart
    over here. We know that there are slightly over 17 million
    infectious disease deaths in the world, the leading cause of
    death in the developing world and a growing cause of death in
    this world. When we reviewed at this meeting what had been done
    and what needed to be done, I would like to point out that this
    circle would have been considerably larger before USAID's
    programs, particularly in child survival, began 15 years ago.
        The pink triangle, for diarrhea, would have been between 4
    million and 5 million deaths. The green triangle, for
    pneumonia, would have been around 4.5 million deaths. The red
    triangle, for immunizable diseases, would have been between 3
    million and 4 million deaths. So even with past activities,
    what we can point to with considerable pride is the fact that
    there are probably 4 million or more fewer deaths today, each
    year, from infectious diseases than there would have been
    without these very effective and important programs.
        But, obviously, we are left with some enormous problems.
    And 4 million lives saved is one thing, the 17 million lives
    that are still being lost are our major concern.
        Now, as you well know, we continue our programs in
    diarrheal disease and pneumonia, for childhood illness, in
    immunizable diseases and of course in HIV/AIDS prevention. But
    as we reviewed, as a group, these major causes of illness and
    death, some big pieces are obvious: Tuberculosis, which
    currently kills 3 million people a year and infects one-third
    of the world's population; malaria, which kills over 2 million
    people a year and is the single largest cause of death and
    disability in Africa. Those are enormous issues.

                            Antimicrobial resistance

        On top of that, we recognize that even within the programs
    and activities that we already have underway for pneumonia and
    for certain kinds of diarrheal diseases, we are facing a major
    new problem, which is the growth of antimicrobial resistance.
    The tools that we have had for the last 30 years to deal with
    these enormous problems are gradually wearing away. And so the
    focus on antimicrobial resistance, in addition to tuberculosis
    and malaria, was judged by this expert group to be a very
    important part of an USAID strategy.
        The fourth part which was decided on is one which you have
    already cited, which is the importance of surveillance, and
    particularly for USAID, with our work at country level,
    improving the capacity of countries to obtain and use good
    information to understand and respond to the spread of disease.
        Now, these are important issues. The numbers are huge. But
    they are not abstract. And I would like to just address some of
    the pictures that we have here, some of which I have taken
    myself. This first picture of the young child, that is Lakmi.
    She is a 3-year-old girl, or she was a 3-year-old girl when I
    met her in a remote, rural village of Nepal. She had had
    pneumonia for the past 10 days.
        We had an effective program going on to treat these
    children with antibiotics in the community, but she lived 18
    hours' walk from the nearest hospital or clinic. And the
    antibiotic just was not working. She was a case of
    antimicrobial resistance. Everything was done right. And when I
    came and found her, I made sure that she was getting everything
    that we had on hand in terms of appropriate drugs at that
    level. Yet 2 hours after I took this picture, she died.
        These are real problems, with real people.

                                  Tuberculosis

        Next to her are two photographs concerning tuberculosis.
    Amadou is a young man from Mali. He has what is called
    scrofula, which is a TB infection in the nodes of his neck,
    which eventually erode and continue to ooze out into the open.
    These people are virtually unable to work or carry out
    productive lives.
        To his right is Meena, from the Bihar District of India, a
    woman who has had TB for a number of years, has infected every
    single member of her family and is herself unable to work or
    carry on because of the severity of her illness.
        And, finally, at the very end there, the black-and-white
    picture is a picture of Leah, from Kenya, who suffers from
    malaria, who has lost two children in pregnancy because of the
    consequences of malarial infection, and who is again totally
    devastated in terms of her ability to work.
        These are real people and real problems.
        Now, we recognize that USAID and our $50 million is a small
    piece of a very large puzzle and that we cannot do this alone.
    We do not expect to do it alone. There are key partners. And
    particularly I would like to highlight, and we will be hearing
    more from, the World Health Organization and the Centers for
    Disease Control. And I would like to point out the growing role
    of the private sector in this area.
        We are in a world of a global economy. And we have seen an
    enormous growth of interest and capacity on the part of the
    private sector, in part, out of enlightened self-interest,
    recognizing that a majority of the world's consumers and
    economies will be in the developing world over the next 20 to
    30 years, and also that a large proportion of the world's work
    force will be there. A healthy work force is a far more
    productive work force. So we very much welcome them to this
    effort.
        We have, over the past 6 months, since the appropriation,
    already moved very rapidly. After the consultation we held, we
    were able--have been able as of today--to program almost $45
    million of the $50 million that you appropriated, Senator. And
    we will have the remaining $5 million wrapped up over the next
    several weeks. So we feel that we are in very good shape. It is
    quite unusual for a Government agency to be able to move this
    quickly, but we have gotten good prodding from the Hill, and we
    are very interested in this ourselves.
        Let me just say what we can expect, with a sustained
    commitment over the next 10 years. We do not intend to throw
    money at this problem. We intend to build capacity in a
    thoughtful way. We intend to have a global strategy for dealing
    with antimicrobial resistance and an armory of effective
    interventions in place. We expect to have a set of centers of
    excellence in TB, and effective programs in a small number of
    key countries for TB.
        We expect to have programs in a number of African countries
    dealing with malaria, both in prevention and treatment at the
    household level and at the health facility level. And we expect
    to have assisted our colleagues here in laying the basis for a
    global surveillance system, with our focus being on local
    capacity. I compare this to the phone system. These colleagues
    are building the fiber optic network to tie the whole thing
    together. We are working on installing the jacks and the
    telephones in the individual countries.
        Now, I know that there has been concern about our budget
    request, the administration's budget request, for fiscal year
    1999. And it is slightly lower than the 1998 appropriated
    levels.
        Senator Leahy. Slightly? It has gone from $50 million to
    $30 million.
        Dr. Daulaire. Well, I would like to lay that out in a
    broader context, if I may, Senator.
        We also note that the Senate mark for the 150 account, the
    foreign affairs account, was $800 million less than what the
    administration has requested. And as you know, we have a
    difficult task always in balancing the needs of a variety of
    development activities. As you well know, it is not just our
    health programs, but a whole series of interventions that are
    important for infectious diseases. And we had to look for
    increased funding for the environment, for poverty reduction
    and for agriculture, which were a key issue in terms of this
    broad-based approach.
        I would also point out, Senator, that we have not used a
    penny of this special appropriation for work in the former
    Soviet Union and the New Independent States. But this year we
    are devoting $9 million beyond the $50 million to that. And
    next year we are expecting to devote $22 million. So the figure
    that you see in the budget is not the full story.

                               prepared statement

        Mr. Chairman, this initiative, I believe, represents the
    best of America. It represents enlightened self-interest, as
    you have very eloquently laid out over many occasions in the
    past. It represents an American know-how tradition and a can-do
    approach. We are taking this from a very practical standpoint
    and trying to move forward. And it also represents our
    commitment to helping people to help themselves. This is where
    we are headed in the long run, and we are very pleased with the
    assistance, support and encouragement that you have given us.
        Thank you.
        Senator Leahy. Thank you.
        [The statement follows:]
             Prepared Statement of Nils M.P. Daulaire, M.D., M.P.H.
        Thank you Mr. Chairman for giving me an opportunity to present to
    this committee an update on the progress the U.S. Agency for
    International Development (USAID) has made in launching a new
    initiative aimed at reducing the global threat of infectious diseases.
    This new initiative reflects and furthers the Administration's 1996
    policy on Emerging Infectious Diseases. I would like to describe our
    new strategy, including how our key partners have participated in its
    development; summarize how we see this vital initiative fitting in with
    our on-going activities in infectious diseases and the important
    connections to overall development efforts; and outline our key next
    steps, including accelerating the engagement of new partners, including
    the private sector, foundations, and other important actors.
        We at USAID would also like to thank you, Mr. Chairman and this
    subcommittee for your leadership in providing the funding to USAID last
    year which enabled us to launch this new initiative. This has given us
    the opportunity to address a huge and growing problem that not only
    causes millions of deaths each year in the developing world, but
    threatens the health and safety of Americans as well. By following the
    strategy I would like to describe to you today, and working closely
    with our partners in this effort, we will reduce deaths due to
    infectious disease and strengthen public health systems that have
    broken down throughout the developing world, giving these countries the
    capacity to protect their citizens from infectious diseases, and stop
    the global spread of these diseases.
        These are not quick and easy interventions, but over the next ten
    years, with concerted effort and effective collaboration with our
    partners, and commitments and resources from new partners, we can make
    a real difference and have a significant impact on global health.
                     usaid's strategy and progress to date
        Over the past six months, USAID has been heavily engaged in
    developing a strategy for this new initiative on infectious diseases.
    We have been very fortunate to have benefitted from extensive
    consultations with many of USAID's key partners, including Dr. David
    Heymann and his colleagues at WHO; Dr. Jim Hughes and his colleagues at
    CDC; the National Institutes of Health; the Department of Defense;
    UNICEF; a number of universities and research institutions; private
    sector companies; and a wide range of organizations engaged in
    implementing programs in the field.
        As a result of these consultations, we have developed a consensus
    on the most appropriate focus for USAID and the new resources with
    which you have provided us, and a strategy that clearly articulates
    USAID's role and how it fits with other donors and actors. This
    strategy identifies specific results for each of the four components
    which have been agreed on.
        As part of USAID's ten year strategic plan, our objective in
    infectious diseases is designed to reduce the threat of infectious
    diseases of major public health importance, contributing to a 10
    percent decline in the number of deaths due to infectious diseases
    (excluding AIDS) in the developing world by 2007.
        USAID's new initiative has four key components: Develop strategies
    and interventions to understand, contain and respond to the development
    and spread of antimicrobial resistance; reduce the spread of
    tuberculosis and morbidity and mortality associated with the disease
    among key populations; decrease deaths due to malaria and other
    infectious diseases of major public health importance in selected
    countries; and improve the capacity of countries to obtain and use good
    quality data for surveillance and effective response to infectious
    diseases.
        This strategy focuses on the primary infectious causes of mortality
    in the developing world: of the 17 million deaths due to infectious
    causes each year, 75 percent (or about 13 million) are due to just five
    diseases: acute respiratory infections (most commonly pneumonia),
    tuberculosis, diarrhea, malaria, and HIV/AIDS. Almost all of these
    deaths are in the developing world. The high incidence and rapid spread
    of these diseases is to a large degree due to the breakdown, or lack
    of, effective primary health care and limited or poor prevention
    measures. It is also due to increasing incidence of drug resistant
    strains of these diseases. These problems are exacerbated by poverty,
    poor nutrition, high rates of population growth and high population
    densities, poor water and sanitation systems, and low levels of
    literacy.
        Prior to this new initiative, USAID had over the last several years
    invested more than $300 million annually in combatting infectious
    diseases through: our child survival programs, including significant
    efforts aimed at addressing acute respiratory infections and diarrheal
    disease control, and some work in malaria; our HIV/AIDS work, where
    USAID is the single largest bilateral donor for HIV/AIDS programs in
    the developing world; and through our assistance in building robust
    health systems in developing countries.
        This initiative will be implemented in developing countries in
    Africa, Asia and the Near East, and Latin America and the Caribbean,
    and in transition countries of the Newly Independent States (NIS).
    USAID has been advised to avoid spreading these resources too thinly.
    Focus countries will be selected based on a combination of factors:
    impact on worldwide disease patterns, the severity of disease within
    particular countries, potential for learning lessons which can be
    widely generalized, complementary programs of other partners and
    donors, and the capacity and opportunities at specific USAID missions.
        Over the next ten years, we expect to put in place a coordinated
    global strategy and action plan for slowing the spread of antimicrobial
    resistance and an armory of effective interventions for addressing the
    problem. We will support several centers of excellence for controlling
    TB around the world, and effective intervention programs in some of the
    countries where the TB burden is greatest. We will build and strengthen
    programs throughout Africa that manage and prevent malaria at the
    health facility and in the home--where most of the deaths occur--and
    will help to develop more powerful weapons in the fight against
    malaria, including, we hope, a vaccine. Finally, we will be well on our
    way to having a global disease surveillance system by establishing the
    capacity to collect, use, report and respond to appropriate and
    accurate data at the country level. Until surveillance capacity is
    built at the country level, we cannot have a global surveillance
    system, and we cannot have global security from the threat of
    infectious diseases.
    Antimicrobial resistance
        Over the past half century, antimicrobial therapies (antibiotics
    and anti-parasitics) have been our most important weapons against
    infectious microbes. However, the wide-spread, often indiscriminate,
    use of these drugs has contributed to the emergence of drug resistant
    strains of infectious organisms.
        Inappropriate use of antibiotics selects resistant strains for
    survival. In developing countries, such inappropriate use is often the
    result of poor access to appropriate drugs, inadequate national drug
    policies and information, poorly trained pharmacists and doctors, and
    poor patient compliance with drug treatment. Changing common practices
    among both providers and patients to decrease the inappropriate use of
    antimicrobials is the principal challenge. Also essential is the
    capacity to monitor antimicrobial resistance and susceptibility of the
    major human disease organisms. This requires well-trained laboratory
    personnel and clinicians, essential supplies and equipment, and
    effective use of data.
        USAID, in collaboration with WHO and other partners, has a unique
    opportunity to help bring about a comprehensive global strategy on
    antimicrobial resistance. The strategy will be used as a road map and
    advocacy tool, and serve to target resources. We will give special
    attention to diseases for which antimicrobial resistance poses a major
    threat in developing countries because of high mortality and incidence,
    and for which antimicrobial treatment remains the most effective
    control strategy, including dysenteric diarrhea, pneumonia and
    gonorrhea.
        In addition to working with our partners to establish a global
    strategy and action plan for antimicrobial resistance, USAID will
    invest in improving the understanding of and disseminate information
    about drug resistance, including the epidemiology, public health impact
    and contributing risk factors. We will invest in research to develop
    methods to detect resistance, including, for example, laboratory
    assays; tools for population based surveys; and clinical methodologies
    to detect resistance based on treatment failure. We will also support
    behavioral research to increase the rational use of drugs, and support
    research on improved treatment regimens to prevent the spread of
    resistance. We will work with countries to strengthen the capacity to
    respond to drug use and drug resistance information to close the gap
    between data collection and decision making. Lastly, USAID will promote
    the implementation of interventions to slow the spread of antimicrobial
    resistance, including activities such as improved management of
    pharmaceuticals, strengthening drug policy analysis and regulatory
    mechanisms as well as improving the availability and use of unbiased
    drug information, and curriculum reform for rational use of
    antimicrobials.
    Tuberculosis
        After years of declining visibility, tuberculosis is again being
    recognized as a leading cause of adult deaths and illness. About three
    million TB-related deaths occurred in 1997, and one-third of the
    world's people have been infected with the TB bacillus. The
    debilitation caused by TB is a leading cause of work loss around the
    world.
        In the developing world, increasingly more crowded cities,
    inadequate health care, and the complicated nature of managing TB have
    contributed to an ever-worsening problem. Inadequate treatment and poor
    compliance have led to the emergence and spread of multi-drug resistant
    strains of TB which are virtually untreatable, given current resources.
    Furthermore, the decreased immune response resulting from HIV infection
    has led to a rekindling of TB in its most infectious form among
    millions in whom the disease had been dormant.
        The success of a new strategy, Directly Observed Treatment, Short-
    Course (DOTS), has created optimism that the disease can be more
    effectively controlled on a much broader scale. However, DOTS requires
    multiple contacts between a treatment supervisor and TB patient over a
    period of six to eight months and can only be carried out in situations
    where effective program management can be assured. In the context of
    poorly-managed programs with frequent drug shortages, there is
    considerable risk that poorly run TB control programs can lead to the
    emergence of more widespread multi-drug resistance, which must be
    avoided at all cost.
        Existing health service delivery systems in developing countries
    are generally not well prepared to address TB on the scale which is
    required. In some transition countries, extensive systems are in place
    dedicated to TB, but are costly, inefficient and ineffective.
        One of USAID's first priorities is to work with our partners,
    including WHO, CDC, the International Union, and others to develop a
    comprehensive global TB control plan and strategy to become the basis
    for coordinated action and for building political consensus and
    support. USAID also plans to establish 3-5 major field sites to serve
    as models for innovative wide-scale TB surveillance and control, and
    support the implementation of TB control programs in several other
    countries. We will invest in research to investigate technologies for
    TB prophylaxis, diagnosis and treatment, and support surveillance to
    monitor TB trends and to identify multi-drug resistant TB strains
    before they become widespread.
    Malaria and other infectious diseases
        While malaria is a global problem, it poses a particular challenge
    to public health and economic development in Africa, where 85 percent
    of the world's total malaria clinical cases and 90 percent of the
    malaria deaths occur. Infants, young children and pregnant women are
    especially vulnerable. Each year malaria causes more than two million
    deaths and half a billion debilitating cases, accounting for the single
    largest cause of labor loss in Africa.
        Latin America and southern and central Asia also have extensive
    areas with malaria transmission. Outbreaks of malaria of epidemic
    proportions have also occurred in the southern part of the NIS and are
    spreading to surrounding countries in the region.
        USAID's recent malaria activities have focused on the development
    of new technologies, including development of a malaria vaccine, and
    pilot testing options for practical prevention and control of malaria
    in Africa. With the lessons learned from these programs, we will scale-
    up from earlier pilot studies in Africa and extend our malaria efforts
    into selected countries of Latin America, south Asia, and possibly the
    NIS. A package of health interventions which focus on improved
    management and prevention of malaria at the health facility and
    community levels is at the core of our expanded malaria program. USAID
    will also support an Africa regional insecticide treated bed net
    program. Research to improve the understanding of the immunology,
    epidemiology and transmission of malaria and to develop improved
    approaches and technologies for prevention and control of malaria will
    also be supported, as well as further investments in developing and
    field testing malaria vaccines. Finally, USAID will support activities
    to address the development and spread of parasite resistance to
    existing antimalarial drugs, including strengthening country-level
    capacity to conduct routine mapping of antimalarial drug sensitivity;
    promoting national level adoption and implementation of drug policies
    consistent with effective treatment and promoting the development of
    alternative malaria drug therapies.
        Other infectious diseases, such as dengue, yellow fever,
    meningitis, and chagas are also re-emerging as public health threats.
    These are often epidemic in nature, and many are transmitted by insect
    vectors. Even though their global burden is less than our priority
    diseases, investments in their prevention and control in a particular
    country may sometimes be warranted due to high case fatality, the
    potential for rapid spread, economic disruption, impact on highly
    vulnerable populations, and cross-border transmission.
    Surveillance and response
        The ability to detect disease and to access data is essential for
    establishing timely responses to infectious diseases. However, health
    systems in many developing countries lack the necessary capacity for
    routine and sentinel disease monitoring. Surveillance and response
    capability is impeded by decision-making divorced from accurate
    information, incompatibility of disease reporting with information
    systems, lack of commitment, limited expertise, insufficient laboratory
    capacity, and poor coordination. We cannot have an effective, reliable
    global disease surveillance system unless there is adequate capacity at
    the country level.
        For countries with difficulties in implementing routine basic
    surveillance, the challenge of detecting and responding to the
    appearance of new organisms, disease outbreaks, and antimicrobial
    resistance often presents an impossible challenge. To be effective,
    surveillance and response must be an accepted national and local
    responsibility. International response to all but the most dramatic
    outbreaks relies on this local capacity.
        USAID will focus our resources primarily on building improved
    national capacity in the countries we assist for surveillance and
    response. Emphasis will be on using data for action and ensuring that
    there are feedback loops throughout the data system. As has been done
    in the Americas for polio and measles, disease-specific surveillance
    activities can help create a foundation for more sensitive and
    sustainable systems to track a broad range of infectious diseases of
    public health importance. USAID's efforts in this area will be targeted
    at improving the ability of public and private health system staff to
    obtain and use good quality data for the surveillance of, and response
    to, infectious diseases. We will support the development of improved
    technical and laboratory capacity. We will explore innovative
    technologies such as geographic information systems mapping, and help
    to improve laboratory management and basic epidemiological training.
    Success of this effort will be judged not by the collection of data,
    but by its routine and appropriate use to control disease.
                 infectious diseases in the development context
        We are also grateful to this subcommittee for helping to stem the
    downward spiral of development assistance funding. Funding for
    development assistance has declined significantly in recent years, most
    dramatically in fiscal year 1996 which saw a $400 million decline over
    the fiscal year 1995 level of $2.1 billion. This decline was stopped
    last year with the fiscal year 1998 appropriation, in large part thanks
    to this Subcommittee. As this subcommittee is well aware, addressing
    infectious diseases effectively is not only a health issue, but also
    requires investments in education, poverty reduction, food and
    nutrition, environment, and family planning.
        At USAID, we have become increasingly concerned about scarcity of
    resources available for important other areas, such as agriculture and
    food security, and reductions in population funding. As a result, our
    fiscal year 1999 budget request includes more funding for environment,
    economic growth and agriculture over the fiscal year 1998 enacted
    levels. Increases in these areas will help fund two initiatives that
    have great potential. The $30 million Africa Trade and Investment
    Policy Initiative is designed to reinforce and give practical
    assistance to the growing number of countries in Africa interested in
    reducing barriers to foreign trade investment. The $20 million Latin
    America Summit Initiative is designed to eradicate poverty and
    discrimination through trade reforms and increased economic integration
    as well as improve education in the region.
        These unique opportunities have forced us to make some difficult
    choices. As a result, we have requested fewer resources for infectious
    diseases and child survival than the Agency received in fiscal year
    1998.
        I want to underscore that this in no way reflects a reduced
    priority for infectious diseases or child survival. As Administrator
    Atwood has stated, we have learned that our efforts to combat infant
    and child mortality and the spread of infectious diseases are more
    effective when we are also able to address some of the underlying
    social and economic conditions that allow these diseases to flourish,
    including poverty, malnutrition, illiteracy, poor sanitation,
    overcrowding, and environmental degradation. Addressing these
    underlying conditions is also critical for making sure that our
    investments in building effective health systems are sustainable for
    the long run.
        Another resource constraint is the Agency's operating expense
    resources, which overall, are decreasing, rather than increasing. USAID
    is exploring options for restructuring the portfolio of existing staff
    to effectively implement this new infectious disease initiative,
    without jeopardizing our ability to adequately manage on-going
    programs. We are exploring options to bring into the Agency specialized
    technical expertise in areas such as tuberculosis. We also hope to work
    with other U.S. government agencies and private partners to bring their
    technical expertise to bear on the strategy I have outlined today.
        The problems of infectious diseases are much greater than what the
    U.S. government can take on entirely by itself. We will need to work
    with our public and private sector partners to leverage and increase
    resources targeted at these issues.
                                new partnerships
        USAID has chosen to focus on a relatively few areas in infectious
    diseases, but even within these areas the task before us is enormous,
    and far exceeds the resources the U.S. can put forward. We must work
    together to identify new partners and bring them to the table. I am
    very pleased to see the private sector represented here today; it is
    clear that effectively addressing infectious diseases is very much in
    the interests of all of us, including the private sector.
        We have the obvious representatives here--the drug companies and
    those who deal directly with health issues. But there are many more
    companies that for philanthropic and other reasons may be willing to
    participate. For example, Coca Cola helped support a National
    Immunization Days campaign for polio in Zambia, providing transport for
    health workers and volunteers. USAID is working closely with the U.S.
    food industry to expand the intake of vitamin A for children at risk in
    developing countries, employing this powerful new weapon for child
    survival. Decreasing vitamin A deficiency through fortified foods and
    supplements, and increased use of vitamin A rich foods, can reduce
    child deaths by as much as a quarter, by directly enhancing children's
    resistance to the infections we are discussing today. While USAID's
    vitamin A initiative is separate from our infectious disease
    initiative, it is a critical complementary strategy.
        When asked, U.S. private sector companies and international
    corporations have again and again demonstrated a willingness to engage
    in programs that do good works. We all need to move much more
    proactively to engage the private sector in the fight to address
    infectious diseases. I invite my partners here today to join with USAID
    in more aggressively bringing the private sector to the table and help
    bring their tremendous resources to bear on this immense problem.
        Foundations are also a significant resource. Some foundations such
    as Rockefeller, Ford, Thrasher, and Pew have been heavily engaged in
    international health issues and we have all seen the remarkable and
    ground-breaking programs they have supported. However, there are other
    foundations that are not working in international health as yet. We
    need to join with our foundation colleagues and others to encourage
    wider participation from others in efforts to improve international
    health.
        Civic organizations are already involved in a variety of
    international programs. When polio is eradicated in the next several
    years, Rotary International can rightly take a great deal of credit for
    making it happen. The Lions Club's support for International Sight and
    Life has made a tremendous difference in the lives of children all over
    the world. Here too, we can work together to encourage further
    participation from other civic organizations. As we have seen with
    Rotary, civic organizations cannot only help mobilize financial
    resources, but they often have member networks in countries all over
    the world that can be tremendously powerful partners in mobilizing
    local resources, getting work done, and building sustainable systems.
        The World Bank is devoting enormous resources to bear on infectious
    diseases, notably TB and malaria. While coordination often occurs at
    the country level, we need to be much more systematic about
    collaborating closely with our World Bank colleagues to get the most
    out of our investments.
        The President has proposed an increase for the NIH budget,
    including increased support for vaccine research. Investments in
    research now cannot be oversold, and will be critical for our success
    in fighting infectious diseases for the long run. Vaccines are
    tremendously powerful weapons in the fight against infectious diseases,
    and must be supported. We hope to closely coordinate with NIH, to make
    the most of our combined resources.
        The Centers for Disease Control and Prevention (CDC) continues to
    be an important partner in international health in areas such as
    developing methods to monitor antimicrobial resistance, especially
    pneumonia and malaria, as well as providing expertise in field
    epidemiology. We have been in discussions with CDC about the important
    role they will play in USAID's strategy, and are jointly seeking ways
    that we can maximize the impact not only of the resources USAID gives
    CDC for work in developing countries, but look for opportunities for
    combining our resources for greater impact.
        The World Health Organization (WHO) is already one of our major
    partners; this partnership will be enhanced through our infectious
    disease initiative as we engage multiple divisions within that
    organization. We are very enthusiastic about the nomination of Dr. Gro
    Brundtland as Director General of WHO. Dr. Brundtland's stated
    priorities of strengthening health systems and health and development
    will help to maximize the synergy and effectiveness of our combined
    resources.
        UNICEF has also been an important partner for USAID for many years
    in child survival and health programs. Because so much of the
    infectious disease work I have described today dovetails with these
    programs, we will be working with UNICEF to look for more opportunities
    to collaborate.
        USAID's programs have been working successfully to engage local
    private and public sector resources. Given the scarcity of resources at
    the local levels, this is often a great challenge, but it has
    tremendous payoffs by making programs more effective, more acceptable
    and accountable to local people, and more sustainable for the long
    term. For example, in India, 10 million volunteers helped make the 1997
    and 1998 National Immunization Days for polio a remarkable success.
    Thanks in no small measure to these volunteers, 130 million children
    were immunized in one day. This kind of effort will make polio
    eradication happen.
                                   conclusion
        The burden and growing threat of infectious diseases is enormous.
    Millions of people die every year from these diseases, and most of
    these deaths are preventable. As we near the end of the century, there
    is a deepening collaboration and growing consensus among political
    leaders, international organizations, health agencies and communities
    that by working together, we can curb the threat of infectious
    diseases. Building the systems to prevent, control and detect diseases
    is possible.
        Thanks in large part to the vision of this subcommittee, the U.S.
    has now taken a leadership position. By maintaining our course,
    encouraging the participation of new actors and bringing new resources
    to the table from other quarters, we can over the next decade make even
    greater headway in addressing this problem.

                                 Foreign policy

        Senator Leahy. I look at the fact that we can spend
    millions of dollars, for example, as part of our foreign
    policy, to send an aircraft carrier task force into an area,
    just to show the flag. And here we are talking about saving
    lives for the cost of $1 a person, or $2 a person. When you are
    a nation with 5 percent of the world's population using one-
    quarter of the world's resources, the humanitarian obligation
    is there to do more.
        But also, if you want to just look at it as a matter of
    pure self-interest, we have a great interest here. These
    diseases come to our shores. We are not isolated from them.
        My wife is a nurse and she sees more and more patients with
    TB. And I also understand that is not unusual around the
    country.
        When you only know about faraway countries by reading
    National Geographic as I did as a child, today people leave
    here on Monday for a conference on the other side of the world,
    and they are back at their desk by late in the week.
        But I state the obvious here, and I do want to hear from
    Dr. Heymann.
        It is good to have you with us again.

                   summary statement of dr. david l. heymann

        Dr. Heymann. Thank you very much, Senator Leahy.
        I am very pleased to represent the World Health
    Organization at this second hearing that you are conducting on
    infectious diseases. And I would like to call your attention to
    some charts which we will be showing at my right.
        This first chart follows up on what Nils has said
    previously. If you focus on the purple wedge, that is the 17
    million infectious diseases which are occurring in 1995, and a
    similar number is occurring--slightly more--this year. If you
    look at this in comparison to the total number of deaths in the
    world in 1995, you will see that that represents a third of all
    deaths.
        This is unacceptable today, in a world where the tools are
    there to control infectious diseases. And as is true with
    infectious diseases, it affects mainly the poor in developing
    countries.
        The next overhead shows the infectious diseases which have
    been recently imported into the United States. And these
    diseases are imported in food, such as cyclospora. They are
    imported in laboratory animals, such as Ebola. And they are
    imported in people, as is shown with cholera, yellow fever,
    dengue, malaria, and polio.
        Now, I would like you to focus, Senator, if you would, on
    the three diseases on the right: yellow fever, malaria, and
    dengue. These diseases are all carried by mosquitoes. And on
    the next chart you will see the States in the United States
    which were reporting malaria in 1949. These States had the
    mosquito vectors which would transport or transmit malaria.
    These States also had the disease mosquitoes which would
    transmit yellow fever.
        Today those mosquitoes are still present in these States.
    And it suffices for a letdown in vigilance--which CDC will
    never do--but if a letdown in vigilance occurs, there will be
    an increase in transmission of these diseases, yellow fever,
    dengue, and malaria, in the United States.
        Senator Leahy. What you are saying is if you were to look
    for where the mosquitoes are, and to change that from 1949 to
    1999, for example, it would be basically the same?
        Dr. Heymann. That is correct. They are the same. But in the
    summertime, they can spread up to the metropolitan areas of New
    York and Boston.
        The next shows the concerns in globalization and health,
    which you have alluded to, this rapid transportation of
    commerce and also of people. In the North, the issue and the
    concern is one of international public health security, making
    sure that these organisms do not come in, in food, or that they
    do not come in, in people, either returning tourists or
    immigrants.
        In the South, the issue is early detection and containment,
    being sure that these diseases are detected early and stopped,
    so that they do not cause high mortality, and so that they do
    not decrease trade and tourism, which is always a result of an
    infectious disease in developing countries.
        But there is hope, because there is a common concern for
    both the North and the South, a common interest. And that is to
    strengthen both global detection systems for infectious
    diseases and also national surveillance and control in
    countries, including developing countries.
        Now, this overhead, this chart, shows a disease called
    monkeypox. Human monkeypox is a disease which occasionally
    occurs in humans, and it comes from animals living in the rain
    forest in West and Central Africa. This disease, in the past,
    has not spread further than five people within the same
    outbreak. And it is a disease which does not kill to the same
    extent as smallpox, but does kill 10 percent of those infected.
    Smallpox vaccination protected against human monkeypox. Today,
    smallpox vaccination is no longer given anywhere in the world,
    so it is a concern when a disease such as this strikes the
    human population.
        And I would like to just show you how a response is mounted
    to a disease such as monkeypox, to show you, first of all, the
    sequence of events, and then some of the problems. Now, the
    first case of monkeypox in this outbreak, which at that time
    already numbered 90 cases, came to WHO through its global
    network of disease detection. This is a system which receives
    rumors of infectious, unconfirmed infectious diseases, from
    NGO's, from governments and from technical agencies such as CDC
    and USAID.
        The report came to WHO. WHO mounted an investigation
    locally, with its local WHO epidemiologist, Medicine sans
    Frontiere, which is Doctors Without Borders, and the national
    investigation team, and specimens were obtained and sent to
    CDC. CDC, in September, diagnosed human monkeypox, confirmed
    the diagnosis. It took us from September until January to get
    an investigation started, because we had to stop and raise the
    funds necessary. We had to raise funds to transport the team
    into a remote area of the former Zaire. We had to set up the
    logistics. And it took us 3 months before we could send a team
    from Geneva, from CDC, from the European Epidemiology Training
    Program, and nationals into the site.
        They got to the site at very heavy expense, but 10 days
    later, civil war came through, the investigation was
    interrupted, and we had to start over again in September. But,
    by September, we had been able to broaden the response to the
    PHLS, which is the Public Health Laboratory in London. So we
    broadened the response, so that no one country had to bear all
    the burden.
        And now we are in the process of developing strong
    surveillance in the area, to make sure that the disease does
    not occur again, because the outbreak was successfully
    investigated. Over 300 cases have occurred. Analysis is now
    being done, and an expert group will be formed, to see what the
    implications of this are. But we now have a system in place to
    make sure that if more monkeypox occurs, it will be detected.
        But, again, there was a gap from September to January. That
    gap was again due to the need to go out and raise more
    resources. We need a fund of money available internationally
    when these outbreaks occur.
        Senator Leahy. Doctor, could we stop there for a moment.
        I understand the delays when there is a war going on. But
    what you are saying is that everything is in place but you do
    not have the fare, you do not have the money?
        Dr. Heymann. That is right. It has been a major effort of
    ours to broaden the response, to include groups like EPIET, the
    European Field Epidemiology Training Program, and the Public
    Health Laboratory in London. Through talks with their
    governments, their governments have put more funding into these
    programs, so that they can respond at no cost to us.
        Previously, it was only CDC which could do this. So we have
    to broaden the response. But no one person can support the
    logistics, an airplane charter to take the teams in. This must
    be an international fund of some type.
        Now, it is not enough just to strengthen disease
    surveillance, detection and control, we also must have the
    products necessary to prevent disease and to cure them. This
    shows you the vaccines which have been licensed since 1900, a
    total of 42 of them. And you can see that there were 12
    licensed between 1900 and 1950. And since 1951, there have been
    30 licensed, which is quite impressive.
        The problem remains, however, that the major killers, which
    Nils has shown on his overhead, many of those still do not have
    a vaccine: AIDS. Tuberculosis has no effective vaccine. A
    vaccine for other infectious diseases do not exist. And those
    that do exist, many times, are too expensive.
        Right now there is a safe and effective vaccine for yellow
    fever, and another safe and effective vaccine for other
    diseases in Africa, yet the countries cannot afford to put
    these vaccines into their programs, and international donors do
    not buy them. So, as a result, populations are remaining
    unvaccinated, with products which are already available. So
    that we have made progress in development of vaccines, there
    remain many diseases elusive to vaccination, and at the same
    time we are seeing that they are unaffordable in many
    countries.
        The next shows you the discovery of antibiotics. And you
    can see that from 1940 to 1950, it was the golden age of
    antibiotic development. There were 10 antibiotics developed or
    discovered. If you look progressively, you will see that in
    1961 to 1970, that had decreased to 10. And if you look from
    1971 to 1990, that still remained at five. So a decrease from
    10 to 5 to 5. And in 1990, there are only three.
        Now, resistance is developing very rapidly to these
    antibiotics, and it is a risk to develop a new antibiotic
    because of that. But I would just like to signal some of the
    problems now, in the next, with developing new vaccines and new
    drugs for use in developing countries.
        Now, this is not only an issue of scientific research and
    development, it is also an issue of economics and patents.
    Industry has to recoup the cost that they spend on research and
    development of new product. It is a justifiable need. They also
    have to recoup the costs on all the other investments they made
    on products which never made it to market. So they need to get
    a profit. And they need to get that profit rapidly because they
    have a patent limitation of a maximum 20 years.
        Now, some of the obstacles along the way to develop
    products for developing countries are that there is a variation
    in the industry's distribution. The rich markets which could
    buy many of the products do not have many of the diseases. So
    developing countries, which have a soft currency market and a
    limited affordability of new vaccines and drugs, are not a
    target of industry, and rightfully so.
        There is also a long interval to licensing many times. The
    patent may be 10 years down the way before a drug is already
    licensed. And then that 10 years is the only time they have to
    recoup the money on a guaranteed basis. So there are many
    obstacles to developing products for developing countries. And
    what is needed is a better environment in industrialized
    countries, so that pharmaceutical companies will be willing to
    invest in development of vaccines and drugs for developing
    countries to sustain all the efforts that WHO, USAID, CDC, and
    others are doing in making an infrastructure to support disease
    detection and control.
        So, finally, I would just show you a list of the WHO, or a
    map of the WHO collaborating laboratories, which are one of our
    global surveillance systems. These are being hooked up
    electronically. But as you can see, there are gaps in the
    South, in Africa, in Latin America and in Asia, there are a
    decreased number of centers. And these must be strengthen, and
    Nils alluded to that, in the activities that USAID will be
    doing bilaterally.

                               prepared statement

        So I would like to just close by saying that the funding
    has been very crucial to USAID to strengthen global
    surveillance and monitoring and control of infectious diseases,
    and it is very important that those products continue to be
    produced, which will permit successful disease control and
    prevention. So a new environment for the pharmaceutical
    industry, to encourage that, and increased or sustained funding
    to USAID will move us greatly ahead in solving the problem of
    infectious diseases in the world.
        Thank you very much.
        Senator Leahy. Thank you, Doctor.
        [The statement follows:]
                   Prepared Statement of Dr. David L. Heymann
                 infectious diseases: the continuing challenge
        Infectious diseases are dynamic, resilient and remarkably
    persistent over time. They have caused fear and horror for millennia.
    The suffering and losses they have inflicted have been described
    throughout recorded history and have dramatically shaped human destiny.
    Twentieth-century medicine has reduced their toll, but not their
    number. The number of such diseases is actually growing, in part
    because microbes that live in animals increasingly find conditions
    right to jump the species barrier and infect humans. The list of
    threatening diseases is longer now than it was 75 or 50 or even 25
    years ago. Some infectious diseases, quiet for decades, are nonetheless
    still with us and roar back with a vengeance wherever public health,
    sanitation and other control measures fall into decay. And increasingly
    there is a fear of intentional use and spread of microbes, including
    genetically-modified versions, as weapons of war or terrorism.
        One-third of the 52 million deaths which occurred in the world in
    1995 were due to infectious diseases, and this ratio has remained the
    same in 1996 and 1997. These diseases killed 17 million persons in 1995
    and disabled hundreds of millions of others. The majority of these
    diseases, including tuberculosis, pneumonia, hepatitis, measles and
    AIDS, are transmitted directly from person to person. Others are spread
    by food, water or soil and include diarrheal diseases, cholera,
    neonatal tetanus, and intestinal parasites. Some are insect-borne such
    as malaria and dengue fever. Others, such as rabies, are spread
    directly from animals to humans.
        Advances in public health and medicine, sanitation and pest control
    have led to the prevention and control of infectious diseases in many
    countries but have had minimal impact in others. Worldwide, centuries
    of progress have been undermined to various degrees by deteriorating
    public health infrastructure, inadequate resources for health care
    services, and the rise of new and multi-drug-resistant organisms. There
    continue to be enormous disparities in mortality, disability and
    exposure to infectious diseases among social classes, with the poor
    still suffering extremes of ill health in all societies. When adequate
    financial and human resources are not devoted to infectious disease
    control, whether due to poverty or to competing priorities, the result
    is a predictable increase in infectious disease.
        In spite of huge steps forward in controlling infectious diseases,
    from the research laboratory to the hospital bedside to the village
    health center, there have been huge setbacks too. The resurgence of
    diseases once thought conquered is taking a rising toll in human lives.
    The assumption that antibiotics would forever cure many infectious
    diseases has been proved disastrously false by the evolution in the
    last few decades of drug-resistant bacteria, viruses and parasites. And
    in the late twentieth century, expanding global travel and trade have
    made an infectious disease in one country become a concern for all. As
    we enter the 21st century no country in the world is safe from
    infectious diseases.
                     infectious diseases: recent experience
        During 1997 the world experienced over 60 internationally-
    significant infectious disease outbreaks of both ``classic'' infectious
    diseases and new, unfamiliar diseases. Other familiar infectious
    diseases continued to gain ground in new and often disadvantaged
    populations. Many of these disease have crossed, or threatened to
    cross, international borders, menacing international public health
    security. Though none of these outbreaks appear to have been
    intentionally caused, the fear of intentional use of infectious agents
    remains. For example, during 1997:
        Major cholera epidemics spread throughout eastern Africa, affecting
    hundreds of thousands of people in more than ten countries over several
    months. Trade sanctions were unnecessarily placed on fish exports from
    these countries resulting in severe economic impact on their fragile
    economies.
        Yellow fever fatalities were reported in seven countries in Africa
    and South America.
        Meningitis caused major epidemics in Africa, with over 70,000 cases
    reported in the 1996-97 season, over half of which are feared to have
    resulted in permanent brain damage or death.
        Over 15,000 cases of typhoid fever with resistance to first-line
    antibiotics occurred in Tadjikistan.
        Epidemic typhus resurged in Burundi with over 30,000 cases and
    untold deaths.
        An avian influenza virus emerged in humans in Hong Kong, killing 6
    out of the 18 people who became ill. It is being carefully monitored
    for its potential to become the next worldwide pandemic influenza
    threat.
        Rift Valley fever afflicted thousands of people, killing hundreds
    of people and many livestock in Kenya and Somalia.
        The prevalence of hepatitis C continued to increase in countries
    where blood is not screened prior to use and sterilization of medical
    equipment is faulty.
        Lassa fever, with high mortality, re-emerged in Sierra Leone.
        An outbreak of dengue fever occurred in Cuba for the first time
    since the 1981 epidemic.
        The investigation of an unexpectedly large human monkeypox outbreak
    in the former Zaire raised troubling new issues about this disease and
    about the safety of smallpox vaccination in the era of AIDS.
        The number of cases of new variant Creutzfeldt-Jakob Disease
    reached 24 in the United Kingdom and France, combined with the
    continuing threat of bovine spongiform encephalopathy (BSE or mad cow
    disease). The United Kingdom's economic loss from BSE was estimated to
    have reached $5.7 billion U.S. dollars.
        Escherichia coli 0157 continued to surface in industrialized
    countries including Japan and the United States.
        Vancomycin-resistant Staphylococcus aureus was identified in Japan
    for the first time, and later in the United States.
        Sporadic infectious disease outbreaks and epidemics such as these
    are costly to the economies of countries in which they occur. Epidemics
    often divert resources from the ongoing control of important endemic
    infectious diseases such as tuberculosis, AIDS, malaria, pneumonia and
    diarrheal diseases. As a result endemic diseases continue to increase.
    For example, the number of new HIV infections in Eastern Europe tripled
    during 1997, and with it there was an increase in tuberculosis, while
    funding for control efforts failed to keep pace.
        infectious diseases: building a global framework to strengthen
                            surveillance and control
        During the 50 years since the World Health Organization (WHO) was
    created we have learned that there is a complex network of ecological,
    social, political and economic factors that must be addressed to solve
    most public health problems. We must be alert to and fashion our
    response to infectious diseases to reflect the diversity of experience
    as well as inequities within and between populations. Despite the
    existence of vaccines, drugs, and laboratory tests which have helped to
    decrease infectious diseases to low levels in many countries, success
    in the control of infectious diseases in other countries remains
    elusive. Poor progress is partly due to lack of appropriate
    technologies that can easily be applied to overcome disease in
    developing countries, and partly to the inability of those parts of the
    world with the most infectious disease to finance the necessary
    interventions on a sustainable basis. The experience of WHO during this
    half a century has shown over and over again that controlling
    infectious diseases is a global challenge requiring a sustained,
    committed effort and partnerships among and between governments, non-
    governmental, and multinational organizations.
        The concern of industrialized countries such as the United States,
    where prevention and control efforts have dramatically decreased
    infectious disease mortality, is international public health security:
    ensuring that infectious diseases which are occurring elsewhere do not
    spread internationally across their borders. The concern of developing
    countries is to detect and stop infectious diseases early: avoiding
    high mortality and negative impacts on tourism and trade. Peru
    estimates that when cholera re-surfaced there in 1991 over 3,000
    persons died, and that the national economy lost over $770 million U.S.
    dollars because of decreased tourism and embargoes on seafood trade.
    The estimated loss because of mad cow disease in the United Kingdom is
    $5.7 billion U.S. dollars.
        Both industrialized and developing countries can address their
    concerns by working together to strengthen detection and control of
    infectious diseases. The WHO framework for the surveillance and control
    of emerging and other infectious diseases takes this common interest
    into account. This framework has been developed together with Member
    States and other partners, including the EU-US Task Force on Emerging
    Infectious Diseases and the US-Japan Common Agenda, and has been cited
    as an area of collaboration by the G-8 Member Countries at both the
    Lyon (1996) and the Denver (1997) Summit meetings.
        There are three major components to the WHO global framework for
    the prevention and control of infectious diseases:
        1. Strong global and national epidemiological surveillance and
    public health laboratories to detect infectious diseases, to provide
    data for analyzing and prioritizing health services, and to monitor and
    evaluate the impact of control efforts.
        2. Sustainable and well-managed infectious disease control programs
    which effectively diagnose infectious diseases and administer vaccines
    and curative drugs where and when they are needed.
        3. Continuing research and development of simple-to-use and robust
    vaccines, antimicrobial drugs, and laboratory tests for surveillance,
    prevention and control.
        Surveillance and control of infectious diseases are being
    strengthened by WHO and its partners, including USAID and CDC. During
    the 1998 fiscal year the U.S. Congress provided $50 million to USAID
    for timely participation in this global effort. This has permitted
    USAID to add an objective to its strategic framework for population,
    health and nutrition to reduce the threat of infectious diseases of
    major public health importance. USAID consulted with many partners,
    including WHO, in the process of developing this strategy and its four
    principal areas of programmatic emphasis: anti-microbial resistance,
    tuberculosis, malaria, and surveillance and response capabilities. WHO
    believes USAID's activities will make a major contribution to putting
    in place cost-effective and non-duplicative investments to rebuild and
    strengthen capacity to detect and control infectious diseases,
    particularly in developing countries. WHO is collaborating very closely
    with USAID and other partners in all four of the programmatic areas.
    Active discussions are underway and field activities will be expanded
    as fast as final funding decisions are made.
        Continued funding to USAID at this level or higher, targeted at
    strengthening surveillance and control, will permit the U.S. Government
    through USAID to continue its support to this important global
    partnership. The long-term result will be that developing countries are
    able to detect and contain infectious diseases where they are
    occurring. This will minimize their impact locally and ensure that they
    do not become threats to international public health security.
        During the past twelve months, in part supported by funding and
    technical support made available through CDC and USAID, WHO has
    reinforced global laboratory-based surveillance by providing training
    and support to existing WHO Collaborating Centers and laboratories, by
    giving seed funding for development and distribution of diagnostic
    reagents, and by designating new centers and laboratories to fill
    geographical gaps. Fifty-two additional national laboratories, for
    example, have been strengthened through training and provision of
    supplies to participate in the WHO antibiotic resistance monitoring
    networks. Plans are underway, in collaboration with USAID, for
    intensification of this work and additional initiatives directed
    specifically at understanding the magnitude and causes of antimicrobial
    resistance, and developing and applying containment strategies. Other
    laboratory networks to monitor viral, bacterial and zoonotic (human
    infections of animal origin) diseases have similarly been strengthened.
    Sustained or increased funding to USAID would permit the pace of these
    activities to increase.
        WHO has improved global epidemiological surveillance through the
    revision of the International Health Regulations to facilitate rapid
    reporting of and response to infectious diseases of international
    public health importance. Revision has specifically focused on
    developing a system which is sensitive enough to detect both naturally
    occurring and intentionally caused infectious disease outbreaks. The
    revised system emphasizes communication through electronic links
    between WHO Member States and WHO's network of regional offices,
    country representatives, and technical partners such as USAID and CDC
    for verification and response. The response mechanism permits rapid and
    coordinated international investigation and containment of infectious
    disease outbreaks of international importance. Examples during 1997
    include investigation and containment of outbreaks of human monkeypox
    in the Democratic Republic of Congo, avian influenza in Hong Kong, and
    Rift Valley fever in Kenya. In each instance the WHO-coordinated
    international response, in which CDC played a major role, broadened
    international cooperation so that no one country was required to
    shoulder the entire burden. Without such a coordinated international
    response each of these outbreaks could have resulted in extensive
    international spread.
        At the same time WHO has also expanded its priority routine
    surveillance systems for diseases such as influenza, HIV/AIDS,
    hepatitis C, rabies, hemorrhagic fevers, and Creutzfeldt-Jakob Disease.
    Furthermore, to ensure an international environment which facilitates
    effective global surveillance and response, WHO has continued to
    develop standards and strategies for infectious disease surveillance
    and control, promoted and conducted basic and operational research, and
    evaluated laboratory diagnostic tests and epidemiological approaches to
    surveillance. For these activities as well, intensified collaboration
    with USAID would permit WHO to increase the pace of implementation,
    enabling WHO to continue to provide clear, reliable and 24-hour-
    accessible information on infectious diseases to public health
    professionals and the general public throughout the world.
        With continued or increased support for the WHO-USAID partnership,
    the rate at which CDC, USAID, and WHO are strengthening and reinforcing
    developing country infrastructure and networks in national surveillance
    and control activities would be increased, permitting those countries
    to have a clear picture of the infectious disease situation in the
    country as a whole and in populations at special risk. Activities
    include assessment of existing systems with refocusing and replanning
    as necessary, technical assistance, and training of trainers in
    infectious disease surveillance and control. Continued and increased
    effort in these activities will permit developing countries to detect
    and contain unusual diseases or outbreaks when and where they occur.
    infectious diseases: need for new vaccines, drugs and laboratory tests
                            for developing countries
        Strong surveillance and disease control without the necessary tools
    for diagnosis, treatment and prevention are futile goals. Continued
    research and development are required to produce simple-to-use and
    robust vaccines, drugs and laboratory tests. There is a particular need
    for continued development of vaccines, drugs, and laboratory tests for
    developing country markets.
        At the same time these tools for surveillance and control must be
    widely available and used. We are regularly reminded that infectious
    diseases require constant and sustained attention. Two recent examples
    are the resurgence of diphtheria in the newly independent states of
    eastern Europe and the Russian Federation when vaccination programs
    became underfunded, and the continued mortality from influenza in the
    United States where each year the influenza virus infects and often
    kills those elderly persons who have not been vaccinated.
        On the surface, vaccine development appears to be satisfying the
    needs. From 1900 to 1950, 12 vaccines were licensed for human use, and
    30 new vaccines have been developed and licensed since 1950. Many of
    these newer vaccines are more stable under tropical conditions. But
    vaccines continue to require vigilant and uninterrupted cold storage
    until use, and development of vaccines for major killer infectious
    diseases--tuberculosis, AIDS and malaria--has been elusive. Those new
    vaccines which have been licensed have proven costly and not
    immediately available in many developing countries. For example, there
    is an effective vaccine for hepatitis B and another for yellow fever,
    but inclusion of these vaccines in childhood immunization programs in
    countries where the diseases are most prevalent has too often not been
    a national budgetary priority, and donors have not been willing to pay
    the price necessary to ensure their availability.
        At the same time, development of new classes of antibiotics has
    slowed partly due to the costs and risks associated with their
    development. In fact, since the early 1960's no new class of
    antibiotics has been developed, and resistance of microbes to existing
    drugs continues to increase relentlessly within antibiotic classes. As
    is true for vaccines, new antimicrobial drugs, which are a necessity
    since resistance makes older ones ineffective, are not affordable by
    many developing countries. The cost of treating gonorrhea--a sexually
    transmitted infection which if left untreated facilitates the
    transmission of HIV--has increased from approximately 40 U.S. cents 20
    years ago (cost-adjusted figures to 1998) when penicillin was 100
    percent effective, to over $5 U.S. dollars today when penicillin and
    other less costly antibiotics are no longer effective. Such costs are
    prohibitive in most countries where the problem of HIV is greatest.
        The development of simple-to-use and robust laboratory tests has
    also lagged. Tests of a type which can be used and sustained in
    developing countries do not exist for most infectious diseases, and for
    all but a minority of diseases many developing countries are required
    to depend on regional or international laboratories for final
    diagnosis. The delays thus caused often result in inappropriate and
    unnecessary treatment and increased cost for patient management.
        The issue of continued research and development and widespread
    availability of vaccines, drugs, and laboratory tests for surveillance
    and control involves not just research and development, but also
    economics and patents. New vaccines, antibiotics, and diagnostic tests
    come from the research-based pharmaceutical and diagnostics industry.
    Development is costly, and patents are involved. Industry depends on
    sales to recoup its high investments in research and development, both
    for successful products and those that never make it to the market.
    Sometimes it takes 10 years of the product's twenty year patent life
    before a new drug or vaccine is licensed and on the market. With
    limited guaranteed time to recover large investments, high-profit,
    hard-currency markets are sought to maximize cost recovery. Industry
    points to these economic and patent issues as reasons that they are not
    able to develop products for high volume, low profit developing country
    markets where affordability for the general population would require a
    longer time to recover costs. Furthermore, the profits earned in soft
    currencies may be small when converted into dollars.
        Compounding the risk of investing in development of a new
    antibiotic is the risk that the product will become ineffective due to
    antibiotic resistance. For laboratory tests one of the major risks is
    that of liability. Whereas simpler and more robust tests may be useful
    in developing countries where other tests are not available, there may
    be a liability risk associated with use in industrialized countries
    where other available tests may be more sensitive.
        An environment which favors research and development of vaccines,
    drugs and laboratory tests suitable for developing countries must be
    created to ensure strong and sustainable surveillance and control.
    Measures which have been tried in the past include.
        1. Two-tiered pricing. This provides a public sector price in
    parallel to the price on the open market. Problems with this policy
    have been that it often affords an opportunity for black market sales
    and parallel export of products which impact negatively on the large,
    hard-currency industrialized country markets.
        2. Donation of drugs and vaccines by industry. This has been
    especially important for the success of such programs as the control of
    onchocerciasis (river blindness) in western Africa, and the current
    efforts to eliminate lymphatic filariasis (elephantiasis). Problems are
    that sustainability depends on the continued ability of the industry
    which produces these products to provide them at no cost.
        3. Co-development of a drug or vaccine with WHO and guaranteed
    preferential pricing to WHO once development is complete. Co-
    development permits more rapid testing of new products in areas where
    disease is highly prevalent, but it requires a guarantee that studies
    are conducted with the standards required for licensing by regulatory
    authorities, which is sometimes difficult to accomplish in the
    countries with high prevalence.
        4. Donation of patents to WHO. This makes it possible for many
    manufacturers to produce the same product, thus creating competition
    which will eventually lead to lower pricing. (Albert Sabin chose this
    measure to develop the oral polio vaccine.) Potential problems include
    ensuring uniform quality of the final product.
        5. Government regulation to enable licensing of products aimed at
    low volume, or low profit/high volume markets. The United States has
    pioneered a system through its Orphan Drug Act (1983) aimed at drugs
    which are scientifically but not economically viable (either because
    the number of patients who might benefit is too small or because the
    populations concerned are too poor to afford the drugs). Under this
    act, industry is entitled to a tax credit for the cost of clinical
    trials conducted with the ``orphan'' drug and other substantial
    benefits.
        6. Creative financing mechanisms to provide increased funding to
    the pharmaceutical and diagnostics industry for research and
    development of products for developing country markets. The AIDS
    Vaccine Initiative, supported initially by the Rockefeller Foundation
    is an example of this type of mechanism which provides grants to the
    research-based pharmaceutical industry for research and development of
    AIDS vaccines.
        These examples of measures to improve availability of existing
    products, and research and development of new ones aimed at low profit,
    high volume developing country markets each results in an increase in
    the availability of products in developing countries, but they vary in
    their sustainability. Consideration of how these and other mechanisms
    might be advantageously used in the United States to promote
    development and/or availability of vaccines, antimicrobial drugs and
    laboratory tests for developing countries deserves further
    investigation and action. Coupled with continued and increased funding
    to USAID, CDC and WHO for strengthening surveillance and control, a
    creative environment which permits the research-based pharmaceutical
    and diagnostics industry to develop new products for developing country
    markets could provide the synergy needed for long-term and sustainable
    success.
                                summary comments
        The $50 million provided by Congress to USAID in fiscal year 1998
    will permit a more rapid pace of strengthening international and
    developing country infrastructure for surveillance and control of
    infectious diseases that threaten us all. Sustained funding in fiscal
    year 1999 and beyond would permit USAID to continue to support valuable
    partnerships among USAID, CDC, and WHO and lead to more timely
    detection and containment of infectious diseases when and where they
    occur. An increase in funding to USAID would permit this to be done
    more rapidly. At the same time a creative environment which would
    permit research-based pharmaceutical and diagnostics companies to
    afford to develop new vaccines, drugs, and diagnostics for developing
    country markets could dramatically speed up the rate of progress in
    combating infectious diseases worldwide.

    Deaths due to infectious diseases, 1995 estimates

                                                                    Millions

    Infectious diseases (33 percent)..................................  17.3
    Other causes (67 percent).........................................  34.6
                            -----------------------------------------------------------------
                            ________________________________________________
          Total deaths................................................  51.9
           infectious diseases recently imported to the united states
        Cyclospora, Montana.
        Ebola, Arkansas, and West Virginia.
        Cholera, Florida, and Arkansas.
        Yellow fever, Texas.
        Polio, West Virginia.
        Malaria, Georgia, and Connecticut.
        Dengue, Pennsylvania, and Texas.
            states reporting malaria, 1949, united states of america
        Texas, Oklahoma, Missouri, Arkansas, Louisiana, Mississippi,
    Tennessee, Kentucky, Alabama, Georgia, Florida, South Carolina, and
    North Carolina.
                     globalization and health: the concerns
        North: International public health security.
        South: Early detection and containment.
        Common interest: Strong global and national surveillance and
    control.
             human monkeypox: democratic republic of congo 1996-98
        August 1996--Report to WHO (MSF).
        September 1996--WHO/MSF/National Investigation.
        January 1997--WHO/National/CDC/EPIET Investigation.
        September 1997--WHO/National/CDC/EPIET/PHLS Investigation.
        January 1998 to present--WHO/National Intensified training in
    surveillance and control.

    Vaccines licensed since 1900 (n = 42)--number of new vaccines licensed

    Years:
        1900-50.......................................................    12
        1951-60.......................................................     4
        1961-70.......................................................     6
        1971-80.......................................................     8
        1981-90.......................................................     7
        1991-98.......................................................     5

    Source: Mandell, Principals and Practice of Infectious Diseases.

                                                DISCOVERY OF ANTIBIOTICS
    ----------------------------------------------------------------------------------------------------------------
           1940-50                1951-60                1961-70                1971-90                 >1990
    ----------------------------------------------------------------------------------------------------------------
    Sulphonamide           Erythromycin           Spectinomycin          Trimethoprim           Macrolides
    Penicillin             Spiramycin             Lincomycin             Clindamycin            Quinolones
    Streptomycin           Novobiocin             Gentamicin             Aztreonam              Beta-lactams
    Bacitracin             Cycloserine            Tobramycin             Ciprofloxacin
    Chloramphemicol        Vancomycin             Nalidixic acid         Imipenem
    Polymyxin              Rifampicin
    Framycetin             Kanamycin
    Tetracycline           Fusidic acid
    Cephalosporin
    Neomycin
    ----------------------------------------------------------------------------------------------------------------

    development of vaccines and drugs for use in developing countries--some
                             hurdles along the road

        Research-based pharmaceutical industry.
        Variation in disease distribution.
        Long interval to licensing.
        High costs of research and development.
        Limited patent duration.
        Soft currency markets.
        Market size limited by affordability.

                   summary statement of hon. james m. hughes

        Senator Leahy. Dr. Hughes, before you begin--you may have
    heard those buzzers in the background--I have got about 6
    minutes to get to the floor to cast a vote. I will do that and
    come back. We will not start without you--or me either, for
    that matter. [Laughter.]
        [A brief recess was taken.]
        Senator Leahy. I apologize for that delay. There was a
    rollcall vote. Then I thought we were going to have a second
    one, and so I was staying for that, and it turned out we did
    not. One of the problems here is that there are always 10
    things going on at once.
        Dr. Hughes, I am delighted to have you here, and please go
    ahead, sir.
        Dr. Hughes. Good afternoon, Senator. It is a pleasure to be
    here to represent the Centers for Disease Control and
    Prevention, our Nation's prevention agency. And it is a
    particular pleasure to be here with Dr. Daulaire, Dr. Heymann,
    and Dr. Cassell.
        I would like to briefly discuss CDC capabilities as they
    relate to surveillance, applied research and diagnostics, and
    illustrate some ways that we can assist USAID and WHO in
    addressing these urgent threats to health in our global
    village. I would like to share with you one brief quotation
    from a recent Institute of Medicine report, ``America's Vital
    Interest in Global Health.''
        ``Distinctions between domestic and international health
    problems are losing their usefulness and often are
    misleading.''
        Another point to emphasize is how critically important
    partnerships are in addressing these issues. I think that has
    already been a recurring theme.
        By way of background, CDC issued an emerging infections
    plan in 1994. This plan has primarily a domestic focus. It
    contains four goals that are relevant: surveillance and
    response, meeting applied research needs, strengthening
    prevention and control programs, and meeting infrastructure
    development and training needs.
        CDC and USAID participated with nearly 20 other Federal
    agencies in the development of the CISET report on emerging
    infections that was published in 1995. This report found that
    the national and global capacity were inadequate to address
    these threats. It identified ways in which Federal agencies
    could collaborate more effectively and work together. This
    report, as you know, served as the basis of the Presidential
    decision directive on emerging infections.
        Historically, we have a long history of collaboration with
    USAID, particularly in malaria and AIDS and in tuberculosis.
        Senator Leahy. Is that collaboration from Atlanta or do you
    also go out into the field?
        Dr. Hughes. Well, as one specific example, we have a field
    station in Kenya that is focused on malaria. USAID has provided
    some of the funding support for that over the years. So we
    actually have had a very close collaboration.
        Senator Leahy. And you would be in contact with people from
    Dr. Heymann's organization, too?
        Dr. Hughes. Frequent contact, yes.
        And recently, we have experienced an increase in requests
    to assist ministries of health and WHO in investigating
    outbreaks in many settings, particularly outbreaks with high
    mortality rates and those that have the potential to spread
    across national boundaries, and even globally.
        Now, in addition, we are often asked to assist in dealing
    with problems in countries in which USAID does not have
    missions. China is an example of that. We have worked with WHO
    to increase the number of influenza surveillance sites in China
    that have been key in monitoring influenza strains circulating,
    and came into play in assessing the extent of the avian
    influenza outbreak that occurred in Hong Kong. We deployed a
    large team of CDC staff to work with WHO and others to
    investigate and control that problem.
        In terms of the USAID strategy, I would like to
    congratulate the agency for developing this global strategy.
    CDC has consulted extensively with USAID in development of this
    strategy. CDC has unique expertise in surveillance
    epidemiology, diagnostics, strain fingerprinting, and training
    that we can apply to its implementation.
        In terms of challenges, we have recently received a number
    of very prominent wakeup calls. Several have been mentioned.
    One is the problem with drug resistance in staphylococcus
    aureus, this strain that was reported from Japan last year,
    with partial resistance to a drug called vancomycin, which is
    often the last available drug to treat staphylococcal
    infections. Within a few weeks of that case being reported, we
    identified two cases in the United States, one in Michigan and
    one in New Jersey, caused by similar strains. It shows how
    problems far away are directly relevant to problems here.
        Other examples, in terms of the critical importance of
    surveillance and rapid epidemiologic investigation, are of the
    outbreaks of viral hemorrhagic fevers in central Africa, and
    the national and international food-borne disease outbreaks
    that we seem to be encountering with increasing frequency. One
    recent example is salmonella agona outbreak related to a
    product produced in Israel that caused infections in Israel, in
    England, and in the United States. Additionally, an organism
    that is a problem even closer to home, of course, is the E.
    coli. 0157, which caused the enormous outbreak in Japan, and
    more recently, last year, the outbreak in Colorado that led to
    a nationwide recall.
        That particular outbreak illustrates the critical
    importance of public health laboratory capacity. Other recent
    episodes that emphasize that are the outbreak of plague in
    India and the Rift Valley fever outbreak in Kenya and Somalia.
        In terms of opportunities and how we can help increase
    capacity, the CDC plan that I mentioned called for the
    establishment of emerging infections programs. And I think
    there are some principles on which these programs are based
    that can be applied to help USAID build national and regional
    center networks. These programs exist now in seven States.
        They stimulate partnerships between the public health
    system, academic institutions, and other local organizations
    and agencies. They focus on some core projects that deal with
    high-priority emerging infections, including drug resistance,
    the causes of severe unexplained illnesses and deaths, and
    then, finally and importantly, food-borne diseases. They also
    give the State health departments the flexibility to deal with
    problems of local priority, which vary considerably across the
    country, and they provide the flexibility to assess new
    problems.
        For example, when questions were raised about, are we
    seeing cases of new variant Creutzfeldt-Jakob disease in the
    United States, this mad cow disease that has been such a
    problem in England, the emerging infections programs conducted
    surveillance activities.
        But other opportunities relate to some of the networks that
    we have been talking about. For example, we have been working
    with PAHO and with WHO, involving countries in the Amazon
    basin, another in the southern cone, and another in Africa, in
    the meningitis belt. There are opportunities to strengthen
    partnerships with the field epidemiology training programs
    located in 17 countries around the world that are modeled to
    some extent on the CDC Epidemic Intelligence Service Program.
    Those programs need to be more closely linked, I think, to
    local laboratory capacity, which would make them even more
    effective.
        We are committed to assisting WHO in strengthening existing
    collaborating centers that Dr. Heymann mentioned, and also
    helping them to develop new ones. And then, finally, this issue
    of training. We have developed an Emerging Infectious Diseases
    Laboratory Fellowship Program, which we instituted 2 years ago
    in the United States. Recently, we have been able to expand
    that, with some financial support from Eli Lilly, to develop an
    international track, so that we will be able to bring people
    from other countries in for training in public health
    laboratory science.
        Communications, we cannot underestimate the importance of
    that. CDC has a journal, Emerging Infectious Diseases, that can
    be used to help to get the word out to the scientific community
    around the world.
        And, finally, the importance of public education is
    absolutely critical, particularly in the area of antimicrobial
    resistance and how drugs can be more appropriately used.
        Senator Leahy. To go back to something that was said
    earlier, let me make sure I understand it so we will have it
    for the record. What is your budget for international
    activities as opposed to domestic programs? And is there a
    portion of it that comes from USAID?
        Dr. Hughes. Yes; any money that we would get from USAID
    would be used internationally.
        For implementation of the CDC emerging infections plan, we
    have received appropriations totaling $59 million; $3.5 million
    of that, or about 6 percent, goes for international projects
    and in part to support one of our people who is assigned to Dr.
    Heymann's group in Geneva, and another person assigned with
    PAHO in Washington. In addition, we put $2.5 million into
    strengthening our own WHO collaborative centers. So that total
    is $6 million. It is roughly 10 percent of the emerging
    infections budget.
        I was asked to speak for just a moment about what does the
    future hold. This is hard to predict, but we can be pretty sure
    we are going to see more problems with drug resistance. We are
    overdue for the next influenza pandemic. We may have escaped
    the Hong Kong threat, although the jury is still a bit out on
    that.
        The thing that I worry most about is when the next pandemic
    occurs, not only will we be dealing with influenza, but we will
    be dealing with bacterial pneumonias and other complications
    that will be caused by multiple drug resistant bacteria. So, in
    some ways, we will not be too far from where we were in 1918
    and 1919.
        Senator Leahy. Yes; and that $6 million or so you have for
    the world out there is not an awful lot of money. I can say
    that. You might not be able to say it. I can say it.
    [Laughter.]
        Go ahead.
        Dr. Hughes. I will not argue. [Laughter.]
        Senator Leahy. I did not think you would.
        Dr. Hughes. We are going to see more of these international
    food-borne disease outbreaks. We are going to continue to be
    surprised at the role that microbes play in causing chronic
    diseases, peptic ulcer disease being an excellent recent
    example. And we know we are going to continue to have to
    confront the unexpected. These microbes are going to continue
    to evolve in response to selective pressures. And then we are
    all concerned about the threats posed by bioterrorism.

