[Senate Hearing 105-292]
[From the U.S. Government Printing Office]

                                                        S. Hrg. 105-292


                          HEARINGS AND MARKUP

                               BEFORE THE




                                AND THE

                          UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION


       FEBRUARY 26 AND 27, MARCH 6, 12 AND 13, AND APRIL 9, 1997


                             JUNE 12, 1997


       Printed for the use of the Committee on Foreign Relations

38-492CC                    WASHINGTON : 1998


                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
PAUL COVERDELL, Georgia              PAUL S. SARBANES, Maryland
CHUCK HAGEL, Nebraska                CHRISTOPHER J. DODD, Connecticut
GORDON H. SMITH, Oregon              JOHN F. KERRY, Massachusetts
CRAIG THOMAS, Wyoming                CHARLES S. ROBB, Virginia
ROD GRAMS, Minnesota                 RUSSELL D. FEINGOLD, Wisconsin
JOHN ASHCROFT, Missouri              DIANNE FEINSTEIN, California
BILL FRIST, Tennessee                PAUL D. WELLSTONE, Minnesota
                     James W. Nance, Staff Director
                 Edwin K. Hall, Minority Staff Director


                       EXPORT AND TRADE PROMOTION

                    CHUCK HAGEL, Nebraska, Chairman
CRAIG THOMAS, Wyoming                PAUL S. SARBANES, Maryland
BILL FRIST, Tennessee                JOSEPH R. BIDEN, Jr., Delaware
PAUL COVERDELL, Georgia              PAUL D. WELLSTONE, Minnesota



                     ROD GRAMS, Minnesota, Chairman
JESSE HELMS, North Carolina          DIANNE FEINSTEIN, California
SAM BROWNBACK, Kansas                CHRISTOPHER J. DODD, Connecticut
GORDON H. SMITH, Oregon              JOHN F. KERRY, Massachusetts


                            C O N T E N T S


                      Hearing of February 26, 1997

Agency for International Development (AID): Budget Request and 
  Oversight......................................................     1

    Atwood, Hon. J. Brian, Administrator, Agency for 
      International Development..................................     8
        Prepared statement.......................................    14

                      Hearing of February 27, 1997

The State Departments Administration of Foreign Affairs Fiscal 
  Year 1998 Budget...............................................    57

    Kennedy, Patrick F., Acting Under Secretary for Management, 
      U.S. Department of State...................................    61
        Prepared statement.......................................    65

                        Hearing of March 6, 1997

The President's Fiscal Year 1998 Budget Request for the USIA and 
  International Broadcasting.....................................    95

    Duffey, Joseph, Director, accompanied by Stanley Silverman, 
      Comptroller, Jack Loiello, Associate Director for 
      Educational and Cultural Affairs, and David Lowe, National 
      Endowment for Democracy, United States Information Agency..    98
        Prepared statement.......................................   104
    Klose, Kevin, Associate Director for Broadcasting, U.S. 
      Information Agency.........................................   111
        Prepared statement.......................................   114

                       Hearing of March 12, 1997

Security Assistance Request for Fiscal Year 1998.................   145

    McNamara, Thomas E., Assistant Secretary, Department of State   152
        Prepared Statement.......................................   157
    Rhame, Thomas G., Lt. Gen., USA, Director, Defense Security 
      Assistance Agency..........................................   146
        Prepared Statement.......................................   148

                       Hearing of March 13, 1997

The FY98 Budget Requests for International Organizations and 
  Conferences and Arms Control and Disarmament Agency............   191

    Holum, John D., Director, U.S. Arms Control and Disarmament 
      Agency.....................................................   193
        Prepared statement.......................................   196
    Lyman, Ambassador Princeton N., Acting Assistant Secretary of 
      State For International Organization Affairs...............   215
        Prepared statement.......................................   218

                        Hearing of April 9, 1997

Multilateral Development Bank Funding Request for Fiscal Year 
  1998...........................................................   237

    Summers, Hon. Lawrence H., Deputy Secretary of the Treasury..   239
        Prepared statement.......................................   243

                        Hearing of June 12, 1997

Markup: The Foreign Affairs Reform and Restructuring Act of 1997.   265

    Proceedings..................................................   265

                               Appendix 1
                      Hearing of February 26, 1997

U.S. Agency for International Development, Congressional 
  Presentation, Summary Tables, Fiscal Year 1998.................   317
Veronia T. Young, USAID, letter to committee.....................   382
Responses of Mr. Atwood to Questions asked by Senator Grams......   382
Responses of Mr. Atwood to Questions asked by Senator Helms......   383
Responses of Mr. Atwood to Questions asked by Senator Helms and 
  Senator Brownback..............................................   392
Responses of Mr. Atwood to Questions asked by Senator Feingold...   393
Responses of Mr. Atwood to Questions asked by Senator Biden......   396
Veronia T. Young, USAID, letter to committee.....................   399
Responses of Mr. Atwood to Question asked by Senator Biden.......   399

                               Appendix 2
                      Hearing of February 27, 1997

Responses of Mr. Kennedy to Questions asked by Senator Lugar.....   400
Responses of Mr. Kennedy to Questions asked by Senator Biden.....   403
Responses of Mr. Kennedy to Questions asked by Senator Feinstein.   408
Improving the Security of U.S. Diplomatic Facilities and 
  Increasing the Protection of Personnel Overseas................   413
Responses of Mr. Kennedy to Questions asked by Chairman Helms....   417
Responses of Mr. Kennedy to Questions asked by Senator Grams.....   417

                               Appendix 3
                        Hearing of March 6, 1997

Caroline Isacco, USIA, letter to committee.......................   437
Responses of Mr. Duffy to Questions asked by Senator Grams.......   437
Responses of Mr. Duffy to Questions asked by Senator Feinstein...   444
Broadcasting Questions for the Record, SFRC Hearing, Drafted by 
  Broadcasting Board of Directors................................   449
Responses of Mr. Duffy to Question asked by Senator Helms........   453

                               Appendix 4
                       Hearing of March 12, 1997

Responses of Mr. McNamara to Questions asked by Senator Sarbanes.   454
Responses of Mr. McNamara to Question asked by Senator Wellstone.   457
Responses of Mr. McNamara to Questions asked by Senator Biden....   457
Responses of Mr. McNamara to Questions asked by Senator Feingold.   465
Responses of General Rhame to Questions asked by Senator Feingold   467
Responses of General Rhame to Questions asked by Senator 
  Wellstone......................................................   472

                               Appendix 5
                       Hearing of March 13, 1997

Responses of Mr. Holum to Questions asked by Senator Grams.......   473
Responses of Mr. Holum to Questions asked by Senator Feinstein...   475

                               Appendix 6
                        Hearing of April 9, 1997

Responses of Mr. Summers to Questions asked by Senator Lugar.....   476
Responses of Mr. Summers to Questions asked by Senator Biden.....   478
Responses of Mr. Summers to Questions asked by Senator Wellstone.   479

                               Appendix 7
                    Markup Hearing of June 12, 1997

Prepared Statement of Senator Rod Grams..........................   482



                      WEDNESDAY, FEBRUARY 26, 1997

                           U.S. Senate,    
     Subcommittee on International Economic
                Policy, Export and Trade Promotion,
                     of the Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:05 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Chuck Hagel, 
(chairman of the subcommittee), presiding.
    Present: Senators Hagel, Thomas, Grams, Biden, Sarbanes, 
and Wellstone.
    Senator Hagel. The subcommittee will come to order.
    Today the subcommittee meets to consider the President's 
budget request for Fiscal Year 1998 programs under the 
jurisdiction of the Agency for International Development. The 
Hon. Brian Atwood, Administrator of AID, will testify.
    Mr. Administrator, welcome.
    Mr. Atwood. Thank you.
    Senator Hagel. The Ranking Minority Member is on his way. 
Senator Sarbanes will be here. His counsel has suggested that 
we go ahead and get started. But he will be here at any moment 
and we will get through some of this in the meantime.
    Here he is. It's magic.
    Welcome, Senator.
    Senator Sarbanes. Right on cue?
    Senator Hagel. Right on cue. It is the way we planned it, 
of course.
    The President's Fiscal Year 1998 budget requests $7.14 
billion for AID managed programs, an increase of more than 6 
percent over the Fiscal Year 1997 appropriated level.
    Significant among the funding levels requested is a large 
increase over last year's level for population programs and a 
$45 million cut in child survival programs. The President is 
also seeking new authorities in this year's budget, a highlight 
of which is the proposed Partnership for Freedom for Russia. 
There have been few details about how this program will 
operate. So, we look forward to your views, Mr. Administrator, 
about this program.
    The President's budget is also seeking the creation of a 
new AID administered loan program and several new regional 
democracy programs.
    Mr. Administrator, as you know, I am new to this 
subcommittee and to this body. I surely do not claim to be an 
expert on development issues nor foreign aid. I want to let you 
and your organization know that I will look at everything 
closely, but that I come to this with certainly no ax to grind 
against your programs or any Federal Agency. I think that we 
all want to insure that the taxpayers' money is being used 
wisely, efficiently, and effectively, and I know that, too, is 
your objective and your goal.
    But I also must say that AID does have a track record. For 
more than 35 years, AID has been providing billions of dollars 
annually to assist in the development of countries.
    Regrettably, many countries have not benefited from foreign 
aid, and AID has too often found excuses, primarily cold war 
considerations, for the lack of success in its programs. I 
might add that this was during both Republican and Democratic 
    But the cold war is over, and this Congress, in tandem with 
the President, must make some fundamental decisions about where 
to dedicate scarce resources in the next century. Recommending 
cuts in AID's budget should not make one an isolationist, 
especially since, according to AID's own self-assessment, 
``Despite decades of foreign assistance, most of Africa and 
parts of Latin America, Asia, and the Middle East are 
economically worse off today than they were 20 years ago.''
    That is a rather dramatic statement. While it is correct 
that the international affairs budget represents just more than 
1 percent of the entire U.S. budget, it represents about 8 
percent of our Government's discretionary budget. Further, 
about 5 percent of the DOD budget, more than $12 billion, is 
dedicated in support of U.S. humanitarian and development goals 
    But America's support for these programs should not be 
driven by ledger sheets. Rather, it must be determined by how 
they directly contribute to our national security, our national 
interests, and whether they perform as advertised.
    Supporters of a larger international affairs budget operate 
on one key assumption: That all the funds currently dedicated 
to international programs are being used effectively and 
efficiently. I am not convinced that this is accurate. I 
recommend Majority Leader Trent Lott's recent op-ed piece in 
the ``Washington Times'' which makes an excellent argument that 
the Clinton administration must further prioritize its budget 
resources rather than simply demand more money from taxpayers.
    As I stated previously, AID has a well established track 
record. If U.S. assistance has not shown benefits in a 
particular country in 3 decades or more, perhaps the aid should 
be discontinued.
    Finally, and this goes directly to the point of 
prioritization, let me state that I know that Secretary of 
State Albright has pledged to work with this committee to 
achieve a fundamental reorganization of our foreign policy 
apparatus. I support this consolidation effort. Many of these 
agencies were born to meet the challenges of the cold war and 
have outlived their usefulness; and, to the extent that savings 
can be achieved from restructuring, that will benefit all of 
    Mr. Administrator, I want to thank you again for appearing 
before this subcommittee. I look forward to your testimony and 
I am anxious to discuss with you the details of the President's 
Fiscal Year 1998 budget request for AID programs.
    I might say before I recognize my distinguished colleague, 
Senator Sarbanes, you and I, Mr. Administrator, had what I 
thought was a good opportunity to spend some time together 
looking at some of these programs in more general ways. We 
talked philosophically, and I think you know from that meeting 
that I certainly am a supporter of foreign aid and foreign 
assistance. Where we can make the most use of that aid, as I 
said at the opening of my statement, is what we are all about 
and what we all certainly want to focus on.
    So, I, again, appreciate very much you coming before the 
subcommittee today.
    At this point, I would like to recognize my distinguished 
colleague and Ranking Minority Member, Senator Sarbanes.
    Senator Sarbanes. Thank you very much, Mr. Chairman. I am 
pleased to join with you this afternoon in welcoming USAID 
Administrator Brian Atwood before the subcommittee. I have 
known and worked with Brian Atwood for many years now, and I 
have a great respect for all he is trying to do in a very 
difficult environment. Despite those difficulties, I think he 
has achieved an impressive degree of success.
    In fact, only yesterday, over on the House side Chairman 
Gilman of the House International Relations Committee said, and 
I quote him, ``Brian, you've revived an Agency that was in 
critical condition. Today AID is smaller, leaner, and on the 
brink of real reform in the way it does business.''
    I share that view, that Brian Atwood has really turned the 
Agency around. Now I know a lot of tough questions remain and 
many will be asked. But I think we ought not to lose sight of 
the accomplishments of this very able administrator in the 
course of his tenure over the last few years at AID. I assume 
we will have some chance to go into that in some detail in the 
course of this hearing.
    I also want to note that this is our subcommittee's first 
hearing in the 105th Congress. I am pleased to serve with our 
new chairman and wish him well as he undertakes these 
responsibilities. We have had an opportunity to discuss amongst 
ourselves the prospective work agenda for the subcommittee, and 
I look forward to working with you, Mr. Chairman, in the months 
ahead as we address our responsibilities.
    Let me just say at the outset by way of just a couple of 
comments on the substance of what we are going to be dealing 
with today that it is my strong view that the United States has 
a clear national interest in promoting sustainable development 
around the world. I start with that as a basic premise. I do 
not think it is a luxury, I do not think it is an add-on, I do 
not think it is a supplement. It clearly serves our moral and 
humanitarian instincts, which is quite important when you try 
to develop a foreign policy in a democracy that will be 
supported by the populace. But it also clearly serves our 
political and economic interests as well.
    Foreign assistance spent at the right time is critical to 
heading off violent upheaval, famine, epidemics, the spiral of 
poverty, rapid population growth and environmental degradation. 
All of those are problems that are much easier either to 
prevent or to control in the early stages than they are to 
reverse or to stop after the fact. Therefore, much of the work 
that is put within the charge of Administrator Atwood is of a 
preventive nature or ought to be of a preventive nature. I 
think it should be perceived in that way by our Nation's 
    I am interested in hearing you expound on the budget. I, 
for one, think that the administration needed to respond to the 
successive decreases in resources committed to these important 
objectives over the years, and my perception of this budget is 
that it at least tries in part to do that. I hope that it will 
find support here in the Congress.
    AID under Brian Atwood's leadership has taken a number of 
initiatives, many of which have proven quite successful. He has 
tried to reorganize his Agency, make it more effective, more 
streamlined. It has commanded general respect and approval from 
many observers. In fact, I know people who headed commissions 
examining AID only a few years ago who recommended that it be 
done away with who now take the position that such significant 
advances have been made in the course of this administration by 
Brian Atwood that the Agency is really picking up and needs to 
be supported and urged on to do its work.
    So, Mr. Chairman, I look forward to an interesting hearing 
here today as we launch the examination of the foreign 
assistance budget. Thank you very much.
    Senator Hagel. Senator Sarbanes, thank you.
    I note that our distinguished Ranking Minority Member of 
the full committee is with us, Senator Biden. Welcome.
    Senator Biden. Thank you, Mr. Chairman.
    Senator Sarbanes said he knows people who have spent years 
examining this. I have known people who have been here 10 years 
and never got to chair a committee. What the heck is going on 
    Senator Hagel. When you live right, Senator, that is what 
    Senator Biden. I will say this publicly, Senator. I think 
there must be something in the water in your State. You and 
Kerrey are both war heroes, both are here, both have been paid 
attention to from the time they got here. I don't know. It must 
be something in the water.
    Senator Hagel. I just do whatever Bob Kerrey does.
    Senator Biden. Oh, don't do that.
    At any rate, Mr. Chairman, I have a brief opening statement 
because this kind of tolls the gong for what is going to be, as 
we all know, a major piece of what will be a big debate here, a 
continuation of the debate on the reorganization of the State 
    Like it or not, you are in the mix and you know that, 
Brian, from your years of being here and your years of doing 
the fine job you have done at AID.
    This week the committee begins a dialog, a dialog about 
both the organizational structure and the resources required 
for American foreign policy. On its face, the discussion may 
appear to be only about organizational charts and budget 
submissions--in other words, the ordinary business of 
government. But the central question that I think is facing us 
is far more profound, and that is how do we equip our 
Government to advance its foreign policy interests in the post-
cold war era?
    Two years ago, the chairman of the Foreign Relations 
Committee challenged the existing order in proposing the 
reorganization of the foreign affairs agencies of the U.S. 
Government by consolidating them into the Department of State, 
including your organization, Brian, as you are painfully aware.
    Offered in the midst of a Presidential election cycle, it 
was perhaps inevitable that the Congress and the President were 
not able to reach any agreement on this reorganization effort. 
But continued stalemate seems to me not to be inevitable. So, I 
join the Secretary of State in stating unequivocally that I 
have an open mind about any reorganization proposals. In fact, 
I plan to work closely with Chairman Helms and the President to 
try to reach common ground.
    I have had some discussions already with Chairman Helms to 
indicate to him I sincerely am interested in seeing if we can 
work out some kind of reasonable reorganization proposal. My 
willingness to consider reorganization does not, however, imply 
a willingness to accept any proposal merely because it carries 
the label of reform. I do not think that is Senator Helms' 
intention. But I want to make it clear at the outset. We are 
going to hear about the details of your budget, but you are 
going to be talking about a lot more after your budget is 
discussed with us here--not you personally, but the Agency.
    After several years of retrenching, both militarily and 
diplomatically, in the wake of the collapse of the Soviet 
Union, our reform efforts should be driven not by the 
imperative of budgetary savings, as important as they are, but 
by the need to ensure that we have a robust diplomatic presence 
around the world, an aid program, and a foreign policy program 
overall to protect the gains of our cold war victories.
    For 4 decades, all energy was focused on the super power 
struggle. Today we have a much broader agenda: Establishing a 
new security relationship in Europe and Asia, controlling the 
proliferation of dangerous weapons, combating global threats of 
terrorism, narcotics, and crime, promoting democracy and 
advancing our economic interests and the economic interests of 
Third World nations.
    As we move forward in the coming weeks and months, I will 
pose the following questions, my own benchmarks, if you will, 
for reforming the State Department. First and foremost, are we 
organizing our foreign policy infrastructure to meet the 
challenges of the post-cold war era? In answering this 
question, we should look not only at the organizational 
structure but also at the personnel structure.
    For example, during the cold war, the State Department 
emphasized expertise on the inter-German border, and on the 
science of Sovietology. We talked about criminologists, we 
talked about all those things that do not now seem very 
relevant and are not, in most cases, relevant anymore. But we 
have some very brilliant people who are still around who are 
experts in those areas, and we placed a very high premium on 
these professionals.
    Today it seems to me we must have a high premium on 
professionals skilled in counter terrorism, counter narcotics, 
economic growth, and in areas that we had not focused on in the 
past nec- 
essarily. Unfortunately, when it comes to supporting diplomatic 
readiness, we barely, in my view, act like a super power.
    Second, are we providing adequate resources to the 
challenges we face? We speak, sometimes with excessive 
triumphalism, of our role as the world's only remaining super 
power. But, again, when it comes to supporting our diplomatic 
readiness, are we really such a super power?
    Resources for international affairs have declined 
significantly in recent years. Funding in Fiscal Year 1997 is 
25 percent below the average of the last 20 years, and some 30 
percent below the spending levels of a decade ago.
    It is a delusion, in my view, to believe that America can 
remain actively engaged in the world if we deny the President 
and the Secretary of State the resources necessary for the 
conduct of American foreign policy.
    The President's request should be regarded, in my view, as 
the minimum needed to protect our interests abroad, around the 
globe. Our discussions should be focused on how best to deploy 
those resources.
    Third, have we prevented the bureaucratic burial of 
important elements of our diplomatic arsenal? It is one thing, 
Brian, for me to merge AID and the State Department. I have an 
open mind about that. I have an open mind, and you know that I 
have been a defender of your Agency in not wishing to see that 
happen, along with ACDA. But I have an open mind to it being 
merged in the State Department depending on how it is merged--
if it is merged where you are a co-equal with every other 
geographically distributed source of authority in the State 
Department, if ACDA is merged in a way that it receives and has 
direct access to the President of the United States and does 
not have to go through three under secretaries to be known. 
That is how you all got outside the Agency, outside of State, 
in the first place.
    So, it depends for me, in this third criteria, on at what 
place, if you are going to be re-merged, in effect, you will 
be. Where will you sit?
    One of the earlier consolidation plans, for example, would 
have placed the functions now performed by ACDA deep within the 
State Department, an unwise and unnecessary diminution of a 
critical function. I am deliberately not speaking about your 
Department at this moment.
    As envisioned by President Kennedy, ACDA was created to 
insure a strong and independent voice for arms control, a 
mission that is no less urgent today. As a matter of fact, I 
would argue that it is more urgent today. It is more likely to 
be ongoing.
    So, I am open to proposals to reorganize ACDA and USAID and 
other agencies, but only if the key missions retain positions 
of prominence and power in any restructuring that would take 
    So, Mr. Chairman, I thank you for the time. Let me conclude 
by saying the reelection of the President and the commencement 
of a new Congress with a stronger Republican majority in the 
Senate provides a new opportunity for all of us to work 
together to achieve our common objective--that is, to maintain 
and strengthen America's leadership in the world.
    I know the committee will conduct subsequent hearings on 
these issues of reorganization, and I look forward to working 
with you, Mr. Chairman, and with the chairman of the full 
committee toward that end. But for today, I recognize that we 
are focusing solely on the AID budget, and I will have a number 
of questions regarding the AID budget request at the 
appropriate time. But I think at this first hearing it would be 
a bit of a fiction to ignore the issue underlying all of this 
is a major question of reorganization.
    I thank you for your time, and I thank you, Mr. Atwood, for 
being here. I look forward to hearing what you have to say.
    Senator Hagel. Senator Biden, thank you.
    Let me now ask our distinguished colleague from Wyoming, 
Senator Craig Thomas, who also as many of you know is the 
chairman of the Foreign Relations Subcommittee on Asia and the 
Pacific Rim, if he has a statement.
    Senator Thomas?
    Senator Thomas. Thank you, Mr. Chairman. I do not have an 
opening statement. I am interested, however, in what is done 
here and in much that you've talked about, Senator.
    I notice that the first sentence of sort of an overview 
says, ``USAID is the largest and principal U.S. Government 
Agency implementing American economic assistance programs 
overseas.'' I hope it also is implementing foreign policy 
overseas. I think those two things go pretty closely together.
    So, I will look forward to the administrator's remarks.
    Senator Hagel. Thank you.
    Senator Wellstone is here. Let me, before I ask you, sir, 
to offer your remarks and opening statement, announce that I 
understand we are going to have a vote shortly. So, if it is 
all right, Senator Sarbanes, what we will do is I will ask 
Senator Wellstone for his remarks and will ask my colleague, 
Senator Thomas, to preside while we kind of tag team this. In 
that way we will just keep it going.
    Administrator Atwood, is that OK with you ?
    Mr. Atwood. Yes, sir. Certainly.
    Senator Biden. Good answer.
    Senator Hagel. Is that the way it is supposed to go around 
here? Then thank you.
    Senator Hagel. Let me recognize our distinguished colleague 
from Minnesota, Senator Wellstone.
    Senator Wellstone. Thank you, Mr. Chairman. I will be very 
    Let me associate myself--I was going to say ``in part''--
almost all the way with the remarks of my colleague from 
Delaware. The one area that I want to focus in on, and these 
are questions that I want to pursue along with some written 
questions, is that I, Brian, have a particular focus on Russia 
and the former Republics of the Soviet Union.
    My father fled Russia. I visited his home and have spent 
some time there. I wish I could sample the whole world. I am 
interested in the whole world. But I would like to focus in on 
two questions. One is whether the Partnership for Freedom 
Program can, in fact, connect and make a difference in terms of 
the enormous economic and political problems that Russia and 
some of the other republics are faced with.
    The other thing I am interested in is this. I note that you 
are deemphasizing the technical assistance and emphasizing 
something called ``grassroots civil society programs.'' I am 
going to be interested, to use a fancy term, in your 
operational definition of that to learn specifically what you 
have in mind concerning reordering of priorities.
    Again, it seems to me that this really goes to the heart of 
the critical mission of AID, and I would like to have some 
discussion with you on that.
    Thank you, Mr. Chairman--wherever you are.
    Senator Thomas (presiding): I am right here.
    Mr. Administrator, welcome. If you would like to proceed 
with your statement, we would be happy to hear it.


