[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
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_______________________________________________________________________
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                      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