                               prepared statement

        So, in conclusion, I am confident that the funds that USAID
    has received will be used to strengthen this global capacity. I
    think it is urgent that we all work together to do that. We
    need full partnerships and long-term collaboration and
    commitment.
        Thank you very much for your attention.
        Senator Leahy. Thank you very much, Doctor. And I am
    delighted you are here.
        [The statement follows:]
                  Prepared Statement of James M. Hughes, M.D.
        Good morning. I am Dr. James Hughes, Director, National Center for
    Infectious Diseases, Centers for Disease Control and Prevention. I am
    pleased to be here with my colleagues from the U.S. Agency for
    International Development (USAID), the World Health Organization (WHO),
    and Eli Lilly and Company to discuss an important issue: the need to
    strengthen U.S. support for global infectious disease surveillance and
    response capacity. I will review the current situation and consider how
    CDC can use its unique capabilities in epidemiology, outbreak
    investigations, and diagnostics to assist USAID in making the best
    possible use of foreign assistance funds appropriated for this purpose.
    The Global Implications of Emerging Infectious Diseases
        For fiscal year 1998, USAID has received $50 million to strengthen
    global surveillance and control of infectious diseases. This
    appropriation reflects a recognition on the part of Congress and the
    public of the urgency and global implications of the emerging
    infectious disease issue.
        The urgency of the situation is illustrated by the long list of
    unforeseen infectious disease problems that have emerged in recent
    years. To give a few examples: in 1997, an avian strain of influenza
    that had never before attacked humans began to kill previously healthy
    people in Hong Kong. This crisis raised the specter of an influenza
    pandemic similar to the one that killed more than 20 million people
    worldwide in 1918-1919. In 1997, we learned that vancomycin an
    antibiotic of last resort--has begun to lose its power to cure
    infections caused by Staphylococcus aureus, a common bacterium that can
    cause life-threatening illness. This is a frightening example of how
    the emergence of drug resistance is reversing the miracles of the last
    fifty years. In addition, there is increasing concern that an
    infectious agent may be released deliberately in a U.S. city by a
    terrorist group or as a weapon of war.
        There can also be disastrous consequences when two infectious
    disease epidemics afflict the same population. For example, the
    resurgence of tuberculosis in U.S. cities during the late 1980's and
    early 1990's was exacerbated by the presence of a large population of
    people whose immune systems had been impaired by infection with HIV/
    AIDS. Another example concerns influenza patients, who are especially
    vulnerable to bacterial pneumonia, a disease that in the past has been
    treatable by certain antibiotics. By the time the next flu pandemic
    hits, those antibiotics may no longer be effective, and pneumonia may
    again become a serious health complication.
        The global dimensions of infectious disease problems are evident.
    Infectious microbes can quickly travel from country to country within
    hours, and new diseases like HIV/AIDS and new forms of old diseases--
    like multi-drug-resistant tuberculosis--can emerge in one region and
    spread throughout the world. Today, when an outbreak of plague occurs
    in India, or an outbreak of Ebola hemorrhagic fever is reported in
    central Africa, the whole world takes notice. An outbreak is no longer
    viewed as a local tragedy that cannot affect us here in the United
    States, because the world has truly become a global village.
        The challenge to the United States, and specifically to CDC as the
    nation's prevention agency, is to contain these outbreaks before they
    become international crises. When HIV/AIDS first emerged, there was no
    international disease surveillance and response system to detect it.
    Similarly, when a cluster of cases of Ebola hemorrhagic fever occurred
    in the city of Kikwit, in the Democratic Republic of the Congo (then
    Zaire) in 1995, it was months before the disease was identified and
    control measures were put in place. By that time, the already fragile
    health care infrastructure in Kikwit had deteriorated even further,
    numerous health care workers had died, and hospitals had become places
    of contagion.
    Foreign Assistance to Address Emerging Infectious Diseases
        It is imperative that emerging infectious disease issues be
    considered when making decisions about providing foreign aid to
    underdeveloped countries. It is in the best interest of the United
    States to help developing countries participate in national and
    international surveillance and response efforts. While the primary
    gains will be in health, secondary benefits will include improved
    economic productivity and increased political stability. A recent
    report from the Institute of Medicine, America's Vital Interests in
    Public Health: Protecting Our People, Enhancing our Economy, and
    Advancing our International Interests, stated that ``the direct
    interests of the American people are best served when the U.S. acts
    decisively to promote health around the world.'' In the area of
    emerging infectious diseases, the United States can lead from its
    strengths in science and technology to protect American and global
    health while projecting U.S. influence internationally.
    Collaboration and Partnerships
        The challenge ahead outstrips the means available to any one
    agency, organization, or country. U.S. agencies like CDC and USAID are
    making every effort to maximize their resources by pooling their ideas
    and talents and by linking and strengthening existing programs and
    institutions. The principles of interagency coordination and
    collaboration are being applied both at home, where U.S. agencies are
    addressing emerging infectious diseases at state and local levels, and
    overseas, where U.S. agencies are working with the WHO and other
    international partners to improve global health communications, set
    standards for global surveillance of antimicrobial resistance, and
    share experience and training on disease prevention and control on a
    regional basis. An excellent example of a successful global partnership
    is the collaboration among CDC, USAID, Rotary International, WHO,
    UNICEF, and other international groups to eradicate polio worldwide.
        The importance of partnerships cannot be over-emphasized. This idea
    was stressed in CDC's 1994 plan, Addressing Emerging Infectious Disease
    Threats: a Prevention Strategy for the United States, which launched a
    major domestic effort to rebuild the component of the U.S. public
    health infrastructure that protects U.S. citizens against infectious
    diseases. Copies of the plan have been provided to the Subcommittee.
    CDC is preparing an updated version which has been reviewed by many
    partners, including colleagues from USAID, WHO, and the U.S.
    pharmaceutical industry. We anticipate that the plan will be finalized
    in a few months and will include a strong global emphasis.
        The theme of partnerships was also stressed at last month's
    International Conference on Emerging Diseases in Atlanta, which was
    sponsored by CDC. Approximately 2,650 representatives from various
    scientific and public health disciplines--from government, academia,
    non-profit agencies, and the private sector and from all 50 states and
    96 countries--participated in sessions that covered such topics as
    antimicrobial resistance; tuberculosis; international cooperation;
    perinatal transmission of HIV/AIDS; the detection of novel disease
    agents; traveler's health; bioterrorism; and the formal release of
    USAID's strategy on infectious diseases.
        CDC and USAID are longstanding partners in the effort to combat
    emerging diseases overseas. CDC is the lead domestic agency for disease
    surveillance and prevention and has a strong scientific focus in areas
    that have useful applications overseas as well as at home. In many
    cases, CDC serves as a technical consultant to USAID, WHO, and
    ministries of health on overseas projects that involve epidemiological
    or diagnostic research or the investigation and control of infectious
    disease problems related to wars, famines, or other disasters.
        Twenty years ago, CDC and USAID collaborated with WHO and other
    partners to eradicate smallpox. They are now working together to
    achieve the goals of polio and Guinea worm eradication. In recent
    years, CDC has extended U.S. assistance overseas by pursuing U.S.
    interests in countries that do not host USAID missions, such as China,
    where CDC supports twelve influenza surveillance sites; Hong Kong,
    where CDC assisted the Ministry of Health and WHO to contain the recent
    outbreak of avian influenza; the Sudan, where CDC has helped document
    epidemic levels of African trypanosomiasis (African sleeping sickness)
    and design control programs, as well as eliminate Guinea worm disease;
    and Vietnam, where CDC is initiating a variety of joint programs.
        USAID and CDC have worked as partners to develop U.S. policy on
    emerging infectious diseases. In 1995, the two agencies participated in
    a government-wide review of our nation's ability to protect our
    citizens from emerging infectious diseases. The review concluded that
    existing mechanisms for surveillance, response, and prevention of
    outbreaks of emerging infectious diseases were inadequate, both at home
    and abroad. Copies of the report (Infectious Disease A Global Health
    Threat, Working Group on Emerging and Re-emerging Infectious Diseases,
    Committee on International Science, Engineering, and Technology
    (CISET), National Science and Technology Council (NSTC)) have been
    provided to the Subcommittee.
        The recommendations derived from this report became the basis of a
    1996 Presidential Decision Directive that established a new national
    policy to address the growing health and national security threat posed
    by infectious diseases, including the potential threat posed by
    bioterrorism. This directive calls for action in four key areas:
    strengthening the global surveillance and response system; supporting
    research and training as the key to the prevention and control of
    outbreaks; creating partnerships with the private sector to ensure the
    availability of drugs, vaccines, and emergency medical supplies; and
    encouraging other nations to make infectious disease control a national
    priority. NSTC has created an interagency task force to implement this
    policy. CDC and USAID are among the lead agency members.
    CDC's Role in International Infectious Disease Issues
        CDC's role in international health has become more prominent in
    recent years, as CDC has received an increasing number of requests for
    assistance from foreign governments and WHO. CDC is often asked for
    help when local health authorities respond to outbreaks that have high
    fatality rates or the potential to spread internationally. CDC's
    assistance may also be requested when the cause of an outbreak is
    unknown, or when it involves a highly dangerous microbe that must be
    handled under the most stringent laboratory biocontainment conditions.
    In 1997, CDC sent personnel to 145 countries for scientific exchange
    and technical assistance and provided diagnostic support for hundreds
    of local investigations around the globe.
        Over the past few years, CDC has responded to several
    extraordinarily serious situations that required large numbers of
    personnel over extended periods of time. These included the 1995
    outbreak of Ebola hemorrhagic fever in the Democratic Republic of the
    Congo; the 1997 outbreak of avian influenza in Hong Kong; and the 1998
    outbreak of Rift Valley Fever in Kenya.
        After an outbreak has been contained, part of CDC's overseas job is
    to provide the affected population with tools to prevent or control
    recurrences of the disease. For example, since the 1995 Ebola fever
    outbreak, CDC staff have helped the local community maintain
    improvements in hospital infrastructure and hospital nursing practices.
    In coordination with WHO, CDC has also remained involved in on-going
    efforts to develop long-term surveillance of hemorrhagic fever
    outbreaks in the region.
        CDC's increasing presence in overseas investigations and research
    and training activities is due in part to the re-emergence of
    infectious diseases as a major health threat in developed as well as
    developing countries. It is also partly due to changing expectations at
    home and abroad.
    Factors that Favor the Emergence and Spread of Emerging Infectious
            Diseases
        Although we usually think of modern advances as helping to reduce
    the incidence of infectious illnesses, some modern demographic and
    environmental trends actually favor the emergence and spread of certain
    diseases. These factors include the ease and frequency of modern
    travel, the globalization of the food supply, and dramatic population
    growth causing sanitation problems and overcrowding in cities all over
    the world. Other concerns are population movements due to economic
    factors, and migrations caused by civil wars, famines, and other man-
    made or natural disasters. There has also been an increase in
    development projects involving irrigation, deforestation, and
    reforestation, which can alter the habitats of disease-carrying insects
    and animals. Finally, our increased use of antibiotics and other
    antimicrobial drugs has hastened the evolution of drug-resistant
    microbes.
    New Expectations
        At the same time, there are new expectations, both domestic and
    international, that favor increased CDC participation in international
    outbreak investigations. During the last few years, the issue of
    emerging infectious diseases has moved beyond the public health
    community to engage the community at large. The American public has
    become better informed on the dangers of microbial epidemics, and there
    is widespread understanding that a disease which originates in one
    continent can easily spread to another. The national and international
    press has educated the public by focusing on some of the more dramatic
    outbreaks. Furthermore, because of modern communications and
    international public health reporting, diseases that emerge in remote
    areas are less commonly overlooked.
        Internationally, there has been an outpouring of interest in
    emerging infectious disease issues both in the developed and the
    developing world. In 1997, at the Denver Summit, the Group of Eight
    industrialized nations, including the United States, pledged to protect
    the health of the international community by developing a global
    disease surveillance network; coordinating international response to
    outbreaks of infectious disease; and helping to build worldwide
    capacity to prevent, detect, and control emerging infectious diseases.
    International projects to improve global surveillance and response to
    infectious diseases have been initiated through several major bilateral
    meetings, including the Common Agenda with Japan, the Transatlantic
    Agenda with the European Union, the U.S.-South Africa Binational
    Commission, and the U.S.-Russia Commission on Economic and
    Technological Cooperation. Emerging infections are also on the agenda
    of the Asian-Pacific Economic Cooperation (APEC), which includes
    eighteen developed and developing countries.
        WHO has made a major effort to provide international leadership in
    this area, especially among developing countries. In association with
    its Division of Emergency and Humanitarian Action, WHO's new Division
    of Emerging and Other Communicable Diseases Surveillance and Control is
    focusing on the containment of epidemics all over the world. CDC is
    prepared to assist WHO in accomplishing this goal.
    USAID's Strategic Plan
        The increased interest in emerging infectious diseases among other
    nations presents us with an important opportunity for building a global
    network for disease surveillance and response and bodes well for the
    success of USAID's new initiative on emerging infectious diseases.
        CDC applauds USAID's effort to develop a global strategy for
    strengthening national and regional capacities for addressing emerging
    diseases, and we concur with their key priority areas: antimicrobial
    resistance, tuberculosis, malaria, and surveillance and response. These
    are critical areas that developing countries must address in their
    efforts to monitor and contain emerging diseases. The spread of
    antimicrobial resistance presents a particularly difficult challenge.
    Tuberculosis is the leading cause of infectious disease deaths in the
    world and is the most common opportunistic infection among HIV-infected
    persons. Malaria kills more than one million African children every
    year, and there is still no vaccine to prevent it. Surveillance systems
    and response capabilities need to be strengthened throughout the world
    so that known diseases can be identified and treated and new diseases
    can be recognized and contained. Success in each of these areas over
    the next 5 to 10 years will be crucial to improving global health.
    Implementation
        In response to language in the fiscal year 1998 Senate Foreign
    Operations Subcommittee report, CDC has been pleased to consult with
    USAID on the development of the strategy and has outlined approaches
    for working with USAID and other partners to help ensure its
    implementation. CDC is eager to make contributions in each of the
    priority areas, particularly in the fourth--enhancing surveillance and
    response capacity--an area in which CDC has unique expertise.
        CDC can help build surveillance and response capacity in two
    related areas: epidemiology and laboratory diagnostics, the two basic
    and interdependent components of an effective surveillance and response
    system. Epidemiologic capacity includes the ability to monitor the
    occurrence of infectious diseases and to conduct outbreak
    investigations, using modern analytic tools. Laboratory capacity
    involves the ability to diagnose diseases and track the source of
    epidemics, using a variety of approaches, including molecular
    ``fingerprinting.'' Research on emerging pathogens is also critical for
    the invention of better tools to diagnose, monitor, and prevent
    emerging infectious diseases.
    Building Regional Capacity in Epidemiology
        First, I will use a successful domestic program as a model to
    illustrate the principles on which CDC might help USAID build regional
    centers for epidemiological research and outbreak investigations. I
    refer to CDC's Emerging Infections Programs, or EIP's, which provide a
    regional resource on infectious diseases within the United States.
        The seven current EIP sites conduct population-based surveillance
    and research that go beyond the routine functions of state and local
    health departments to address important issues in infectious diseases
    and public health. They invest in cutting edge research, assist state
    and local health departments in emergency outbreak responses, and
    provide a flexible infrastructure for responding to new problems
    whenever they arise. (For example, the EIP's established population-
    based surveillance for new variant Creutzfeldt-Jakob Disease, an
    invariably fatal neurological disease, immediately after this disease
    was reported in the United Kingdom as a possible consequence of eating
    beef from animals afflicted with ``mad-cow disease.'') Moreover, the
    EIP sites are the backbone of the Active Surveillance Network for
    Foodborne Diseases, or FoodNet, which is a collaborative effort
    involving the Food and Drug Administration, the Department of
    Agriculture, and CDC.
        The EIP's, which are based in state health departments, demonstrate
    the importance of institutionalized, on-going epidemiological research
    that fills both regional and national needs. They also illustrate the
    benefits of maintaining a regional resource for providing technical and
    financial assistance during infectious disease emergencies. Finally,
    they demonstrate the importance of partnerships between public health
    authorities and other agencies. Each EIP involves collaborations among
    state and local health departments, academic medical centers, and other
    local organizations and institutions.
        These general principles can be applied by CDC and USAID in
    building an international network of regional centers that integrate
    surveillance, applied research, and prevention activities. Like the
    domestic EIP Program, such a network could incorporate pre-existing
    sites (e.g., public health agencies, research institutions, private
    companies, and non-governmental organizations); use the sites in an
    integrated fashion; and establish an international steering committee
    to provide assistance for specific projects conducted at one or more
    sites. Some sites could partner with, or build upon, existing Field
    Epidemiology Training Programs, which CDC has helped established in 14
    foreign countries. Areas in which these sites might play an especially
    important role are in surveillance for drug-resistant forms of malaria,
    tuberculosis, pneumonia, and dysentery. All of the sites would be
    linked by electronic communications to keep health experts around the
    world in close contact with one another.
    Building Regional Capacity for Laboratory Diagnostics
        CDC and USAID could also help develop a complementary network of
    regional diagnostic laboratories. This might be accomplished most
    readily by building on WHO's existing network of more than 200
    Collaborating Centres and Reference Laboratories worldwide. The
    laboratories specialize in particular areas of diagnostics and
    laboratory research, including foodborne diseases, respiratory
    diseases, diarrheal diseases, drug-resistant diseases, and many others.
    They are an important source of high quality diagnostic reagents, and
    they can provide international training opportunities in their
    specialty areas. For example, after the 1994 plague outbreak in India,
    the CDC-based WHO Collaborating Centre for Reference and Research on
    Plague Control provided diagnostic reagents and educational materials
    to Indian health authorities.
        Wherever there are gaps in global capacity to recognize certain
    diseases, CDC could help USAID improve the diagnostic capacity of
    appropriate WHO Collaborating Centres. In some cases, CDC would work
    with WHO to evaluate and strengthen local laboratories for eventual
    designation as new Collaborating Centres. This project would be in good
    accord with WHO's plan to expand the number of Collaborating Centres in
    developing countries, and it would further USAID's strategy for
    developing in-country expertise in specific disease areas.
        A recent example illustrates the potential benefits of expanding
    the Collaborating Centre network to fill gaps in regional capacity.
    During the winter of 1996-97, WHO and CDC spearheaded a successful
    international effort to help prevent a seasonal recurrence of
    meningitis in sub-Saharan Africa. The winter before, the disease burden
    had been unusually high, with over 200,000 cases and 20,000 deaths.
    Three WHO Collaborating Centres--one in Marseilles, one in Oslo, and
    one at CDC in Atlanta--supplied diagnostic reagents, laboratory
    assessments, and diagnostic training in the affected countries. After
    the outbreak was over, the three Centres worked together to continue
    training activities in the affected countries and to strengthen
    regional facilities that might become permanent reference laboratories
    for meningitis. At the present time, laboratories in Ghana and in Mali
    have been recommended for possible designation as new WHO Collaborating
    Centre reference laboratories.
    Training in Disease Surveillance, Outbreak Response, and Laboratory
            Diagnostics
        The success of the regional networks I have described ultimately
    depends on the efforts and abilities of the people who operate them. A
    major component of the effort to implement USAID's strategy will be to
    train an international cadre of epidemiologists and laboratorians who
    are prepared to respond to emerging infectious disease threats,
    whenever and wherever they arise.
        This year, CDC is expanding its Laboratory Fellowship Program in
    Emerging Infectious Diseases to include a track for foreign students.
    The Laboratory Fellowship Program trains medical microbiologists in
    public health approaches to diagnosis and molecular epidemiology. Its
    graduates are qualified to operate and lead public health laboratories.
    CDC also trains foreign students to become epidemiologists (``disease
    detectives'') through its Epidemic Intelligence Service, which has
    served as the model for Field Epidemiology Training Programs in many
    countries throughout the world. It is interesting to remember that EIS
    was founded with global problems in mind; in fact, it was established
    during the cold war in response to the threat of biological warfare.
    Conclusions
        CDC is proud of its accomplishments in the area of global health.
    We are confident that the funds provided by Congress will be used
    effectively to strengthen global capacity to combat emerging diseases.
    We appreciate the efforts USAID has made to involve CDC scientists in
    discussions and decision-making related to developing its strategy for
    addressing emerging infections. CDC strongly supports USAID's expanded
    activities on emerging infectious diseases, and we look forward to
    working in full partnership on this important endeavor.
        Thank you very much for your time and attention. I will be happy to
    answer any questions you may have.

                      summary statement of gail h. cassell

        Senator Leahy. Dr. Cassell, I am very happy that you are
    here, because I know, among other things, you are going to talk
    about the impediments to the research and development of drugs
    for use in high volume, low profit developing countries that
    Dr. Daulaire and Dr. Heymann and Dr. Hughes have mentioned at
    one point or another. So I am delighted to have you here.
        Dr. Cassell. Well, thank you. I really appreciate the
    opportunity to be here.
        I have to tell you that I am here today not only on behalf
    of Eli Lilly, but also as a past president and the current
    chairman of the Board of Public and Scientific Affairs of the
    American Society for Microbiology. This is an organization of
    over 42,000 members, 20 percent of whom are international. Our
    organization, I think, has a strong history in being very
    concerned about issues related to emerging infections and
    trying to bring this to the attention of policymakers like
    yourself.
        And I would just like to thank you on behalf of ASM, and
    all of us actually, for your having taken the initiative to
    provide for this $50 million appropriation last year, through
    USAID, for WHO, and CDC.
        I would also like to say that we very much were encouraged
    by your language, which also stated that USAID should work
    closely in collaboration with NIH with respect to these
    initiatives, not necessarily because NIH is directly funded by
    your committee, but rather because NIH, as you know, is the
    Nation's leading institute with regard to biomedical research.
    And because of legislation in the sixties, they do provide
    funding for international research. And we think research plays
    a critical role in these issues that we are trying to address
    related to emerging infections.
        Now, I would like to turn your attention to the issue that
    I was asked to address. And that is the issue of antimicrobial
    resistance. You obviously have a good appreciation for the
    magnitude of the problem.
        Senator Leahy. I am getting a better one. I have a long way
    to go, but I am getting a better one.
        Dr. Cassell. Well, I am sure your wife has helped educate
    you a lot in that regard. She probably is confronted by it.
        I would just like to point out something that I am not sure
    that we have made clear, and the real problem with respect to
    antimicrobial resistance is that the problem is the greatest in
    the four biggest categories, or killers, with respect to
    infectious diseases. One of the chief organisms causing
    pneumonia, for example, the pneumococcus resistance, multidrug
    resistant malaria, multidrug resistant TB, and also with
    respect to the diarrheal diseases, many of these organisms that
    cause the food-borne diseases that you have mentioned are
    resistant to multiple antibiotics.
        And then last, of course, the hospital environment, both in
    this country and other countries is a major source of
    antibiotic resistant organisms.
        We believe, as I think others do, that we need new classes
    of antibiotics, as you have heard Dr. Heymann discuss this
    morning. We believe the only way to accomplish that is through
    true innovative research. And I think that it is very exciting
    that because of the new technologies that you mentioned this
    morning, particularly our ability to sequence the entire genome
    of these disease-producing organisms, there is a lot of hope
    and optimism that new drug targets can be developed.
        But, unfortunately, as is often the case, the new
    technology is expensive. Due to this expense, the cost of
    registering new drugs, plus the lack of what we believe to be
    adequate protection of intellectual property in many countries,
    U.S. pharmaceutical companies and other pharmaceutical
    companies have reduced their investment in the area of
    infectious diseases overall, at a time when, in fact, we should
    be increasing that investment.
        I think few people realize that it is estimated that to
    develop a new anti-infective today would cost over
    approximately $500 million. And what really is behind the
    scenes is that you do not appreciate that, in fact, millions
    may have been spent on compounds, investigating compounds that
    never make it into humans. In fact, it is estimated that only 1
    out of 5,000 to 10,000 drugs actually are a commercial success.
        This past summer, I was fortunate to participate in an
    Institute of Medicine forum. Dr. Hughes has referred to other
    important IOM forums related to emerging infections. But this
    particular forum, actually composed of representatives from
    academic institutions, scientific societies, including ASM and
    the pharmaceutical companies and the Federal agencies, was
    asked to specifically address what are the barriers to
    development of products, vaccines, and antibiotics, to address
    the problem of emerging infections.
        Now, I will not take time to summarize each of those that
    were outlined by that forum, although there was a high degree
    of consensus, I have provided you with a copy of the IOM forum
    report, and also provided copies for each of the members of
    your subcommittee.
        I would just like to highlight three areas, in fact, in
    which we felt there was agreement as far as needs. One was the
    need for better information to identify and characterize
    potential markets. This information actually will come from the
    epidemiological and surveillance data gathered by the
    infrastructure that USAID, WHO, and CDC are putting in place,
    this global surveillance network. So this is an extremely
    important component of being able to more predictably define
    the market for a new product in some of these countries.
        We believe that harmonization of international regulatory
    issues would be a big step in the right direction, in terms of
    more predictability, greater predictability, with regard to
    development of drugs to be used worldwide.
        And last and perhaps most importantly is the area of the
    need for more sharing of costs and risks, or greater
    partnerships. One of these would be illustrated by bulk
    procurement, or guaranteed procurement, that often comes with
    either governments and/or agencies. And I will not take time to
    detail those, but we can discuss them in questions if you like.
        Other initiatives would be related to the ability to
    perform clinical trials much more efficiently in these
    developing countries by having the adequate infrastructure in
    place, much of which will be accomplished by putting the
    infrastructure in place that Dr. Hughes and Dr. Heymann have
    alluded to this morning, plus by increased training.
        I would like to just very quickly mention one other area
    that has been highlighted to some extent this morning, but I
    think needs maybe greater attention, especially from the drug
    and vaccine development standpoint. And that is that within
    these countries, it is critical that you have the appropriate
    infrastructure in place so that new drugs can be appropriately
    used. It is not often a matter of not having drugs available in
    these countries, but even in countries where they are
    available, they are misused or abused, often, in fact, being
    taken or being available over the counter, not being
    subscribed, and, therefore, not under medical supervision in
    terms of insuring that the appropriate dosage as well as
    completion of therapy.
        We know that these conditions actually can rapidly lead to
    antibiotic resistance. Therefore, one is hesitant to put a new
    product in that kind of environment, where you get rapid
    development of resistance, because, therefore, it would have a
    much shorter half-life and the reduced ability then to
    recuperate the investment in the development of that new
    product.
        Mr. Chairman, I think that if you will look, and certainly
    I am sure others would agree, that the pharmaceutical sciences
    and scientists have a long history of being innovative in
    addressing the challenges that we face in medicine, both today
    and in the past. And one such example is the new drug that has
    been recently discussed with respect to the potential ability
    to protect, actually protect against, breast cancer, which may
    actually revolutionize our management of the devastating
    diseases of cancer.
        But I have to tell you that in order to put that kind of
    innovative effort toward development of new compounds for
    treatment of infectious diseases and prevention of new
    infectious diseases, we must protect intellectual property
    worldwide. And, in fact, I can promise you that without
    adequate protection of intellectual property, there will
    probably be no innovation.
        Completion of TRIPS, or the trade-related intellectual
    property issues associated with GATT, certainly was a step in
    the right direction. But as you well know, implementation of
    these has been rather slow. You probably are also aware that in
    developing countries and least developed countries, in fact,
    they have an extension of 5 to 10 years to put these TRIPS in
    place. We believe the United States should be very vigilant in
    terms of trying to provide technical cooperation and advice, so
    that, in fact, we can accelerate that implementation of TRIPS
    in those countries.
        In the end, if this is not accomplished, it will be the
    patients who suffer, because the new drugs will not get to
    those patients the innovation that is needed. Microorganisms,
    as you have said and as others have said this morning, are a
    lot more innovative than humans. And they very rapidly develop
    resistance. We do not have time to waste. It is urgent that we
    try to get this protection of intellectual property in place so
    that we can begin to get the new drugs to these areas where
    they are desperately needed, including the United States.
        In closing, again, I would just like to thank you for your
    personal efforts on behalf of infectious diseases, and to say
    that we certainly believe in partnerships. And I would just say
    that the pharmaceutical industry has contributed and will
    continue to contribute financially to the antibiotic resistance
    monitoring and surveillance, because this is an area of great
    need and concern to us. I would also say that we believe that
    industry should be a partner, as far as training, and helping
    to provide the infrastructure that I have alluded to this
    morning.

                               prepared statement

        And as Dr. Hughes has mentioned, I am pleased to say that
    Eli Lilly has funded the newly established International
    Training Program for Laboratories in the area of emerging
    infections.
        Again, thank you.
        Senator Leahy. Thank you.
        [The statement follows:]
                  Prepared Statement of Gail H. Cassell, Ph.D.
        Mr. Chairman, members of the Subcommittee, I am grateful for the
    opportunity to appear before you today to present my views regarding a
    U.S. strategy for combating infectious diseases and the impediments to
    the development, marketing and distribution of drugs for the treatment
    of infectious diseases in developing countries. I appear before you
    today wearing at least three hats. As of November 1, 1997 I am the Vice
    President for Infectious Disease Drug Discovery and Clinical
    Investigation for Eli Lilly and Company, a world wide pharmaceutical
    company with a very rich and important history in the development of
    products related to the treatment and prevention of infectious disease.
    Prior to joining this company I had spent 30 years in basic and
    clinical research in infectious diseases at the University of Alabama
    of Birmingham where I continue to maintain my faculty appointment. I am
    also appearing before you today as a past president and as a current
    chair of the Board of Public and Scientific Affairs of the American
    Society for Microbiology (ASM). The ASM is the largest single life
    sciences organization composed of over 42,000 academic and industrial
    scientists, physicians, and health professionals. Our membership is
    greatly concerned about the increased threat from emerging infections.
        This morning I would like to begin by making some general
    statements concerning the U.S. Strategy for addressing emerging
    infections. First and foremost, a strong public health infrastructure
    provided by the Centers for Disease Control and Prevention with regards
    to both its domestic and international programs is absolutely essential
    to address the threat of infectious diseases. Because infectious
    diseases respect no borders, international collaboration and
    coordination of efforts are essential. The World Health Organization
    can play an important role in this regard.
        We applaud this Subcommittee's support for the Communicable Disease
    Initiative last year and the provision of $50 million additional funds
    to strengthen global surveillance and control of infectious diseases.
    We also strongly supported your recommendation that the U.S. Agency for
    International Development (USAID) work closely with, the World Health
    Organization (WHO), the Centers for Disease Control and Prevention
    (CDC), the National Institutes of Health (NIH), and the National
    Institute of Allergy and Infectious Disease (NIAID). As emphasized and
    delineated in the recent report of the Committee on International
    Science, Engineering, and Technology (CISET) of the President's
    National Science and Technology Council, each of these has a unique and
    vital role to play in surveillance and response to infectious diseases.
    Therefore, we would urge you to continue your support of the CDC's
    Field Epidemiology Training Program and the WHO/Division of Emerging
    and other Communicable Diseases Surveillance and Control. While direct
    funding for NIH comes from another Subcommittee, close consultations
    with NIAID and NIH should remain a high priority for international
    programs for control of infectious diseases. NIAID is the Federal
    government's lead agency for funding for scientific research on
    infectious diseases. In 1960, passage of the International Health Act
    gave the NIAID the authority to conduct research outside the United
    States. NIAID provides major support for scientists conducting research
    to control emerging infectious diseases worldwide. The role of research
    cannot be overemphasized. In view of both the critical role of research
    and infectious disease surveillance and the unique expertise of the NIH
    and the CDC, respectively, in these areas, we recommend that these
    agencies be considered as full partners with USAID in the U.S. strategy
    to address emerging infections.
        Now I would like to turn your attention to the greatest challenge
    related to emerging infections--that is the rapid increase in drug
    resistant pathogens. Unfortunately, increases in resistance is greatest
    in those organisms responsible for the four leading causes of death
    worldwide including: acute respiratory infections, tuberculosis,
    diarrheal diseases, and malaria. New products are desperately needed.
    Innovative drug discovery is the only solution which will lead to
    completely new classes of antibiotics. The explosion of new technology
    and the ability to determine the entire genetic code of infectious
    agents offer great promise. Unfortunately, because of the new
    technology drug discovery is more costly than ever before in history.
    For example, it is now estimated that development of a single anti-
    infective will cost in excess of a half billion dollars. What is not
    apparent is that prior to achieving one success millions are invested
    in discovery of compounds that never make it into humans. Only one in
    5,000 to 10,000 compounds are a commercial success. The increased costs
    of developing and registering pharmaceutical products, coupled with the
    lack of adequate intellectual property protection in many countries,
    has resulted in substantial dimunition of R and D investment in this
    area. In the summer of 1997 I was a member of the National Academy of
    Sciences, Institute of Medicine (IOM) Forum which thoughtfully
    considered these issues.
        The deliberations and recommendations of the IOM forum have been
    published in a report titled ``Orphans and Incentives: Developing
    Technologies to Address Emerging Infections.'' I have elected to spend
    most of my allocated time this morning summarizing the highlights of
    this report. In so doing it is important for you to note that this body
    was composed of representatives from the federal government (including
    the FDA, NIH, and CDC), relevant scientific societies, academic
    institutions, and the pharmaceutical industry, including representation
    from PhRMA.
        The purpose of the forum was to learn from experience what has been
    done and what is needed for the public and private sectors to
    collaborate effectively and productively for the health of the public.
    The emphasis was on cooperation in those product areas where returns
    from the market might be perceived as too complicated by other factors
    to compete in industrial portfolios with other demands for investment.
    If the requirements for products for emerging infectious diseases are
    to be satisfied, there was agreement with regards to the need for: (1)
    more information; (2) more predictability; and (3) more sharing of
    costs and risks. Actions which were viewed as critical for advancing
    the infectious disease enterprise as a whole are summarized in the
    attached Table which is taken directly from the IOM Report. Exact
    reproduction was felt to be important because of the wide input sought
    in its development and because of the widespread consensus of the
    barriers and incentives related to product development. With permission
    from the IOM I have provided each of the members of the Subcommittee
    with a full copy of the IOM report. To my knowledge this provides one
    of the most comprehensive and up-to-date analyses. A synopsis of the
    recommendations follows.
        More information is needed on market identification based upon
    comprehensive and accessible surveillance data and well-articulated,
    consensus-based public health agendas. There should be clear portrayals
    of specific disease priorities. More predictability is needed in market
    assessment (early forecasting of demand based on epidemiologic
    criteria; segmentation by size, ability to pay, disease profile). There
    is need for more predictability which can be brought about by
    international regulatory harmonization.
        There is need for more cost-risk-sharing which can be brought about
    by market creation (i.e. procurement guarantees via: high-volume bulk
    orders, extended contracts, product ``bundling'' subsidies for poorest
    countries; revolving funds for national and/or regional purchasing and
    official development assistance for health infrastructure and education
    and drug logistics). Accelerated regulatory approval could be achieved
    by accelerated enrollment in trials with aggregation of efficacy data
    from multiple sources. Clinical trials of new drugs could also be
    greatly facilitated by building of contract research organization
    capability in developing countries to reduce costs and enhance
    infrastructure for clinical trials. The international clinical research
    centers of NIAID could serve as a model. An incentive could be provided
    by provision of a financial subsidy for phase II/III clinical trials
    with a potential payback on success, if and when it is appropriate.
        There are several other considerations related to antimicrobial
    resistance and drug development that I would like to bring to the
    attention of this Subcommittee. As we all know, the availability of
    necessary antibiotics is limited in many developing countries. An
    important issue not often addressed is that where they are available,
    their use is often inappropriate and poorly controlled, which only
    contributes to development of antimicrobial resistance. We know many of
    the causes of early resistance-use in trivial conditions with or
    without medical supervision, inadequate treatment, especially failure
    to take the full therapeutic or preventive course, substandard products
    sold without adequate controls by unqualified vendors, and so on. Thus,
    irresponsible use of every new antibiotic which comes along may also
    lead rapidly to resistance with little possibility of developing
    further new products as quickly as they are needed.
        Part of the problem is the lack of skilled professionals--
    physicians, pharmacists, laboratorians who determine antibiotic
    susceptibility of the disease causing organisms--in developing world,
    along with a poor distribution system. This results in failure to take
    maximum advantage of effective therapies, which in turn promotes growth
    of antibiotic resistance in a shorter period of time.
        The necessary drugs should be made available but, in addition, a
    system should be put in place for getting the best therapies in the
    hands of professionals who will be able to utilize them appropriately.
    A percentage of money spent in this way can help ensure that the
    overall investment is effective, and that it does not simply exacerbate
    the problem of resistance. This is precisely why the international
    training programs of the CDC, WHO, and NIH are so critical. Industry
    should be an active partner in training. Informed consumers would help
    prolong the life newly developed antibiotics.
        Pharmaceutical science and innovation has a tremendous track record
    of coming up with solutions for today's disease challenges. For
    example, we have all seen recently news on compounds that may prevent
    breast cancer. This same innovation can be applied to the challenges of
    infectious diseases that have been highlighted in this hearing. Of all
    the barriers to U.S. pharmaceutical companies related to drug
    development and marketing in other nations, inadequate intellectual
    property protection may be the greatest. Without protection of
    intellectual property there will be no innovation.
        Completion of the Agreement on Trade-Related Aspects of
    Intellectual Property (TRIPS) as part of the General Agreement on
    Tariffs and Trade (GATT) marked a positive step forward in reinforcing
    the importance of intellectual property rights. For some countries,
    however, implementation progress has been slow. While developing and
    least developed countries have the option to extend five or ten years
    their full TRIPS compliance deadline, the U.S. government must remain
    vigilant in providing technical assistance and cooperation to move
    these countries toward this goal and in encouraging them to accelerate
    their implementation whenever possible. The United States should take
    action against those countries that do not implement their immediate
    obligations to protect patents, confidential data and trade secrets.
    Ultimately, it would be the patients that suffer as the innovations
    that are so sorely needed to fight infectious disease would not be
    turned into useful products that are developed and marketed. Infectious
    agents are far more innovative than humans. They have the capacity to
    develop resistance at alarming rates. New drugs are urgently needed in
    all countries.
        In closing, I would like to emphasize that the ASM has played an
    active role in communicating the need for a rapid and appropriate
    response to emerging infections to policy makers and the public. The
    pharmaceutical industry has also played an active role in responding to
    the threat by financial support of the antibiotic resistance
    surveillance network of the WHO. With the strong belief that we need to
    provide more resources to train the leadership in health in developing
    countries to enable the development of public health infrastructure, I
    am pleased to say that through an educational grant to the Centers for
    Disease Control Foundation Eli Lilly has provided sponsorship for the
    newly established laboratory fellowship training program in emerging
    infections. We would pleased to continue to work with you Mr. Chairman
    and this Subcommittee in your efforts to address the threats from
    emerging infections.

                                Orphan Drug Act

        Senator Leahy. Doctor, when you talk about intellectual
    property you preach to the converted. I wear another hat as
    ranking member of the Judiciary Committee. I have handled a lot
    of the intellectual property issues over the years. In fact, we
    are dealing--I was dividing my time earlier today with WIPO
    there. I agree with you. It is important.
        It made me think of another issue. We have the Orphan Drug
    Act, as you know, with the tax incentives to spur development
    of drugs. It might be for a very rare disease when obviously
    you are never going to recoup your costs by selling the drug,
    but I think the law may have helped.
        What about an orphan drug designation that might deal with
    emerging infections in developing countries?
        Dr. Cassell. I think that would be fantastic. And as a
    matter of fact, as you probably know, a step in the right
    direction was taken recently, I think in association with FDA
    reform, where, in fact, the tax credits associated with that
    Orphan Drug Act were put in place so that they would be
    permanent rather than being approved only at short intervals or
    for short intervals. So I think that this was also a step in
    the right direction.
        And if, in fact, reagents, drugs, vaccines, perhaps
    diagnostic reagents, could be incorporated into something like
    an Orphan Drug Act, I think that this would actually provide a
    great incentive.
        Senator Leahy. You have talked about clinical trials and
    what could be done there. What about extended patent protection
    for drugs aimed at not here but aimed at particular areas? It
    may be an infectious disease that is mostly found in another
    part of the world, but a part of the world that may have a per
    capita income of only $300 a year.
        Dr. Cassell. Yes; I think that that certainly would help to
    provide an incentive. I think there is somewhat of a delicate
    balance that one would have to play there. Because what you
    would hope would not happen is that people would become
    complacent, because you have this extended patent, so that you
    prevent innovation, competition, and discovery of new and
    better products.
        Senator Leahy. And we also have the Institute of Medicine
    report that discusses multitiered pricing. We hear that the
    problem with multitiered pricing is that some of these drugs
    come back into the United States via the black market. I do not
    know the answer to that one.
        Dr. Cassell. I think that is very unfortunate. Because I
    believe, in fact, the IOM report pointed out that--and I do not
    know, David, you probably know a lot more about this than I--
    but that actually, in many cases, it has been an incentive and
    has been beneficial, particularly in the area of vaccines, I
    believe. But clearly these latest incidents provided a
    disincentive for companies to participate in that multitier
    pricing.
        Senator Leahy. You know, I look at some of the things
    coming here and I--and anybody who wants to can jump in here--
    but when I was a kid, growing up in Vermont--and for the
    record, I just turned 58 last month, so that will put it in the
    proper time period--but when I was a youngster, the municipal
    swimming pool would close at certain times in the summer
    because of polio scares.
        My wife and I had our first grandchild a couple of months
    ago. He will never have to worry about polio. Our kids never
    faced it. They just got a polio vaccine and that is the way it
    goes. Although we see that it is not yet eradicated. I visited
    a place where we use the Leahy war victims fund, in an African
    country where one of the people in the clinic was a badly
    crippled little boy. My wife was there, and she was helping
    somebody bathe and dress this child, and she asked what kind of
    an injury, because she saw no scars or marks or anything on
    him. They said polio.
        And in that particular case the polio vaccine could not get
    to the village because of the threat of landmines. And I know
    you all agree with me on the issue of landmines. I am not
    trying to make converts here. But when you think of something
    like polio, it should be relatively easy to eradicate. We did
    it with smallpox. Is this what we should be doing? Look at
    guinea worm. Should we target these diseases, one by one, and
    eradicate them if they can be?
        Dr. Daulaire. Let me start with that, Senator.
        There are some diseases--and you have touched on a number
    of the key diseases--that are actually potentially eradicable.
        Senator Leahy. Measles is another one.
        Dr. Daulaire. Yes, measles, that is right. But one of the
    things we have learned in the smallpox eradication effort and
    in the guinea worm eradication effort, which is still going on,
    is that there is a curve. And controlling the disease and
    bringing it down to fairly low levels can be done generally
    fairly cost effectively. But when you are searching out those
    last cases, when you are trying to wipe out the disease from
    the face of the Earth, at that point you are in a very steep
    part of the curve.
        And we are at that stage right now in polio and in guinea
    worm eradication. So our problem in the world of global health
    is--it is like when I used to be an emergency room physician,
    we were trained in triage.
        Senator Leahy. Triage, yes.
        Dr. Daulaire. And you have to figure out, with very limited
    resources and limited time, how you are going to get your best
    overall effect in health. In some cases it is going to be
    eradication. In some cases it is going to be just bringing the
    level of an important disease down to manageable levels.
    Because then your next dollar is probably better spent on
    turning to another disease rather than trying to wipe out that
    very last vestige.
        Senator Leahy. And it is not a case where you are being
    inhumane by saying that. I mean you are being more humane
    actually by saying OK, we can only go so far in here, but are
    we going to take money away from river blindness?
        Dr. Daulaire. That is right.
        If you can save 10 lives for the cost of one more disease
    prevented, then maybe that is not a good tradeoff.
        Senator Leahy. Dr. Heymann, did you want to comment?
        Dr. Heymann. Yes; I think elimination and eradication
    programs are very important, because they develop an
    international solidarity and they develop an infrastructure to
    make sure that those diseases are eradicated.
        But if you look at the graph over on the side there, with
    17.3 million deaths due to infectious diseases, if you
    eradicate or eliminate the seven diseases that are targeted
    now, infectious diseases will only decrease from 33 percent of
    all deaths to 31 percent of all deaths.
        Senator Leahy. I see.
        Dr. Heymann. So the major diseases remain: tuberculosis,
    AIDS, and other diseases.
        But what is important about elimination and eradication is
    that this solidarity can be used to build the infrastructure
    for all infectious disease detection and control. Detection is
    very important in elimination and eradication. We must find
    that last case.
        So those systems in place can then be used for other
    diseases, and will strengthen overall infectious disease
    control.
        Senator Leahy. This solidarity--for example, take an area
    like Africa, where you have countries that may be contiguous
    but greatly different in their social, political or economic
    circumstances--if you can develop a regional program in an area
    like that you have accomplished something.
        Dr. Heymann. Yes. Rotary International, for example, in all
    countries, including African countries, has been a very active
    supporter, financially and advocacywise, for polio eradication.
        Those countries are now developing laboratory networks
    among themselves for polio virus, which can be expanded to many
    other viral diseases. So, yes, what is being done with polio,
    as an example in Africa, will strengthen the infrastructure for
    all viral diseases, detection, and control.
        Dr. Daulaire. Let me stress that also, Senator. When we
    started to engage in this last phase of the polio eradication
    effort, we took as a prime cause making sure that on the day
    that polio was finally eradicated that the countries that we
    had helped would have workable health systems left behind so
    that we would not have to start from scratch again on day two.
        There are different ways of going about eradication. And
    doing it through a developmentally oriented approach may
    sometimes take a bit longer, but ultimately it leaves far more
    behind.
        Senator Leahy. Dr. Hughes, did you want to comment?
        Dr. Hughes. Yes, just briefly. I think the polio experience
    does show what is possible for some infectious diseases, when
    you have the tools, the resources, the commitment, and the
    public/private sector partnership, which have been really
    important. As Dr. Heymann also said, the public health
    laboratory has played a critically important role, particularly
    as we move closer and closer to true eradication. The molecular
    techniques that are really needed to characterize polio virus
    isolates are absolutely critical, and will be able to be
    applied to measles, which looks to be one of the next best
    candidates.
        Senator Leahy. Yes; measles I find amazing. I mean, the
    same with our kids. One would just get over measles and the
    next one would start. And then as soon as that one is over the
    next one. And you knew, with three children, you are in for a
    long, long siege of measles.
        Now, when my grandson gets inoculated for measles it is
    kind of impressive. But we also have--it is interesting, Dr.
    D.A. Henderson, who led the campaign on smallpox, he said
    recently that we ought to start making the smallpox vaccine
    again because of the threat of biological warfare or terrorism.
    And yesterday the Judiciary Committee and the Intelligence
    Committee had a hearing with Director Freeh and Attorney
    General Reno there, about what happens if terrorists do that.
        You know, if smallpox were spread through the U.S.
    population, it could be sometime before you detected it, if I
    am understanding this correctly. And by the time it was
    detected, we would not necessarily have the ability to get the
    vaccinations out.
        Dr. Hughes, you must look at threats like that.
        Dr. Hughes. Well, this is certainly one of the issues that
    we worry considerably about. We feel that it is part of the
    rationale for strengthening infectious disease surveillance and
    response capacity nationally and internationally.
        And an episode, were it to occur, that was not associated
    with a threat could be very insidious, could be very difficult
    to recognize. Exposed people could be widely dispersed
    nationally or even internationally before they become ill
    because of the concept of the incubation period, which, as you
    know, is the time from exposure to the microbe until the
    disease develops. And that is why you can, as you mention, get
    on a plane in Hong Kong and arrive in the United States
    perfectly well, and a day later perhaps develop an illness
    acquired in a faraway place.
        So we have concerns about it. There is a broad range of
    diseases that are candidates for use by terrorists. As you
    know, many of them are not important clinical or public health
    problems in this country, so there is often very limited
    epidemiological, clinical, and laboratory capacity available to
    deal with them. In addition, some of the tools you need to
    either treat or prevent these diseases are not widely
    available. So this is a legitimate concern.
        Senator Leahy. Well, smallpox is not available, is it?
        Dr. Hughes. Well, there is smallpox vaccine in storage. It
    is a vaccinia virus. It is available.
        Senator Leahy. Yes, but very much?
        Dr. Hughes. Well, there are roughly 15 million doses in the
    United States that are available. But that is obviously not
    enough to reach the whole population.
        Senator Leahy. I love having these hearings, so everybody
    can go home and be terrified. [Laughter.]
        But maybe that is what is needed.
        Nils, did you want to comment?
        Dr. Daulaire. I think one of the issues that we have talked
    about in this is the importance not only of dealing with the
    well-recognized threats--the anthrax, the smallpox--but also
    the recognition that with the evolution of biotechnology we
    cannot stockpile everything against everything. Part of this
    has got to be an ability to identify and react quickly, because
    chances are, if there is an attack, chances are it is going to
    be something we are not expecting.
        Senator Leahy. Yes; you know, I do not envy you, any of the
    four of you or those you work with, trying to look at this on
    an international scale. Look what happens in our own hospitals.
    We pride ourselves on having the best medical care in the
    world, but 2 million Americans pick up infections in hospitals;
    70 percent of them I am told are from drug-resistant microbes.
        Now, the cost is anywhere from $4 to $5 billion just from
    that alone. Better hygiene by hospital personnel would help
    with a lot of that. And yet it happens.
        What do you do when you are dealing in impoverished Third
    World countries? You have got one heck of a job ahead of you.
        I mention that only to suggest that I will probably be in
    favor of increasing the budget over what the administration has
    asked for.
        I have to go back to another hearing. We have kept you here
    longer than we said we would.
        Would any of you like to add anything else?
        Dr. Cassell.
        Dr. Cassell. Yes; I would just like to close again by
    thanking you and your staff, who I think did an excellent job
    in putting together a very thoughtful hearing, and certainly
    for you for taking time to take the interest.
        Senator Leahy. Well, it is a real interest. I mean this is
    not the sort of thing that makes headlines, but it could saves
    lives.
        Dr. Hughes.
        Dr. Hughes. Yes; in our experience, actually press interest
    in a lot of these issues is often inversely proportional to the
    true magnitude of the problem.
        Senator Leahy. Yes.
        Dr. Hughes. I think it is important to keep that in mind.
        I would just leave you with the thoughts that surveillance
    capacity, epidemiologic capacity, laboratory capacity,
    communications systems, and partnerships are critical elements
    that we worry about. And Dr. Cassell was whispering very
    importantly training. Training to maintain that epidemiologic
    capacity, the laboratory capacity and to educate people,
    frankly, about some of these uncommon illnesses that might be
    threats associated with bioterrorism.
        Senator Leahy. NIH has the Fogarty International Center.
    How does that vary from--you have your own training, of course,
    your own training programs--are these complementary?
        Dr. Hughes. Yes; I would say that they are complementary.
    And Dr. Cassell may want to elaborate on this. But the Fogarty
    is interested in increasing research capacity, which is the
    other thing that is absolutely critical to addressing these
    issues.
        Senator Leahy. Yes.
        Dr. Hughes. They are working to expand training
    internationally in research related to emerging infectious
    diseases.
        Senator Leahy. But they are also small.
        Dr. Hughes. Quite small.
        Senator Leahy. Yes.
        And, Dr. Heymann, I would think that--I mean you have to go
    across borders and you have to deal with so many different
    countries and political systems and all that, would it be naive
    to think that the more we get these kinds of systems in place
    the more we get the research capacity, the treatment capacity
    and all, the more that may at least help to break down, in that
    area, break down some of the political barriers?
        Dr. Heymann. I think it already is doing that, Senator. I
    think, in one country recently, on the national immunization
    day for polio, which is when every child was to be vaccinated,
    there was actually a temporary cease fire in a civil fire in
    order that that could be done. And I think that what you have
    done in providing funding to USAID has helped our groups--CDC
    and USAID--form a very strong partnership, which will continue
    to work above politics, to try to straighten the infectious
    disease situation in the world.
        And what is even more important is that this has been an
    example to other donor countries. The United Kingdom and Japan
    have both increased dramatically their funding for infectious
    disease activities in support of international response and
    detection of epidemics. So I think what you have done has not
    only been good for the United States, but good for the world.
    And I thank you very much.
        Senator Leahy. Well, thank you. No; you are the ones who
    are out doing the work. We can try to get you money, but you
    are the ones doing the work.
        Dr. Daulaire, you get the last word.
        Dr. Daulaire. Well, Senator, as we know in Vermont, there
    are a lot of clouds that pass by, but not all of them produce
    rain. [Laughter.]
        And we also know that it takes a certain nucleus to pull
    that supersaturated water together to produce droplets. What
    you did last year, in holding your hearing and in working
    through the appropriation with your colleague, Senator
    McConnell and the rest of the committee, has really produced
    that nucleus.
        As we heard from Dr. Heymann and Dr. Hughes, we have had a
    collaboration over the past 7 months that we have never seen
    before. And having the money and the mandate was key to doing
    that. I see a very important business going on, and it would
    not have happened without your leadership. And we are very
    grateful.
        Senator Leahy. Well, I have often said that the Senators
    are merely constitutional pediments of their staff. And with
    Tim Rieser and Robin Cleveland sitting here, I am delighted
    that they are here and keep moving us forward, too. Some of the
    reports that Tim has brought me back from some of the places he
    has visited keeps me going.
        I thank you all for being here, and we will keep in touch.
    And you should feel free to pass on ideas. I will also raise
    the intellectual property question in the Judiciary Committee,
    Dr. Cassell.
        Thank you very much.

                              subcommittee recess

        The subcommittee will stand in recess until 2:30 p.m.,
    Tuesday, June 9 when we will receive testimony from Brian
    Atwood, Administrator, U.S. Agency for International
    Development.
        [Whereupon, at 1 p.m., Thursday, April 23, the subcommittee
    was recessed, to reconvene at 2:30 p.m., Tuesday, June 9.]

          FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS
                      APPROPRIATIONS FOR FISCAL YEAR 1999

                                  ----------

                             TUESDAY, JUNE 9, 1998

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 2:45 p.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Mitch McConnell (chairman)
    presiding.
        Present: Senators McConnell, Bennett, Campbell, Stevens,
    Leahy, and Lautenberg.

                      AGENCY FOR INTERNATIONAL DEVELOPMENT

    STATEMENT OF J. BRIAN ATWOOD, ADMINISTRATOR

                     opening remarks of senator mc connell

        Senator McConnell. The hearing will come to order. I want
    to welcome, Mr. Atwood. I appreciate your being here, Brian.
        In fiscal year 1998, the 150 account enjoyed a unique
    increase of nearly $1 billion. This year, unfortunately, we
    face exactly the opposite situation. For 1999, the subcommittee
    will need to meet our global commitments in the context of an
    allocation that is nearly $1 billion below the request. I am
    confident that Senator Stevens has been fair and done the best
    he could with all the subcommittee allocations including ours.
    He had a very difficult set of choices to make, and now we have
    to function within that allocation.
        Before we suffer a great deal of hand wringing about this
    allocation, I want to make two points. First, we met our
    international obligations in fiscal year 1996 with a similar
    allocation. Second, this task should be considered an
    opportunity to cut programs which do not meet standards for
    performance or relevance to our national interests. We do not
    have the option to finance failures or finance interminable,
    ambiguous programs which have a marginal impact on a minority
    of people.
        During my tenure as chairman, I have seen little
    improvement in the definition of concrete goals nor have I
    observed reforms, revisions, or progress in measuring success.
    Over the past 6 months, either my subcommittee staff or I have
    visited six countries reviewing your administration of
    programs. With the exception of projects or activities which we
    earmarked or pushed the Agency to fund, the representatives of
    nongovernment organizations and grant recipients were uniformly
    critical of the AID's management of foreign assistance
    resources. At best, they would give AID a C minus, and I must
    admit that is a somewhat generous observation.
        Let me relate some of what I learned. In Asia, one of the
    largest most effective global refugee support organizations
    understood I was considering shifting administration of a
    program from the State Department to AID. A seasoned
    professional warned that as slow as State was, AID was worse--
    he characterized your agency as overwhelmed by bureaucratic,
    incompetent managers who were so slow that by the time funds
    were available, the problems had either been solved or changed
    so dramatically that new proposals needed to be drafted.
        In Latin America, I met with representatives of an
    environmental group who had been approached by AID to support
    an important conservation program. AID told them they would be
    provided $300,000, but first they had to hire an Agency-
    designated participatory management consultant. They
    reluctantly hired the consultant then spent months negotiating
    over the terms of the $300,000 contract. After more than 1
    year, they were told only $170,000 would be made available, but
    even those resources had been suspended because they had
    improperly retained a participatory management consultant.
        In central Europe, one of our Ambassadors asked for NGO
    help and training for parliamentary elections. AID asked the
    organization to use internal funds for 1 month until a funding
    stream could be worked out. The group agreed with the
    understanding they could only carry the burden for 1 month.
    Needless to say, 1 month passed, then 2 months and the NGO had
    to suspend the program for lack of resources. AID had offered
    no reimbursement, no plan, and no explanation.
        Finally, and perhaps most disappointing is the Agency's
    failure in Indonesia. Just before the Government removed key
    subsidies in April, AID deployed a team to conduct a national
    needs assessment. I had hoped that this would be a forward-
    leaning, comprehensive exercise designed to deal with the
    unraveling crisis of a country of tremendous importance to the
    United States.
        In early May, the AID team briefed the committee. Their
    report was shortsighted, uninformed, and off target. They were
    able to speak only in vague terms about food implications of
    drought-afflicted areas in the eastern islands. They did not
    anticipate and had no strategy prepared to assist with acute
    nationwide requirements resulting from the ongoing economic
    implosion and the IMF-mandated price hikes. They could not
    forecast the number of communities, let alone individuals,
    crushed by this emerging humanitarian crisis. They had no
    thoughts on how to expand the means to deliver assistance. They
    had not met with nor taken advantage of the offer by the two
    largest Moslem organizations to deliver food and medical
    relief. In a country of 200 million Moslems, they indicated
    they would use a Catholic organization with very limited access
    to communities in need of aid.
        Riots and demonstrations and even Suharto's departure has
    produced no change in AID's approach or thinking. In the May
    briefing, the mission director and the deputy director for the
    Asian bureau echoed a briefing paper sent to the subcommittee
    yesterday--other than drought victims, there is no plan to
    increase assistance for Indonesia. The only new requirement
    will be with existing resources and will fund support for
    technical consultants to work with the IMF on economic,
    financial, and banking reform.
        In sum, at a time when the United States could have,
    indeed, should have sent a strong signal of support to
    Indonesia, AID was unprepared, unwilling, or unable to develop
    a relevant rapid response and deliver crucial relief.
        This crisis did not erupt overnight. It was as predictable
    as the IMF's public schedule for the implementation of key
    reforms. Failure to prepare for the consequences of a 70-
    percent rise in the price of commodities is incomprehensible, a
    problem only compounded by the fact that we still have no
    strategy to help Indonesians address the immediate and future
    impact of reforms.
        Mr. Atwood, these examples illustrate that the problems AID
    suffers are not just incidental or anecdotal, but they are
    systemic and widespread, afflicting virtually every sector and
    every geographic corner of AID's world. In 6 months, in six
    countries, I have heard appalling accounts of mismanagement and
    ineptitude in the administration of the Agency's humanitarian,
    democracy, economic, and environmental programs.
        You have had 5 years to fix these problems and I see little
    progress. Your computers do not work, your contracting system
    is a mess, your goals continue to be vague, so your results are
    fuzzy. The problems are grave and demand your immediate
    personal attention. There are many hard working, dedicated
    professionals who work at AID who are as discouraged as I am
    about the weak leadership they are being offered. They deserve
    your full attention and commitment. I urge you to take this
    criticism of one of your supporters seriously, because with or
    without the State Department reorganization bill, I want you to
    know we cannot continue with business as usual.
        I now turn to my friend and colleague Senator Leahy.

                  opening remarks of senator PATRICK J. LEAHY

        Senator Leahy. Thank you, Mr. Chairman.
        Mr. Atwood, I know you are delighted to be here. We are
    glad to have you here. I have been a member of this
    subcommittee for close to 20 years now, and I have never been
    as concerned about our budget situation as I am today. Last
    month, we received a budget authority allocation of $12.6
    billion for fiscal year 1999. That is $200 million below the
    current level and would require cuts in many programs that have
    bipartisan support in the Congress. But that is only part of
    the problem.
        Our outlay allocation is $12.4 billion. The effect of that
    I am told is that we will be able to use at most $11.8 billion
    in budget authority. Since some programs cannot be cut under
    any circumstances, our budget authority could probably be
    closer to $11.4 billion with AID absorbing some of the deepest
    cuts. That would mean cutting a lot of programs Congress
    supports. Any cut below the current level, which is already far
    below what our budget was just a few years ago, makes no sense.
    I have not even mentioned the President's request. He asked for
    a $1 billion increase for foreign operations, and we are
    talking about as much as a $2 billion cut from the request.
        Now, Mr. Chairman, you have been one of the strongest
    voices for support for foreign operations and for what we do
    abroad. You have expressed a true internationalist attitude in
    this. But I look at where we are. The situation today is a lot
    different than when we reached the budget agreement. We have a
    surplus, not a deficit. The United States today is by far the
    world's strongest, largest economy, the stock market is booming
    and unemployment is the lowest in years. Yet, while one-quarter
    of the population of the world lives in squalor, we are cutting
    foreign aid even though it accounts for only 1 percent of our
    budget or one-tenth of 1 percent of GNP. We spend a lot less
    per capita than most other countries do, even though with about
    5 percent of the world's population we are consuming as much as
    25 percent of the world's resources.
        I know of no explanation for this. Maybe it is that people
    do not think our foreign aid programs matter. The irony is that
    the American people support foreign aid and key members on this
    committee on both sides of the aisle understand the real need
    for foreign aid. They understand that the United States needs
    to play a major role in protecting the environment and public
    health, combating poverty, helping refugees, supporting
    democracy and free markets if for no other reason than a
    selfish one. It helps us in the long run.
        The problem is the American people have been led to believe
    that foreign aid accounts for about 20 percent of the Federal
    budget when it actually accounts for only 1 percent and too
    many Members go back home and say, ``If we just do away with
    foreign aid, why we would have plenty of money for,'' and then
    just fill in the blank.
        When Members think they are doing voters a favor by cutting
    foreign aid, we are hurting ourselves and our future. It is
    self-defeating. I too have concerns about the way AID is doing
    its job. I know how difficult it is to get results in many of
    the places around the world where you work. But sometimes AID
    can be its own worst enemy. There are some very talented and
    dedicated people at AID, but the Agency itself remains a
    cautious bureaucracy.
        Too many times here in Congress we feel it is more
    concerned about appearances than results. And then when things
    go wrong, instead of just saying, ``Look, they went wrong, it
    didn't work,'' AID often says things are better than they are.
    You have lost some of your best people because they have been
    passed over by political appointees, although I know that is
    outside of your control. Having said that, I cannot think of
    anything that is going to hurt more than to cut AID's budget,
    which translates into real lives and opportunities lost.
        The chairman and I have tried hard to protect this budget
    in the past. We have not always agreed with the administration
    on how to spend it, but I think we both recognize, as does
    Chairman Stevens, that the United States has a wide range of
    interests around the world. It is a global economy.

                               prepared statement

        With all the instability from Nigeria to Indonesia to
    Colombia, these interests are growing, not shrinking. We can
    afford to do more. It would be money well spent. If it means
    adjusting our budget agreement, then we should do that. The
    United States is the only superpower left in the world. We are
    the leader of the democratic world, and we ought to act like we
    are the leader of the democratic world and not act like we are
    an isolationist, uncaring Nation.
        Mr. Chairman, I appreciate what you have done on this and I
    look forward to working with you on this budget.
        Thank you, Mr. Chairman.
        [The statement follows:]

                 Prepared Statement of Senator Patrick J. Leahy

        Brian, it is good to have you here.
        I have been a member of this subcommittee for a long time.
    Never have I been as concerned about our budget situation as I
    am today.
        Last month, we received a budget authority allocation of
    $12.6 billion for fiscal year 1999. That is $200 million below
    the current level. It would require cuts in many programs that
    have strong, bipartisan support in the Congress. But that is
    only part of the problem.
        Our outlay allocation is $12.4 billion. The effect of that,
    I am told, is that we will be able to use at most $11.8 billion
    in budget authority. Since some programs would not be cut under
    any circumstances, our budget authority would probably be
    closer to $11.4 billion, with AID absorbing some of the deepest
    cuts.
        That would be devastating for many programs the Congress
    supports. Any cut below the current level, which is already far
    below what our budget was just a few years ago, makes
    absolutely no sense.
        I have not even mentioned the President's request. He asked
    for a billion dollar increase for Foreign Operations. So we are
    talking about as much as a two and a half billion cut from the
    request.
        Mr. Chairman, I am not blaming anyone for this, but the
    situation today is different from when we reached the budget
    agreement. We have a surplus, not a deficit. The United States
    today has by far the world's strongest, biggest economy. The
    stock market is booming. Unemployment is the lowest in years.
    Yet while a quarter of the population of the world lives in
    squalor, we are cutting foreign aid even though it only
    accounts for 1 percent of our budget, or one-tenth of one
    percent of GNP.
        Can someone explain this to me? Is it that people don't
    think our foreign aid programs matter?
        The irony is that the American people support foreign aid.
    They understand that the United States needs to play a major
    role in protecting the environment and public health, combating
    poverty, helping refugees, supporting democracy and free
    markets, because it helps us.
        The problem is the American people have been led to believe
    that foreign aid accounts for about 20 percent of the federal
    budget, when it actually accounts for only 1 percent. So
    Members of Congress think they are doing the voters a favor by
    cutting foreign aid.
        It is self-defeating. We are hurting ourselves, and our
    future.
        Frankly, I am not satisfied with the way AID is doing its
    job. I know how difficult it is to get results in the places
    you work. But like Chairman McConnell I sometimes see AID as
    its own worst enemy.
        You have some very talented, dedicated people, but AID
    remains a cautious bureaucracy, often more concerned about
    appearances than results. Then when things go wrong, AID says
    things are better than they are.
        You have also lost some of your best people, because they
    have been passed over by political appointees.
        Having said that, I can think of nothing worse than to cut
    AID's budget. That translates into real lives and opportunities
    lost.
        Mr. Chairman, you and I have tried hard to protect this
    budget in the past. We have not always agreed with the
    Administration on how to spend it, but I think we both
    recognize--as does Chairman Stevens--that the United States has
    a wide range of interests around the world. In a global
    economy, and with so much instability from Nigeria to Indonesia
    to Colombia, those interests are growing, not shrinking.
        We can afford to do more and it would be money well spent.
    If it means adjusting the budget agreement, then that is what
    we should do.

                     summary statement of Hon. Brian Atwood

        Senator McConnell. Mr. Atwood, it is time for you to have
    your say. Go right ahead.
        Mr. Atwood. Thank you, Mr. Chairman. I detect that the
    honeymoon may be over based on your statement.
        Let me say in response to the chairman's opening statement,
    I really do believe it was an overly harsh statement. I believe
    it was unfair. As a matter of fact, I can even agree with some
    aspects of what you say. I am just as frustrated when I run
    across some of the situations that you point out, and we try to
    deal with them, of course, but you know it is difficult in any
    country to run a development agency. I have certainly detected
    that.
        I do not know that anyone could do the job and be void of
    enemies. Just think about every time you put out a competitive
    contract bid you are probably going to make one contractor
    happy and two or three very unhappy. Many of them choose to go
    through the process of challenging the choice itself, and we
    end up either in court or at the GAO. Certainly, the same thing
    is true in terms of our grant process itself. People are not
    happy.
        I would imagine, Mr. Chairman, that given where you sit you
    probably hear a lot of those complaints because there is the
    perception and the reality that you can have a lot of influence
    over the Agency. I am not trying to make excuses, but I think
    that if there are negative things that are heard about USAID
    you probably hear more of them than anyone other than myself.
        What I think is ironic is that we just have been through
    our peer review by the other donor agencies, all 21 of the
    other donors that sit on the Development Assistance Committee
    of the OECD. I sat for a full day in a hearing in Paris, where
    the OECD is, and heard people ask questions about our program
    and basically the peer review came out saying that the United
    States continues to have the best development program in the
    world. The most efficient, the one that is struggling more with
    the cutting edge in terms of reforms and the like, I might add.
    With respect to some of the complaints that you hear and that I
    hear as well, they relate to the reform process that you have
    underway now.
        We never did measure results very well. We are trying to do
    that now, and we have a lot of people who think that we are
    trying to put them in a little box or that we are trying to
    somehow force them to give us results that they were not asked
    to report on previously. It seems to me that we have an
    obligation under the Government Performance Results Act but
    also a general obligation to the American taxpayers to report
    those results and to develop indicators that would indicate
    whether or not we are successful in what we are doing.
        I think there are a lot of legitimate complaints. There are
    a lot of frustrations in working with the Government
    bureaucracy that has to operate under rules, but I honestly
    believe that no one does it better, no other organization in
    the world does it better. I think that has been indicated as we
    have responded in particular to contingencies that have arisen
    such as Bosnia. Every development agency in the world, whether
    it is the World Bank or the European Union, knows that USAID
    has been out ahead of everyone. The same is true in the West
    Bank and Gaza and the same is true in a lot of other
    transitional situations.
        I do not want to be overly defensive. There is no way that
    I am going to reach nirvana or perfection in this job, but I do
    believe, Mr. Chairman, that given your general support over the
    years--and it has been very strong and I have appreciated it
    very much--that your statement today was a bit harsh. But we
    can debate that.
        You and Senator Leahy have been leaders in the Senate in
    calling for a higher level of funding for the 150 account, and
    I have very much appreciated that as well. You have understood
    the connection between the programs that are funded in that
    account and our U.S. national interests. You have understood,
    for example, that U.S. exports, which have been on the rise in
    recent years, have been partially the result of past
    investments in economic development. You have understood that
    American farmers benefit directly from agricultural research in
    the development of the farm sectors of developing countries.
    You have understood that our efforts to preserve the world's
    biodiversity helps Americans find cures for diseases and the
    importance of family planning programs in terms of improving
    the lives of children and saving mothers' lives and in reducing
    abortions. You have understood that infectious diseases must be
    countered at the source if we are going to protect Americans.
        Most importantly, Mr. Chairman, you and Senator Leahy
    understand the connection between this budget and American
    foreign policy. This budget funds the mitigation of the world's
    crises, the transition from postconflict situations and the
    prevention of future crises. You know that; that is why you
    fought for more resources in the 150 account.
        In that regard, Mr. Chairman, with respect to your comments
    about Indonesia, I have been very proud of the way we have
    responded in a very difficult situation. Obviously, when you
    get into an immediate crisis that has occurred in a place like
    Indonesia, it is not simply USAID making decisions about what
    to do; it is the entire Government. We have what we call
    principals meetings where everyone sits around and attempts to
    develop a strategy.
        But we have responded well in three different ways. We have
    responded through our humanitarian efforts. We have at the
    first part of the crisis increased our title II food for peace
    resources by $25 million. The assessment team, to which you
    referred, was there to look out into the future to project what
    the needs would be if this situation got worse, the economic
    situation. They did that limited job well. They were not going
    to do a survey of the fourth largest country in the world in
    just 1 week, but we needed the information that they gathered,
    and they gathered it well.
        We have also tried to help the Indonesians set up a social
    safety net. We negotiated immediately within 1 week after the
    IMF imposed its own criteria. We negotiated a framework
    agreement wherein we could provide technical assistance to the
    Indonesian Government, a $23 million program which was
    basically a reorientation of our original program, and now we
    are in a new situation, where there seems to be a legitimate
    transition to a democracy, of trying once again to take our
    program and reorient it to the needs that apply there, which,
    of course, adds a third leg to this humanitarian economic
    reform. Now we have a democracy governance challenge that we
    have to meet. I think our people, in light of the fact that all
    of them but one were evacuated from Indonesia, did a good job
    in responding and I think they will continue to respond now
    that we are putting our people back into Indonesia.
        I have come here to defend the President's fiscal 1999
    request for $14.1 billion in the foreign operations budget.
    This is a modest increase of about $856 million over last
    year's enacted level. Yet, because of the budget resolution
    passed in the House and proposed in the Senate and because of
    the allocation your subcommittee has received under the 302(b)
    procedure, we are looking at the possibility of a $960 million
    cut below the President's request and a $200 million cut below
    last year's spending level. This is, however, a budget
    authority ceiling. The cap on outlays reduces this budget by as
    much as an additional $1 billion. Frankly, Mr. Chairman, with
    these caps the President's request is dead on arrival.
        I have now been in this job, as you have indicated, for 5
    very long years. For most of that time, I have been fighting
    for survival here in Washington while trying to maintain
    American leadership abroad in the development field. That
    leadership in a broad range of technical areas has helped us to
    leverage funding from other donors and it has reduced the
    burden for the American taxpayer.
        I have explained our reductions in these overseas meetings
    in official development assistance as necessary as we have
    sought to balance our budget. I have argued that our defense
    expenditures far surpass those of other countries. I have
    expressed optimism that as soon as our budget was balanced we
    would begin to build back our program. Last year, we took the
    first small step along that path.
        Mr. Chairman, I simply cannot explain the numbers you have
    been given this year for foreign operations to a foreign
    audience. This is nothing short of devastating. If this budget
    passes, we might as well shut our doors--and we will in most of
    our overseas missions. Our struggle to maintain American
    leadership and development will be over and our ability to
    preserve our national security through diplomacy and
    development will be severely damaged.
        I know that you and Senator Leahy and Senator Stevens are
    familiar with the impact of past years' budget cuts on our
    program, but I have brought some charts here today to try to
    underscore our problem. Now this first chart illustrates the
    staff reductions we have taken since fiscal 1993. The total
    reduction is 30 percent. Our staff is what made USAID the best
    development agency in the world.
        Now let me illustrate that point by quoting from this peer
    review I mentioned before of the American aid program. This
    review is done every 4 or 5 years by other donors, and we
    respect what they say. This is what those donors said about our
    cutbacks overseas: ``The extent of cutbacks of USAID's overseas
    presence diminished two of its most prized assets, an
    experienced strong field staff close to the action and the
    unique scope of the U.S. program in line with America's global
    capabilities.''
        These reductions included a very painful reduction in force
    of more than 160 employees in 1996. Fortunately, Senator
    Stevens helped us by providing buyout authorities or these
    numbers would have been even higher. As these staffing levels
    have declined, we, in turn, have been asked to take on new
    programs in the former Soviet Union, Bosnia, and the West Bank
    and Gaza.
        Now the second chart shows the reduction in our overseas
    missions since 1993. We have left 28 countries in the past 5
    years and we have 5 more we are planning to close by the end of
    this fiscal year. Now what worries me is the extent to which we
    have had to cut back in Africa, Asia, and Latin America. We
    have, in fact, opened nine offices in Bosnia, the West Bank, in
    Gaza, and the former Soviet Union. But we are in 19 fewer
    places than we were in 1993, and most of these places are in
    the developing world.
        Mr. Chairman, I don't regret some of these closures. We
    should not be working in countries where the government is not
    a good partner. But overall these closures have hurt us. As our
    DAC, as our Development Assistance Committee, peers have told
    us, they have diminished our influence. And they have been
    driven mostly by budget considerations.
        A third chart shows the President's budget request. This
    request provided a modest increase in USAID managed funds of
    some $300 million. The request I would add fell within the
    parameters of the balanced budget agreement as scored by the
    administration. However, as you see, the Senate 302(b)
    allocation was almost $1 billion below the administration's
    request and I am told that the outlay makes the budget
    authority allocation also a dead letter. That outlay cap,
    depending on how it is calculated, would drive this
    appropriation down an additional $1 billion. These numbers mean
    a 9.4-percent overall cut in our budget from fiscal 1998
    levels, and that is very severe.
        The cuts in unprotected development assistance would be
    even greater, assuming, for example, that Congress continues to
    protect the ``Child survival and diseases'' account as would
    appear likely. If that happens, we could be talking about a 20-
    to 30-percent cut in our other development programs. Let me
    give you some indication of what that would mean.
        These cuts would require shutting down any number of
    current programs. We would be forced, for example, to take deep
    cuts in agricultural research programs conducted by U.S.
    universities. We would have to cut back sharply on
    microenterprise programs that have a proven track record in
    giving poor people their first opportunity at starting their
    own business.
        A cut of this size would mean the elimination of all new
    initiatives including those recently announced at the summit of
    the Americas as well as the African trade and investment policy
    initiative, both programs aimed directly at improving the lives
    of the poor. We would have to further reduce our family
    planning programs, our democracy efforts, and our environmental
    programs. In effect, a 20- to 30-percent cut in the unprotected
    portions of our ``Development assistance'' account would be the
    equivalent of this year's DA budget for all of Latin America or
    all of Asia and the Near East. It would mean eliminating an
    amount equal to all of our global bureau--all that our global
    bureau spends out of Washington on agriculture, population,
    environment, and microenterprise.