    Mr. Atwood. Thank you very much, Mr. Chairman. I want to 
thank the Senators for their kind remarks and tell this 
committee that I really look forward to working with this 
committee. I want the committee to pass an authorization bill 
that the President can sign. I certainly understand, Senator 
Biden, the importance of the issues you raise. I know that our 
Secretary of State indicated when she came here for her 
confirmation hearings that she is going to keep an open mind on 
these issues as well. I want you to be assured that I certainly 
keep an open mind on these matters. I believe very strongly 
that these reorganization questions are a lot more complex than 
meets the eye and, therefore, it seems to me important, as 
Senator Helms indicated in his discussion about these issues 
with Secretary Albright, that we be given some time downtown to 
come up with our own proposals.
    Sometimes the law of unintended consequences does come into 
play when you move boxes around. I think that, given the fact 
that the President has responsibility, along with the Secretary 
of State, for carrying out foreign policy, it is important for 
us to make sure that we are proposing something which would 
enhance our coordination, enhance our efficiency, enhance our 
capacity to do work in the post-cold war world, which does 
present different challenges to us, and I have confidence that 
the administration will come up with a proposal.
    For my part, for example, looking at where USAID is today 
in the structure, theoretically--not just theoretically--under 
the law I am the Acting Director of the International 
Development Cooperation Agency. It is interesting. It was 
enacted back in 1979, under the Carter administration. For 2 
years, or actually a little less, there was actually a director 
who was confirmed by the Senate who served in that capacity. 
The person who serves there as acting director, the 
Administrator of USAID, has fairly broad powers within the 
executive branch to coordinate development activities.
    I think, frankly, the idea was a good one. But it has 
become moribund. The position has not been filled for 14 years. 
So, therefore, obviously something needs to be done.
    I have said publicly that this question of who the 
Administrator of USAID reports to is something that should be 
discussed. I mean, theoretically I report to the President 
under the IDCA law, and I obviously work under the foreign 
policy guidance of the Secretary of State.
    Again, in the years that I have been in this position I 
have never sought to go to the President without telling the 
Secretary of State. I do not think I would be here today if I 
did that. Therefore, I certainly do not have any objections to 
reporting to the Secretary of State.
    I do think that with respect to Development Assistance, it 
is important to recognize that we do support the foreign policy 
of the United States in a programmatic way, that we are a 
specialized agency and that the person responsible, whomever it 
is, if it is me or whomever, needs the management tools 
necessary to get the job done.
    As you indicated, Senator Biden, there is a need for 
specialties in our foreign policy. We need experts nowadays on 
terrorism, something that we might not have thought much about 
before, and on narcotics. We also still need experts on 
agriculture and education and the kinds of work that we do, 
micro enterprise lending and the like, at USAID. I think one of 
those management tools has to be the personnel structure that 
would enable us to reward people for achieving results and who 
have the technical capacity to undertake the projects.
    I also think it is important, in light of the pressures of 
the every day conduct of our foreign policy, that we make a 
decision that we are going to make a long-term strategic 
investment in development assistance and that under the current 
law we protect that development assistance so that it is spent 
in ways that the Congress wishes it to be spent; so that, all 
of a sudden, because you have a crisis you do not pull money 
away from this strategic investment and put it into something 
that is of more short-term nature--another crucial issue, it 
seems to me.
    A third issue is we have succeeded in leading the 
international community to the point where, in 1960, we were 
providing 60 percent of all of the development assistance 
provided in the world. Today, it is only 17 percent because of 
our success in leading the donor community. So, I think, 
especially given the kinds of development challenges that are 
out there today, it is important to continue that leadership 
role and we should not in any way inadvertently undermine it.
    That is all I would say about this issue.
    I ask the committee on behalf of the administration, to 
give us time since you are talking about something that will 
influence the next century. I know you have a legislative 
timetable to get an authorization bill passed. If we cannot 
meet the requirement of getting our suggestions in before your 
legislative timetable is up, at least you understand when we 
are consulting with you that we are indeed working with you 
assiduously on these issues. We plan to come up with something, 
I certainly would hope that we are not pressured. This is 
because we have tried it the other way. We have tried it with a 
proposal coming from up here and going downtown. Normally, 
legislation is proposed by the administration and considered 
very carefully.
    This is not the only way it can be done. I know that you 
can propose as well. But I think in terms of reorganizing the 
executive branch to make it more efficient, which I concede 
needs to be done and is long overdue--I agree with that--it is 
important for the executive branch to propose and for the 
Congress to dispose.
    That is all I want to say about that issue. I realize there 
may be other questions which I will be happy to answer. I 
really came here today to defend the President's request.
    I think it is extremely important that the Congress give 
adequate consideration, and I know you will, to the request for 
an increase in the 150 account, to $19.4 billion.
    I was looking at some statistics and I realized there is 
some controversy about the extent to which the 150 account has 
been diminished over the years. The fact of the matter is there 
was a big increase for the Middle East in 1985 and that it is 
probably unfair to use 1985 as the high water mark. But if you 
use 1986 and eliminate that increase, we have still seen about 
a 32 percent decrease in the 150 account.
    I must say that I think it is a legitimate question as to 
whether or not we are serving our interests.
    I happened to attend a briefing for freshman Members of the 
House yesterday with General Nash, who was the U.S. commanding 
general in Bosnia. What General Nash said at the beginning of 
his briefing was: Mr. Atwood, I want to thank the Agency for 
International Development for what you did in Bosnia to help 
our soldiers.
    The fact of the matter is that we help our soldiers in more 
ways than simply working on a reconstruction program in a place 
like Bosnia. But increasingly we are doing that kind of work 
and we are the only Agency in town that has the capacity to do 
that work. But in addition, hopefully we are contributing to 
crisis prevention and preventing our soldiers from being 
introduced into other parts of the world where--if we cannot do 
something about it--nations are on the verge of failure.
    This budget request on the part of the President helps our 
Agency, I think, achieve equilibrium. We have gone through an 
awful lot in the last few years, as you know well. The Fiscal 
Year 1996 cuts in our budget were particularly severe. We have 
had to have a reduction in force and there were some questions 
as to whether or not we were ever going to reach that period, 
that point of stability wherein we could say now it is time to 
begin rebuilding in a sensible way.
    This request calls for an increase in USAID--managed 
programs of $476 million, including $292 million for the 
Eastern European and NIS programs--and I would be happy to get 
into more detail about the new NIS program; $135 million for 
the Economic Support Fund, which includes a lot of resources 
for transitions in the Middle East and Latin America, and the 
like; and about $66 million for Development Assistance, a big 
part of which is for food security, an issue which everyone--
State, USAID, and the Defense Department--is focusing on. This 
is because we recognize more than ever before that food 
security issues, in Africa in particular, are causing tensions 
that could lead to conflict, that could lead, then, to our 
troops being introduced into warfare.
    This is why the Defense Intelligence Agency looks into 
issues such as the impact of the water hyacinth on Lake 
Victoria, which is choking the fish of Lake Victoria. It is 
making the lives of the people, about 30 million people, who 
live in that area and depend on that lake, much more tenuous. 
If they move and become refugees or displaced people, the 
military may have to go in as they did next door in Rwanda to 
handle that problem.
    That is why increasingly our national security 
establishment is looking at these kinds of important issues.
    I feel very proud of some of the things that we have been 
able to accomplish despite the fact that we have had these 
kinds of budget cuts. This year, the OECD's Development 
Assistance Committee adopted a report 21 nations negotiated for 
over a year, a report called, ``Shaping the 21st Century: The 
Contribution of Development Cooperation.'' It sets goals for 
the next 20 years. It talks about reducing by one-half extreme 
    There are 1.3 billion people living in the world today on 
less than $1 a day, or about $365 a year. It talks about 
providing universal education to everyone. Girls are certainly 
excluded from that in most of the developing world. It talks 
about providing family planning services to all who want them. 
It talks about every nation having a national environmental 
policy. It goes on to set other goals.
    This is the way we have now reformed USAID to work. We 
establish the strategic objectives and goals of the Agency. We 
expect to hold our people accountable for results, and that is 
basically what the entire donor community has done. Most of 
these objectives are objectives that we have devised, we, the 
United States of America.
    Why are we, in this particular field, the development 
field, the indispensable nation? We are the indispensable 
nation not only because we have the best university minds in 
the world, we have the best private voluntary organizations in 
the world, we have a rich vein of experience and development in 
our own right here in this country; but most importantly 
because we are the world's optimists, we think things can get 
    We do not think that we are the victims of our history. We 
think we shape our history. This is unique, and this is why I 
think we are indispensable.
    I am also proud about the fact that we can come here and 
ask you for the first time in 4 years for a decrease in our 
operating expense budget. We have done that by overhauling the 
Agency. A lot of this has been mentioned before, but let me be 
specific about facts.
    We have reduced our staff since 1993 by 2,700 people. We 
have cut senior management by 38 percent. We have reduced the 
time it takes to design a project by 75 percent. We have 
reduced our regulations by 55 percent. We have closed 26 
overseas missions and we will close approximately 6 by the end 
of the next fiscal year.
    We are one of the pioneering agencies in implementing the 
Government Performance and Results Act. I feel very proud that 
all of these changes have given us the reputation of being a 
well man- 
aged Agency and, more importantly, have saved money for the 
taxpayer and enabled me to come up here and ask for less money 
this year than we did before.
    Senator Biden. Excuse me.
    Mr. Chairman, we are about out of time.
    Senator Thomas. Yes, we are about out of time.
    Senator Biden. Brian, this is a heck of a thing to do to 
you, but you have sat back here and know how it is.
    Mr. Atwood. I have a written statement, Mr. Chairman, that 
I can submit.
    Senator Biden. No. I would like to hear all of your 
    Senator Thomas. If we could, we will just recess for a few 
    Senator Biden. If you don't mind, we will recess for just a 
few minutes so that we do not miss the vote.
    Senator Thomas. Let's do that, then. It's a management 
decision. [Recess]
    Senator Hagel (presiding): Are you ready to continue?
    Mr. Atwood. Yes, indeed.
    Senator Hagel. I guess that question should be put to me.
    I understand my colleagues have had a chance to make 
opening statements and you have not--or you have?
    Mr. Atwood. I have not quite completed my statement, Mr. 
Chairman. I neglected to say at the outset of this summary of 
my written statement that I would ask that my written statement 
be included in the record as if read. Often those written 
statements are a lot more judicious than the ones that you 
speak off the top of your head.
    I did have just a few more comments, if I could, and, in 
particular, since you are back I would like to comment on some 
of the things that you said. I want to tell you that I also 
enjoyed the meeting that we had.
    I have to tell you that, while you plead too much ignorance 
of these programs, what I was impressed with was the extent to 
which you do understand these programs and, more importantly, 
the extent to which you understand the international situation 
that we face, having been in international business. I am 
delighted that you are assigned to this committee, Senator, and 
I will just say that as a personal statement first.
    Senator Hagel. Thank you.
    Mr. Atwood. You made the point that many countries have not 
benefited from our foreign aid programs over the years. I could 
not dispute that. I think that we have made some major mistakes 
in a lot of countries and some of it is attributable, as you 
suggest, to cold war considerations. But others are 
attributable to the fact that we have been involved in a long-
term learning process here. We started doing this business 50 
years ago with the Marshall Plan. It was a success. But working 
in countries unlike Europe, countries that have serious human 
capacity problems, education, health care, and the like, is 
very different.
    Too often, very frankly, we have been supporting statist 
regimes, countries that believed that the State ought to 
control the economy and that the State was the most important 
aspect of the society. We found ourselves in that predicament 
for a whole variety of reasons. There is no sense going over it 
    Nonetheless, today we insist on working with countries--
there may be some grey areas here, but for the most part--
countries that agree that they should reform their economic 
system to become a market economy and agree that they should be 
    We have gotten out of 26 countries already, as I've 
mentioned, and many of them were countries that were not good, 
quality partners of the United States because they refused to 
take this pledge to reform.
    But over the years, frankly, Mr. Chairman, despite the fact 
that we have had our failures, the combined effort of the 
international community to be involved in this business has had 
us achieving many, many results, including cutting the infant 
mortality rate around the world by half; increasing the average 
age of citizens in the developing world from 42 to 62; 
providing 1 billion more people with clean drinking water; 
increasing the literacy rates by three-quarters in the 
developing world, providing enough food for people to eat 
through the Green Revolution, which has also helped our own 
farmers; eradicating smallpox, which has saved us something 
like $280 million a year that we were spending on immunizing 
our own children; and we are on the verge of eradicating polio, 
which will save us $230 million a year in immunizations that we 
will not have to carry out.
    I think that is a significant record of achievement. I 
think we can do better. I think that we can do better for less 
of a contribution. But I believe that the criteria that we use 
to decide with whom we will work nowadays is something that 
everyone should agree with. We want to look at that quality of 
the partnership. We want to look at need. We want to look at 
our foreign policy and our economic interests. Most 
importantly--and this is required by the Government Performance 
and Results Act that you passed here in the Congress--we need 
to look at the performance of our programs, and our budget 
should reflect performance more than ever before.
    I was very pleased that this year OMB told us that we had, 
in fact, submitted the best budget that they had seen because 
it was more tied to performance than anyone else's budget.
    I think we make a major contribution to American foreign 
policy by working in crisis situations to mitigate crises 
through our humanitarian relief programs, by working in 
transition situations such as Bosnia, Haiti, South Africa, and 
Cambodia, to help transit those crises, and by working in long-
term development to help prevent crises. I think we make a 
major contribution to U.S. economic policy, international 
economic policy, by creating new markets for American goods. We 
have done this traditionally.
    I will make a final appeal, Mr. Chairman, on behalf of this 
budget request for a balanced approach to this development 
assistance, in particular an appeal for agriculture. Yesterday, 
I was testifying before the House International Relations 
Committee and Mr. Bereuter from your State was very, very 
pleased that the agriculture industry, which includes 
agribusiness, farmers, and associations of various types, has 
finally come together, indeed, to ask for an increase of $2 
billion in our foreign aid program in hopes that we can 
continue to develop those new markets for our agricultural 
    Some 43 of the top 50 importers of American agricultural 
products were former aid recipients, countries who saw an 
increase in economic growth as a result of our working with 
them in the agriculture sector.
    So, it is not simply a question of providing humanitarian 
emergency food relief, which we do to the tune of $800 million. 
It is helping them improve their agricultural productive 
    That is my appeal. We obviously are concerned about other 
parts of the budget. But we have seen over the years the 
agriculture sector of our program diminish from 16 percent to 9 
percent. I think we are not serving our interests to see that 
happen. We clearly need to fund our population, environment and 
democracy programs. But our economic growth programs need to be 
funded as well, and I make that appeal, an appeal, really, for 
balance within the budget request that we have made.
    Thank you, Mr. Chairman. I do have a written statement. I 
am sorry to have gone on for so long. But I have had two 
audiences and it has been a real pleasure.
    [The prepared statement of Mr. Atwood follows:]