                               prepared statement

        Finally, Mr. Chairman, it is obvious that fast spending
    accounts would be the hardest hit under the outlay cap. This
    chart shows how we have reduced our operating expense budget
    over the years. As you know, our operating expense budget is a
    fast spending account that would be very hard hit by the outlay
    cap. One calculation I saw indicated that under the cap our OE
    could be cut by almost $100 million. This is why I said we
    would have to shut down our operations. Ironically, however, we
    would not even be able to afford to shut down some of our
    overseas missions because it costs money to buy out contracts
    and the like, and yet we would have to. That is our dilemma,
    Mr. Chairman. I hope we can work together to fix this
    predicament. Somehow, I do not believe that Congress really
    intended these dire consequences.
        Thank you, Mr. Chairman.
        [The statement follows:]
                     Prepared Statement of J. Brian Atwood
        Chairman McConnell, Senator Leahy, and other members of the
    subcommittee, I am pleased to be here today to present President
    Clinton's budget request for foreign assistance programs for fiscal
    year 1999. Certainly, the last several weeks have offered Americans a
    stark reminder of the importance of international affairs to this
    nation.
        From the testing of nuclear weapons on the sub-continent, to the
    still precarious situation in Indonesia, to flaring ethnic violence in
    Kosovo, to the volatile situation in the Middle East, we have seen
    powerful reminders that the United States has a real stake in our
    ability to promote peace and stability. America's continuing security,
    economic prosperity and public health clearly demand we exercise our
    international leadership on distant shores. The members of this
    committee have long understood the indispensable nature of America's
    international engagement, and I applaud your efforts to support U.S.
    assistance programs.
        However, as I appear before this committee today, I must say that I
    am gravely concerned. The current allocations of budget authority and
    outlays to this subcommittee, and the low levels given to your
    counterparts in the House of Representatives, would have a devastating
    impact on our ability to keep the United States engaged internationally
    during this perilous period.
        As you are aware Mr. Chairman, unless budget allocations for
    Foreign Operations are raised, the line items in the foreign operations
    bill will have to be cut significantly below this year's funding
    levels. Moreover, if the programs protected under last year's
    legislation continue to be protected, the cuts in the rest of the bill
    will be even more drastic.
        These cuts would come at a time when our international affairs
    programs are operating at historically lean levels. If we continue to
    allow this downward slide in our capacity to conduct diplomacy and
    development, we will be sacrificing our long-term national interests.
        Few areas of government have already done more to downsize and more
    efficiently conduct their operations. We have cut all the fat, now we
    are looking at bone. Between 1993 and 1998, the U.S. Agency for
    International Development (USAID) reduced its total staff by more than
    3,300. This cut of more than 30 percent included a painful 1996
    reduction in force of more than 160 employees.
        USAID's number of field missions and offices has also shrunk, going
    down from 97 in 1993, to 78 currently. This overall reduction is even
    more pronounced when one considers that it has occurred during a time
    when we opened a number of new missions in Eastern Europe and the New
    Independent States at the end of the Cold War. Mission closings would
    have to accelerate dramatically under the budget scenarios that we
    currently face. It has been field presence that has made USAID a global
    leader in development. There is no substitute for on-the-ground
    presence in designing and implementing effective assistance programs.
        Ironically, the agency has been called on to do more and more, with
    less and less, in a series of very high-profile foreign policy
    settings. We were the first on the ground to get reconstruction
    programs up and running in Bosnia. In Guatemala, we moved quickly to
    help secure that nation's historic peace accords. In the New
    Independent States, we have been on the cutting edge of helping secure
    a truly historic transformation toward democracy and free markets. In
    Latin America we are translating the vision of the Summit of the
    Americas into a reality. In Africa we are helping that continent seize
    the opportunity of a new generation of leadership.
        I am extremely proud that USAID and its excellent employees have
    risen to every challenge that they have encountered. In the face of
    tremendous adversity and continual duress over the last several years,
    they have responded with professionalism and an unflinching ability to
    get the job done. But now, we are again faced with the prospect of a
    budget that will mean fewer vital programs, fewer overseas missions,
    fewer employees and a squandered opportunity for America to invest in
    her own future.
        The President requested $20.1 billion for programs in international
    affairs, of which the U.S. Agency for International Development (USAID)
    would manage $7.3 billion. That figure represents 36 percent of the
    international affairs account and includes both USAID programs and
    programs which our agency administers in cooperation with other
    agencies. This request is within the parameters of the balanced budget
    plan as agreed to by Congress and the Administration last year.
        President Clinton's request for fiscal year 1999 programs managed
    by USAID provides a very modest $300 million increase over fiscal year
    1998 funding. The funding requested, however, is critical to our
    future. It is crucial to promoting American interests in developing
    countries, and in nations making the transition to democracy and free
    markets around the globe. Highlights of this request include:
      --Three new initiatives, the Africa Trade Reform and Growth
            Initiative and the Americas Summit Initiative, for which the
            Administration is requesting $30 million and $20 million
            respectively under the Development Assistance and Child
            Survival accounts, and the African Great Lakes Justice
            Initiative, for which the Administration is requesting $30
            million under the Economic Support Fund. In addition, we are
            asking for an additional $1 million to our food security
            initiative for Africa, bringing those funds to $31 million for
            fiscal year 1999.
      --An additional $155 million for programs in the New Independent
            States of the former Soviet Union;
      --$94 million more for the Economic Support Fund, which includes the
            aforementioned Great Lakes Initiative;
      --A separate request of $503 million for the Child Survival and
            Disease Program;
      --A $15 million increase in International Disaster Assistance for
            transition initiatives for countries coming out of crisis; and,
      --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.
        On balance, the USAID budget represents less than one-half of one
    percent of the federal budget. This is a bare-boned and balanced
    approach to development and humanitarian programs that will
    significantly contribute to achieving the administration's foreign
    policy objectives.
        However, the initial budget numbers we have seen in the Senate
    would not allow us to effectively carry out our development and
    humanitarian assistance programs. The total budget allocation for
    Foreign Operations, as it currently stands for budget authority, is
    nearly one billion dollars below the President's request. Even worse,
    because of subcommittee's outlay cap, our preliminary estimates are
    that actual budget authority permitted by the outlay ceiling could be
    on the order of $2 billion below the President's request in Foreign
    Operations alone. This is a nearly 15 percent cut across the board in
    Foreign Operations.
        The impact of cuts of this magnitude would devastate any number of
    programs. Because we expect that those accounts that enjoy wide
    Congressional support would likely be held largely protected from cuts,
    the impact on non-protected accounts would be even more severe, and I
    would find myself faced with the devil's dilemma of having to choose
    which vital programs to deeply cut.
        To illustrate the severity of this dilemma, we need to appreciate
    the magnitude of these cuts. A $2 billion cut is larger than our entire
    Development Assistance request for 1999. This figure is about 40
    percent of all the activities managed by USAID. This cut represents
    about a ten percent cut from the President's entire request for all of
    international affairs. Such a cut alone could fund the entire Peace
    Corps for more than seven years at current levels.
        These deep cuts would devastate our international operations at the
    program level. These cuts would also require shutting down current
    programs which address poverty and hunger. We would be forced to make
    see deep cuts in agricultural research programs conducted by U.S.
    universities that are helping develop better crop varieties to combat
    hunger abroad. Over the long term, this would mean losing ground in the
    fight to battle malnutrition, and increased global tension over food
    insecurity and increased needs for emergency assistance. This would
    also mean American universities would lose much of their capacity to
    conduct this vital agricultural research.
        We would have to cut back sharply on microenterprise programs that
    have a proven track record in giving poor people their first
    opportunity at starting their own businesses and working their way out
    of poverty. More than a 100,000 people would lose access to small loans
    because of these cuts.
        Cuts in family planning would result in increasing numbers of
    unwanted pregnancies and fuel a dangerous spiral of additional deaths
    of both mothers and children. Cuts in disaster assistance would deny
    assistance to the most vulnerable victims of war, famine and other
    disasters. Efforts to prevent regional and civil conflicts through
    democracy programs would be delayed or terminated. Cuts in
    environmental programs would limit our ability to deal with the
    underlying causes of ecological crises such as the vast fires we have
    seen in Mexico in recent months.
        Economic growth programs in Latin America and Asia, already
    severely limited, would be cut further. Efforts to integrate Africa
    into the world economy would also suffer funding cuts. America's
    economy, American exporters and American consumers would ultimately pay
    the price for our collective failure to open new markets and promote
    international trade.
        Cuts in Economic Support Funds, an account already $1 billion less
    than 10 years ago, would probably mean no funding for economic
    stabilization programs in Latin America. Lower levels of funding for
    our programs in the New Independent States and SEED countries would put
    at risk vital progress in strengthening democracy and free markets in
    key strategic areas like Bosnia-Herzegovinia and Russia.
        Such a large cut would mean the elimination of all new initiatives,
    including those recently announced at the Summit of the Americas as
    well as the African Trade and Investment Policy Initiative--both
    programs aimed directly at improving the lives of the poor.
        USAID operations worldwide would have to be scaled back,
    terminating the successful efforts of the United States to encourage
    other donor nations to share the burden of development.
        If the Operating Expense account is reduced below the President's
    request, the impact on overall agency operations and ability to provide
    oversight of foreign assistance programs would be severe, as that
    budget has already been cut severely in past years. From fiscal year
    1993 to fiscal year 1997, operating expense-funded staff levels were
    cut by 34 percent, which included a very difficult reduction-in-force
    of 164 U.S. direct hire staff, early-outs, and buy-outs. We were able
    to plan an orderly process to achieve much of these reductions,
    including orderly closing of missions. Such orderly processes would be
    impossible with sharp fiscal year 1999 operating expense reductions. In
    order to absorb the high costs of shutting down missions--including
    severance pay for foreign service nationals, contract termination
    costs, relocation costs and other factors--the cuts would have to be
    completed very early in fiscal year 1999. We are to far into the
    calendar year to make such reductions in an orderly way. Leading up to
    fiscal year 1997, the GAO confirmed that the agency could not operate
    at a level of $465 million without immediate large-scale cost-cutting
    early in the calendar year, including increasing the size of the
    Reduction in Force that had been planned at that time.
        These cuts in operating expenses would come at a time when the
    costs of doing business abroad are going up, not coming down. The
    agency is facing continuing cost increases due to the impact of
    inflation on foreign national pay, office and residential rents,
    utilities, and other overseas costs as well as federal pay raises and
    the impact of general inflation in the United States on Washington
    costs. Given that the operating expense account is driven by workforce
    levels, sharp workforce reductions would become necessary. Fewer people
    would make it impossible to manage existing programs, and would force
    the early termination of some activities. Operating expense cuts would
    also make it more difficult to keep the agency's information technology
    up and running, and would force us to sharply reduce many critical
    activities, such as training.
        We need to remember that these are not abstract cuts we are talking
    about. Our programs have a demonstrated track record in making a real
    difference around the world--from saving lives to building more
    prosperous societies to creating jobs for the American people. USAID
    emergency relief programs provided food and other assistance to more
    than 28 million disaster victims in 1996. Our health and child survival
    programs, which you have so strongly championed, helped to save more
    than five million lives last year alone. Severe food shortages were
    averted in seven African countries, thanks to USAID efforts to
    establish regional capacities to anticipate and prevent famine.
        Our programs in Eastern Europe and the New Independent States
    helped privatize more than 26,000 state-owned enterprises in 1996
    alone. In addition, we supported free and fair elections in 14
    countries around the globe and assisted in the drafting and adoption of
    new constitutions in three countries. More than a million people
    received USAID microenterprise loans last year, and more than half of
    those clients were women. We helped farmers in Latin America choose
    alternatives to growing drugs, and cut the acreage in Peru devoted to
    coca production by 27 percent. USAID also contributed significantly to
    improving conservation on over 21,000 square miles of land in 14
    different countries.
        We took a major step toward the worldwide eradication of polio with
    our support for national immunization days in Africa and Asia. The
    agency continued to help finance innovative public-private
    partnerships, such as the one that helped create vaccine vial
    monitors--simple heat-sensitive tags that indicate when vaccines have
    become unusable, resulting in health savings in excess of $10 million a
    year.
        The Congress and the American taxpayer have every right to demand
    results for the dollars they put into foreign assistance, and I feel
    USAID is doing a better job than ever before in producing results that
    make a difference in today's world. The Administration is eager to work
    with you to improve this situation, and I hope that we can do so in the
    weeks and months ahead. I would also like to point out some particular
    issues from this year's budget request that I know are of particular
    interest.
    Account Structure
        The fiscal year 1999 budget request brings with it a slightly
    different account structure. USAID is requesting 1999 funding for a
    separate Child Survival and Diseases account at a level of $502.8
    million, which reflects strong support both within the Administration
    and this Subcommittee. The account includes $226 million for child
    survival activities, $121 million to combat AIDS, $30 million for other
    infectious diseases and $27 million for related health activities that
    complement our activities in child survival and infectious disease.
    Also included is $98.2 million in basic education programs. Education
    programs are one of the most powerful means we possess to promote
    lasting social and economic progress in the developing world.
        While this request of $502.8 million compares to a 1998
    appropriated level of $550 million, I want to make one thing absolutely
    clear: this is not meant to signal a reduction in the importance USAID
    places on child survival programs. It has been our experience that to
    effectively combat both infant mortality and the spread of disease, we
    also need to address the underlying social and economic conditions that
    allow child mortality and infectious diseases to flourish, such as
    poverty, malnutrition, illiteracy, poor sanitation, overcrowding and
    environmental degradation. We use other portions of our budget to
    attack these problems.
        Just to cite one example, our urban programs that work in some of
    the worlds' largest and increasingly crowded mega-cities are not
    considered part of the child survival account. Yet these programs are
    helping to provide clean water and waste treatment facilities to
    millions of poor families, an effort that clearly improves the lives of
    children and reduces the spread of disease. Or consider education
    programs that appear in this account but do not fall under a strict
    definition of child survival programs: research shows that the child of
    a mother who has even a single year of education, has a 9 percent
    better chance to live to the age of five. Gains increase substantially
    with each additional year of schooling. So when you look at our
    programs in terms of child survival, I think we need to focus on their
    broad impact.
    The Development Assistance Account: The Africa Trade and Investment
            Initiative and the Summit of the Americas
        President Clinton's trip to Africa, in which I participated, was an
    excellent opportunity for the world to focus on the immense potential
    and considerable challenges on the continent. I believe the trip will
    go a long way toward invigorating trade and development in Africa. I
    know that USAID will have its work cut out in responding and following
    up on the tremendous excitement generated by the trip. This trip
    offered ample evidence of what I have long argued--that Africa is the
    world's last great developing market. As part of the Partnership for
    Economic Growth and Opportunity in Africa, announced in June 1997,
    USAID will help Africa integrate into the world markets through
    increased openness to international trade and investment. This type of
    reform and assistance program has already been proven to be a major
    ingredient in the recipe for economic progress and growth in other
    parts of the developing world. We hope the bill will pass the Senate
    and be enacted into law as soon as possible.
        The Partnership includes the following USAID components:
      --Technical assistance to help African governments liberalize trade
            and improve the investment environment for the private sector;
      --Assistance to catalyze relationships between U.S. and African firms
            through a variety of business associations and networks; and,
      --Funding of non-project assistance in conjunction with other
            bilateral and multilateral donors to help encourage aggressive
            economic reforms.
        The second regional initiative included in the Development
    Assistance account focuses on Latin America. As part of our effort to
    capitalize on regional cooperation, the budget proposal includes funds
    to support the initiatives and was endorsed at the second Summit of the
    Americas. USAID helped to define the agenda for the Summit, where the
    region's 35 presidents focussed on regional challenges, including
    economic integration, education, democratic institution building and
    poverty alleviation through microenterprise activities. USAID is
    requesting $20 million to support initiatives aimed at achieving these
    goals which will help remove the barriers to the participation of the
    poor in the national life of the 34 democracies represented at the
    second Summit of the Americas.
    An Increased Emphasis on Agriculture and Education
        The Agency has intensified our strategic focus during the last year
    on two important areas of development: agriculture and education.
    Agriculture is now being pursued as a part of USAID's economic growth
    goal by refocusing on the links between agriculture, economic growth
    and food security. As part of this effort, USAID, at the World Food
    Summit in November 1996, highlighted the continuing food security
    issues of the over 800 million chronically undernourished people in the
    developing world. The proposed budget allocations for food aid are part
    of this Administration focus. Education has been promoted to the level
    of one of the agency's primary goals. USAID is working to improve basic
    education for both girls and boys, particularly in the poorer countries
    of sub-Saharan Africa. An important part of this effort is our
    continued focus on advocating that no children should be denied access
    to an education because of their gender, ethnicity or social status.
    Increased Transition Activities
        Within USAID's 1999 budget is a $15 million increase to the
    International Disaster Assistance Account for Office of Transition
    Initiatives (OTI) efforts. This will increase the U.S. government's
    capacity to bring fast, direct, flexible assistance to priority
    countries in their transition from conflict, by addressing urgent
    needs. The United States continues to face the challenge of responding
    to increasing numbers of countries with complex emergencies. Many of
    these complex emergencies have come to be high priority foreign policy
    concerns of this Administration, such as those in Haiti, Bosnia, Congo,
    Liberia and Angola. Although relatively new and with limited resources
    to date, OTI has demonstrated a successful track record in assisting
    transitional countries: disbanding 200,000 paramilitary troops in
    Guatemala and demobilizing and resettling nearly 3,000 guerrillas;
    reaching 1.9 million people with mine awareness and helping create 590
    projects in 270 villages in Angola; and implementing 650 grants in
    Bosnia to promote independent media and democratic reconciliation.
        We have learned from experience how valuable it is to have the
    resources and the flexibility of the International Disaster Assistance
    account in place to deal with these crises. It is an invaluable,
    innovative and cost-effective means to advance U.S. interests in these
    very dynamic settings. I also want to assure the Subcommittee that by
    increasing the funding for OTI, we in no way, shape or form are
    lessening the ability of our agency to provide immediate life-saving
    humanitarian relief through our Office of Foreign Disaster Assistance--
    still one of the world's premier organizations for providing such
    assistance on the ground.
    Infectious Diseases
        For fiscal year 1998, Congress, under this subcommittee's
    leadership, provided funding for USAID to take part in a global
    initiative to combat infectious diseases, joining with other U.S.
    Government agencies in this effort. USAID has developed a strategy for
    the initiative as an important complement to the other four objectives
    leading to USAID's goal to stabilize world population and protect human
    health, particularly efforts in child survival, maternal health and
    AIDS prevention. USAID's strategy has been developed in consultation
    with a wide cross section of global health experts, including staff
    from other U.S. government agencies, UNICEF, the World Health
    Organization, non-governmental organizations, academia and the private
    sector. In the spirit of true collaboration, these discussions created
    a strong consensus as to the strategy we would adopt, and clarification
    about USAID's role.
        USAID's strategy has four technical elements:
      --Slowing the emergence and spread of antimicrobial resistance,
            targeted at the principal microbial threats in the developing
            world: pneumonia, diarrhea, sexually transmitted diseases,
            tuberculosis and malaria.
      --Testing, improving and implementing options for tuberculosis
            control.
      --Implementing new and effective disease prevention and treatment
            strategies focused on malaria and other infectious diseases of
            major public health importance.
      --Strengthening health surveillance systems by building capacity at
            the country level to help create a global early warning system
            for disease.
        Programming of the funds into specific activities will follow
    shortly. The Centers for Disease Control and Prevention, the World
    Health Organization and UNICEF, among others, will certainly play key
    roles in our program, and a new Infectious Diseases objective has been
    included in the health portion of our request.
    A Historic Transformation Continues
        The historic transformations occurring in Central and Eastern
    Europe and the former Soviet Union remain critical to U.S. national
    interests, and our requests for the Support for East European Democracy
    (SEED) and FREEDOM Support Act accounts reflect this high priority.
    These nations with whom we were once in a dangerous, expensive and
    ever-escalating arms race, are now emerging partners in the global
    economy. In Central Europe, we are seeing some of our allies
    successfully make the transition toward membership in NATO and the
    European Union. Across the region we are helping these nations create
    democratic societies and market economies which are increasingly based
    on Western values, and linked to us through trade and investment and
    through people-to-people, grassroots relationships.
        I know the situation in Ukraine is of particular interest to you,
    Mr. Chairman. As you know, Secretary Albright certified that Ukraine
    has made significant progress toward resolving longstanding U.S.
    investor disputes, having determined that seven of the twelve disputes
    in question had either been resolved or significant progress had been
    made toward resolving them. The Secretary made that determination after
    close scrutiny of these cases, as well as numerous consultations with
    the U.S. business community in Ukraine and with top Ukrainian
    Government officials.
        Having made this certification, the Secretary remains seriously
    concerned about the lack of improvement in Ukraine's investment climate
    and limited progress toward economic reform. Therefore, she has decided
    to temporarily withhold funds amounting to about $25 million for
    assistance in areas where lack of reform would make U.S. assistance
    ineffective. These funds will be reprogrammed to more productive uses
    within Ukraine if after several months' time the government does not
    implement the necessary reforms and take additional steps to resolve
    outstanding U.S. business cases in Ukraine.
        A great deal depends on the willingness of the Ukrainian government
    to move forward with reform. Our assistance can only be effective if
    there is real commitment in a host country to embrace change. To date,
    we have seen a number of promising steps toward comprehensive reform,
    including good progress in areas such as privatization, land titling
    and the means-testing of housing subsidies. The challenge now is for
    Ukraine's leadership to ensure that the momentum generated by these
    incremental reforms can be translated into widespread improvements in
    the lives of the Ukrainian people.
        In Central and Eastern Europe, the SEED request is focused on
    continuing our commitment to support the Dayton Peace Accords in Bosnia
    and Croatia. We are promoting reconciliation on the ground through
    economic revitalization efforts, job creation and democracy building
    efforts. It will take time to deepen and solidify this process. We are
    also supporting police monitors and police reform in Bosnia, a program
    critical to our ability to facilitate the return and reintegration of
    refugees and displaced persons into their communities. The U.S.
    military presence and economic assistance programs have been highly
    complementary, with peacekeeping troops assuring a sufficiently stable
    environment for recovery to take root. In turn, economic recovery is
    helping to bring about conditions that will make it possible for
    American troops to come home.
        In partnership with a number of pre-eminent American foundations,
    we are proposing to begin in the next fiscal year a $100 million
    trust--with half, or $50 million, to be funded over four years by the
    U.S. government--to promote deeper and more enduring civil societies in
    Eastern and Central Europe. We are joining with Rockefeller Brothers,
    Ford, Soros, Mott and others to create an evenly matched public-private
    endowment to encourage a range of economic think tanks, professional
    societies, chambers of commerce, interest groups and the like to be
    focussed and self-sustaining. Our goal ultimately is to stimulate an
    educated, activist citizenry that demands accountability and value from
    its government. Also, by breathing life and vibrancy into these new
    democracies, we can more readily count on their durability. With
    Congressional concurrence, our initial contribution would be $12.5
    million from SEED funds, and we will be consulting with you on the best
    mechanisms for Congressional oversight of this process.
        In the New Independent States, we are requesting an increase in
    FREEDOM Support Act funds of $155 million above the 1998 level to
    expand the Partnership for Freedom initiative in Russia and across the
    New Independent States. In the 1998 budget, Congress endorsed the
    Partnership for Freedom's new focus on economic growth, civil society,
    and partnerships which create bonds between non-governmental
    organizations, businesses, universities, hospitals, professional
    associations and a myriad of grassroots organizations in the United
    States and in the region.
        FREEDOM Support Act funds will also help us redouble our efforts in
    Central Asia to further develop the business, legal and regulatory
    environment necessary to underpin the massive oil and gas investment
    which is likely over the next decade. As this Subcommittee saw during
    its trip to the Caucasus last summer, Central Asia and the Caucasus are
    critical to U.S. strategic interests and world energy supplies. We will
    continue supporting the Administration's TransCaspian initiative to
    facilitate East-West transport routes and environmentally sustainable
    approaches to energy development through bilateral and regional
    technical assistance.
        An important part of our work throughout Central and Eastern Europe
    and the New Independent States will be our anti-corruption efforts.
    USAID's assistance in the area of crime and corruption addresses the
    underlying causes of corruption, and complements the efforts of U.S.
    law enforcement agencies--the Federal Bureau of Investigation and the
    Departments of State, Treasury and Justice--to address specific crime
    and law enforcement needs. USAID helps set the rules of the road for
    business, and opens up to public scrutiny government's regulatory
    processes and businesses' decision-making. This means reducing
    inappropriate discretion exercised by government, so that opportunities
    for arbitrary, capricious or corrupt government actions are reduced.
    This also means improving the transparency of commercial transactions
    so corporate decisions are open to stockholder and public oversight and
    helping to foster an independent media to inform public decision-
    making.
    USAID Management
        The Government Performance and Results Act directed that the
    foreign assistance program be driven by strategic focus and by results.
    At USAID, we have embraced this emphasis on results. USAID continues to
    introduce management reforms designed to deliver assistance faster and
    achieve results more cost-effectively. I want to underscore the
    importance that USAID has been placing on managing for results and
    improving program effectiveness. We were committed to this performance-
    based budgeting long before Congress passed the Government Performance
    and Results Act (GPRA) in 1993, reflecting our belief that Congress and
    the American people must see the specific results of our programs if
    these activities are to continue to receive your support. Some of
    USAID's activities--such as reducing the spread of infectious diseases
    in developing countries--are easier to quantify. Other equally
    important interventions--such as assisting host governments to take
    steps to move toward a stable, market-based economy--take more time to
    achieve. We are committed, however, to measuring, assessing, and
    reporting to Congress on the results of all of our program activities.
        During this last year, we have also continued to improve our
    working relationships with the Department of State. Foreign policy and
    development strategy are better coordinated at the policy level than
    ever before. USAID's Strategic Plan supports specific U.S. national
    interests as defined in the International Affairs Strategic Plan--a
    document which the Department of State and USAID worked in close
    cooperation to prepare. USAID and the Department of State have also
    agreed upon ways to streamline and better align operations ranging from
    how we manage facilities to how we coalesce around specific country
    objectives.
        The cooperation between USAID and the Department of State is
    particularly close in the area of democracy and governance assistance.
    The Department of State's regional bureaus and its Bureau of Democracy,
    Human Rights and Labor (DRL) consult with USAID in programming the ESF
    regional democracy funds. USAID plays a prominent role in the DRL-
    chaired Democracy Core Group, an inter-agency council that ensures the
    tight coordination of policy and programs in key transition countries.
    And our two agencies work together in the annual reviews of USAID's
    country programs to further strengthen the coherence of our diplomacy
    and assistance.
        We recently submitted to Congress the initial version of USAID's
    fiscal year 1999 Annual Performance Plan. This plan provides specific
    benchmarks against which our performance can be assessed at the end of
    fiscal year 1999. We will also submit our self-assessment of
    performance through fiscal year 1999 at the end of March 2000 through
    our Annual Performance Report. Our Performance Report will comment on
    why we think our approaches did or did not work and what we will do to
    improve our performance. These plans and reports are important tools
    for helping our agency, and you, to determine the degree to which we
    have achieved the results that we had set out for ourselves. We look
    forward to consulting with you on our performance measuring and
    planning efforts.
        In conjunction with the Department of State and other agencies
    having an overseas presence, USAID implemented the International
    Cooperative Support Services, or ICASS, system effective October 1,
    1997. Under this system, administrative support services at overseas
    posts will be provided by the agency best able to provide effective
    service at a reasonable cost. While any major change such as this is
    likely to face problems in the first year of implementation, the
    changeover from the old Foreign Affairs Administrative Support system
    to ICASS appears to be going very smoothly. All agencies, including
    USAID, are working to ensure that this new system is a success and that
    it will result in the end in better administrative support for all
    agencies at a lower cost.
        In other areas of management, two USAID task forces identified ways
    to streamline procurement processes and to better align our workforce
    to projected needs in developing countries. Our workforce planning task
    force recommended reducing the Washington staff over the next three
    years to meet tight Operating Expense levels while protecting the USAID
    field presence and permitting expanded staff training. These moves
    would not entail a reduction in force, but it is clear that managing
    Washington with a reduced staff will require streamlined processes and
    greater efficiency. The task force recommended that USAID field staff
    not be cut any further, and that staffing remain at approximately 700
    U.S. direct hires in the field. However, we will be looking at how to
    more effectively manage our field presence.
        The initial action plan on procurement addresses three areas:
    strengthened teamwork, operational goals and administrative
    streamlining. We are reestablishing the Procurement Policy Advisory
    Panel which will provide for a wider vetting and understanding of
    procurement and assistance policies. Our operational goals are intended
    to establish benchmark time periods for effecting actions, such as
    procurement planning and operational year budget allocation and
    distribution which will hopefully stimulate earlier action on
    procurement and assistance actions, and even out the workload over the
    fiscal year.
        Completing the move of USAID headquarters to the Ronald Reagan
    International Trade Center last year was a sizable logistical
    challenge, but having all our agency's Washington staff together in one
    building--for the first time in our history--has greatly improved
    teamwork and collaboration among employees.
        Over the coming year, we will seek to further improve USAID's
    unique comparative advantage to rapidly and innovatively respond to
    diverse development and humanitarian needs. A further streamlining of
    USAID work processes could increase the amount of time available to
    build and nurture partnerships and coalitions with those willing to
    collaborate on development problems. It will also ensure that USAID
    maintains the technical breadth and on-the-ground developing country
    expertise in preparing responses closely attuned to local conditions.
        USAID's recognized excellence as a pre-eminent bilateral
    development organization will serve the United States well as we
    continue to lead other development organizations. U.S. leadership helps
    create a shared vision on development goals and approaches across the
    U.S. government, among donors, within the nongovernmental and business
    communities and with the countries in which we work. As hosts of the
    upcoming 30th anniversary Tidewater meeting of development ministers,
    we now turn our energies to jointly implementing the Development
    Assistance Committee 21st Century Strategy. Similarly, as part of the
    New Transatlantic Agenda of the European Union and the United States,
    USAID is now working closely with the European Commission on more than
    60 joint development activities.
    The New Management System
        I also must address an issue that has been of particular concern,
    the agency's New Management System (NMS). Last April, I made the
    difficult decision to suspend overseas operations of two modules of the
    New Management System. Communications problems, difficulties in
    transferring data and system problems, particularly with the USAID
    Worldwide Accounting and Control System (AWACS) financial management
    module, were forcing the agency to expend an inordinate amount of time
    responding to problems, particularly at our overseas missions.
        USAID contracted in the fall with a top-notch consulting team
    recommended by the General Services Administration, and led by IBM, to
    conduct a thorough assessment of the NMS. This independent assessment
    by the consulting team was completed in January and has been shared
    with Committee staff. This analysis identified the software flaws that
    have plagued NMS, particularly the AWACS module, and also identified
    areas where we could strengthen the management of our information
    systems.
        The report also carefully assessed the options for delivering the
    necessary business functionality in NMS for the agency to comply with
    the Government Performance and Results Act and other government-wide
    standards. The report recommended options for modifications of the
    operations, budget and assistance and acquisition modules, and
    replacement of the financial management module with one of the now-
    available commercial off-the-shelf financial packages that would be
    integrated with the other modules.
        Our agency staff has put a lot of work into making the NMS system
    function and I deeply appreciate their labors. This was not a wasted
    effort. The business area analysis process established a solid base for
    the development of each of the NMS modules. The vision of an integrated
    financial and information management system that would meet our needs
    into the 21st Century was, and remains, the correct vision. It is now
    clear, however, with the advantage of hindsight, that we were too
    ambitious. We knew that our old systems were inadequate so we rushed
    the effort to reach full compliance with government standards and with
    the business needs identified in the business area analysis. Basically,
    we were too ambitious; we felt we could not achieve the changes we
    wanted without activating the system prior to testing it on a smaller-
    scale basis.
        I must also point out that, when we began this process in 1993 at
    the start of the Administration, everyone from the Office of Management
    and Budget to Congress agreed that the agency's financial information
    systems were badly flawed and that immediate action needed to be taken.
    At that time, no commercial off-the-shelf packages existed that would
    meet our financial information systems needs. Our intentions were good
    in overhauling the agency's financial information systems, but with the
    benefit of hindsight, our method was flawed. For that I accept
    responsibility.
        What are our next steps? We have completed our assessment of the
    consultant's report and are defining a comprehensive plan that will
    assure us that the mission critical systems will meet the year 2000
    compliance standards. The second priority is to have in place a
    financial management system that complies with federal standards that
    can produce an auditable consolidated financial statement. Third, we
    must deliver the basic business functionality and data integration
    planned for NMS.
        Our Management Bureau, in collaboration with the Capital Investment
    Review Board, has laid out internal management and external contracting
    strategy to achieve these goals. We are in the process of sharing that
    approach with this Committee and our other oversight Committees. We
    have invested significant resources in NMS development, and it is
    disappointing that we are not where we had hoped to be. The independent
    assessment, however, provides an invaluable analysis of our current
    situation and a clear description of the steps that we must take to
    achieve the original vision of the NMS. We now find ourselves with the
    opportunity to resolve our difficulties with the NMS and create a
    system that will allow you the transparency and accountability that
    should be the standard for government operations.
    In Conclusion
        We know that the United States cannot fulfill its leadership
    responsibilities or pursue our values as a nation without an effective
    international cooperation program. Ultimately, development assistance
    administered by USAID improves the lives of people in developing
    countries and helps to strengthen their capacity to mobilize local
    resources and take ever greater responsibility for their own destinies.
    Foreign assistance is one of America's best and most cost-effective
    tools for building relationships among peoples and institutions that
    can endure and advance our interests.
        The lines between domestic and foreign affairs are increasingly
    blurred. USAID bolsters America's domestic and foreign policy interests
    by capitalizing on the challenges and opportunities that are inherent
    in increased globalization and interdependence. When we look at the
    causes of the Asian financial crisis, we see how important USAID's
    development work is. A number of Asian countries embraced aggressive
    economic reforms, but were slower to embrace the open and transparent
    governance which is also essential for long-term economic growth and
    foreign investment. USAID is investing in the institutional structures,
    market reforms and grassroots development programs that lead to long-
    term stability and growth. These programs are even more critical to
    America's future now than during the Cold War.
        Referring to USAID's programs as foreign aid is increasingly
    anachronistic in this kind of environment. Neither the world's problems
    nor America's economic opportunities stop at our borders. Exports
    accounted for over one-third of America's growth during the past four
    years. Developing and emerging market countries accounted for more than
    half of that growth in exports. All spheres of activity in the United
    States demand an international reach, whether it be health, crime-
    prevention, environmental protection or job creation. The benefits of
    international cooperation are obvious--the dangers of not cooperating
    to help other nations meet these challenges are too great to risk.
        I am eager to work with this committee to restore a budget that
    will accurately reflect our national interest in promoting development
    overseas. The stakes are simply too high for us to accept any other
    alternative. Again, I appreciate the opportunity to appear here today,
    and I look forward to working with you to help preserve America's
    international leadership.
        Thank you.

                         remarks of senator ted stevens

        Senator McConnell. Mr. Atwood, I see the chairman of our
    full committee is here. I do not know whether he would want to
    make an observation or whether he is just joining us.
        Senator Stevens. Well, I came because, Mr. Chairman, I was
    told that Mr. Atwood would raise the question of the
    reallocations that we have made. We were forced to make severe
    reductions in many of the accounts under the 602(b) allocations
    because the administration had submitted a budget that is based
    to a great extent upon approval of new taxes, new user charges,
    additional revenue streams that are just not there.
        We are not allowed to allocate money based upon a
    prospective action by Congress and the President in agreeing to
    additional revenue streams. We can only allocate the money that
    is there now. As a consequence, we had the difficulty of really
    severe difficulty meeting the Health and Human Services' budget
    that is still almost $1 billion less than the current year.
        On defense, the President asked for $1.9 billion additional
    money for the Bosnia operation starting in 1999 on an emergency
    basis, which we had already told the President that we would
    not grant an emergency for the fifth of Bosnia operations. It
    is no longer an emergency, and understand the circumstances
    there just was no more money. I have done the best that I can
    under the circumstances of allocating the money that is
    available. If there are additional revenue streams that come
    along, of course, this subcommittee along with others would get
    consideration again.
        At the present time, Mr. Atwood, there is just no
    possibility that we can change the allocations to this
    subcommittee. I think anyone that reviews the money we have got
    right now I hope will agree we have done the best we can under
    the circumstances. I understand your appeal, but it just cannot
    be met.
        Beyond that, I want to say I was chairman of the Government
    Affairs Committee at the time we went into the problem of the
    Internal Revenue Service modernization of its computer systems
    and found to our regret that after spending $4 billion they
    still didn't have a system that they could install and we had
    to abandon that, despite the estimate that it was going to cost
    us $20 billion totally.
        Now I am very worried about the report that we have gotten
    with regard to your computer system, and I do think that that
    ought to be one of the areas that is really an exception to
    this problem. We ought to get you the money you need to
    modernize that system. And I hope that you will take the
    direction of the outside organization that has been contracted
    for by GSA to redesign your systems.
        Thank you, Mr. Chairman.
        Senator Lautenberg has promised that he will only take 30
    seconds, so we are going to let him take his 30 seconds.

                     remarks of senator frank r. lautenberg

        Senator Lautenberg. I thank you, Mr. Chairman. I have used
    up 7 of those seconds already, and I will do the rest in 23,
    and that is: I just want to raise questions, Mr. Chairman, the
    questions for Mr. Atwood related to harboring, communities
    harboring, war criminals, and the assistance coming from this
    country. Mr. Atwood is aware of my concerns. I will submit my
    questions in writing. But I would hope that our Government is
    not going to permit opportunities for investment to be made in
    these communities while they flout the law.
        Senator McConnell. Thank you, Senator Lautenberg.
        Senator Lautenberg. Thank you.

                            peace process in Bosnia

        Mr. Atwood. We know of your concern in the amendment that
    was passed with your name on it. We have been, I think, very
    meticulous in trying to use all sources of information--human
    rights groups, our own intelligence community and the like--to
    try to assure that we do not get into that kind of a problem. I
    think we have taken risks, I think we have advanced the peace
    process in Bosnia, but we do not want to get caught working
    with war criminals or people who have been indicted.
        Thank you, Senator Lautenberg.

                                   Indonesia

        Senator McConnell. Mr. Atwood, Indonesia would be a good
    place to start. You said that AID had increased food aid by $25
    million. It is my understanding from the staff it was only one-
    half that, because one-half went to shipping costs. These were
    funds for El Nino drought victims in the East, not a response
    to the 1998 economic meltdown. Apparently AID now has
    reoriented, whatever that means, $23 million in crisis
    response, but this is for the IMF technical consultants, not an
    initiative to ease through the economic transition--just some
    of my random observations about some of your comments about
    Indonesia.
        Mr. Atwood. Well, first, let me say that obviously the
    crisis is both political and economic. We renegotiated with the
    Indonesia Government, the Suharto government, to provide
    resources that we had allocated for different purposes
    originally to a new sort of economic reform program, provide
    technical advice and individual economists to the Indonesia
    Government.
        The economic team over there everyone would concede is on
    the right reform wicket. They are people for the most part
    educated in the United States and they are reformers, and so we
    wanted to provide them with the assistance they needed so they
    could implement the IMF agreement. We had to take money from
    other resources that we had allocated during calmer times and
    reorient it. I think that was quite a feat in a very short
    period of time. We were able within a 2-week period to sign
    contracts to get about six experts, professors, in there to
    help them with their own reform efforts.
        The $25 million was made available. You are not, I am sure,
    complaining about the procedures we have to use American
    shipping and American grain for these things, because we could
    talk about that. We are required to do that.
        Under title II we also have to respond to proposals. That
    is the way that law is written. That does not have anything to
    do with this subcommittee; this is handled by the Agriculture
    Committee. Still, we operate within United States law with
    respect to the title II program, and we are preparing to
    provide more title II resources to Indonesia, given the problem
    as it evolves.
        We are now having to look at our entire program again and
    reorient it once again because we have a political transition
    in place. These things don't happen overnight, especially when
    your entire staff is evacuated out of Indonesia. I think we
    have under the circumstances done a good job in this situation.
        Senator McConnell. It seems to me, staying with Indonesia,
    that it is going to be difficult for that country to return to
    the road of economic reform and remove subsidies for key
    commodities, unless there is some kind of transitional support
    program in place. This might include job training, food for
    work initiatives in urban areas, and expanded maternal and
    child support initiatives. Can you give me any detail on USAID
    plans to address national transition needs, particularly in the
    hardest hit urban areas.
        Mr. Atwood. We have been able thus far to locate about $134
    million that will be applied to this. We, of course, are
    awaiting now the new IMF plan that has recently been presented
    to the Indonesia Government, which may mean that we will have
    to readjust our own technical assistance package. We have
    programmed the $25 million for food for work, which would
    create jobs and for emergency feeding programs for very
    vulnerable groups, children under five and pregnant and
    lactating women. We have also supplied emergency relief such as
    water sanitation, seed distribution and medical supplies.
        Our population health and nutrition resources are directed
    to maintain the availability of basic health and family
    planning commodities and services and make sectoral reforms of
    both health and family planning to improve the efficiency and
    cost effectiveness of the Indonesia Government's health
    programs.
        We have also looked at programming money for elections
    assistance and democratization as they move through this
    transition period. I think that it is not inconsiderable.
    However, we obviously will join with other donors including the
    World Bank. Our program of $134 million is probably more than
    any government other than Japan is doing in this situation, but
    we do not match on a bilateral basis the resources that the
    World Bank can bring to bear on this problem.
        Senator McConnell. Is your assistance mostly targeted at
    Jakarta; and if not, what part of it is heading in that
    direction?
        Mr. Atwood. A lot of it is because that seems, was at least
    during the student uprisings, the center of all of the problems
    but also the center where the opportunities can be found. But
    our program has been very active around the country. I mean, a
    lot of our family planning programs were in parts of the
    country that were far from Jakarta, Bali, and other parts of
    Java, and some programming in East Timor as well.

                              Moslem organizations

        Senator McConnell. I mentioned in the opening statement the
    Jakarta mission's apparent reluctance to work with Moslem
    organizations. Could you give me an explanation of that?
        Mr. Atwood. Well, we would be more than happy to work with
    those organizations. At the time, you see the urgency is to let
    the United States show that we care. We wanted to announce a
    $25 million program, but we did not even have a proposal at the
    outset of this. We received a proposal from the Christian group
    you mentioned, the Catholic Relief Service, and so we were then
    able to announce something that had a political impact. We did
    not have a proposal from the Moslem groups. We are working with
    those groups and hope that we will be able to do that. We also
    have to assure that they can carry out the program.
        I think that in light of the urgency of responding, at
    least letting the Indonesian people know that the American
    people cared about the situation, we responded very quickly and
    used the organization that we could under the circumstances.
        Senator McConnell. A recent Washington Post article
    commended your Agency for spending $26 million supporting
    opposition groups. The article was clearly written in
    Washington because many of the organizations mentioned have
    been deeply critical of AID's limited role and support which
    leads me to ask you, how would you describe AID's current
    planning regarding these opposition groups? And, what lies
    ahead?
        Mr. Atwood. Well, I think that it is probably fair to say
    that the groups have been critical generally, but I am not sure
    they have been critical of USAID. These are groups that have
    been basically a part of a new civil society in Indonesia. They
    have been environmental groups, they have been health-oriented
    groups, they have been other groups that have taken on an
    advocacy role. This is the first part of a democracy.
        They were not allowed under the Suharto regime to play more
    of a role than that. As you know, political parties were not
    allowed to play any active role as well at the time, so these
    groups have received support over the years from USAID. Again,
    I do not know whether some of them were disappointed that they
    did not get more support from the United States during this
    troubled time or not. The fact of the matter is I think that
    they formed, these groups that we have been supporting, a basis
    for a smooth transition to a different, more democratic era in
    Indonesia. I am very proud of what we have done to help those
    groups in that country.
        Senator McConnell. As the students were demonstrating and
    being gunned down by the military and police, it is my
    understanding the administration requested $2 million to train
    the military to fight fires. In terms of the priority, is that
    a decision you were involved in? And, did you think it was more
    important to fight fires at that particular moment than to deal
    with the other problems?
        Mr. Atwood. This request was made well before the students
    were in the streets, but the request came up here at the time
    that they were in the streets. The administration, after
    hearing from your very efficient staff people, realized that
    this was not the time to continue to pursue the notion that it
    would be better to have military people fighting fires than
    fighting students in the street. Perhaps that was a motivation
    behind the original request, that if we can get the military
    focusing on issues that would help the general welfare of the
    country, then it might be better to divert them into the forest
    fire fighting area.
        Senator McConnell. During the first week of May, your
    Indonesia mission director and the deputy in your Asia bureau
    briefed the subcommittee staff and indicated that the only new
    initiative under consideration at that point was funding for
    consultants implementing the IMF package. They were asked to
    provide details on the consultants, which we have not seen.
    What is the status of implementation of the IMF reforms and
    hiring more consultants? Is that in a state of suspension, or
    just what?
        Mr. Atwood. Yes, sir; it has been. This is the $23 million
    package that I mentioned before. We did send one-half dozen
    people over right away, after that package was negotiated,
    within 2 weeks. Then, however, Suharto fell and the whole IMF
    program was put under suspension, and it has been redrafted and
    represented now. We will see whether or not the original
    consultants are appropriate for the new program. Certainly, the
    reason we have not provided you with that is because everything
    has been in suspension. We would certainly be happy to provide
    you with all of that information.
        [The information follows:]

                               IMF Reform Package

        The IMF reform package can be divided into a series of
    major topics for action, which include: (1) resolution of the
    banking and finance crisis; (2) restoration of macroeconomic
    stability through reforms in fiscal and monetary policy: (3)
    structural reforms designed to strengthen the efficiency of the
    domestic economy by: increasing transparency, removing barriers
    to competition and, removing opportunities for corruption; and
    (4) improvements in the legal/regulatory structure designed to
    support the entire reform program.
        USAID/Indonesia is providing technical assistance in
    support of all of these areas, and will continue to expand its
    work, as shown below. These efforts are being undertaken in
    close coordination with other donors, particularly the major
    international financial organizations who are playing a leading
    policy and financing role in the reform efforts now underway,
    namely the IMF, the World Bank, and the Asian Development Bank.
        Banking and Finance.--To date USAID has provided short-term
    experts to support bank restructuring, including the closure of
    some of the most troubled banks in the system, and the
    development of pricing models for use by the private debt
    repayment facility known as INDRA. Long-term technical services
    are being arranged to support the work of the Indonesian Bank
    Restructuring Agency (IBRA) and its Asset Management Unit, and
    Bank Indonesia's bank supervision unit.
        Macroeconomic Policy Reform.--USAID is providing long-term
    technical support to the Government of Indonesia to improve its
    understanding of the impact of the crisis on the public budget
    and in adjusting its fiscal policy to meet prevailing crisis
    conditions. USAID has financed short-term services to
    strengthen monetary policy at the central bank, launch the
    first direct open market sale of bonds by Bank Indonesia, and
    to strengthen Bank Indonesia's understanding of inflation and
    demand for money. We are arranging to supplement this work by
    provision of a long-term advisor to Bank Indonesia who will
    focus on monetary and exchange rate policy issues.
        Structural Policy Reform.--USAID is providing long-term
    technical support to the Government of Indonesia to assist in
    the elimination of barriers to domestic economic competition as
    specified in the IMF agreement such as inter-regional taxes,
    fees, and other restrictions on the free movement of raw
    materials and finished products. This includes work on vital
    items in the forestry sector such as logs and rattan. Long-term
    support is also being provided to assist Indonesia in meeting
    its obligations to the IMF to reduce tariff barriers, non-
    tariff barriers and export restrictions. Through a grant to the
    Asia Foundation, barriers to fair competition for small
    businesses are being investigated and proposals for policy
    reform are being made to the Government of Indonesia. Not only
    do these actions improve economic efficiency and performance;
    they also will eliminate many of the most significant
    opportunities for corrupt practices. USAID is moving to further
    support fair competition for small and micro-businesses by
    providing a long-term expert on small business finance policy
    to Bank Indonesia, and a long-term specialist who will work
    with the GOI on small business development policy. The work on
    strengthening the general domestic competitive environment will
    be supported by additional long-term advisors in the Planning
    Agency (BAPPENAS) and at the Ministry of Industry and Trade.
        Economic Law.--USAID is providing short-term support to
    Indonesia to revise or replace many of its laws which are
    critical to the success of the IMF reform package and the
    efficient operation of the Indonesian economy. These laws
    include: bankruptcy, secured transactions (a system of
    registration of loan collateral), competition law, and
    arbitration. Arrangements are being made to continue this
    short-term support and to provide an additional long-term
    advisor to the Ministry of Justice to support this work.
        Other Actions.--Indonesia is now taking steps to move
    toward a more democratic form of governance. Not only is there
    need for greater fairness and transparency on the part of
    government, as embodied in the IMF-sponsored reforms; there is
    also greater need for involvement of non-governmental actors in
    the development of public policy. USAID is therefore organizing
    a series of partnerships between U.S. and Indonesian
    universities, think tanks and research organizations designed
    to strengthen the ability of Indonesian non-governmental
    institutions to participate in an informed manner in economic
    policy debates and in shaping the future structure of the
    Indonesian economy. Greater public participation in such
    debates will not only strengthen the economic policy framework
    of the country, it will also contribute to improved governance.
    The first four grants under this partnership arrangement are
    expected to be made by the end of September if not earlier.

                                    Mission

        Senator McConnell. You have not decided what the
    consultants will be doing and how much it will cost?
        Mr. Atwood. I think most of it, yes, we have identified the
    government ministries where they would be working and the
    banks, the central bank, and the like. For the most part, I
    think it is not going to change the location, but their mission
    will undoubtedly change, which means that we will have to
    redraft their terms of reference.
        Senator McConnell. Senator Leahy.
        Senator Leahy. Thank you, Mr. Chairman.
        We have talked about the budget allocation, the fact that
    it is significantly below the 1998 level. You discuss it, of
    course, in your written testimony. Is there some kind of a
    strategy the administration has in working with Congress on
    this?
        Mr. Atwood. Yes; I am sure there is, Senator, but it has
    not been successful to date. I think it is very, very important
    that we call attention to the 150 account. I have a great deal
    of respect for Senator Stevens, since I worked here in the
    Senate. He was a good friend of my boss, Senator Eagleton, at
    the time. I know he is a fair man. But I know it is necessary
    to cut budgets in the 302(b) allocation process, but to cut the
    150 account, which is really our national security and our
    foreign policy, is a very serious matter. I think even if the
    outlay issue that has come up which I think was not fully
    understood initially, what the impact would be on the budget,
    to reduce below 1998 levels the budget authority for this
    particular foreign operations budget is very, very serious
    business in terms of our ability to influence all of these
    crises that are going on around the world.
        Senator Leahy. That is why I asked about the strategy and
    why I would hope that the administration will take time to
    share it with some of us up here prior to the final
    appropriations bill being signed into law. I would suggest to
    the people at the White House, the State Department, and
    elsewhere, that it would be a nice change in procedure and
    might actually help them in getting their budget through.
    Because if we have the best circumstances, that is probably a
    freeze at the current level of $12.8 billion. If you have a
    3.6-percent cut from fiscal year 1998, that is a budget of
    $12.6 billion. If you get no relief, then you have to cut AID
    operating budgets by as much as 20 percent. Let's take the 20
    percent, what does that mean? What would get cut?

                                closing Missions

        Mr. Atwood. Well, back to give you some idea, I mean, we
    would obviously have to close more missions, but it takes about
    3 years before you an recoup the benefits of closing missions.
    Initially, it costs money to close missions overseas. You have
    to buy out the contracts of your FSN's, pay severance pay, buy
    out rental agreements and everything else. It costs a good deal
    of money, and it takes about 3 years before you realize the
    benefits. The reason that our OE budget has been going down
    steadily is because we have closed 28 missions overseas. That
    is the only way we could do it.
        To be hit with a 20-percent cut in 1 year would mean--I do
    not know how we would handle it. We have a dilemma there. When
    this was proposed in fiscal 1996, when we had such a severe
    cut, GAO did a study and indicated that we simply would have to
    close our doors if we were cut below a certain level. I believe
    it was $465 million at that point. That was before we had the
    reduction in force. It is that kind of severity that would
    really mean tripling----
        Senator Leahy. The reduction in force was about 160
    employees, was it not?
        Mr. Atwood. It was 164 to be exact, yes, Senator.
        Senator Leahy. Well, on top of the new management system
    and going into a new building which cost more.
        Mr. Atwood. Yes; that is right.
        Senator Leahy. What is the level of morale now as compared
    to what it was before you had the RIF, the new building, the
    new management system, and so on?
        Mr. Atwood. Well, I think----
        Senator Leahy. Everybody is sitting behind you listening.

                                     Morale

        Mr. Atwood. I realize that. I think actually, Senator, the
    morale has come back very well after the reduction in force,
    which has got to be a low point in the history of USAID. It was
    the first time that that had been done in over 20 years. If we
    had not done it, frankly, we would be in a lot worse shape
    today. We would have had to have had a much deeper RIF. We had
    to do it, and we had to do it quickly. Because if you do not
    get people off the rolls, then you have more expenses later and
    it would have been worse. The new management system was simply
    something we had to do to be compliant with the law. Our
    financial management systems need to be straightened out, but
    we think we are on the right track there.
        Moving into the new building is simply something, again, we
    had to do because the State Department was going to renovate
    the portion of the building that we were in and we were in 11
    different buildings with commercial rates going up, up, up. We
    are now at least in a much more predictable situation being in
    the Ronald Reagan Building, which is a Government building, and
    where the rental rates are predictable at least.
        Senator Leahy. Well, let us talk about the NMS, the new
    management system. It cost money to get it going. You are
    saying it is not working yet?
        Mr. Atwood. No; it is working. We are actually using it. It
    has a software coding error rate in the financial portion of
    the system that is too high, and we are going to have to make
    fixes there.
        Senator Leahy. How much has it cost so far to get where it
    is?

                               Year 2000 problem

        Mr. Atwood. We have spent $84 million on it to date and we
    have four modules, three of which are working reasonably well
    and two of which are working overseas. The financial module has
    got a software coding error rate of about 25 percent, which is
    unacceptable. We are going to have to correct that, and, of
    course, modify all of our systems for the year 2000 problem.
        Senator Leahy. When do you expect the system to be fully
    operational?
        Mr. Atwood. Fully operational? It depends on how you define
    that. We think it is operational now. We want to correct the
    problems that exist. Whether we can provide timely, accurate,
    and complete reports so that we can have better information
    about our pipeline, we believe we can do that by the year
    fiscal 2000.
        Senator Leahy. If it is a new system, why does it have a
    year 2000 problem?
        Mr. Atwood. It has made all of the provisions for the year
    2000 issue. All of the references to years in that system are
    on the four digit basis, and simply that is not the problem
    that we have with the year 2000. We have six critical corporate
    systems that need the year 2000 repair. We have indicated to
    OMB our schedule for making those repairs; they are satisfied
    with that. We have just announced a new contract with Computer
    Sciences Corp. that will be working with us on a 5-year basis
    to fix all of these problems.
        Senator Leahy. Yes; on top of the $84 million already
    spent.
        Mr. Atwood. Well, the $84 million has produced a better
    system than we had when we started, Senator. That is not the
    problem.
        Senator Leahy. It does not sound it. I mean, you have got
    25--well, what was your error rate before? You have got a 25-
    percent error rate now. What was it before?
        Mr. Atwood. Well, we did not even have a system before. I
    mean, we had a multitude of systems and we were spending as
    much money as we are spending on this new system every year for
    about 50-plus systems. It simply was unacceptable for a modern
    agency to operate that way, so we had to make the effort to do
    this. We, clearly, tried to push this much too fast to get it
    into operation, which is why we have the software coding error
    rate problem that we have.
        I certainly concede that that was a problem, but we do have
    a better system now than we had in 1993 when we started. It is
    not acceptable. We need to improve it, and we will. We did not
    have--in those days, there were no commercial, off-the-shelf
    alternatives. We had to try to build this in house. We are not
    a software company. We are not obviously talented in that
    direction. I think we have learned more about our weaknesses in
    the last 5 years.
        Senator Leahy. Do not feel bad about that. The U.S. Senate
    touts what they have done. They are up to about 1980 and
    closing fast on 1983. You know, it is a place where they
    finally get around to putting a computer in your office and
    they charge you full price for what it, but it has been
    obsolete for 6 years. You could spend millions and millions of
    dollars to put fiberoptics through the walls and then end up
    feeding it all into something that is so antiquated everything
    comes to a stop. Maybe we never should have let the Government
    get involved with this.
        Mr. Atwood. I would be happy to consult with you.
        Senator Leahy. The Senate has probably done as bad a job as
    anybody in the country in getting a working computer system in
    place. I have often suggested they fire everybody and hire a
    couple of smart 12 year olds and we would save a lot of money.

                              Infectious diseases

        One area, infectious disease, and I know you have worked
    very hard on this as have Nils Daulaire, Dennis Carroll, and
    others, trying to put together a U.S. strategy on infectious
    diseases. It is something that has been a great interest of
    mine. I think we have made some good progress since last year,
    but it is a multiyear effort. This year the President has
    requested a $48 million cut in the ``Child survival and
    diseases'' account, which includes the funding for the
    infectious disease strategy.
        Let us assume we gave you at least the same amount of
    funding for these programs as last year. Can you use that
    effectively?
        Mr. Atwood. You gave us a good head start last year, and I
    think we have developed a good strategy. We believe we can
    maintain the same level of impact with the budget request that
    we have made. Obviously, we can use it. Then the question
    becomes, Where does it come from? I mean, in light of the kind
    of budget cuts that we are seeing here, it is a problem.
        Senator Leahy. Well, my question is if you get it, could
    you use it effectively?
        Mr. Atwood. I think we have demonstrated that, Senator, in
    terms of the way we put the strategy together.
        Senator Leahy. I realize it is a zero sum game. If you give
    something to one, you take it from someone else. Let us go to
    microcredit. AID and the Congress have supported microcredit
    programs. In 1994, AID set the goal that by 1996 one-half of
    all AID microcredit funding would be directed to the poorest
    people for loans of under $300. AID did not meet that target.
    In 1996, a percentage of the funds going to the poorest people
    was 38 percent. We want at least 50 percent of the funds spent
    on the poorest people. Can AID reach that point?
        Mr. Atwood. Yes; I believe we can. To the extent that that
    is relevant, to the extent that the $300 goal is relevant. We
    are spending money on our microenterprise programs also to
    support the institutionalization of microcredit programs in
    other places, helping governments to set the right policy
    environment so that they can create the kind of banks that
    would do this kind of lending.
        Every year because of the interest that is collected on the
    loans that we provide we are adding to the amount of capital
    that is available for poor people. We cannot under the rules
    count that as aid to poor people, but it is, in fact, aid to
    poor people. I really believe that our program has been very
    successful, and that if you take away the support that we have
    to provide to run the program and these policy aspects of the
    program, that over 50 percent of what we actually loan does go
    to poor people and over 50 percent is under $300.
        Senator Leahy. I am going to have further questions for the
    record. I see Senator Bennett here, and I do not want to take
    up his time. I am going to have one on IFAD that I would like
    you to take a very close look at and I will put the rest in the
    record.
        Senator McConnell. Thank you, Senator Leahy. I appreciate
    that. If we have anybody in the Senate who understands the year
    2000 problem, it is the distinguished Senator from Utah who is
    with us today. Now I yield to him.
        Senator Bennett. Thank you, Mr. Chairman. I will surprise
    you by not asking about year 2000 in this instance.
        I will just comment, Mr. Atwood, your description of your
    problems--changing your systems, moving to a new system and
    then running into the year 2000 problem on top of it--is very,
    very typical. I can list a whole series of organizations who
    have had the same kinds of problems. Do not beat yourself up
    too badly for saying, ``Gee, we did not do it right.'' I know
    very, very few people who have been able to do it right. It
    just seems to be the nature of the beast to create the kinds of
    difficulties you have run into.
        I want to switch to another area which I understand has not
    been talked about. I think perhaps I can also qualify as one of
    the strongest Members of the Senate in support of microcredit.
    I would like to find out what the impact of the Glenn sanctions
    have with respect to India and Pakistan on microcredit in those
    two countries.

                            Humanitarian exceptions

        Mr. Atwood. As yet to be determined, Senator. As you know,
    there are humanitarian exceptions to the program. We have
    submitted some suggestions as to what would qualify as
    humanitarian to the administration, to the President, to make
    decisions on this matter. He has not made those decisions yet.
    Once a program under the Glenn amendment is determined to be
    ineligible for the exceptions that are listed, the humanitarian
    exception in this case, and you basically cut it, it is cut
    forever unless the law is changed. It is a pretty rigid
    standard, so we are struggling with this issue of defining what
    would qualify as humanitarian.
        Senator Bennett. Let us talk about both India and Pakistan
    under the Glenn sanctions and go beyond microcredit. What
    programs do you have going in those countries which under the
    sanctions you are going to have to cut? What is the total
    dollar amount? And, will that money in anyway be available to
    alleviate some of your budget pressures in other areas?
        Mr. Atwood. Yes; we have programs, first, in India that are
    in the family planning area in the state of Uttar Praddesh, a
    very large program there. Obviously, there is a question as to
    whether that qualifies as a humanitarian program. My own belief
    is that it does because it is helping women and families and
    children. We have a title II food aid program of about $91
    million in India. Obviously, I think that is a humanitarian
    program. It feeds 6 or 7 million of the poorest women and
    children in the world. The program to counter the AIDS epidemic
    in one of the southern states of India is a humanitarian
    program in my opinion.
        Again, it is not only lawyers, but it is policymakers that
    have to look at these questions to make these determinations. I
    think clearly there are programs that would not qualify. We
    have been doing a good job, I think, in trying to help the
    Indians create a stock market and a regulatory system in
    Bombay. One of the needs of this country is to attract foreign
    investment. When you have a stock market that people have some
    confidence in, indirect foreign investment is much more likely.
    I cannot imagine that that will qualify as a humanitarian
    program.
        We also have a very large energy efficiency program in
    India. There is an exception written in the appropriations act
    that any program that would contribute to the lowering of
    greenhouse gas emissions would be excepted from provisions of
    law otherwise barring that aid. Again, we have suspended that
    program and all programs right now in India awaiting a decision
    as to what would qualify under these exceptions.
        In terms of Pakistan, we terminated our bilateral program
    under the Pressler amendment in 1995. We have undertaken a 4-
    year, $9 million activity in Pakistan through a nongovernmental
    organization to improve basic education and strengthen
    literacy, to improve mother and child health, and to strengthen
    income generation opportunities especially for women. That
    program is, again, suspended until we can get a decision as to
    whether or not that would qualify as a humanitarian program.
        Senator Bennett. Do you have a dollar figure, total for
    India and Pakistan, the dollar amount that presumably is in
    your budget that might have to come out as a result of the
    Glenn sanctions? I do not need you to be exact. But, can you
    give me a ballpark figure as to how much money we are talking
    about?
        Mr. Atwood. We are talking--we are thinking that based on
    our, again, preliminary assessment and our recommendations
    within the administration that we would have to terminate $12
    million of development assistance funds for economic growth
    activities and approximately $9 million in housing guarantee
    authority in India. Again, that is under the assumption that
    the remaining part of what we are doing is humanitarian
    exception. In Pakistan, it is approximately $10 million we are
    spending. That would appear that that would qualify as a
    humanitarian exception.
        Senator Bennett. Do you have any plans for the Baltic
    States in the next fiscal year?
        Mr. Atwood. Yes; we still have programs in I believe two
    out of the three Baltic States. I do not have the details with
    me, but perhaps someone will come up with that before we are
    finished here. I will provide it for the record.
        Senator Bennett. Yes; they can furnish that for the record.
        Mr. Atwood. All right.
        [The information follows:]

        USAID's Fiscal Year 1999 Budget Request for the Baltic Republics

        USAID has on-going bilateral technical assistance programs
    in Latvia and Lithuania. In September 1996, Estonia became the
    first country to graduate from SEED Act assistance.
        Latvia.--Fiscal year 1998 will be the final year of funding
    for bilateral USAID programs in Latvia. Current programs in the
    areas of capital markets, collateral law, and energy are
    expected to end by Latvia's graduation date in September 1999.
        Lithuania.--Until Lithuania's expected graduation in fiscal
    year 2000, USAID's bilateral technical assistance programs will
    focus on economic restructuring and include activities in
    banking and capital markets reforms, bank supervision,
    privatization and enterprise restructuring. USAID assistance to
    the Bank of Lithuania will facilitate efforts to peg the
    country's currency, the Litas, to the Euro.
        Regional programs.--Funding for regional programs in energy
    as well as those implemented under the Baltic American
    Enterprise Fund and the Baltic American Partnership Fund will,
    however, continue in all three Baltic republics over the next
    several years.

                                     Haiti

        Senator Bennett. I have no further questions, Mr. Chairman.
    Thank you.
        Senator McConnell. Thank you, Senator Bennett. Mr. Atwood
    had a choice between coming up here today and going to the
    dentist, and I am sure he has decided he made the wrong
    decision. [Laughter.]
        We want to try to wrap up by 4 o'clock, but I do want to go
    to one more area of some controversy, Mr. Atwood, and that is
    Haiti. A recent news article pointed out that Haiti has
    received $1.4 billion in international aid in the last 4 years,
    and yet 80 percent of the rural population continues to live in
    abject poverty on less than $250 a year, the lowest per capita
    in the world. The article quoted a World Bank report which
    stated: ``The political crisis jeopardized foreign aid, delayed
    implementation of public sector reforms, derailed
    privatization, discouraged private sector investment, and
    ultimately aborted economic recovery.''
        Haiti's last prime minister resigned in June, and the
    parliament has rejected three of the president's candidates. I
    am interested in determining whether you can describe the state
    of play between the president and the party holding the
    majority known as the People's Organization of Struggle. And,
    can you explain why the administration has doubled the request
    for Haiti from $70 million to $140 million, given the fact that
    any objective analysis would suggest that all of our efforts
    there have been a total failure?
        Mr. Atwood. I would not accept the last statement.
        Senator McConnell. Why not?
        Mr. Atwood. I think there has been a lot of progress that
    has been made in Haiti. In fact, a good deal of progress in
    terms of privatization. We have been making progress in
    privatizing nine of the state enterprises there, the flour mill
    and the cement mill and there are different activities, the
    port, the telephone company, the airport. They have not
    privatized them yet, but the progress toward that is very
    significant. We have seen a great deal of change in the
    internal situation. There are still human rights abuses, but
    nowhere near what they were.
        We have set up a national police force that has 5,200
    members. We have trained 700 judges and prosecutors. Over 2.3
    million people are receiving health services through NGO
    programs there. Infant mortality rates have dropped by 25
    percent; 7,000 primary schoolteachers have been trained. Price
    controls have been abolished. The exchange rate has been
    liberalized.
        Illegal immigrants, the most significant thing I guess and
    the reason we got into this in the first place, are not
    flooding our shores and costing our Federal, State, and local
    governments millions of dollars. We were spending billions of
    dollars with a cordon of the Navy and Coast Guard ships trying
    to pick up people leaving that island before, and that is not
    happening any longer.
        It is not all a bad picture. But we are very upset, as you
    are, with the impasse, the political impasse, and the inability
    to name a prime minister. We have been working behind the
    scenes in trying to resolve that problem. We have made some
    progress. I do not think it would be wise for me to talk about
    it in an open hearing because there are some delicate
    agreements that have been reached. We hope that we will see
    that becoming public soon, at which time we will be able to
    reveal more of what we have been doing behind the scenes.
        The impasse which was precipitated by a controversial
    election, two senate seats in particular, and the role of the
    election commission down there has been very, very difficult,
    the struggle between two relatively new political parties in a
    very new democracy, people have not yet learned the art of
    compromise. It is a little bit like dealing with the Mexico
    City population issue here. It has not been easy to resolve
    that impasse. I have no excuses for that. I think it has been
    an embarrassment to the administration. It has certainly been
    an embarrassment to President Preval and to the Haitians as
    well because it has been holding up about 250 million dollars'
    worth of international financial institution support for that
    country. The poor people are suffering because the politicians
    in Port-au-Prince cannot reach agreement.
        Senator McConnell. Well, thank you very much, Mr. Atwood.
    It is not going to be an easy year, as we can all certainly
    agree. I appreciate your time, and we look forward to working
    with you in the coming months.
        Mr. Atwood. Thank you, Senator.

                              subcommittee recess

        Senator McConnell. That concludes our hearing. The
    subcommittee will stand in recess until 10:30 a.m., Tuesday,
    June 16, when we will receive testimony from the Secretary of
    State, the Honorable Madeleine Albright.
        [Whereupon, at 3:55 p.m., Tuesday, June 9, the subcommittee
    was recessed, to reconvene at 10:30 a.m., Tuesday, June 16.]

          FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS
                      APPROPRIATIONS FOR FISCAL YEAR 1999

                                  ----------

                             TUESDAY, JUNE 16, 1998

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:37 a.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Mitch McConnell (chairman)
    presiding.
        Present: Senators McConnell, Gregg, Bennett, Campbell,
    Stevens, Leahy, Lautenberg, Mikulski, and Murray.

                              DEPARTMENT OF STATE

                            Office of the Secretary

    STATEMENT OF HON. MADELEINE ALBRIGHT, SECRETARY OF
                STATE

                  opening remarks of senator mitch mc connell

        Senator McConnell. The hearing will come to order.
        We have excellent attendance this morning. We must have
    somebody of high rank before us.
        I would remind all the subcommittee members that it has
    been the tradition of this subcommittee for opening statements
    only to be made by the chairman and the ranking member, so that
    we can get on to our witnesses, and we will stick with that
    pattern. I expect Senator Leahy here shortly.
        Secretary Albright, much has changed since your appearance
    here last year; unfortunately, little for the better. There are
    a few bright, hopeful spots, such as the settlement in Ireland,
    but there are many more flash points challenging United States
    resolve, resources and interests. There are no shortages of
    difficulties. There are threats to political stability and
    security in Kosovo, Cambodia, Nagorno-Karabakh, Cyprus,
    Colombia, India, Pakistan, North Korea, Iraq, Iran, Indonesia,
    and Burma.
        The economies of Indonesia, Thailand, Korea, Burma, and
    Japan are in deep trouble, with the prospects of a devaluation
    in China more real and disturbing by the day. And now Russia
    has been added to the list of countries in economic peril.
        Let me comment on a few areas which I find especially
    troubling, both because of the serious impact of the problems
    and how the administration has chosen to respond. In our own
    backyard, I am concerned that Colombia is entering a dangerous
    period in which the future of a democratic government is very
    much at stake. The immediate threat is the emerging
    relationship between major narcotics traffickers and
    terrorists, which is compounded by the relationship between
    traffickers and well-armed, well-financed paramilitary
    organizations.
        There is clearly a crisis of leadership in Colombia. But,
    this problem seems to be exacerbated by ambiguities and
    inconsistencies in our policy. We cannot seem to decide who to
    support and what we should be doing from one day to the next.
    Is the target of U.S. aid traffickers, terrorists, both, or
    neither?
        Just as one example of the confusion, in January, the
    Department sent a letter supporting the acquisition of
    Blackhawk helicopters for the Colombian counternarcotics
    police. In May, a letter arrived reversing that decision.
    Without commenting on the merits of such a program, I can say
    that the decisionmaking process caused real alarm in the
    region, needlessly compromising confidence in our commitment.
        I am similarly mystified by our response to the crisis in
    India and Pakistan. Given the close relationship between the
    People's Republic of China [PRC], and Pakistan and, conversely,
    India's strained ties with both, I was surprised Beijing was
    not engaged in the effort to reduce tensions after New Delhi
    detonated.
        Similarly, I was disappointed in the decision to send a
    State Department team to Pakistan to discuss economic relief at
    a time when Islamabad was seized with the security implications
    of the threat. Pakistan's detonation may have been inevitable.
    However, they needed, and we apparently did not offer, any
    assurances that the United States would not let stand an Indian
    threat to Pakistan's existence.
        The circumstances seemed to call for a senior Defense
    Department representative clarifying our security interests in
    stability rather than an offer of potential economic relief. If
    there is good news about the detonations, it is the revival of
    interest in the pending emergency on the Korean Peninsula.
    After the blast, the prospects of two regional nuclear crises
    called attention to a North Korean letter threatening to
    withdraw from the agreed framework because the United States
    has failed to fulfill obligations to provide fuel.
        This accusation, this problem, is astonishing, since
    Congress not only fully funded the $30 million request for
    KEDO, but also provided an additional $10 million as a down
    payment to leverage contributions to cover $44 million in debt.
    What I find hard to understand is the fact that even if you
    solve the immediate shortfall, which will require using any
    number of special legal authorities, the administration has
    already determined that the $35 million request for 1999 is
    inadequate to meet the needs. When you are asking for a billion
    increase in the foreign aid budget, how can we come up short in
    this account?
        Korea is not the only Asian problem. In a hearing last
    week, I expressed my continued frustration with the
    administration's approach in Indonesia. No doubt you have heard
    reports, but let me offer one example of a relatively minor
    policy decision pushed specifically by the East Asia Bureau,
    which I consider counter to our long-term interests. As the
    military was engaged in an effort to repress Suharto's
    opponents, the administration requested $2 million to train the
    Army in firefighting tactics.
        Like Colombia, this decision was immediately reversed in
    the face of strong congressional opposition. Nonetheless, with
    urgent unmet humanitarian needs, this request sent a chilling
    message to democratic activists.
        While I welcomed your call for Suharto to step aside, there
    has been little since that message reflecting our commitment to
    accelerating the election timetable or for political or
    economic support for the opposition.
        We seem to be in similar drift with regard to the elections
    in Cambodia. There appears to be little stomach to call Hun
    Sen's bluff and support the democratic opposition's call to
    delay the elections, even though they are being denied full and
    free participation.
        The final region I want to discuss is perhaps the most
    widely and deeply afflicted with problems: Europe and the NIS.
    Most immediately, many are questioning whether we learned any
    lessons in Bosnia. From one day to the next, from one official
    to the next, we are sending very mixed messages to Milosevic,
    to Kosovo and to other key regional players. Your call for
    sanctions, followed by Ambassador Holbrooke's request for
    sanctions relief, followed by air exercises and threats of air
    raids--all while the Serbs gut yet another village--
    communicates confusion and yields to the savagery of more
    ethnic cleansing.
        While I questioned our major commitment of resources in
    Bosnia, I have no doubt of our interest in this area. I am
    convinced that the Bush administration got it right in Kosovo,
    with the 1992 Christmas warning to Serbia. As the President and
    Brent Scowcroft spelled out to Milosevic, the United States had
    and has clear interest in preventing the spread of this
    conflict. Milosevic understood the United States was willing to
    take unilateral military action if needed, to avoid a conflict
    with the potential to suck in Greece, Macedonia, Turkey, and
    Albania, and strike at the heart of NATO unity.
        But the Balkans are not the only serious European problem.
    For the past 5 years, Senator Leahy and I have called attention
    to the need to restructure, implement and enforce changes in
    the commercial, tax and banking systems in Russia. Each year,
    we have been assured that the billions of dollars in bilateral
    and multilateral aid were making this happen. Now, senior IMF
    officials are warning that Russia is on the brink of a full-
    fledged crisis. Spending excessively outpaces tax collection, a
    system crippled as we all know by corruption. The immediate
    risk of hyperinflation is real and requires urgent correction,
    not another bilateral bailout.
        I do not want to recite the many failed attempts Congress
    has made to attach conditions or constraints to aid to Russia.
    Not only are there severe immediate economic consequences to
    the administration's reluctance to challenge Moscow, I fear we
    will pay a heavy price in future security interests with the
    possibility of a nuclear-armed Iran. Every year, the
    administration has opposed our efforts to link aid to the end
    of Russia's transfer of nuclear technology and equipment to
    Iran. Every year, cooperation between Tehran and Moscow has
    expanded.
        Russia's neighbors also pay a price for our approach.
    Nowhere is this more evident than in Nagorno-Karabakh, where a
    consistent United States-led initiative could produce a
    breakthrough. Unfortunately, after extensive conversation with
    leaders in the region, it is clear to me that the Russians are
    not interested in a settlement. If we do not elevate this issue
    and proceed with or without the Russians or the Minsk Group, we
    compromise our interests in a coherent Caspian energy security
    policy.
        Speaking of energy, let me conclude with the observation
    that problems in the Persian Gulf and the Middle East remain
    contentious and potentially destabilizing. In this context, I
    was concerned by confusion recently generated over prospects of
    United States support for the costs of the next stages of
    Israeli redeployment. At a time when Israel has proposed the
    elimination of ESF, I am caught somewhat by surprise by
    representations that to secure an agreement the administration
    has suggested that we might be prepared to provide up to $1
    billion for redeployment. I hope these promises are not being
    made, because many people will be very disappointed.
        Secretary Albright, you have a full plate obviously. What
    concerns me, both as the chairman of the subcommittee and as a
    Senator deeply interested in the course of our Nation's foreign
    policy, is the preservation of American credibility and
    interests. That credibility is damaged by reversals,
    inconsistencies and inattention. Small as some decisions may
    seem in the global context, there is a cumulative and negative
    impact of the administration calling for sanctions in the face
    of Kosovo ethnic cleansing, then, 1 week later, reversing the
    decision; calling for Suharto to step down, but offering no
    meaningful followup or economic or political support to the
    opposition; and calling Iran a terrorist state, but failing to
    impose even the weakest of restrictions on Tehran or its
    nuclear partners in Moscow.
        Each decision contributes to creating an impression of
    American weakness and a sense of hollow diplomacy. There is a
    mismatch between rhetoric and real requirements, a disconnect
    between diplomacy and the credible threat and use of force. In
    an effort to get a crisis off the front page, there is an
    inevitable push toward expedient solutions. While this approach
    may relieve immediate pressure, it will only make your future
    tasks more difficult.
        You clearly have a sense of purpose and of the direction
    the country must go. In the face of the problems, shortfalls,
    reversals, and ambiguities I have reviewed, the question is:
    Who is following?

                               prepared statement

        Much is at stake. Much more is expected from you and your
    team in the months and years ahead. Unfortunately, you face
    more challenges with fewer resources. The hard-won increase in
    foreign assistance which you, Senator Leahy, Senator Stevens
    and I fought to secure last year has been unfortunately
    substantially reduced by the pressures of balancing the budget
    and other discretionary spending priorities. I am hopeful that
    by delaying our markup as late as possible, the subcommittee
    may benefit from unused budget authority and outlays, as well
    as the chairman's good judgment, generosity and shared
    commitment to the 150 account.
        [The statement follows:]

                 Prepared Statement of Senator Mitch McConnell

        Secretary Albright, much has changed since your appearance
    here last year, unfortunately, little for the better. There are
    a few bright, hopeful spots such as the settlement in Ireland,
    but there are many more flashpoints challenging U.S. resolve,
    resources and interests.
        There is no shortage of difficulties--there are threats to
    political stability and security in Kosova, Cambodia, Nagorno-
    Karabakh, Cyprus, Colombia, India, Pakistan, North Korea, Iraq,
    Iran, Indonesia and Burma. The economies of Indonesia,
    Thailand, Korea, Burma and Japan are in deep trouble with the
    prospects of a devaluation in China more real and disturbing by
    the day. And, now Russia has been added to the list of
    countries in economic peril.
        Let me comment on a few areas which I find especially
    troubling both because of the serious impact of the problems
    and how the Administration has chosen to respond.
        In our own back yard, I am concerned that Colombia is
    entering a dangerous period in which the future of a democratic
    government is very much at stake. The immediate threat is the
    emerging relationship between major narcotics traffickers and
    terrorists which is compounded by the relationship between
    traffickers and well armed, well financed paramilitary
    organizations. There is clearly a crisis of leadership in
    Colombia, but this problem seems to be exacerbated by
    ambiguities and inconsistencies in our policy. We can't seem to
    decide who to support and what we should be doing from one day
    to the next. Is the target of U.S. aid traffickers, terrorists,
    both or neither?
        Just as one example of the confusion, in January the
    Department sent a letter supporting the acquisition of
    Blackhawk helicopters for the Colombian counter-narcotics
    police. In May a letter arrived reversing that decision.
    Without commenting on the merits of such a program, I can say
    that the decision making process caused real alarm in the
    region, needlessly compromising confidence in our commitment.
        I was similarly mystified by our response to the crisis in
    India and Pakistan. Given the close relationship between the
    PRC and Pakistan and conversely India's strained ties with
    both, I was surprised Beijing was not engaged in the effort to
    reduce tensions after New Delhi detonated. Similarly, I was
    disappointed in the decision to send a State Department team to
    Pakistan to discuss economic relief at a time when Islamabad
    was seized with the security implications of the threat.
    Pakistan's detonation may have been inevitable, however they
    needed, and we did not offer, any assurances that the United
    States would not let stand an Indian threat to Pakistan's
    existence. The circumstances seemed to call for a senior
    defense department representative clarifying our security
    interests in stability rather than an offer of potential
    economic relief.
        If there is good news about the detonations, it is the
    revival of interest in the pending emergency on the Korean
    peninsula. After the blasts, the prospects of two regional
    nuclear crises called attention to a North Korean letter
    threatening to withdraw from the Agreed Framework because the
    United States has failed to fulfill obligations to provide
    fuel.
        This accusation--this problem--is astonishing since
    Congress not only fully funded the $30 million request for
    KEDO, but also provided an additional $10 million as a down
    payment to leverage contributions to cover $44 million in debt.
    What I find hard to understand is the fact that even if you
    solve the immediate shortfall which will require using any
    number of special legal authorities, the Administration has
    already determined that the $35 million request for 1999 is
    inadequate to meet needs. When you are asking for a $1 billion
    increase in the foreign aid budget, how can you come up short
    in this account?
        Korea is not the only Asian problem. In a hearing last week
    I expressed my continued frustration with the Administration's
    approach in Indonesia. No doubt you have heard reports, but let
    me offer one example of a relatively minor policy decision
    pushed specifically by the East Asia Bureau which I consider
    counter to our long term interests. As the military was engaged
    in an effort to repress Suharto's opponents, the Administration
    requested $2 million to train the army in firefighting tactics.
    Like Colombia, this decision was immediately reversed in the
    face of strong congressional opposition. Nonetheless, with
    urgent, unmet humanitarian needs, this request sent a chilling
    message to democratic activists. While I welcomed your call for
    Suharto to step aside, there has been little since that message
    reflecting our commitment to accelerating the election
    timetable or for political or economic support for the
    opposition.
        We seem to be in similar drift with regard to the elections
    in Cambodia. There appears to be little stomach to call Hun
    Sen's bluff and support the democratic opposition's call to
    delay the elections even though they are being denied full and
    free participation.
        The final region I want to discuss is perhaps the most
    widely and deeply afflicted with problems: Europe and the NIS.
    Most immediately, many are questioning whether we learned any
    lessons in Bosnia. From one day to the next, from one official
    to the next, we are sending very mixed messages to Milosevic,
    to Kosova, and to other key regional players. Your call for
    sanctions, followed by Ambassador Holbrooke's request for
    sanctions relief, followed by air exercises and threats of air
    raids--all while the Serbs gut yet another village--
    communicates confusion and yields to the savagery of more
    ethnic cleansing. While I questioned our major commitment of
    resources in Bosnia, I have no doubt of our interests in this
    area. I am convinced that the Bush Administration got it right
    in Kosova with the 1992 Christmas warning to Serbia. As the
    President and Brent Scowcroft spelled out to Milosevic, the
    United States had and has clear interests in preventing the
    spread of this conflict. Milosevic understood the U.S. was
    willing to take unilateral military action if needed to avoid a
    conflict with the potential to suck in Greece, Macedonia,
    Turkey and Albania and strike at the heart of NATO unity.
        But, the Balkans are not the only serious European problem.
    For the last five years, Senator Leahy and I have called
    attention to the need to restructure, implement and enforce
    changes in the commercial, tax and banking systems in Russia.
    Each year, we have been assured that the billions of dollars in
    bilateral and multilateral aid were making this happen. Now,
    senior IMF officials are warning Russia is on the brink of a
    full fledged crisis. Spending excessively outpaces tax
    collection, a system crippled by corruption. The immediate
    risks of hyperinflation are real and require urgent correction,
    not another bilateral bail-out.
        I do not want to recite the many failed attempts congress
    has made to attach conditions or constraints on aid to Russia.
    Not only are there severe immediate economic consequences to
    the Administration's reluctance to challenge Moscow, I fear we
    will pay a heavy price in future security interests with the
    possibility of a nuclear armed Iran. Every year the
    Administration has opposed our efforts to link aid to the end
    of Russia's transfer of nuclear technology and equipment to
    Iran; every year cooperation between Tehran-Moscow has
    expanded.
        Russia's neighbors also pay a price for our approach.
    Nowhere is this more evident than Nagorno-Karabakh where a
    consistent, U.S. led initiative could produce a break-through.
    Unfortunately, after extensive conversation with leaders in the
    region, it is clear to me that the Russians are not interested
    in a settlement. If we do not elevate this issue, and proceed
    with or without the Russians or the Minsk Group, we compromise
    our interests in a coherent Caspian energy security policy.
        Speaking of energy, let me conclude with the observation
    that problems in the Persian Gulf and the Middle East remain
    contentious and potentially destabilizing. In this context, I
    was concerned by confusion recently generated over prospects of
    U.S. support for the costs of the next stages of Israeli
    redeployment. At a time when Israel has proposed the
    elimination of ESF, I am caught somewhat by surprise by
    representations that to secure an agreement the Administration
    has suggested we are prepared to provide up to $1 billion for
    redeployment. I hope these promises are not being made because
    many people will be very disappointed.
        Secretary Albright, you have a full plate. What concerns me
    both as the Chairman of this subcommittee and as a senator
    deeply interested in the course of our nation's foreign policy
    is the preservation of American credibility and interests. That
    credibility is damaged by reversals, inconsistencies and
    inattention. Small as some decisions may seem in a global
    context, there is a cumulative and negative impact of the
    Administration calling for sanctions in the face of Kosova
    ethnic cleansing, then a week later reversing the decision;
    calling for Suharto to step down, but offering no meaningful
    follow up economic or political support to the opposition; and
    calling Iran a terrorist state but failing to impose even the
    weakest of restrictions on Tehran or its nuclear partners in
    Moscow.
        Each decision contributes to create an impression of
    American weakness, a sense of hollow diplomacy. There is a mis-
    match between rhetoric and real requirements--a disconnect
    between diplomacy and the credible threat and use of force. In
    an effort to get a crisis off the front page, there is an
    inevitable push toward expedient solutions. While this approach
    may relieve immediate pressure, it will only make your future
    tasks more difficult. You clearly have a sense of purpose and
    of the direction the country must go. In the face of the
    problems, shortfalls, reversals and ambiguities I have
    reviewed, the question is who is following?
        Much is at stake--much more is expected from you and your
    team in the months and years ahead. Unfortunately, you face
    more challenges with fewer resources. The hard won increase in
    foreign assistance which you, Senator Leahy, Senator Stevens
    and I fought to secure last year has been substantially reduced
    by the pressures of balancing the budget and other
    discretionary spending priorities. I am hopeful that by
    delaying our mark up as late as possible, the Subcommittee may
    benefit from unused budget authority and outlays as well as the
    Chairman's good judgment, generosity and shared commitment to
    the 150 account.

                  opening remarks of senator patrick j. leahy

        Senator McConnell. Let me now call on Senator Leahy.
        Senator Leahy. Thank you very much, Mr. Chairman.
        Madam Secretary, it is good to have you here and I hope you
    feel the same way. Because this subcommittee, both under the
    chairmanship of Senator McConnell and, prior to that, under my
    chairmanship, has been very supportive of the budget you are
    testifying about.
        Anyone who thought the world would become a calm and
    peaceful place after the cold war obviously does not think that
    any longer. There are major security challenges and crises
    today practically everywhere you look. And to your credit,
    Madam Secretary, you are one who, from the first day of your
    time as Secretary of State, warned us that could be the
    situation, just as you said so very clearly and very
    emphatically at the United Nations.
        Before we get to that, I do want to congratulate you on the
    vote to admit Poland, Hungary, and the Czech Republic to NATO.
    I know this was extremely important to you personally. You
    deserve a lot of credit for the overwhelming vote in the
    Senate.
        As you know, I reached a different conclusion, but I
    genuinely hope I am proven wrong, and that the decision to
    enlarge NATO turns out to be the right one. Now that we have
    voted for enlargement, now that it is the position of the
    United States, I believe the Congress should give both the
    administration and NATO strong support and that we are
    obligated to do everything possible to make it work.
        We have cast our vote on both sides of the issue, but now
    we should be united as a country and as a Congress in giving
    that support. And I, for one, will pledge to do that.
        Now, lately, you have been to Japan, China, South Korea,
    and Mongolia. You were in Ukraine a few months ago, in Africa
    before that. And then you spent an afternoon in Burlington, VT,
    which some people may think is a foreign country.
        Only the people in the eastern States, like New Hampshire,
    feel that way, I would say to my friend from New Hampshire.
        And I would thank you for that. Because the reaction of the
    people in Vermont, I think, in their questions to you, reflects
    the fact that, contrary to what some may think, most people in
    this country really do care what our foreign relations are and
    really do have strong opinions, and you found that. I think we
    are fortunate to have a Secretary of State who knows that a
    successful foreign policy needs the public's support.
        And while you can sit across the table from Foreign
    Minister Primakov or President Jiang Zemin and speak
    passionately and forcefully about the world as we want it to
    be, you also go out to the country and talk to those who make
    up this wonderful country and hear their views.
        But you only have to drive a mile from the State Department
    to find one of your most difficult and urgent challenges. It is
    not as dangerous as a nuclear arms race between Pakistan and
    India, or Russia selling nuclear technology to Iran, but it is
    just as deserving of your attention. Despite the strong
    bipartisan vote to enlarge NATO, the Congress has virtually
    ground to a halt over foreign policy.
        The impasse over family planning is only one aspect of it.
    It is at least as much a reflection of widely differing views
    about how the United States can best achieve its foreign policy
    goals and the appropriate role of the Congress in that process.
        Now, some of your predecessors made the fateful mistake of
    spending a lot of time building relations with foreign
    governments and trying to promote policies without first
    building the relationships and the support needed here. Then,
    when they needed Congress to back them up, the Congress was not
    willing to give them the political support or the resources
    they needed. Without that, you cannot do very much in foreign
    policy.
        Over the past 2 years, I believe you tried hard to avoid
    that trap. I think we have made real progress in reversing the
    decline in the foreign operations budget.
        But today I am afraid that we are on the verge of losing
    everything we have gained. You know as well as anyone that
    dealing with the Congress is not easy. Some here in this body
    and some in the House made commitments and then they broke
    them, like funding for the United Nations.
        I come from the old school that if you make a commitment
    you ought to stick with it. Some did not.
        Sometimes, no matter how hard you try, you cannot convince
    people to agree with you, even if it is in the national
    interest, especially if there are political points to be made
    by disagreeing.
        Last month, we received our 1999 budget allocation. In the
    best of circumstances, it amounts to a $200 million cut below
    the current level. Not only will you not get the increases the
    President requested, but many foreign operations programs,
    except for--or because of--the Middle East, will be cut
    sharply.
        I think that would be foolhardy, and it would nullify all
    that you, Chairman Stevens, Chairman McConnell, and I have done
    to protect this budget in the past year. And I would compliment
    Senator Stevens and Senator McConnell, who have put as their
    mantra and as their lode stone ``bipartisanship'' in trying to
    get this through.
        Your written testimony lays out an extremely ambitious
    foreign policy agenda. Frankly, I do not think a superpower can
    have it any other way. And I am one of those Americans who want
    us to be a superpower because of our democratic ideals. And I
    think that being able to promote those democratic ideals is the
    greatest way to have peace.

                               prepared statement

        I do not want to see the United States become Fortress
    America, and shirk from the rest of the world. I think for our
    children and our grandchildren, it is important that we
    maintain, and expand, our role in the world. But I urge you,
    during the coming weeks and months, to devote as much time as
    possible to our budget situation. Because, otherwise, we are
    not going to be able to do the things that a great nation
    should and can and will do if we have the tools to do it.
        Thank you, Mr. Chairman.
        Senator McConnell. Thank you, Senator Leahy.
        [The statement follows:]

                  Prepared Statement of Senator Patrick Leahy

        Madam Secretary, it is good to have you here.
        Anyone who thought the world would become a calm and
    peaceful place after the Cold War obviously does not think that
    any longer. There are major security challenges and crises
    today practically everywhere you look.
        But before we get to that I want to congratulate you on the
    vote to admit Poland, Hungary, and the Czech Republic to NATO.
    I know this was extremely important to you personally and you
    deserve a lot of the credit for it.
        As you know, I reached a different conclusion, but I
    genuinely hope I am proven wrong and that the decision to
    enlarge NATO turns out to have been the right one.
        You have been to Japan and China, South Korea and Mongolia.
    You were in Ukraine a few months ago, and Africa before that.
    And you spent an afternoon in Burlington, Vermont, which to
    some people here can seem like a foreign country.
        The American people are fortunate to have a Secretary of
    State who knows that a successful foreign policy needs the
    public's support, and who can sit across the table from Foreign
    Minister Primakov or President Jiang Zemin and speak
    passionately and forcefully about the world as we want it to
    be.
        That is the job of a Secretary of State. But you need only
    drive a mile from the State Department to find one of your most
    difficult and urgent challenges. It is not as dangerous as a
    nuclear arms race between Pakistan and India, or Russia selling
    nuclear technology to Iran. But it is no less deserving or in
    need of your attention.
        Despite the strong, bipartisan vote to enlarge NATO, the
    Congress has virtually ground to a halt over foreign policy.
    The impasse over family planning is only one aspect of it. It
    is at least as much a reflection of widely differing views
    about how the United States can best achieve its foreign policy
    goals and the appropriate role of Congress in that process.
        Some of your predecessors made the fateful mistake of
    spending a lot of time building relationships with foreign
    governments and trying to promote policies without first
    building the relationships and a base of support here.
        Then when they needed Congress to back them up the Congress
    was not willing to give them the political support or the
    resources they needed. Without those two things you cannot do
    much in foreign policy.
        Over the past two years you tried hard to avoid that trap,
    and together we made real progress in reversing the decline in
    the Foreign Operations budget.
        But today we are on the verge of losing everything we have
    gained. You know as well as anyone that dealing with the
    Congress is not easy. Some here made commitments and broke
    them, like funding for the United Nations.
        And sometimes no matter how hard you try you cannot
    convince people to agree with you even if it is in the national
    interest, especially if there are political points to be made
    by disagreeing.
        Last month we received our 1999 budget allocation, and in
    the best of circumstances it amounts to a $200 million cut
    below the current level. Not only will you not get any of the
    increases the President requested, but many Foreign Operations
    programs, except for--or because of--the Middle East, will be
    cut sharply.
        That would be foolhardy, and it would nullify all that you,
    Chairman Stevens, Senator McConnell and I have done to protect
    this budget in past years.
        Your written testimony lays out an extremely ambitious
    foreign policy agenda. I don't think a superpower can have it
    any other way. But I urge you during the coming weeks and
    months to devote as much time as possible to our budget
    situation, because otherwise you are not going to be able to do
    many of the things you need to do.

                  summary statement of hon. madeleine albright

        Senator McConnell. Thank you, Madam Secretary, for being
    here. I gather you have a lengthy statement. We will put that
    in the record, and I ask you to proceed with your oral
    presentation.
        Secretary Albright. Thank you very much, Mr. Chairman.
        I am very pleased to be here. I feel that both of your
    opening statements have raised many questions, which I will be
    happy to address. But I first thought that maybe I should give
    some of my oral statement.
        I want to thank you and the subcommittee for accommodating
    my schedule. I was supposed to testify last month, but talks on
    the Middle East intervened. And certainly the past 5 weeks have
    given us even more to talk about, as you have listed so
    eloquently. But they have not altered my fundamental mission in
    coming here, which is to ask for money. In so doing, I will be
    brief.
        You have my written statement, which is not so brief, and I
    hope that you will review it, nevertheless, because it covers
    many of the subjects that you have raised, and parts of the
    world I would not be able to include in my oral remarks and
    still honor your time for questions.

                         peace, prosperity, and freedom

        Mr. Chairman and members of the committee, we Americans
    want to live and we want our children to live in peace,
    prosperity, and freedom. But it is becoming increasingly clear
    that we cannot guarantee those blessings for ourselves if
    others do not have them as well.
        Events of the past few months, especially in South Asia,
    the Far East, the Balkans, and the gulf, illustrate the range
    of perils that exist as we approach the new century. I come to
    this subcommittee in search of the resources and tools we need
    to respond to those perils, and to seize opportunities for
    strengthening democracy, promoting open markets and upholding
    American values. I realize that this subcommittee has been a
    champion of adequate funding for international programs. I
    consider our work together and our cooperation a model in
    trying to achieve what we can for the American people. And I
    salute you for the help and the work that you do.
        However, this year, we have, together, been given an
    unacceptably low allocation, a full $900 million below the
    President's request. I hope very much that we can work together
    this year to adequately fund this account so that we can
    provide the kind of leadership our interests require and our
    citizens expect and deserve.
        Mr. Chairman, despite recent setbacks, the Middle East
    remains an area where U.S. leadership is both needed and
    desired. The current deadlock in the peace process endangers
    historic gains and threatens our own interests. And for that
    reason we have been working patiently to help Israelis and
    Palestinians overcome their crisis of confidence.
        During the past several months, we have sought to create an
    environment that would trigger accelerated permanent status
    negotiations. Chairman Arafat has accepted in principle our
    ideas for doing so, and we are now working with Prime Minister
    Netanyahu to see whether there is a way for Israel to accept
    them as well. I believe there is a possibility to reach
    agreement, and we will continue our efforts as long as we
    believe that Israelis and Palestinians are serious about doing
    so.
        As we persist in our diplomacy, I hope that we have this
    subcommittee's support for our request for assistance to our
    partners in peace, including Israel, Egypt, Jordan, and the
    areas under Palestinian self-rule. Your help will contribute to
    stability, while providing a foundation for future diplomatic
    efforts.
        In another long-troubled region, the Balkans, the cause of
    reconciliation is confronted simultaneously with new
    opportunities and resurgent danger. In Bosnia, serious
    challenges remain, but the prospects for an enduring peace have
    brightened. Our budget request, when combined with the larger
    amounts provided by our allies, will help keep Bosnia on the
    upward road to permanent peace, and will help ensure that when
    our Armed Forces do leave that country, they leave for good.
        Unfortunately, the outlook in Kosovo is far more clouded.
    There, Serb repression has spurred a cycle of violence that has
    caused great suffering and has the potential to draw
    neighboring countries into conflict. The United States has
    joined other leading nations in sending a strong message to
    President Milosevic. He must end the excessive use of force
    against civilians, enter a serious dialog with the leaders of
    the Albanian-Kosovar community, cooperate in the safe return of
    refugees, and take steps to see that the legitimate rights of
    all the people of Kosovo will be respected.
        To encourage a positive Serb response, NATO leaders have
    not ruled out the use of force if the violence in Kosovo
    continues. And yesterday we conducted air exercises.
    Contingency planning is underway.
        Obviously our strong preference is for a diplomatic outcome
    that restores peace and respects rights. We condemn acts of
    violence by all sides, including the Kosovar Liberation Army.
    But we must also oppose as strongly and effectively as we can
    the campaign of terror and depopulation being waged by Serb
    forces.
        As we look ahead, we know that the prospects for long-term
    peace in Europe depend, as well, on the success of democracy in
    the Baltics, Ukraine, Russia, the Caucasus, and Central Asia.
    For this reason, I strongly urge your support for SEED and for
    the Partnership for Freedom.
        These democracy-building, prosperity-creating, law-
    strengthening programs are blue chip investments. Already a
    number of countries have graduated and no longer need our aid.
    But the region is vast, and the dangers posed by criminals and
    backsliders are many.
        In Russia, we have a vital interest in seeing that nuclear
    weapons technology and expertise is controlled, not put up for
    sale. We need your help in funding these initiatives fully and
    flexibly, so that the forces of democracy may be bolstered and
    their enemies held at bay.
        Our efforts to promote lasting stability across Europe are
    mirrored in Asia, which I visited early last month. During that
    trip, I had the opportunity to sign an agreement creating
    important new defense cooperation arrangements with our close
    ally, Japan. I met with Korea's courageous new President Kim
    Dae Jung, who came to Washington last week.
        In that connection, let me emphasize the value of funding
    in full our contributions to the Korean Peninsula Energy
    Development Organization [KEDO]. Mr. Chairman, you have helped
    on KEDO funding before, and we will continue to work closely
    with the subcommittee on this. This is a line item that is
    truly vital to our national security and to the safety of a key
    ally.
        During my Asia trip, I also met with senior Chinese
    officials to prepare for the upcoming summit in Beijing. Now I
    know that some say that the President should not go to China.
    But I believe it is right for the leader of the world's
    greatest democracy to bring a message of democracy to the
    world's largest nation.
        While in Beijing, the President will have a chance to say
    things that the people of China cannot say and have not heard.
    And his presence in Tiananmen Square will ensure that the world
    does not forget, as it must not forget, the outrages
    perpetrated there.
        Moreover, the President's visit will create an opportunity
    to look to the future, a chance to make further progress in our
    relationship with China, to cooperate in halting the spread of
    nuclear weapons, to maintain stability on the Korean Peninsula,
    to coordinate in responding to the regional financial crisis,
    to join in fighting global threats, and to express our concern
    about freedom of religion, human rights, and Tibet.
        As I have said many times, Mr. Chairman, engagement is not
    endorsement. We continue to have sharp differences with China.
    But we are also developing more and more areas of common
    ground. And this is important to both countries, and vital to
    the future stability and prosperity of all Asia.
        In Indonesia, there is an opportunity now to move from an
    era of stability without freedom to an era of stability and
    freedom. The challenges, however, are great. They include
    economic recovery under very difficult circumstances, an end to
    ethnic intolerance and scapegoating, and the construction
    almost from scratch of genuinely representative institutions.
    At this difficult time, America's place is by the side of the
    Indonesian people. Accordingly, we will continue to provide
    humanitarian and development assistance, and aid to civil
    society. And we will continue to urge the authorities in
    Jakarta to make good on their pledge to open up the political
    process so that the future of Indonesia will be determined as
    it should be--by the people of Indonesia.
        In South Asia, our challenge, in partnership with others,
    is to minimize the adverse consequences to international
    security and peace of recent nuclear tests. During the past few
    days, we have seen a willingness both in New Delhi and
    Islamabad, to try to bring tensions under control, resume
    bilateral dialog and respond to international concerns. We
    welcome this, and urge both countries to resolve their
    differences peacefully and to avoid stumbling further into an
    arms race they cannot afford and might not survive.
        More broadly, we believe there are a number of steps we can
    take to renew the strength of the nuclear nonproliferation
    regime, and that it is very much in our security interest to do
    so. This morning, I want to highlight one step of particular
    importance. That is Senate approval of the Comprehensive Test
    Ban Treaty [CTBT]. Now, more than ever, it is important to get
    the CTBT's monitoring and detection system up and running, to
    reinforce the principle that nuclear testing is not acceptable,
    and to dissuade other countries from following India and
    Pakistan's example.
        Accordingly, I urge members of the subcommittee to
    encourage your colleagues on the Senate Foreign Relations
    Committee to schedule hearings on the CTBT, and to approve it
    as soon as possible. There could be no greater gift to the
    future.
        Mr. Chairman, our efforts to build security through
    democracy and greater participation in the global economy are
    also very much in evidence among our hemispheric neighbors and
    in Africa. In Santiago in April, the elected leaders of 34
    nations came together to support democracy and prosperity at
    the Summit of the Americas. Of course, one of the great
    challenges we face in this hemisphere is Haiti. As a champion
    of freedom, a neighbor and a friend, we have a compelling
    interest in helping Haitian democracy to succeed. That is why
    the President has proposed an increase in our assistance.
        Although the ongoing political stalemate is frustrating,
    Haiti is a place where every dollar of our aid helps people
    move a little further from their terror-ridden past and a
    little closer to the goal of true democracy. With the memories
    still fresh of thousands of immigrants fleeing to our shores,
    we know that helping Haiti is the smart thing to do. It is also
    the right thing to do.
        During his historic visit to Africa this past March,
    President Clinton issued an inspiring call for a new American
    partnership with the people of that continent. To launch our
    initiative, I urge the subcommittee's support for funds to
    build democracy, promote justice, spur investment, and create
    incentives in the form of debt relief for nations undertaking
    needed economic reforms.
        I also urge your support for the Africa Growth and
    Opportunity Act. This measure embodies our belief that trade,
    even more than aid, will prove the engine of African growth.
        Mr. Chairman, I began my statement this morning by saying
    that the purpose of our foreign policy is to help build a world
    that is increasingly peaceful, prosperous and free. As
    appropriators, you can help by approving the President's
    request for funds to respond to global problems.
        For example, you can help children and empower women by
    supporting the U.N. Development Program and UNICEF. You can
    help safeguard nuclear programs and materials worldwide by
    approving funds for the IAEA. You can promote the use of clean
    technologies by meeting our commitments to the Global
    Environment Fund. You can help protect our families by backing
    the President's request for funds to fight the war against
    international drug trafficking and crime. You can support our
    global demining initiative, which was inspired by Senator
    Leahy, and which aims to end the threat posed to civilians by
    land mines in every country on every continent by the end of
    the next decade.
        And, finally, you can renew your approval of funds to pay
    our share of financial backing to the International Monetary
    Fund [IMF]. These funds are critical to demonstrate American
    support for the IMF's effort to restore financial confidence
    and stability in East Asia, and to prevent the problems there
    from spreading to other regions. Because of the way the IMF is
    set up, these contributions will not cost U.S. taxpayers a
    dime, but they will help ensure the health of the global
    financial system in which America and your constituents have
    the largest stake.
        Unfortunately, through no fault of this subcommittee, the
    President's request both for the IMF and the United Nations
    have become embroiled in an unrelated disagreement over
    international family planning. I ask your help to resolve this
    deadlock on the basis of what is best for America and for our
    ability to promote U.S. interests. I urge you to vote yes on
    the IMF, without regard to any unrelated issue.
        Mr. Chairman, half a century ago, a democratic President
    and a Republican Congress worked together to help forge the
    institutions that have shaped our foreign policy and defined
    the history of our age--institutions that proved instrumental
    in the defense of freedom, the growth of prosperity, the defeat
    of Communism, and the confirmation of America's standing as the
    world's leading force for justice and law. Our predecessors
    were not prophets. But because they stood tall, they were
    perhaps able to see a little bit further into the future than
    others. And they had faith in our people and in the principles
    upon which our Nation was founded.

                               prepared statement

        Today we have a responsibility to honor their faith, to
    reject the temptation of complacency, and to assume, not with
    complaint, but welcome the leader's role established by our
    forbearers. Only by living up to the heritage of our past can
    we fulfill the promise of our future, and enter the new century
    free and respected, prosperous and at peace.
        Mr. Chairman and members of the subcommittee, I thank you
    very much, and I now will be very pleased to respond to your
    questions.
        Senator McConnell. Thank you, Madam Secretary.
        [The statement follows:]
                Prepared Statement of Hon. Madeleine K. Albright
        Mr. Chairman and members of the subcommittee, good morning. I am
    pleased to be here to seek your support for the President's request for
    funds for the foreign operations programs of the United States.
        I want to acknowledge at the outset that this Subcommittee and its
    members have been leaders in supporting a principled and purposeful
    U.S. foreign policy. We have not always agreed on all subjects, but the
    disagreements have almost always been on tactics, not 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.
        The budget request before you seeks to ensure that we have the
    foreign policy tools we need to sustain our leadership.
        It includes funds for programs that help us promote peace and
    maintain our security; safeguard our people from the continuing threat
    posed by weapons of mass destruction; build prosperity for Americans at
    home by opening new markets overseas; promote democratic values and
    strengthen democratic institutions; respond to the global threats of
    international terrorism, crime, drugs and pollution; and care for those
    who are in desperate need of humanitarian aid.
        Given the scope of American interests, the range of threats to our
    security, the connections between our prosperity and that of others,
    and America's role as a champion of freedom and defender of human
    rights, we need the full measure of U.S. influence and leadership at
    this critical time. I urge you to help us, as you have in the past, to
    obtain the resources we need to conduct our foreign policy in the way
    our interests demand and our citizens deserve.
        I would like to begin my discussion here this morning with our
    programs for maintaining the security and safety of our people.
                             i. peace and security
    The Middle East
        One region that is central to maintaining international security
    and peace is the crescent of land bridging Asia and Europe, including
    the Gulf and Middle East.
        Here, American policy is designed to strengthen the forces of
    peace, encourage regional economic integration, marginalize extremists,
    and defeat terror.
        In Iraq, our primary purpose remains what it has been since the
    Gulf War ended seven years ago. We are determined to prevent Saddam
    Hussein from ever again threatening Iraq's neighbors or the world. And
    we want to do all we can to ease the hardships faced by the Iraqi
    people as a result of his misrule.
        Since 1991, Iraq's path to renewed respectability has been open
    through compliance with all relevant Security Council resolutions. But
    in spite of the strong incentive provided by sanctions, Iraq has not
    been willing to take this road. Instead, its leaders have lied and
    concealed information, and harassed and blocked UN weapons inspectors.
    As a result, a journey that could have been completed in a matter of
    months remains far from finished. And Saddam's intransigence has
    deprived the Iraqi people of over $100 billion in oil revenue.
        Under its February agreement with the UN, Iraq is obliged to
    provide UN inspectors with full access to all sites, including those
    from which they were previously barred. To date inspections under this
    agreement have gone smoothly.
        But UNSCOM must continue to test Iraq's promises.
        The Security Council must be rigorous in judging Iraq's actions not
    according to some artificial timetable, but according to the quality of
    information received and actions taken.
        The United States will continue to insist on Iraqi cooperation that
    satisfies not just the letter, but the spirit of Security Council
    resolutions. And unless that occurs, sanctions will remain.
        And to keep a lid on Saddam's military options, we will continue to
    enforce the no-fly and no-drive zones.
        Although our military is returning to its prior force levels in the
    Gulf, our troops there remain strong, versatile, well led and well
    equipped. If the need should arise, they can and will be promptly
    reinforced. As always, the United States will not make a decision to
    take military action lightly, but we are prepared to do so if that is
    required to protect our interests and our friends.
        In the meantime, we will do all we can through the United Nations
    to ease the hardships faced by the Iraqi people.
        Across the border from Iraq in Iran, there are signs that popular
    support is building for a more open and less confrontational approach
    to the world. The United States would welcome that. An Iran that
    accepts and adheres to global norms on terrorism, proliferation and
    human rights could be a significant contributor to the security and
    prosperity of the entire region.
        Iran's President Khatemi has called for a dialogue between our two
    peoples. There is merit in this, for we have much to learn from each
    other. But the issues and deeds that have divided us these past two
    decades are not matters of respect between our two peoples, but matters
    of policy that ultimately must be addressed by governments.
        Elsewhere in the region, America's interests are best served when
    we help meet the challenge of building peace--for peace creates a
    climate friendly to economic growth and democracy, which leads, in
    turn, to greater stability. This is true, for example, in the Caucasus
    and Cyprus.
        It is also true in the Middle East, where we continue to strive
    with our Israeli, Palestinian and Arab partners to make progress
    towards a just, lasting and comprehensive peace.
        Unfortunately, the Arab-Israeli peace process remains stalled.
    Historic accomplishments and future hopes are both at risk.
        Indeed, the longer the present stalemate continues, the greater the
    chance the momentum that had been built in the direction of peace will
    snap back and begin to run in reverse. If that happens, we may see a
    future in the Middle East that mirrors the grim and conflict-ridden
    past. That would not be in the interest of the United States, our
    Israeli allies and friends, the Palestinians or anyone but the forces
    of extremism and terror.
        For that reason, the United States has been working patiently to
    help Israelis and Palestinians overcome their crisis of confidence and
    put the process back on track.
        Over the past several months, we have sought to create an
    environment that would trigger accelerate permanent status
    negotiations. Chairman Arafat has accepted in principle our ideas for
    doing so. We are now working with Prime Minister Netanyahu to see
    whether there is a way for Israel to accept them as well.
        I believe there is a possibility to reach agreement, and we will
    continue our efforts as long as we believe that Israelis and
    Palestinians are serious about doing so.
        At the same time, we cannot make the parties agree. Nor would it be
    appropriate for us to try. For just as the credit for opportunities
    opened by peace would belong to Israeli and Palestinian leaders, so
    would responsibility for the consequences of failure rest with those
    who make progress towards peace impossible to achieve.
        As we continue our diplomatic efforts, I hope that I can count on
    your support to fund the programs that help make the peace process
    possible, such as our requests for Economic Support Funds and Foreign
    Military Financing to our partners in peace--Israel, Egypt, Jordan and
    the areas under Palestinian self-rule.
        We have requested that aggregate assistance for the region remain
    at the same level as in previous years. Within that total, I hope we
    can work together to find appropriate funding for all our concerns in
    the Middle East.
        Over the years, the level of assistance provided to this region has
    been the subject of increasing scrutiny as foreign aid budgets have
    decreased and dollars are more carefully allocated than ever. We
    welcome the initiative of the Israeli Government in beginning
    discussions with the Executive Branch and Congress on a gradual
    reduction, and eventual phase-out, of economic support funds, coupled
    with a proposed increase in military assistance. I look forward to
    working closely with you as we move discussions forward on this
    subject.
    Europe
        In Europe, we have two strategic goals. We work with our allies and
    partners across the Atlantic to respond to the global challenges no
    nation can meet alone. And we work together to build a Europe that is
    itself peaceful, undivided and free.
        The Senate's vote this spring to enlarge and strengthen NATO has
    sent a message to our old and new allies that America will continue to
    defend its interest in the peace and security of Europe. It has made it
    clear to Europe's new democracies that we are not going to treat them
    as second-class citizens in the future simply because they were
    subjugated in the past. And it is a resounding bipartisan signal that
    America will defend its values, protect its interests, stand by its
    allies, and keep its word.
        I congratulate members of this Subcommittee for their roles in this
    historic decision, whether as supporters or as thoughtful skeptics who
    demanded that hard questions get sound answers.
        In the quest for a peaceful, undivided Europe, our efforts in
    support of the peace process in Northern Ireland also have borne fruit.
    The ``Good Friday'' agreement, approved by sizeable majorities in the
    North and South last month, marks a turning point in the history of
    that troubled province.
        I thank this Subcommittee for its support for the annual U.S.
    contribution to the International Fund for Ireland, which serves as a
    tangible expression of our support for peace in Northern Ireland.
        Two years ago, also in support of a Europe at peace, the United
    States led the effort to stop the war in Bosnia. We recognized that it
    did not serve American interests to see aggression undeterred, hatred
    unleashed, and genocide unchecked and unpunished in the heart of
    Europe. Now, we must finish what we started and continue helping the
    parties to implement the Dayton Accords.
        Bosnia today remains deeply divided. But multi-ethnic institutions
    are once again beginning to function. Economic growth is accelerating.
    Air and train links are being restored. Despite troubling violence,
    more refugees are returning. And more indicted war criminals are facing
    trial. Since I appeared before this Subcommittee last year--and with
    your strong support for our renewed emphasis on apprehending war
    criminals--more than 30 people indicted as war criminals have
    surrendered or been turned over to the International Criminal Tribunal
    for the former Yugoslavia in The Hague.
        Perhaps most importantly, a new Bosnian Serb government has turned
    its commitment to implementing Dayton into action--encouraging minority
    returns, enacting a program of privatization, taking an active part in
    Bosnia's national institutions.
        We must make good on our pledge to support the new Bosnian Serb
    leaders as they work toward these goals. That is why I have waived
    restrictions on our assistance to help rebuild infrastructure and
    revitalize private business--when and where Serbs are ready to work
    with their neighbors.
        Our aid to Serb regions--as to others--is strictly conditioned on
    progress in implementing Dayton. It will support those who seek to
    build peace, not those who would undermine it.
        Overall, we are requesting $225 million for Bosnia in fiscal year
    1999, primarily from the Support for Eastern European Democracy (SEED)
    program. These resources will support economic reconstruction,
    humanitarian assistance, democratic development, and physical
    rebuilding, as well as U.S. police monitors and reform of Bosnian
    police forces. These programs are designed to continue and make
    irreversible the progress that Bosnian communities are finally
    beginning to see.
        The United States should continue to play an appropriate role in
    Bosnia as long as our help is needed, our allies and friends do their
    share, and most importantly, the Bosnian people are striving to help
    themselves. That is the right thing to do. And it is the smart thing--
    for it is the only way to ensure that when our troops do leave Bosnia,
    they leave for good.
        Today, the international community faces a second challenge in the
    Balkans--preventing the escalation of violence and helping the parties
    find the path to peace in Kosovo.
        There, Serb repression has spurred a cycle of violence that has
    killed hundreds of civilians, left dozens of villages in ruins, and
    sent thousands of refugees into neighboring Albania and the Former
    Yugoslav Republic of Macedonia. Without international involvement, Mr.
    Chairman, there is no natural endpoint to the conflict unleashed by
    President Milosevic. There is a growing risk that fighting will spill
    across the border and draw in neighboring countries.
        Last Friday, in London, leading nations agreed on a strong message
    to President Milosevic to cease his brutal and provocative military
    campaign; enter a serious dialogue with leaders of the Kosovar Albanian
    community; and take steps to see that the legitimate rights of all the
    people of Kosovo will be respected.
        To encourage a positive Serb response, NATO leaders, including the
    United States, have not ruled out the use of force if the violence in
    Kosovo continues. In preparation, the alliance has decided to move
    forward with air exercises in Albania and the FYROM. Further
    contingency planning is underway. The United States would strongly
    prefer a diplomatic outcome that restores peace to Kosovo based on
    respect for the rights of all. We condemn acts of violence by all
    sides, including the Kosovar Liberation Army. But we must also oppose
    as strongly and effectively as we can the campaign of terror and de-
    population being waged by Serb forces.
        The expansion of NATO and the effort to build and maintain peace in
    the Balkans are important parts of our effort to build a Europe that is
    wholly democratic and stable. But there are a number of other
    initiatives, as well.
        For example, we are encouraging integration among nations of the
    Nordic and Baltic region, and helping strengthen their ties with us,
    their neighbors, and European and transatlantic institutions.
        We strongly support the expansion of the EU into central and
    eastern Europe, and Turkey's desire to be part of that process.
        We are working hard to achieve a settlement in Cyprus that respects
    the rights and needs of both communities.
        We are putting in place a new Southeast Europe strategy to help
    integrate countries in that region into western institutions.
        We are leading the transformation of the OSCE into an organization
    that produces not just reports, but results. The funding we have
    requested for the OSCE helps support human rights and elections
    monitoring in Bosnia and Croatia; special arms control regimes across
    the former Yugoslavia; and conflict resolution missions elsewhere in
    eastern Europe.
        Finally, we are once again asking your help in funding the Support
    for East European Democracy (SEED) programs. As two more states,
    Hungary and Latvia, conclude their use of SEED programs this year, we
    are shifting our focus to the countries of southeastern Europe, whose
    political and economic transformations are more slow and uncertain. In
    addition to our efforts in Bosnia, we will be supporting economic
    stabilization in Bulgaria and Romania, to help reforms begun in good
    faith generate positive results. And we will be promoting regional
    partnerships to use the region's own resources to stimulate growth.
        Although a great deal of the world's attention has been focused
    elsewhere, Mr. Chairman, our efforts to build security and democracy
    continue in the New Independent States (NIS).
        We were pleased to see President Yeltsin's new Prime Minister,
    Sergei Kiriyenko, confirmed by the Duma in April and look forward to
    working with him to build on the past accomplishments of the U.S.-
    Russia Bilateral Commission.
        Unfortunately, Russia faces an even more difficult economic
    environment than it did just a year ago. The Asian financial crisis, a
    substantial decline in world oil prices and insufficient implementation
    of fiscal and other reforms have darkened the economic outlook
    considerably.
        President Clinton has made clear, as have our G-7 partners, that
    there should be additional, conditional support from international
    financial institutions in the context of a strong Russian reform
    program, if that support proves necessary.
        Meanwhile, the United States and Russia continue to work together
    on a broad range of issues from peace building in Bosnia to
    proliferation in South Asia to dealing with Saddam Hussein.
        During the many times I have seen Foreign Minister Primakov in
    recent weeks, I have raised American concerns about Russian cooperation
    with Iran's nuclear and missile programs, as well as related matters,
    including President Yeltsin's effort to gain Duma ratification of START
    II. And I have urged the Foreign Minister to recognize the depth and
    seriousness of American opposition to religious discrimination in
    Russia, and our concerns about Russia's new religion law.
        Mr. Chairman, we agree that an independent, democratic and
    prosperous Ukraine can be a keystone in the archway to the new Europe.
    Our efforts to build a strong relationship with Ukraine have led to
    better cooperation in the area of non-proliferation, including an
    express commitment by its government to cancel participation in the
    Bushehr nuclear reactor project.
        In April, I certified that Ukraine has made significant progress
    toward resolving the concerns of the dozen U.S. businesses that have
    faced extraordinary obstacles in operating and investing there.
        But this is by no means a clean bill of health. For as you know,
    Mr. Chairman, I was barely able to certify. And we are withholding a
    portion of our assistance to the Ukrainian government pending progress
    on reform.
        Ukraine's friends abroad and the international business community
    are watching closely. Ukraine has no margin for error. It is our strong
    hope that President Kuchma will demonstrate the leadership, and the new
    Rada the wisdom, to press ahead quickly with overdue reforms.
        Throughout the NIS, a great deal of work remains to be done to
    build stable democratic governments and functioning, transparent market
    economies. In this connection, the Administration continues to seek
    repeal of Section 907 of the Freedom Support Act. This would restore
    balance in our policy toward Azerbaijan and Armenia, and reinforce our
    role as an honest broker in the peace process.
        In the coming year, we will continue to promote peaceful solutions
    to regional disputes in the Caucasus. We will work to support and
    strengthen democratic institutions. And we will continue to foster
    regional cooperation in Caspian energy development and transportation
    infrastructure. I know these issues are of great interest to many in
    Congress, and I welcome your support in providing the tools we need to
    make progress.
        Our contributions to democracy building through the Partnership for
    Freedom will not re-make the region overnight, but they can help those
    in the region who are helping themselves to move in the right
    direction.
        For example, our support fosters economic development by
    encouraging investment in small businesses; promotes tax reform and
    transparent and effective regulation of industry; helps to build
    accountable democratic institutions; and fights the crime and illicit
    dealing that have shadowed emerging markets.
        We fund these NIS programs neither as a favor to governments in the
    region nor as a stamp of approval of all their policies, but because
    they serve American interests. And frankly, we need to do more. These
    priority programs were funded well below our request last year. So I
    urge you to back our full request for $925 million this year. And I ask
    that you grant the flexibility we need to support democratic and market
    reforms wherever in the region they flower--and whenever our support
    will best serve America's interests.
    Asia
        In Asia, we are working to maintain stability by solidifying our
    key alliances with Australia, Japan, the Republic of Korea, the
    Philippines and Thailand.
        I had the great pleasure of visiting Japan last month to reaffirm
    the strength and breadth of our bilateral relationship. The U.S.-Japan
    security alliance is a foundation of Asian stability. I took the
    opportunity, while in Tokyo, to express U.S. concerns about Japan's
    economic situation and the need for efforts to promote domestic-led
    growth and deregulation.
        I also had a chance in May to visit Korea, whose new President Kim
    Dae Jung was in Washington for a state visit just last week.
        During that visit, President Clinton made it clear that the United
    States remains committed to South Korea's security and supports
    President Kim's bold program of economic reform. We are also
    coordinating efforts to facilitate a lasting peace on the Korean
    Peninsula, to be achieved through a process of dialogue between North
    and South.
        Obviously, the past twelve months have been difficult for many
    parts of Asia. Our policy has been to promote economic and political
    reforms that are essential to prosperity and human dignity from Bangkok
    to Beijing.
        In Korea, the Philippines and Thailand, for example, democratic
    governments have made progress in overcoming the Asian economic crisis
    in part because their people were able to elect new governments, which
    started work in a climate of openness and trust, and with the moral
    legitimacy to call for shared sacrifice.
        Indonesia now has a chance to achieve both democracy and stability,
    but it also faces immense challenges--from restoring growth, to
    preserving religious tolerance, to building truly representative
    institutions.
        Democracy can only be built by the people of Indonesia. But what
    America says and does will matter, as it has in other critical periods
    in Indonesia's history.
        Our message is simple. America's interest lies not in who rules
    Indonesia, but in how that immense and important country is ruled:
    whether it ends up with a legitimate democratic government, or an
    unrepresentative, unaccountable and therefore unstable regime.
        The key is credible progress toward open, accountable government.
    Free elections must be held in a timeframe and under rules acceptable
    to the Indonesian people. Political parties and labor unions must be
    allowed to form. Press freedoms must be respected. Political prisoners
    must be released.
        America's interest also lies in standing by the Indonesian people
    now. We will continue to provide humanitarian and development
    assistance and aid to civil society. And if and when elections are
    held, we will stand ready to help in any way we can.
        As the world well knows, Mr. Chairman, President Clinton will leave
    next week for a visit to China.
        Although some have suggested that the President not make this trip,
    I cannot imagine anything more consistent with his responsibilities as
    President. For the President's purpose is to promote the security,
    political and economic interests of the United States and to bring to
    China a message of support for democracy, the rule of law and human
    rights.
        Although the space for political discussion in China has clearly
    expanded in recent times, the President will have the opportunity to
    say things that the people of China cannot say, and have not heard. And
    the President's presence in Tiananmen Square will ensure that the world
    does not forget, as it must not forget, the terrible suppression of
    peaceful political expression that occurred there.
        Moreover, the President's visit will create the chance for
    additional progress towards a more constructive overall relationship
    with China. Mr. Chairman, that process of engagement is not the same as
    endorsement. We continue to have sharp differences with China on human
    rights, Tibet and other issues, but we also believe that the best way
    to narrow those differences is to encourage China to become a full and
    responsible participant in the international system.
        Steps in the right direction include China's security cooperation
    on the Korean peninsula and very recently in South Asia, its commitment
    to strictly control nuclear exports, its assurances on nuclear
    cooperation with Iran, its continued economic liberalization, its
    positive role in responding to the East Asian economic crisis, its
    agreement to pursue cooperative activities with us to strengthen the
    rule of law, the release of Wei Jingsheng and the remarkable Wang Dan,
    and its announced intention to sign the International Covenant on Civil
    and Political Rights.
        In Cambodia, we are deeply engaged in a diplomatic effort to press
    the Government to hold free and fair elections in which all elements of
    the opposition can participate without fear of intimidation or threat.
        In Burma, we are deeply troubled by the military's regime's refusal
    to enter a dialogue with its democratic opposition, its continued
    repression of dissent, and by its ties to leading drug traffickers.
        I know that you are deeply concerned as well, Mr. Chairman. Indeed,
    it seems we are both members of the ``international colonialist gang''
    that the regime's propaganda machine loves to complain about, since we
    both believe that the Burmese people should have a say in running their
    country. I want to thank you for helping develop a range of measures to
    ensure that Burma's generals cannot realize their economic ambitions
    without heeding the aspirations of their people.
        As you know, Mr. Chairman we also have a small humanitarian aid
    program designed to help the Burmese people survive without helping
    their government endure. The people who receive our support realize
    that it comes from the friends of Burmese democracy abroad, not from
    the junta that is the cause of their suffering. Their needs are
    staggering; years of government neglect and denial, for example, have
    left Burma with the highest rate of AIDS infection in all of East Asia.
        Let me assure you, Mr. Chairman, that we will not move forward in
    this area--or in the area of counternarcotics--without consulting with
    the Congress. And any efforts we undertake will only be designed with
    the support and involvement of Burma's legitimate elected leaders.
    South Asia
        There is no question that the recent Indian and Pakistani nuclear
    tests endanger international security and peace and dealt a blow to the
    nuclear nonproliferation regime. Working with other members of the UN
    Security Council, the G-8, and nations from around the world, we are
    striving to minimize the adverse consequences of those ill-considered
    tests.
        During the past few days, we have seen a willingness in both New
    Delhi and Islamabad to try to bring their bilateral tensions under
    control, resume dialogue and begin to respond to international
    concerns. We welcome this and urge both countries to resolve their
    differences peacefully, and to avoid stumbling further into an arms
    race they cannot afford and might not survive.
        More specifically, we have called upon both countries to join the
    Comprehensive Test Ban Treaty (CTBT), without conditions; to stop
    producing fissile material; to refrain from deploying nuclear weapons
    and from testing or deploying missiles capable of delivering them; and
    to formalize their pledges not to export any materials or technology
    that could be used to build nuclear weapons.
        India and Pakistan should take such measures not as a favor to the
    world community, but because it is in the security interests of each to
    do so.
        And in considering their next steps, they should realize that the
    Non-Proliferation Treaty (NPT) will not be amended to include them as
    nuclear weapon states.
        This is fundamental--for the NPT is fundamental to nuclear
    nonproliferation. A generation ago it was predicted the world would
    have twenty to thirty nuclear states. No measure has done more than the
    NPT to prevent that. If we were to allow India and Pakistan to test
    their way to nuclear status under that agreement, we would create an
    incentive for others to follow their example.
        The nuclear tests in South Asia present us with an historic choice.
    Some now say that nuclear nonproliferation is doomed, and the sooner we
    accept that, the better off we'll be. The Clinton Administration does
    not share that view.
        We believe there are a number of steps we can take to renew the
    strength of the nonproliferation regime, and that it is very much in
    the security interests of America to do so. Last week, I outlined those
    measures in a speech sponsored by the Stimson Center, and I will not
    repeat that discussion now. I do, however, want to highlight one step
    of particular importance, and that is Senate approval of the CTBT. For
    despite the South Asia tests, the CTBT remains essential to our
    strategy to reduce the nuclear danger.
        This Treaty has been a goal of U.S. Presidents since Dwight
    Eisenhower and John Kennedy. If approved and enforced, it will arrest
    both the development and the spread of new and more dangerous weapons.
    It has been widely endorsed by our military and scientific leaders. And
    it has consistently commanded the support of no less than seventy
    percent of the American people.
        Now more than ever, it is important to get the CTBT's monitoring
    and detection system up and running; to reinforce the principle that
    nuclear testing is not acceptable, and to dissuade other countries from
    following India and Pakistan's example.
        Accordingly, I urge Members of the Subcommittee to encourage your
    colleagues on the Senate Foreign Relations Committee to schedule
    hearings on the CTBT, to examine its merits and to approve it as soon
    as possible.
    The Americas
        In our own hemisphere, we have important interests dictated not
    only by proximity of geography, but by proximity of values. As
    President Clinton said in April at the Santiago Summit, ``never have we
    had such an opportunity to build a true community of the Americas.''
        With one lonely exception, every government in the hemisphere is
    freely elected. Every major economy has liberalized its system for
    investment and trade. With war in Guatemala ended, Central America is
    at peace for the first time in decades. Ecuador and Peru have made real
    progress toward resolving their long-standing border dispute. From pole
    to pole, it would seem, our nations are determined to live in security
    and peace.
        But the region still faces serious challenges, which can affect us
    as well. For many, the dividends of economic reform are not yet
    visible, but the costs of accompanying austerity measures are. Growing
    populations put pressure on natural resources, spark large-scale
    migration, and make it harder to translate macroeconomic growth into
    higher standards of living. The building of democracy remains in all
    countries a work in progress, with stronger, more independent legal
    systems an urgent need in most. And narcotics trafficking and crime
    still tear at the fabric of our societies.
        In Santiago, President Clinton and the other 33 democratic leaders
    of our hemisphere set an agenda for meeting those challenges together.
    We agreed to boost investment in education as a foundation for success
    in the next century, and to fight poverty and discrimination to make
    sure that success is shared by all. We established new programs to
    protect freedom of the press, strengthen judicial systems, and improve
    local government--all pillars of the kind of strong democracies we want
    as our neighbors. And we agreed to work together to assess and improve
    our efforts in the war on drugs.
        Finally, we all reaffirmed our commitment to free and fair trade
    and economic integration. To reach that goal, we will soon begin
    negotiations for a Free Trade Area of the Americas. We also will do
    more to ensure that basic worker rights are secure throughout the
    hemisphere, so that prosperity for some does not come at the cost of
    suffering for others. And we will work together to develop clean energy
    sources and protect our environment as we grow.
        This new quality of partnership means that the United States is not
    supporting all these projects alone. Several South American countries
    have joined us as major donors for education, democracy and anti-
    poverty projects. Many nations from this hemisphere contribute to UN
    peacekeeping operations and play important roles in mediating regional
    conflicts.
        We can count on strong support from our neighbors--but where our
    interests are at stake, we cannot fail to lead.
        That is why it is vital that we remain engaged in Haiti's
    democratic transition--and why we have requested a substantial increase
    in assistance for that country this year.
        The job of creating a democratic culture and market economy in
    Haiti, where none has ever existed, is daunting. For months, the
    government has been mired in a stalemate, while efforts to restructure
    the economy have lagged. For millions of impoverished Haitians,
    democracy has not yet delivered on the hope of prosperity.
        When I visited Haiti in April, I was reminded again how much
    Haitians desire change. I had the chance to meet many dedicated people
    who are using our assistance programs, and their own ingenuity and
    drive, to vaccinate children, open schools, and fight drugs. They have
    a vision of a better future, and we are supporting it through programs
    that create jobs, lay the foundation for sustained economic growth, and
    professionalize Haitian law enforcement.
        We cannot turn our backs on Haiti at this critical stage. To do so
    would risk creating a future there that mirrors the past: an
    undemocratic country that serves as a safe haven for criminals and drug
    traffickers--and from which thousands of would-be migrants are driven
    to seek refuge on our shores.
        Helping democracy put down roots in Haiti serves U.S. interests.
        The same is true in Cuba. Over the past two decades, the Americas
    have been transformed from a hemisphere dense with dictators to one in
    which every single country but one has an elected government. We
    believe the Cuban people deserve the same rights and liberties as their
    counterparts from Argentina to Alaska.
        With that goal in mind--and taking advantage of the opportunities
    presented by the Pope's historic visit--the President in March decided
    to take four actions to reach out to the people of Cuba to make their
    lives more tolerable, while maintaining the Helms-Burton Act and the
    embargo and other pressures for change on the Castro regime.
        We are working with leaders in the Senate and the other body to
    develop bipartisan legislation to meet humanitarian food needs on the
    island. We are streamlining and expediting the issuance of licenses for
    the sale of medical supplies to Cuba. We are resuming licensing direct
    humanitarian charter flights. And we are restoring arrangements to
    permit Cuban-American families to send remittances to their relatives
    in Cuba.
        We know that in expectation of the Pope's visit, Christmas Day had
    special meaning in Cuba this year. We will not rest until another day--
    Election Day--has real meaning there, as well.
    Africa
        As the world saw when President Clinton visited Africa earlier this
    year, this is a continent whose problems remain deeply-rooted, but
    whose potential is great. More and more, countries are modernizing.
    Centralized economies are giving way to open markets seeking new
    investment. And civil society is starting to take root.
        Accordingly, we have a good opportunity now to engage and enlist
    Africa in the fight against terror, narcotics trafficking, crime,
    environmental degradation and other global problems before they spill
    over into other parts of the world--including America.
        As the President's visit reflects, we have been according a high
    priority to events in Africa.
        Recently, for example, Assistant Secretary Susan Rice has played a
    lead role in diplomatic efforts to end the senseless and destructive
    fighting between Ethiopia and Eritrea. We are exploring every option
    for encouraging the new leaders in Nigeria to respect human rights and
    to move down the path towards real democracy. And we have tried hard to
    persuade the leaders of the Democratic Republic of Congo to permit
    opposition political activity and to take steps that would enable that
    vast and strategic country to get back on its feet economically.
        Although these diplomatic initiatives have not yet succeeded, we
    retain our faith in the promise of Africa, and are determined to
    persist in our efforts throughout the continent.
        Let me highlight three important initiatives that can have real
    benefits for Africans--and for us:
        The Great Lakes Justice Initiative will help prevent violence and
    bring justice to Africa's heart. We have requested $30 million for this
    urgent initiative, that can help save lives directly and soon.
        For the Education for Development and Democracy Initiative, which
    will build civil society and fuel economic growth, we seek $66 million
    in new funding.
        The Trade and Investment Initiative will stimulate African economic
    reform and domestic and international trade. It involves $30 million
    for technical assistance and $35 million of special debt relief for
    poor countries that are taking the right steps toward reform.
        I also urge the Senate to act this year to approve the Africa
    Growth and Opportunities Act, to spur trade between the United States
    and Africa's most forward-looking economies. This is a Capitol Hill
    initiative, on which I will testify tomorrow before the Senate Finance
    Committee. The bill is strongly supported by the Administration; it was
    approved on a bipartisan basis by the House of Representatives; and is
    designed to frame a new American approach to the new Africa.
        We believe that the African countries that most deserve our help
    are those that are doing the most to help themselves. And that the most
    useful help we can provide is the kind that will enable economies to
    stand on their own feet--through open markets, greater investment,
    increased trade and the development among their peoples of 21st century
    skills. These programs deserve your support.
    Promoting our security through arms control
        When we help ease conflicts in regions important to the United
    States, we advance the long-term interests and safety of Americans. The
    same is true of our support for arms control and anti-terrorism efforts
    around the world.
        The South Asia nuclear tests have complicated, but not altered, the
    nature of the twin imperative our diplomats face: sustaining a global
    full-court press to keep biological, chemical and nuclear weapons, and
    the missiles to deliver them, from falling into the wrong hands; and
    achieving further progress with Russia and others so that the American
    people never again face the costs and dangers of a nuclear arms race.
        Toward these goals, we ask your support.
        This year, we are requesting $28.9 million to fund the CTBT
    Preparatory Commission, which is laying the human and technical
    foundation for the Treaty's entry into force. Whether or not the test
    ban treaty is in force, we need to do the best job we can to detect and
    monitor any explosive testing of nuclear weapons around the world.
    These funds will help build the international verification system that
    will help us to accomplish those tasks.
        I also ask your support for our proposed $40 million voluntary
    contribution to the International Atomic Energy Agency (IAEA). These
    funds will help the Agency continue strengthening the safeguards system
    that helps deter and detect cheating on NPT obligations in such
    countries as North Korea, Iraq and Iran.
        Our request this year includes $35 million for the Korean Energy
    Development Organization (KEDO). The Agreed Framework has succeeded in
    freezing North Korea's dangerous nuclear program. And it has secured,
    under international safeguards, all of that program's spent fuel rods--
    which once could have been reprocessed into several bombs' worth of
    weapons-grade plutonium.
        Our own spending on KEDO is needed to leverage contributions from
    our Asian allies that will ultimately dwarf our own. More importantly,
    it is a national security bargain--spending that has helped to
    stabilize a volatile peninsula, support a close ally, and make our
    37,000 troops in Korea safer.
        Finally, our Nonproliferation and Disarmament Fund lets us move
    quickly to destroy or remove dangerous weapons or poorly protected
    nuclear materials from NIS countries. And the International Science
    Centers in Kiev and Moscow address the human side of the proliferation
    threat, helping to prevent a perilous brain drain of scientists with
    special weapons expertise to rogue states.
    Fighting terrorism
        We also have a critical national interest in fighting international
    terror and helping others to do the same.
        This year, we are requesting $21 million for our anti-terrorism
    programs. These programs 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. The $2 million
    increase over last year's funding level will help fund training in
    terrorist interdiction and explosives detection and investigation, and
    will allow us to beef up our programs in the Middle East and Asia.
    Anti-personnel landmines
        This year we seek a major increase in funding, from $20 million to
    $50 million, to support the Administration's Demining 2010 initiative.
    With strong support from Senator Leahy and other Senators from both
    parties, America leads the world in humanitarian demining--and we are
    determined to do even more.
        President Clinton has pledged that the United States will
    substantially increase America's support for de-mining programs. The
    resources we have requested from you will help persuade other countries
    to increase their own contributions as well. And that will help us meet
    our larger goal: to free civilians everywhere from the threat of
    landmines by the year 2010.
        The security-related programs I have been discussing fall within
    the Non-Proliferation, Antiterrorism, Demining, and Related Programs,
    or ``NADR'' Account, which was created in the fiscal year 1997 Foreign
    Operations Appropriation Act to consolidate in one account a number of
    related programs previously funded separately. This year our NADR
    request includes funding for the CTBT PrepCom previously funded through
    ACDA and the CJS Appropriation, funding for the Science Centers
    previously included in the NIS account, and our first request for
    export control assistance as a separately funded activity.
    Fighting drugs and crime
        Last week at the UN Special Summit on Drugs, President Clinton re-
    stated America's strong commitment to the international war against
    illegal trafficking in narcotics.
        In that war, we have moved aggressively and with results. This past
    year, our support for eradication and interdiction helped trigger the
    largest decline ever in Latin American coca production. For the second
    year in a row, production fell in every Latin American country--except
    Colombia, where traffickers moved when denied the freedom to operate
    elsewhere. In Peru, coca cultivation is at its lowest level in a
    decade.
        Although drug-related corruption remains a very serious problem in
    Mexico, official cooperation and support for anti-drug initiatives has
    been substantial. Last week in New York, Presidents Clinton and Zedillo
    reaffirmed that policy of cooperation, notwithstanding the recent
    controversy surrounding the drug money laundering investigation
    Operation Casablanca.
        Over the past year, Mexico has enacted legal reforms to combat drug
    trafficking, organized crime and money laundering. It has formed
    specialized investigative units, sought out and punished official
    malfeasance, and passed a comprehensive chemical control law. Drug
    seizures, arrests and extraditions are up.
        We ask your support for our request for $275 million to continue
    the fight against international narcotics and crime. In addition to
    other anti-crime initiatives, these funds support our source country
    narcotics eradication and alternative development programs--following
    up on our progress in the Andes and transferring that approach to new
    projects elsewhere in Latin America and in Africa and Asia.
        These funds support police and military counter-narcotics forces as
    they uncover and block new smuggling routes and methods.
        They will bolster eradication and interdiction programs in Laos,
    Colombia, Peru, and elsewhere.
        They fund a comprehensive, international heroin control strategy.
        And they support carefully-monitored multilateral narcotics efforts
    in Afghanistan and Burma--where success is critical but our access is
    limited.
        Our request also includes $20 million for worldwide anti-crime
    programs. This training and technical assistance helps fight money
    laundering, trafficking in women and girls, alien smuggling, and other
    crimes which, although they begin far from our shores, often put
    Americans at risk. We are depending on these funds as we work to
    bolster anti-crime initiatives with our partners in the New Independent
    States. And these same resources support the International Law
    Enforcement Academy in Budapest, and similar academies slated to open
    elsewhere.
           ii. promoting economic growth and sustainable development
        Mr. Chairman, peace and security are paramount goals of our
    international programs, but promoting economic prosperity is another
    top priority.
        International trade is twice as important to our domestic economy
    as it was twenty-five years ago. Strong trade-building policies and
    healthy trading partners are essential--for increased trade is
    responsible for fully one third of our economic growth over the last
    five years.
        The Clinton Administration is committed to seeing that American
    companies, workers and farmers have a level playing field on which to
    compete.
        That means being a global leader for trade agreements that help
    open markets and create jobs for Americans.
        It means using the expertise and contacts of our embassies to
    provide all appropriate help to American firms.
        It means sustaining the Export-Import Bank, the Trade and
    Development Agency, and the Overseas Private Investment Corporation,
    which help our business people find new markets overseas.
        And it means putting our full weight behind better enforcement of
    intellectual property standards, and improved observance of core labor
    rights, from the halls of the World Trade Organization and the
    International Labor Organization to our assistance programs and to my
    dealings with other world leaders.
        But our diplomats and our business people need your commitment as
    well, and your support for the resources that make these efforts
    possible.
        The first place we need your support is for our leadership at the
    international financial institutions, such as the IMF and the World
    Bank. They provide money--far more than we ever could--not just to help
    countries develop, but to head off crises in some of our key trading
    partners and friends.
        This is important because, in a globalized economy, trade is not a
    zero-sum game. When the economies of our trading partners falter, we
    risk slipping as well.
        East Asia, for example, is home to some of our closest allies and
    friends--and some of the best customers for U.S. products and services.
    More than one third of our nation's exports go there. As much as half
    of some states' exports, and thousands of good jobs, depend on the
    economic vigor of such places as Bangkok and Seoul.
        The IMF is not perfect. No international organization, or
    government, can make that claim. But its programs have helped restore
    financial stability, and promote better governance, in East Asia.
        But we are far from out of the woods yet. Financial markets are
    watching for signs of relapse, of contagion in regions such as Central
    Europe and Latin America--or for signs that the international
    community, beginning with the United States, will not supply the IMF
    with the resources it needs to support countries in difficulty.
        We can choose to be leaders at these institutions, by paying our
    full share and staying heavily involved in their decisionmaking; or we
    can forfeit our involvement by not paying, and thus lose our influence.
        Simply put, the IMF's programs are a hand up, not a hand-out. They
    won't cost U.S. taxpayers a dime--they are a loan that will be repaid
    with interest as our financial markets stay strong and our trade with
    the Asia-Pacific recovers and grows.
        With members of this Subcommittee providing leadership and insight,
    the Senate took early, bipartisan action to fully fund our emergency
    supplemental request. I deeply regret that the Senate position was not
    retained in Conference, and that no action was taken on our urgent
    request for UN arrears and IMF funding. But I hope we can work together
    to fund these requests soon. By paying our full share of the IMF's
    quota increase, we will spur economic recovery in East Asia and help
    limit similar crises in the future.
        Our supplemental request would also provide our contribution to a
    line of credit for the IMF to use if a crisis threatens the world
    financial system. Both of these requests are for budget authority
    only--they involve no outlay of funds and have no effect on
    calculations of government spending.
        The choice to support the IMF is a choice between shaping the
    global economy, or allowing ourselves to be buffeted by it; between
    sustaining America's leadership, or abdicating it.
        Our support for the World Bank and the five regional development
    banks also works to build healthier economies and strengthen societies
    in countries which are already our partners in diplomacy and trade, as
    well as in those which are unable to participate fully in the
    international system but seek to do so.
        Our total request for multilateral development banks includes $502
    million in arrears payments, for the second year of a three-year plan
    to clear our debts to these institutions.
        With the support of this Subcommittee, we have begun to make catch-
    up payments this year--and have been able to negotiate substantial
    reductions in our contributions to these organizations. Our campaign
    for transparency and accountability has helped open Bank activities,
    especially in East Asia, to greater public scrutiny. But we cannot
    sustain our influence in these areas unless we sustain our funding as
    well.
        Let me also emphasize the work of the Global Environment Facility
    (GEF), which mobilizes the resources of developed and developing
    nations to protect the environment. Our contributions to the GEF help
    protect our fisheries and our climate by cutting pollution of the
    world's oceans. Already, GEF programs are working to reduce emissions
    in developing nations. Making sure that all nations do their part in
    slowing global warming is a critical part of our strategy; through the
    GEF, those efforts have already begun. And we know they work.
        But it is difficult, to say the least, to obtain more cooperation
    from our partners on these matters so long as we are failing to fund
    our pledged share of the GEF's expenses--as has been the case for the
    past three years. I urge you to fund our $300 million request fully--of
    which almost $193 million is for arrears payments--both to meet these
    important objectives and to work toward keeping our promises and
    sustaining our influence on behalf of sound and sensible environmental
    protection.
        Similarly, I ask your support for activities under the Montreal
    Protocol, to help address the critical issue of ozone depletion.
        When we contribute to multilateral efforts promoting sustainable
    development, we leverage as much as eight or ten times our national
    contribution to support goals we share.
        This year, we have requested a modest $7 million increase in our
    contributions to the United Nations Development Program (UNDP), a body
    which has to date always been headed by an American.
        For years, UNDP has been at the forefront of helping developing
    countries establish democratic institutions, market economies and basic
    human rights. It supports free elections from Yemen to Mexico City;
    establishes credit arrangements for small enterprises in Ghana,
    Mongolia and Romania; and coordinates de-mining programs from
    Mozambique to Cambodia.
        The need for UNDP's work remains especially strong among African
    countries emerging from war and hunger with great aspirations--and
    serious reform plans; and among Asia's poorer nations, trying to catch
    up with their neighbors. It also plays a major role in supporting women
    worldwide as they work to gain more equal access to the levers of
    political and economic power.
        Like UNDP, UNICEF plays an important role in countries suffering or
    recovering from the devastation caused by civil or international
    conflict. Around the world, UNICEF helps protect children--a society's
    most vulnerable members and its hope for the future. We have maintained
    our request for funding for UNICEF at $100 million for fiscal year
    1999.
        Mr. Chairman, one of the most inspiring ways this account helps
    make a difference in the lives of men and women in this country and
    around the world is through its support for the Peace Corps. The Peace
    Corps has been one of this country's most successful programs
    overseas--both in bringing skills and knowledge to those who
    desperately need them, and in bringing great respect and admiration to
    America and Americans.
        President Clinton's request for $270 million in funding will put us
    well along the path to having 10,000 volunteers serving overseas by the
    year 2000.
        Mr. Chairman, we also ask your support for our population and
    health programs, which help developing nations devote more of their
    scarce resources to building a better future for their citizens.
        Our voluntary family planning programs serve our broader interests
    as well. When women and families can choose the number and timing of
    their children, population growth rates stabilize. Maternal and infant
    mortality decline--as does the demand for abortions. In Russia alone,
    for example, AID's support for voluntary birth control has helped
    reduce the abortion rate by a reported thirty percent over five years.
           iii. promoting democracy, human rights and the rule of law
        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, human
    rights and the rule of law.
        To millions around the world, the United States represents the
    potential of democracy. Wherever we are visibly present and engaged, we
    give hope to people who are struggling to secure their human rights and
    to build democracy.
        By building partnerships with other freedom-loving peoples, we
    extend the spread of democracy and open markets that has enhanced our
    own security and prosperity and been the signature element of our age.
    The State Department's Democracy, Human Rights and Labor Bureau and
    USAID's Democracy and Governance Center work together to consolidate
    democracy where it has taken root and to support nations seeking paths
    to democratic rule.
        USAID's democracy and governance funds have helped nearly double
    women's participation in Bangladesh elections and encourage greater
    accountability within the Palestinian Authority. For many years, USAID
    programs quietly provided the sole source of outside support for NGOs
    and human rights groups in Indonesia--groups that today have emerged to
    help shape their country's future. I know you have heard separately
    from Brian Atwood about USAID's request, but let me take this
    opportunity to indicate my strong support for it, and for the work
    USAID is doing around the world.
        We also bolster democracy through our economic support and
    development assistance programs in selected countries. For example, the
    economic support funds we request will help improve judicial systems in
    Africa and Latin America; work to sustain peace and democracy in
    Guatemala; and contribute to the work of the War Crimes Tribunals for
    Rwanda and the former Yugoslavia.
        Whether through the SEED and Partnership for Freedom programs, the
    President's Africa Great Lakes Initiative, or USAID's Office of
    Transition Initiatives, when we support human rights and democracy we
    are supporting our natural partners--and our natural interests.
                     iv. providing humanitarian assistance
        This year, we have requested $670 million for Migration and Refugee
    Assistance and for our emergency funds in this area. That is the amount
    we need to do our part in international relief for victims of
    persecution or armed conflict. The request also includes funding for
    new initiatives to assist and protect refugee children.
        We have also requested funds for international disaster assistance,
    including programs to respond to the ever-present risk of biological,
    chemical or nuclear disasters abroad.
                                 v. conclusion
        As always, Mr. Chairman, I come before you with my mind focused on
    the present and future, but conscious, also, of past events that have
    shaped our lives and that of our nation.
        Fifty years ago, a Communist coup in my native Czechoslovakia
    altered forever the course of my life and prompted, as well, an urgent
    rethinking by the west of what was needed to defend freedom in Europe.
        In that defining year, a Democratic President and a Republican
    Congress approved the Marshall Plan, laid the groundwork for NATO,
    helped create the Organization of American States, established the
    Voice of America, recognized the infant state of Israel, airlifted
    life-sustaining aid to a blockaded Berlin and helped an embattled
    Turkey and Greece remain on freedom's side of the Iron Curtain.
        Secretary of State George Marshall called this record ``a brilliant
    demonstration of the ability of the American people to meet the great
    responsibilities of their new world position.''
        There are those who say that Americans have changed and that we are
    now too inward-looking and complacent to shoulder comparable
    responsibilities. This year, we have the opportunity to prove the
    cynics wrong. And Mr. Chairman and members of the Subcommittee, I
    believe we will.
        From the streets of Belfast and Sarajevo to classrooms in Africa
    and South America to boardrooms in Asia and courtrooms at The Hague,
    America's influence and leadership is as beneficial and as deeply felt
    in the world today as it has ever been.
        That is not the result of some foreign policy theory. It is a
    reflection of American character.
        We Americans have an enormous advantage over many other countries
    because we know who we are and what we believe. We have a purpose. And
    like the farmer's faith that seeds and sweat and rain will cause crops
    to grow, it is our faith that if we are true to our principles, we will
    succeed.
        Let us, then, live up to the heritage of our past, and together
    fulfill the promise of our future--and so enter the new century free
    and respected, prosperous and at peace.
        Mr. Chairman, Members of the Subcommittee, thank you very much. And
    now, I would be pleased to respond to your questions.