                    Prepared Statement of Mr. Atwood
    Mr. Chairman and members of the committee, it is a pleasure to 
appear here today to defend the President's budget request for 
development and humanitarian assistance. I look forward to working 
closely with the committee during the second Clinton administration. It 
is my belief that we are entering a new and positive era in our 
international relations, and that our policies and approaches will be 
guided by the stabilizing hand of bipartisanship.
    Recently, Secretary Albright noted, ``In our democracy, we cannot 
pursue policies abroad that are not understood and supported here at 
home.'' I could not agree more. In that vein, I would particularly like 
to welcome this committee's new members. I look forward to sharing with 
you today the reasons why the U.S. Agency for International 
Development's (USAID's) programs directly advance America's interests.
    President Clinton's budget request for fiscal year 1998 includes 
$19.4 billion for programs in international affairs. This is a modest 
increase from the previous year, and represents just slightly over 1 
percent of the federal budget. More importantly, this budget reverses 
the dangerous downward trend in funding for foreign affairs. USAID will 
manage $7.158 billion, or 37.5 percent, of those funds, including both 
USAID programs and programs administered by USAID in cooperation with 
other agencies. USAID's request for discretionary funding in the 
Foreign Operations appropriations bill includes $998 million for 
Development Assistance, $700 million for the Development Fund for 
Africa, $190 million for International Disaster Assistance, $11 million 
for credit programs, $473 million for operating expenses, $29 million 
for Inspector General operating expenses, $2.498 billion for the 
Economic Support Fund, $492 million for programs in Central and Eastern 
Europe and $900 million for programs in the New Independent States. 
USAID also requests $44.2 million for the fiscal year 1998 mandatory 
contribution to the Foreign Service Retirement and Disability Fund. In 
addition, USAID will administer $867 million in P.L. 480 funds.
    The total request for fiscal year 1998 USAID-managed programs 
represents an increase of $476 million over fiscal year 1997. This 
increase includes:

   An additional $292 million for programs in Central and 
        Eastern Europe and the New Independent States. These 
        transitional programs are designed to aid Central and Eastern 
        European countries and the New Independent States through their 
        difficult passage to democracy and market economies. Helping to 
        secure free societies in this region remains one of America's 
        highest foreign policy and national security priorities. This 
        increased funding demonstrates the administration's commitment 
        to helping these nations move through this turbulent time and 
        reflects a realization that such sweeping change has also been 
        characterized by uneven political and economic progress. In 
        Central and Eastern Europe support for Bosnian reconstruction 
        and reform and efforts in the Southern Tier countries will be 
        given special emphasis. In the New Independent States, the 
        Partnership for Freedom effort will build on our achievements 
        to date and reorient our assistance program--beginning with 
        Russia and then in the other New Independent States--toward 
        longer-term and more cooperative activities to spur economic 
        growth and develop lasting links between our peoples.
   $135 million more for the Economic Support Fund. Economic 
        Support Funds (ESF) advance key economic and political foreign 
        policy interests of the United States by providing economic 
        assistance to countries in transition to democracy, supporting 
        the Middle East peace process and financing economic 
        stabilization programs. The largest share of ESF will continue 
        to go to supporting the Middle East peace process, including 
        $52.5 million to be transferred to the Middle East Development 
        Bank. The Latin America region will receive ESF funding vital 
        to support the democratic transition in Haiti and the 
        breakthrough peace accords in Guatemala. ESF will also support 
        programs in ``fledgling democracies'' such as Cambodia and 
        Mongolia. Finally, ESF will he used for assistance in sub-
        Saharan Africa for elections, political party building and 
        legislative training for countries in transition such as 
   An increase of $65.5 million in Sustainable Development 
        Assistance. These funds will support USAID's development goals 
        by encouraging broad-based economic growth, protecting human 
        health, slowing population growth, encouraging environmental 
        protection and advancing democracy. By fostering free markets 
        and open political systems, USAID's development programs are 
        helping to shape a world that is more stable and open to U.S. 
        trade and leadership. Specifically, the ``Promoting Food 
        Security'' pilot initiative, aimed at improving food security 
        in Africa, will in its first year target $30 million to five 
        nations: Ethiopia, Uganda, Mali, Malawi and Mozambique. This 
        initiative will support policy reform and a range of 
        agricultural research that will benefit not only Africa, but 
        other developing nations as well. Modernizing agriculture, the 
        cornerstone of the economy in most developing nations, 
        increases incomes of rural people, lowers the cost of food for 
        the urban poor and conserves the environment. By furthering 
        agricultural and, thus, economic growth in these countries, the 
        initiative has the potential to both spark U.S. exports and 
        save this country significant emergency relief food costs.

    In sum, these modest increases in spending are all vital to helping 
secure a more prosperous and stable world during the next century. I 
would also note that this year's request includes a decrease of over 
$15 million in the Agency's operating expenses. This decrease is due to 
a reduction in starting levels combined with economies achieved by 
reengineering and the restructuring of our overseas operations.
    Recognizing the importance of our unique mission, we have 
dramatically improved the management of USAID to make it the most 
effective foreign assistance Agency in the world. We have overhauled 
the Agency from top to bottom--its strategic approach, organization and 
management. We have demanded that our programs produce demonstrable 
results. Since 1993, we have reduced staff by over 2,700. We have cut 
senior management by 38 percent. We have reduced project design time by 
75 percent. We have reduced our regulations by 55 percent. We have 
closed 26 overseas missions and will close six more by the end of 
fiscal year 1998. Further, USAID is one of the pioneering agencies in 
implementing the Government Performance and Results Act. All of these 
actions are designed to ensure that every dollar appropriated to the 
Agency can bring taxpayers the best possible return on their 
    We know you have questions about our new management systems. Let me 
try to give you my perspective on what we are doing. You must first 
understand that our new management systems are not just designed to 
replace existing financial and procurement systems. We will indeed 
replace those systems but NMS is much more than computers or software. 
Our new management systems are a new way of doing business. As you 
know, we have redesigned our old project design system to make it 
faster, simpler and more customer-oriented. We have also redesigned our 
overseas missions to empower employees, to create strategic objective 
teams and to make our programs more results-driven. The new computer 
system will facilitate these improvements. It is a management tool 
created to allow us to manage more effectively the other reforms we 
have adopted.
    As we implement the computer portion of NMS, we are bringing the 
Agency's technology to the forefront of any used in Government. We are 
in the process of deploying a management system that fully integrates 
project planning, budgeting, a single-entry financial system, a 
simplified procurement system, and our evaluation system. In the next 
few years, we will add workforce planning, personnel management and a 
training module to our current capabilities. All of this will be 
available to every USAID office worldwide. Deploying such a system in a 
worldwide operation is not easy, but we have made great progress.
    Let me give you a brief status report.
    As you know, we activated NMS computer system worldwide on October 
1, 1996. Since then we have been using a combination of NMS and the old 
legacy systems to process transactions. To date we have processed 142 
contracts and grants in NMS totaling $252 million and have paid 
approximately $15 million in invoices plus the $1.2 billion cash 
transfer to Israel.
    Since bringing the system up worldwide, we have been addressing two 
major challenges. One relates to the need to migrate consistent and 
accurate data from the old systems into the new. The NMS will not allow 
us to process any inconsistent or inaccurate data. This forces us to 
clean up and reconcile data and incorporate it into the new system. We 
have found this to be a more labor-intensive process than we imagined 
because the level of inaccuracy in the old systems was even greater 
than anticipated. Nonetheless, we have made great progress. We have 
migrated all 8,000 records from the old Financial Accounting Control 
System (FACS) and the 6,500 records from the Contract Information 
Management System (CIMS). We still have to reconcile this data and 
reconcile it with the data from the field Mission Accounting System 
(MACS), but we expect to finish that process by this summer.
    Could we have waited until all this data was reconciled before we 
activated NMS? Could we have phased in the new system one module at a 
time? We considered both of these options. We rejected them because the 
integration process would have taken years, and we would still be using 
the old legacy systems and accumulating additional data of questionable 
accuracy that would have to be migrated later in a reconciled form. 
Activating NMS has forced us to migrate the data more expeditiously 
and, in the long run, it will save us time and tax dollars.
    The second challenge has been the need to create a worldwide, high-
speed communications system. We have encountered problems with the two 
separate telecommunications systems we have been using, but we are 
making real progress in overcoming these problems. The time needed for 
transactions has been reduced, and we have several actions we are 
taking to further reduce this timeframe.
    Mr. Chairman, when I came to USAID in 1993, the need for an 
integrated management system had already been identified. A plan 
developed in 1992 called for a fully integrated financial management, 
procurement and budget system but one that did not integrate operations 
or allow us to integrate field and headquarters capabilities. This much 
less ambitious system was estimated to cost approximately $100 million. 
Our judgment was that that plan would not have given the Agency what it 
needed in a reasonable timeframe and that the cost estimate would most 
likely have been
    What we have created is the full-fledged integrated management 
system I have described. We have consciously sought to deploy this 
system using state-of-the-art approaches. Each step of the way we have 
consulted with systems experts at OMB, GAO and the private sector, and 
we have been encouraged to move forward. My own Inspector General has 
offered superb advice on which we have acted to correct problems. He 
has also pointed out that our systems development approach is an 
unconventional one. That is his job.
    I want you to know that I understand the risks, and I believe that 
our approach will pay off. It reflects the latest thinking in systems 
development. I also understand there are risks in adopting conventional 
approaches as well. As business executive Hank Delevati of Quantum 
Corporation said recently, ``The phased approach is longer--and I 
contend riskier--because you won't get everyone involved and 
coordinated.'' Quantum Corporation was one of many large organizations 
that has successfully deployed a new integrated management system using 
the ``all at once'' approach.
    Last week we had our systems coordinators into Washington from 
around the world. We want them to know we understand the problems they 
are having and the solutions we are devising. They now have a better 
appreciation of the effort we are making. They and we are confident 
that we will accomplish what other Government agencies have not.
    Mr. Chairman, we do not seek to mask the difficulties we face in 
making NMS fully operational, but we are on the right track. This 
system will not only revolutionize the way we do business at USAID, it 
will lead the way for the development of similar systems in the U.S. 
Government. We have been pleased that so many Congressional staff have 
sat through detailed briefings on NMS. We welcome your vig- 
orous oversight. We welcome it because we know that together we can 
vastly improve our capacity to fulfill our mission.
    In short, we are doing everything possible on the management side 
to make America's international programs cost-effective. We want to 
achieve results that serve America's interests. Let me describe how we 
believe we serve those interests in today's world.

America's Stake in the World

    The United States has a vital interest in maintaining a leadership 
role in the international community, and in seeing that the 
international community cooperates on the basis of shared values. 
Nowhere is this more true than in promoting development in poor nations 
and countries emerging from the long shadows of communism and 
totalitarianism. Why is this important to Americans?
    It is important because we live in a world where trends toward 
globalization and increased interdependence are powerful and 
accelerating. This means international cooperation is increasingly 
important--in areas as diverse as promoting trade, protecting the 
environment, fostering democratic governments, reducing rapid 
population growth rates, establishing market-based economies, stemming 
the flow of narcotics, slowing the spread of infectious diseases, 
coping with migration and protecting human rights. In all of these 
areas, the benefits of fruitful cooperation are significant and 
lasting, while the failure to work together will he increasingly costly 
and immediate.
    During the cold war, U.S. leadership was central and unmistakable 
as the protector of the free world against the threat of communist 
expansion. U.S. military power and economic dynamism were seen as 
essential to resisting that threat. But America's leadership then, as 
now, had a foundation stronger than our Army or our economy. The U.S. 
projected a compelling, and widely shared, vision of a world order 
where democracy and open systems were respected. Our vision of 
political and economic freedom, of social justice and respect for the 
individual was as powerful as any missile or any defense system. The 
U.S. offered the world not only security, but a better alternative to 
the Communist vision.
    The cold war is over. We still have the strongest military and the 
strongest economy in the world. But strength alone is not a substitute 
for leadership. America's position in the 21st century will depend more 
and more on the quality of our leadership; on the perception that we 
understand and appreciate the broad interests of the international 
community, and that we act with these interests in mind; and on the 
perception that we still have the best, most compelling vision of a 
global world order. Equally important, America's domestic interests are 
now, more than ever before, inexorably linked to events that take place 
far from our own shores.
    Our modest and well-targeted foreign assistance programs directly 
advance America's interests--your constituents' interests--in three 
direct ways: By helping to prevent crises; by generating dynamic 
opportunities for expanded trade; and by providing protection from 
specific global health and environmental threats. 