                         remarks of senator ted stevens

        Senator McConnell. The chairman of the full committee has
    stopped by, and I want to give him an opportunity to make a few
    observations before we go to our questions. We are going to
    have a 5-minute rule on questioning which will give everybody a
    maximum opportunity to have an exchange with the Secretary.
        Mr. Chairman.
        Senator Stevens. Thank you very much, Mr. Chairman.
        I am sorry I was a little bit late and could not hear your
    full statement, but we had talked about it on the phone before,
    so I am sure that you said what you said you were going to say.
        But I have to say what I said to you before. We deal with
    hard dollars that are in the bank. We cannot deal with
    prospective streams of revenue that are based on increased
    revenue charges, increased taxes and further acts of Congress
    that appear dubious as far as being passed in time to have them
    spendable by October 1.
        As a consequence, it is my sad duty to tell you that there
    just is no more money. We just have come across an additional
    $900 million out of approximately out of the highway bill
    passage, but it is unfortunately claimed--I do not see the
    people here who put down the claim--for Amtrak already. And I
    do not see, really, how we can relieve the stress that you, I
    think, so rightly point out in time to give this subcommittee
    any additional moneys by the time the markup will come about.
        It may be possible, by the time we get to conference, that
    we can have a further allocation for Senator McConnell and his
    colleagues on this subcommittee. I would hope that it will. I
    join you in hoping that we can untie the problems of Mexico
    City from the problems of some of the very pressing needs that
    we have, particularly I believe we made a commitment on the
    U.N. arrears, and I think we have got other commitments we have
    to meet. And as far as this Senator is concerned, the IMF
    situation is getting more and more acute daily. But those are
    other issues to deal with.
        But if you want that money, you are going to have to help
    us find it. We have not allocated the money to other
    subcommittees. To the contrary, they have the same problems.
        So, I welcome you here. But these are the days of very
    tight purse strings. And I do not see any way to open the purse
    any further in this climate that we have right now.
        Thank you, Mr. Chairman.
        Senator McConnell. Thank you, Mr. Chairman, for stopping
    by, even though the news is not great. This is an issue upon
    which all of us agree.
        We used up a good deal of political capital last year, both
    the Secretary, with the administration, and myself and Senator
    Stevens and Senator Leahy up here, to get the increase that we
    all thought was necessary. And, unfortunately, we find
    ourselves in this situation this year. We are not happy about
    it.
        Madam Secretary, let me lead off with my 5-minute round.
    You touched on Kosovo, which is certainly the big news of the
    moment. In the Financial Times today, the headline is: ``Serbs
    Ignore NATO Exercise to Continue Kosovo Attacks.'' And Mr.
    Solana, the NATO Secretary-General, warned that his
    organization was, ``preparing to go further, if required, to
    halt the violence and protect the civilian population.''
        As I mentioned in my opening statement, in the so-called
    Christmas warning of December 1992, the Bush administration,
    warned Milosevic that the United States would use unilateral
    force if ethnic cleansing was carried out in Kosovo. As a CRS
    issue brief points out, President Clinton reiterated that
    policy when he took office in early 1993.
        However, in congressional hearings and statements of
    policy, CRS notes, ``administration officials have declined to
    confirm or deny the continued validity of the warning.''
        So, I guess I would like to start, Madam Secretary, by
    asking, is the warning still valid?
        Secretary Albright. Well, let me, Mr. Chairman, if I might
    just take a minute because you had mentioned some other issues
    on Kosovo that I would like to respond to. We are obviously
    very concerned about the Kosovo situation. I have also just
    gotten a report on President Yeltsin's meeting with President
    Milosevic, in which I would say there was some progress, but
    did not meet our primary points that the contact group raised,
    which was for Milosevic to pull back his security forces.
        He said he would do so only in the context of a halt of the
    Kosovar Liberation Army terrorist activities, which is clearly
    unacceptable to us, because we believe that Milosevic has the
    primary responsibility here to halt the repression and stop
    making excuses for the repression. There is an offer, again, of
    dialog, which is something that we do want, because we believe
    that this can ultimately only be resolved through a political
    solution.
        But, at the same time, it is insufficient to say that
    dialog could go forward if the killing of civilians and
    depopulating of villages continues. We will continue to press
    on this issue.
        Let me speak more specifically now to what you have said.
    The Kosovo situation is, frankly, more complicated than was
    Bosnia at the time of 1991, primarily because of two issues.
    First of all, Bosnia was an autonomous country, recognized by
    the international community, and the ethnic cleansing that was
    going on there was clearly unacceptable to the international
    community. I do not have to recount all the actions that we
    have taken to reverse that.
        Kosovo has been a part of the Federal Republic of
    Yugoslavia. What happened was that this whole mess began when
    Milosevic took away the autonomy that it had and created a
    problem, I think, in radicalizing the Kosovar population. The
    best recruiters for the Kosovar Liberation Army are the Serbs,
    who are out there torching various populations.
        So, we are doing everything we can, through NATO, to plan
    for various options that involve the use of force. And as the
    President and I have said, and Secretary Cohen has said, all
    options are on the table in terms of the use of military force.
    That is our position, that we are prepared to use force. We
    would prefer, as I am sure you would, that the situation be
    resolved through talks, peaceful dialog, and the NATO planning
    is done in support of forceful diplomacy.
        One of the problems, I have to say and I think that you
    would also see this, is that the Kosovar Liberation Army and
    some of the tactics they are using are also not the kind that
    help the peaceful dialog go forward. And we support President
    Rugova and his colleagues in trying to get substantive dialog
    going.
        Senator McConnell. The Bush letter said: ``In the event of
    conflict in Kosovo caused by Serbian action, the United States
    will be prepared to employ military force against the Serbians
    in Kosovo and in Serbia proper.''
        Maybe you do not want to answer it, but I want to ask one
    more time, is the warning still valid?
        Secretary Albright. Mr. Chairman, the Christmas warning has
    never been made public, specifically. And it is a private
    diplomatic conversation. And my answer to you is that all
    options are on the table. Nothing has been removed from the
    table.
        Senator McConnell. In response to the Kosovo crisis, you
    worked successfully to secure a ban on investments in Serbia.
    Can you explain the thinking behind the reversal of that
    position a week later in the negotiations involving Ambassadors
    Holbrooke and Gelbard? My understanding is the reversal secured
    talks between Milosevic and Rugova. What results have those
    talks produced, and at what price, in terms of offering more
    time for more Serbian violence?
        Secretary Albright. Mr. Chairman, we have had a number of
    contact group meetings. You correctly say that in the first one
    we were able to get a series of sanctions, an investment ban
    and a freeze on assets. As a part of those contact group talks,
    there was also a desire to develop a way to get dialog between
    Milosevic and Rugova. That was part of what the contact group
    wanted.
        There was a proliferation of envoys to Belgrade. We then
    took the issue up and Ambassador Gelbard and Ambassador
    Holbrooke went there. There was not a reversal. There was a
    suspension of the execution of those sanctions. And we thought
    that there was value in getting this dialog going. As soon as
    we saw that the dialog was not going anywhere because of the
    lack of credibility in terms of it becoming a process dialog
    rather than a substantive dialog, we did in fact then impose
    those sanctions. And last Thursday, when the contact group met,
    we also added a sanction of Yugoslav Airline flights.
        So, it was not a reversal; it was a tactical suspension
    because we thought it was worth trying to see if we could get
    the dialog--a good dialog or a useful dialog going.
        Senator McConnell. I am going to stick to my own imposed
    time limit here. If the other questions on Kosovo do not answer
    all of mine, I will come back to it on the next round.
        Senator Leahy.
        Senator Leahy. Thank you, Mr. Chairman.
        Madam Secretary, I was glad to hear what you said about the
    President's upcoming trip to China. I am not one of those who
    feel he should not go to China. Just as I strongly urged each
    of the five Presidents I have served with to go to the then-
    Soviet Union at the height of the cold war and hoped that there
    would be return visits here. I urged that because I felt it was
    most important that our leaders meet and discuss our
    differences.
        By the same token, with China as important a country as it
    is, I think it is important for the President to go there. That
    does not signify that the American people agree with the
    Chinese on human rights. There are many issues on which we
    disagree with them very strongly. What is most important is
    what the President says when he is there.
        President Tiang Zemin did not hesitate to express his views
    when he was here in the United States. And he heard us speak
    right back to him. And we both gained by that. And President
    Clinton, I think, needs to speak publicly and forcefully about
    human rights, Tibet and so forth, as I know he has in private
    conversations with Tiang Zemin.
        So, I think it is important for the United States that our
    President go there. It does not condone improper activities by
    the Chinese any more than we condoned the activities of the
    Soviet Union when a number of President's, Democratic and
    Republican alike, went there.
        Yesterday's New York Times reported that Iraq and the
    United Nations have agreed on a 2-month schedule for completing
    the program to monitor Iraq's destruction of its chemical and
    biological weapons. Has the administration been consulted about
    that agreement? And do we agree with it?
        Secretary Albright. Well, first of all, let me just say, in
    terms of what you said about China, I think a motto here is
    that we engage but do not endorse. And we have said very
    clearly that we can never have a completely normal relationship
    with China unless their human rights record is one that is
    quite different from the one they have now.
        On Iraq, let me just say this. We obviously are in very
    close consultation with the United Nations. The problem
    according to the people involved in all of this, is that there
    has not been a very good road map--or the Iraqis have said--
    that they have not had a road map about what they have to do,
    when.
        I think that what has happened now is that we have taken
    that excuse away from the Iraqis, because Chairman Butler has
    indicated to them what they have to do and by when they need to
    do it. He will be checking up on this road map. And then, in
    August, he will give some discussion of that. But, then again,
    in October, when there are sanctions reviews, he will then make
    clear to the Security Council whether they have in fact come
    clean on the various files, the nuclear, chemical and
    biological.
        So, this does not in any way prejudge the effects, but
    does, in my opinion, basically take away an excuse from the
    Iraqis, as well as those who support them, who say, well, you
    never really tell them what they have to do; you are always
    adding things. And this really is a road map, a work plan
    basically, in terms of what they have to do.
        Senator Leahy. We will watch carefully, all of us, to see
    how well we do, as well will you all.
        Secretary Albright. Well, we will. And we are not going to
    give them a passing grade on a work plan that is not carried
    out properly.
        Senator Leahy. The negotiations on the International
    Criminal Court have begun in Rome. You have been perhaps more
    outspoken than anyone in support of the War Crimes Tribunal at
    The Hague. I notice in Rome one proposal is that any country
    whose citizens are charged with war crimes would have to
    consent before a trial takes place. Well, Saddam Hussein or
    President Milosevic or others are not going to consent.
        And if a Security Council veto could block prosecution,
    don't we run the risk of China, for example, blocking
    prosecution of the Khmer-Rouge? And if there were not already
    the Bosnia War Crimes Tribunal, then Russia possibly blocking
    prosecution of Serbian war criminals? Wouldn't that court
    become as ineffective, actually, as the United Nations has been
    at times when strong action is needed?
        Secretary Albright. Well, I think that we have, in
    principle, backed an international criminal court because we
    think that there continue to be serious violations of the core
    crimes of genocide, war crimes and crimes against humanity. We
    support a practical court that reinforces these institutions
    charged with maintaining international peace and security. What
    we desire is for the court to have a proper relationship with
    the Security Council. And we are looking forward to working for
    a positive outcome of the Rome conference.
        I think that what is very important, Senator Leahy--because
    there have been questions about this--is that we want to
    develop a comprehensive approach to the court that advances the
    cause of justice and protects American citizens from
    unwarranted action from a court. So, we have the goal of trying
    to develop a functioning, good court, but also make sure that
    our citizens are protected and also that it does fulfill the
    responsibilities of international institutions.
        Senator Leahy. I hope you follow carefully on that. Because
    I read that the Chief Prosecutor of the War Crimes Tribunal
    recently dismissed charges against 14 Bosnian Serbs because she
    does not have money to prosecute them. I want to see an
    effective War Crimes Tribunal. But that means that the nations
    who support it have got to fund it, too. And to have 14 people
    go free simply because the money is not there should be a
    matter of grave concern to all of us.
        Secretary Albright. I agree with that. And I think that
    what is interesting is that the record of the War Crimes
    Tribunal now has gotten quite good in terms of the number of
    indictees and those who really have come to trial. I think that
    one of the reasons we want to have a permanent international
    court is that there is some fatigue, I think, in terms of
    funding ad hoc war crimes tribunals, and this is a more
    efficient way.
        I definitely agree that we need to fund the War Crimes
    Tribunal now. I think it is doing a great job. And, ultimately,
    the only way that there can be a real reconciliation in Bosnia
    is if individual guilt is assigned and collected guilt is
    removed.
        Senator McConnell. Thank you, Senator Leahy.
        Senator Gregg.
        Senator Gregg. Thank you.
        Madam Secretary, it has been reported that missile
    technology was sold to China by a United States company that
    has the capacity to allow the Chinese to target their missiles
    on the United States--not necessarily that they are, but it
    gives them that type of technical capacity. It was also
    reported that that decision was taken after the State
    Department--and I presume yourself--had the good sense to
    advise the administration not to allow that sale to go forward.
        My question is, is that correct? Did the State Department
    advise the administration not to approve that sale?
        Secretary Albright. Senator, there are really two parts to
    this question. First of all, there was the whole issue as to
    how commercial sales of satellites should be handled. Since
    these are commercial satellites, after a great deal of
    discussion, it was determined that it was appropriate for the
    Commerce Department to handle this issue, with the State
    Department always having the ability to be a part of the
    decisionmaking process on this. And we continue to do that.
        We look at each of these sales in a way to make sure that
    our national interests are protected. And we look to make sure
    that the recommendations are appropriate. This justification
    for commercial satellites to be launched by the Chinese is
    something that goes back two administrations. It is done
    basically in order for competitiveness, because we are the ones
    that are leaders in the satellite technology; for openness,
    CNN, et cetera--to be able to beam into China; for
    nonproliferation reasons.
        And so we consider it something in the national interest.
    And the State Department has its review process, and we did not
    recommend against it.
        Senator Gregg. You did not recommend against selling this
    technology to China?
        Secretary Albright. No.
        Senator Gregg. So, those reports are inaccurate,
    representing that you did?
        Secretary Albright. It is a complicated inner process. And
    I think that we believed that this was in the national
    interest. There were other departments that made their
    recommendations.
        Senator Gregg. There is a bit of irony, though, isn't
    there, when we go to China and ask them not to sell technology
    to Iran and to potentially Pakistan that is missile technology,
    when we are selling China missile technology which may give
    them the capability of targeting the United States should they
    decide to use it that way?
        Secretary Albright. Senator, we are not selling them the
    kind of technology that allows them to target the United
    States. These are commercial satellites that are used for the
    purposes that I described. We certainly would not be involved
    in any kind of sale that in any way jeopardized our national
    interest.
        We have been concerned about Chinese missiles, as well as
    nuclear proliferation. They have systematically, I think, come
    within international regimes that limit any country's ability
    to sell or transfer weapons. It is a subject of discussion that
    we have them, and will continue to be a subject of discussion
    as we go into the Beijing summit.
        Senator Gregg. So, basically, the reports that represent
    that this technology gave them guidance systems which could
    give them the capacity to target America if they decided to do
    so--with adjustments, obviously, to these systems--target the
    United States with their missiles, you believe that is
    inaccurate?
        Secretary Albright. My understanding, Senator, is that that
    is inaccurate and this is not that kind of technology.
        Senator Gregg. I am interested also in this India/Pakistan
    situation. Why is it that the European nations have been so
    reticent to participate in pursuing whether, under our
    statutes, required sanctions relative to India? Why have our
    European allies been so reticent to pursue sanctions and been
    unwilling, especially France, to do anything in the area of
    limiting or putting pressure on the Indians in the area of
    nuclear proliferation?
        Secretary Albright. Senator, I think we have all kind of
    had this discussion before. I think that other countries view
    sanctions, the use of sanctions or the imposition of sanctions,
    in quite a different way than we do. We have seen sanctions--
    depending upon how they are used and what the flexibility
    associated with the piece of legislation is--as a useful tool
    of foreign policy. There are times--and I hope that we can all
    have a broader discussion of this--when sanctions are more
    sledgehammers than scapels that allow some surgical activity to
    take place and actually limit the American ability to carry out
    our policy.
        The Glenn amendment is probably the strongest sanctions
    resolution that has existed. We had hoped that it would deter
    India and Pakistan. It clearly did not, even though they are
    going to, I believe, suffer economically. And they certainly
    have become less secure as a result of these bomb blasts, or
    tests.
        I discussed this issue when we had a Permanent Five meeting
    in Geneva. And I said, you know that the Americans have a very
    strong sanctions resolution. We would like you all to join us.
    But certainly what we do not want is, while we are being firm,
    for you all to go in and pick up the contracts. I think that we
    have to work more closely with our allies. And I must say that
    our meeting of the Permanent Five was very good. We were also
    able to get condemnation of India and Pakistan by NATO, by the
    NATO Joint Council, with the Russians, by the Euro-Atlantic
    Partnership Council, by the OAS General Assembly.
        And so, within a matter of 4 or 5 days, we had 80 countries
    that had made quite clear their condemnation of what India and
    Pakistan had done. And there are numbers of countries that have
    joined us in the sanctions, just not the ones that you
    mentioned.
        Senator McConnell. Thank you, Senator Gregg.
        Senator Murray.
        Senator Murray. Thank you, Mr. Chairman.
        And I welcome Secretary Albright. It is good to have you
    before this committee. I appreciate your testimony and your
    work for all of us around the world.
        Secretary Albright, you know, as you were just discussing,
    the administration has moved to implement the mandatory
    sanctions against India and Pakistan for their nuclear weapons
    tests. The law does exempt food and humanitarian aid from the
    sanctions. However, the Justice Department recently concluded
    that agricultural credits for the purpose of purchasing food
    were not exempt from those sanctions.
        Last week, in the Appropriations Committee, on an amendment
    to the agricultural appropriations bill, I offered an amendment
    that would exempt those agricultural credits from the
    sanctions. And it was accepted with a lot of bipartisan support
    in the Senate. I would like to know what your view is of that
    issue, and if you will support the Murray amendment to exempt
    agricultural credits for food purchases from those sanctions.
        Secretary Albright. Yes; thank you very much, Senator. And
    the administration very much thanks you for your leadership in
    addressing this question. We would support your amendment. We
    think that it is useful, because it does in fact allow for an
    exception for credit, credit guarantees and other financial
    assistance provided by the Department of Agriculture for the
    purchase or the provision of food or other agricultural
    commodities. And so we support your efforts on this and do in
    fact believe that it is important to go forward with
    humanitarian assistance.
        I think this is a point that needs to be made, generally,
    about the fact that we are not trying to punish the people of
    India or Pakistan, and we do not wish to create major
    instability. Therefore, this, I think, is very useful. Thank
    you for offering it.
        Senator Murray. Thank you. And I will look forward to
    working with you. It is important to my State and my region,
    and we appreciate your support.
        Secretary Albright. And we look forward to working with
    you, Senator.
        Senator Murray. I also want to ask you about the IMF fund.
    You mentioned it in your comments, as well. But that too, the
    Asian currency crisis, is dramatically affecting the Pacific
    Northwest, our farmers as well as our exporters. And I note
    that the United States, in the last week, has once again seen
    that it is a serious and long-term problem. Our own stock
    market has dropped by 6 percent recently as a result of the
    fears that are generated by Asia's situation.
        Could you expand on your comments, and tell us what the
    administration is doing to encourage Congress to fund the IMF
    request? And in your opinion, what are the risks to the United
    States if Congress refuses to act?
        Secretary Albright. Well, I think that we have all been
    kind of talking about the Asian financial crisis for some time.
    I think Americans are becoming more and more aware of it. I
    think that with each passing day it becomes evident that this
    is not something that is just happening in Asia that has no
    effect upon us.
        The Japan stock market declined slightly today, and we
    continue to be concerned about the fluctuation. And we are
    concerned, deeply concerned, about the prolonged weakness of
    the Japanese economy.
        We feel that there are any number of ways that we can be
    helpful as far as the Asia financial crisis is concerned. But
    the IMF is the major tool here because it allows for or directs
    that there be transparency, open markets, business practices
    and procedures that provide a certain level of confidence. They
    are the international way of letting the leaders of countries
    know the direction that they can take to dig themselves out of
    a hole.
        Our problem is that with our lack of funding for it, we are
    in effect weakening that particular tool. And as I explained in
    my testimony, it is basically an international credit union, so
    that it does not cost the American taxpayer. On the other hand,
    it provides the kind of security that allows the leaders to
    take steps in terms of reforming their economies.
        We will continue to press to try to get full IMF funding,
    and also to get the arrears. Because, again, that is a problem
    that we have talked about, vis-a-vis the U.N. It is very hard
    for us to keep exercising the leadership role and at the same
    time put ourselves in a position where other countries
    criticize us for not fulfilling our obligations.
        So, we consider this very important, and we must separate
    it from the family planning issues. Because while I think that
    there are really good folks on both sides of that issue--and I
    know that we all have different views on it--it is an important
    issue that should be discussed separately and not attached to a
    national security issue. Funding the IMF at this point is a
    national security issue.
        Senator Murray. Thank you. I look forward to working with
    you on that, as well.
        Secretary Albright. Thank you.
        Senator Murray. And, finally, Secretary Albright, I
    recently sent you a letter with a set of questions on Guatemala
    and the release of documents pertaining to human rights
    violations. Our staffs have been speaking about this letter. I
    just simply wanted to ask that you ensure a timely response to
    that, with as much information as possible.
        Secretary Albright. Absolutely, yes. And we are. I have had
    a beginning discussion with some of the Guatemalan officials
    that I have just seen recently at the OAS General Assembly. So,
    we will follow up on that.
        Senator Murray. Thank you very much. I look forward to
    that.
        Senator McConnell. Thank you, Senator Murray.
        Senator Bennett.
        Senator Bennett. Thank you very much, Mr. Chairman.
        Madam Secretary, when you were confirmed last year, I sent
    you some written questions. And in your responses, you revealed
    that Chinese military companies were selling germ warfare
    equipment to Iran. And last year, in this place, you confirmed,
    in response to my questions, Chinese sales of poison gas
    equipment to Iran.
        And by coincidence, this morning, Bill Gertz, in the
    Washington Times, says that the Chinese are assisting the
    Iranians and the Libyans in purchasing missile equipment.
        Are we ever going to get a handle on Chinese arms
    smuggling?
        Secretary Albright. There does seem to be an odd
    coincidence.
        Senator Bennett. Every time you come, I seem to have these
    questions. But it continues.
        Secretary Albright. Let me go through this, if I might, in
    a little bit of detail because there is no question that we
    have been concerned about issues that deal with
    nonproliferation and China. And as a major producer of nuclear-
    , chemical-, and missile-related equipment, China does have a
    responsibility to meet internationally accepted
    nonproliferation standards. This is a subject that comes up all
    the time with the Chinese as we meet with them.
        I think that it is worth detailing for you the extent to
    which China has become increasingly a part of the international
    norms that are so essential to all of us. On nonproliferation,
    there has been a sea change, particularly in the nuclear area.
    They have joined the NPT, the CTBT, the Biological Weapons
    Convention, the Chemical Weapons Convention, and they have
    committed to no nuclear cooperation with Iran, joined a major
    international nuclear suppliers group--the Zanger Committee,
    and instituted comprehensive nuclear export controls.
        They have, and they do, also cooperate with us in our
    efforts to maintain stability on the Korean Peninsula. When I
    was in China the last time and also when I met with the Chinese
    Foreign Minister again 4 or 5 days ago, in Geneva--we talked on
    a regular basis about their necessity to fulfill their
    obligations and to make sure that they expand their control
    over dual-use chemicals and refrain from any arms transfers.
    This is very much a part of our ongoing dialog.
        They have improved. I think the record will show it. They
    still need to improve. And we will continue to press that. The
    President is going to raise all these issues when he is in
    Beijing.
        Also, we have expert-level talks. Acting Under Secretary
    Hollum has met with senior visiting Chinese officials. And
    Assistant Secretary Einhorn continues to have expert-level
    talks.
        On the subject of today's article, I think that it is very
    important that it be clear that we strongly oppose any missile
    cooperation with Iran. We have repeatedly made that clear to
    China at senior levels, our concerns about reports of Chinese
    exports of missile-related equipment and technology to Tehran.
    We have said that and we will continue to do so, as I have
    stated.
        I think that this is an important problem, and we continue
    to deal with it. Engaging China on nonproliferation has been a
    top priority of this administration for several years. And it
    will continue to be so.
        I think that I need to also make very clear to you that we
    still have important concerns about China's missile-related
    exports. It is, as I have said, very much on our agenda.
        Senator Bennett. You are talking about having a strategic
    partnership with China. Maybe words do not mean too much,
    although I think very often the choice of words is perhaps the
    No. 1 challenge of a diplomat. The word ``partnership'' is the
    word that comes out of this that I would like to pursue.
        And in light of what we have just been discussing, how can
    we have a strategic partnership--not a relationship, not a
    dialog, but a partnership with a country that is involved in
    this kind of activity and proliferation of weapons of mass
    destruction--germ warfare, poison gas, and now missile
    technology to Iran? How do you explain this strategic
    partnership with China to our Asian allies? And what is their
    reaction to the idea that the United States is going to be
    partners with someone who is exporting this kind of technology
    around the world?
        Secretary Albright. Senator, let me again put this into
    some context. I think Senator Leahy spoke about the President's
    trip. And I had some comments in my opening testimony.
        Senator Bennett. I am not saying the President should not
    go.
        Secretary Albright. No; but let me comment. I think that we
    have many challenges as we look at the world of the 21st
    century. And I do not want to make this answer too broad, but
    the questions and points that Chairman McConnell raised are
    part of a very complex world that we are looking at as we move
    into the 21st century.
        I think there is no argument about the fact that China is
    the largest country in the world in terms of its population and
    also in terms of its economic possibilities. I think you could
    rightfully haul us all up here and get us on incompetence if we
    were not having some kind of a relationship with China that
    engaged them and that did not isolate them.
        Senator Bennett. I agree with that. I am focusing on the
    idea of creating a partnership with a Communist country that is
    involved in exportation of weapons of mass destruction. We did
    not have a partnership with the Soviet Union. We had
    engagement. The President, whoever he was, went to Moscow
    regularly. I am not talking about that.
        I am talking about this concept of a strategic partnership.
    Do we view the future as a joint China-American relationship in
    Asia?
        Secretary Albright. Well, let me say that we are looking
    toward the future of having a relationship with China, and who
    knows what they are going to look like in the 21st century.
    Plus, maybe I had this wrong, but I think one can be partners
    with more than one country, and it does not exclude other
    countries from having a partnership or relationship with us.
        I can tell you now that, while we clearly disagree with the
    form of government in China and, as I just explained, we also
    are taking very active steps to have them improve and change
    their proliferation relationship, they have in fact been quite
    helpful in a number of issues of strategic importance. That is,
    in terms of stabilization on the Korean Peninsula and their
    support for what we are doing there.
        And I might add that the Chinese were in the chair of
    Permanent Five members of the Security Council who met last
    week in Geneva, the chairmanship of that rotates. The Chinese
    did the formal part of the meeting and then turned it over to
    me. And we were able to get a statement out of the Permanent
    Five that was condemnatory of India and Pakistan that I think
    we could not have occurred had we not worked on having a
    strategic relationship or one where we are increasingly
    engaging China.
        I think, sir, that perhaps you are reading too much into
    the word ``partnership.'' But it is an effort, I think
    ultimately, because we are hoping that China will in fact play
    an increasingly responsible role in Asia, and we want to engage
    it across the board. And I think there is evidence that there
    is some good coming out of it. Though, clearly, there are
    problems, whether they be in human rights or in the
    proliferation area or in other ways that they run their
    country.
        Senator McConnell. Madam Secretary, shifting back to the
    Middle East for a moment. There has been some controversy
    surrounding the views of the administration related to the
    status of Jerusalem. The Vice President recently made a speech
    on the occasion of the 50th anniversary of the State of Israel,
    and he made that speech in Jerusalem.
        In your view, when he made that speech, was he in Israel?
        Secretary Albright. Jerusalem is a final status issue. I
    think that both Israel and the Palestinians have agreed that
    Jerusalem is one of the issues to be addressed in permanent
    status negotiations. And, clearly, no issue in the Middle East
    peace process is more volatile than Jerusalem. I think it is
    not appropriate for us to offer our views. This is going to be
    a permanent status issue.
        I think that what is important here is that we get to
    permanent status, so that we can actually deal with that and
    the other very complex issues.
        Senator McConnell. Staying in that part of the world, as I
    mentioned this in my opening remarks I am curious as to whether
    there have been additional financial commitments made with
    reference to the peace process?
        Secretary Albright. No, sir; there have not been. There
    have been feelers as to whether there could be. But there have
    not been any additional commitments. Obviously, if there were,
    we would be discussing them with you.
        Senator McConnell. Moving to Cambodia, we all have watched
    with disappointment over the past 11 months as the situation in
    Cambodia has deteriorated, reaching what by any standard would
    have to be agreed were unacceptable levels of corruption. The
    Hun Sen government has relied on tactics of murder, extortion
    and military intimidation to maintain power. The world
    community publicly condemns the practices, but remains largely
    disengaged. And no effort seems to be underway to ensure that
    the July 1998 elections are legitimate.
        Now, Assistant Secretary Roth was up before the Foreign
    Relations Committee recently. He said that a framework ``exists
    in which free and fair elections could conceivably be held.''
    Do you share that optimism?
        Secretary Albright. Well, Mr. Chairman, this has been very
    much on my mind. We have worked very closely with the ASEAN
    troika on this, as well as created a Friends of ASEAN group. I
    think that we have done what we can to try to give the
    Cambodian people a chance at these elections. There are going
    to be observers. The opposition leaders are back. There is
    access to the media. And there has been a drop-off in the
    violence.
        I go back to how we all talked about the first Cambodian
    elections, when people thought that nothing would happen in
    them and that the people would not really have an opportunity
    to voice their views. I went to Cambodia shortly after those
    elections. People had flocked to the polls in record numbers
    and stated their views.
        And so I think that I agree with Assistant Secretary Roth,
    or he agrees with me----
        Senator McConnell. How surprising. [Laughter.]
        Secretary Albright [continuing]. I think there is a chance
    here, and we ought to make sure that we are able to get the
    NGO's and various observers in their and give the Cambodian
    people a chance.
        In the meantime, we will also continue to press, with ASEAN
    again and through our Friends of Cambodia group.
        Senator McConnell. Well, you are familiar with the concern
    expressed most recently just this morning in the Washington
    Post, which I will quote. It says: ``Unfortunately, the Clinton
    administration is giving hints of leading toward a third even
    less attractive option--accepting the election results without
    much of a fuss.''
        I gather what I hear you saying is that you think they are
    on track to having a relatively free and fair election?
        Secretary Albright. What I am saying is I guess there is
    not--I do not always agree with every editorial. But I think
    that we have at least provided a framework for them to have a
    chance to do that--not a guarantee, but a chance. And we will
    continue to do that.
        And if the election is not free and fair, we will so
    declare. But we have set up a process whereby there should be
    enough observers in there in order for us to be able to make
    the judgment.
        Senator McConnell. So, you are still optimistic that this
    may pass the international smell test when it occurs in July?
        Secretary Albright. Mildly optimistic, yes.
        Senator McConnell. Mildly optimistic.
        In terms of Cambodia, let me just ask this, finally, before
    going to Senator Leahy for a second round; does the
    administration have a plan in place to deal with the more than
    75,000 Cambodian refugees along the Thai border?
        Secretary Albright. Well, we generally have been looking
    very carefully at this vast increase of refugees all over the
    world. One of the things that we are asking is for increased
    funding in the refugee accounts. I will have to get back to you
    with a specific plan for those on the Thai border. But it is
    something that we have discussed a great deal. I have also had
    discussion with the Thai authorities. And also it is a subject
    that I am sure will come up again as we meet with the ASEAN
    group later this summer.
        Senator McConnell. Senator Leahy, do you want to have a
    second round?
        Senator Leahy. Thank you. Briefly, and then I will put my
    other questions in the record.
        One thing I would like to ask about, Madam Secretary, our
    law prohibits aid to any unit of a security force of a foreign
    government if that unit has been implicated in gross violations
    of human rights unless the foreign government is taking
    effective measures to bring the individuals responsible to
    justice--the so-called Leahy Law. I believe it is common sense.
    And I appreciate that you and others in the State Department
    have seen this law as an opportunity to support human rights.
    And you and others from the Department have been very strong in
    their support in your testimony on the Hill.
        The Pentagon has said that it also adheres to this
    standard, but I have received reports that make me wonder if
    that is so. Can I assume that it is the administration's
    policy, regardless of which budget the funds come from they
    will follow the Leahy Law?
        Secretary Albright. Well, first of all, let me just tell
    you what we do to let people know about the Leahy Law. In
    March, we sent out a cable to all diplomatic posts, informing
    them of the new requirements, and instructing them to formulate
    action plans to implement the legislation. And before
    disbursing any funds to foreign security forces units, our
    Embassies vet the proposed recipients to ensure no human rights
    abusers are among them. We are working with DOD to make sure
    that the law is properly implemented.
        We also have human rights officers at each of our
    diplomatic posts, and they routinely gather information on
    human rights violations. And we are working very assiduously to
    make sure that the law is implemented, as I said, working with
    DOD also.
        Senator Leahy. Thank you.
        I have been watching the growing civil unrest in Mexico, as
    I know you have. There are some 70,000 soldiers in Chiapas,
    about one-third of the Mexican armed forces. And there has been
    clashes between rebel groups and soldiers in several other
    states. And while we would all like to think of Mexico as being
    different than a lot of the countries in Central America, it
    has many of the same problems. And I worry about what happens
    in Mexico.
        Despite President Zedillo's statements to the contrary,
    every indication is that the government is trying to solve
    these problems with force. A lot of people are being killed in
    Chiapas. The negotiations on a peace agreement have broken
    down. The Bishop who headed the negotiations quit in disgust
    last week.
        Is this situation just going to become worse and worse?
        Secretary Albright. Senator, President Zedillo did move
    very quickly to have his Attorney General investigate some of
    the December massacres and to really try to get the situation
    dealt with in a negotiated way. I have now met with the Mexican
    Foreign Minister a number of times on a number of issues
    recently, in a number of places--whether in Santiago or Caracas
    or in Washington last week. I can assure you that the
    Government of Mexico knows of our concern, in terms of what is
    happening in Chiapas--massacres--and trying to make sure that
    there is a very thorough investigation.
        We are following the investigation very closely, and have
    told the Government of Mexico that we will be doing so. We are
    also working generally with the Mexican Government to try to
    make sure that there is timely notification of detention and
    counsel access to United States citizens that are in Chiapas.
        So, I think, on the whole, Senator, we are pressing them to
    resolve the Chiapas situation and, at the same time, pressing
    them to deal with what we consider issues that need to be
    investigated thoroughly.
        Senator Leahy. The reason I ask is we license a lot of
    sales of military equipment to Mexico--lethal equipment,
    helicopters, and so forth. And I worry, as many others in my
    own State of Vermont worry, that a lot of that equipment is
    being used in Chiapas in a way that would go beyond anything we
    have licensed or would condone. And I would hope that we are
    following that very, very closely, so it is not being done.
        I have further questions, but I will submit those for the
    record, Mr. Chairman.
        Secretary Albright. Senator, if I might just say, that was
    a question asked of me at St. Michael's College.
        Senator Leahy. I just thought I would throw it in again.
        Secretary Albright. I came back and specifically asked
    whether there was any evidence of American equipment being
    used, and was told that there was not. I said I was asked this
    by a very smart young woman in Vermont, and I needed an answer.
        Senator Leahy. Well, I expect that she is probably going to
    stop me on the street while I am up there and ask me again. So,
    I just want to make sure.
        Senator McConnell. Thank you, Senator Leahy.
        Senator Bennett.
        Senator Bennett. Thank you, Mr. Chairman.
        We will undoubtedly be pursuing the question of United
    States-China relations for a long time as this subcommittee
    goes forward. I simply note that Secretary Christopher did not
    want to use the word ``partnership'' in his relationship with
    the Chinese. It is Secretary Albright who agreed to the phrase
    during her April meeting.
        That is why I raised it here. Because I think words do have
    meanings, and I want to pursue that, not for the point of
    splitting semantic hairs but to go back to a strategic
    statement that I got out of my last visit to China, when the
    U.N. Ambassador told us that China's long-term goal was to get
    the United States out of Asia and become the only significant
    power in that part of the world, and that our other allies'
    long-term goal was to make sure we did not get out of Asia,
    because they did not like the idea of having China as the only
    superpower in Asia.
        And it is against that background that I raised the
    questions in the first round. We will undoubtedly have some
    more.
        Let me go to another quick issue that I would like to give
    the Secretary an opportunity to respond to. The CIA now admits
    that it was surprised by the Indian nuclear tests last month. I
    would be interested in knowing if the State Department was also
    caught unawares by the Indian actions?
        Secretary Albright. Senator, let me, if I might, just go
    back to the previous question. I think that there is a dynamic
    relationship between us and the Chinese, and we are moving in a
    positive direction with them, which would allow us to have the
    kind of relationship that I discussed. But things have moved
    and changed quite dramatically on a number of issues,
    especially on some of the nonproliferation issues which we
    discussed.
        Also, I think that we cannot and should not operate on the
    premise that China is trying to keep us out of Asia. It is
    impossible to keep the United States out of Asia. We are a
    Pacific power. We have interests there. It is very evident in
    the meeting with President Kim Dae Jung, for instance, just now
    that we are viewed as a major Pacific and Asian power. There is
    no way that anybody can keep us out.
        I think what we need to clarify is that our policy is not
    one of containing China, but of engaging China, and that we
    need to work systematically to have regular summits with them,
    to engage in a dialog that goes beyond just United States-
    Chinese relations, but talks about what they see in the Asian
    subcontinent, et cetera.
        So, we will probably have a lot of opportunity to discuss
    that.
        Senator Bennett. Yes; and I do not mind engaging. I voted
    for MFN, and have done the other things that have brought some
    political heat on me with respect to China. But it is true, in
    my view, that the PRC has signed a number of arms control
    agreements. And the problem is they do not seem to live up to
    them. And the administration has had a lot of meetings with the
    Chinese on arms sales, and the problem is that nothing seems to
    come of these meetings long term.
        So, that is why I continue to pick away at the sore.
        Secretary Albright. Well, I would respectfully disagree
    about the fact that nothing comes of them in the long term. I
    think there is progress to be made, and progress has been made.
    I think if you believe that the word ``partnership'' means that
    we are not friends or partners with anybody else, then it is
    the wrong word. But if you see it as a possibility of engaging
    with them on a series of issues where we can press them or
    cooperate with them, then I think maybe we could agree.
        But let me just say, on the Indian issue, we have known,
    obviously, all of us, for some time that the Indians and the
    Pakistanis were capable of having these kinds of tests. And we
    have raised the subject of proliferation with them every time
    that we have met with them. I did so when I was in India. We do
    so when we meet with the Indians and Pakistanis.
        What happened here was that a party in which the testing of
    nuclear weapons was part of their party platform got elected.
    Their people were here, and simply denied the fact that they
    were going to happen at that particular moment. But we knew
    that the possibility existed. Yes, we were all surprised by the
    fact that the tests took place when they did. And I think that
    the CIA has said that this was a problem, and they have had an
    investigation looking into it.
        The Glenn amendment was supposed to hold all this back. But
    we clearly all knew about the fact that it was a long-term
    possibility. We were surprised by the moment.
        Senator Bennett. Thank you, Mr. Chairman.
        Senator McConnell. Madam Secretary, I want to close with
    the Caucasus. When you were here last year, you indicated your
    belief that the Russians were as anxious as we were--as we
    are--to see a settlement of the Azeri-Armenian dispute. I was
    there last August, which does not in any way make me an expert,
    but I have had a chance to meet with the players. In Armenia,
    since last August, the principal player has changed, with the
    resignation of President Ter-Pertrossian and the new election
    of Mr. Kocharian.
        I am deeply skeptical that the Minsk Group, as a process
    for resolving this dispute, can work. And as I look out at the
    places around the world where we have clear interests, it seems
    to me, Madam Secretary, one could argue that we have a good
    deal more interest in the Caucasus, particularly given the
    involvement of many of our energy companies in the Caspian Sea
    development, than we do in the Balkans. Yet, we are intensely
    involved in the Balkans, and while I am not arguing necessarily
    that we should not be, it seems to me, in looking at
    priorities, by any standard, we have huge interests in the
    Caucasus.
        Do you have any optimism--or anything that could illustrate
    a reason for optimism I guess would be a better way to put it--
    that a settlement of the Armenia-Azeri dispute is someplace in
    the near future? And if you are optimistic about the Minsk
    Group as a framework for achieving a peace, tell me why.
        Secretary Albright. Mr. Chairman, I looked at the subject
    even before I got to the United Nations. But the issue, when I
    was Ambassador at the United Nations, was very much on our
    agenda. I went to both Armenia and Azerbaijan to talk about
    this. At that stage, I talked a great deal about my own sense
    that the Minsk Group was not really moving. In fact, I
    discussed it also within OSCE circles, and tried to really
    press it.
        I think that you made a statement as part of your opening
    remarks about trying to do this without Russia. I think I heard
    that right. I think it is very hard to see about some kind of
    settlement in Nagorno-Karabakh without having Russian
    involvement in the discussions of it.
        Senator McConnell. I did not mean to say that they would
    not be involved at all. After all, it is on their doorstep. But
    do you see any evidence that you can cite that the Russians are
    interested in a settlement of this dispute.
        Secretary Albright. Frankly, I believe that in the long run
    they would like to have the various disputes on their borders
    settled, because they create a series of problems for them.
        Senator McConnell. My question is about the short run. Can
    you cite any evidence that they would like to see this settled?
        Secretary Albright. Well, the last evidence that I had was
    that we discussed this in the tripartite talks--with the French
    and the Russians.
        I must agree with you that I would like to see more steam
    put behind this, and that, to some extent, it is in one of
    those categories that you just let it bubble along, I think,
    without enough action to it.
        Senator McConnell. Are you willing to make it a higher
    priority? I know Strobe Talbott is, at least ostensibly, the
    point person on this for you. How frequently is he dealing with
    this? Does he go to the meetings, or is it instead passed down
    to somebody below him?
        Secretary Albright. He goes to a number of them. But there
    is somebody who does this on a full-time basis, because it
    requires constant following.
        I am taking what you are saying very seriously, and I will
    make a point of making sure that we rev it up a bit. It is one
    of those situations that is--having dealt with this myself
    previously--there is no quick and easy solution to it. And if
    the parties do not want to talk to each other about it, and if
    changes in government make it difficult for the various
    problems, in terms of the corridors and the blockages to be
    resolved, it is very hard to push.
        I agree with you on the general point that the Caucasus are
    an area of major importance to us. We spend quite a lot of
    time, in terms of dealing with general issues in the Caucasus
    and in Central Asia--and even more, I think, with the whole
    issue, obviously, of their strategic importance and the issue
    of Caspian oil, and, generally, the whole area.
        When I testified before the Foreign Relations Committee, I
    brought my globe, and I showed that we basically look at the
    world always through the prism of the Western Hemisphere. Then
    I turned it around and I showed how much of Eurasia there was.
    And there are the Caucasus, central to all that. So, it is one
    of the areas that we are trying to spend more time on, in terms
    of its overall importance to us.
        Senator McConnell. Well, I know you have a lot of trouble
    spots. I appreciate what you said about giving this more
    personal priority, in terms of your own time, because I frankly
    think, Madam Secretary, that unless this is escalated on the
    priority list in your shop, the chances are it is just going to
    drift along with this Minsk Group, where nothing ever happens.
    In the meantime, I believe you visited the refugee camps as I
    have, there is a desperate situation.
        Wholly aside from the oil interests, which are apparent,
    the humanitarian side of this is very bleak. And if CNN had
    spent any time in the refugee camps in either Armenia or
    Azerbaijan, I think we would have a lot more interest in this
    issue in this country. And I hope you will in fact take a
    greater interest in it.
        Secretary Albright. Mr. Chairman, just now and also in your
    opening statement, you really had a long list of the various
    issues that we have to deal with. And as I have said to all my
    political friends, every county has been heard from. I mean,
    there is not a problem anywhere that somehow is not out there
    for us.
        And I think we need to have more discussions about
    generally how we proceed into the 21st century. With the kind
    of statement that Chairman Stevens made, you know, I would like
    to see the money. I think we all would like to see the money.
    We also would like to have the ability to deal with the
    Nagorno-Karabakhs and the various other issues that have come
    up here today.
        I think we need to understand what our role is; that the
    United States cannot lead without the resources. We talked
    about sanctions----
        Senator McConnell. Can I interrupt you on that point,
    though?
        Secretary Albright. Yes.
        Senator McConnell. I think the money would follow the
    success. I mean, what happened after Camp David is that the
    Congress made a very generous commitment, which it is still
    keeping 20 years later. I think if there is a success that
    requires some American commitment, you will find people in
    Congress on both sides trying to figure out a way to do our
    part.
        Secretary Albright. Well, I hope that we have that
    opportunity. And I also hope that we have an ability to work on
    something that is tying our hands. That is the whole issue of
    sanctions policy that we have talked about, that came up here
    today. I would welcome very much a much broader discussion of
    the various issues that we have to deal with, because they are
    bubbling everywhere, and we need to work together on it.
        I would like to correct something, though, Mr. Chairman,
    that I said on the refugees. We have not requested an overall
    increase, but we have changed some of the allocations. And we
    will get back to you on that.
        Senator McConnell. Thank you very much, Madam Secretary. We
    wish you well.
        Senator Bennett. Mr. Chairman, may have one last shot at a
    totally unrelated issue?
        Senator McConnell. All right, Senator Bennett.
        Senator Bennett. Wearing my hat as chair of the Senate
    Special Committee on Y2K, may I ask, Madam Secretary, that you
    continue to press on the initiative that I understand you have
    from John Koskinen, to see that every U.S. Ambassador raises
    the year 2,000 [Y2K] issue with every country vigorously?
    Because I think the evidence is now coming through that while
    we will have problems in this country, we are now close enough
    to the possibility that we will get most of our Y2K problems
    under control in this country, the evidence indicates that it
    will be a disaster in many parts of the world, with serious
    economic consequences. And I would hope you would continue to
    press forward on that issue.
        I would be derelict, as you know, Mr. Chairman, if I did
    not take every opportunity to raise this.
        Secretary Albright. I have to say, Senator, that you remind
    me of me on this. Because in every meeting that I have with a
    foreign minister, after we have finished with everything, I
    say--we have had a meeting of the Cabinet, and the President
    has made very clear that we are all responsible for our sectors
    in terms of letting them know that they have to do something
    about the Y2K problem. And so the Transportation Department has
    to deal with local police stations, et cetera.
        I consider that my sector is the world, and, therefore,
    every time I meet with a foreign minister, I say, you have to
    do something about this. Some of them think I am a techie
    because I even raise it, but I am telling them that we are not
    going to be able to talk to each other. So, I promise you that
    that is very high on my agenda.
        Senator Bennett. Thank you.
        Senator Leahy. I am not planning on traveling on the day we
    change over. I also want to emphasize that I agree with what
    Senator McConnell said on the refugee issue. This is something
    that I think you will find strong, total agreement on.
        Thank you.
        Secretary Albright. Thank you very much.
        Senator McConnell. Thank you, Madam Secretary.

                             conclusion of hearings

        Senator McConnell. The concludes our hearings, the
    subcommittee will stand in recess subject to the call of the
    Chair.
        [Whereupon, at 12:22 p.m., Tuesday, June 16, the hearings
    were concluded, and the subcommittee was recessed, to reconvene
    subject to the call of the Chair.]

          FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS
                      APPROPRIATIONS FOR FISCAL YEAR 1999

                                  ----------

                                           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:]
                                  Environment
      Prepared Statement of Scott Sklar, Executive Director, Solar Unity
                                    Network
                                  introduction
        The U.S. Export Council for Renewable Energy (US/ECRE), the trade
    consortium of the six renewable energy and energy efficiency industry
    associations, urges the Subcommittee on Foreign Operations to stick
    with its strong guidance to the Agency for International Development
    (AID) to integrate renewable energy applications in our bilateral
    programs. Renewable energy can significantly enhance the child
    survival, environmental, agricultural, healthcare, development and
    infrastructure programs in a meaningful way.
        Our recommendations for fiscal year 1999 are for $20 million for
    AID's Office of Energy, Environment and Technology within the Center
    for Environment as well as level funding for the Center's other
    programs. These recommendations mirror the previous guidance of this
    Subcommittee, as well as the growth in opportunities of the U.S.
    renewable energy industries in an era of reprioritization of AID's
    programs, and the implementation of sustainable private sector projects
    in the developing world.
        The Subcommittee should realize that developing country activities
    to promote renewable energy have increased significantly where 2
    billion people still have no access to electricity. India represents
    the largest short-term market and Mexico is electrifying nearly 60,000
    villages beyond the existing electric utility grid. The renewable
    energy options, in this case, micro-hydropower, photovoltaics and wind,
    are the least-cost options to provide electricity to a population that
    would otherwise be unserved for generations. Similar efforts have been
    initiated in Indonesia (48,000 villages), Sri Lanka (20,000 villages),
    South Africa (35,000 villages) and Brazil (22,000 villages). The real
    issue is whether the United States or our competitors will garner the
    dominant marketshare of these new and emerging markets.
        These immense impending market and development opportunities, which
    will surpass $4 billion in aggregate by the year 2000, require an
    unusual focus and resolve of the United States' development and export
    agencies to work hand-in-hand with the U.S. renewable energy
    industries. Therefore, recommendations will effectively promote
    environmentally benign U.S. technologies, principally biomass, energy
    efficiency, geothermal energy, hydropower, photovoltaics, solar
    thermal, and wind energy.
        In photovoltaics for instance, the developing world markets with
    the help of AID's Center for Environment, specifically the Office of
    Energy, Environment and Technology have contributed to the increase of
    U.S. solar manufacturing capacity. The following manufacturing facility
    openings represent this increase from last year's testimony:
      --January 1998, British Petroleum Solar, this country's fourth
            largest photovoltaic manufacturer, ribbon-cut a new state-of-
            the-art automated manufacturing facility in California.
      --December 1997, ASE Americas ribbon-cut its new photovoltaics
            manufacturing plant in Massachusetts.
      --March 1998, Tucson Electric announced its intention to ribbon-cut
            its U.S. photovoltaic manufacturing plant for exports geared to
            Latin America.
      --April 1998, Solarex Corporation, a business unit of Amoco/Enron
            Solar will hold its ribbon-cutting for a new state-of-the-art,
            10 megawatt per year amorphous silicon photovoltaics plant in
            James City County, Virginia.
        The failure of the United States to position itself as a market
    leader on the range of emerging energy technologies hinders not only
    our competitive position, but also encourages dependency by the poorest
    countries of the world to export their precious resources and foreign
    exchange in order to import energy. This encouragement of fossil fuel
    dependence insures that these developing countries will be unable to
    grow out of debt, leaving them with fewer resources to acquire a broad
    range of U.S. produced goods and services.
        The U.S. renewable energy industries are asking the Subcommittee to
    adopt and maintain clear, consistent, and determined mandates for the
    Agency for International Development. The goal would be to implement a
    strategic development plan in cooperation with the U.S. renewable
    energy industries and the AID Mission Directors to promote these
    technologies in a cost-effective and systemic way to promote
    sustainable development.
                 fiscal year 1999 appropriations and directives
        The U.S. Export Council for Renewable Energy asserts that an
    essential ingredient for increased Third World democratization must be
    a substantial increase in the utilization of renewable energy. If
    sustainable development by the Third World is to be ultimately
    achieved, it must rely on the use of renewable indigenous resources to
    build worldwide economic growth. And finally, the only way to
    significantly achieve the kind of world market penetration needed to
    accomplish these goals is to develop policies and create new financing
    tools to aggregate markets which will significantly lower the costs of
    renewable energy to make these technologies accessible to the world's
    peoples.
        The renewable energy and energy efficiency industries want to bring
    to your attention one of the most successful private sector-driven
    programs within the Agency for International Development through its
    Office of Energy, Environment and Technology.
        Over the last five years, this subcommittee with bipartisan
    support, has consistently supported funding for AID's Energy Office at
    a consistent level of $20 million for innovative replicable renewable
    energy and efficiency projects.
        AID's Office of Energy, Environment and Technology has worked
    collaboratively with industry to leverage global renewable energy
    markets in order to provide electricity and thermal energy not only to
    the 2 billion people without access to energy, but to the other billion
    people who have access to electricity for less than ten hours per day.
    Over 70 percent of U.S. photovoltaic technology is exported to Third
    World countries and several new U.S. automated manufacturing plants are
    to be built in the U.S. to meet global demand, which is increasing at a
    rate of 30 percent per year. Nearly 1,300 megawatts of wind capacity
    has been installed worldwide as have been over 85 megawatts of
    geothermal in 1995. Over 3,000 megawatts of geothermal are now under
    contract in Indonesia and the Philippines by U.S. companies. A multi-
    billion dollar market exists worldwide for U.S. energy efficiency
    technologies and services with over $500 million in sales ranging from
    Mexico, Russia, India, Thailand, and Indonesia.
        The AID industry-driven program has created new multilateral
    financing programs and U.S. industry cost-shared prefeasibility
    programs with over $2.5 billion in short term sales opportunities in
    Mexico, Chile, Central America, India, Indonesia, Philippines, South
    Africa, Zimbabwe, Brazil, and Russia.
        We have been very concerned that AID not only enhance AID's Office
    of Energy, Environment and Technology and related programs working
    through existing NGO's and industry consortia as earlier directed to
    do.
        Our industries urge you to nurture these demonstrated successful
    industry-driven programs at the high level and spirit first achieved in
    the Bush Administration. There is no reason that international
    development programs must build U.S. jobs and strengthen U.S.
    industry's global market advantage, but to establish working groups to
    further AID's goals.
        Renewable energy and energy efficiency technologies support viable
    development worldwide. Our industries lead the world technologically
    and thanks to our strong partnership with USAID, have begun to
    penetrate multi-billion dollar overseas markets.
        Can the United States foster sustainable development and increase
    U.S. business opportunities simultaneously? Yes, but only if AID's
    programs are reinforced toward a collaborative effort with the private
    sector. The directives this Subcommittee has given in the last few
    years has surely helped (AID would have done nothing otherwise). But
    unless funding priorities are explicit in the fiscal year 1999
    appropriations which do not count in-kind AID Missions contributions
    which cannot be guaranteed or relied upon towards renewable energy and
    energy efficiency, we will be unable to achieve an even modest advance.
        The Subcommittee should be reminded that promises by AID to use
    mission buy-ins to meet appropriations report directives are not
    substantial.
        In addition, the US/ECRE consortium wishes to have the additional
    $5 million historically directed toward AID Mission buy-ins transferred
    under the federal interagency board, (the Committee on Renewable Energy
    Commerce and Trade (CORECT)), of which AID is a member and which AID
    should become the administering agency to drive village power programs.
                                   conclusion
        The United States must come to terms with how best to utilize its
    development programs. The current AID programs must be enhanced through
    new credit and technology transfer options. However, the Congress must
    begin to set development priorities now, to integrate renewables in the
    Subcommittee's priorities including child survival, democratization and
    health to name a few. By sending a new set of signals, the United
    States can leverage an impressive set of global activities.
        The world is moving towards renewable energy and the United States
    holds the lead in almost all these technologies. The United States also
    holds a lead in services including the development of Energy Service
    Companies (ESCO's) and packaging and system design, maintenance, and
    deployment services.
        While over 50 percent of renewable energy equipment and services
    are exported, the U.S. cannot sustain our markets globally without a
    pragmatic U.S. development program committed to renewable energy. The
    global renewable energy market should grow nearly 30 percent per year
    and the U.S. could garner over half of that expanding market with a
    minimal investment. Our industries ask you to join with us to take
    advantage of this unprecedented opportunity.
        Thank you.
                                     ______

    Prepared Statement of Alexander F. Watson, Vice President and Executive
    Director, Latin American and Caribbean Division, 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 1999.
                                    summary
        The Nature Conservancy's mission is the protection of the plants
    and animals that make up the natural world, primarily through
    protection of their habitat. We work mainly through private means. The
    generosity of our members during the last fifty years has enabled us to
    purchase, using private funds and exclusively from voluntary sellers,
    the 1.2 million acres that we now preserve in the United States, making
    up the world's largest system of private nature preserves. The
    Conservancy also works in 24 countries in Latin America, the Caribbean,
    and the Asia/Pacific region; abroad, we help local organizations
    improve the effective level of protection to biodiversity, mainly in
    existing parks and protected areas, by strengthening local
    institutional capacities, building infrastructure, and involving local
    people in community-based conservation. Since the beginning of our
    international program in 1981, we have helped protect more than 74
    million acres of biologically significant land in the Western
    Hemisphere alone, as well as critically important marine and forest
    conservation sites in Pacific island countries. Economic implications
    for forest and soil conservation, watershed and fisheries protection,
    for instance, are enormous.
        Parks in Peril (PiP), the flagship of our Latin American and
    Caribbean efforts, turns ``paper parks'' into genuinely protected
    areas. The Agency for International Development (AID) has been vital to
    our international efforts by its support to global biodiversity
    protection and, especially, through its funding of Parks in Peril. Our
    partnership with AID is managed under an innovative multi-year
    cooperative agreement that minimizes administrative burdens and
    expenses while maximizing return on taxpayers' dollars. AID's growing
    commitment to helping international conservation, using assistance
    instruments, leverages resources from non-AID sources. For example, the
    $27.5 million PiP has received from AID since 1990 has been formally
    matched by more than $10 million from The Nature Conservancy, local in-
    country partners, and governments. However, that total greatly
    understates the real multiplier. Local partners and governments have
    thus far attracted approximately $180 million of non-AID funding; this
    includes debt-for-nature swaps, carbon sequestration projects with
    major U.S. utility and oil companies and partners in developing
    countries, grants from the Global Environment Facility (GEF) and
    foreign governments including Japan, the Netherlands, and the European
    Union.
        This Committee in previous years has explicitly recognized the
    importance of defending biodiversity through public-private
    partnerships. The Nature Conservancy appreciates that support very much
    and urges that the Subcommittee once again strongly support continued
    funding for Parks in Peril, as well as the rest of AID's biodiversity
    programs in the fiscal year 1999 appropriations process. We also
    endorse appropriations for two other activities with great potential
    impact on international conservation. First, we support full funding at
    the Administration's $300 million request level for the Global
    Environment Facility (GEF), which includes biodiversity among its
    concerns. There is just no substitute for the GEF in dealing with the
    global environmental problems. Second, we support the Tropical Forest
    Conservation Act, originally cosponsored in the House by Congressmen
    Portman, Kasich, and Hamilton, which was approved on the House floor
    March 19 and is pending before the Senate as S. 1758. If it becomes
    law, appropriations will be needed. We hope that Members then will look
    to all possible sources to support this worthy measure--outside
    Function 150, but also within it, and hence that this Committee's
    report will create space for this measure. We have appended to my
    written statement language regarding PiP, the GEF, and the Tropical
    Forest Conservation Act, which we hope the Committee will find useful
    in preparing its report accompanying the appropriation legislation it
    is considering.
                    importance of international biodiversity
        People in developing countries rely on living natural resources for
    a multitude of economic and social benefits, and the rest of the world,
    including the United States, also benefits from them. 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. Major U.S. crops now depend
    on infusions of new genes from other countries. One-quarter to one-
    third of all the prescriptions drugs in the U.S. contain compounds
    derived from wild species. 120 prescription drugs currently come from
    about 95 species of plants; of these, 39 grow in tropical forests.
    Botanists believe that more than 35,000 plant species (mostly drawn
    from tropical forests) provide traditional medicines to local peoples
    and, hence, are good candidates for future pharmaceutical research.
    Recently, the Abbott Laboratories company announced the development of
    a new drug that reportedly uses an entirely new mechanism to block pain
    with few of the side effects of existing drugs; the active compound was
    originally found in the skin of a frog living in the tropical forests
    of Ecuador. Only about 2 percent of plants have been examined for
    medicinal properties. 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 true economic value of biological, and other
    ``renewable'' resources such as water, may at times be difficult to
    measure. After all, aren't biological resources and water, by
    definition, renewable? They can be, but not if species become extinct.
    Not if watersheds are destroyed. Not if coral reefs are killed. Not if
    topsoil is blown or washed away. Not if interlocking communities of
    living organisms are disrupted.
        The developing world's economic development (and, ultimately, the
    health of much of our environment here) is unquestionably tied to the
    protection of its natural resources. Coastal wetlands, mangrove forests
    and off-shore reefs, for example, are essential for healthy fish
    populations--and fish is currently the leading source of animal protein
    in the human diet worldwide. Forests serve as ``carbon sinks'' to help
    control carbon dioxide buildup in the atmosphere. Forests also promote
    the retention of water and keep soil from blowing away and eroding into
    critical waterways--waterways that provide drinking water, hydropower,
    irrigation and transportation to millions of people. Biodiversity
    enables the recycling of essential elements, such as carbon, oxygen and
    nitrogen. Parks and protected areas are critical to conserving
    biodiversity, and they have the added benefit of attracting tourists
    which generate income and employment. Nature tourism alone already
    generates $12 billion annually.
        By contrast, the degradation of natural and biological resources
    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 in developing countries, and the
    national security of the United States, are real.
     usaid's commitment to biodiversity protection/the example of parks in
                                     peril
        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
    activities reach 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.
        The Nature Conservancy 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. Parks in Peril (PiP) has been a
    model of long-term cooperation.
        Over the course of recent decades, many nations of Latin America
    and the Caribbean took important initial steps to conserve their living
    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 succeeded in managing these areas so as to truly
    protect them--they remained ``paper parks.''
        To address this serious problem, in fiscal year 1990 AID began
    supporting The Nature Conservancy's Parks in Peril (PiP) program, 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 into functional protected areas. Parks in Peril is
    administered by The Nature Conservancy and its Latin American and
    Caribbean partners, under a series of multi-year cooperative agreements
    with AID. The program builds collaborative partnerships among national,
    international, public and private organizations. It has become the
    largest in-situ biodiversity conservation project in the tropical world
    and has drawn wide support from other governmental and non-governmental
    constituencies in the region and around the globe.
        Parks in Peril works to achieve four objective goals: (1) To build
    on-site protection and management infrastructure; (2) to integrate the
    protected areas with the human societies inhabiting their surrounding
    regions; (3) to create long-term funding and policy mechanisms to
    sustain the local management of the Parks in Peril sites; and (4) to
    use PiP's activities to influence conservation in other sites in the
    region's most imperiled ecosystems.
        AID and the Conservancy have designed a scorecard to measure how
    well particular sites meet these goals. As they do so, they are
    ``consolidated''--having achieved the program's original goals, they
    are phased out from receiving direct assistance from the centralized
    AID program. This transition to long-term sustainability has been from
    the outset a goal of the program.
        Here is a ``scorecard'' for the program as a whole: to date, AID
    LAC Bureau funds have supported conservation efforts at 29 PiP sites,
    comprising over 22 million acres in 12 countries. (Parenthetically, I
    would note that the Conservancy also works at more than 30 additional
    PiP sites, totaling another 50-plus million acres.) Of those 29 sites,
    14 have been ``consolidated.'' We are working with AID to extend the
    PiP model to 8 new sites. Four of the new sites are in countries
    (Brazil, Honduras and Jamaica) where PiP has not operated before. PiP
    has provided exceptional leverage for the American taxpayer: the $27.5
    million PiP has received from AID since its inception in fiscal year
    1990 has been formally matched by more than $10 million from The Nature
    Conservancy, local in-country partners, and governments, but that total
    greatly understates the real multiplier. Local PiP partners and
    governments have thus far attracted approximately $180 million of non-
    AID funding. This includes debt-for-nature swaps, carbon sequestration
    projects with major U.S. utility companies and partners in developing
    countries, grants from the Global Environment Facility (GEF) and
    foreign governments including Japan, the Netherlands, and the European
    Union.
        PiP has worked to protect cloud forests, coral reefs, tropical
    forests, and savannas. 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'
    involvement is stressed, including measures to involve them in
    management decisions, creation of local opportunities for compatible
    resource uses and tangible economic benefits from the park. Parks will
    not ultimately survive unless local people value them and take pride in
    the their preservation. Parks in Peril is, thus, fundamentally
    different from one-time grant programs for park protection, and its
    methodology has become a model toward which the rest of the world is
    looking.
        In concluding the portion of my statement concerning AID's efforts
    in support of protection of biodiversity, I would note with approval
    the important cooperative activities of its non-PiP programs. The
    Biodiversity Support Program (BSP) operates globally to promote
    biodiversity protection by integrating conservation with on-the-ground
    development, research, and information exchange. The Biodiversity
    Conservation Network (BCN) promotes and measures the effectiveness of
    enterprise-oriented conservation at sites in Asia and the Pacific
    islands. Both these initiatives have been assistance instruments with
    The Nature Conservancy, World Wildlife Fund, and World Resources
    Institute, and have done excellent work.
        Before closing, I will briefly touch upon two other topics with
    great potential for boosting international biodiversity conservation:
    the Global Environment Facility (GEF) and the Tropical Forest
    Conservation Act.
    The Global Environment Facility (GEF)
        The Nature Conservancy supports the proposed appropriation of $300
    million to the GEF--enough, if approved, to fund the current U.S.
    pledge level of $107 million and pay off $193 million of arrears. The
    GEF, supported by 120 members, is an essential financial mechanism.
    There is just no substitute for the GEF in dealing with the major
    global environmental issues. Grants from many other countries leverage
    the U.S. share. The GEF had teething problems early on, but has now
    largely worked through them. It has committed $1.3 billion for over 200
    large projects in more than 80 countries, plus 300 smaller projects
    funded through its successful Small Grants Program. The GEF is
    potentially a strategic mechanism to assist countries to develop
    innovative and effective means to deal with environmental threats,
    especially as the GEF involves a broader array of stakeholders, such as
    through its new Medium Sized (up to $750,000) Grants Program. We urge
    the Subcommittee to fund GEF at the full request level.
    The Tropical Forest Conservation Act of 1998
        H.R. 2870, the Tropical Forest Conservation Act of 1998, passed the
    House on March 19 with overwhelming support and is pending before the
    Senate as S. 1758. It has more than twenty Senate cosponsors, broadly
    bipartisan. It is based firmly on the precedents and administrative
    structure of the ``debt-for-environment'' provisions of the Bush
    Administration's Enterprise for the Americas Initiative (EAI). Under
    EAI, Western Hemisphere governments could restructure some of their
    official debt to the United States. They can pay, in local currency to
    national funds, the money that would otherwise have gone to pay the
    debts. The funds use the stream of income for environmental protection
    and child survival. There have been seven EAI trust funds created so
    far and their funds will receive a total of at least $154 million from
    local currency payments. The Funds proposed under the Tropical Forest
    Conservation Act would operate under rules similar to EAI's as they
    promote debt reduction, swaps and buybacks, but would focus on tropical
    forest conservation and extend eligibility to include countries in
    Africa and Asia. The Nature Conservancy welcomes and supports this
    initiative; so do the World Wildlife Fund, Sierra Club, Environmental
    Defense Fund, and Conservation International.
        The new Act has great potential to boost forest protection. The
    current status of the world's tropical forests is alarming. Within 25
    years, half of all the remaining tropical rain forests are projected to
    be gone; with them will disappear about 10 percent of all the species
    currently alive on the Earth. This has implications for the countries
    where the forests are located, and also for the people of the United
    States. More needs to be done to protect and preserve the tropical
    forests, by private and official U.S. action and, especially, by the
    governments where the forests are located.
        The Tropical Forest Conservation Act will, if passed and
    appropriated, represent an investment by the American people in the
    survival of forests that have great economic, environmental and moral
    value. This is the sort of sensible, results-oriented effort with
    staying-power that The Nature Conservancy likes. We thank the
    Congressmen and Senators who have brought it forward and urge that
    space be found for an appropriation. The bill would authorize $50
    million in fiscal year 1999 to pay Treasury's costs under the rules for
    ``scoring'' such debt reductions and swaps. The Administration's
    position toward this legislation, as affirmed by Congressmen Gilman and
    Hamilton during the House floor debate, is that it supports its passage
    but has expressed concern about where to find financing. We urge that
    the Members and Leadership of the Congress look imaginatively within
    Function 150, but also at other areas of the Federal budget, for
    possible sources of appropriations.
        Thank you for this opportunity to submit to the Subcommittee The
    Nature Conservancy's views on these important international
    conservation issues.
    appendix to testimony by the nature conservancy suggested language for
                   fiscal year 1999 foreign operations report
    Parks in Peril
        The Committee notes its strong support for the existing AID Parks
    in Peril program, a partnership with the private sector to promote
    biodiversity conservation in imperiled ecosystems throughout Latin
    America and the Caribbean. AID/Parks in Peril has worked at 29 sites in
    twelve different countries. It has made significant progress at turning
    ``paper parks'' into genuine protected areas, to the extent that 14
    sites have been ``consolidated'' from the program; central AID funding
    are being phased out to those sites, and the program is shifting its
    successful methodology to 8 new locations. Since its inception, Parks
    in Peril has received $27.5 million from central AID funds, formally
    matched by more than $10 million from The Nature Conservancy, foreign
    partners, and foreign governments, and has indirectly leveraged more
    than $180 million from non-AID sources.
    Global Environment Facility
        The Committee believes that the GEF should play a critical role in
    addressing global environmental problems. As bilateral sources of
    assistance decline, it will be increasingly important for the U.S. to
    leverage its contributions through multilateral institutions such as
    the GEF, an institution that supports a broad range of globally-
    significant environmental programs. The Committee further notes that,
    in many developing countries, NGO's have superior capacity and
    expertise to implement biodiversity conservation projects, and
    therefore the U.S. should continue to press for improved access for
    NGO's to GEF funding, such as through active implementation and funding
    of its new Medium-Sized Grants window with simplified application and
    accounting procedures.
    Tropical Forest Conservation Act of 1998
        The Committee endorses this measure, which has the potential to
    protect threatened tropical forests of global significance.
                                     ______

                 Prepared Statement of the World Wildlife Fund
        On behalf of World Wildlife Fund's 1.2 million members, we welcome
    this opportunity to submit written testimony on the prospective fiscal
    year 1999 Foreign Operations Appropriations bill. Known worldwide by
    its panda logo, WWF is the largest international conservation
    organization working in over 100 countries to protect the rich
    biological diversity necessary to save life on Earth.
        WWF supports the administration's proposed fiscal year 1999 budget
    increases for bilateral and multilateral assistance programs in the
    Department of State, U.S. Agency for International Development, and
    Department of Treasury. These modest increases will help ensure the
    effectiveness of key international environmental programs essential to
    protect U.S. national interests.
        This statement highlights programs that are important to WWF's
    goals of conserving global biodiversity by recovering endangered
    species, effectively addressing global threats--overfishing, toxic
    chemicals, climate change and unsustainable logging--and ecoregion-
    based conservation.
                              bilateral assistance
    U.S. Agency for International Development
        WWF strongly supports the President's proposed $1.769 billion for
    USAID's development assistance funds, of which $290 million--an
    increase of $46 million over fiscal year 1998--is proposed for global
    environmental programs. USAID's integrated approach to biodiversity
    conservation and sustainable use recognizes the interdependency of
    humans, wildlife, and their environment. USAID provides technical and
    financial support for conservation projects around the world that
    emphasize community-based conservation of natural resources.
        WWF applauds the administration's proposal to devote $730 million
    in development assistance to the Development Fund for Africa (DFA).
    This fund assures U.S. commitment to help the countries in Africa
    achieve broad-based, sustainable economic growth. Given the acute
    environmental problems in many African nations, biodiversity
    conservation has long been an integral part of the DFA's goals. For
    example, the Rwenzori Mountains Conservation Development Project, co-
    funded by WWF and the DFA, straddles the Uganda-Zaire border and
    encompasses some of the highest peaks and richest biodiversity in
    Africa. The project, through collaboration with Rwenzori Mountains
    National Park staff, is developing a park management plan. Cooperation
    with local communities emphasizing sustainable forest use and
    agricultural activities, such as tree planting and bee keeping, help
    reduce human pressure on the park.
        WWF also supports USAID's integration of biodiversity conservation
    in development assistance programs in other regions of the world. For
    example:
      --In Bolivia, WWF and its conservation partners have played a key
            role in the creation of two new protected areas, the Otuquis
            National Park and the San Matia Integrated Management Area, in
            the Bolivian Pantanal. The Pantanal represents one of the
            world's largest wetland complexes and supports abundant
            populations of wildlife, including several endangered or
            threatened species--jaguar, giant anteater and anaconda. The
            Pantanal is under assault from an increasing demand for its
            resources. Forests are being cleared for agriculture and
            timber, rivers are threatened by toxic chemical pollution, gold
            mining is crippling the river ecosystems. With USAID funds,
            management plans are being developed and implemented for these
            two protected areas.
      --In Nepal, USAID funds a project to conserve biodiversity in the
            Shey Phoksundo National Park. Shey, covering over 3,500 sq.
            km., was set aside to protect one of the last habitats for the
            endangered snow leopard, blue sheep, wild yak and other
            wildlife. Communities living adjacent to the protected areas
            depend heavily on forests and rangelands for energy, fodder and
            timber. The USAID-funded program strengthens the conservation
            and resource management capacities of local people and promotes
            sustainable enterprises to raise rural incomes.
    USAID'S Climate Change Action Plan
        Climate change issues have been an important and long-standing part
    of the USAID's environmental agenda. For several years, USAID has
    actively funded conservation projects that have reduced greenhouse gas
    emissions.
        WWF is encouraged by USAID's proposed Climate Change Action Plan,
    which reflects a renewed effort to facilitate technology transfer and
    collaborate with developing and Central and Eastern European countries
    to achieve the goals of the U.N. Framework Convention on Climate
    Change. The use of credit mechanisms, such as development credit
    authority to leverage funds for climate friendly investments, are vital
    to breakdown barriers to energy efficiency and renewable energy. WWF
    believes that win-win strategies are available that simultaneously
    promote sustainable development and combat climate change by reducing
    emissions. Furthermore, these strategies can be carried out through
    projects which advance development priorities of both the developing
    countries and the United States.
    Tropical Forest Conservation Act
        WWF enthusiastically supports the Tropical Forest Conservation Act
    (S. 1758), introduced by Senator Lugar on March 13. Similar legislation
    passed the House of Representatives on March 19. The legislation will
    protect the world's dwindling tropical forests by providing urgently
    needed resources for forest conservation. When the bill is enacted, we
    urge the Subcommittee to appropriate the authorized level of $325
    million over three years, beginning with $50 million for fiscal year
    1999.
        Intact forests are essential to global biodiversity conservation.
    However, there is a severe crisis in many parts of the world resulting
    from forest destruction. An estimated 40 million acres, more than one
    percent of total forest land, disappear every year. The woeful lack of
    resources in many countries to stem this destruction is equally
    alarming. The severe forest fires burning in Brazil and Indonesia
    dramatically underline the seriousness of the problem.
        The Tropical Forest Conservation Act authorizes ``debt-for-nature
    swaps,'' whereby outstanding bilateral government debt owed to the
    United States is reduced. In exchange, the eligible developing country
    places local currencies in a tropical forest fund to finance
    preservation, restoration, and maintenance of its tropical forests. The
    appropriation compensates the U.S. Treasury for any revenues lost due
    to the restructuring of outstanding debt. For several years, the U.S.
    government has been involved in debt-for-nature swaps, the most well-
    known being the Enterprise for the Americas Initiative established
    under the Bush administration.
        In addition to the bill's important contribution to financing
    forest conservation, H.R. 2870 offers other benefits:
      --U.S. contributions by means of debt restructuring can serve as a
            model for European and Asian nations to do the same with debt
            owed them by some of the world's poorest countries.
      --Establishing environmental funds in developing countries helps
            strengthen democracy and nongovernmental organizations.
            Environmental funds promote accountability and consensus-
            building and often bring together governments and non-
            governmental organizations for the first time.
      --Delivering U.S. international assistance via trust funds for the
            purpose of tropical forest conservation is an issue Americans
            care about.
      --Offering an opportunity for the U.S. to encourage other bilateral
            creditors, the IMF, and the World Bank to actively pursue
            opportunities to apply the debt-for-nature mechanism to many
            poorer countries that will participate in the World Bank's
            Highly Indebted Poor Country (HIPC) Initiative.
                            multilateral assistance
    Department of State
        WWF supports the administration's fiscal year 1999 request for $6
    million for the International Conservation Programs of the Department
    of State's International Organizations and Programs account. This
    amount will finance crucial conservation programs such as the
    Convention on International Trade in Endangered Species of Wild Fauna
    and Flora (CITES), Ramsar Convention on Wetlands of International
    Importance, and the World Conservation Union (IUCN).
        We urge the Subcommittee to direct the Secretary of State to meet
    the U.S. commitment of $1.123 million to the core budget of the CITES
    Secretariat. It is especially important to provide full funding for
    CITES in light of decisions made at the 1997 Conference of Parties
    adding significant new responsibilities to the Secretariat for
    monitoring threatened and endangered species such as the African
    elephant.
        WWF supports an increase of $250,000 over the fiscal year 1998
    level of $750,000 for the U.S. contribution to the Ramsar Convention on
    Wetlands of International Importance. This increase would fund the new
    ``Wetlands for the Future'' program in Africa. Successfully piloted in
    Latin America over the past four years, the ``Wetlands for the Future''
    concept provides funding directly to local groups for wetlands
    conservation. We believe the program should be expanded to Africa in
    order to provide habitat for a wide range of animals as well as natural
    resources for people.
        In addition, we support an increase over the fiscal year 1998 level
    of funding for the World Conservation Union (IUCN). IUCN has been
    instrumental in implementing the important international agreements
    such as CITES, the Biological Diversity Convention, and the Ramsar
    Convention. IUCN, a union of 70 governments, 100 government agencies,
    700 non-governmental organizations (NGO's) and over 8,500 volunteer
    experts operating in more than 180 countries, has been recognized by
    the U.S. government as a unique forum that strengthens cooperation
    among international programs, national and local governments and the
    private sector, and in translating global policy into practical action.
    International Development Association (IDA)
        WWF supports the administration's fiscal year 1999 request for $800
    million for full payment to the twelfth International Development
    Association (IDA) replenishment.
        IDA, the concessional window of the World Bank, is the single most
    important source of development finance for the world's poorest
    countries. Through investment in specific projects and economy-wide or
    sector-specific reform programs, IDA can address the root causes of
    political and economic instability such as extreme poverty,
    environmental degradation, and weak institutions of government and
    civil society.
        IDA also is 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 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 last year 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.
        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 the recent global alliance between
    the World Bank and WWF for forest conservation and sustainable use.
        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 direction the institution has
    taken.
    The Global Environmental Facility
        WWF endorses the administration's fiscal year 1999 request for $300
    million for the Global Environmental Facility (GEF) to pay the
    accumulated arrears ($192.5 million) as well as the current U.S.
    contribution ($107.5 million). While this amount is a substantial
    increase over the fiscal year 1998 appropriated level, WWF believes the
    GEF is the only international financial institution dedicated solely to
    assisting qualified countries in addressing critical environmental
    threats--biodiversity loss, degradation of international waters,
    climate change, and the thinning of the ozone layer. U.S. national
    interests require that these environmental threats be addressed on a
    global scale.
        We urge the Subcommittee to examine the GEF's strengths, its
    untapped potential and its receptivity to reform. Specifically, we urge
    the Subcommittee to consider the following examples of success:
      --``A learning institution''.--The GEF, only in its third year of
            full scale operation, considers itself a ``learning
            institution,'' committed to incorporating into the future,
            lessons from the past. A recently released independent
            performance study commissioned by the GEF Council recommended a
            number of ways the GEF could be strengthened. The council has
            adopted them.
      --A catalyst for reform.--The GEF has been a catalyst for
            environmental reform in the policies and operations of its
            implementing agencies--the World Bank, United Nations
            Development Program (UNDP), and United Nations Environment
            Program (UNEP). The GEF's operating principle of
            ``mainstreaming'' (i.e., integrating global environmental
            concerns into the non-GEF operations) has led to closer
            scrutiny of the World Bank's commitment to integrating
            environmental concerns into its core projects.
      --A good record, the small grants program.--The GEF's small grants
            program, by which GEF funding effectively reaches the field
            level, has been widely viewed as a success story. Some 300
            smaller local projects have been established under this
            program.
      --Leveraging power.--Every dollar from GEF leverages an additional $4
            from the private sector, recipient countries and bilateral
            donors, thus ensuring funding for full-scale projects.
      --Direct American benefit.--Last year, U.S. companies were the
            largest beneficiary of GEF procurement, receiving $48 million
            (16 percent of total procurement and 30 percent of contracts to
            industrialized countries).
      --Problem solving.--The GEF deserves credit for successfully
            addressing problems such as slow disbursement of funds hampered
            by insufficient strategies and project criteria and cumbersome
            procedures for NGO access to the fund. These issues have been
            largely resolved, including the establishing of new procedures
            to streamline NGO access.
        The staff at WWF can personally attest to productive NGO and GEF
    cooperation in furthering biodiversity conservation. For example:
      --Galapagos project.--Through its mid-size grant program, the GEF is
            funding a project jointly managed by its Ecuadorian associate
            Fundacion Natura and WWF to help conserve the world famous
            archipelago, the Galapagos Islands. While the Galapagos have so
            far survived major human incursions, the islands face
            significant threats, including overfishing due to heavy
            external demand for certain marine products, increasing impacts
            from tourism, and increasing immigration from mainland Ecuador
            for jobs in tourism and fishing industries.
          The Galapagos project will establish information systems to
            monitor the environmental impact of policy decisions and the
            conservation status of the Galapagos. The systems will, for
            example, monitor the impact the fishing industry is having on
            the ecosystem, monitor the status of introduced species to the
            islands, and the impacts of tourism. Compiling this information
            is important in order to better evaluate the threats to the
            islands, and serve as an important basis for policy decisions.
      --Caribbean of Central America and Mexico.--With GEF funding, the
            regionally-based Central American Commission for Environment
            and Development is mobilizing conservation efforts on an
            ecoregional scale in the Meso-American Caribbean Reef. The
            Meso-American Caribbean Reef is the fourth longest barrier reef
            in the Western Hemisphere and contains the most diverse coral
            reefs in the western Atlantic. It is located along the coast of
            four countries--Belize, Mexico, Guatemala, and Honduras. In
            1997, these countries signed the Tulum Declaration to establish
            political guidelines and principles for the reef's
            preservation. There are significant pressures on the reef
            system--overfishing, water quality degradation due to municipal
            waste, ocean-going vessels, and banana plantations, and
            development for tourism. The Central American Commission will
            establish and improve management of protected areas and
            strengthen regional development to support conservation of this
            important natural system.
      --Bhutan Trust Fund for Environmental Conservation.--The BTF
            currently has assets of approximately $30 million, including
            grants from WWF and the Global Environment Facility. Founded in
            1991, the trust fund has financed a number of major activities,
            revised a national protected areas system, developed a
            management plan for the Royal Manas National Park which hosts
            an astounding variety of rare and endangered species, and
            developed a biodiversity information system. The World Bank
            supervised the implementation of BTF's benchmark activities,
            accomplished well ahead of schedule. The bank, when it ended
            its supervisory role last year, noted in its final report, ``a
            fund such as the BTF probably has better prospects for serving
            the long-term conservation objectives of the (Royal Government)
            than any other financial device.''
        Ultimately, GEF must be judged by its track record on improving the
    environment. There are hopeful signs that GEF projects are making a
    real difference on the ground. WWF urges the Subcommittee to
    appropriate the administration's requested level, to give the GEF the
    opportunity to achieve more and reach its full potential. The U.S.'s
    continued underfunding of the facility at this early stage in its
    development undermines the GEF's full effectiveness and undercuts U.S.
    influence in shaping the facility's direction.
        Finally, the success of U.S. domestic environmental policy
    ultimately depends on effective global collaboration. The GEF provides
    the forum for such collaboration.
                                   conclusion
        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. 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 again for the opportunity to
    present our views.
                                     ______

                              Infectious Diseases
           Prepared Statement of the Pan American Health Organization
        The Pan American Health Organization (PAHO) would like to thank the
    members of the Subcommittee on Foreign Operations for the opportunity
    of presenting this statement.
        The Pan American Health Organization is the oldest continuing
    health agency in the world. It was founded in Washington, D.C. in 1902.
    It has 35 Member States from the Americas, three Participating
    Governments, and one Associate Member Government. The United States was
    one of its original founders. PAHO cooperates with its Member States,
    individually and collectively, in designing and implementing measures
    to improve the health of their populations.
                             antibiotic resistance
        In the Region of the Americas, as in the rest of the world,
    antimicrobial resistance poses a major and growing threat to public
    health. Drug-resistant strains of microbes are having a deadly impact
    on the fight against tuberculosis, malaria, cholera, diarrhea and
    pneumonia, major diseases that together kill more than 10 million
    people worldwide each year. Disastrously, this is happening at a time
    when too few new drugs are being developed to replace those that have
    lost their effectiveness.
        Many of our most powerful antibiotics have been rendered impotent.
    The two most common bacteria that are the major cause of death in
    children through acute respiratory infections, particularly pneumonia,
    are becoming more and more resistant to drugs. Antibiotic resistance in
    hospitals throughout the Region threatens to leave medical and public
    health workers virtually helpless in the prevention or treatment of
    many infections. Antibiotic resistant bacteria are responsible for up
    to 60 percent of hospital acquired infections in the United States, for
    example. Resistance means that people with infections are ill for
    longer periods, and are at greater risk of dying. Disease epidemic are
    prolonged, as well. Moreover, with the enormous increase in the
    frequency and speed of international travel, individuals infected by
    resistant pathogens during travel abroad may introduce those pathogens
    into other countries where resistance can spread. Tourism alone
    mobilizes over 110 million people per year in the Region of the
    Americas.
        Major factors that contribute to antibiotic resistance are the
    uncontrolled and inappropriate use of antibiotics. There is a need to
    prevent the improper prescription of these drugs by the medical
    community, and their non-prescription use by the population at large.
    In addition, implementation of legal and policy guidelines that mandate
    the rational use of antibiotics must be promoted.
        An additional constraint in this area is the lack of reliable data
    to determine the real magnitude of antibiotic resistance in the Region
    and to provide baseline information for planning interventions. In
    order to address this situation and the misuse of antibiotics, PAHO
    feels that it is necessary to collaborate with the best and most
    influential individuals working in the countries on the issue,
    especially if changes in policy and health care practices are to be
    promoted in the near future. Some work is already in progress with
    organizations in the United States, including collaboration with the
    Centers for Disease Control and Prevention (CDC), the Agency for
    International Development, the National Institutes of Health, other
    research institutions, national and regional professional associations,
    pharmaceutical companies and others.
        PAHO, together with the World Health Organization, the Ministry of
    Health of Venezuela, and the Pan American Society of Infectology will
    cosponsor the Pan American Conference on Antibiotic Resistance, to be
    held in Venezuela in November 1998. During this event, information will
    be gathered on the current situation of antibiotic use and resistance
    in the Region, especially in regard to public policy, health care
    practices, economics, quality control, surveillance and training. A
    series of group discussions will also take place, and it is expected
    that a product of the discussions will be a sound plan of activities
    for the next five years, aimed at strengthening surveillance and
    promoting policy formulation. Also invited are technical experts form
    the CDC, participants from four major drug companies and other
    international experts.
                        infectious diseases surveillance
        Today communicable diseases continue to be the major source of
    illness and death in developing countries, but industrialized countries
    are becoming increasingly aware that they too are at risk from many new
    and reemerging diseases. Infectious diseases today affect us all in
    many spheres of life. The socioeconomic development of many nations is
    being crippled by the burden of these diseases, which cause huge losses
    in foreign currency and income from food trade and tourism as a result
    of epidemics of diseases such as cholera, plague and other diseases.
    Another case in point is dengue, which in recent decades has reemerged
    with dramatic force and is now endemic in most of the Americas. During
    1997 alone, 387,000 cases were reported with the consequent losses in
    productivity and impact on health services.
        The problem of emerging and reemerging diseases must be approached
    from a regional perspective, since it does not affect countries in
    isolation any longer. For example, with the enormous increase in the
    frequency and speed of international travel, individuals infected
    during travel abroad may introduce a given disease into a previously
    unaffected area in a matter of hours.
        Infectious diseases are not only a health issue. They have become a
    social problem with tremendous consequences for the well being of the
    individual and the world in which we live. In order to control these
    diseases, we need to have strengthened epidemiological surveillance
    systems nationally and internationally to detect infectious diseases
    and, particularly, drug-resistant forms.
        PAHO is currently working very closely with the CDC, the U.S.
    Department of Defense, national research institutes, ministries of
    health and other partners to develop a regional surveillance system for
    infectious diseases, as well as to strengthen existing antimicrobial
    surveillance programs for selected pathogens.
        In order to strengthen the regional capability for emerging and
    reemerging diseases surveillance in the public health sector, effective
    plans for data collection, analysis, investigation and prompt
    intervention are being prepared with the following objectives: (a)
    strengthening regional infectious disease surveillance networks as well
    as the capacity to implement effective prevention and control
    strategies; and (b) developing the national and regional infrastructure
    for early warning of and rapid response to the threat of diseases.
        Once in place, the new surveillance system will make use of
    available Internet technology to build e-mail and Intranet systems
    (closed access) for communications. Access to the system will be
    granted to ministries of health and PAHO/WHO Country Representative
    Offices in each country; the Canadian Laboratory Centers for Disease
    Control (LCDC), and the U.S. Centers for Disease Control and Prevention
    (CDC) and the Department of Defense. All participants will have equal
    access to the common database for analysis. Once the project is
    finalized, surveillance systems and corresponding infrastructures will
    be in place which are capable of monitoring emerging pathogens and
    diseases for the confirmation of current epidemics; assessment of
    health and socioeconomic impact and likely evolution of the problem;
    and determination of local response capacity, identification of most
    effective control measures, and assessment of additional immediate
    needs.
                                  tuberculosis
        Tuberculosis, a curable and preventable disease, remains a major
    public health threat in the Region, with an estimated 400,000 new cases
    occurring each year. Each case is at risk of death without proper
    treatment. Each year 60,000 to 75,000 persons die, the majority of them
    in their most productive adult years. An estimated 3-5 percent of all
    new cases in the Region are attributable to co-infection with the human
    immunodeficiency virus (HIV). Fewer than two-thirds of all new cases
    are reported, and most that go unreported will receive inadequate
    treatment or no treatment. As a result of poor treatment, some patients
    may develop and spread drug-resistant strains.
        To confront what the World Health Organization has declared a
    ``Global Health Emergency,'' the World Health Assembly has adopted two
    objectives for tuberculosis control for the year 2000 which will
    diminish morbidity, mortality and transmission of the disease: cure of
    85 percent of all detected pulmonary smear-positive (infectious) cases;
    and detection of 70 percent of these incident cases. WHO has just
    announced that due to the slow pace of many large, high TB incidence
    countries, the global targets will not be met. Many of the countries of
    the Americas could still meet these targets, but only if we intensify
    our actions and find additional resources.
        The global strategy for control of the disease is based on the
    implementation of a strategy call Directly-Observed Treatment Short-
    course (``DOTS''). It is among the most cost-effective health
    interventions available, and is included in the World Bank's proposed
    ``essential package of health services.'' The five elements of the
    global control strategy are: government commitment to a TB program;
    case detection through predominantly passive case-finding; standardized
    and directly-observed short-course chemotherapy for all pulmonary
    smear-positive cases; regular drug supply; and a program monitoring and
    evaluation system.
        The DOTS strategy makes a difference in the American countries.
    Countries that have applied it are doing far better in curing cases and
    in evaluating their work. For the 10 countries and two territories
    applying DOTS in 1995, 76 percent of patients were successfully
    treated, compared to only 30 percent in the 13 non-DOTS countries who
    reported to PAHO/WHO. In 1995, DOTS countries reported results for 91
    percent of their patients vs. 41 percent for non-DOTS countries. Of
    patients successfully treated, 89 percent were lab-confirmed cured in
    DOTS countries. In non-DOTS countries, only 40 percent were confirmed.
        Still too many countries have not begun to use the DOTS strategy or
    are applying it incompletely. More support is needed to purchase drugs,
    train and supervise health workers, equip labs and motivate the public
    to help find and cure patients.
        Recent national surveys show that multidrug resistant TB is present
    and poses a real threat to the public and to disease control programs.
    Treatment of these patients is often too costly for public health
    systems. They are less likely to be cured and are more likely to die,
    even with treatment. Drug-resistant TB can develop as a result of poor
    prescribing and treatment monitoring, drug supply problems, and poor
    patient compliance. The DOTS strategy addresses each of these problems.
        PAHO seeks to improve awareness of the TB epidemic and of the DOTS
    strategy. It works with Member countries and partner agencies in
    training health personnel, building inter-country collaboration,
    developing tools to facilitate the application of the DOTS strategy,
    mobilizing resources for effective and sustainable programs, and
    encouraging investigation of new interventions.
        The main international agencies and non governmental organizations
    working with PAHO in different countries are: World Bank (Haiti,
    Venezuela); International Union Against Tuberculosis and Lung Disease
    (Central America, Cuba, Bolivia, Peru); United States Centers for
    Disease Control and Prevention (Mexico, CAREC, Argentina, Peru); Royal
    Netherlands Tuberculosis Association (Bolivia, Central America); U.S.
    Agency for International Development (Bolivia, Honduras, El Salvador,
    Mexico); Canadian International Development Agency (Ecuador, Peru);
    Laboratory Centers for Disease Control, Canada (Supra national
    reference laboratory for the countries in the Region); Damien
    Foundation, Belgium (Guatemala, Panama); German Leprosy Relief
    Association (Colombia, Ecuador, Brazil, Bolivia, Paraguay); and German
    Federal Ministry of Economic Cooperation (Ecuador).
                                    malaria
    Epidemiological Surveillance for Malaria Control
        PAHO has been monitoring and advising on epidemiological activities
    of malaria eradication and control programs in the Region for at least
    44 years. Standard malariometric indices and operational indicators are
    calculated in order to measure the impact of control activities and to
    assess the adequacy of intervention efforts. Surveillance data,
    including trend analysis and epidemiological situation assessment in
    each endemic country, are reported annually in a document on the
    ``Status of Malaria in the Americas.''
        These data are used as follows: to define and classify endemic
    areas according to levels of transmission risk; to classify
    geographical areas by operational phase of intervention and
    surveillance activities; to measure specific indicators of disease
    incidence according to parasite species; to analyze epidemiological
    trends, identifying key factors associated with the trends; to extend
    the knowledge of biology and vectorial capacity of anophelines; to
    estimate coverage of population in endemic areas according to different
    case-finding strategies; to adjust the different surveillance
    strategies according to endemic level; to assess coverage rates of
    insecticide spraying for vector control; to evaluate availability of
    antimalarial drugs and their distribution; to identify social and
    economic risk factors associated with transmission in areas of recent
    colonization, deforestation and mining; to predict epidemics based on
    population movements in the endemic area; to assess the onset and map
    malaria drug resistance and advise on antimalarial drug policy; to
    identify structural and functional deficiencies in the control
    programs; to implement a strategy for control based on a stratification
    of rates defined for each locality; to perform cost-effectiveness
    analysis of control programs; to promote decentralization as the
    appropriate strategy to increase coverage for diagnosis and treatment,
    as defined in the Global Strategy for Malaria Control.
    Current situation of P. falciparum resistance:
        P. falciparum resistance in the Americas is highly variable as is
    the ability of the health services to provide prompt diagnosis and
    proper treatment for malaria. Although this variability is related to
    the parasite reservoir movement (population), special groups of people
    are more affected by the parasite resistant strains than the population
    as a whole, mainly those who live in primitive organized social
    communities (indigenous peoples, hunters and gatherers) and those with
    high risk behaviors, such as those seeking the extraction of natural
    resources utilizing low technological means (subsistence agriculture,
    gold/gem mining and lumber).
        From the population exposed to highest risk of transmission in the
    Americas (46.3 million persons or 5.9 percent of the total population),
    between 1994 and 1996 there was an increase from 9.8 to 12.1 million
    exposed to high P. falciparum transmission, resulting in a very high
    incidence rate (> 1,900 cases per 100,000 exposed population). This
    spread of P. falciparum exposure is particularly severe in the Andean
    Countries' rain forests.
    Major challenges and constraints
        There are three major challenges to malaria control in the
    Americas; one is related to the need for a change in the public health
    perception that ``malaria control is obtained by insecticide spraying
    and this can only be done by a major operational institution.'' Major
    advances in the implementation of new concepts and expansion of
    coverage have been achieved in Bolivia, Brazil, Colombia, El Salvador,
    Guatemala, Honduras, Nicaragua, Panama, and Peru and somewhat in
    Venezuela.
        The second and third major constraints are related: drastic
    budgetary reduction, and major administrative processes of
    decentralization of health services.
                                     ______

           Prepared Statement of the University Heights Science Park
        Infectious diseases now pose a profound threat to national and
    international security. Changing international conditions, post-Cold
    War deployment of U.S. troops in new geographic areas, and an
    increasingly global economy have contributed to a resurgence of
    infectious microbes. The rapid and repeated exposure to diseases
    arising in any part of the world is now a reality for military men and
    women as well as our citizens at home. In 1980, there were 280 million
    international travelers, including military personnel. By the year 2000
    there will be 400-600 million international travelers. In response,
    many federal agencies are developing infectious disease initiatives to
    address the emergence of new infectious agents as well as the re-
    emergence of known infectious agents in drug resistant form. The
    creation of the International Center for Public Health is a direct
    response to this emerging public health crisis.
        The International Center for Public Health is a strategic
    initiative that will create a world class, infectious disease research
    and treatment complex in University Heights Science Park, Newark, New
    Jersey. Science Park is located in a Federal Enterprise Community
    neighborhood. The International Center will have substantial local,
    regional, national and international impact as it addresses many
    critical social, economic, political and health related issues. The
    Center is a $78 million anchor project that will launch the second
    phase of a fifty-acre, $350 million mixed-use urban redevelopment
    initiative, University Heights Science Park. The facility will total
    161,600 square feet and house three tenants: The Public Health Research
    Institute (PHRI), the University of Medicine and Dentistry of New
    Jersey's (UMDNJ) National Tuberculosis Center, one of three Federally
    funded TB centers, and the UMDNJ New Jersey Medical School Department
    of Microbiology & Molecular Genetics. The International Center for
    Public Health is a priority project for UMDNJ, Rutgers Newark, the New
    Jersey Institute of Technology, Essex County College and the City of
    Newark.
        The core private tenant for the International Center is PHRI. PHRI
    is an internationally prestigious, 57-year-old biomedical research
    institute that conducts a broad range of infectious disease and public
    health research. A major PHRI research focus is the study of antibiotic
    resistance to life threatening bacterial organisms, and the development
    of new antibiotics. Among its many accomplishments over the years, PHRI
    has contributed to the development of smallpox vaccine, developed a new
    diagnostic assay for influenza, conducted early experiments on
    oncogenes, cloned the gene responsible for toxic shock syndrome, and
    identified the multi-drug resistant TB strain ``W''. PHRI's current
    research centers on molecular pathogenicity, drug discovery, drug
    resistance, diagnostic and vaccine development, and gene expression.
    Scientific disciplines include virology, immunology, biochemistry,
    genetics, cell and structural biology, and regulation of cell
    development. Presently, PHRI supports a staff of 110, including 20
    Principal Investigators. These numbers will double in the move to the
    International Center.
        UMDNJ will be the primary medical center linkage and academic
    affiliation for the Public Health Research Institute. The New Jersey
    Medical School National Tuberculosis Center at UMDNJ, one of only three
    model Tuberculosis Prevention and Control Centers in the United States
    funded by the CDC, will add an important clinical, epidemiological and
    training component to the International Center, since many TB patients
    also manifest other infectious diseases, and knowledge and strategies
    to deal with the world wide epidemic are seriously deficient. The TB
    Center was founded in 1993 as a response to the national resurgence of
    antibiotic resistant tuberculosis strains. At the time, Newark had the
    nation's second highest rate of TB cases for a major city.
        Rounding out the International Center's initial tenants will be the
    New Jersey Medical School's Department of Microbiology & Molecular
    Genetics. The Department's relocation will add a staff of 100 to the
    Center's critical mass of microbiology research. Currently the
    seventeen-member faculty conducts research in control of cell
    proliferation; cellular aging; transcriptional, post-transcriptional,
    and transcriptional regulation; mutagenis; DNA replication and
    recombination; chromosome structure and segregation; human molecular
    genetics; and molecular pathogenesis of viruses, bacteria and
    parasites.
        Together PHRI, the National TB Center and the Department of
    Microbiology & Molecular Genetics will create a world class research
    and treatment complex having substantial local, regional, national and
    international impact.
        Other collaborators in the development of the International Center
    include the New Jersey Department of Health & Senior Services (NJDHSS)
    and the pharmaceutical industry. Responsible for overseeing all
    statewide public health initiatives, NJDHSS will contract with the
    International Center to have cutting edge molecular epidemiology
    services provided to the State of New Jersey. Expanding the strategic
    use of molecular epidemiology to direct public health activities will
    facilitate prompt identification and containment of emerging and re-
    emerging pathogens. New Jersey's major biomedical companies will also
    participate in the International Center. An infectious disease
    consortium will be developed to serve as a forum for disseminating
    fundamental research on the underlying molecular processes of
    infectious disease organisms. This research will contribute to
    pharmaceutical industry development of new drug therapies for
    antibiotic resistant microorganisms. Private industry R&D facilities
    contiguous to the International Center are also being explored.
        The International Center for Public Health will be located in
    University Heights Science Park (UHSP). UHSP is a collaborative venture
    of Newark's four higher education institutions, the City and Community
    of Newark, and private industry designed to harness university science
    and technology research as a force for urban and regional economic and
    community development. The university sponsors, New Jersey Institute of
    Technology (NJIT), The University of Medicine & Dentistry of New Jersey
    (UMDNJ) and Rutgers University at Newark, annually conduct nearly $100
    million of research in Newark, much of it federally funded. Essex
    County College trains technicians in eleven science and technology
    fields, and prepares Newark residents for employment with Science Park
    technology companies. Four Newark based companies also sponsor the
    Park: Public Service Electric & Gas, The Prudential Insurance Company,
    First Union National Bank and Bell Atlantic of New Jersey.
        Located in a Federal Enterprise Community neighborhood, UHSP is a
    50-acre, mixed-use, science and technology park in Newark's Central
    Ward, adjacent to its higher education sponsors. At buildout UHSP will
    include one million square feet of technology commercial space, 75,000
    square feet of technology incubator space, up to 20,000 square feet of
    retail business opportunities, an 800 student technology high school,
    two blocks of new and rehabilitated housing and a community day care
    center. The $10 million first phase of Science Park is complete and
    includes the NJIT Enterprise Development Center 2 (a technology
    business incubator), a 100 child day care center and the CHEN Building
    (housing the industrial laboratories for the Center for Biomaterials
    and Medical Devices). CHEN is the acronym for the Council for Higher
    Education in Newark, the four universities who founded Science Park.
    For almost two decades CHEN has jointly sponsored educational, housing,
    and retail/commercial projects in Newark's public schools and the
    neighborhoods of University Heights. The NJIT technology incubator was
    completed in fall 1996, and is now 100 percent leased. Nearly half of
    the 17 incubator companies are MBE/WBE's. In addition, over half of the
    children in the Science Park day care center are from the surrounding
    community, and the majority of day care center staff are from Newark.
        The construction of the International Center will anchor the second
    phase of Science Park, and serve as a magnet to attract pharmaceutical,
    diagnostic and other biomedical companies to Science Park. The Center
    will have the same impact on the Park as an anchor store does in a
    retail shopping mall.
    How the International Center for Public Health Addresses Foreign
            Operations Objectives
        The United States is vitally concerned with the impact of
    infectious diseases on individuals in foreign countries, both because
    of the health impact on the citizens of those nations, as well as the
    threat posed by exposure to diseases as the result of increased world
    travel resulting from an ever-expanding global economy. Individuals
    traveling to new geographic areas always encounter new infectious
    disease threats. Of particular concern are new and re-emerging
    diseases, food-borne diseases, and drug resistant organisms.
        USAID recognizes that disease and endemic ailments often overwhelm
    and disrupt developing countries, posing a strategic challenge to the
    U.S. The spread of HIV/AIDS, drug resistant tuberculosis, and other
    infectious diseases consumes resources needed for long-term
    investments. Without long-term investments, long-term stability cannot
    be achieved. USAID is actively seeking to implement health related
    programs it considers vital through partnerships with non-governmental
    and private organizations. The International Center will contribute to
    the achievement of these objectives in the following ways:
      --The Center will develop cooperative programs with foreign
            governments to implement molecular epidemiology techniques as a
            means of focusing public health priorities and programs in
            those counties. PHRI is presently engaged in a 13-nation
            European Economic Community DNA TB fingerprinting project, and
            is in discussions with Egypt, Indonesia, and Russia to provide
            similar and expanded infectious disease services. UMDNJ's
            National Tuberculosis Center is currently consulting with the
            Singapore government to develop a TB Elimination Plan, with the
            Center's Executive Director chairing an international advisory
            panel. Staff training is currently being provided during the
            implementation phase of the Elimination Plan. The National
            Tuberculosis Center, through its International Scholars
            Program, is currently training physicians and other staff from
            China, India, the Netherlands, Singapore and Japan.
      --Last summer, PHRI received a $12 million grant from Mr. George
            Soros to implement infection control laboratories and programs
            in Russia. This grant was the result of an earlier successful
            collaboration between Mr. Soros and PHRI, in which PHRI
            administered the distribution of $130 million of Soros funds to
            Russian research scientists following the end of the Cold War
            in an attempt to prevent a mass scientific community exodus
            from Russia. On March 5, 1998 PHRI, representing the
            International Center for Public Health, presented the Russian
            Infectious Disease Program to the Medical Committee of the
            Gore/Chernomyrdin Commission in Washington, D.C. Attached is a
            progress report on the implementation of the Russian program.
      --The most notable part of the collaboration between UMDNJ's TB
            Center and PHRI is the fact that for several years, the WHO and
            CDC have been unsuccessful in convincing Russia with its
            monumental TB problem to adapt the DOTS strategy (Directly
            Observed Therapy Short course) even though the DOTS program is
            the WHO's global tuberculosis programme's standard of care, and
            its implementation is their highest priority worldwide. Last
            July, A PHRI/National TB Center site visit team analyzed the
            PHRI/Soros program and recommended that it not be carried out
            unless the Russian ministry of health adopted the DOTS
            strategy. In September, 1997, U.S. Secretary of Health and
            Human Services, Donna Shalala, announced at the Gore-
            Chernomyrdin Commission meeting in Russia that the Russian
            Ministry of Health would be using the DOTS strategy. This
            decision was further reiterated at the Gore-Chernomyrdin
            Commission meeting held in Washington, D.C. earlier this month.
      --A mission of the International Center is the establishment of
            molecular epidemiology laboratories in foreign countries. PHRI
            just signed an agreement with Egypt to establish elements of
            the Russian program in that mid-eastern country.
      --The National TB Center currently collaborates with the
            International Union Against Tuberculosis and Lung Disease
            (IUATLD, an NGO) and WHO, providing them with ongoing
            consultations and TB staff training. On March 18-19, I was the
            only non-U.S. government representative from North America
            among the 17 member WHO Ad Hoc Committee on the Global
            Tuberculosis Epidemic.
      --The International Center will raise private funding to supplement
            governmental funding for these programs.
    Request For Assistance
        Through the leadership and direction of the Governor Christine Todd
    Whitman, a Memorandum of Understanding (MOU) was signed between the
    State of New Jersey, UHSP, UMDNJ and PHRI in October 1997. The MOU
    commits $60 million of State loan and grant funds toward development of
    the $78 million International Center for Public Health. Science Park is
    working closely with the New Jersey Economic Development Authority,
    through whom project bonds will be issued and 14-acres of land
    acquired. Presently the Science Park partners and International Center
    for Public Health tenants are seeking the remaining $16 million from
    Federal and private sources during 1998. Groundbreaking is scheduled
    for March 1999.
        University Heights Science Park is requesting $5 million from the
    United States House Appropriations Subcommittee on Foreign Operations
    for fiscal year 1999 to support the International Center for Public
    Health. On behalf of the University of Medicine and Dentistry, I want
    to thank the Committee for the opportunity to present this request. We
    appreciate your consideration of our proposal, and hope to receive your
    support for the creation of the International Center for Public Health
    at University Heights Science Park, Newark, NJ. This project is a top
    priority for UMDNJ, Rutgers Newark, the New Jersey Institute of
    Technology, Essex County College and the City of Newark.
      phri/soros russian infectious disease program, an initiative of the
    international center for public health extracts from progress report of
        dr. alexander goldfarb, phri project director--january 29, 1998
    Introduction
        This program is carried out by the Public Health Research Institute
    (PHRI) under a $12.3 million grant from the Open Society Institute
    (Soros Foundation). The program is part of the $500 million pledge of
    aid to Russia made by Mr. Soros last October. The aim of this program
    is to combat emerging infectious diseases in Russia, with special
    emphasis on TB and hospital infections. This extract covers the period
    from project inception in October 1997 through the end of January 1998.
    Highlights
        The groundwork for Clinical Microbiology Laboratory at the Moscow
    Medical Academy has been completed with regard to space preparation,
    personnel recruitment, purchase of equipment and supplies. The first
    Russian team begins training in Canada in February.
        A full TB control program is under way in Tomsk. This includes a
    comprehensive reform of the regional TB service and provision of TB
    care in the prison system. The program is the prototype for similar
    programs to be implemented in other regions.
        TB control programs are in the development stage in Ivanovo, Marii
    El, Nizhniy Novgorod and Leningrad oblasts.
    Tuberculosis
        Four specific problems are addressed by our TB program: (1) The
    catastrophic rise of TB within the Russian prison system; (2) The
    presumed high incidence of multiple drug resistant TB, particularly
    among inmates, compounded by general lack of reliable specific
    information on this subject; (3) The resistance to the World Health
    Organization (WHO) recommended Directly Observed Therapy--Short Course
    (DOTS) approach from the old-school Soviet TB establishment; and (4)
    Waste and inefficiency in the regional TB control services; need for
    health care management reform.
                Tomsk Regional Government
        We have chosen to first tackle these issues in a single regional
    demonstration project (Tomsk), and then expand to other regions. Tomsk
    was chosen because of its relatively advanced status due to the prior
    work of the British medical group MERLIN. Tomsk is fairly typical for
    Russia, and MERLIN's work provided specific and detailed insights into
    the situation.
        We succeeded in bringing the issues of TB control to the personal
    attention of the Tomsk Governor. The approach that we offered was for
    PHRI/Soros to provide bridge financing for TB service reform in
    exchange for binding guarantees of long-term funding from the local
    government and political support of the restructuring.
        A working group was set up that included representatives of PHRI,
    MERLIN, Tomsk Regional TB service, Tomsk Regional Department of Health,
    the Governors office, the Ministry of Health in Moscow and the Moscow
    Research Institute of TB.
        As the result, an agreement between PHRI and the local government
    of Tomsk was reached on a three-year plan which includes the following
    components:
      --cuts and reductions in the inefficient parts of TB service that
            will lead to savings of $2 million a year. This includes
            reduction of the number of TB hospital beds, reduction of the
            number of x-ray examinations and closing of TB sanatorium for
            children--within a period of one year.
      --the savings generated by these cuts will be used for enhancement of
            outpatient services, building of TB hospice, payment of
            salaries, and support of DOTS infrastructure for three years
      --during the first year, we will purchase drugs, pay salaries,
            install new equipment, train personnel and create region-wide
            DOTS network, including a bacteriological laboratory for
            monitoring of drug resistance.
                Tomsk Prison System
        The Tomsk prison system includes a special TB colony (1,300
    patients), a jail (estimated 50-100 TB cases) and five regular prisons.
        An agreement has been signed with the Tomsk Department of
    Corrections to fully implement DOTS in the prison system. The plan
    includes training of medical officers, provision of drugs and vitamin
    supplements for all TB patients, setting of a bacteriology field lab in
    the main TB prison, improvement of TB diagnostics among general prison
    population, identification and isolation of patients with multiple
    drug-resistant TB, and an extensive system of oversight and control by
    the regional TB service, Moscow Institute of TB, and our own
    representatives.
                Other Oblasts
        Similar agreements for regional TB service reform and for prison
    DOTS programs have been signed with the government and prison
    authorities of Marii El, a small ethnic region in central Russia.
    Negotiations are in progress with the authorities of Ivanovo and
    Leningrad oblasts, and with the prison administration of Nizhniy
    Novgorod.
        The precedent of Tomsk facilitates negotiations with other regions,
    and we expect to commit all available funds by mid-1999. Our current
    funding will permit support of regional TB reform in four regions
    (Tomsk, Marii El, Ivanovo, Leningrad oblasts), and prison program in 7-
    8 regions.
                Additional Resources
        The Central Research Institute of TB has been chosen by WHO as the
    site of a national DOTS center. We have committed funds and are
    providing technical assistance for the establishment of National
    Bacteriological TB Reference Lab that will provide training and quality
    control to regional laboratories (e.g. in Tomsk). The Moscow laboratory
    will work together with the Massachusetts State TB lab in Boston (run
    by a Russian expatriate).
        The molecular analysis of bacterial strains collected in Moscow
    will be carried out at PHRI laboratories in New York. This network is
    the first systematic effort to monitor drug resistant TB in Russia and
    make information on this subject available to international health
    agencies. A grant application, for funding beyond that available from
    the Soros grant, to expand the understanding of MDRTB in Russia and to
    use this information in both patient treatment and TB control, is
    currently being prepared.
        The Central Research Institute of TB will serve as the national
    training center for regional TB services. A first group of six medical
    officers from the Tomsk prison will start training these in mid-
    February.
        We are setting up the TB Information Center at the Moscow Medical
    Academy. It will provide informational backup to the program, maintain
    a data base of patients involved in DOTS treatment, monitor and process
    the results, publish training materials, carry out information
    campaigns, etc. The center will utilize resources of the Academy
    (particularly students) and will in turn aid the teaching process.
                Publicity and Relationships
        The PHRI/Soros program was highly praised in a cover story in the
    Russian national newsmagazine ITOGI and several newspaper publications.
    It has also been attacked as a foreign plot to ``destroy'' the Russian
    TB service.
        In addition to cooperation with MERLIN in Tomsk, we are negotiating
    a collaboration with Doctors Without Borders to provide bacteriology
    support to their project in Mariinsk prison in Kemerovo.
        The implementation of the PHRI/Soros Russian TB program is being
    carried out in consultation with the WHO Global TB Program in Geneva,
    the U.S. Centers for Disease Control and Prevention (CDC) in Atlanta,
    and National Institutes of Health (NIH) in Bethesda.
    Hospital Infections
        This project is aimed at establishing a state-of-the-art clinical
    microbiology laboratory at the Ob/Gyn hospital at the Moscow Medical
    Academy, which is a major teaching hospital in Russia. The need for
    such laboratory stems from general absence of microbiology in Russian
    clinical practice, a major problem of the Russian health care system.
    The laboratory is designed to become a teaching resource and reference
    center on a national scale.
        During the past period, the following steps were implemented:
      --A team of U.S./Canadian experts visited Moscow in October. As the
            result, a specific action plan was designed, including
            requirements and specifications for lab space, equipment,
            supplies, personnel, job descriptions, and training goals.
      --Adequate space has been allocated and renovated by MMA at its own
            expense.
      --Russian project participants have been identified. The first
            Russian group has been scheduled for training at the Mt. Sinai
            Hospital in Toronto.
      --The list of needed equipment and supplies has been compiled. The
            equipment is currently in various stages of purchase/delivery.
      --A Russian expatriate U.S. trained MD specializing in Ob/Gyn and
            pediatrics infections has been retained to oversee the project
            on a day-to-day basis and provide specific guidance to the
            Russian team via regular video/audio conferences over the
            Internet.
                                     ______

                             International Agencies
    Prepared Statement of Michael D. Barnes, Esq., Co-Chair, U.S. Committee
                  for the United Nations Development Programme
        Thank you for providing the opportunity for me to submit this
    testimony to the Senate Foreign Operations Subcommittee. My name is
    Michael Barnes and I am a former Member of Congress from the 8th
    Congressional District of Maryland. I represent the U.S. Committee for
    UNDP which I Co-Chair. My testimony represents my views not just as a
    former Member of Congress, but as an American citizen, a businessman
    and a lawyer committed to a strong U.S. foreign policy and strong U.S.
    leadership in international affairs.
        With the support of this Subcommittee, the United States returned
    to the position as the number one donor to UNDP last year. As a Member
    of the U.S. Committee for UNDP, I would like to thank the Subcommittee
    for that strong support for and their endorsement of American
    leadership of this agency.
        My testimony contains good news.
        First, UNDP has made real progress in implementing a far-reaching
    internal reform process with stronger accountability, a culture of
    cost-consciousness and a sharper focus on country operations. The
    increase that the U.S. Government provided to UNDP last year helped to
    make that reform possible. The Subcommittee should be proud of the work
    that has been done. In recognizing these remarkable changes, I believe
    UNDP deserves an increase in the contribution this year. I am proud to
    represent an organization that the United States heads and through
    which it has been able to implement these reforms.
        Second, this new Committee, which has been in operation for about a
    year now, has begun to reach out to the private sector to establish a
    base of support around the country, and to bring in private sector
    contributions so Americans can begin to make their own contributions to
    this organization. Clearly this is an idea whose time has come. It has
    been shown that Americans will support the United Nations when the need
    is clear and this is something this Committee is helping to do, to show
    a clear need for support of poverty eradication, protection of the
    environment, promoting women and good governance in the developing
    world so we can have true partnerships with the countries around the
    world. This is the role of UNDP.
        In my work, I travel all over the world, and I have witnessed the
    progress made by developing countries in recent years in their move
    toward establishing more democratic institutions, market economies, and
    greater protection of human rights. UNDP has played a significant role
    in promoting this positive change. Having had the privilege of serving
    as Chairman of the Subcommittee on Western Hemisphere Affairs, I am
    very familiar with all the countries in Latin America and the Caribbean
    and U.S. relations with them. I would thus like especially to
    acknowledge the role of UNDP in assisting the impoverished and war-torn
    countries of Central America in their transition to stable and
    democratic societies with market-oriented economies.
        The President has requested an increase of $7 million for UNDP for
    next year, raising the U.S. contribution to UNDP to $105 million. If
    that level is met, there is a very good chance the U.S. will retain its
    position as the leading donor to the organization. There are four
    reasons why it is important for the U.S. to maintain its position as
    top donor and these are as follows:
        First, it will help the U.S. retain the position of UNDP
    Administrator. This is the highest post held by an American in the
    entire U.N. system. Starting with the first UNDP Administrator and
    veteran Marshall Plan Administrator Paul Hoffman, this post has always
    been held by an American, including a former friend and colleague who
    served with distinction in the U.S. House of Representatives, Bradford
    Morse, (R-MA). Thirty years ago, the United States contributed more
    than 40 percent of total core resources of UNDP. But today, thanks to
    greater burden-sharing by the other donor countries, the U.S. share is
    down to approximately 10 percent. However, the competition with other
    countries to retain the top job is much more intense today.
        Second, as a result of reforms undertaken in recent years, UNDP has
    become a lean, cost-effective and country-focused organization. Since
    1992, UNDP has reduced its administrative budget by 19 percent in real
    terms and decreased total regular staff by nearly 15 percent.
    Headquarters staff has been reduced by 31 percent. Further
    administrative budget reductions are planned in 1998-99 and a policy of
    cost containment will then go into effect. UNDP is a hands-on
    organization with 85 percent of its staff in the countries it serves.
    At the field level, UNDP helps the United Nations as a whole to
    succeed. The 132 UNDP Resident Representatives normally serve as
    Resident Coordinators of the United Nations System, reporting to the
    Secretary-General through the UNDP Administrator. Resident Coordinators
    constitute a global network for coherent and cohesive United Nations
    action. They are the U.N.'s main agents of reform around the world,
    helping to establish common program frameworks, common premises and
    common services. That network is funded and managed by UNDP under a
    decision of the General Assembly. A summary of the reform effort is
    attached.
        Third, UNDP promotes the interests and values of the United States
    of America. For every dollar invested by the U.S. in UNDP, the U.S.
    receives a return of more than 2 to 1 in the procurement of American
    goods and services. Americans constitute the largest pool of talent
    selected to advise governments, non-governmental organizations, and the
    private sector in developing countries throughout the world through
    UNDP. Last year, the General Accounting Office published a report on
    UNDP. Chapter 7 of that report described the ways in which the work of
    UNDP is consistent with basic U.S. foreign policy objectives.
        Fourth, UNDP is the U.N.'s largest and most influential
    multilateral development organization and has a positive global impact
    on the lives of billions of people throughout the world. UNDP
    concentrates its efforts in the poorest countries and in countries in
    crisis. Ninety percent of UNDP core resources go to 66 low-income
    countries that are home to ninety percent of the world's people living
    in extreme poverty.
        In the distribution of UNDP core resources, 45 percent goes
    directly to good governance; 24 percent to environment, and 31 percent
    to poverty eradication and family livelihoods.
        UNDP's overriding goal is poverty eradication and its priorities
    include job creation, instituting the rule of law, establishing systems
    of accountable governance, promoting democratic institutions,
    regenerating and protecting the environment and empowering women.
        Since much of my law practice focuses on Latin America, let me
    point out how the countries in that region which formerly were such
    trouble spots for the United States have today come to embrace
    democratic institutions and have opened up their societies and their
    economies through the assistance of UNDP. One of UNDP's key functions
    is to provide technical assistance to developing countries to hold fair
    and free elections. It has done so in Guatemala, Nicaragua and El
    Salvador. UNDP has helped each of these countries move from
    humanitarian relief programs to long-term development strategies by
    establishing the infrastructure for the executive, legislative and
    judicial branches of government and by assisting with the establishment
    of the legal foundation to promote foreign direct investment.
        For example, in Nicaragua, UNDP is strengthening the National
    Assembly and the Supreme Court to make them more effective in
    supporting the political and economic reform processes. UNDP is also
    working with the Ministry of Finance to help bring final resolution to
    the thorny property settlement issue.
        From my own personal perspective, and speaking as a businessman,
    let me clearly acknowledge how important UNDP's role in setting up the
    infrastructure for democratization, promoting the framework for solid
    economic growth and supporting the advancement of good government in
    this particular region also serves American values and our interests
    abroad.
        In summary, Mr. Chairman, an appropriation of $105 million for UNDP
    in fiscal year 1999 will help ensure American leadership of this vital
    U.N. organization which is effectively and efficiently carrying out its
    global mission while promoting American interests and values abroad.
                                     ______