A Diplomacy of Crisis Prevention

    One of the most profound areas of concern for the United States and 
its allies is the growing phenomena of failed states. One need only 
open a newspaper on any given day to see the perilous state in which 
many nations now find themselves. Whether it is rebels fighting in 
eastern Zaire, hostage-taking in Tajikistan, street protests in 
Belgrade, Bulgaria and Albania or the constitutional crisis in Ecuador, 
we are confronted by potentially explosive situations with the 
potential to trigger conflict or economic collapse.
    Since the mid-1980s, the number of man-made emergencies requiring a 
U.S. Government response has doubled. The staggering human, financial 
and political cost of these conflicts is reflected in the increasing 
scope and complexity of peacekeeping operations, the loss of human life 
and the exploding numbers of refugees around the globe. Since the Gulf 
War, the United States has mounted 27 military operations as a result 
of ethnic conflicts and failed states. Up to 1 million people lost 
their lives through genocide in one year in Rwanda. In the former 
Yugoslavia, the loss of human life in less than four years was the 
greatest in Europe's post-World War II history. The number of refugees 
and displaced persons in the world now numbers close to 50 million.
    As a Nation, we know that we ignore the warning signs of crises 
only at our own peril. When potential crises erupt into genuine 
emergencies, it is the U.S. military most likely to be put in harm's 
way, it is U.S. economic interests that suffer and it is this nation 
that ends up providing the lion's share of humanitarian assistance to 
the victims of war and social collapse. It is abundantly clear: The 
United States has a compelling national interest in preventing and 
averting crises before they occur. Practicing a diplomacy of crisis 
prevention is one of our greatest challenges in this new era, and 
development programs have a lead role to play in these efforts.
    As we know from our own daily experience, every country is subject 
to the internal pressures to some degree of stress from ethnic, 
religious, economic and other deep-seated conflicts among their own 
citizens. What distinguishes a country that can endure these internal 
tensions from one that cannot is the relative strength of its domestic 
institutions. By institutions, I mean not just government and political 
organizations, but also tradition, culture, social practices, religion 
and the depth of human capital. In many cases, conflict is a result of 
a failure to give people a stake in their own society.
    The reality is that most nations in conflict simply lacked the 
institutional capacity to avoid escalating violence. We see prime 
examples of this in the former communist world. When communist 
institutions collapsed, and no strong institutions replaced them, 
conflict became commonplace. We obviously do not wish to see a return 
to totalitarian methods, so it is essential that we help these 
countries put democratic institutions and social conditions in place.
    A second category of countries that fall into crisis include 
nations such as Rwanda, Somalia, Sudan, Zaire, Afghanistan and Liberia. 
What these countries have in common is that they are among the least 
developed countries in the world. By ``least developed'' we mean they 
have the weakest institutions and least developed human resources.
    The findings of a recent administration study of failed states 
confirm the role of under development in crises. The study attempted to 
find the indicators most commonly associated with a vulnerability to 
crisis. The three leading factors shared among nations that have 
succumbed to crisis were high infant mortality rates, a lack of 
openness to trade, and weak democratic institutions. Does this mean 
that if we simply promote trade, strengthen democracy and provide child 
health programs that crises would disappear? The study doesn't say 
that. What it does say is that these variables are reasonable proxies 
for a nation's relative level of overall development, including a 
country's willingness to invest in its own people, to concern itself 
with lower consumer prices and to create institutions to enable the 
people to participate in the development of their own society.
    The implications of this analysis for our foreign policy are 
profound. Development programs are aimed at enriching human resources, 
strengthening open institutions, and supporting political and economic 
reform. By fostering stronger institutions, a richer human resource 
base and economic and social progress, countries are better able to 
manage conflict and avoid the dangerous descent into war. Development 
programs give us the tools we need to deal with the uncertain world 
around us. I am not here today to say that development programs are an 
ironclad guarantee against crisis and collapse. But it is entirely fair 
to say that successful development and transitions out of closed 
systems vastly improve the capabilities of a country to manage division 
and conflict. This is clearly in the best interests of the United 
    The challenge of crisis prevention is, in many respects, the 
logical successor to the paradigm of the cold war. Through our 
democracy and governance programs, USAID seeks to strengthen the 
political, social and economic institutions on which management of 
conflict directly depends. Our efforts at promoting economic growth 
also encourage economic freedom. Our efforts at human resource 
development--in education and health--ensure that an increasing 
percentage of the population can take advantage of economic 
opportunity, social progress and political freedom. Our efforts to 
protect the environment and to give families the capacity to space 
their children help ensure that development progress is sustainable.
    And there is strong evidence that U.S. foreign assistance programs 
have successfully helped develop functioning stable democracies. 
Political freedoms have increased significantly in the countries where 
development activities have been most focused. Between 1982 and 1996, 
Freedom House data demonstrates that political freedom improved in 48 
countries and grew worse in 30. Of the 29 countries showing the most 
dramatic improvements in political freedoms, most were significant 
recipients of U.S. aid over the period. U.S. efforts helped nations 
such as the Philippines, South Africa, Jordan, Haiti, Bangladesh, 
Guatemala, Mozambique, Nicaragua, Uruguay and Malawi realize the dream 
of more open societies.
    We have also adopted the policy that nations that do not embrace 
democracy, and that turn their backs on their citizens, will not 
receive U.S. assistance. We cannot achieve development results if we 
have poor partners. We will not work with governments that exclude 
their people from the development process.
    International development cooperation works. In developing 
countries during the past 35 years, infant mortality has fallen from 
162 to 69 per thousand; life expectancy has risen from 50 to 65 years; 
and literacy has climbed from 35 to 67 percent.
    We cannot prevent every crisis, but we can avert many. Investing in 
these efforts is a small price to pay for a foreign policy that 
advances our interests in a more stable world.

Advancing U.S. Economic Interests

    Let me turn now to the role development programs play in directly 
supporting U.S. economic interests. For both trade and investment, 
developing countries provide the most dynamic and rapidly expanding 
markets for U.S. goods and services. U.S. exports to developing 
countries in the 1990s have expanded at 12 percent annually, more than 
double the export growth to industrial countries. This is not just a 
short-term phenomenon, but reflects a trend that began emerging in the 
    U.S. exports to countries that receive U.S. assistance have 
boomed--rising by 76 percent in the last five years alone. Between 1990 
and 1995, American exports to transition and developing countries 
increased by $98.7 billion. This growth supported roughly 1.9 million 
jobs in the United States. Work in agriculture has a particularly high 
return. Forty-three of the 50 largest importers of American 
agricultural goods formerly received food aid from the United States--
that's over $40 billion a year of U.S. agricultural exports. A recent 
study by the International Food Policy Research Institute found that 
for every dollar invested in agricultural research for developing 
countries, the export market available for donor countries expands by 
more than four dollars, of which more than one dollar is for 
agricultural commodities.
    The bottom line is that by the year 2000--three short years from 
now--four out of five consumers will live in the developing world. 
USAID's programs are helping these people become America's next 
generation of customers.
    As Latin American economies have prospered, so have U.S. exports 
and jobs. The region is the fastest-growing market for U.S. exports of 
goods and services, and also one of the largest. In 1995, the Latin 
American and Caribbean region accounted for more than 70 percent of all 
U.S. exports to USAID-assisted countries. Exports of goods to all 
countries in the region reached $95 billion in 1995, more than three 
times the level 10 years ago.
    Creating the enabling environment for markets is a principal focus 
of USAID's programs. The connection with development programs, and 
USAID in particular, is quite significant. U.S. exports are growing 
much more rapidly to some developing countries than to others. What 
accounts for these differences? The major portion of the variation is 
explained by progress in terms of improved policies and institutions--
i.e., the enabling environment for markets.
    USAID-assisted countries have been among those that have made the 
greatest progress in policy and institutional reform over the past 
decade, including Thailand, Jamaica, Bolivia, El Salvador, Guatemala, 
Peru, Ghana, Costa Rica, the Philippines, Morocco, Sri Lanka, Belize, 
Panama, Tanzania, Tunisia, Indonesia, Mali, Botswana, and Uganda. 
Because of our field presence, technical expertise and experience, 
USAID can have significant influence in encouraging economic policy 
    The international financial institutions have also played a vital 
role in supporting economic reform and restructuring weak economies, 
especially in countries in transition from authoritarian regimes or 
from conflict. In response to effective U.S. leadership within the 
donor community, they have increasingly put their weight behind 
governance reform, investment in social capital, and environmental 
sustainability--significantly complementing U.S. bilateral efforts. 
U.S. investments in both bilateral and multilateral assistance programs 
are fundamental to maintaining U.S. leadership within the donor 
community and to strengthening this complementarity.
    There are some who have argued that private capital flows can 
simply replace the need for foreign assistance programs. However, it is 
important to remember that foreign assistance and private investments 
are complements--not alternatives. By and large, private investment is 
flowing today into the emerged markets of the developing world, not 
into countries where there is no rule of law, no financial 
institutions, no private sector and no predictability. It is only when 
the enabling environment for markets has been well established--by 
recipient self-help efforts often supported by foreign aid--that 
private flows begin to accelerate. Eventually private investment and 
trade will replace foreign aid, and this is what a development program 
should strive to achieve. But the issue for most of the developing 
world countries is not best captured by the phrase ``trade, not aid.'' 
The phrase ``aid, then trade'' is closer to their reality.
    Our development efforts have contributed to economic freedom 
worldwide. Of the 27 countries with large improvements in economic 
freedom between 1975 and 1995 (as measured by an index from the Fraser 
Institute), 22 have been major recipients of U.S. foreign aid. 
Continued Clinton administration efforts to promote U.S. job cre- 
ation through trade and investment abroad must focus on emerging 
markets in Asia, Latin America, Eastern Europe, the New Independent 
States and Africa. Hastening the fuller emergence of these dynamic new 
markets is an essential element of a long-term U.S. economic and 
foreign policy strategy for the United States. Private capital will 
play the largest role in bringing the markets of developing nations 
into the mainstream of trade and investment, but some of the most 
promising developing markets are still hampered by trade barriers, 
other policy distortions and human capacity constraints that discourage 
trade and private capital flows.
    U.S. development assistance is useful in removing these structural 
and policy barriers. By reducing barriers that keep out foreign trade, 
by fostering fair and transparent regulatory and legal regimes, and by 
building capital markets, USAID has been at the cutting-edge of the 
continued steady growth of America's economy.

Protecting America Against Global Threats

    Foreign assistance programs are also vital in protecting the United 
States against dangers that are global in scope. By treating infectious 
diseases like AIDS, polio, and emerging viruses like Ebola before they 
reach our shores, USAID lowers health costs here at home. Our 
environmental programs help protect the air and water that Americans 
share with the rest of the world. Our family planning programs help 
slow rapid population growth and make for healthier and better-cared-
for families around the globe, ultimately reducing instability, 
migration and refugee flows.
    Let me give you several specific examples of how all Americans can 
benefit from our development efforts abroad. USAID has long been the 
leader in the battle to eradicate polio around the globe. Working with 
our neighbors, the Pan American Health Organization, American 
organizations like Rotary International and many others, we 
successfully wiped out polio in the Americas. But did you know that 
U.S. taxpayers still spend $230 million a year to immunize our children 
against the threat of polio reoccurring on this continent?
    USAID, working with a rich variety of partners, is helping to lead 
the effort to eradicate polio globally by the year 2000. This is an 
ambitious goal, but an achievable one. So, by making modest resources 
available for foreign assistance, the U.S. stands to save $230 million 
a year in domestic immunization costs. This is clearly a case where 
foreign assistance is an investment in our own self-interest.
    Or consider that USAID has reached more than 3.2 million people 
with HIV prevention education and trained more than 58,000 people to 
serve as counselors and health providers in the developing world. 
Recent computer modeling shows that USAID helped Kenya avert over 
110,000 HIV infections in just three years. Ultimately, our HIV/AIDS 
programs result in fewer Americans exposed to the virus, and lower 
health care costs for American families.
    By preventing crises, by boosting America's economy, and by 
protecting the United States from truly global threats, we are working 
abroad to keep America strong at home and abroad.

Building the Institutions that Serve Us Well

    In closing, I would say to this committee that today we have the 
chance to shape the international institutions and programs that will 
protect America's prosperity, security and stability for years to come. 
This includes not only bilateral institutions such as USAID, but 
equally vital multilateral mechanisms such as the United Nations, the 
World Bank and other international financial institutions.
    It is fitting that this year we will celebrate the 50th anniversary 
of the commencement of the Marshall Plan. All now agree that the 
Marshall Plan was a stunning, unprecedented example of enlightened 
leadership. The United States understood the benefits to the United 
States of economic recovery in Europe and Japan, and the threats in 
terms of crisis and instability that would result from economic 
stagnation in these regions.
    During the Marshall Plan, foreign economic aid amounted to 
more.than 1.5 percent of U.S. gross national product. Now, foreign aid 
is about \1/10\ of 1 percent of our gross national product, and well 
below \1/2\ of 1 percent of federal expenditures. Fortunately, and 
precisely because the Marshall Plan was such a success, there are many 
other nations to help us carry the mutual burden of international 
leadership. But we should still do better if we want to maintain our 
leadership role and defend our interests.
    Development cooperation, including support for countries making the 
transition from communism, and humanitarian assistance for countries in 
crisis, remains an essential part of a credible and compelling vision 
of how the international community should function. A lead role for the 
United States in development cooperation is a vital part of American 
leadership in the post-cold war era, arguably more important now than 
     I urge your support for the President's budget request, and I look 
forward to working with you to strengthen our Nation's foreign policy 
     Thank you. 
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    [See Appendix for ``Summary Tables, Fiscal Year 1998,'' submitted 
by Mr. Atwood.]
    Senator Hagel. Thank you, Mr. Atwood. I am grateful and, again, I 
apologize for the disruption. But I do not sense it has detracted from 
your articulate presentation and what we have to do today.
    You know the drill here. The drill is to get you on the record on a 
number of questions. I have a number of questions, as do my colleagues. 
But let me just generally respond to a couple of things that you said 
as well as Senator Sarbanes.
    I agree very much with Senator Sarbanes' point about foreign aid 
being an investment. It is an investment. It is an investment in 
stability. America and our people are far better off, as we all 
understand, with a stable world. This means stable economics. This 
means more markets, more trade. In some of the conversations I have had 
with Secretary Albright we covered that ground.
    I think the crafting of a new foreign policy for this country is 
going to have to include very much what you do and what your 
organization is about because that foreign policy, at least in my 
opinion, should include trade and commerce and breaking down barriers 
through much of what you do.
    So, I have always believed that American foreign aid is truly, used 
wisely, an investment in our future, an investment for a more stable 
and better world. So, I want you to know that that is how I come at 
this and agree with the general sense of what you have devoted some of 
your life to and what my colleagues here have said today.
    Let me ask a couple of questions as I am waiting for my colleagues 
to return. Then we will allow them some time with you as well, Mr. 
    This year, AID plans to complete its move into its new building 
that is going up in the Federal Triangle area of Washington, DC, which 
will be, I understand, the most expensive Federal building in the 
Nation's Capital. Your own comptroller, it is my understanding, has 
estimated that, in addition to the over $40 million cost of the move, 
it will increase your Agency's annual operating expenses at a minimum 
of $4.5 million a year. At a time when AID has undergone down sizing, 
can you tell me, first of all, if those numbers are accurate? Then 
maybe give this committee some assessment as to why it was important 
for you to move into that building.
    Mr. Atwood. Yes, sir, Mr. Chairman. I would be happy to.
    Let me just say that I believe that this building, which I am 
pleased to say to you, as a Republican, is called the Ronald Reagan 
    Senator Hagel. That bothers some people, I know, on my side. But go 
    Mr. Atwood. It was built with an appropriation given by the 
Congress and obviously approved of by the executive branch. It is a 
Government building, and this is significant because Government 
Agencies have to go into that building. We happened to have the luck of 
the draw because there has been a long-standing effort on the part of 
both the State Department and USAID to consolidate operations which 
each of us has scattered throughout several buildings in the metro 
    This is not only going to save USAID money. It is going to save the 
State Department money, and it is important, it seems to me, to be seen 
in that light.
    This is something, this consolidation effort, that started many 
years ago. It started in the Bush administration for that matter.
    We have 11 different buildings. The State Department has something 
like 16 or 17 different buildings that we operate out of. We are going 
to be able to put all of our people in the same space, and I think 
there are tremendous efficiencies that we will realize in not having 
people have to go back and forth by bus across the river to Rosslyn and 
    We will be giving our people a lot less space than they have now, 
actually, Mr. Chairman. A lot of our people are in commercial office 
space and this is the most significant point. We are going to be 
assuring that over time, since this is Government space, that we are 
not going to be left to the fortunes of the commercial market here and 
to inflation. We are going to be able to protect ourselves in the long-
term against those kinds of increases in our rental costs.
    So, I believe that this is to the advantage of the U.S. Government, 
to the advantage of my Agency. We will be saving, we estimate on 
average, between $1 million and $3 million a year as a result of this, 
and this does not count the efficiencies that would flow from being all 
together in one place.
    The cost of the move is actually $43.6 million. It includes the 
need to purchase some modular partitions and furniture because of the 
way we are going to occupy this space, using some of the more modern 
equipment that is used for this type of office space. We have had 
questions of concern about security and the like. We are examining 
those questions now.
    I can tell you, however, that the security that will be provided to 
us in this office space will be greater than in the 11 buildings that 
we now occupy because I think 10 out of those 11 buildings are in 
commercial office space where there is no protection for our people.
    Senator Hagel. Following on to that, I have heard a little bit 
about the infamous new computer system. You might want to address that. 
I know that is not a question that you did not anticipate.
    Mr. Atwood. Yes, that's right. I would like to address it.
    There has been an awful lot of information that has not been 
accurate that has come up here to the Hill and elsewhere.
    I would simply point out in starting to discuss this that, as you 
know, new computer systems are being built, integrated management 
systems, by the private sector and by other Government agencies. You 
don't hear any complaints about these computer systems until you 
actually begin to activate them and deploy them. That is when employees 
who are used to the old systems and are befuddled by the new systems 
begin to complain that this is not working properly, and you hear a lot 
of flack about it.
    I think we have to stick with this. We are adopting, in deploying 
this system, state-of-the-art techniques in system development that 
have been used, tried and true, by the private sector. We are doing 
this all at once. We are doing it to try to clean up a situation that 
has existed at the Agency for International Development for a long 
time. We have 11 different accounting systems and a worldwide 
    As we have put our new system in place--which is a single entry 
financial system attached to a procurement system, and attached to a 
budget system, and eventually to a personnel and training module, and 
an evaluation module--what we are finding is that our system, which is 
a single entry system, does not accept bad data.
    One of the reasons that we have been slow in getting this going is 
because we have had to clean up all the data that we've put into the 
new system.
    We have data in our contracting office, data in our missions 
overseas, and data in our regional bureaus that is not consistent. That 
is what we have been criticized for for years.
    Now, finally, we are getting it all together, and we have migrated 
thousands of records into the new system. The new system is operating. 
It is actually fulfilling transactions. Millions of dollars have gone 
through the new system.
    We have that problem, the data migration problem, which we are 
working on and expect to have completed by the summer, and we have a 
communications problem because we are a worldwide operation. We use two 
different communications systems. We have had some problems with the 
bandwidth of our communications capacity and we have been discussing 
this with the State Department. We use one system from State and one 
from the Navy. We have reduced the time of communication considerably 
since we have been working on the problem.
    I think we have to stick with it. The Bush administration made an 
estimate of what it would cost to do a system like this. We had their 
plans. We decided that we needed to take a different approach. But 
their costs were estimated to be $100 million.
    Our estimate is that we can complete the system for about $72 
million if you leave out some of the other ancillary costs that we 
would have had to undergo anyway.
    There are all sorts of ways to look at cost. But I can tell you 
what someone told me once, that if you make the system work and it is a 
success, no one is going to be asking you questions about the cost. But 
we are not throwing money at this problem. We have a very exciting 
opportunity to change the way we do business at USAID to give us the 
capacity to do what people can do in the private sector. It is going to 
make us more efficient. It is going to save us money in the long run, 
and I am very pleased by where we stand at this juncture.
    Senator Hagel. Let me ask a follow up question. Then I would ask 
Senator Biden if he would like to join in this dialog because it is 
something that Senator Biden talked about in his opening statement. It 
is something that I am interested in as is Chairman Helms, and it kind 
of starts to tie together with this new computer system.
    If we are to move forward with some reorganization, what kind of 
plans are you building into this system, into your network, in allowing 
for that to happen if that should happen? What other Departments, State 
Department agencies, are built into this system?
    Mr. Atwood. USIA has been asked by the OMB to look at our system 
and to adapt it for their use. That study is going on right now.
    It is clearly a system that has been built for us. We did business 
area analyses using our people and our programs so that we could 
develop the kind of system that would be responsive to their needs--
procurement needs and their ability to design projects, their need to 
measure results, for example, in our programs and to use the system to 
report those results. But it can be adapted.
    I think the approach we have taken can be used. The State 
Department has been working on its own system for a good time now. We 
have been sharing information with them. I think that we can work 
together with State and the other foreign affairs agencies to use a 
good part of this, although most of the detailed software has been 
prepared to do a development mission.
    Senator Hagel. Thank you.
    Senator Biden, did you vote right?
    Senator Biden. I did. I voted for the Torricelli amendment, which I 
predict to you, if we are going to end up with a Constitutional 
amendment to balance the budget, will be the only one we will get if we 
don't get this one.
    At any rate, let me ask you this, Mr. Atwood. One of the things 
that you mentioned in your opening statement as an example of the 
increased importance of your Agency is this. With the collapse of the 
Soviet Union and the super power conflict and all of these emerging 
conflicts, we are looked to to play an increasing role. You made the 
larger point that, whether or not there is control of what amounts to a 
pest in a lake may have as much impact on whether American forces get 
sent off somewhere as what somebody did in 1962 relative to a communist 
coup. I think you are right about that.
    Then you gave us an example that our commanding general in Bosnia, 
in speaking to Republican freshmen--or House freshmen, I forget which 
it was----
    Mr. Atwood. House freshmen.
    Senator Biden. [continuing]. in speaking to House freshmen 
indicated a thank you for the assistance you provided as a consequence 
of your Agency's activities which enhanced the capability of the 
American military to perform their function.
    Let me ask you this question. As you look down the road, how much 
of what you decide to do is predicated on those kind of judgments and 
do you have the Defense Department, for example, in this case making 
input? Do any of your staff behind you sit down with the Joint Chiefs 
or their counterparts there and say OK, this is an extension of our 
responsibility, where should we be looking?
    My impression to date--and ``to date'' means the last 24 years--is 
this. Actually, I have two impressions. One is that no one has handled 
it better than you have, and I am not being solicitous when I say that. 
No one has administered it as well as you have. Second, that kind of 
thing is never done.
    So, I know you are citing it as an illustration of the importance 
of aid. But I would like you to tell me in realistic, every day terms, 
how much actual coordination there is along those lines.
    Mr. Atwood. Well, there is a great amount of coordination, really. 
I will give you a couple of examples.
    Obviously, I attend all of the meetings of the National Security 
Council and discuss these kinds of issues. We clearly cannot, for 
example, close down a USAID mission in a country without the 
concurrence of the Secretary of State. We clearly do not open new 
missions in countries without the concurrence of the Secretary of 
State. So, there is a lot of discussion about those kinds of issues.
    For example, while we are closing a lot of missions, we are going 
to put a USAID representative in and increase our program in Lebanon. A 
lot of that resulted from our Secretary of State's negotiations over 
the southern Lebanon problem.
    We have had a lot of discussion about what causes states to fail. 
The CIA actually did a study using a lot of academics on the outside. 
But to talk about the vulnerabilities of nation-states and what causes 
them to fail, they looked at a whole series of factors. They found 
three factors that really were better correlations to state failures 
than anything else.
    One was the infant mortality rate. Now why? Why is that important? 
It is an indication of a Government's attitude toward its own people. 
Do they care enough to provide health care? Do they care enough to 
provide enough food? So infant mortality was one factor.
    The extent of trade liberalization was another. Many of these 
countries have highly protected economies and do not encourage in any 
way exports. Certainly their imports are at high prices. So, they are 
serving the needs of their elites in these countries. In many of these 
countries 10 percent of the people have 90 percent of the resources. 
So, the elites can afford to buy the imports but the poor people 
cannot. So, the attitude toward their consumers was important.
    The third factor was new democracies that are in very poor 
countries. They are considered to be very fragile. Do we move in and 
help them or do we not?
    We certainly encourage democracy. We promote democracy. But the 
point this study was making is that these countries are highly 
vulnerable and if you do not help them, they are going to fail. There 
is a great deal higher risk of failure in those kinds of situations 
than in other places.
    So, I think we understand these kinds of issues. We certainly are 
trying to help support foreign policy goals of bringing a resolution to 
crises such as in Zaire and the like. We are putting money into the 
election process, if a decision is made that this is the way to resolve 
that crisis.
    We have undertaken under the Greater Horn Initiative in East Africa 
a need to look at all phases of the continuum, the relief phase, where 
they are using a lot of emergency food and how does that impact on the 
recovery phase. How can we help soldiers demobilize from war-torn 
situations, for example.
    Senator Biden. When you were working up here, Brian, it was an 
article of faith that the Foreign Assistance Act and, by extension, 
AID, was laden with too many objectives and missions. Under this 
administration and your leadership, there has been an attempt to 
channel your efforts in four major areas. You have referenced several--
democracy, the environment, population health, and economic growth.
    Now in a preface, Mr. Chairman, to this question AID has had its 
detractors. They come from, in my time here, sort of three areas. One 
is those who just think we should not be spending money abroad, charity 
begins at home, what are we doing with this ``foreign aid,'' and, why 
are we doing this. There is that general proposition.
    The second quarter where criticism has come when it has come is 
that it is wasteful, disorganized, lacking specific objectives, 
redundant, and so on.
    The third criticism in a generic sense has been that it is off on 
its own, and implied by the comments of the Senator from Wyoming was 
that I hope you do our foreign policy as well, or something--and I am 
paraphrasing. It's that it is off there on its own and there is no 
coordination with other elements of our foreign policy establishment.
    The reason I ask these questions--and, Mr. Chairman, you tell me 
when to stop; you jump in; obviously you are running the show and I do 
not mean to monopolize this--to follow this down to what I think you 
are going to have to answer in order for us to get an authorization 
bill is this. By the way, I support your submission. I think it is 
pretty lean. I think you have done it well.
    I think you need to answer each of those criticisms. The second you 
have answered pretty well, in my view, over the last 4 years by the way 
you have streamlined the Agency, by the way you have cut staff, by the 
way you have made savings, by the way you have increased its 
efficiency, and so on.
    The one you are never going to be able to answer, I don't think, 
you alone, is why not Wilmington, Delaware instead of Zaire, or 
    The third one is what I want to focus on with you a little bit now, 
and that is not just rhetorically but practically how does this 
coordination occur? You obviously have these four broad objectives--
democracy, environment, population and health, and economic growth. But 
one of the compelling arguments I think at least intellectually, I 
believe, is that as our military presence in the world and as our need 
for massive military establishments are growing and continue to grow as 
they did during the decades of the 1970's and 1980's, as they taper off 
and diminish some, it seems to me that the other element of our 
projecting our strength, which is our foreign policy--and this is an 
essential element of our foreign policy--becomes more important. But 
how do you deal with the judgments you make?
    It's like when I am at home. I get questions like you remember. You 
used to have to answer a lot of these questions. You still do, I guess. 
I mean questions such as how did you pick that country, why that place, 
why that amount. Is it a totally internal judgment you make or run by 
OMB? I think I know the answer but I think it is important that the 
answer be on the record. Or, is it something that you actually sit down 
and say look, we have been talking to the folks at State in the 
Politico-Military Bureau over there, and we talked to them over at 
Defense, and they are telling us that the situation is so unstable in--
and I won't pick a country because it will make news just picking a 
country; someone will think I mean it--in the country of Xandu, if we 
do not get in there and help them stabilize their grain crop, and if we 
don't get in there and give them some additional assistance, then it is 
going to deteriorate pretty quickly.
    We cannot determine the outcome but we can tip the balance.
    I will end by saying that you say you should propose and we should 
dispose. I do not disagree with that theoretically. But you may recall 
that John Ritch and I started the SEED Act. Remember that old deal? We 
talked about it. That was a proposal that was ultimately picked up by 
President Bush and the Freedom Support Act. But the purpose was 
    We sat there and said: Hey, look, we don't want our kids reading 
about another Weimar Republic. As all these nations become independent 
nations, we do not want to read about people carrying the equivalent of 
wheelbarrows of deutschemarks to the bakery to get a half loaf of 
bread. Democracies do not flourish where economies do not grow.
    So, this was supposed to be a little bit of impact. It was not 
going to determine the outcome but would have a little bit of impact.
    That is a long, long preface to the question that sits in the 
middle there. How do you make those judgments? How do you coordinate? 
Make the case. Convince us that you actually do something other than 
sitting down with your competent staff behind us and say I have an idea 
today, so let's go to Zaire.
    Mr. Atwood. Senator, I would be the last person to suggest that 
Congress does not often inspire the executive branch to do what is 
right. I must say that I am not disputing the fact that Congress on the 
reorganization question has inspired the executive branch to look at 
this issue, if you will, to keep an open mind but to do something about 
it as well. Certainly in the case you talked about, the SEED Act 
legislation, that has been the case. I think it was a good cooperative 
relationship that finally worked.
    We have to make it work and I think that is a good example of it. 
But how do we make these judgments?
    There are two ways to think about the resources that are available 
for foreign affairs. Every one of us, no matter what we believe about 
the President's request, thinks that there are too few resources. But 
we are going to look at it very closely.
    You could take those resources and spread them everywhere so that 
every U.S. Ambassador, for example, has a little bit of resources to 
try to fulfill American objectives in that particular country. You are 
not going to accomplish a lot. You are going to make a lot of people 
feel good, particularly, I suppose, our Ambassadors. But the question 
is how do you concentrate those resources so they really do produce 
    Senator Biden. With all due respect, that is not the question I am 
asking. I am asking how you decide where to concentrate, not whether. 
Who makes that decision? How do you arrive at that decision?
    Mr. Atwood. What I am saying is that that second approach is the 
approach we do take, which means there is a premium on deciding where.
    The perspectives that are brought to bear on it are the security 
perspective, the diplomatic perspective and the development perspective 
with respect to our resources. We ask if this is where we have a 
quality of partnership that will enable us to achieve results. We ask 
if there is a need in the country. We ask if our programs are 
performing in the country, and the State Department weighs in and says 
we have a foreign policy interest in this country or we do not.
    In terms of putting the actual program together, it comes from the 
U.S. country itself, from the country team. The Ambassador signs off on 
every strategy that is sent to Washington to implement our development 
program in that country. It then goes to a regional bureau at State and 
USAID and they work together, then upwards all the way to the 
Secretary, with whom I work very closely.
    I attend morning staff meetings with the Secretary of State. There 
is a lot of coordination. Meetings occur at the USC, when things get to 
be really hot, when we have to decide whether or not to cut off a 
country, occur. We operate under law, so there are such countries.
    I was just having a meeting in my office on the country of Niger, 
which has basically fallen on the wrong side of our law with respect to 
democracy since the recent election, which we did not consider free and 
fair. What can we do there? Do we have to leave entirely or what does 
the law allow us to do? That is another consideration that is brought 
into play.
    But there is a lot of coordination. Do we have arguments? Yes. Is 
it important to have these three perspectives and maybe more--the 
security perspective, the diplomacy perspective, and the development 
perspective? I think it is extremely important before decisions are 
finally made by the Secretary of State and/or the President.
    Senator Biden. Thank you, Mr. Chairman.
    Senator Hagel. Senator Biden, thank you.
    Now the other distinguished Senator from the State of Minnesota, 
Senator Grams.
    Senator Grams. Thank you very much, Mr. Chairman.
    Mt. Atwood, welcome.
    Mr. Atwood. Thank you.
    Senator Grams. I had a couple of questions I wanted to talk about 
regarding AID and what is called economic growth and the investment in 
that in other countries.
    For Fiscal Year 1998, the budget for AID for Development 
Assistance, and that is funding for what AID defines as economic growth 
activities, totals about $508 million. But it represents about a 5 
percent cut in real terms and continues a recent decline in funding for 
these types of programs.
    My question would be could you detail for me what economic growth 
programs are being cut in this budget and how much funding will be 
available specifically for activities that directly promote a strong 
private sector in these developing countries.
    Mr. Atwood. Yes, Senator. I am happy you asked because, very 
frankly, over the last several years it is our economic growth budget 
that seems to elicit too little interest up here or in the executive 
branch and it gets squeezed. It gets squeezed by other priorities. It 
has been squeezed by the commitment of this administration to increase 
the population budget and the environment budget, and I would certainly 
defend those kinds of judgments. But it gets squeezed by Congress when 
they put in a large earmark for child survival programs and the like.
    I think economic growth is an extremely important part of our 
    I had a meeting with well known Harvard economist Jeff Sachs, who 
says his view is that economic growth is the whole ball game, that if 
you can get countries to straighten out their economic systems, 
convince them to adopt market techniques and privatize their country, 
you are going to see very strong economic growth. We have seen that in 
a number of countries as a result of the work we have done along with 
the World Bank and other development agencies as well.
    We have seen the economic growth budget squeezed to the detriment 
of our agriculture sector, as I said earlier, and certainly the State 
of Minnesota is concerned about that, too. I attended a meeting 
yesterday with many agribusinesses present, including Cargill. They are 
asking for a $2 billion increase in our foreign aid budget to do this 
kind of work.
    The problem is that we are all trying to operate, both the 
executive branch and the Congress, Democrats and Republicans, under a 
new regime that is called balancing the budget by the year 2002. 
Something has to go. Something gets squeezed.
    I am making a special appeal this year that we be given what we 
have been asking for for economic growth so that you do not once again 
see us canceling out a part of our budget that really has a major 
impact on our ability as Americans to export. We have seen an increase 
in the last 5 years of close to $100 billion of exports to the 
developing world. That is the result of previous investments that have 
begun to pay off.
    I think we have to continue to make those investments.
    I believe very strongly, as do many conservatives up here, in 
economic freedom. I believe that we should be helping these countries. 
However, that does not mean just hearing their declaration that they 
believe in the teachings of Adam Smith, but it is trying to help them 
put in place a system that works. It is trying to put in place a rule 
of law and a society that sustains economic growth, helping them to 
privatize, helping their privatized companies to learn what it is like 
to be an entrepreneur, and creating all of that environment that will 
eventually have us getting out of the country and trade and investment 
taking over.
    Senator Grams. I know I might be putting you on the spot when I 
asked you for the details of what programs were actually being cut and 
you might not have them at your fingertips.
    Mr. Atwood. Actually, we have asked for an increase in economic 
growth this year.
    Senator Grams. But I was wondering if you can give me kind of a 
budget or a line item on the programs and where the cuts are being 
made. Maybe you could submit those to us in writing.
    Mr. Atwood. I will be happy to, Senator. Yes.
    [The following material was subsequently supplied for the hearing 
record by Mr. Atwood.]
                            ECONOMIC GROWTH
    The proposed reduction, albeit a marginal one, in funding for 
economic growth programs is the result of a difficult choice about the 
best way to restore needed balance in USAID's overall sustainable 
development program.
    The combination of cuts, directives and earmarks in the FY 1997 
Development Assistance appropriation caused a significant reduction in 
funds available for other sustainable development programs, especially 
those which support environmental efforts, support for democracy, and 
expanded family planning. As a result, the Administration made a 
judgment that despite only a modest proposed increase in DA, funding 
for key programs cut in FY 1997 should be restored in FY 1998, while at 
the same time maintaining adequate support for priority social programs 
such as child survival and health. The result was a small reduction in 
funding for economic growth.
    Compared to the request of $508 million for economic growth in FY 
1998, a level of $520 million is budgeted in FY 1997. Thus, the FY 1998 
request for economic growth represents less than a 3 percent cut from 
the current level. The small reduction affects primarily funds 
available for strengthening of markets in developing countries and a 
slightly lower level of support for children's basic education. 
However, we have not reduced support for microenterprise programs, 
aimed at expanding economic access and opportunity for the poor, and we 
have significantly expanded economic growth-oriented assistance to 
Africa (up 13 percent from FY 1997), in part to help enhance food 
security and reduce the threat of famine in that region. Moreover, we 
believe that achieving equitable and sustainable economic growth also 
requires maintaining adequate levels of support for environmentally 
sustainable use of resources, helping countries gain better control of 
population growth and assisting with the creation of participatory 
civil societies. We are convinced that the request we have presented 
strikes the best balance among these various means of achieving 
economic growth.