                                  Universities
    Prepared Statement of Dr. Raymond E. Bye, Jr., Associate Vice President
                     for Research, Florida State University
        Thank you, Mr. Chairman, 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
    capital of Tallahassee, we have been a university since 1947; 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 Carnegie Research I
    University several years ago, Florida State University currently
    exceeds $100 million per year in research expenditures. With no
    agricultural or 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.
        I want to express my appreciation to the Subcommittee for its
    support in fiscal year 1998 for the activities of the Caribbean Law
    Institute (CLI), which is housed at Florida State University. That
    Institute, a joint endeavor between FSU and the University of the West
    Indies, was formed to promote the reform and harmonization of
    commercial laws in the Commonwealth Caribbean. Projects have included a
    wide range of commercial statutes including company law, insurance law,
    insolvency banking, and arbitration. Legislation has been passed in
    several countries as a result of the CLI's efforts in Trinidad and
    Tobago, St. Vincent, Grenada, Antigua, Dominican, and St. Lucia.
        The recent effort, which focuses on alternative dispute resolution,
    environmental law, and fair competition legislation, is just beginning,
    and I look forward to providing this Subcommittee with progress reports
    periodically. I should add, however, that if the United States is to
    genuinely make progress in this and other regions around the world, one
    way of doing so is to undertake efforts that allow for the economic
    development of those nations. That can often be done through providing
    assistance to nations that would result in laws and legal frameworks
    that allow for trading and other means of economic commerce to take
    place more effectively. Corporations in the U.S. and in other nations
    as well will more likely embark on economic activities with developing
    nations if the legal framework allowing for routine economic activity
    is in place and functioning. Here is where an organization like the
    Caribbean Law Institute is invaluable. With its ties into an academic
    institution within the Caribbean region, the CLI can assist with
    expertise but without the outsider's presence.
        The Caribbean Law Institute proposes to expand its focus for fiscal
    year 1999 and seeks to provide an array of activities around the broad
    topic of criminal justice legislation. Such areas as money laundering,
    for example, can have substantial impacts on trade and other
    relationships between nations. Working closely with legal practitioners
    and criminal justice experts, the CLI and other experts from Florida
    State University and the University of the West Indies will continue
    discussions with officials at USAID on this effort. We envision
    utilizing the CLI model of working closely with the Attorneys-General
    in each of the Caribbean states, along with appropriate criminal
    justice officials, to identify legislative areas in need of redress,
    work to draft such changes, and assist where appropriate in their
    legislative approval. The effort will build upon the successes of the
    past and present activities of the CLI. The estimated costs for this
    effort will be approximately $2 million in fiscal year 1999.
        I appreciate the past support this Subcommittee has provided the
    Caribbean Law Institute (CLI) at Florida State University and look
    forward to your continued support for this effort.
                                     ______

                  Prepared Statement of Georgetown University
        Mr. Chairman and Members of the Subcommittee: We are Father Julio
    Giulietti, S.J., Director of Georgetown University's Center for
    Intercultural Education and Development (CIED), and Father William
    George, S.J, Assistant to the President of Georgetown University. We
    appreciate the opportunity to testify before this Subcommittee on the
    Cooperative Association of States for Scholarships (CASS) Program and
    the East Central European Scholarship Program (ECESP).
        We would like to thank you and your Subcommittee for your generous
    support of 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 would ask the Subcommittee to continue its
    support in fiscal year 1999 as we have had very productive negotiations
    with USAID.
    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 PVO's, 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 (85 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 ninety-two
    percent (92 percent).
        In 1992, 311 CASS participants arrived in the U.S. to begin two-
    year programs of study. Ninety-one percent (91 percent) of these
    students (284) successfully completed their program and returned to
    their home countries in 1994. This is a six percent (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 (87 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. We have generally defined ``success'' as
    having completed the degree, or target objective (it might be a
    certificate) and returned home at the end of training.
        In 1995, 253 CASS participants arrived in the U.S. for two-year
    training programs. Ninety-four percent (94 percent) returned home, 90
    percent having graduated with an associate degree.
        Today, 469 CASS participants in Cycles 96 and 97 are enrolled at 20
    community-based institutions in 14 states. An additional 18
    participants from Central America and the Dominican Republic arrived in
    the U.S. in January, 1998, for a special six-month program for
    strengthening the skills of math and science teachers.
        In 1998, 257 students will begin training in CASS programs. 227
    participants will begin two years of study at 14 U.S. community-based
    institutions, leading to associate degrees in 14 fields of study. In
    addition, 30 CASS students from Haiti will come to the U.S. for 6-month
    programs in the fields of health and education administration.
        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 105 NPSP participants are in the U.S. studying
    English as a Second Language, courses leading to the GED, and technical
    courses in public health, computer repair, business management,
    industrial manufacturing management, and electronic communication
    technology. They are placed at three community-based institutions in
    three 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 seventy-one (271) NPSP graduates returned
    home between 1992 and 1997. Fifty-seven (57) Cycle 97 NPSP participants
    initiated their 18-month technical training in January 1998 and 48
    Cycle 96 participants will complete studies and return home in June
    1998.
        It is noteworthy that in 1997, CASS had a total of 82 participants
    in programs at Historically Black Colleges and Universities (HBCU's),
    namely Harris-Stowe State College in St. Louis, Missouri and Kentucky
    State University in Frankfort, Kentucky.
        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 twenty-five percent (25 percent) of the total costs of
    the program. Colleges are exceeding this goal. From 1990 through
    September 1997, we have received $25 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 $451,000 of in-kind support from private donors in
    the countries in which CASS operates.
        Follow-up surveys of alumni activities solidly demonstrate the
    success of the CASS program through sustainable employment levels,
    continuance of education in-country and community service. Data
    collected over the last several years show that between ninety-one
    percent (91 percent) and ninety-two percent (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. As of December, 1997, ninety-seven percent (97
    percent) of the 271 NPSP alumni is occupied as mid-level technicians
    and managers and/or is studying in a national economy where over 50
    percent of the working population is 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 (76 percent) of the CASS deaf
    alumni are employed in their countries. Twenty-six percent (26 percent)
    of the deaf alumni continues their studies; seventy-three percent (73
    percent) are involved in community service activities.
        Since 1990, CASS has negotiated 20 credit transfer agreements for
    CASS alumni with universities in Central America and the Dominican
    Republic. Last year, twenty-three percent (23 percent) of CASS alumni
    reported they are currently continuing their studies, most working
    full-time and studying concurrently. Sixty-five percent (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.
                       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 trained 150 participants, expanded to El Salvador and lengthened
    the training period to twelve months. In 1998, TSE will train 177
    participants from 59 companies in four countries. 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.
    The East Central European Scholarship Program (ECESP)
        The East Central European Scholarship Program (ECESP) was founded
    at Georgetown University to address the rapid political, social, and
    economic changes in post-communist European countries. It was the first
    education and training program to be funded and implemented under a
    1989 initiative of the U.S. Congress to support democratization and
    privatization in East Central Europe.
        The goal of the program is to educate a core group of public
    administrators and experts in public administration and policy,
    management, finances, banking, health care administration, regional/
    rural development, and education. 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, council members, 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 institutions. In
    an effort to meet the ever-changing needs of the 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 and insurance sector. In 1996, ECESP
    initiated a short term, specially designed program of training for the
    National Bank of Poland with the aim of building a stronger and more
    transparent banking industry in Poland. Today, that program also
    encompasses the National Banks of Hungary and Slovakia, as well as the
    Polish Bank Guarantee Fund, the Bank of Economic Union, and the
    regional banks. The program cooperates with the U.S. Federal Reserve,
    the Office of the Comptroller of Currency, and the Federal Deposit
    Insurance Corporation.
        ECESP hopes that the education and training it provides will allow
    the participating countries to reap the benefits of a more open and
    structured policy-making process, an increased number of civic-minded
    citizens, a better educated and skilled democratic leadership and
    administration, and a more evolved pattern of cooperation between civil
    society and government in solving key social, political and economic
    problems.
        Since its founding in 1990, ECESP has sponsored 609 Czech,
    Hungarian, Polish and Slovak participants. An additional 40
    participants are scheduled to arrive shortly. As programs in Hungary
    and Slovakia close in 1999, ECESP will shift its main focus to southern
    tier countries, as approved by the U.S. Congress. In fiscal year 1998,
    ECESP will complete its training in Poland (centered on final programs
    for the Ministry of Finance and the National Bank, the Bank Guarantee
    Fund, the European Union Bank and the regional and cooperative banks).
    It will also prepare programs for Albania, Macedonia and Romania.
    Discussions on the scope of those programs are currently under way with
    USAID. Finally, ECESP will address the training requests from the
    Governor of the National Bank of Croatia and the Ministry of Health in
    Bulgaria. ECESP anticipates selecting approximately 100 new
    participants for training under fiscal year 1998 funds.
        Georgetown University, with the assistance of this Committee, has
    agreed with USAID to negotiate a new cooperative agreement to cover
    five years; that is fiscal year 1998 through fiscal year 1902. Funding
    has been set for $53 million over five years. Beginning in fiscal year
    1999, Georgetown will apply $6 million to the traditional CASS
    technical program; $2 million to infectious disease control and
    prevention; and $2 million to educational administration and training
    of primary school teachers. The Georgetown CASS program will continue
    to focus its resources on the same population this Committee is
    concerned about: socio-economically disadvantaged men and women from
    the region of Central America and the Caribbean.
        We thank the Committee for its support in the past and for its
    assistance in the negotiations for a new Cooperative Agreement.
                      participating institutions by state
      cooperative association of states for scholarships (cass) including
                   nicaragua peace scholarship program (npsp)
        California.--Kings River Community College; and Modesto Junior
    College.
        Florida.--Florida Community College at Jacksonville; Santa Fe
    Community College; and St. Petersburg 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 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, D.C.--George Washington University; and Georgetown
    University.
                                     ______

         Prepared Statement of Cyrus M. Jollivette, Vice President for
                   Government Relations, University of Miami
        Mr. Chairman and Members of the Subcommittee, on behalf of the
    University of Miami, I would like to present testimony on two important
    nationally recognized centers located on our campus, the North-South
    Center and the International Center for Health Research.
                               north-south center
        The mission of the North-South Center is to promote better
    relations and to serve as a catalyst for change among the United
    States, Canada, and the nations of Latin America and the Caribbean. The
    North-South Center conducts programs of research, public outreach,
    education, training, and cooperative study. It publishes and
    disseminates policy-relevant information on the Americas. Its programs
    and activities also foster linkages among academic and research
    institutions, NGO's, governmental institutions both civilian and
    military, and philanthropic and private sectors throughout the
    Americas.
        We are convinced that such a mission is fundamental to the national
    interests of this country. Informed and balanced analysis and improved
    understanding of our neighbors in the Western Hemisphere provide us
    great opportunities to enhance our economy, expand our jobs, and learn
    of risks before they reach threatening proportions. The United States
    has long equated stability in the region with its own security
    interest. The maintenance of that stability today requires a
    sophisticated partnership among the countries of the Hemisphere. It
    also demands continually new approaches in U.S. policy. Fulfilling a
    singular role in inter-American affairs, the Center's programs produce
    nonpartisan, policy-relevant analysis and discussion of key issues
    directly affecting the lives and well-being of citizens of the United
    States. Unlike partisan institutes and advocacy groups, the North-South
    Center engages vital inter-American issues such as trade, investment,
    competitiveness, security, corruption, civil-military relations,
    institutional reform, drug trafficking, immigration, and the
    environment from the perspective of the public good. The Center devotes
    its efforts toward publishing analyses that are accessible and relevant
    for diverse audiences, including legislators, government officials,
    nongovernmental organizations, and the private sector.
        The North-South Center is a reflection of the belief that the
    nation benefits when the great issues of the Western Hemisphere are
    analyzed and debated by private sector and nongovernmental groups under
    the auspices of a neutral forum. Governments cannot successfully
    convoke and organize nongovernmental opinion, and academic institutions
    have a different mandate. As a respected, independent, public policy
    institution--fully cognizant of the special responsibilities attached
    to its federal funding--the Center has served this function
    successfully. Most notably, the Center has established a unique
    capacity to serve as a forum and facilitator for civil society input in
    the far-reaching inter-American policy negotiations that seek to build
    upon the Miami Summit of the Americas. These negotiations are creating
    the underlying architecture of inter-American relations for decades to
    come.
    Hemispheric Security Issues
        The Center has been deeply engaged in promoting and sponsoring
    research and dialogue on inter-American security issues, especially
    since the onset of federal funding support in 1991. Among other issues,
    the Center has conducted an extensive research program on drug
    trafficking in the Hemisphere. It has studied and promoted dialogue on
    the crises in Cuba, Panama, and Haiti. The Center has engaged in
    research in civil-military relations, conflict resolution, and security
    cooperation, and it has followed closely the Peru-Ecuador border
    conflict, in which the United States has acted as one of the primary
    ``guarantor'' powers. The Center hosted, in December 1996, an
    international conference attended by 58 scholars and government
    officials from eight countries in the Americas to assess the impact of
    that conflict on inter-American relations.
        The Center founded its own inter-American security program in April
    1997, headed by Dr. Richard Downes, a former officer in the U.S. Air
    Force. The program focuses on ways to improve Hemispheric collaboration
    on control of illegal drug trafficking, improving civil-military
    relations, initiating and sustaining efforts at conflict resolution in
    the Americas, exchange of information on arms proliferation in the
    Americas, and exploring systematic ways to improve cooperative security
    in the region. The focus of the program and the Center's
    accomplishments in the security area were recognized in a letter to the
    Center's director from General Wesley K. Clark, USA, the then Commander
    in Chief, United States Southern Command, in March 1997.
        The relocation of the U.S. Southern Command to Miami in late 1997
    has afforded an enhanced role for the Center in security issues. The
    Center figured prominently in discussions on the future of civil-
    military relations in the Hemisphere at a recent conference with key
    Latin American military officials sponsored by the U.S. Southern
    Command and the U.S. Army War College. In December 1997, the Center
    founded the ``Miami Security Roundtable'' with the cooperation of the
    University of Miami School of International Studies, the Latin American
    and Caribbean Center of Florida International University, and the U.S.
    Southern Command headquarters in Miami. Three meetings of the
    Roundtable held thus far have brought together, in an informal setting,
    thirty or more academic experts and staff members of the U.S. Southern
    Command to discuss the latest security issues in the Americas,
    including drug trafficking and transnational crime. The Center's Issues
    report on inter-American security cooperation has been well-received in
    academic and professional circles. We are currently preparing a
    monograph in the Center's Agenda paper series entitled ``Building New
    Security Relationships in the Americas: The Critical Next Steps'' for
    release in mid-May 1998 and a new Issues report on environmental
    security in the Americas, to be published in June 1998. We are in close
    consultation with the newly established Center for Hemispheric Defense
    Studies at the National Defense University at Ft. McNair, Washington,
    D.C. We anticipate that cooperative programs will result this year from
    our discussions.
        The Center's director serves on the Board of Visitors of the U.S.
    Army School of the Americas in Ft. Benning, Georgia. In that capacity,
    he has been engaged in reviewing the curriculum of the school and
    sharing perspectives with a senior officer from U.S. Southern Command
    headquarters who acts as the Command's liaison with the school. The
    Center's director also has a Presidential appointment to the Panama
    Canal Consultative Committee, a body charged with making
    recommendations in connection with the operation and future of the
    Panama Canal. The Center looks forward to enhancing its contributions
    in the security field. We have applied for sponsorship from a major
    foundation for a grant to conduct a security review of an increasingly
    turbulent region of the Hemisphere--the Amazon Basin. The Center is
    prepared to collaborate with the Department of State and the Office of
    National Drug Control Policy to conduct a series of seminars on
    conflict resolution, civil-military relations, and drug control
    strategies with civil society experts.
        In summary, the Center is committed to advancing the state of
    security cooperation in the Americas. It serves as a bridge between
    government officials dedicated to enhancing regional security and
    academic and other civil society experts who have devoted their
    professional lives to analyzing the Hemisphere's critical security
    issues. We believe that Hemispheric cooperation on security issues can
    multiply the impact of United States policy initiatives generally and
    overcome historically profound cultural and political gaps between
    North and South.
    The Overall Agenda: Economic Growth and Sustainable Development
        In a broader context, the Center's research programs are framed in
    a manner which recognizes the imperatives for the development of the
    economies of the Latin American and Caribbean countries and for the
    extension and deepening of the region's democratic practices. These are
    seen as crucial for the long-term prosperity of the United States, and
    as a means by which to address the human problems that result from
    poverty and under development, such as environmental degradation,
    uncontrolled migration, narcotics production, and political and social
    instability. The programs under this thematic include research and
    outreach in the Inter-American Business and Labor Program, Summit of
    the Americas working groups on trade and the environment, the above-
    mentioned research activities on the emerging agenda of inter-American
    security issues, analysis of immigration problems in a multilateral
    context, studies on institutions and democratic governance, and
    training and education seminars. A special regional emphasis is given
    to the wider Caribbean through the Caribbean Studies Program. Small-
    scale studies on discreet research topics that fall within the scope of
    the overall research theme are carried out through the Adjunct Senior
    Research Associate Program.
    Accomplishments Toward Meeting Objectives in Fiscal Year 1997 and
            Fiscal Year 1998
        In April 1997, the Center participated in a trade and investment
    seminar on Trinidad and Tobago, which featured the Prime Minister,
    Baseo Panday. In May 1997, the Fifth Annual Reuters Seminar for
    economic and financial journalists in Latin America was designed by and
    held at the Center under the title of ``The Challenge of Hemispheric
    Integration: Economic Alliances and National Realities.'' Another
    Reuters seminar is planned for May 1998. In February and June 1997,
    sessions were held at the Center's Washington office for civil society
    consultation with Timothy Wirth, Under-Secretary of State for Global
    Affairs, and representatives of U.S. civil society on follow-up and
    implementation of the agreements from the December 1996 Santa Cruz
    Summit on Sustainable Development. In February, the Center hosted the
    OAS Coordination Group for the ``Inter-American Strategy for
    Participation (ISP): Strengthening Public Participation in Environment
    and Sustainable Development Policy Making in the Americas.'' Later in
    the year, the Center participated in a meeting of the OAS Inter-
    American Commission on Sustainable Development, which also sought to
    follow up on the Santa Cruz Summit. In April 1997, Ambassador Richard
    Brown, Senior Coordinator, Summit of the Americas, U.S. Department of
    State, visited the Center for a discussion with some 30 invited
    participants on ``Developing the Hemispheric Agenda for the 1998 Summit
    of the Americas.''
    Toward a Better Hemisphere
        To summarize, the North-South Center's work unfolds against a
    backdrop of auspicious changes and urgent concerns. The Center
    addresses these issues, as it has for more than ten years, influencing
    positive change throughout the Western Hemisphere in several
    distinctive ways:
      --Supporting economic growth, competitiveness, jobs, and regional
            trade integration;
      --Serving as a catalyst to promote solutions for pressing regional
            security problems, including regional conflicts;
      --Promoting democratic governance and social change with equity;
      --Providing a forum for the study of environmental policies that
            promote sustainable development;
      --Developing research and training programs that foster the exchange
            of ideas and analysis of critical hemispheric issues;
      --Promoting technical and scholarly interchange and productive
            networks among scholars and throughout the private and public
            sectors;
      --Producing policy-relevant books and reports.
        The Summit of the Americas process offers the best hope for
    creating a secure, durable and beneficial framework for inter-American
    relations. Yet, the promises of summitry only become significant in
    their implementation. No other independent body has been as active as
    the Center in monitoring progress on the commitments made at the Miami
    Summit. As the Summit of the Americas II in Santiago, Chile fast
    approaches, this function will only take on added importance for U.S.
    policy interests. We fully realize that the Congress always faces many
    difficult funding decisions. In an age of deepening interdependence in
    the Americas, and with great opportunities for regional economic growth
    before us, the North-South Center provides a value-added return on U.S.
    taxpayer dollars. As a national resource in the public interest
    providing informed analysis of issues whose effects reach into every
    American home, the North-South Center represents an investment in our
    citizens' future and well-being.
                    international center for health research
        I would especially like to commend this Subcommittee for its
    significant and invaluable efforts in providing $50 million for the
    ``Communicable Diseases Initiative'' at USAID in fiscal year 1998. Like
    the Subcommittee, we believe that it is imperative that the United
    States address the threat of infectious diseases by responding to the
    dramatic increase in, and resurgence of, communicable diseases
    affecting children and adults, assisting developing countries to
    strengthen their ability to protect and care for their people, and
    stopping the spread of these communicable diseases in developing
    countries. Emerging infections have been defined as those diseases
    whose incidence has increased in the past two decades, or threatens to
    increase in the near future. Re-emergence is the resurgence of known
    infections after declines in incidence. Emerging and re-emerging
    diseases, once thought to be under control, have sharply increased in
    recent years around the world. The reasons are multidimensional,
    including population growth and increased mobility, environmental and
    climate changes, urbanization, the evolution of microbes, drug
    resistant organisms, and modern travel and trade. International
    commerce, travel, and migration within the Americas are creating new
    opportunities for disease re-emergence and greater spread, particularly
    when the movement of people and products is from developing to
    industrialized nations.
        Infectious diseases are the leading cause of death worldwide,
    causing 17 million of the 52 million deaths each year. The U.S. has
    also been adversely impacted by emerging infectious diseases. This is
    evidenced by the fact that the death rate from infectious diseases in
    the U.S. has increased more than 50 percent since 1980 and in 1996,
    infectious diseases in the United States were ranked as the third
    leading cause of death. This trend will continue in the future since
    infectious microbes can easily travel across borders from other parts
    of the world and be introduced into the United States, threatening our
    national health and security. Controlling disease outbreaks and factors
    promoting them in other countries is important not only for
    humanitarian reasons, but also to prevent those diseases from entering
    the United States. Moreover, U.S. supported research in other countries
    provides American investigators with the opportunity and capacity to
    determine the causes, patterns of spread, factors that promote
    infectivity, and strategies for prevention and control of these
    diseases in the United States. Emerging infections are particularly
    serious in individuals with impaired immune systems, including
    malnourished children and adults. Even subclinical malnutrition or
    deficiency of individual vitamins and minerals that can only be
    detected by laboratory means, may predispose populations to infectious
    diseases. Poor nutritional status has been shown to influence all
    aspects of the humoral and cell mediated immune responses.
        The synergistic interaction of malnutrition and infection has long
    been recognized. Infectious illness influences nutritional status
    which, in turn, affects host susceptibility to infection. The
    interrelationships between infection, nutritional status and immune
    function are especially apparent in individuals infected with the HIV
    virus, who exhibit impaired immune function and altered nutritional
    status. The international dimensions of emerging, and re-emerging
    infectious diseases are a continuous challenge that call for concerted
    efforts of the American countries. For example, in 1993 a new
    hantaviral illness, hantavirus pulmonary syndrome (HPS) was identified
    in the southwestern region of the United States (CDC, MMWR, 1993). This
    disease is characterized by a febrile prodrome in young, healthy adults
    and disease progression can lead to respiratory failure. This virus has
    now been identified from cases around the world.
        Cholera, has also returned in epidemic proportions. In the United
    States, more cases occurred in 1992 than in any other year since
    cholera surveillance began in 1962. Since 1991, over 1 million cases
    and 9,000 deaths have occurred in Latin America, and the disease is
    showing a tendency to become endemic in areas in which basic sanitation
    is deficient and the educational level of the population is low.
    Although cholera initially reemerged in Peru, the disease has occurred
    throughout Latin America. The most profound problem associated with the
    reemergence of cholera has been the rapid emergence of multi-drug
    resistant strains. For example, Honduras witnessed its first case of
    cholera from the new pandemic in October, 1991. Within five years,
    antimicrobial-resistant V. cholera strains appeared in this country
    (Dubon, et.al. 1997). This may be due to the overuse of antibiotics in
    this area of the world or may indicate that drug-resistant cholera is
    becoming the dominant infecting form of the organism. International
    commerce may play a role in the redistribution of multi-drug resistant
    Vibrio cholera strains to the United States and other Latin American
    countries. The cholera problem illustrates how factors in one continent
    interact with global health by facilitating increased microbial traffic
    to distant regions. The re-emergence of dengue and dengue hemorrhagic
    fever (DHF) has been dramatic in the Americas. During the last ten
    years, five countries in South America have experienced major
    epidemics, for the first time in over 50 years. In the United States,
    the first indigenous transmission of dengue after 35 years of absence
    occurred in Texas in 1980. Between 1986 and 1992, the Centers for
    Disease Control and Prevention (CDC) diagnosed 157 cases of dengue. In
    1994, 37 laboratory-confirmed cases were reported, doubling the annual
    average from the previous years (1987-1993). From 1977 to 1994, a total
    of 2,248 suspected cases of imported dengue fever were reported in the
    United States. Both mosquito vectors, Aedes aegypti and Aedes
    albopictus, are present in the southeastern part of the United States
    (8 states) permitting rapid transmission of the virus throughout this
    region. More recently, a major outbreak of dengue fever and DHF was
    reported from Cuba. Nearly 3,000 cases of confirmed dengue fever
    (including 12 fatalities) were reported during 1997 by the Cuban
    Ministry of Health (Kouri et.al., 1998). Since asymptomatic and
    subclinical dengue cases frequently occur, the number of people
    infected with dengue virus was probably much higher. There are strong
    indications that dengue virus infections are currently increasing in
    several other Caribbean countries as well in several countries in
    Central America. Thus, there is a compelling need to increase
    surveillance activities to track the movement of dengue fever and DHF
    throughout the Americas.
        Tuberculosis (TB) appears to be on the rebound. In the United
    States, TB incidence rose from 22,210 to 25,313 between 1985-1993, with
    60 percent of the excess cases attributed to disease in foreign-born
    individuals. From 1986 to 1993, 40 percent of foreign-born cases were
    from Latin America. Between 200,000 and 250,000 cases have been
    reported annually in the Americas since 1980. Eight countries face very
    severe problems, with incidence rates estimated at over 80 per 100,000:
    Bolivia, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Paraguay and
    Peru. There are four factors that seem to contribute to such a
    resurgence of TB: the HIV/AIDS epidemic, drug resistance, an increase
    in marginalized populations, and neglect of public health TB control
    programs. According to the PanAmerican Health Organization (PAHO)
    estimates, 3.5 percent of TB cases in the Region were associated with
    HIV infection in 1990 and 15 percent will be linked to HIV infection in
    the year 2000. In several countries of the Americas, including the
    United States, the emergence of multi-drug resistant TB (MDR-TB) has
    been also intimately related to the HIV epidemic. Thus, drug resistance
    surveillance can be an important program indicator for policy makers.
    Support of laboratories for international drug resistance monitoring
    needs to be considered.
        Malaria has had a resurgence in many tropical areas. The disease
    now occurs in more than 90 countries worldwide and it is estimated that
    there are over 500 million clinical cases and 2.7 million malaria-
    caused deaths per year. A multitude of factors have contributed to the
    reemergence of malaria, including (1) insecticide resistance in the
    Anopheles mosquito (2) social instability resulting in movements of
    unexposed nonimmune individuals into areas where malaria is endemic and
    (3) the failure to develop an effective malaria vaccine. Compounding
    the problems of malaria's geographical expansion and of increasing
    morbidity and mortality are the emergence and rapid spread of
    antimalaria-drug resistance which necessitate the use of more expensive
    and sometimes toxic antimalaria drugs and longer treatment course. In
    various parts of the United States, concomitance of competent vectors,
    suitable weather conditions, and malaria-infecting carriers entering
    the country have caused isolated cases or small outbreaks of
    ``autochthonous malaria''. In the past, these cases were limited to
    rural settings, but since 1990, indigenous malaria has been reported in
    urban areas as well. Plasmodium falciparum, the hemoparasite which
    causes the most severe form of the disease, has become even more
    resistant to commonly used antimalarial drugs. Resistant falciparum
    malaria is now present throughout malaria endemic areas of South
    America.
        Antimicrobial drug resistance is perhaps one of the most alarming
    threats among the problems presented by emerging and re-emerging
    infections. The problem is well documented in the United States where
    increasing levels of drug resistance in both community-acquired (e.g.
    MDR Streptococus pneumonia) and nosocomial infections (resistant
    enterococci) have led infectious disease experts to declare the
    situation a crisis that could lead to a ``post-antibiotic'' era.
    Although less well-documented, the threat of antimicrobial resistance
    in the developing nations of the Western Hemisphere appears to outweigh
    that present in the United States and Canada. Most of the Latin
    American countries have conditions that facilitate antimicrobial drug
    resistance: uncontrolled sale of antibiotics, frequent self-medication,
    overcrowding and lack of adequate nosocomial infection control programs
    in many hospitals, along with almost nonexistent surveillance and
    reporting of antimicrobial resistance patterns.
        The HIV/AIDS pandemic continues to increase exponentially. Reports
    from the World Health Organization (WHO), the Joint United Nations
    Programme on HIV/AID (UNAIDS), and the World Bank (WB) predict dramatic
    increases in worldwide HIV infections, particularly in developing
    nations. Dr. Piot, executive director of UNAIDS recently announced that
    ``We are now realizing that rates of HIV transmission have been grossly
    underestimated--particularly in sub-Saharan Africa''. The WHO has
    stated that ``The growing global HIV/AIDS crises is reversing decade of
    progress toward improving the quality of life in developing
    countries.'' It is now estimated that more than 30 million individuals
    are infected with HIV worldwide with as many as 16,000 new individuals
    becoming infected each during 1997. Nearly 90 percent of all people
    infected with HIV live in developing countries (Fox, 1998). Clearly,
    major research efforts need to be focused on the development of HIV
    prevention programs and more importantly, into the development of an
    effective vaccine.
        The HIV/AIDS epidemic has also refocusing the attention of public
    health experts on the problem of emerging and re-emerging infectious
    diseases. HIV/AIDS and other sexually transmitted diseases (STD's)
    illustrate the impact of changes in demographic conditions, social
    standards, modification of the global environment, and the mutability
    of microorganisms. The impact of HIV/AIDS on public health is due in
    large part to the multiple opportunistic infections that develop in
    association with this condition (e.g. Mycobacterium complex,
    Pneumocistis carinni, Toxoplasma goondii, Cryptosporidium, etc.). In
    1993, the United States experienced the largest waterborne disease
    outbreak ever registered. The source was the urban municipal water
    supply contaminated with Cryptosporidium, an intestinal parasite that
    causes prolonged diarrheal illness, and severe disease in the
    immunosuppresed individuals. In addition, HIV infection interacts in
    complex ways with other tropical infectious diseases endemic in Latin
    America, such as Chagas' disease and leishmaniasis, which are occurring
    with varied and unusual clinical manifestations in persons infected
    with HIV.
        The magnitude and gravity of the current emerging and re-emerging
    infectious disease situation in the region of the Americas is of
    critical concern. In order to develop an effective system for disease
    surveillance control and prevention, a strong and stable research
    infrastructure and close cooperation between scientists of United
    States and Latin America and Caribbean countries are essential.
    Enhanced research and training efforts need to be established in the
    areas involving the most prevalent infectious diseases including TB,
    malaria, dengue, cholera, and HIV. The complex interaction between
    nutritional status and susceptibility, as well as disease progression,
    and control of these infections needs to be investigated along with
    basic research on all aspects of disease processes and public health
    strategies.
        The University of Miami, International Center for Health Research
    is located in Miami, Florida, the major gateway city to Latin America
    and the Caribbean. The major goals of the Center are to investigate
    biological characteristics of causative microbial agents, to study the
    risk factors related to the spread of these infections, including
    interactions between nutritional status and susceptibility, as well as
    to develop innovative preventive strategies. An important role of the
    Center involves collaborative infectious disease control and prevention
    efforts to broaden expertise of indigenous Latin American and Caribbean
    health professionals, and link laboratory science and epidemiology with
    public health strategies and policy making processes. The Center's
    priority is to strengthen programs for the control of major infectious
    diseases, particularly malaria, dengue, TB and cholera. Emphasis is
    also placed on programs aimed at preventing the spread and reducing the
    impact of HIV infection and other sexually transmitted diseases. There
    is an urgent need to strengthen the existing research infrastructure
    and a close collaboration between U.S. and Latin American and Caribbean
    scientists and policy makers. This enhanced research will lead to
    development of new effective strategies for control and prevention of
    these emerging and re-emerging diseases in the Americas. We
    respectfully seek the Subcommittee's support for $2 million for the
    International Center for Health Research at the University of Miami to
    strengthen and expand its research and prevention efforts in Central
    America and The Caribbean. Once again, thank you for your critical
    support for USAID's efforts in infectious diseases.
        On the occasion of submitting testimony for the record to the
    Foreign Operations Subcommittee, Committee on Appropriations, U.S.
    Senate, regarding the fiscal year 1999 Budget for the United States
    Agency for International Development (USAID).
        I, Cyrus M. Jollivette, Vice President for Government Relations of
    the University of Miami, located in Coral Gables, Florida, state the
    following:
        According to the two most recent audits of the University of Miami
    performed in accordance with provisions of Office of Management and
    Budget (OMB) circular A-133 (``Audits of Institutions of Higher
    Learning and other Non-profit institutions'') for the fiscal years
    ending May 31, 1996 and May 31, 1997, federal awards received by the
    University of Miami for all activities (including research and
    development, student financial aid, extension education, public
    service, academic support, enterprise/institutional/plant support, and
    scholarships and fellowships) totaled $121,562,876 and $122,601,809
    respectively.
        Should the Subcommittee require further details of federal support
    received at the University of Miami, or copies of the audits as
    produced by Arthur Anderson LLP (for fiscal year 1996 and fiscal year
    1997), the University's independent auditors, I will make every effort
    to see that they are provided.
                                     ______

     Prepared Statement of Dr. Richard L. Bernala, Jamaica's Ambassador to
     the United States and Permanent Representative to the Organization of
                                American States
        Thank you for providing this opportunity to submit testimony
    highlighting Jamaica's views on the Clinton Administration's fiscal
    year 1999 Request for Latin America and the Caribbean.
                                  introduction
        Over the years, U.S. assistance and trade programs have fostered an
    important economic partnership between the United States and the
    countries of the Caribbean Basin. 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 more than
    200 percent and Caribbean exports to the United States have climbed by
    nearly 170 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 $36 billion in 1997, U.S./Caribbean commercial links
    support more than 360,000 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.
                     supporting sustainable economic growth
        Since 1990, the Jamaican Government has been implementing a
    comprehensive and uncompromising economic program which has brought
    positive results and which has supported private sector-led, market-
    driven economic growth. The Government is now working vigorously to
    maintain and strengthen confidence in its financial sector while
    engaging in wide-ranging activities to promote consumer rights,
    dismantle government regulations, and encourage private sector
    development. The U.S. Government has supported this process of economic
    reform and trade liberalization by providing balance of payments
    support, in addition to traditional development assistance funding (DA)
    for specific projects and programmes to support overall growth targets.
        Development Assistance (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. In fiscal year 1999, USAID is proposing to allocate $11
    million to Jamaica to stimulate micro-entrepreneurial activity; to
    increase employment in small, niche export industries; to promote
    environmentally sustainable policies, especially in the tourist areas,
    to raise educational standards of elementary school children; and to
    encourage effective family planning techniques.
        Such programs are clearly in the U.S. interest, particularly since
    Jamaica is in such close proximity to the United States. 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 about 70 percent of its goods and services from the
    United States and since 1985, annual growth of U.S. exports to Jamaica
    has averaged 12 percent. Moreover, the accomplishment of social,
    health, and educational goals contribute to overall stability, which
    have a dampening effect on migration and narcotics trafficking through
    U.S. borders.
    supporting private sector development: the multilateral investment fund
        The United States has also supported private sector development via
    the Inter-American Development Bank's Multilateral Investment Fund
    (MIF). In fact, Jamaica was the first country to receive funding from
    the MIF. This $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; and most recently; and
      --$1.5 million in institutional support for the Financial Sector
            Adjustment Company (FINSAC), which was created by the
            government to facilitate the restructuring of the financial
            sector.
        Cumulatively, Jamaica has received $11.7 million in grants from the
    MIF through December 1997. U.S. 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.
     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 Congress closed the Section 936 window in
    1996.
        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.
                           promoting 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 U.S./Jamaican and U.S./Caribbean partnership to flourish. The
    Administration has recently developed a proposal to strengthen this CBI
    framework to help CBI countries cope with trade and investment
    diversion from Mexico under the NAFTA. Such diversion has already begun
    to distort trade and investment flows with the Caribbean country. In
    1997, for example, contractions in the Jamaica textile and apparel
    sector led to a decline in both exports to, and imports from, the
    United States. We are hopeful that this situation can be remedied
    through the enactment of pending legislation during the 105th Congress.
        Jamaica was an active participant in the preliminary discussions
    and summits leading toward the Free Trade Area of the Americas (FTAA).
    Jamaica chaired the Working Group on Smaller Economies, calling
    attention to the needs of the smaller economies in the FTAA framework.
    The size and trade profile of many of these countries--which by some
    estimates account for about two-thirds of the FTAA participants--makes
    them particularly vulnerable to the shocks of external events. While
    they all want to embrace the path of trade liberalization, they are
    often not capable of implementing steps on the same timetable as their
    more developed neighbors.
                          facilitating debt reduction
        Jamaica continues to face heavy debt service obligations. 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 public debt currently
    totals approximately $5.23 billion, more than half of which is external
    debt.
        Nevertheless, debt service obligations remain high and currently
    absorb approximately 45 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
    approval in recent appropriations and authorizations bills of new
    mechanisms to effect debt reduction for environmental programs, based
    on the Enterprise for the Americas Initiative (EAI). Jamaica endorses
    efforts to renew this program for fiscal year 1999, 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.
                    supporting counter-narcotics activities
        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 substantially
    since 1990. Jamaica has also recently passed legislation on asset
    forfeiture and money laundering, implemented a Mutual Legal Assistance
    Treaty (MLAT) and a new shiprider agreement 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.
                                   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. During that same month,
    Jamaica successfully completed an IMF extended funds facility
    agreement, bringing to an end Jamaica's long borrowing relationship
    with the Fund, and setting the stage for current government economic
    policies.
        U.S. assistance is making an important contribution to Jamaica's
    development. USAID-Jamaica has been particularly effective at the
    grassroots level, funding programs that 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.
    Strengthening our common economic relationship will provide an
    additional framework through which aid flows can be replaced by
    advantageous commercial linkages.

                                           U.S./CBI TRADE STATISTICS (1985-96)
                                               [Millions of U.S. dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                                       Annual export
                          Year                         U.S. imports    U.S. exports       growth       Trade balance
                                                                                         (percent)
    ----------------------------------------------------------------------------------------------------------------
    1985............................................           6,687           5,942  ..............            -745
    1986............................................           6,065           6,362             7.1             297
    1987............................................           6,039           6,906             8.6             867
    1988............................................           6,061           7,690            11.4           1,629
    1989............................................           6,637           8,290             7.8           1,653
    1990............................................           7,525           9,569            15.4           2,044
    1991............................................           8,372          10,013             4.6           1,641
    1992............................................           9,627          11,263            12.5           1,636
    1993............................................          10,378          12,428            10.3           2,050
    1994............................................          11,495          13,441             8.1           1,946
    1995............................................          12,673          15,306            13.8           2,633
    1996............................................          14,469          15,870             3.7           1,401
    1997............................................          17,740          18,431            16.1             692
    Average annual U.S. export growth...............  ..............  ..............            9.95  ..............
    ----------------------------------------------------------------------------------------------------------------
    Note: 1997 marked the 12th straight year of U.S. trade surpluses.

    Source: U.S. Department of Commerce and U.S. International Trade Commission.

       NUMBER OF U.S. WORKERS DEPENDENT ON TRADE WITH THE CARIBBEAN BASIN
                                     NATIONS
    ------------------------------------------------------------------------
                                                              Number of new
                    Year                   Total number of      U.S. jobs
                                          U.S. workers \1\  created 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
    1997................................           368,600            51,200
    Average annual job creation.........  ................            20,813
    ------------------------------------------------------------------------
    \1\ Assuming that $1 billion in U.S. exports creates 20,000 U.S. trade-
      related jobs.

    Source: U.S. Department of Commerce and U.S. International Trade
      Commission.

                                        U.S./JAMAICAN TRADE STATISTICS (1985-97)
                                               [Millions of U.S. dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                        Annual U.S.     Annual U.S.    Export growth
                          Year                            imports         exports        (percent)     Trade balance
    ----------------------------------------------------------------------------------------------------------------
    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
    1997............................................             738           1,417            -5.0             679
    Average annual U.S. export growth...............  ..............  ..............            12.0  ..............
    ----------------------------------------------------------------------------------------------------------------
    Note: U.S. trade surplus in 1997 is the 13th straight year of trade surpluses.

    Source: U.S. Department of Commerce and U.S. International Trade Commission.

                                 U.S. FOREIGN ASSISTANCE TO JAMAICA (FISCAL 1985-99) \1\
                                               [Millions of U.S. dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                                          Peace
                     Year \2\                      ESF       DA      Public      MIL      Corps     Prog      Total
                                                                     Law 480              Narc
    ----------------------------------------------------------------------------------------------------------------
    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......................................  ........       7.8       2.2        .5        .7       1.9      13.1
    1997......................................  ........      11.2  ........        .5        .7       1.9      14.3
    1998......................................  ........      11.0  ........        .5        .6       2.0      14.1
    1999......................................  ........      10.9  ........        .5        .8       2.0      14.2
    ----------------------------------------------------------------------------------------------------------------
    \1\ Fiscal year 1999 request levels equal 8.6 percent of fiscal year 1985 actual levels.
    \2\ Figures for fiscal years 1997 and 1998 represent actual appropriations. Figures for fiscal year 1999 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. USAID Congressional
      Presentation, fiscal years 1995-99.

                                     ______

                    Assistance to Greece, Cyprus, and Turkey
         Prepared Statement of Andrew E. Manatos, President, National
                         Coordinated Effort of Hellenes
        I and the national Greek-American organizations on whose boards I
    serve value this opportunity to participate in our country's democratic
    process. What follows are our recommendations for foreign assistance
    levels for and American policies toward the countries of Greece, Cyprus
    and Turkey in fiscal year 1999. We believe that these recommendations
    will significantly benefit our country's short term and long term
    interests.
        As this committee knows, this year the United States, the European
    Union and the United Nations have intensified their efforts to bring
    about a just and viable Cyprus settlement as well as greater stability
    in the Eastern Mediterranean. The success of these important and
    unprecedented efforts will be significantly advanced if the government
    of Turkey continues to receive the proper message from our government
    and the international community.
        The Turkish government must understand that the path to Turkish
    advancement requires adherence to today's rules of a civilized world
    order, including a respect for human rights, intentional law and
    sovereignty, and the non-use of force or threat of force. The
    traditional American message sent to Turkey (through our previously
    routine and presently sporadic practice of ignoring Turkish wrongdoing)
    has given legitimate standing and credence to a group in Turkey who
    advocate that Turkey can advance by saying the ``right'' things and
    doing the ``wrong'' things. In today's world, whether in the EU or the
    U.S., leaders will no longer accept the ``right'' words followed by the
    ``wrong'' actions. There are a significant number of journalists,
    government officials and business people in Turkey who understand that
    the best interests of the Turkish people lay in their government
    adhering to standards of modern civilization. They will be strengthened
    if America's message on this subject is correct.
        Mr. Chairman, we urge you and your subcommittee to do whatever you
    can in this year's legislation to help Turkey understand that in
    today's world, whether in the European Union or the United States,
    leaders will no longer accept ``right'' words followed by ``wrong''
    actions. Please help reinforce, as the E.U. reinforced, the evidence to
    which enlightened people in Turkey can point to show the direction
    their country must go.
                        president's requested aid levels
        With regard of the specific aid levels that President Bill Clinton
    requested of the Congress for Greece, Cyprus and Turkey, we strongly
    support these levels and encourage the Congress to adopt them. The
    President's budget asks the Congress to send no military aid to Turkey
    and Greece, no economic aid to Turkey, and the full 15 million in aid
    to Cyprus.
        It is time to end U.S. military aid to Turkey, a country which has
    been using U.S. military equipment to violate internationally accepted
    standards of conduct, including threatening U.S. allies, Greece and
    Cyprus, and illegally occupying Cyprus. It would mark the end of a
    process started by the U.S. Congress 6 years ago to graduate Turkey and
    Greece from the annual U.S. foreign military financing program. The
    primary reason Greece and Cyprus need military equipment is to defend
    themselves against U.S arms and Turkish hands.
        With regard to Turkey's economic aid, each year since 1994 the U.S.
    Congress has cut or conditioned a portion of this aid in the attempt to
    send a message of U.S. disapproval of Turkish actions with regard to
    Greece, Cyprus, Armenia, and its Kurdish population. Ending this aid
    sends the strongest message.
        With regard to the traditional $15 million earmark in economic aid
    for Cyprus adopted in the final foreign operations appropriations bill
    each year, it is important that the Congress maintain this
    demonstration of support for a peaceful reunification of the island. An
    appropriation of anything less would send the people of Cyprus the
    wrong message at perhaps the most crucial time for settlement efforts
    in the nearly 24 years since the Turkish invasion and occupation of
    Cyprus.
                                important issues
        Mr. Chairman, I would like to take the remainder of my testimony to
    highlight for you some important developments that have taken place
    with regard to the countries of Greece, Cyprus and Turkey since I
    testified before your committee a year ago.
    Relations between Greece and Turkey
        On July 8, 1997, U.S. Secretary of State Madeleine Albright hosted
    a meeting at the NATO summit in Madrid between the Foreign Ministers of
    Greece and Turkey. At this meeting the two countries agreed to abide by
    a set of important, internationally recognized standards of conduct
    including: Respect for the principals of international law and
    international agreements; Respect for each other's sovereignty;
    Commitment to settle disputes by peaceful means based on mutual consent
    and without use of force or threat of force; and A mutual commitment to
    peace, security and the continuing development of good neighborly
    relations.
        Turkey must abide by these agree-to principles to the letter. If
    Turkey challenges Greece's sovereign rights, it should take such a
    challenge to the International Court of Justice at the Hague or other
    appropriate legal forum.
    Turkish Provocations Continue
        Unfortunately, the Turkish government continued its aggressive acts
    against Greece and Cyprus, violating the internationally accepted
    standards of conduct to which it agreed in Madrid. Attached is a
    detailed list of such acts.
    Sending Turkey the Proper Message
        The administration has begun sending Turkey the proper message when
    such aggressive acts occur--that Turkish advancement requires adherence
    to today's rules of a civilized world. Two such examples follow:
      --When four Turkish F-16 fighters buzzed the military transport plane
            carrying Greece's defense minister from Cyprus to Greece (on
            October 16, 1997), coming close enough to make the plane rock,
            the Turkish government denied the incident. The President's
            Special Envoy for Cyprus, Richard Holbrooke, stated publicly,
            ``I have no doubt that the provocative action--indeed
            happened,'' and ``it is an unacceptable action which does not
            at all help defusing tensions between Greece and Turkey.''
      --When Turkish warplanes flew near Thessaloniki, Greece (on December
            11, 1997), the State Department spokesman called such flights,
            ``needlessly provocative and totally unnecessary,'' stating
            clearly that the United States believes that, ``military
            activity of this kind undermines confidence and needlessly
            exacerbates tensions between our NATO allies.''
        The traditional American message sent to Turkey (through our
    previously routine and presently sporadic practice of ignoring Turkish
    wrong doing) has given legitimate standing and credence to a group in
    Turkey who advocate that Turkey can advance by saying the ``right''
    things in doing ``wrong'' things. The administration was the victim of
    those advocates following its hard work, which secured for Turkey in
    1995 the European Union's Custom Union. Turkey's ``wrong'' actions
    subsequently stopped the cold the completion of the Customs Union
    benefits for Turkey. Again, in August of 1997, following Turkey's
    ``right'' words in Madrid, Spain, the administration released $150
    million worth of frigates and $113 million in Seahawk Helicopters.
    Turkey's ``wrong'' actions following the arms transfer that they
    wanted, played a significant role in the European Union's finding
    Turkey's conduct as a nation unacceptable for accession.
        The more enlightened individuals in Turkey have prevailed only when
    the message Turkey received suggested that only the ``right'' words and
    actions together would produce the most for Turkey. The only time
    Turkey announced troop withdrawals from Cyprus was during the American
    arms embargo against Turkey and again when the embargo was nearly
    reimposed.
    The European Union's Message to Turkey
        On December 13, 1997 the European Union (EU) rejected Turkey's bid
    to become a member of the EU. Statements by EU officials and others
    (below) sent Turkey a clear message:
      --EU term president and prime minister of Luxembourg, Jean-Claude
            Juncker, said (on December 17) that, ``Turkey must understand
            that we are not just a Christian club, but a club with
            principles and rules which it has to respect if it wishes to
            become a member * * * The EU has asked Turkey to recognize the
            competence of the International Court of Justice at the Hauge,
            to show respect for the rules of good neighborliness and to
            support the efforts for a solution of the Cyprus issue and the
            island republic's accession to the EU.''
      --European Parliament president, Jose Maria Gils-Robels, said (on
            December 12) that to begin EU negotiations with Turkey, ``it is
            necessary [for Turkey] to end the occupation of Cyprus, to make
            big steps ahead concerning the treatment of the Kurdish
            minority and to respect human rights.'' Danish prime minister
            Poul Nyrup Rasmussen added (December 11) that, ``a country
            wishing to be considered as a candidate for EU membership
            cannot have territorial designs against another member-state of
            the Union.''
      --The Jerusalem Post (on December 14) noted that, ``There are several
            reasons why Turkey does not qualify [for EU membership], apart
            from economics. In no country in the EU, or among the aspiring
            members, are citizens tortured. In Turkey they are. No EU state
            has 30,000 occupation troops in a neighboring country, propping
            up a puppet government. In Cyprus, Turkey does. Turkey's
            treatment of its Kurdish minority is beneath contempt * * * It
            is true that Turkey is generally admired as the only successful
            secular democratic Moslem state in the Middle East, but that is
            a long way from saying it is a fit candidate for European Union
            membership.''
                Turkey's Path to the EU
        The EU noted (on December 13) that if Turkey wishes to join the
    European Conference (which will bring together EU member states and
    states aspiring to accede to the EU) it must prove, as other members
    have, that it, ``shares a common commitment to peace, security and good
    neighborliness, respect for other countries' sovereignty * * * and the
    commitment to settlement of disputes by peaceful means.''
        Greece's Prime Minister Constantine Simitis stated (on December 16)
    that Greece is not opposed to Turkey's European vocation and, on the
    contrary, would support it if Turkey ``played by the rules of the game
    which are accepted by all countries and pertain to values, the rule of
    law and in general all those principles which consolidate peaceful
    cooperation.''
                Turkey's Reaction
        Turkish Prime Minister Yilmaz said (on December 15) that his
    government will sever its political ties to the EU and threatened to
    derail U.S.-led Cyprus settlement efforts.
        Turkish-Cypriot leader Rauf Denktash announced that, ``as a result
    of the EU decision, the intercommunal talks have been terminated and
    from now on Turkish-Cypriots will sit at the negotiating table only as
    a state.''
    Cyprus Settlement Efforts
        On July 23, 1997 the House (by a vote of 417 for and only four
    against) and the Senate (by unanimous consent) overwhelmingly adopted
    legislation calling for a U.S. initiative seeking a just and peaceful
    resolution of the Cyprus problem. Through this resolution, the U.S.
    Congress stated that: ``the status quo on Cyprus * * * is an
    unacceptable violation of international law and fundamental human
    rights * * * and undermines significant U.S. interests.''
        It also emphasized that a peaceful, just and lasting solution to
    the Cyprus problem would: serve important interests in the United
    States; strengthen peace and stability in the Eastern Mediterranean;
    contribute to improved relations between Greece and Turkey; and greatly
    benefit the security and the political, economic and social well being
    of all Cypriots.
                Cyprus Settlement Timetable:
        The next year and-a-half offer what many consider to be the
    greatest opportunity, in the over 23 and-a-half years since the
    division of Cyprus, to find a just and viable settlement. Following the
    presidential elections in Cyprus in February, the United States, the
    United Nations, and the European Union, launched an intensified effort
    to bring about a just and viable Cyprus settlement. Two clocks are
    ticking that require significant progress in a short period of time.
        Today (March 31) the European Union formally begins accession talks
    with Cyprus. Turkey has threatened that if such talks take place
    without a united Cyprus, it will integrate the occupied areas of Cyprus
    into Turkey. Turkish-Cypriot leader Rauf Denktash stated that if such
    talks with the EU take place before a Cyprus solution, he would boycott
    all settlement efforts.
        In addition, this summer Russia will deliver to Cyprus S-300
    defensive ground-to-air missiles. The Turkish government, from its
    prime minister and president to its foreign and defense ministers, has
    clearly and repeatedly stated that if such a delivery occurs, Turkey
    will strike militarily. Greece has stated that such a strike against
    the relatively defenseless Cyprus would bring a counter attack from
    Greece. The government of Cyprus, which has for many years has
    advocated a complete demilitarization of the island, says that these
    defensive missiles are only necessary if the 30,000 Turkish troops
    remain. A Cyprus solution in the near future could become a necessity
    to keep NATO allies Greece and Turkey, and possibly Russia, from going
    to war.
        The U.S., the U.N. and the EU must not broker just any solution,
    but one that is viable and just. A solution must be based on
    international law, the provisions of relevant U.N. Security Council
    resolutions, democratic principles, including respect for human rights,
    and in accordance with the norms and requirements for accession to the
    European Union.
        Greeks and Turks want to live together again on Cyprus. The United
    States wants peace in the Eastern Mediterranean, beginning with Cyprus.
    Now is the time, and perhaps the best and final opportunity, to make
    this happen.
                Progress on an Important Humanitarian Issue--the Missing in
                        Cyprus
        On March 5, 1998, the over 23 years of suffering by the Costas
    Kassapis family of Detroit, Michigan was finally brought to closure.
    The Kassapis family was informed by the U.S. State Department that
    through the use of highly sophisticated DNA testing, they believe that
    they have found the remains of their son and brother, Andrew Kassapis,
    in Cyprus. The last time the Kassapis family saw Andrew alive was in
    the summer of 1974 when the then 17-year-old was taken from their home
    in Cyprus by Turkish troops.
        We hope that this case is just the first of many more to come. We
    are encouraged by recent efforts to bring an end to this tragic,
    humanitarian issue. The July 31, 1997, agreement to immediately and
    simultaneously exchange all information on the missing and the January,
    1998, exchange of this information were major steps forward. We pray
    that the families of the other 1,618 missing in Cyprus, including four
    other Americans, also will be able to end their years of suffering
    soon.
        The U.S. Congress should take great pride in this major development
    on this important issue. In 1994 the Congress passed and the President
    signed into law legislation directing the President to undertake this
    thorough investigation of the missing in Cyprus. We regret that such a
    law was necessary. However, years of efforts by the United Nations
    investigatory committee on the missing and previous U.S. State
    Department policies were unable to produce evidence for even a single
    case.
    The Ecumenical Patriarchate
        The Ecumenical Patriarchate, located in Istanbul, Turkey, is the
    spiritual center for more than 300 million Orthodox Christians
    worldwide, including approximately five million in the United States.
    There are several major concerns regarding the Turkish Government's
    treatment of this center of worldwide Orthodoxy:
                Attacks on the Patriarchate
        In recent years, the Ecumenical Patriarchate has experienced a
    number of security threats:
      --On December 3, 1997, an explosive device was thrown over the wall
            of the Patriarchate, seriously injuring a clergyman and
            severely damaging the roof of the Patriarchal Cathedral and the
            offices of the Patriarch.
      --The year before, in September, the Patriarchate came under grenade
            and machine gun fire attack. The explosion tore off a corner of
            the roof of the Patriarchal Cathedral and blew the windows out
            of the sleeping quarters.
      --In May of 1994, three powerful bombs linked to a timing device were
            found and diffused only minutes before they were to detonate.
            Had they exploded the Patriarchate and everything within its
            walls would have been destroyed.
      --Just two months prior to the discovery of these bombs, two
            firebombs were hurled into the Patriarchate.
      --His All Holiness Ecumenical Patriarch Bartholomew and those
            associated with the Ecumenical Patriarchate are Turkish
            citizens and have the full protection of Turkish law.
                Reopening the Halki School of Theology
        The reopening of the Halki Patriarchal School of Theology, the only
    educational institution for Orthodox Christian leaders in Turkey, is
    vital for the long-term viability of the Ecumenical Patriarchate. The
    Turkish government arbitrarily closed the Halki School in 1971. Turkish
    law requires that the Ecumenical Patriarch, as well as all of the
    clergy, faculty and students, to be citizens of Turkey. The Halki
    School is the only educational institution in Turkey for the Orthodox
    Christian leadership. The closing of the Halki School is in violation
    of international treaties to which Turkey has been a signatory,
    including, but not limited to the Treaty of Laussane, the 1968
    Protocol, the Helsinki Final Act (1975) and the Charter of Paris.
                Significance of the Patriarchate
        The government of Turkey does not recognize the Ecumenical
    Patriarchate as the spiritual center for worldwide Orthodoxy, but only
    as the head of the Greek Orthodox Church in Turkey. However, the
    Ecumenical Patriarchate, founded in 38 AD, is a locale where the new
    testament was codified and the Nicene Creed was first written. It was
    under the leadership and guidance of the Ecumenical Patriarchate that
    the constitutional and dogmatic framework of the Christian Church was
    formulated. Ecumenical Patriarch Bartholomew is the 270th successor of
    the nearly 2,000 year old Christian center, founded by the apostle
    Andrew, the first-called Disciple of Jesus Christ.
                U.S. Congress Honors Ecumenical Patriarch Bartholomew
        On October 12, 1997, the U.S. Congress honored His All Holiness
    Ecumenical Patriarch Bartholomew with the highest recognition it can
    bestow--the Congressional Gold Medal. He is only the fifth religious
    figure in America's history to receive this award, an honor first
    bestowed on George Washington in 1776 and subsequently to such
    significant people as Thomas Edison, Winston Churchill and Mother
    Teresa. The legislation bestowing this award on the Ecumenical
    Patriarch received more cosponsors (327) than any bill in recent
    memory.
      aggressive acts by turkey against greece and cyprus--march 31, 1998
        March 14, 1998.--Turkish troops open fire on and capture two Greek-
    Cypriot fishermen who were fishing in the territorial waters of the
    free area of Cyprus. They are held in custody in the occupied area of
    Cyprus for six days.
        Jan. 13, 1998.--Turkey announces, during time of heightened U.S.,
    U.N. and E.U. efforts for a Cyprus settlement, that Turkey's embassies
    around the world will now also represent the occupied area of Cyprus,
    in a step toward integrating the occupied area with Turkey. Turkey also
    announces its plan to open three new naval and air bases in the
    occupied area of Cyprus.
        Jan. 6, 1998 and Dec. 25, 1998.--Turkish warplanes overfly Greek
    territory on two of Greece's most holy religious holidays. Planned
    Turkish overflihgts of the the Greek islet of Kalogiri are prevented by
    U.S. intervention.
        Dec. 11, 1997.--U.S. State Department spokesman calls flights by
    Turkish warplanes near Thessaloniki ``needlessly provocative and
    totally unnecessary,'' stating that, ``military activity of this kind
    undermines confidence and needlessly exacerbates tensions between our
    NATO allies.''
        Oct. 16, 1997.--Four Turkish F-16 fighters buzz the military
    transport plane carrying Greece's defense minister from Cyprus to
    Greece, coming close enough to make the plane rock.
        Oct. 14, 1997.--Turkish F-16 jets with rockets and warheads fly
    over Cyprus.
        Oct. 13, 1997.--Two Turkish F-16 fighters buzz the military
    transport plane carrying Greece's defense minister to Cyprus.
        Oct. 12, 1997.--Turkish planes harass two Greek Air Force bombers
    over Cyprus--the first such confrontation over Cyprus.
        Sept. 19, 1997.--Turkish Prime Minister Mesut Yilmaz announces that
    his government has asked the Turkish military to ``plan and propose
    additional military measures'' to address the planned delivery of
    defensive surface-to-air missiles to Cyprus. U.S. State Department
    spokesman clarifies that the U.S. is, ``firmly opposed to threats to
    address the missile question militarily.''
        August 6, 1997.--Just five days before the start of the second
    round of U.N.-sponsored Cyprus settlement talks, Turkey signs an
    agreement calling for the partial economic and defense integration of
    Turkey with the occupied areas of Cyprus.
        July 15-21, 1997.--Just days after the first U.N.-sponsored Cyprus
    settlement talks in three years: Turkey's deputy prime minister Bulent
    Ecevit and Turkish-Cypriot leader Rauf Denktash issue a joint
    declaration regarding the gradual integration of the occupied areas of
    Cyprus with Turkey; and Turkish war ships dock at ports in the occupied
    area.
        July 7-8, 1997.--While the prime ministers of Greece and Turkey
    meet in Greece (the first official visit by a Turkish leader in 36
    years), Turkish armed forces hold their largest ever military maneuvers
    in and around Cyprus. These amphibious and airborne operations were the
    first of their kind in the 23 years of the occupation of Cyprus.
        April 7, 1997.--Turkish air force planes fly over the occupied area
    of Cyprus.
        April 1, 1997.--On this national day for Cyprus, four Turkish
    Phantoms follow the previous day's pattern of violations.
        March 31, 1997.--Four Turkish F-4 Phantoms fly over the Turkish-
    occupied area of Cyprus in staged mock attacks.
        Feb. 5, 1997.--Turkey dramatically escalates in 1996 its misuse of
    U.S.-supplied warplanes to overfly Greek sovereign territory--from 73
    times in 1995 to 538 times in 1996.
        Jan. 21, 1997.--Turkish Prime Minister Necmettin Erbakan joins
    Turkey's President, Foreign Minister and Defense Minister in
    threatening war against Cyprus following announcement of the Cyprus
    government's plans to acquire defensive surface-to-air missiles in 16
    months. Erbakan states, ``We are not going to wait passively for 16
    months * * * If it is not declared within a certain time that the
    missiles will not be coming, we will definitely not hesitate to take
    the steps required * * * We will take the initiative.''
        Oct. 13, 1996.--Turkish troops kill an unarmed 58 year-old Greek-
    Cypriot who mistakenly wandered into the occupied area. Petros
    Kakoullis, who was snail gathering with his son-in-law, was shot twice
    while his hands were raised above his head and a third time at close
    range while on the ground. United Nations officials were not permitted
    to approach the body for over four hours.
        Aug. 9-15, 1996.--Turkish Foreign Minister Tansu Ciller diverts
    thousands of dollars in government funds to send over 3,000 members of
    the ``Grey Wolves'' terrorist group from Turkey into occupied Cyprus
    for purposes of turning a peaceful Greek-Cypriot protest demonstration
    into a violent confrontation.
        Turks savagely beat to death, with rocks and iron poles, unarmed 24
    year-old Greek-Cypriot Tassos Isaac and seriously injure 41 other
    Greek-Cypriot demonstrators in the United Nations buffer zone. Greek-
    Cypriots were protesting Turkey's continuing illegal military
    occupation of Cyprus.
        Three days later, Turkish troops open fire on a group of unarmed
    mourners in the U.N. buffer zone. Turks kill an unarmed 26 year-old
    cousin of Isaac, Solomos Solomou, who was climbing a flag pole, and
    injure 11 others, including two U.N. peace-keepers, two Cypriot police
    officers and a 59 year-old woman.
        Turkish Foreign Minister Ciller flies to occupied Cyprus to show
    support for the murders, publicly stating that Turkey will ``break the
    hands of anyone who lays a finger on the Turkish flag.''
        June 18, 1996.--The Foreign Minister of Turkey [a non-European
    Union (EU) member] asks the EU President not to adopt the principle of
    protecting the external borders of EU countries.
        June 5, 1996.--Turkey disputes Greek sovereignty over Greek Island
    of Gavdos inhabited by over 300 Greeks.
        June 3, 1996.--Turkish troops murder unarmed 19 year-old Greek-
    Cypriot National Guardsman in U.N. buffer zone on Cyprus. U.N. rescue
    team is pinned down by Turkish gunfire while boy dies from loss of
    blood.
        April 9, 1996.--On the day that Greek Prime Minister Simitis meets
    with U.S. President Clinton in Washington, D.C., Turkish warplanes
    escalate violations of Greek air space to a record 48 times in one day.
        Feb. 3, 1996.--Turkey claims sovereignty of 1,000 Greek isles and
    threatens war if Greece doesn't recognize that sovereignty.
        Jan. 31, 1996.--Turkey moves 100 more U.S. battle tanks to occupied
    Cyprus, during height of near war in the Aegean, giving Turkish forces
    on Cyprus night fighting capability for the first time.
        Jan. 30, 1996.--Turkish plan to invade Greek isle of Imia
    containing Greek personnel averted by U.S. presidential intervention.
    Invade instead Greek isle containing no Greek personnel.
        June, 1995.--Turkish Prime Minister threatens war against Greece.
        June 8, 1995.--Turkish Parliament adopts resolution authorizing war
    against Greece.
                                     ______

       Prepared Statement of Eugene T. Rossides, General Counsel, Senior
     Counsel, Rogers & Wells on behalf of the American Hellenic Institute,
                                      Inc.
        Chairman McConnell, Senator Leahy and Members of the Subcommittee:
    I am pleased to present testimony to the Subcommittee on behalf of the
    following organizations: the American Hellenic Institute Public Affairs
    Committee, Inc., the Hellenic American National Council, the Hellenic
    American Women's Council, the Cyprus Federation of America, the Pan
    Laconian Federation of U.S.A. and Canada, the Pan Cretan Association of
    America, and the Pan Karpathian Educational Progressive Association on
    the Administration's foreign aid proposals.
        In the Administration's budgetary proposals for fiscal year 1999
    military assistance and economic grant aid for Turkey are eliminated.
        We congratulate the 104th Congress and the 105th Congress for their
    important role in the Administration's decision to eliminate military
    and economic aid for Turkey for fiscal year 1999. We particularly
    congratulate this Subcommittee for its leadership role. The decision of
    the Administration this year to eliminate military and economic aid to
    Turkey was due, I am convinced, in substantial part because of the
    policy role of the Congress and this Subcommittee.
        The American Hellenic Institute Public Affairs Committee (AHIPAC)
    welcomes the elimination of military and economic aid for Turkey. For
    many years AHIPAC has argued that U.S. military and economic support
    for Turkey has rendered our country an accessory to Turkey's violations
    of international law, aggression, massive ethnic cleansing and
    genocidal-like actions against its 20 percent Kurdish minority and
    human rights abuses generally against its citizens, including
    widespread torture. AHIPAC is very pleased that with regard to aid
    policy this sad chapter in U.S. relations with Turkey is at long last
    coming to an end.
        However, the Administration's proposals are inadequate. In the
    interests of the U.S., far-reaching changes in U.S. policy toward
    Turkey are needed, including a halt to all arms sales and transfers to
    Turkey. The budget does not effect these changes. Indeed, the
    Administration is actively contemplating such sales. Turkey's
    continuing violations of the norms of international behavior, as set
    out in the 1997 State Department Human Rights report, issued January
    30, reinforce the need for a fresh U.S. approach.
        The European Union leaders in their statement of December 14, 1997,
    declining to accept Turkey as a candidate for early accession to the
    EU, cited similar concerns about Turkey's adherence to democracy, human
    rights, and respect for the territorial integrity of its neighbors. The
    EU leaders made specific mention of Turkey's continuing illegal
    occupation of Cyprus and of its destabilizing claims to Greek sovereign
    territory in the Aegean.
        The elimination of military and economic aid to Turkey provides an
    opportunity to review U.S. policy toward Turkey. So long as Turkey
    persists in its human rights abuses and threats to its neighbors, the
    U.S. should not maintain a normal relationship with Turkey. All U.S.
    arms sales and transfers to Turkey should be halted. Further, the U.S.
    should instruct its representatives in the international financial
    institutions to vote against any multilateral aid to Turkey.
        Important U.S. interests are at stake in Southeastern Europe and
    the Eastern Mediterranean. To date, our policy toward Turkey has not
    reflected these interests. I hope that a review can put U.S. policy on
    a sounder footing.
        In my letter of March 9, 1998 to President Clinton I discuss these
    matters in greater detail. (See Exhibit 1 to this testimony.)
        The letter conveys a strong sense of opportunity. In both Greece
    and Cyprus there are vigorous democracies drawing on a broad-based
    political consensus about the national agenda. The result is that in
    Athens and Nicosia sensible, moderate governments are combining with
    business and civic leaders to pursue policies designed to lower
    regional tensions, consolidate stability, foster regional development,
    and to reach out to their neighbors. AHIPAC hopes that the
    Administration will make the most of this constructive spirit on the
    Greek and Cypriot sides and increase American participation in the
    region's political and commercial revitalization.
        For this to happen, AHIPAC advocates a change in U.S. policy toward
    Turkey. AHIPAC urges that U.S. policy toward Turkey should give less
    weight to the views of the Turkish general staff and more to the more
    open-minded and forward-thinking elements within Turkish opinion.
        We stand at a diplomatic crossroads in the Aegean and Eastern
    Mediterranean. 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.
        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. Our Ambassador to Greece,
    Nicholas Burns, spoke enthusiastically about Greece's role and actions
    in Southeastern Europe in a speech on March 30, 1998 in Thessaloniki.
        In the interests of the United States:
        1. 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 coddling and
    appeasement of Turkey by the White House and the State and Defense
    Departments is the main obstacle to the settlement of the Cyprus
    problem.
        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 and Turkey's
    threats of military action against Cyprus regarding the purchase by
    Cyprus of defensive anti-aircraft missiles. These threats are in
    violation of the U.N. Charter Preamble and Article 2(4).
        Turkey is the main security threat to Greece. For the White House
    and career officials in the State Department and Defense Department to
    deny this is to deny reality.
        3. We oppose any sale or transfer of U.S. weapons to Turkey as
    contrary to the best interests of the U.S.
        4. We believe the Congress should eliminate any trade preferences
    for Turkey and should consider economic sanctions against Turkey.
        5. 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 and its domination of the Turkish
    government.
        Exhibit 2 to my testimony is a memorandum titled 1998 Greek
    American Policy Statements. These policy statements were prepared by
    the American Hellenic Institute and approved by the Order of AHEPA, the
    Hellenic American National Council and the Hellenic American Women's
    Council. These organizations are the major Greek American membership
    organizations.
        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.
        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, for military
    actions against Kurds in 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 apply international law to Turkey's
    illegal embargo on Armenia; (8) the failure to apply U.S. and
    international law to Turkey's continuing occupation of 37.3 percent of
    Cyprus with 35,000 troops; (9) the failure to apply the Geneva
    Convention of 1949 to Turkey's 80,000 illegal settlers; (10) the
    failure to apply the terms of the NATO Treaty to Turkey for its
    invasion of Cyprus; and (11) the failure to condemn Turkey's violation
    of the U.N. 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.
        [Note.--The exhibits can be found on the institute's website at:
    http:ahiworld.com.]
                                     ______

                                 Miscellaneous
               Prepared Statement of the American Bar Association
        Mr. Chairman and members of the Subcommittee, the American Bar
    Association (ABA) appreciates the opportunity to present testimony on
    the fiscal year 1999 Foreign Operations Appropriations budget.
        This testimony describes the many programs spearheaded by the ABA
    to promote the rule of law and democracy around the world. The ABA with
    over 391,000 members is the world's largest professional voluntary
    organization. It should be noted that our democratization efforts have,
    in large part, depended on this volunteer network of lawyers, judges,
    law professors, and sister institutions. The results have been
    extraordinary, and the ABA has been able to play a crucial role in
    ensuring that the U.S. maintain its commitment to engagement and
    leadership in the international arena in a very cost-effective manner.
    We, therefore, hope that these programs continue to receive U.S.
    contributions.
                                   background
        The increasingly changing world offers new challenges and
    opportunities for the U.S. to assist transitional countries in adopting
    the rule of law through legal reforms and legal institutions. The only
    issue here is whether the U.S. will continue its leadership role in the
    international community.
        An important aspect of any democracy is the commitment to credible
    legal systems and institutions anchored in the rule of law. The
    creation of governments founded on the rule of law is a key element in
    fostering democracy and a successful market-based economy. Many U.S.
    foreign policy goals have been realized through the support of
    democratization projects. To the extent that U.S. businesses can depend
    on a country's legal system, foreign markets become a much more
    attractive export opportunity.
        The ABA's international Rule of Law projects have been instrumental
    in protecting fundamental freedoms, human rights, and liberties in
    addition to promoting trade and investment opportunities.
    Notwithstanding, there are many more opportunities throughout the world
    for us to be effective. In many instances these legal infrastructures
    have been the foundation for the rule of law in emerging democracies.
    Mr. Chairman, these are the goals to which ABA projects are committed.
                                  aba projects
        All ABA democratization 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 devices 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.
    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 organized
    by the ABA International Law and Practice Section to provide technical
    legal assistance to the emerging democracies in Central and Eastern
    Europe. 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 in the process of
    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; legal education reform; and has helped develop
    and/or institutionalized self-sustaining indigenous non-governmental
    organizations (NGO's) 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 282 Technical Legal
    Assistance Workshops; assessed over 323 draft laws; placed 147 long-
    term liaisons and 168 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 $55 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 CEELI and its ability to
    leverage U.S. taxpayer dollars (H.R. Rep. No. 524, 1030 Cong., 2d
    Sess., 82 (1994); S. Rep. No. 287, 103 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); S.Rep. No.35, 105th
    Cong., 1st Sess., 25 (1977); H.R. Rep. No. 176, 105th Cong., 1st Sess.,
    32 (1977)).
    The ABA Cambodia Democracy and 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.
        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 has been fulfilling requests for information
    from lawyers, law students, NGO's, 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.
        Until July 1997 the Cambodia Project had three long-term resident
    advisors in Cambodia. They assisted 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 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 their roles in law drafting, the
    advisors 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 were 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.
        In late July 1997 the Cambodia Project was placed on hold by USAID
    due to the political developments that occurred in Cambodia in early
    July. The project continues on a suspension status. The ABA expects to
    resume full project operations no later than September 1998.
        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 $1,780,679 over the last
    four years, and the ABA has contributed an additional $1,033,360 to
    this project.
    African Law Initiative Legal Education Program
        With funding from the United States Information Agency Office of
    Citizen Exchanges, the African Law Initiative Legal Education Program
    continues to assist twelve law schools in eight African countries:
    Eritrea, Ethiopia, Ghana, Kenya, Malawi, Tanzania, Uganda, and Zambia.
    Over thirty United States law schools have been involved with this
    program, which was initiated at a major meeting of African and American
    law school deans in Nairobi in 1994. The program has created and
    supported links between U.S. and African law schools and helped to
    improve the capacity of the African law schools to train lawyers who
    are responsive to the new needs and opportunities 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 professors and deans together to lay the
    groundwork for linkages, the program has assisted with faculty training
    and curriculum development, with an important focus on 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.
        Curriculum development continues to be the focus of the program.
    Over the past several months, professors from United States law schools
    have traveled to Africa to work on the development areas of the
    curriculum identified by the Africans. The newest USIA grant will
    enable us to continue to work on curriculum development. We anticipate
    that another group of Africans will travel to the United States in fall
    1998 for study tours to U.S. law schools and that we will hold
    workshops in Africa toward the end of 1998 focusing on environmental
    law curriculum, commercial law curriculum and human rights law
    curriculum. U.S. 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 significantly wider impact than would be
    possible only with the USIA funds.
    Arab Legal Institute
        Last year we reported the organization of the Arab Legal Institute
    which, in view of current Middle East events, is a project of immediate
    consequence. 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 is 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) is leading this
    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's leadership of ALI is 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.
        ALI's headquarters are in Cairo with additional planned facilities
    in Tunis, Amman and perhaps elsewhere. Rather than restricting itself
    solely to Gaza and the West Bank, the Institute is 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 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
    have also joined 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 are educational and not political.
        According to the agreed Constitution, the Board of Directors'
    members are from Arab states, and the Board of Trustees is composed of
    Arab and non-Arab representatives of the supporting bar associations.
    We have established 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 is 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. The ABA has dedicated a portion of its
    staff time and resources to seeking grant funds in the U.S. for this
    important endeavor. 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.
        The European Union recently made a substantial grant to the Law
    Society of England and Wales for projects in Lebanon, Jordan and Egypt.
    Thus far, the U.S. government has not committed any funding.
        We estimate that the value of the facilities offered by the Arab
    states is in excess of one million dollars. Pro bono time and expense
    outlays by representatives of the American Bar Association have already
    exceeded $200,000. For every dollar dedicated 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.
    United Nations Development Programme
        The ABA and the United Nations Development Programme (UNDP) have
    reached an agreement and expect to sign a Memorandum of Understanding
    (MOU) on May 1, 1998 to establish an ABA/UNDP Legal Resource Unit (LRU)
    to be housed within the ABA, and administered by, the ABA's Section of
    International Law and Practice. The MOU will establish a framework for
    a cooperative working partnership between the ABA and UNDP, thereby
    helping both organizations accomplish their mutual goals of supporting
    international development, good governance and strengthening of
    democratic institutions.
        The purpose of the LRU will be to enable the United Nations
    Development Programme, with ABA support services, to deliver high-
    quality legal assistance to UNDP countries, in an effort to strengthen
    the legal institutions and processes that foster sustainable democratic
    development and an environment conducive to free market economies.
        Initially, the LRU will focus on providing ABA-identified advisors
    for United Nations Office of Project Services (UNOPS) and U.N. Economic
    and Social Department (DESD)-executed projects particularly in UNDP
    programme countries which are either in crisis or post-crisis
    situations. In addition, the LRU will work with UNDP to conduct
    training for UNDP Headquarters and field office staff in designated
    areas.
        The LRU will work with UNDP to address new projects submitted to
    both entities, and support on-going projects in mutually agreed upon
    areas of interest. New project proposals dealing with the legal
    dimensions of good governance should ideally be initiated and submitted
    by UNDP programme country governments and/or civil society.
        An LRU Steering Committee will provide hands-on oversight and LRU
    Advisory Committee will provide additional substantive and sourcing
    capability. All ABA entities will be invited to participate. CEELI will
    be asked to participate in all requests emanating from Central and
    Eastern Europe and the CIS.
    Cooperation in the Field of Law: China
        On May 5-6 , 1998, ABA President Jerome J. Shestack will lead a
    delegation composed of members of both the ABA Section of International
    Law and Practice, including the Section's Chair, Timothy L. Dickinson,
    and of the ABA Section of Business Law to explore possible legal
    exchanges and other forms of legal cooperation between the ABA and
    China. In the Joint U.S.-China Statement of October 29, 1997,
    Presidents Clinton and Jiang agreed to pursue cooperative activities in
    the following legal areas: Exchange of legal experts; Training of
    judges and lawyers; Strengthening legal information systems and the
    exchange of legal materials; Sharing ideas about legal assistance
    programs; Consulting on administrative procedures; and Strengthening
    commercial law and arbitration.
        The American Bar Association is prepared to cooperate with
    appropriate Chinese institutions in each of these areas.
        Among the ABA's most fundamental policies is the promotion of
    understanding and cooperation in the field of law throughout the world.
    In furtherance of this policy, the ABA has developed special expertise
    in working with lawyers around the world, especially in those countries
    moving from planned to market economies.
        The ABA already has a long history of cooperating with Chinese
    institutions in the field of law. Over a period of twenty years, the
    ABA has hosted numerous delegations of Chinese lawyers, judges, and bar
    leaders, and two ABA Presidents have made trips to China. The ABA's
    Section of International Law and Practice has hosted many delegations
    from China and has published The China Law Reporter for many years. The
    ABA's Business Law Section has likewise collaborated with Chinese
    colleagues in various programs, including teaching a course to Chinese
    commercial law judges, working on the development of capital markets,
    and in 1997, at the invitation of the Chinese Government, providing
    consultant services in the drafting of the Chinese Securities Law.
        In order to address the six areas of legal cooperation identified
    in the October 1997 Joint Communique, the ABA is prepared, upon request
    by Chinese institutions participating in the law development and
    modernization process in China, to make available the following kinds
    of exchanges and cooperation: Assessment of mutual tasks; Task forces
    to facilitate cross-cultural dialogue on legal reform issues; Working
    groups to address immediate and long-term legal issues; Long term
    experts working with advisors to Chinese institutions; Short term
    advisors and experts to focus on specific legal issues; Judicial and
    lawyer training programs; Commercial and trade law cooperation; Legal
    aid in the U.S. and Asia developmentl Bar association development;
    Court administration; Legislative drafting and parliamentary procedure;
    Law school and law curriculum development; Legal resource center
    development and provision of legal materials; Continuing legal
    education; Legal exchange programs; and Expert legal commentary and
    review of draft legislation, regulations, documents and implementation
    procedures.
                                   conclusion
        The vast majority of Americans believe that the U.S. must maintain
    its leadership role in the international community. As an organization
    which has adopted the promotion of the ``rule of law-international'' as
    a priority, the ABA fully recognizes the importance of strong U.S.
    leadership in the advancement of human rights and economic prosperity.
        Foreign aid has often been criticized and misinterpreted, in large
    measure because its benefits are not always apparent. The ABA
    appreciates the difficult task your Subcommittee has in grappling with
    the fiscal year 1999 Foreign Operations Appropriations bill. However,
    Mr. Chairman, we trust that you will be persuaded by the vital American
    interests that are at stake.
        We all agree that the United States is the one country capable of
    providing effective global leadership. It is more important now than it
    ever was, and in our own self-interest, to accept this challenge.
    Therefore, Mr. Chairman, the U.S. must lead by example in accepting the
    myriad of challenges and opportunities offered by world globalization
    through engagement and the commitment of increased foreign assistance.
        Only one percent of the federal budget is devoted to foreign
    assistance, to programs which yield an enormous return for American
    taxpayers. These programs foster democracy, build free markets and free
    trade, 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 contends that its democratization projects yield a
    tremendous return to U.S. citizens on a modest financial investment.
    Again, these programs are primarily supported by the enormous amount of
    free legal technical assistance contributed by ABA volunteers. 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. As stated above, we respectfully urge the
    Committee to continue to support for the ABA's technical legal
    assistance programs through the appropriations process.
        As provided by the House Rules requiring disclosure of relevant
    grants, the ABA received the following grants for International
    Programs: Armenian Prosecutor Program (Academy for Educational
    Development/U.S. Agency for International Development, $30,985);
    Bosnian Court Training Project (World Learning, Inc./U.S. Agency for
    International Development, $29,716); Rules of the Road Program with the
    War Crimes Tribunal Phase II (U.S. Department of State, $49,086); Court
    Administration Technology Training (World Learning Institute/U.S.
    Agency for International Development, $25,760); African Judicial
    Exchange Program Phase II (U.S. Information Agency, $135,000); Russia
    Training for Development: Legal Education (Academy for Educational
    Development/U.S. Agency for International Development, $43,434); Rules
    of the Road Project for the War Crimes Tribunal (U.S. Agency for
    International Development, $135,803); African Law Initiative Sister Law
    School Faculty Training Program (U.S. Information Agency, $134,603);
    Georgian Constitutional Court Training Project (Academy for Educational
    Development/U.S. Agency for International Development, $57,620);
    Cambodia Legal Assistance (U.S. Agency for International Development,
    $731,503); Central and East European Law Initiative Regional Anti-Drug
    Assistance Project (U.S. Department of State, $549,998); Russia Rule of
    Law Program (Agency for International Development/Moscow Office,
    $2,600,000); Russia Trial Advocacy Training Program (Academy for
    Educational Development/U.S. Agency for International Development,
    $75,420); African Law Initiative Clinical Partnerships (U.S.
    Information Agency, $134,819); Strengthening the Moldovan Bar
    Association (ARD/Checchi/U.S. Agency for International Development,
    $99,732); Belarusian Legislative Draft Training (Academy for
    Educational Development/U.S. Agency for International Development,
    $81,682); Ukrainian Law Student Association Development (ARD/Checchi/
    U.S. Agency for International Development, $100,000); Environmental
    Priorities in Asia Conference (U.S. Agency for International
    Development/Environmental Assistance Program, $25,000); Bar Development
    Training for Central and Eastern Europe (Academy for Educational
    Development/U.S. Agency for International Development, $86,118);
    Russian Defender Training Program (Academy for Educational Development/
    U.S. Agency for International Development, $106,341); Russian Criminal
    Justice Project (U.S. Department of Justice, $2,144,182); Poland and
    Central Europe Criminal Justice Project (U.S. Department of Justice,
    $1,551,454); Russia Jury Trial Follow-on Training (Academy for
    Educational Development/U.S. Agency for International Development,
    $34,337); Internship Program for New Independent States Law Teachers
    (U.S. Information Agency, $200,000); Moldovan Lawyers Project (Academy
    for Educational Development/U.S. Agency for International Development,
    $100,124); Legal Assistance in Cambodia (U.S. Agency for International
    Development, $1,094,155); African Judicial Exchange Program (U.S.
    Information Agency, $250,000); African Sister Law School Program (U.S.
    Information Agency, $204,071); Commonwealth of Independent States Rule
    of Law Program (U.S. Information Agency, $12,225,000); New Independent
    States Law Teacher Program (U.S. Information Agency, $168,927); Sister
    Law School Program in Central and Eastern Europe (U.S. Information
    Agency, $206,061); Rule of Law & Commercial Law Program in Central and
    Eastern Europe (U.S. Agency for International Development,
    $16,361,643).
                                     ______

      Prepared Statement of Robert Karl Manoff, Director, Center for War,
         Peace, and the News Media, Department of Journalism and Mass
                       Communication, New York University
        Mr. Chairman and Members of the Committee, on behalf of New York
    University and the National Press Institute of Russia (NPI), NYU's
    major initiative in that country, I would like to take this opportunity
    to thank you for your previous support for our work.
        Formerly known as the Russian-American Press and Information Center
    (RAPIC), NPI was gratified by the Conference Report on H.R. 2159--which
    encouraged the Coordinator ``to continue support for the long-term
    development of an independent print media in Russia'' using
    ``organizations with demonstrated experience in working with print
    media in countries of the region'' (see H. Rept. 105-401). The Report
    has proved to be extraordinarily helpful to NPI as we continue to build
    on RAPIC's accomplishments as the most comprehensive media assistance
    program in the region.
        I very much appreciate the opportunity to provide testimony to this
    Subcommittee today, and would like to offer the following comments as a
    journalist, an academic, and the founder and director of an NGO that
    has been providing media assistance in the former Soviet Union and
    Central and Eastern Europe since 1985--longer than any other
    organization operating in the region.
        Having recently returned from Russia, where I met with the
    directors of our seven regional offices, some of our dozens of Russian
    staff members, and members of our nationwide Media Assistance Network,
    I would like to speak to four issues in my testimony: First, the
    continuing importance of a free and independent news media to Russia
    and a stable international system; second, the continuing need for U.S.
    assistance to create a free press in Russia; third, the critical
    importance of the print media (especially newspapers) at this moment of
    political and economic transition in the county; and, finally, the
    approach that the National Press Institute has adopted with these
    issues in mind, NPI's accomplishments to date, and its vision for the
    future.
          importance of the russian media to american policy interests
        Americans take it for granted that a free press is essential for
    the functioning of democratic systems and free markets, and our own
    history provides abundant evidence that we are right to do so. Yet this
    assumption has been under attack from many quarters around the world,
    with the so-called ``Asian model'' of authoritarian capitalism
    constituting only the most fully articulated rejection of the political
    and economic transparency that a free press provides. The recent
    collapse of some Asian economies has led to calls for greater
    transparency in many quarters, but there are signs that few understand
    the role that a free press must play in the future.
        In Russia itself, a free press in the sense that our own
    Constitutional Framers understood it--a press playing a central role in
    the unfettered exchange of vital political and economic opinion and
    information--is still more of a dream than a reality. Years after the
    fall of Communism and the disappearance of official censorship, for
    example, most Russian newspapers still exist on the basis of official
    state subsidies, and these subsidies, in turn, are always fraught with
    political and even commercial conditionalities. Local editors know
    which side their bread is buttered on, and behave accordingly. Those
    who fail to do so pay the price: Russia, for the second consecutive
    year, has been named by the International Federation of Journalists as
    ``the most dangerous country for journalists.''
        Moreover, having only recently thrown off a system under which the
    press was required to be the ``mass organizer'' and ``mass
    propagandist'' for the Party and the government, many Russian
    journalists are implacably hostile to the idea that they have
    responsibilities other than to themselves. The conception of the press
    as a ``public good'' that both makes money for its owners and serves
    the public interest is an alien one, and one that is often greeted with
    hostility by journalists who are intent on maximizing their own return
    (all too often by selling their news columns to the highest bidders).
        In Russia, the country of the Potemkin Village, appearances have
    always been deceiving. And, right now, the appearance of thousands of
    newspapers in a daily torrent can deceive us into believing that the
    Russian media are performing well the function of informing the Russian
    public, policy elites, and business community. They are not, however,
    and are many years, and perhaps decades, away from being able to do so
    successfully.
        Helping the Russian press achieve maturity as a political and
    economic force has already been recognized by this Subcommittee, by the
    Coordinator, and by USAID and USIA as a significant American priority,
    and we believe it must continue to be a top priority because of the
    role the free press plays in advancing key American interests in the
    country and the region:
      --A free press is a key agent of economic transformation, providing
            investors with vital information on business activity,
            corporate actions, and general business conditions throughout
            the country's many far-flung regions.
      --A free press is a vital force for the creation of a civil society,
            providing non-governmental organizations with the means to
            reach the public with their issues, experts, and concerns, and
            a means by which the public, in turn, can communicate with
            itself and with organizations in the independent sector.
      --A free press that performs its watchdog role responsibly is
            essential to achieve full government accountability, something
            that exists hardly at all in Russia at this time, either in
            theory or in practice. Government accountability is the
            ultimate guarantor of the rule of law, the sine qua non of
            democratic politics.
      --A free press committed to airing a diversity of opinion can provide
            outlets for views supporting American policy interests, ranging
            from nuclear and missile proliferation, to NATO expansion, to
            policy for the Balkans, the Persian Gulf, and the Middle East.
      --A free press is essential to the success of the next rounds of
            parliamentary and presidential elections, which together will
            determine the direction of the country's domestic and foreign
            policies for years to come.
      --As it did in the case of Chechnya, a free press can moderate the
            adventurism of the Russian government, and can contribute to
            the reduction of dangerous ethnonational tensions throughout
            the Russian Federation and the entire region.
        For reasons such as these, we believe that the American stake in
    the future development of a truly free press in Russia is enormous, and
    continuing media assistance must continue to be an important thrust of
    American policy in the country.
                why the russian press needs american assistance
        The American interest in a free press in Russia is direct and
    substantial. But significant obstacles remain to be overcome before
    these interests can be realized. Specifically, critical obstacles to
    the development of the Russian media include the following:
      --Governments continue to exert control over the media, largely
            through economic levers, especially at the regional level;
      --Investment and capital resources are scarce, except for
            politically-motivated investments;
      --Most media managers have little or no training or business
            experience;
      --Newspaper advertising revenue remains tiny and three-quarters of it
            flows just to publications in Moscow and St. Petersburg;
      --Virtual monopolies at key nodes of the media sector--from printing
            presses to newspaper distribution--handicap development;
      --The media sector has not yet effectively organized in defense of
            its interests;
      --State and, increasingly, corporate subsidies maintain an unlevel
            playing field and encourage dependency--currently approximately
            85 percent of Russian newspapers receive some form of subsidy;
      --The unstable and underdeveloped legal environment surrounding the
            media inhibits innovation, risk-taking, and sustainability;
      --Information access remains restricted, despite freedom of
            information laws;
      --A public cynical about the quality of the press makes it
            increasingly difficult for media institutions to sell their
            products.
        Most media organizations do not now possess the resources
    (financial, professional, and organizational) to surmount these
    obstacles on their own, and it is not in the American interest to wait
    until they do in order to address them. In the interim, American
    assistance will be vital.
        American assistance will be all the more important given the
    decision of Russia's major financial and industrial groups to buy up
    the country's media. The so-called ``oligarchs'' now control, through
    various mechanisms of ownership and subsidies, the editorial policies
    of nine out of Russia's ten leading non-official daily newspapers. On
    the national level, most of the principal fora for public discussion
    and information are therefore under the control of forces bent on
    advancing their own interests before all else. These same oligarchs are
    now beginning to assemble nationwide media empires (Gazprom already
    owns more than 100 regional publications).
        In contrast, American non-media corporations that have acquired
    media properties have done so many years after traditions of editorial
    and journalistic independence were well established. This is not the
    case in Russia, where editorial control is now being wielded as a
    blatant commercial and political weapon.
        Moreover, with the exception of the National Press Institute and
    less than a handful of other media NGO's, there are no institutions
    able to articulate a vision of media independence and public service,
    and capable of working to establish the economic, professional and
    legal conditions necessary to make it a reality. Such NGO's exist in
    the United States, and they are supported by American corporations that
    recognize the important service they provide. Russia, however, has
    little by way of a philanthropic sector, and it will be many years
    before Russian corporations recognize the value of supporting media-
    sector NGO's. Until such time, continuing American assistance will be
    an absolutely critical resource for the NGO's within the Russian media
    sector.
              why the u.s. should focus on the russian print media
        It is our view, moreover, that U.S. policy should focus
    particularly on the print media, notably newspapers. This is so because
    of the especially important economic and political role they play, and
    also because of their particularly difficult economic circumstances.
      --Studies have repeatedly shown that most Russians get their local
            news primarily from newspapers and that they trust local
            newspapers more than any other source of information.
      --As the economic and political decentralization of Russia continues,
            local newspapers have become the locus of key economic, social,
            political, and other information necessary for the grassroots
            development on which Russia's future depends. The mayor of
            Rezh, a small town outside of Yekaterinburg, told a colleague
            that the purchase of a printing press by the local newspaper,
            with which NPI worked closely, served to jump-start the local
            economy.
      --As the only significant source of in-depth news and analysis for
            Russia's political, business, and intellectual elites, the
            print media facilitate public policy debates. As noted by
            Assistant Secretary of State for Democracy, Human Rights, and
            Labor John Shattuck: ``[W]hile the print media lack the
            intimacy of television, they can stimulate debate because print
            is a medium especially well suited to convey context and
            meaning and to explore ranges of options. In the post-Cold War
            era it has been largely print articles that have set the agenda
            for serious policy discussion and fundamental changes in public
            thinking.''
      --Given the increasing control of Russian television by a handful of
            elites, only newspapers support the pluralism of views and
            diverse viewpoints that are essential for informed decision-
            making. Newspapers at both the national and local level present
            a far wider spectrum of views than television.
      --In Russia, as elsewhere, television take its cue from print
            coverage. The print media set the news agenda. In fact, local
            Russian television news broadcasting often consists of an
            announcer reading selections from the local press.
      --The quantity and quality of television news and public affairs
            programming will continue to decline as television is
            integrated into the market (as has been the case in every major
            democratic market economy). Already, according to Radio Free
            Europe/Radio Liberty Russia analyst Laura Belin, ``most private
            television networks and radio stations focus on entertainment
            programming, not news.''
      --Finally, an authoritative American study has demonstrated that
            local newspapers are the essential medium for informing voters
            in local and regional elections and for analyzing the local
            angle of national politics. Because the upcoming elections in
            2000 will shape Russia's future in a profound way, the burden
            on Russia's local newspapers is immense.
    national press institute: a sectoral approach to print media assistance
        Institutional Transformation.--Since I last submitted testimony to
    this Committee in April of last year, several dramatic developments
    have made the National Press Institute even more central to the mission
    of establishing a free press in Russia.
        Most important, last summer NPI registered as an independent, not-
    for-profit Russian organization, thereby transforming the Russian-
    American Press and Information Center, an American media-assistance
    project, into a permanent, Russian, media-sector NGO institution. Also
    at about this time, USAID made the decision to begin funding NPI
    directly, and it is now supporting work to strengthen the institutional
    structure of NPI, even as it is also underwritting a major new
    initiative to assist regional newspapers develop access to capital
    markets and loan funds. With continuing support from USAID (and with an
    ongoing relationship with USIA), NPI 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.
        NPI continues to apply the sectoral approach that makes it unique
    among all media assistance organizations in the world. It works through
    a complex of economic, political, professional, and legal initiatives
    that together promote the political and economic independence of the
    entire media sector. To implement its sectoral approach, NPI has
    established the following operating divisions that build upon and
    consolidate NPI's core programming agenda:
      --The Business Development Service will provide consulting and other
            services and support to media organizations seeking to attract
            financing, develop business plans, improve their management, or
            in other ways improve their financial viability and attract
            capital;
      --The Center for Cyberjournalism will provide a range of training and
            consulting in new technology applications for the media; it
            will also develop an Internet Media Service as a prime delivery
            vehicle for a spectrum of informational and assistance services
            and resources;
      --The School of Media Management and Journalism will be Russia's
            major mid-career training institute for the print media;
      --Special Projects will be undertaken to respond to particular needs
            or opportunities in the Russian media sector, such as preparing
            the media for the 2000 presidential campaign, promoting freedom
            of information legislation and norms, or working to ensure
            improved coverage of nuclear issues;
      --The Press Center will continue to organize its famous briefings,
            press conferences, and roundtables at all NPI centers;
      --The Research Center will monitor, study, and publicize economic,
            political, and journalistic issues and trends affecting the
            Russian media sector for the international investment community
            and other constituencies.
        Accomplishments.--NPI's sectoral approach has made possible some
    major accomplishments. For example:
      --To counteract the media's over-reliance on official sources of
            information, NPI has organized over 2,000 briefings around the
            country, in which over 5,000 U.S. and Russian experts have
            taken part, with an aggregate participation of over 80,000
            journalists.
      --To combat restrictions on information access, NPI established the
            Freedom of Information Commission, Russia's only organization
            dedicated to promoting access to government information and to
            educating journalists on exercising their legal rights to it.
            The Commission has helped to shape a national FOI legislative
            agenda, its members have been invited to participate in a
            number of expert groups advising the Duma, and it has
            influenced the Yeltsin Administration's approach to this issue.
      --To overcome the woeful lack of management experience among
            publishers, NPI has organized training programs for
            representatives of over 800 newspapers, often with spectacular
            results. Last year I reported that Gubernskie Vedomosti in
            Stavropol, like many participating newspapers, had increased
            its advertising revenue by 30 percent after NPI consulting;
            last week editor Aleksandr Yemtsov dropped by NPI to announce
            that his paper has begun to make a profit, ``in large part
            thanks to NPI.'' The editor of Rezhevskaya Vest cited an NPI
            seminar as the turning point in the paper's remarkable
            transformation from a heavily subsidized local mouthpiece to a
            dynamic and fully independent news organization.
      --To promote capitalization and investment, NPI has begun, with the
            support of USAID, a Newspaper Financial-Strengthening Program.
            The program is helping regional newspapers develop business
            plans and loan applications to access capital markets, and is
            promoting alternative capitalization schemes such as equipment
            leasing.
      --As a pilot project in response to the near-monopoly of printing
            presses in Russia by the government, NPI installed the first
            modern printing press to be owned and managed by a group of
            independent Russian newspapers. This landmark project was
            hailed by USAID as ``historic.'' The Gorodskie Vesti concern is
            now printing 19 different titles from as far away as Saratov
            and Astrakhan, and the press is in the black.
      --NPI has been in the forefront of improving coverage of political
            campaigns during each of Russia's national election campaigns.
            NPI has held workshops on coverage around the country,
            published a handbook on election coverage for journalists, and
            published a news bulletin with news of regional media coverage
            of campaign issues.
      --NPI took the initiative in establishing the independent Moscow
            Media Law and Policy Institute, in order to promote a free and
            independent press through research and education on the rule of
            law as it applies to media. MMLPI is now the leading
            institution of its kind in the region, a major resource for
            research, commentary, legislative advice, postgraduate
            teaching, and publishing on media law and related subjects.
      --NPI is the leading regional authority on the use of the Internet by
            the media for both publishing purposes and computer-assisted
            reporting. NPI's annual New Media for New World conference on
            Internet use by the media is the leading forum of its kind.
            NPI's Center for Cyberjournalism has trained hundreds of
            reporters in the use of the Internet for reporting, and it
            pioneered Web publishing consulting for newspapers, many of
            which are now publish on-line editions.
      --NPI 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 papers in Russia. One NPI project included 14
            publications in Alaska, Arkansas, California, Florida, Indiana,
            Michigan, North Carolina, Pennsylvania, and Washington.
      --NPI paired Moscow's Skate Press with the American financial news
            organization 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 to the creation of free
            markets. By now, companies which had been loathe to provide
            information on themselves have seen the benefits of doing so
            and are contributing information of their own accord,
            recognizing that transparency is essential in order to access
            the capital markets.
      --NPI's Nuclear Security Programs provide a web of mutually
            reinforcing activities to promote more in-depth, sophisticated
            coverage. Through major conferences in Minsk, St. Petersburg,
            and Moscow for journalists reporting on nuclear issues, regular
            briefings, a bimonthly bulletin, and a program of targeted
            outreach and consultation, NPI has developed a core group of
            journalists covering nuclear security who now have world-class
            expertise in their beat and are committed to providing all
            points of view when it comes to nuclear questions.
      --Through its Media and Conflict Program, NPI has helped to develop
            the power of the media to contribute to the prevention of
            conflict and the reduction of ethnonational tensions. For
            example, NPI published a study of media coverage of the war in
            Chechnya, the first of its kind in Soviet and Russian history.
            It also organized a pioneering television project involving the
            first joint professional work between Ingushetian and Northern
            Ossetian journalists since that conflict began--a jointly
            produced feature broadcast simultaneously on the television
            networks of both republics.
        Sectoral Agenda.--Over the next few years, in accordance with its
    sectoral approach, NPI will pursue projects in a range of critical
    sectoral issues:
      --Promoting Financing and Capitalization.--Through its newly
            organized Business Development Service, NPI will help
            newspapers access investment and debt capital, it will promote
            equipment leasing and other alternative means of capital
            improvement, and it will continue to provide direct consulting
            and problem-solving support to newspapers throughout Russia.
      --Developing Media Management Capacity.--Through its School of Media
            Management and Journalism, NPI will train newspaper managers
            from around Russia in key areas such as advertising sales,
            distribution, readership surveys, marketing, and newsroom
            management.
      --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. NPI will continue
            to work aggressively in all of these areas.
      --Fostering the Development of a Mature Information Culture.--Through
            its Center for Cyberjournalism, NPI will continue to train
            journalists in the use of new media technology, both in Moscow
            and throughout the country, and its Internet Media Service will
            provide a range of critical services and resources to
            journalists and media managers.
      --Promoting Industry-Wide Trade Organizations and Professional
            Associations.--Mindful of the weakness of national-level
            organizations in Russia today, NPI will work to promote the
            development of regional newspaper associations, with the
            ultimate goal of building a national association to defend the
            common interests of the media.
      --Overcoming Government Domination of Information.--Through its
            Freedom of Information Commission, NPI will continue to promote
            improved FOI legislation and enforcement and educate
            journalists in exercising their rights. NPI will also continue
            to promote civil society and non-governmental actors through
            its wide-ranging Press Center activities at all of its regional
            centers.
      --Raising the level of Journalistic Professionalism.--Without a
            marketable product, news organizations cannot survive. NPI will
            continue, through its School of Media Management and
            Journalism, to provide mid-career training on journalistic
            techniques and on the coverage of specific beats, such as
            business and economics.
                                   conclusion
        The burden on the media is great in a country where democracy is
    yet so fragile. The euphoria produced by the fall of Communism has long
    faded, and the tedious and thankless work of building democracy
    remains. Desmond Tutu, addressing the South African media in 1996,
    said, ``The media have an incredible calling--you were the midwife of
    democracy, now you must be the watchdog to ensure that this beautiful
    thing is not corrupted.''
        For the media in Russia, too, to play this critical role, they
    continue need our help--and badly. Failure to act decisively during
    these critical years could have profound consequences not only for the
    future of democracy and markets in Russia, but also for the entire
    international system, in which the actions of Russia can yet carry
    immense weight and produce fateful consequences for us all.
                                     ______

         Prepared Statement of Hobart C. Gardiner, President and CEO,
                     International Executive Service Corps
        International Executive Service Corps (IESC) is the most effective
    not-for-profit business development organization of its kind in the
    world. Since 1965, IESC has provided affordable expert assistance to
    entrepreneurs, small and medium-sized enterprises, non-profit
    organizations and governments in more than 120 countries. We currently
    operate programs in over 50 countries in the developing world and the
    emerging democracies of the former Soviet bloc.
        IESC exemplifies the successful public/private partnership. We
    combine the knowledge and mentoring skills of industry and professional
    experts who donate their time with the financial support of private
    donors, clients who contribute fees for service, and grants from the
    United States Agency for International Development (USAID) and other
    government agencies.
        IESC focuses on small and medium-sized private enterprises because
    they are the engines driving economic growth and job creation around
    the world. By giving them the tools for success, we create prosperity,
    foster conditions conducive to democratic governance, and end the cycle
    of dependency. Our goals parallel similar foreign assistance objectives
    of the United States government.
        President Clinton recently underscored the value of volunteer
    service in his call for increased funding of an enlarged Peace Corps.
    We applaud the call for increased funding, and the recognition given to
    the work of the many young men and women who have changed their lives
    and the lives of others through their service in the Peace Corps.
        Our work complements that of the Peace Corps. IESC's senior-level
    executive volunteers focus on improving the business sector. They
    donate their time and the accumulated experience of successful careers.
    Thus they work with their hearts as well as their heads, making friends
    while making change.
        IESC documents the value of its work through a rigorous evaluation
    process. Over the past 33 years, we have demonstrated outstanding
    results for our clients and a solid return on investment for our
    funders.
                                      jobs
        Over the past 33 years, IESC programs have created almost a quarter
    of a million jobs worldwide. These new jobs have been at all skill
    levels, and have been created in areas of significant unemployment or
    under-employment. We are particularly proud of our efforts to create
    employment opportunities for women.
      --In Cairo and Alexandria, Egypt, IESC created Centers for Quality
            Assurance to assist various Egyptian businesses in meeting ISO
            9000 quality standards and thereby increase their productivity
            and competitiveness. In two and a half years, the Centers have
            worked with over 200 clients; already approximately 40 clients
            have received ISO certification. These Centers themselves have
            employed over 20 Egyptian nationals. Among our staff is the
            first woman in the Arab world to qualify as an ISO 9000 lead
            assessor.
      --In Southern Russia, IESC provided production and marketing
            assistance to Gloria Jeans. Company management was restructured
            and decentralized. As a result, sales have doubled and the
            European Bank for Reconstruction and Development made a $3
            million investment in Gloria Jeans. The transformation of
            Gloria Jeans created 500 jobs, all of them for women, which has
            helped provide economic stability to the region.
      --Selyn Exporters, in Sri Lanka, which manufactures and exports table
            linens and soft toys to Europe, North America, and parts of
            Asia, provides employment for over 150 rural men and women. The
            majority of the workers are women who were either widowed or
            abandoned by their husbands, left to fend for themselves and
            their children. IESC provided funds to Selyn to design and
            print a promotional brochure and exhibit at successive American
            International Toy Fairs in New York. Linkages from these three
            shows have resulted in $200,000 in initial and repeat orders
            from the United States, Canada, and Europe.
      --In Ghana, IESC was a primary supporter of the Ghana Association of
            Women Entrepreneurs, helping it present an eight-day First
            Global Fair and Investment Forum for Women Entrepreneurs. The
            fair drew thousands of participants from 35 African countries,
            in addition to North American, Asian, and Caribbean business
            and trade organizations.
      --In Zambia, IESC infused life into the promising tourism industry by
            aiding more than a dozen small to medium-sized hotels in the
            capital city of Lusaka and in rural towns and villages--
            redesigning kitchens, training housekeeping and kitchen staff,
            advising on all business aspects from accounting to promotion,
            and even helping one couple complete the renovation of their
            hotel.
        Increased sales and investment.--In 1996 alone, IESC programs
    increased sales for client companies by over $224 million. The total
    cost of our program that year was only $33 million. This means that for
    every dollar we spent, our clients achieved almost $7 in increased
    sales in the first year alone. At the same time, our clients were able
    to reduce costs by $18 million (a 2.5 to 1 leverage) and attract
    capital investments in the amount of $11 million (a 1.5 to 1 ratio)--
    for a total impact of $11 for every dollar invested in our programs.
      --JVC Baterias Record S.A., Peru's leading manufacturer of auto
            batteries, faced increased competition from imports. With IESC
            help, JVD developed a new stationary battery, which is
            essential in the poorly-lit areas of Peru's cities. This new
            line of batteries produced sales of more than $1 million in the
            first year.
      --IESC improved cash flow for PMO Shatura, a Moscow-area furniture
            manufacturer, by restructuring the company's financial
            management systems. We trained an expanded sales staff,
            creating a network of regional sales managers and a motivated
            sales force. As a result, the company has increased sales by $8
            million and achieved two joint ventures worth $7 million.
      --Frima, S.A., a Chilean meat processor, improved sanitation
            techniques, learned new methods of cutting meat to enhance
            quality, and restructured the by-products division, leading to
            greater productivity and efficiency. As a result of IESC's
            innovations, Frima increased sales by $10 million, introduced
            four new products, made capital investments valued at $2
            million, and generated 15 new jobs.
      --For a processor of food and juices in Kazakhstan (one of the first
            private companies there), IESC developed a business plan that
            led to a joint venture. As a result of the favorable forecasts
            in that plan, the client received more than $1.5 million in
            financing from the Asia Development Bank and Centrekredit. With
            this financing it developed a new product line that is expected
            to double its profits.
      --IESC evaluated the master plan for the El Salvador airport and
            prepared technical terms of reference to solicit international
            consulting support, leading to direct investment by the United
            States Trade and Development Agency.
      --IESC prepared an electric light company in Kyrgyzstan for
            privatization, increasing its sales by 25 percent and obtaining
            $400,000 in new funding from the World Bank.
      --In Panama, IESC worked with an importer/exporter of tableware to
            increase sales. As a result of IESC's help in upgrading
            software programs and implementing long-term strategies to
            coordinate manufacturing and sales, the client increased
            exports to Central and South American markets by $2 million.
      --In Indonesia, IESC expertise improved quality control and
            productivity for a paper-making plant in Java. As a result,
            production increased by 50 percent, costs were reduced by
            $100,000 and sales increased by $500,000 in just one year.
      --A chemical plant in Calcutta, India, with 700 employees, wanted to
            reduce electrical and mercury consumption and introduce a
            pollution control system. IESC initiatives led to $25,000 in
            energy savings and increased annual sales by $1.5 million.
      --In Georgia, IESC assisted a design studio for printing, advertising
            and publishing. The studio improved quality and efficiency,
            reduced production time, and increased sales by $140,000.
      --In Armenia, IESC assisted Arax, a business support company in
            Yerevan. As a result of enlarging its production capacity,
            training staff, and improving services, sales increased by
            $250,000.
                         purchases from u.s. companies
        The United States Agency for International Development has invested
    just over $296 million in IESC programs since our first operations in
    1965. The cumulative value of purchases made by our clients from U.S.
    companies exceeds $2 billion. This seven to one return is only a small
    indicator of the enormous impact IESC has had worldwide.
      --Linza, a Yerevan vision care company, received months of assistance
            from an IESC expert, an opthamologist who dramatically improved
            the company's operations. To upgrade its inventory, Linza
            imported almost $40,000 worth of frames and lenses from U.S.
            suppliers. In the course of aiding the company and 20 other
            associated optical enterprises to reach world standards of eye
            care, IESC improved vision care throughout Armenia.
      --An IESC automotive client in Estonia, Baltic American Car Company,
            has imported approximately $17.5 million worth of Chrysler and
            Jeep Eagle products, and $3.5 million worth of First Brands
            automotive products during the last five years, with obvious
            benefits to the U.S. economy.
      --Alchem International, in India, sought IESC guidance in producing
            plant extracts and derivatives meeting international
            specifications. IESC recommended improvements in quality
            control, research and development processes, and plant
            operations and maintenance. As a result, Alchem developed seven
            new products, installed $50,000 of U.S. technology, achieved a
            99 percent purity level in their products, and increased
            exports by $1 million.
      --In Sri Lanka, a nation struggling with a profound internal
            conflict, IESC manages a large program called Technology
            Initiative for the Private Sector. The IESC program oversees
            grants, and monitors stipends to local companies that partially
            offset the costs of upgrading technology and expanding their
            markets.
        Joint ventures.--In 1996 alone, IESC activities produced joint
    ventures valued at over $3 million for our clients. Many of these
    linked U.S. firms with our clients overseas.
      --In Egypt, our Manufacturing Technology Centers (MTC) link Egyptian
            businesses with American suppliers, customers, and partners.
            With MTC assistance, the Fogarty International Center in Cairo
            recently convened a workshop on Investing in Biotechnology.
            Attending were 18 American and 100 Egyptian investors and
            company representatives. Several joint ventures resulted,
            involving purchases of U.S. pathogen-free seed potatoes and
            biotechnology equipment. The field of biotechnology has
            potential for the Egyptian economy in the areas of health,
            agriculture, industry, and the environment.
      --In Bulgaria, IESC assistance to Samex, a food service client, led
            to linkages with KFC and Dunkin' Donuts, benefiting business in
            the United States with franchise fees and equipment purchases,
            while increasing sales for the Bulgarian client and creating
            more than 300 jobs in just two years.
      --In Czech Republic, an IESC expert spent several months assisting
            the young management team at Janka, a manufacturer of air
            conditioning units, in cutting costs, improving safety,
            training staff, and promoting their product. He also guided
            them in forming their first joint venture (valued at over $8
            million) with a subsidiary of an American company.
      --In St. Petersburg, Russia, IESC helped a prosthetics manufacturer
            become a distributor for a U.S. company, thus raising the
            quality of prosthetics available in Russia, in high demand by
            young soldiers wounded in the war in Chechnya.
      --In the city of Ussuriysk in the Russian Far East, IESC is assisting
            in the conversion of an airport from military to civilian
            traffic, stimulating development of the region, and opening a
            new air route to the area for foreign airlines.
                                   innovation
        At its founding, in 1963, IESC was an innovative idea: to capture
    the generosity and good will of American business people to provide the
    expertise needed by struggling businesses in the developing world. In
    the past 33 years IESC industry experts have volunteered over one
    million days of service, conservatively valued at over $514 million. We
    continue to rely on this extraordinary pool of expertise: today we have
    more than 13,000 experts registered with us, available to go any where
    their skills, talent and coaching are needed.
        Innovation did not stop with the concept however. We have
    continually created innovative programs to meet new challenges and take
    advantage of new opportunities.
      --Working with USAID's Global Technology Network, we now help small
            and medium-sized American companies enter the global
            marketplace, increasing the number of transactions between U.S.
            companies and companies in developing countries and emerging
            democracies. Through this program, IESC experts mentor American
            companies, coaching them through the often confusing and
            difficult process of finding and following up on trade leads.
      --In Brazil, an innovative approach to solving ATM fraud was designed
            by an IESC expert. He evaluated present and future risks to the
            client's operations, to the supplier of ATM equipment, and set
            up defensive protocols to reduce the incidence of bank fraud in
            Brazil, estimated at $600 million annually.
      --In Lithuania, IESC is creating the Lithuanian-American Business
            Network (LABnet), with the cooperation of the U.S. Ambassador,
            Keith Smith, and the USAID mission there. The program is
            designed to accelerate U.S. investment in Lithuanian small and
            medium-sized enterprises. In the United States, four IESC
            experts will support the Lithuanian local consulting company by
            researching potential partnerships between American and
            Lithuanian businesses.
      --In another project there, an IESC expert spent two months training
            sixty brokerage employees in portfolio management, educating
            them about U.S. funds, and facilitating contacts with several
            American funds. As a result, two investors have already entered
            the Lithuanian securities market.
      --The Lithuanian president recognized IESC's contribution to
            Lithuania's economic revival by conferring full Lithuanian
            citizenship on our Country Director couple there, George and
            Mai Gray. Mr. Gray had been in charge of economic development
            as assistant city manager in his hometown of Tucson, Arizona,
            and brought the same sensitivities and skills to his work in
            Lithuania.
      --As new opportunities occur, IESC continues to implement innovative
            services in other areas, such as assisting in legal and
            regulatory reform, training insurance regulators and initiating
            distance learning and other virtual business support services.
            With IESC assistance, for example, a Boston-based publishing
            company, International Data Group, has recently launched PC
            World Lithuania magazine, stimulating the development of
            information technology in Lithuania.
        Alliances.--IESC recognizes that we can often accomplish our
    objectives more efficiently through associations with other
    organizations.
      --IESC has formed new development partnerships in Latin America. In
            Panama, we are helping the Interoceanic Region Authority manage
            the reversion of United States military bases to Panama by the
            end of the decade. More than 20 IESC experts have developed
            marketing strategy, provided technical assistance, and promoted
            investment and joint ventures. We are also working with the
            Panama Canal Authority to protect the Panama Canal Watershed
            area, aiding in the formation of an inter-institutional
            commission protecting natural water supplies to the Canal, and
            training administrative staff.
      --We have formed a partnership with Programa Bolivar, based in
            Caracas, Venezuela to create joint ventures and other strategic
            alliances between U.S. companies and small to medium-sized
            enterprises in Latin America. IESC experts provide on-site
            assistance or research within the United States.
      --In Ukraine, IESC has pooled resources with Agricultural Cooperative
            Development International/Volunteers in Overseas Cooperative
            Assistance, MBA Enterprise Corps, and Citizens Democracy Corps
            to create ``The Alliance.'' Recently, the Alliance assisted
            Korop Agrotechservice, a conglomerate of eight privatized
            businesses founded in 1996. Part of the conglomerate, a former
            collective farm, had a cash flow crisis. To save the farm and
            the jobs of its 90 employees, IESC assigned an expert in
            agricultural management. His recommendations led to improved
            management and marketing practices, and new cattle-breeding
            methods. The Alliance next called in an ACDI/VOCA volunteer, a
            cattle breeding expert. By October, 1997 the farm's cash flow
            had improved so much that it paid all employees their back
            wages. By February, 1998, still implementing the IESC business
            plan, the farm settled a substantial portion of its outstanding
            debts.
      --The Alliance has helped build a strong, stable investment banking
            sector, a priority for business growth. An IESC banking
            executive, formerly with Merrill Lynch, helped First Investment
            Bank of Ukraine improve its investment capabilities. The
            Ukrainian bank eventually signed an agreement with the National
            Bank of Paris that strengthened First Investment's ability to
            market and participate in Ukrainian Euro-Bond issues. In
            February 1998, the First Investment co-led, with Merrill Lynch
            and Commerzbank, a successful DM 750 million Euro-Bond issue.
            First Investment credited IESC's assistance with substantially
            improving the bank's abilities, ensuring its participation in
            future large securities issues.
      --In Bulgaria, IESC is part of the Firm Level Assistance Group (FLAG)
            a consortium also including Agricultural Cooperative
            Development International/Volunteers in Overseas Cooperative
            Assistance, MBA Enterprise Corps, Citizens Democracy Corps, the
            University of Delaware, Land O'Lakes and World Learning. IESC
            assisted the management-employee team of Riviera Holiday Resort
            in Varna in acquiring the hotel complex. An IESC expert
            assessed investment alternatives, then guided the team in
            winning the right to purchase 60 percent of the resort at a
            cost of $11 million, with further investments of $4 million to
            improve services, and renovate the facility. FLAG, with the
            involvement of IESC, will continue to back the team in its
            ambitious business endeavor.
      --The Business Development Services (BDS) division of IESC is
            currently active in Romania through a partnership agreement
            with the USAID-funded Romanian American Enterprise Fund and the
            International Center for Entrepreneurial Studies. This two-year
            program, known as ``ACCESS for Business uses IESC industry
            experts to assess a company's business potential, and prepare
            it for investment and further growth.
      --The results are exciting and encouraging. As of December 1997 (less
            than half way through the program), the ACCESS team has
            reviewed over 300 companies, 125 of which were referred to the
            Romanian American Enterprise Fund for financing and/or
            technical assistance services. BDS has used the donated
            services of more than 150 IESC industry experts operating
            within the U.S. to assist participating Romanian companies.
        Sustainability.--IESC designs programs for both immediate and long-
    term impact. Before the need for our direct services end in a country,
    IESC is already preparing the local citizens to continue business-
    strengthening programs. For example:
      --In the Slovak Republic and Lithuania, IESC's funding from USAID
            will end for both countries on September 30, 1998. However,
            with current support from USAID, we are training local staff
            and transforming our offices in both countries into self-
            sustainable, indigenous consulting companies. These new 100
            percent locally-owned firms will continue management consulting
            to businesses in transition in these countries.
      --Our Russia program also works to build the capacity of indigenous
            consulting firms. Through staff training, seminars, and
            cooperation on projects, IESC leads consulting firms towards
            self-sustainability. Developing a market presence, increasing a
            client base, establishing a reputation, broadening an array of
            services, and increasing financial stability--all these require
            substantial resources and evolve over time. IESC must maintain
            present funding levels to continue meeting these very
            challenging and worthy goals.
        Building the supporting structure.--Business does not operate in a
    vacuum. Government policies and procedures, educational facilities,
    social services--all impact business operations. Therefore, IESC
    dedicates part of its resources to addressing needs in the public
    sector.
      --IESC's public administration program works with public officials in
            the New Independent States to increase their understanding of
            representative government and its role in fostering a healthy
            economy. Because the program involves governments, it can
            ultimately have enormous impact on many millions of people.
      --In Kazakhstan, more than 300 officials have participated in this
            program. Fifty have been selected to study government
            operations at various levels in the United States.
            Representative Christopher Shays has become an integral part of
            this program, meeting with these officials and sharing his
            insights as a member of the House of Representatives. One
            official concluded: The most valued part of this program was
            meeting with various government and business people, learning
            from them how they interact with one another, and how they
            organize work.
      --Many of these Kazakh officials have subsequently been promoted to
            senior levels. One is now Chief of Staff to the President of
            Kazakhstan. Previous participants have also started an alumni
            association, serving as mentors to newly-elected Kazakh
            officials.
      --In Orenburg, IESC worked with the Russian Privatization Center, the
            city administration, and social service managers on the
            privatization process for 28 kindergartens. Our expert met with
            staff in all affected institutions, arranged for staff
            retraining, and developed alternative plans for school use to
            reduce expenses while maintaining the quality of education.
        Recently an IESC staff member was invited to South Africa, Zambia,
    and Botswana to meet with officials and representatives of businesses,
    funding groups and non-governmental agencies to assess needs and
    opportunities for development in those countries. One immediate result
    is IESC's participation in the Bi-National Commission Grant from the
    Department of Commerce to the South African Centre for Scientific and
    Industrial Research.
                                   conclusion
        These highlights of IESC's achievements are but a sampling of the
    change we have accomplished over the past 33 years with funding from
    the U.S. government. We have leveraged the taxpayers' dollars
    effectively. To continue our superb record, however, we must rely on
    continued funding for our effective programs. We believe what we have
    accomplished for America and for clients around the world is a
    significant chapter in a book that is still being written, with your
    help.
        Question. If AID invests $24 million with you, what kind of a
    return on investment do you get?
        Answer. A great return on investment For $24 million we got:
      --clients who increased their sales by $224 million;
      --clients whose exports increased by $34 million;
      --clients who reinvested capital in their companies by $69 million
            (compared to a time when money was fleeing to Swiss Bank
            accounts);
      --clients who purchased $13 million from U.S. companies in just one
            year--the first year after the project. We expect their
            purchases to continue year after year.
      --the investment helped break the cycle of dependency in over 25
            countries.
        19 other countries now also think it's a good investment.
        Lee Hamilton said, and I quote: ``In this time of tough budget
    restraint, we must be looking for the most efficient and cost-effective
    ways of providing support for our development goals. IESC is efficient.
    Not only do the executives volunteer their time but clients contribute
    to further offset costs. IESC is effective. Fully 40 percent of the
    projects undertaken are follow-on endeavors building on initial
    activities. IESC supports U.S. trade interests. 43 percent of clients
    purchase goods and services from the United States.''
        We note that the Peace Corps got an increase of $40 million to help
    with private enterprise. We admire the Peace Corps, but for building
    business, we have a bank of talent and a 33-year track record.
        Question. Do you undertake projects in any countries where you
    don't get funding from AID?
        Answer. Yes sir, we work in several countries where AID funding is
    no longer available and the clients pay all our expenses. Several such
    countries are in Latin American and Asia. The clients tend to be large
    rather than small. Not large by American standards, but still
    significant to the growth of the economy.
        Question. Why do retired executives leave comfortable conditions to
    work unpaid overseas in developing countries?
        Answer. I think there are several reasons:
      --They want to be of service where help is needed
      --They want to pay back in some way. Feeling that this country, its
            customs and ideals, from the founding fathers on, has been good
            to them, they want to pass it on.
      --They are used to working their butts off. Retirement and golf are
            not enough to satisfy their need to be busy usefully.
      --They are believers in private enterprise and the market economy.
        Question. How are you funded?
        Answer. Principally through AID. We get $24 million from AID or 74
    percent. The amount of work we do is directly related to AID funding.
    If AID were to double the funding, we would do twice as much work.
        Next to AID in size are our clients. They contribute 19 percent or
    $6,400,000. The Department of Defense contributes nearly one million.
    USIA, $150,000.
        Contributions and grants from other private sources are about
    $1,100,000.

                            CONTRIBUTIONS AND GRANTS
    ------------------------------------------------------------------------
                                                           1997     Percent
    ------------------------------------------------------------------------
    USAID missions....................................     21,386  .........
    AID--core grant...................................      3,031  .........
                                                       ---------------------
          Total.......................................     24,417       73.8
                                                       =====================
    Clients...........................................      6,395       19.3
    DOD...............................................        968        3.1
    USIA..............................................        151         .5
    Other Grants for specific reason like Chase Bank
     Johnson Foundation (nothing from offsets in 1997)        553        1.7
    Contributions (corporations, foundations,
     individuals).....................................        597        1.8
                                                       ---------------------
          Total.......................................     33,081  \1\ 100.0
    ------------------------------------------------------------------------
    \1\ May not add to 100 due to rounding.

                                     ______

                   Prepared Statement of Rotary International
        Chairman McConnell, members of the Subcommittee, Rotary
    International appreciates 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 nearly 29,000 Rotary clubs, with a membership of over 1.2 million
    business and professional leaders in 158 countries. In the United
    States today there are some 7,500 Rotary clubs with over 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 March of Dimes Birth Defects
    Foundation, the American Academy of Pediatrics, the Task Force for
    Child Survival and Development, and the U.S. Committee for UNICEF, to
    seek your continued support for the global program to eradicate polio.
    Firstly, Rotary International and our coalition would like to express
    our sincere gratitude. In fiscal years 1997 and 1998, you recommended
    that $25 million be allocated for the polio eradication activities of
    the Agency for International Development, and the full Congress
    ratified your recommendation in both years.
        This investment has helped to make the United States the leader
    among donor nations in the drive to eradicate this crippling disease.
    The target year is 2000 for eradication, with certification by 2005. A
    thousand days remain to defeat this disease in the 60 nations where the
    polio virus still causes death and disability. The eradication of
    polio, achieved through your leadership, will not only save lives, but
    will also save our financial resources.
      eradicating polio will save the united states at least $230 million
                                    annually
        Although polio-free since 1979, the United States currently spends
    at least $230 million annually to protect its newborns against the
    threat of importation of the polio virus. Globally, over 1.5 billion
    U.S. 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 health priorities.
               progress in the global program to eradicate polio
        Thanks to your appropriations, the international effort to
    eradicate polio has made tremendous progress during the past two years.
        For 1997, it is expected that only about 3,600 polio cases will be
    reported, one-half the number of cases reported only two years ago.
    This dramatic decline is due to the tremendous success of National
    Immunization Days (NID's) in South Asia and Africa. Worldwide, reported
    cases have decreased from over 38,000 cases in 1985--a decline of over
    ninety percent. Acute Flaccid Paralysis (AFP) surveillance, which is
    critical to the process of certification of a polio-free world, is
    improving, and health authorities in polio-endemic countries are better
    able to assess the challenges remaining to eradication.
        In 1996, 154 countries reported no polio. That number is expected
    to rise in 1997. About 60 countries, however, remain polio-endemic.
        The global eradication strategy is working. Seventy-five countries
    conducted NID's in 1997, protecting 450 million children against
    polio--more than one-half of the world's children under the age of
    five.
        During its third year of NID's, India was able to immunize 130
    million children on January 18, 1998--the largest public health event
    in history. Pakistan, Bangladesh, and six other countries coordinated
    their NID's with India's to achieve the maximum effect over the entire
    region.
        Despite economic difficulties, more than 40 African countries
    conducted National or Sub-National Immunization Days during 1996/1997,
    as part of the continent-wide ``Kick Polio Out of Africa'' campaign
    championed by South African President Nelson Mandela, reaching nearly
    70 million children. Forty-nine African countries are undertaking NID's
    in 1997-98. Polio-free zones are emerging in both Northern and Southern
    Africa.
        The three-year ``Operation MECACAR'' (Middle East, Caucasus,
    Central Asian Republics) immunization campaign has been deemed a
    success, virtually eliminating polio from 19 contiguous countries
    stretching from the Middle East to Russia. For 1997, polio cases
    reported from WHO's European region have been confined to Tadjikistan
    and Turkey.
        As a result of three years of successful NID's, China has reported
    no laboratory-confirmed indigenous polio cases in 1996 or 1997. In
    1997, reported polio cases in the Western Pacific were confined to the
    Mekong Delta of Cambodia and Viet Nam, with no cases reported for more
    than a year. We are hopeful that the entire Western Pacific is now
    polio-free, although continued vigilance is necessary to confirm this.
    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 U.S.
    firm, at the request of the 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 and fiscal year 1998.
    We are advised by AID that their planned Polio Eradication Initiative
    activities in 1998 will include:
      --As in fiscal year 1997, AID's Africa Bureau will provide $16
            million for the Polio Eradication Initiative in Africa. These
            funds will flow through WHO, UNICEF, and BASICS for NID
            operational support, surveillance, communication, social
            mobilization, planning, training, evaluation and cold chain in
            approximately 23 countries. In 1997, special attention was
            given to the Democratic Republic of the Congo (former Zaire).
      --As in 1997, AID will designate nearly $4 million to support India's
            NID's and strengthen nationwide surveillance. AID's technical
            and programmatic expertise have been critical to the success of
            India's three years of National Immunization Days to date. AID,
            through grants to UNICEF, WHO, and Rotary, has helped support
            India's cold chain, surveillance, training, and social
            mobilization efforts.
      --An additional $5 million will again be programmed through AID's
            Center for Population, Health and Nutrition. These funds will
            be used for surveillance and training in 4 South Asian and 10
            European countries, through the WHO Regional Offices, and to
            support communication and research concerning vaccination
            issues. Support is also being provided to the Voice of America
            for broadcasting on polio eradication, surveillance, and other
            immunization topics, and some funds are also earmarked for
            emergency vaccine transport.
                       the benefits of polio eradication
        Increased political and financial support for childhood
    immunization has many documented long-term benefits. Polio eradication
    is helping countries to develop public health and disease surveillance
    systems useful in the control of other vaccine-preventable 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. As a result of this success, measles has been
    targeted for eradication in the Americas by the year 2000. The disease
    surveillance system--the network of laboratories, computers and trained
    personnel built up during the Polio Eradication Initiative--is now
    being used to track measles, Chagas, neonatal tetanus, and other deadly
    infectious diseases. The campaign to eliminate polio from communities
    has led to increased public awareness of the benefits of immunization,
    creating a ``culture of immunization'' and resulting in increased usage
    of primary health care and higher immunization rates for other
    vaccines. It has improved public health communications and taught
    nations important lessons about vaccine storage and distribution, and
    the logistics of organizing nation-wide health programs. Lastly, the
    unprecedented cooperation between the public and private sectors serves
    as a model for other public health initiatives.
            resources needed to finish the job of polio eradication
        The World Health Organization now estimates that in 1998
    approximately $220 million in external funds is needed to help polio-
    endemic countries carry out the polio eradication strategy. For 1999,
    an estimated $248 million will be needed. To date, however, only $160
    million has been committed by external donors for 1998, leaving an
    estimated shortfall of $60 million. In the Americas, some 80 percent of
    the cost of polio eradication efforts was borne by the national
    governments themselves. In Africa, many nations can contribute only a
    small percentage of the needed funds, meaning that foreign donors must
    meet up to 100 percent of the polio eradication costs. We are asking
    that the United States continue to take the leadership role in meeting
    this shortfall.
        The United States' commitment to polio eradication has stimulated
    other countries to increase their support. Belgium, Canada, Finland,
    France, Italy, Korea, Norway, Sweden and Switzerland are among those
    countries which have followed America's lead and have recently
    announced special grants for the global Polio Eradication Initiative.
    Japan and Australia are major donors in Asia and the Western Pacific,
    and Japan has recently expanded its support to polio eradication
    efforts in Africa. And both Denmark and the United Kingdom have made
    major grants that will help ensure that India eradicates polio by the
    target year 2000.
        By the time polio is certified as eradicated, hopefully by 2005,
    Rotary International will have expended well over $400 million on the
    effort--the largest private contribution to a public health initiative
    ever. Of this, $304 million has already been allocated for polio
    vaccine, operational costs, laboratory surveillance, cold chain,
    training and social mobilization in 119 countries. In 1997, realizing
    the increased role which external donors need to play in order to
    ensure that polio eradication is not jeopardized due to lack of
    resources, The Rotary Foundation committed an additional $34 million to
    its PolioPlus Fund. More importantly, we have mobilized tens thousands
    of Rotarians to work together with their national ministries of health,
    UNICEF and WHO, and with health providers at the grassroots level in
    thousands of communities.
                        fiscal year 1999 budget request
        For fiscal year 1999, 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 1998 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 1998 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 1998, on AID's plans to fully implement this program.
        Humankind is on the threshold of victory against polio, and we must
    not miss this window of opportunity. Poliomyelitis will be the second
    major disease in history to be eradicated. The world celebrated the
    eradication of smallpox in 1979, and no child anywhere in the world
    will ever suffer from smallpox again. The annual global savings of
    nearly $1 billion per year in smallpox immunization and control costs
    far exceed the approximately $300 million that was spent over ten years
    to eradicate the disease. 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. Even greater benefits will result from the eradication of polio.
        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. 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 testify.
                 the rotary foundation of rotary international
        The mission of The Rotary Foundation is to support the efforts of
    Rotary International to achieve world understanding and peace through
    international humanitarian, educational and cultural exchange programs.
        The Rotary Foundation of Rotary International was the recipient of
    one Federal grant in recent years: a U.S. Agency for International
    Development Child Survival (CSVIII) grant, for the period 1 October
    1992 to 30 September 1996. This grant, in the amount of $2,650,200, was
    for polio immunization projects in India and Nigeria, as well as
    administrative expenses, and is now closed.

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page
    Albright, Hon. Madeleine, Secretary of State, Office of the
      Secretary, Department of State.................................   173
        Prepared statement...........................................   186
    American Bar Association, prepared statement.....................   263
    Atwood, J. Brian, Administrator, Agency for International
      Development....................................................   141
        Prepared statement...........................................   150

    Barnes, Michael D., Esq., cochair, U.S. Committee for the United
      Nations Development Programme, prepared statement..............   238
    Bernala, Dr. Richard L., Jamaica's Ambassador to the United
      States and Permanent Representative to the Organization of
      American States, prepared statement............................   250
    Bye, Dr. Raymond E., Jr., associate vice president for research,
      Florida State University, prepared statement...................   239

    Cassell, Gail H., Ph.D., vice president, infectious disease
      discovery research and clinical investigation, Eli Lilly Co....    95
        Prepared statement...........................................   130

    Daulaire, Hon. Nils M.P., M.D., M.P.H., senior health adviser,
      Agency for International Development...........................    95
        Prepared statement...........................................   103

    Eizenstat, Hon. Stuart, Under Secretary for Economic, Business,
      and Agricultural Affairs, Department of State..................    43
        Prepared statement...........................................    53

    Freeh, Louis J., Director, Federal Bureau of Investigation,
      Department of Justice..........................................    69
        Prepared statement...........................................    75

    Gardiner, Hobart C., president and CEO, International Executive
      Service Corps, prepared statement..............................   275
    Georgetown University, prepared statement........................   240
    Greenspan, Hon. Alan, Chairman, Board of Governors of the Federal
      Reserve System, Department of the Treasury.....................     1
        Prepared statement...........................................     8

    Heymann, David L., M.D., Director, Emerging and Other
      Communicable Diseases, Surveillance and Control, World Health
      Organization...................................................    95
        Prepared statement...........................................   112
    Hughes, Hon. James M., M.D., Director, National Center for
      Infectious Diseases, Centers for Disease Control and
      Prevention, Department of Health and Human Services............    95
        Prepared statement...........................................   122

    Jollivette, Cyrus M., vice president for government relations,
      University of Miami, prepared statement........................   244

    Kostyuchencko, Evgen, council member, Center for Strategic
      Studies and Analysis, Ukrainian National Security and Defense
      Council........................................................    69
    Lautenberg, Hon. Frank, U.S. Senator from New Jersey.............   160
    Leahy, Hon. Patrick, U.S. Senator from Vermont.....54, 71, 97, 143, 179
        Prepared statements....................................71, 145, 181

    Manatos, Andrew E., president, National Coordinated Effort of
      Hellenes, prepared statement...................................   255
    Manoff, Robert Karl, director, Center for War, Peace, and the
      News Media, Department of Journalism and Mass Communication,
      New York University, prepared statement........................   270
    McConnell, Hon. Mitch, U.S. Senator from Kentuck1, 43, 69, 95, 141, 173
        Prepared statement...........................................   177

    Pan American Health Organization, prepared statement.............   229
    Pyszczymuka, Michael, special agent, Federal Bureau of
      Investigation, Department of Justice...........................    69

    Rossides, Eugene T., general counsel, senior counsel, Rogers &
      Wells on behalf of the American Hellenic Institute, Inc.,
      prepared statement.............................................   261
    Rotary International, prepared statement.........................   281
    Rubin, Hon. Robert E., Secretary of the Treasury, Department of
      the Treasury...................................................     1
        Prepared statement...........................................    13

    Sklar, Scott, executive director, Solar Unity Network, prepared
      statement......................................................   219
    Smeshko, Ihor, director, Center for Strategic Studies and
      Analysis, Ukrainian National Security and Defense Council......    69
    Stevens, Hon. Ted, U.S. Senator from Alaska.................4, 159, 199
    Summers, Lawrence H., Deputy Secretary of the Treasury,
      Department of the Treasury.....................................     1

    Talbott, Hon. Strobe, Deputy Secretary of State, Department of
      State..........................................................    43
        Prepared statement...........................................    48

    University Heights Science Park, prepared statement..............   233

    Watson, Alexander F., vice president and executive director,
      Latin American and Caribbean Division, The Nature Conservancy,
      prepared statement.............................................   221
    World Wildlife Fund, prepared statement..........................   225

                                 SUBJECT INDEX

                                  ----------

                      AGENCY FOR INTERNATIONAL DEVELOPMENT

                                                                       Page

    Antimicrobial resistance.........................................   102
    Closing missions.................................................   165
    Foreign policy...................................................   108
    Haiti............................................................   170
    Humanitarian exceptions..........................................   168
    Indonesia........................................................   160
    Infectious diseases..............................................   167
    Mission..........................................................   164
    Morale...........................................................   165
    Moslem organizations.............................................   162
    Peace process in Bosnia..........................................   160
    Tuberculosis.....................................................   101
    Year 2000 problem................................................   166

                    DEPARTMENT OF HEALTH AND HUMAN SERVICES
                   Centers for Disease Control and Prevention

    Orphan Drug Act..................................................   133

                             DEPARTMENT OF JUSTICE
                        Federal Bureau of Investigation

    Bribes...........................................................    89
    Corruption.......................................................    94
    Counterterrorism activities......................................    82
    Criminal activities..............................................    83
    Foreign investment...............................................    90
    Illegal smuggling................................................    84
    Law enforcement liaison..........................................    91
    Nuclear materials................................................    86
    Prosecutions.....................................................    93
    Sharing intelligence information.................................    87
    Sophistication of criminals......................................    85

                              DEPARTMENT OF STATE
             Caucasus and Caspian: Economic and Political Security

    Elections in Armenia.............................................    56
    Peacekeeping force...............................................    59
    Pipeline.........................................................    65
    Sanctions........................................................    63
    Section 907......................................................    56

                            Office of the Secretary

    Peace, prosperity, and freedom...................................   182

                           DEPARTMENT OF THE TREASURY
                          International Monetary Fund

    Asian situation..................................................    29
    Budget policies..................................................    35
    Central bank.....................................................    34
    Crony capitalism.................................................    16
    Global markets...................................................    18
    IMF..............................................................    23
    Mexican issue....................................................    31
    New arrangements.................................................    20
    Recovery in Asia.................................................    15
    Russia...........................................................    25
    Tariff reductions................................................    22