    Senator Grams. Also, last September I did hold a hearing on 
exactly what you were talking about with your economist from 
Harvard. I believe you mentioned how he said we could make more 
of these investments in certain areas of privatization.
    We had a panel of experts also from across the political 
spectrum of whom we asked the questions and all agreed 
basically with what you have stated here, that the deciding 
factor in propelling these developing countries toward long-
term, sustainable growth is economic growth activities.
    Why, then, do we see a continuing decline, going back to 
what you said, in funding for economic growth activities in 
this latest budget but an increase in other areas of 
Development Assistance which has not been proven, I would say, 
to lead directly to increased prosperity? So, in other words, 
we are cutting off the very stem that is going to provide long-
term growth and economic activity for the countries in 
relationship to short-term needs.
    Mr. Atwood. The other parts of our budget are also 
important, I think.
    Senator Grams. You mentioned environmental issues and child 
care, and those are all important. But they really take away 
from the ability for long-term.
    Mr. Atwood. But if you look at economics as a human system 
rather than just as sort of the institutional structures 
necessary to achieve economic growth, if you have a society 
that does not have a productive work force because it has 
serious health problems or education problems, then you have a 
society that cannot sustain economic growth.
    If you have a natural resource base that is being ruined by 
environmental decay, slash and burn techniques for agriculture 
and the like, people being forced into cities where 
infrastructure problems abound, and if you have a society that 
cannot sustain the population growth, you can achieve a 4 
percent economic growth in a country and see 3 percent 
population growth, and all of that money is going into social 
sector spending to try to take care of the new people who are 
coming along. So, it all does relate. It is all interconnected.
    The point that I think I would make to you, Senator, and I 
am delighted you have raised this, is that we need balance if 
we are going to approach this. This is not simply because we do 
it all but because where we work, other countries follow. It is 
when the United States does development work, other countries 
look at the way we do it. If we deemphasize economic growth 
activities, we are going to find that we will have the kind of 
negative impact on what other people do that we do not want.
    Senator Grams. Just finally, I have one more question, Mr. 
    When we talk about economic growth, I think there is a 
broad definition, probably, of what economic growth is and what 
programs would be helpful.
    Using stricter criteria, the Congressional Research Service 
reported last year--and this is in their report--they said only 
13 percent of AID's Development Assistance funding was going 
directly to promote economic growth.
    I also was working last year with Senator Connie Mack to 
include a provision in the Fiscal Year 1996 Foreign Operations 
Appropriations bill that required AID to issue at that time, or 
to issue an annual report on the prospects for economic growth 
in countries that are receiving development aid. But the report 
that has been released by AID was disappointing because it 
simply was a compilation of statistics rather than what we 
would consider an analysis of supporting your decisions or 
AID's decisions to continue investing foreign aid in the 
developing country.
    So, the question, again, is if AID is truly committed to 
the promotion of economic freedom, why is that not reflected in 
its budget priorities and how could you assure Congress and the 
American taxpayers that the foreign aid is going to countries 
with real potential for economic growth? I mean, there is a 
need out there that we cannot match--but the investments that 
we do make that have the real potential for economic growth, 
rather than ones whose governments insist on staying mired in 
socialist economies and refuse to undertake the tough reforms 
necessary to reach self-sufficiency.
    When I go back home, one question people always ask is if 
you would only cut foreign aid, we could balance the budget. 
They know there is a lot of good foreign aid, but really they 
want us to target that and make those dollars count.
    Mr. Atwood. I believe that a very strong case could be made 
that the increase in our export sector has really saved our 
economy as compared to other economies. So, I could not agree 
with you more.
    The 13 percent figure that you cite for our Development 
Assistance programs does not reflect the 32 percent of 
development as- 
sistance we record as economic growth. For FY 1997, this is 
$520 million of a DA total of $1.63 billion and covers such 
activities as basic and vocational education, agriculture and 
private sector development in trade and investment, policy 
reform, construction, transportation and energy, and power 
development. Most of the money that we are spending in Eastern 
Europe and the former Soviet Union is going for economic growth 
activities--privatization and related kinds of activities.
    I am not disagreeing with you. I think we should give you a 
better report if you are not satisfied. I would be happy to 
work with you on this to give you more information about what 
it is we do and how we do it, and how, more importantly, we 
leverage others to do what we think needs to be done.
    Because of the size of our budget, we are not going to be 
successful in going into a country and telling that country 
they have to reform their economic system. We might be able to 
take a sector, the agricultural sector, for example, and work 
with the country on that. But we do work with the World Bank 
and the IMF--which require, as you know, structural adjustment 
programs of countries--to try to achieve some degree of synergy 
in the approach that we take with that country, focusing on it 
and trying to bring all of the weight of the international 
community to bear.
    To the extent that we do not have sufficient funds for 
economic growth activities, we are going to be less successful 
in that leveraging process.
    So, I do agree with you. All I am saying to you is that 
within the overall context of executive branch priorities, and 
balancing the budget, we cannot ask for more. And Congressional 
priorities, as is manifested in earmarks, has squeezed the 
economic growth portion of our budget.
    Senator Grams. That is why I would like to see the report.
    Finally, when you talk about priorities, a lot of people 
again will go back to the testimony that we had in our hearing 
last year and others, that economic growth activities are some 
of the most important you can invest in. Just to quote from 
some of the numbers from the economic growth programs from the 
AID budget, where the priorities have gone is, in 1995 it was 
$725 million, it dropped to $561 million, in 1997 it dropped to 
$520 million, and now we are down to $508 million. It seems 
like the priorities are going into other programs and not into 
these programs. That is why we would like to see some of those 
    Mr. Atwood. I would just say one thing. Our budget has 
dropped by about the same amount, too. But I appreciate your 
interest in this and I could not agree with you more.
    Senator Grams. Thank you, Mr. Atwood.
    Thank you, Mr. Chairman.
    Senator Hagel. Senator Grams, thank you.
    Senator Biden.
    Senator Biden. Thank you, Mr. Chairman. I do have some more 
questions if the chairman will permit me.
    One of the largest programs slated for an increase in the 
foreign aid budget is the aid program for Russia and the New 
Independent States. It increases from $625 million to $900 
million. It also gets a new focus. The administration proposes 
to shift the primary em- 
phasis from technical assistance to a new program dubbed 
Partnership for Freedom.
    From the initial budget documents I have looked at through 
my staff that we have received, it is, quite frankly, difficult 
for me to determine whether this is a new wrapping on an 
existing program or it's a new program. As of a staff briefing 
a few days ago, it had not been determined, to the best of my 
knowledge, relayed by staff, whether this was going to be AID 
or State, which has been the lead coordinator on aid to Russia, 
while AID has managed the programs.
    Who will be managing the program? I have some questions, 
specific questions, but I will not go to them yet. Just talk to 
me about that a little bit, Brian. Is this really something 
new? I mean, it looks like it's just a new wrap to me, and who 
is in charge?
    Mr. Atwood. I appreciate your asking the question. I have 
been anticipating I would get the question. I think it is an 
extremely important initiative on the part of the 
    What we have understood all along here is that our 
timeframe for working in the former Soviet Union was going to 
be limited. We don't need to be there for 30 years because the 
human capacity already exists. The people are well educated. We 
need to transform those societies, not simply develop them as 
we do in the traditional sense.
    Senator Biden. That has basically happened with the SEED 
and the Freedom Support Acts in Estonia and it looks like the 
Czech Republic and Slovenia.
    Mr. Atwood. That's right.
    Senator Biden. Those are actually working.
    Mr. Atwood. Those are places that we are actually leaving. 
I might say that it won't be long before we are able to leave 
the Central European countries. They are actively talking to 
the European Union about joining the European Union, and we 
believe that those economies have stabilized and that they can 
be sustained.
    So, what we are talking about in the former Soviet Union is 
the need to get to that point. What the Partnership for Freedom 
underscores more than anything else is our intention to create 
a partnership that will endure after our aid program is 
    The technical assistance aspect of it continues to be 
important because aspects of creating institutions that will 
survive still haven't been complete. We are not talking about a 
budget category. Phrases like Partnership for Freedom are as 
much political and diplomatic as they are a budget category. We 
are trying to send a message to the people of Russia and to the 
people of other states in the former Soviet Union that we 
believe that this relationship is going to evolve into a real 
partnership that is founded on trade and investment, cultural 
exchanges, and the things that normal countries can do.
    Senator Biden. Kind of like Supplemental Social Security. 
It's easier to swallow.
    Mr. Atwood. I don't know the analogy.
    Senator Biden. That is what I meant by a new wrapping. 
Supplemental Social Security is welfare. But to provide dignity 
for people who are on it, we don't call it welfare. We call it 
Supplemental Social Security or SSI. It's welfare. It's nothing 
that anybody paid into. I think we should do it.
    Is that a State Department way, coming from an AID guy, 
telling me in ``State Departmentese'' that this is a new 
wrapping? What I want to know is, is this a new wrapping.
    Now I have no problem with a new wrapping. I am just trying 
to figure it out. I am trying to figure out what it is.
    Mr. Atwood. I think that you cannot obviously give us the 
money on the basis of the wrapping. I understand that.
    Senator Biden. Oh, sure we can, by the way, because I think 
the existing program is a pretty good program. I mean that 
    I think the program is working well. I think the evidence 
is the fact the skeptics, who when I drafted the first SEED 
legislation, said that this would go on forever, for 30 years. 
Here we are, with the Czech Republic and Slovenia and the last 
year with Estonia. Actually it did a job. It is not the only 
reason these countries are beginning to make it, but it helped, 
and we are getting out.
    So, I guess the problem I have, Brian, is I think there is 
so much hocus pocus--no, wrong phrase. There is not enough 
straight talk about these programs. So, when many people, 
particularly people without institutional memories, or many of 
us with institutional memories hear about new programs with 
different names, and we look at them, examine them, and cannot 
see any substantive difference other than more money, I would 
rather somebody come and say hey, look, here is the deal. This 
is an evolving relationship. We are changing the name because 
it is softer to the ears of our Russian friends and we are 
going to put more money into it because we have made this much 
progress so far and we think more is needed now.
    But that is talking like a Judiciary chairman or ranking 
member and not a foreign policy type. But we get up here. With 
all due respect, but no wonder Senator Grams and I get 
questions like hey, why don't we just cut foreign aid. If we 
cut foreign aid, we cut 1 percent of our budget. It would not 
balance anything. But no one believes that because they do not 
understand all of this.
    So, what I am trying to get you to do is to take off your 
academic/foreign policy type hat and be a plain, old staffer 
answering the question of a constituent who, when he writes to 
me, says Biden, why did you vote for another $300 million for a 
thing called--what is it called----
    Mr. Atwood. Partnership for Freedom.
    Senator Biden. [continuing]. yes, Partnership for Freedom. 
Answer that plain, old question.
    As I said, I'm with you. I think you are right. But tell me 
why. Tell our colleagues why. Put into the record why.
    Mr. Atwood. Let me try again.
    When we get involved in any country around the world, our 
ultimate goal is to leave because we want to be able to say 
that we helped them sustain an economic and political system 
that will last. What we are doing here with Partnership for 
Freedom is being very explicit about what our intention is. In 
this case we are going, in the next few years, to complete the 
task of providing technical assistance so that the institutions 
can be created to support a functioning market and democracy. 
We are starting now, if you give us the resources, to promote 
business trade and investment, and to mobilize capital so that 
those kinds of relationships take over.
    Senator Biden. Can you give me an example of how? In other 
words, what you have said to me, as I understand it, translated 
into my simple jargon, is that you take part of the money that 
you are going to get and you're going to continue the existing 
initiatives that were underway, which are basically technical 
assistance, which range across everything from helping them to 
set up a stock exchange to determining whether or not a certain 
industry is going to get a boost, help in terms of 
administrative know-how.
    Now you are going to do something else. What are some of 
the ``something else'' you are going to do in terms of this 
additional $500 million total? You may not be prepared to do 
this now.
    Mr. Atwood. No, I would like to do it.
    Senator Biden. Good.
    Mr. Atwood. Part of it is to create an Export Import Bank 
credit facility that will help facilitate relationships between 
small businesses in our country and small businesses in Russia, 
for example, or other parts of the former Soviet Union.
    Senator Biden. Because, because they do not know how to do 
that very well--right?
    Mr. Atwood. Because their companies that have been 
privatized need to be restructured and we feel that a 
partnership with U.S. business, if we can facilitate that 
through the Eximbank, would accomplish that purpose.
    Senator Biden. To put it another way, if they do not 
partner up with somebody, they are not going to be able to do 
it because they don't know how to do it.
    Mr. Atwood. Absolutely. That is exactly right.
    We are going to be endowing some of the NGO's that we have 
been working with in the past--the Eurasia Foundation and the 
Inter-News, for example, which has done so much work with us in 
that region--so that they can continue to work after our aid 
program is over.
    We are going to try to help create those kinds of linkages 
between ordinary American institutions and ordinary Russian 
    I think that the word ``partnership'' is meant to mean 
something. It isn't just a diplomatic phrase. It is designed to 
establish the linkages that we will need to feel confidence in 
the relationship at the non-governmental level well into the 
    Senator Biden. My time is up. But one of the things I find 
when I get asked why, because it became a big issue, why I 
authored the SEED legislation which is giving away all of this 
money that should have gone to Seaford, which should have 
spilled over into Selbyville and over into Salisbury, the 
Senator from Maryland's home town, was this. I said hey, look, 
they don't know how to set up a stock exchange. So, we are 
spending money to teach them how to trade, how to actually 
generate capital. They say what do you mean, do you mean 
actually teach?
    Yes. Here is what we are doing. We are actually teaching.
    With all due respect, I think in order to win this debate--
and you have a really good person behind you in Jill Buckley, 
whom I know from another life--you have a campaign on your 
hands. I respectfully suggest that you had better start 
translating this stuff from NGO's, whatever that means to most 
people's minds--I know what it means, but whatever it means to 
them--into hey, look, this is common sense. What we are doing 
is these small businesses are going to go under unless they 
partner with us.
    They understand. They understand in my State that the small 
boutique in Laurel, Delaware goes under unless the Chamber of 
Commerce has a little group out here. They have people come. 
They teach them how to keep their books.
    Anyway, thank you.
    Mr. Atwood. I could not agree more, Senator. We will try.
    Senator Biden. Give it a shot.
    Mr. Atwood. Yes.
    Senator Hagel. Senator, thank you.
    Senator Sarbanes.
    Senator Sarbanes. I thank you very much, Mr. Chairman.
    I'd like to draw you out first on this move into the new 
Ronald Reagan office building. I take it that will enable AID 
to consolidate bringing all of its activities into one 
location, is that right?
    Mr. Atwood. That's right, Senator.
    Senator Sarbanes. How many locations have you now?
    Mr. Atwood. We have 11 locations now.
    Senator Sarbanes. How many?
    Mr. Atwood. It's 11. They're scattered everywhere--Rosslyn, 
Virginia, Washington, DC. I don't think we have any in 
Maryland, but maybe. It is a tremendous saving to bring 
everybody together in one place--with less space, by the way, 
than they have now, and they are complaining about that. But 
that is what we have to do.
    Senator Sarbanes. Will that then enable the State 
Department to consolidate into the State Department building? 
How does that work?
    Mr. Atwood. About a third of our people are in the old 
State Department building and some parts of the new State 
Department building. We will have to vacate that space anyway 
because the old building is 59 years old and has not had any 
repair work done on it for 25 years. So, we would have had to 
leave for 6 months to a year, which would have cost us a lot of 
money anyway, which is why we have been working with State over 
the last 5 or 6 years on a consolidation plan that would enable 
State Department to close some of its annexes, which it has 
about 15 or 16 of, and move into the State Department building.
    Senator Sarbanes. Let me get this straight. They were going 
to have to redo the building at the State Department in any 
event, is that correct?
    Mr. Atwood. That's right, Senator.
    Senator Sarbanes. If you weren't going into the new 
building, you would have had to move out of the State 
Department building and lease space somewhere? Is that correct?
    Mr. Atwood. That's right--at considerable cost. That's 
    Senator Sarbanes. Now you're going into the Ronald Reagan 
building and bringing in all of your outlying activity. Will 
everything be there then or will you still have outlying 
    Mr. Atwood. Everything will be there, Senator.
    Senator Sarbanes. OK. Now once the State Department 
remodels or refurbishes the old building, they will then 
consolidate into it their activities that they now have out in 
annexes, is that correct? Is that leased space in the annexes?
    Mr. Atwood. It's leased space from commercial firms, as 
opposed to being in a Government building where your rental 
arrangements are more predictable over a long period of time.
    Senator Sarbanes. Well, shouldn't the cost comparison, the 
money comparisons that are made about your move into the Ronald 
Reagan building also then encompass the savings which the State 
Department will realize by being able to consolidate into the 
State Department building their activities that are in leased 
space which will be made possible by the fact that you are 
moving out and going into the Ronald Reagan building?
    Mr. Atwood. Yes, they should, and we do have charts to show 
you those figures. If you'd like, we can submit those for the 
    Senator Sarbanes. I think it would be helpful if you did 
    [The following material was subsequently supplied for the 
hearing record by Mr. Atwood.]
    The decision to consolidate USAID in the Ronald Reagan Federal 
Building will free up about 390,000 square feet of office space for the 
Department's use. It will also provide the Department of State with 
other considerable benefits, including the elimination of the need for 
a large amount of swing space, reduction in the number of multiple 
moves by Department offices and bureaus, the reduction in the number of 
State, USAID, and ACDA annexes from 43 to 28, and lower communications, 
transportation and security costs due to consolidation of personnel.
    There will also be improvements in productivity as a result of the 
Departments' consolidation. The Department estimates that they will 
save at least $15 million in one time costs associated with leases for 
swing space and double moves. In addition, they anticipate significant 
reductions in the roughly $6 million annual cost of shuttle bus service 
and lost productivity caused by employees being bussed from one 
building to another for meetings.
    Estimates prepared last summer showed that the cost to the taxpayer 
of canceling USAID's move would be about $151.8 million. This was made 
up of $96.2 million in General Services Administration costs, $12.3 
million in Department of State costs, and $43.3 million in USAID costs.
    The Department estimates that if the decision to move USAID to the 
Ronald Reagan Federal Building were reversed at this time, USAID to 
remain in Department of State space, it would cost them about $38 
million - more than triple the estimate provided last summer. The prior 
cost estimates for GSA and USAID would also be much higher if the 
decision were reversed at this late date.

    Senator Sarbanes. I take it, then, if you calculate all of 
those costs, both the costs that you save by moving into one 
location, the costs the State Department saves by bringing its 
activities into the State Department building, the costs that 
AID saves by not going out into a leased space while the 
building is being refurbished, all of that added up together 
ends up, just from a dollar point of view, representing a 
saving--is that correct?
    Mr. Atwood. It represents a significant saving to the 
American taxpayer. That's right, Senator.
    Senator Sarbanes. Well, I think it is important to get all 
of that on the record because I don't think it is very clear. I 
expect at the time that you move in there will be some kind of 
story in the paper sort of making the point that AID is going 
into this new Ronald Reagan building without analyzing all of 
these cost factors which, in fact, just simply from a dollar 
point of view, let alone from, I take it, the efficiencies you 
think you will achieve by having everybody in the same place, 
but just from a dollar point of view makes it a wise move.
    Mr. Atwood. I think so, Senator. We have had a bit of a 
problem. We have had the GAO looking at all of our figures. 
They understand, of course, that when you are talking about 
speculation--in other words, if we didn't move into the new 
building and we had to move out of the State Department 
building and into new space, or if we took everybody and tried 
to find space that was cheaper than the new building, what 
would that space cost, the problem is that it is all at 
commercial rates and we would have to negotiate those rates. We 
would get ourselves into a difficult negotiating position if we 
made public what we thought those costs were going to be.
    But I think, even despite all of that, GAO has come down on 
our side and said this is going to save the taxpayers a great 
deal of money to do this.
    Senator Biden. Senator, I don't think they will spend much 
time on it. They will be amused by the fact that an AID 
building is called the Ronald Reagan building. That's a little 
bit like having an annex to the Pentagon named the George 
McGovern annex.
    Mr. Atwood. I would like to have the USAID budget that 
Ronald Reagan had when he was President. I can tell you.
    Senator Sarbanes. Actually, he had a pretty good budget.
    Mr. Atwood. Yes, he did.
    Senator Sarbanes. And the State Department also had a 
pretty good budget, because I remember Secretary Shultz, when 
he finally left, expressed some appreciation, at least 
privately, to the Members of the Congress for the support that 
we gave him in the budget so that he could meet his 
    Let me just turn to the Mideast for a moment. The peace 
process continues to move forward, albeit with some 
difficulties. But I take it that within the administration 
there is a commitment to the notion that the U.S. assistance in 
that area is important in helping the peace process along. 
Would that be correct?
    Mr. Atwood. Absolutely, Senator. We have expanded our 
activities. As you know, we are working in the West Bank and 
Gaza. I want to say one thing.
    I feel very, very proud of the contribution that USAID made 
to the resolution of the problem in Hebron. It was a USAID 
engineer who went in and offered some suggestions as to how to 
build the road that goes through the center of Hebron. It was a 
crucial aspect of that agreement in the last minutes. We 
offered some proposals for changing that road that we're 
working on now that I think was crucial in reaching the 
    Senator Sarbanes. Do you think we are sufficiently 
addressing Jordan's needs given their importance in the peace 
    Mr. Atwood. Well, I think it is an extremely important 
country. We have had a program there for some years, in Jordan. 
Whether we are adequately addressing their needs I guess I 
would not want to speculate about. I think that our request for 
resources for Jordan is an adequate one and I would prefer not 
to speculate about whether or not King Hussein agrees.
    Senator Sarbanes. The one other thing I wanted to touch on 
is this. We have certain programs, international development 
programs where we have been cooperating with Israel and they 
have been active I think both in developing countries and in 
the newly developing states in Eastern Europe. There is some 
view that their own experience in development plus the fact 
that, at least with Eastern Europe and the former states of the 
Soviet Union, they have a number of recent immigrants who can 
handle the languages or who are experts on the country and so 
forth, helps them here. How are we doing on those shared 
    In fact, I guess the real thrust of my question is this. 
The Congress indicated that we wanted those funded at a certain 
level and I think they got funded at a somewhat lesser level in 
the past fiscal year.
    Mr. Atwood. We work very closely with the Israelis on these 
programs. They have some of the best agricultural development 
specialists and water specialists in the world. You are right. 
They do have the facility to actually communicate in the former 
Soviet Union. So, that is also very useful.
    I do not think that the Israeli Government would suggest to 
you that some of the minor cutbacks were all that significant. 
There was a slight problem with the pipeline. So, we are 
working with them to make sure that they are efficiently 
getting all of the resources we provide out. But I think it has 
been a good relationship and we will continue to work with them 
in the Middle East and in the former Soviet Union.
    I think our 1997 money was $8 million for that program. We 
believe it helps us achieve results.
    Senator Sarbanes. I take it you are going to do in the ASHA 
    Mr. Atwood. Not if what I hear up here is accurate. I think 
the ASHA program continues to be well supported by Members of 
Congress, Senator.
    We have asked for $5 million this year for FY 1998. We are 
fulfilling our commitment to the Congress that we made last 
year to combine that with $9.6 million that we still have 
available from 1997 funds and do a major competition for ASHA 
grants as soon as the fiscal year begins.
    Senator Sarbanes. Well, there is a perception that we have 
gotten a lot of benefit out of that program. I know you have 
difficulties on occasion because I guess you are put to the 
test amongst many, many institutions who are seeking 
assistance. But I do think, as you well know, there is 
generally the perception that it has worked pretty well.
    My time is up. I have a couple of additional questions, but 
I will defer now to my colleagues.
    Senator Hagel. Mr. Atwood, especially in light of having 
both Senators Biden and Sarbanes here, I would like to talk a 
little bit about your thoughts on reorganization of AID. 
Obviously, I have very limited institutional history of this 
organization. But I do know a little bit just in reading and 
trying to bring myself up to date and it appears that over the 
last couple of years you have been, maybe ``strident'' is too 
over-stated, but at least from what I have read, a critic of 
reorganization, folding AID into State.
    I have before me various quotes that are attributed to you 
when you were advising then-Governor Bill Clinton on what we 
should do on AID, not particularly flattering to AID 
management. But in light of Senator Biden's and Chairman Helms' 
conversations with Secretary Albright and some of my 
conversations with her, I would be very interested in knowing 
where are we with you on reorganization. What are your 
    Mr. Atwood. The obvious answer is to say I have an open 
mind, I guess, Senator. But I believe very strongly that there 
are areas that need to be dealt with in terms of overlap and 
duplication, not as many as one would think. I believe very 
strongly that we should continue to pursue rationalizing our 
administrative support functions.
    Again, I think that there is not as much saving as some 
people have suggested in doing that. I believe that we should 
find ways to improve coordination and efficiency, and if that 
means, in the case of USAID, putting USAID into the State 
Department more explicitly than it already is, then I certainly 
think that there are some creative ways in which that could be 
done, I have actually had some discussions with Senator Helms' 
staff about that.
    I am trying to be as forthcoming as possible because I do 
believe that we can create a more efficient operation. But I do 
believe that every one of the foreign affairs agencies has to 
continue to reform itself from within so that we can find the 
cost savings that are necessary there and stop doing some of 
the things that were necessary during the cold war.
    I certainly am not qualified to talk about the other 
agencies, USIA and ACDA. I know they perform important 
    On USAID, from my perspective, as I have said before and 
I've said it to the Secretary of State--and I say this not from 
the point of view of trying to protect turf by any means--I 
think there are three factors that are important if we are 
going to have a development program that works. One is that we 
need to protect our long-term strategic investments. You come 
from business, Senator, and you know that when there are tough 
times, the research budget of a business is the first to go. It 
is very important for us to be able to maintain our investments 
in the future for all of the reasons we have been discussing 
here today.
    So, I think the way the law is written on the books now, to 
assure that development assistance is handled the way the 
Congress wants it handled and the way we have agreed since the 
Marshall Plan it should be handled, in a separate but supported 
way, I think those laws should be maintained.
    The second is management tools. The most modern thinking in 
the corporate world today is if you have a unique function and 
a unique mission that requires special management tools, then 
the idea is not to merge into bigger and better things, but it 
is to spin off and make sure that there is a close coordination 
and relationship with the mother company, if you will.
    That is the way it has been. But I believe that you can 
preserve those management tools by having an even tighter 
relationship between USAID and State. I mention one suggestion 
is having a solid line relationship with the Secretary of 
State. The Secretary of State is today not theoretically 
directly responsible for USAID programs. I am, although she is 
responsible for offering me all of the foreign policy guidance 
that should exist.
    I personally believe that I have always worked for the 
Secretary of State. But I think we need to formalize that. I 
have no objections to doing that.
    The third point is if we are going to be successful in 
working with other donor organizations around the world, the 21 
bilateral donors, the World Bank, UNDP, and others, we need to 
have a development Agency that talks to those people in 
development terms. We need not downgrade. We already have a 
harder time now going into international meetings in light of 
the fact that we have fallen to the number 4 place in the 
overall amount of resources we offer to development assistance.
    I deal for the most part with ministers for development and 
cooperation overseas. I am an ``administrator.'' Nobody knows 
what that is overseas, but they accept the fact that USAID has 
been in this business for so long that we are respected and 
they ignore my title. But I don't think we should downgrade the 
mission. We should find ways to see if we can enhance it in 
order to make us more effective in leveraging.
    Those are the three issues I have discussed with the 
Secretary. I have discussed it with the President and with the 
Vice President. Beyond that, I am not going to fall on my sword 
over changes in the relationships that we have within the 
executive branch.
    Senator Hagel. Do you believe that your title might be more 
meaningful if you were addressed as ``Mr. Secretary,'' or, for 
example, ``Under Secretary of State'' for something?
    Mr. Atwood. No. I have had two occasions when I was an 
under secretary and an assistant secretary, and I guess that is 
the way people address me. But when you come from a poor blue 
collar family in a small town, it doesn't make a lot of 
difference what you're called. I've been called a lot of 
    Senator Biden. When they say ``Secretary,'' they think it 
means you work for the boss.
    Mr. Atwood. That's right. Exactly.
    Senator Hagel. Well, let me see if I can get a little 
closer to this.
    Your thoughts are not particularly positive about rolling 
AID into State, reporting directly to the Secretary of State as 
an under secretary? Yes? No? Maybe?
    Mr. Atwood. I think, Senator, beyond what I have said, I am 
already on dangerous ground. I think that my role in this whole 
process is to provide information to the President, to the 
Secretary of State, to provide my advice, I should say, as to 
how this could best be done. If I start getting into those 
kinds of specifics, I am really going to be in trouble, if you 
don't mind, Senator.
    Senator Hagel. Well, you just blame it on me, Mr. Atwood. I 
know my colleagues won't mind.
    Why don't I at this point, if it is all right with my 
colleagues, let you all pick up if you want to pursue this at 
    Senator Biden. There is an old joke, Mr. Chairman, about 
the two brothers. One brother had not gone on vacation for 15 
years. He leaves. He goes to Hawaii and leaves his cat with his 
other brother. He loves his cat.
    He gets into the hotel room in Hawaii and the brother calls 
and says John, your cat is dead. John says my cat's dead? Why 
wouldn't you call me and tell me your cat got out of the house, 
and I couldn't find him, and then the next day call me and say 
we think the neighbors saw it, and the next day call me and say 
the cat's on the roof, and the next day say the fire department 
is here to get it, and when they went up and got it the cat 
fell and broke its neck? He said why wouldn't you do that 
instead of ruining my whole vacation.
    So, about 5 years later he goes on a second vacation. 
John's brother calls and says John, mom's on the roof.
    Well, I'm here to tell you, Brian, AID is on the roof. AID 
is on that roof. I think it is pretty important to figure out 
sooner than later how you all figure is the best way to make it 
work rather than for us to come to you and tell you. Unless I 
am mistaken, and I very well may be, as I kind of read the tea 
leaves around here, this is a different body, a little bit 
different than before, and I think there may be enough votes. 
Also, as you well know, former Secretaries of State have not 
been averse or opposed to the notion of you coming within their 
gambit more directly.
    I mean it sincerely when I say this. No one knows it better 
than you. No one knows AID better than you. I really would 
respectfully suggest that, as quickly as you can, privately, 
you lay out the best organizational plan you think that can 
maintain the functions, the prominence, and the standing and 
stature of AID so that you are not subsumed.
    My colleagues' guess is probably better than mind. But my 
guess is that that is the direction in which this thing is 
    Now I have one specific question. There is a new program, a 
new budget request providing for a new loan program to be 
administered by AID which is designed to provide capital in 
countries which have problems getting access to capital. This 
is as I understand it. The idea is to use $10 million in credit 
to leverage up to $67 million in loans and guarantees.
    Now I will be blunt with you. My first reaction is this is 
a bad idea. If a country is credit worthy, then, given the 
great explosion and availability of credit out there in the 
world markets, it is going to be able to get access to that 
capital. If it is not credit worthy, then we may be taking an 
undue risk, and the subsidy cost of the loan will rise. This is 
because under the 1990 Credit Reform Act, the cost of risks of 
a loan must be honestly scored, which was not the practice 
before 1990.
    Moreover, in my view--and, again, I am prepared to have my 
mind changed on this--in my view, this ought to be a function 
of international financial institutions, particularly IDA, 
which is the soft loan or concessional loan window of the World 
    Finally, I think AID has had enough problems that it does 
not need to take on the burden of managing another loan 
    That is a long background for a short question. Why do you 
think this new authority is necessary and why would you want 
it, given the down sides?
    Mr. Atwood. Well, we have asked for a small amount of 
money, Senator, $10 million, which we think we can leverage 
into $67 million of capital. I agree with you we should not be 
doing this in poor countries that do not have, for example, the 
banking infrastructure that we can work with to make this work. 
But there are some countries we work in, like South Africa, 
where we have a first world economy and a Third World society 
as well, where the banking structure is adequate. Here we can 
go in and work with the banks to leverage with our backing the 
money necessary to do things that are important, that are 
developmentally sound, and that are credit worthy.
    Senator Biden. But, Brian, why isn't this able to be done 
in--is there some unique role that this credit window will fill 
that existing institutional windows do not fill? Or is it just 
immediacy of access, decisionmaking, able to be facilitated? 
    Mr. Atwood. The fact of the matter is that our USAID 
missions abroad are there, and in larger numbers, I might add, 
than any other development Agency, because we have been able to 
take advantage of targets of opportunity.
    We can see what needs to be done, and if we have the 
flexibility of being able to work this so that we can develop a 
public/private partnership in a country to get the job done, 
then I think we are going to be enhancing our capacity to 
achieve results in our own development program.
    We would use this for developmentally sound and credit 
worthy projects. For example, this enhanced credit authority 
may be an appropriate tool to finance a municipal bond guaranty 
program for infrastructure projects such as the one I saw in 
Indonesia, where we are trying to help clean up neighborhoods, 
and in urban environmental kinds of programs. Really, if you 
can leverage $1 million and turn it into $10 million, you are 
going to be able to achieve that much more by working off of 
the local economy to the extent it exists.
    We would like to ask you to give us a shot at trying this. 
The previous criticism was that we couldn't manage credit 
programs adequately. The Credit Reform Act was subsequently 
passed by the Congress and we fully comply with the Credit 
Reform Act. We are a lot more conservative about how we would 
use this kind of thing. We would use it in countries that are 
credit worthy, like the Indonesians and the South Africans. We 
would not use it in the poorest countries.
    But given the cutback in our own budget, we think it is 
important for us to have this additional capacity so that we 
can get more done with the fewer dollars that we have.
    Senator Biden. Well, as I said, I have an open mind. I find 
it almost counter intuitive in that, as we are trying to, or at 
least as I think we should be trying to streamline, to limit 
duplication in functions, this kind of goes in the wrong 
direction. But I am not a slave to symmetry here, that it has 
to balance. But I find it difficult.
    I will not pursue my last question except in writing, Mr. 
Chairman, because I have kept everybody too long. But I would 
like to have a chance to discuss something with you. I will 
submit it in writing, just so your staff has something to do. I 
know they have nothing to do except answer these questions and 
that they would be disappointed if they got out of here without 
having to answer anything.
    I think one of the things that we have done is we have 
tended to micro manage projects. There is the ability of 
staffers and individuals to put holds on initiative you have 
and so on. I have a series of questions in which I would like 
you to estimate--and I would like you to make a very serious 
attempt to do this; I'm sure you will--how many man-hours are 
consumed when you find yourself having to deal with the 
notification process and the responses to it. It seems to me as 
we are trying to clean up--``clean up'' is the wrong word--
trying to consolidate functions of our foreign policy 
establishment that we should play a little piece of that, too.
    With permission of the chairman, I would like to submit to 
you several questions in writing. That is what we are about and 
I will not take the time to go through this here.
    Thank you.
    Mr. Atwood. Thank you, Senator.
    Senator Hagel. Thank you, Senator.
    Senator Sarbanes.
    Senator Sarbanes. I think before this hearing ends I just 
ought to register this observation.
    I think if we are going to be committed to a goal of 
providing sustainable development and perceive that as in our 
interest, we have to be very careful about what the 
institutional arrangements are that we establish within our 
foreign policy structure in order to do that.
    I, for one, feel quite strongly that simply to merge AID 
into the State Department would be to lose sight of that 
objective. I think it would be downgraded. That is one of the 
reasons why AID is separate. That is why most previous studies 
have recommended that.
    Now the fact of the matter is, my perception is that AID 
has come much further in terms of improving its administration 
and effecting its bureaucracy than the State Department has.
    Senator Biden. Yes, it has.
    Senator Sarbanes. I hardly can sit here and sort of see the 
State Department as a paragon of how the bureaucracy ought to 
work and, therefore, AID ought to be consolidated into it. That 
is not my perception. All these former Secretaries of State, 
after they are no longer Secretary of State, say this is how it 
ought to be structured. But they never said it when they were 
Secretary of State I have to take that kind of advice with a 
couple of aspirin.
    You wonder if it was such a good thing, why didn't they do 
it when they were there in the position to do it. In fact, not 
only did they not do it, a lot of them had statements directly 
to the contrary on the record.
    Now I think this is an important issue. I think so for two 
reasons. One, I think that there are a lot of people who say we 
agree with that substantive goal and that's what we want to 
achieve. But then they fall into sort of doing institutional 
arrangements which would run counter to the substantive goal.
    Second, I am not for spending a lot of time on 
institutional arrangements. I am willing to do things that 
appear to be obvious on their face that ought to be done. But 
if there is some kind of close call to it, we ought to get on 
about the substantive work.
    I mean, there are health programs out there that need to be 
done. There are agricultural programs that need to be done. 
There is micro-enterprise that needs to be done. There is small 
business and democracy building that needs to be done. This is 
a real challenge right now, and we have a real opportunity.
    One of the things that I have the greatest concern about is 
that history will look back on this period and say hey, you had 
a real opportunity back then when the Soviet Union imploded and 
the cold war came to an end to take the whole world to a 
different level in terms of its commitment to peace and 
prosperity, and that opportunity was lost. You failed to take 
advantage of it.
    I think to take advantage of it we have to come to grips 
with some of these substantive problems.
    My own view is that you might have been up on the roof 4 
years ago, but, in reality, you have gotten down off the roof 
if someone would just stop and look at what has been done in 
AID. Now if they continue to operate under the old perceptions, 
then there is a problem, obviously. There was a problem. I 
think you faced a very tough task when you took over at AID, a 
real challenge. As I quoted earlier from Chairman Gilman over 
on the House side, I think you have revived an Agency that was 
in critical condition, and that is no small achievement. It 
speaks well for what is being accomplished and I think offers a 
lot of hope for what can be accomplished.
    So, I hope, as we deal with the Agency and address some of 
these problems, that we will be sensitive to what has been 
done, to what your mission is, to the importance of your 
mission and the need to keep that, I think, uppermost in our 
minds as we address some of these organizational questions.
    Mr. Atwood. Senator, I appreciate those sentiments. All I 
can say to you is that I have absolute confidence that what we 
propose along these lines is going to make sense--so long as we 
do not have a rush to judgment on all of this.
    I realize the pressures, Senator Biden. But we are talking 
about something that is going to have to survive well into the 
next century, something that is going to have to respond to the 
kinds of threats that face our Nation. These are very large 
questions. These are not simply organizational box questions.
    I feel that I could stand here today and justify the 
current relationship. I have tried to describe it. I think 
there is a great deal of coordination. I certainly would not do 
anything that was contrary to the foreign policy of the United 
States, nor would our Agency.
    But the fact of the matter is that there are some pieces of 
legislation on the books that have grown moribund. The IDCA law 
is one.
    I do think that in the long run--and I have said this 
publicly--we have a Secretary of State who really does 
appreciate the development mission. She understands, having 
been U.N. Ambassador, that development is a large part of the 
international dialog between us and those four out of five 
people who live in the developing world. It is a huge part of 
our foreign policy agenda.
    So, I have absolute confidence that this is going to come 
out right, that it should be subjected to a rational process 
inside the executive branch and certainly to consultations with 
Capital Hill to make it come out right.
    Senator Sarbanes. Well, the reorganization within the 
military which finally took form in the Goldwater-Nunn 
legislation, took an extended period of time, was thoroughly 
vetted within the executive branch, with a lot of interaction 
with the Congress and in the end represented the considered 
judgment of both branches of the Government. I am frank to tell 
you that I do not think in the foreign policy/national security 
field the Congress should seek to impose on the executive 
branch what the structure ought to be. The effort should be to 
work with them to evolve a structure in which both branches 
    Obviously the executive has a heavy investment in it. The 
powers given to the President under our Constitution in the 
foreign policy field have significantly greater discretion to 
them than in the domestic field. It would be my hope that we 
would be able to work with the administration in a way that we 
can evolve something that everyone looks at and sort of says 
yes, that makes sense.
    Senator Biden. Will the Senator yield on that point?
    I hope he did not misunderstand the point I was making--not 
whether the cat should be on the roof or not. I am suggesting 
to you that the sense of urgency within the administration of 
the need to generate a position as to how, in what form, any 
reorganization of the foreign policy establishment should take 
should be heightened. This is because there is a bit of a 
problem up here. There is a bit of a problem.
    Now Senator Sarbanes and I are willing to have the State 
Department merge into AID. But we are among the few who are 
going to do that.
    I may be wrong about this, but I just think until these 
last 2 months, I have not gotten a sense that the 
administration has felt a sense of urgency to undertake a 
serious study and recommendation relative to how to deal with 
    For example, were the administration to say--and I am not 
suggesting this--that we put together a commission of leading 
people from around the country and over the next 8 months we 
are going to be looking at this subject, and we will have a 
tentative draft on what approaches we think we should take by 
the end of this year, that would calm a lot of people down. The 
feeling--I think wrongly, but the feeling is--that there is no 
intention on the part of the administration to move in any way 
toward reorganization on the one hand and, on the other hand, 
that Senator Helms has a single view of slash and burn, just 
eliminate. That is the competing dialog right now.
    All I am suggesting to you is the way to get ahead of that 
curve is for the administration to start to lay out the four 
corners of the debate, at least; at least set out the 
parameters in which they think reorganization should take 
place--if it should.
    I am fearful that if you do not, we will find a lot of 
other things hinging on whether or not reorganization is a 
serious undertaking. I know others would maybe reject this 
notion. But I think everything from the Chemical Weapons 
Convention to your budget will be impacted upon by this larger 
debate--or smaller, depending on your perspective.
    That is all I was suggesting to you. I am not being 
critical because I think everything the Senator said about your 
leadership of this Agency is absolutely accurate. I think it is 
universally recognized. But it is almost ironically--well, you 
understand what I mean.
    I'm not asking you to agree with me, but I just want you to 
understand what I am saying.
    Mr. Atwood. I understand. I do believe that we are in a new 
era of cooperation and consultation on these issues. I don't 
believe, based on my discussions with Senator Helms' staff and 
with Senator Hagel, that we want to get ourselves into the kind 
of confrontation that we got into before.
    I said at the outset that I hope this committee can pass an 
authorization bill because it is important for this committee 
to be in the game on foreign policy issues with a bill that the 
President won't have to veto. I think this is an area for 
    I do not believe we should do anything foolish, obviously. 
I know you believe that and so does Senator Helms. But 
everybody has a different perspective and to debate these 
issues in a legislative forum is different from debating them 
within an executive branch forum where you are thinking about 
organization, how to get the job done, and what missions are 
important for you to do.
    So, all I have asked is that people here do not rush to 
judgment, that you give us a little time to work these issues 
    Senator Hagel. Senator, thank you.
    Let me make one overview kind of statement, Mr. Atwood, on 
this and then we will move on to a couple of other areas and 
get this thing tied up.
    I think what Senator Biden is saying is exactly right. I 
think Senator Sarbanes' point about a unique opportunity, of 
which you and I spoke when we met initially, is exactly right. 
I think this country has a great opportunity to move into the 
next century. Foreign policy is going to play a tremendous role 
in that, crafting a sense of purpose, and that should lead, if 
we do this right, if we are bold and we take the initiative, to 
a really genuine lasting peace and prosperity for many corners 
of the world. What you have been about, what your Agency has 
been about over the years is just about that, and we are aware 
of it.
    One last point on that. You heard what Senator Grams said, 
and I think Senator Grams is rather typical in his 
representation of what he gets from his people back home. I get 
a certain amount of that and I suspect every Senator does: What 
are you doing, spending this money on foreign policy? It is a 
confusing issue. It is an issue that does not link directly 
with most people, although it should. It is probably the 
easiest, most inter-related thing we can do. My farmers in 
Nebraska, my ranchers and small businessmen, their future 
depends on foreign policy, on opening markets, as do all of my 
colleagues' states.
    So, what we need to do is a better job of what Senator 
Biden and Senator Sarbanes are saying, and I think Chairman 
Helms, which is talking plainly, directly, straightly, making 
sure people understand why AID, or whatever is going to be AID, 
is critically important to the future of our world, for a more 
stable world.
    But I do say again that I think Senator Biden's point is 
exactly right. I will not be a Senator who rushes you or anyone 
else into something where if it looks better in a different 
box, let's just do it. That does not make any sense and I will 
not do that. But we do have to get a more efficient, effective 
use of our taxpayers' dollars and I think that guides us all up 
    Now, moving on to other things, I wanted to ask, Mr. 
Atwood, a couple of other questions.
    I was made aware a couple of days ago of a practice, as I 
understand, in some foreign countries, governments, regarding 
the taxation of U.S. foreign aid. It appears that many nations 
or some nations view foreign aid in exactly the same way they 
view their imports. For example, I have been told that the 
Government of Haiti has now imposed what it calls a 4 percent 
``verification fee'' on U.S. aid. I understand that is also the 
case or that there is a similar case in Ethiopia, Peru, 
Bangladesh, and other countries.
    You are probably aware of this. Could you give us some 
clarification, first of all, as to if it is accurate, and then 
what is this all about?
    Mr. Atwood. Well, we have had some problems, confusion. 
International standards are such that we do not pay taxes on 
humanitarian assistance that is provided to countries. One of 
the problems we have had that we have tried to work out with 
the International Monetary Fund is this. They have gone into 
countries and they put so much emphasis on making sure that a 
country is collecting all of its taxes that some of these 
countries have misinterpreted that message and have, indeed, 
placed taxes on these kinds of assistance.
    In the case of Haiti, for example, when they were 
attempting to do that at the port, we communicated with the IMF 
so that they would clarify their position vis-a-vis the Haitian 
Government, and we have now resolved that problem. As each of 
these problems comes up--and, by the way, they have been coming 
up for years; this is not the first time--we have managed to 
resolve it and to preserve the international standard, which is 
that humanitarian assistance is not taxed.
    I can give you more details about the specific countries 
that you mentioned and give you some information about how we 
have resolved those problems if you like for the record.
    Senator Hagel. Thank you. I appreciate that.
    [The following material was subsequently supplied for the 
hearing record by Mr. Atwood.]
                      TAXATION OF U.S. FOREIGN AID
    In the case of Peru, decrees, issued in April of 1996, made it 
difficult for NGOs to receive international donor assistance on a tax-
free basis. The ambiguities in the decrees raised tax treatment 
questions for USAID-financed programs to NGOs and the government of 
Peru (GoP). Our mission in Lima, has been actively engaged in 
negotiations with the GoP to resolve the issues. These negotiations 
have taken two tracks: an annual Memorandum of Understanding (MOU) with 
the GoP to provide the necessary tax exemptions for NGO programs that 
may not be covered under our bilateral agreement; and the insertion of 
appropriate standard provisions in our bilateral grant agreements for 
those programs operating through the public sector. Negotiations on 
both fronts have progressed very well. We have signed an MOU for the 
Title II food aid program, and are using the precedent to negotiate an 
MOU for NGOs operating in the health and family planning sectors. 
Simultaneously, we are negotiating final language on the tax clauses of 
our bilateral agreements. We expect that these negotiations will 
conclude successfully and return us to the situation that existed prior 
to the April 1996 decrees--non-taxation of humanitarian assistance.
    In Bangladesh, we have periodically experienced problems with 
demands for the payment of customs duties and the like on vehicles 
imported into the country by some of our NGO partners. Under our 
overall Bilateral Agreement with the government of Bangladesh, and 
under several specific project agreements, such vehicles are supposed 
to be allowed into the country free of any duties. To date we have been 
rather successful in resolving these problems as they occur.
     Also in Ethiopia, government decisions to begin to tax 
humanitarian assistance created implementation issues with our program. 
As a result, there were considerable delays in the importation of goods 
into Ethiopia, long storage periods at ports and customs holding areas 
and a rise in associated costs as well as interruption in project 
implementation. Call forwards for Title II Regular food aid were 
suspended. Since that time, the health and education ministries have 
assumed the duty on our assistance in these sectors. In February, the 
government agreed to let the Disaster Prevention and Preparedness 
Commission (DPPC) cover the duty of Title II Regular food aid until the 
end of the Ethiopian fiscal year (June 30, 1997).

    Senator Hagel. There is another issue I want to bring up. I 
understand that we have something called the pipeline in this 
business, like in other businesses, and that there appears to 
be, at least I am told, a considerable amount of money that is 
in that AID pipeline.
    I understand Chairman Helms and Majority Leader Lott 
sponsored an amendment last year about that, that after 2 
fiscal years if that money was not used it be returned to the 
    Could you give us an accounting--give us what you can now, 
Mr. Atwood, but maybe provide the rest for the record--of where 
we are on the pipeline?
    Mr. Atwood. I thank my staff very much.
    Senator Hagel. They just happen to have it.
    Mr. Atwood. As for specifics here, we have a chart that 
shows that our ability to manage the pipeline has improved 
considerably over the last 4 years. We are down $1 billion in 
our pipeline. In Fiscal Year 1996, in the developmental 
assistance accounts, it was only $3.2 billion versus $3.6 
billion in 1994.
    The point is, obviously, that managing the pipeline is a 
good indication of how well you are managing the Agency. We 
have reduced this pipeline, as I mentioned before, over time. 
That, by the way, was just development assistance. The total 
pipeline has been reduced by $1 billion since the beginning of 
Fiscal Year 1995.
    Whenever you sign a contract, for example, with AT&T, to 
build a telecommunications system in the city of Cairo, you 
create a pipeline. It might take them 5 years to build that 
telecommunications system, but you create a pipeline right off 
the bat. I think you, having been in business, understand how 
this goes. If you don't sign a multi-year contract with some 
institutions, they are not going to be interested in working 
with you. They need to be somewhat assured that they are going 
to have some business before they begin hiring people to do the 
    So, I agree that you should continue to pressure us on how 
we are managing the pipeline. We have developed, as part of our 
new management system, a capacity to look at a pipeline with a 
graph just like this (indicating) for any country in the world 
and tell you exactly which account is available and how old the 
money is within that account. That gives USAID a management 
capacity that it has never had before. The Administrator, even, 
if someone trusts him to look at these kinds of issues, can 
turn around and punch a button on his computer and actually 
bring up the pipeline for any given country nowadays. That is 
especially useful today because we have to reprogram resources 
because we do not have enough to get by. If there is a project 
that is not working and it is old money, it causes you to raise 
the question right off the bat: Why is that old money hanging 
around? It is obviously not working for our interests.
    So, I think we have really managed this a lot better than 
it has been managed in the past.
    Senator Sarbanes. Wouldn't you say, though, I understand 
that a 2 year limit on your pipeline might not give you enough 
latitude to handle some of these projects which take much 
longer than that to do? Wouldn't that be correct?
    Mr. Atwood. That is absolutely right. We are already 
getting into an area here where some institutions may not wish 
to work with us because they don't have the confidence that the 
program is going to go on long enough. It is bad enough having 
an annual appropriation and not being sure. But once we get 
that appropriation, we would like to create projects that do 
take that much time to get done with institutions that are sure 
of the relationship they have with us.
    Senator Sarbanes. If I could continue, Mr. Chairman----
    Senator Hagel. Sure.
    Senator Sarbanes. [continuing]. the other point is, aside 
from getting the institutions to work with you, some projects 
to be done--for instance, you are going to do the water and 
sewer system for Cairo, let's say. Well, the way to do the 
water and sewer system is to do the system. That is the best 
way to do it. That is the way you bring in the best 
institutions. That is the most efficient way to do it.
    But to do the water and sewer system of Cairo is not a 2 
year project.
    Mr. Atwood. No. Absolutely right.
    Senator Sarbanes. And to do part of the water and sewer 
system of Cairo is not the way to do the job, correct?
    Mr. Atwood. That is absolutely right. The other aspect of 
it is making sure the Egyptians are involved so they can 
maintain the system after we leave it behind. These things do 
take time and require the training of local contractors and the 
    Senator Hagel. You are not now living under that 2 year 
    Senator Sarbanes. I believe it's 4 years.
    Senator Hagel. Is it 4 years or is there nothing stated?
    Mr. Atwood. I am told there is no statutory limitation. But 
I can give you statistics on this in terms of the amount of 
money that is over 4 years old. There is very little money that 
is over 4 years old.
    Of our total pipeline, which is $7.5 billion, only $500 
million is older than 3 years.
    Senator Hagel. OK. Thank you.
    Senator Sarbanes or Senator Biden?
    Senator Sarbanes. I have some questions from Senator 
Feingold for the Administrator and will submit them. They can 
be answered for the record.
    Senator Biden. I have no further questions, thank you, Mr. 
    Senator Hagel. Senator Sarbanes, do you have anything 
    Senator Sarbanes. Nothing.
    Senator Hagel. I, too, will ask, Mr. Administrator, for you 
to respond to some additional questions. I will ask for 
unanimous consent to keep the record open till close of 
business Friday--without objection.
    That is the way we will give our colleagues here--and you 
know the drill, Mr. Administrator--additional time to ask any 
questions for the record.
    I just want to say that I am grateful that you would be 
forthcoming. I look forward to working with you on this issue 
and others. What you are involved in and your reach is 
considerable. It is important and we all have a responsibility, 
as I said, and my colleagues, who have been at this, 
shouldering the wheel, much longer than I have, a 
responsibility to speak plainly and directly to the American 
public to help explain why what we are doing is in their best 
    If there are no other comments, we are adjourned. Thank 
    Mr. Atwood. Thank you.
    [Whereupon, at 4:30 p.m., the hearing was adjourned, to 
reconvene at 11:02 a.m., February 27, 1997.]

                              1998 BUDGET


                      THURSDAY, FEBRUARY 27, 1997

                               U.S. Senate,
           Subcommittee on International Operations
                     of the committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 11:02 a.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Rod Grams 
(chairman of the subcommittee), presiding.
    Present: Senators Grams, Feinstein, Robb, and Biden.
    Senator Grams. I would like to welcome all of you to this 
hearing. I do have a brief opening statement. We do expect 
Senator Biden to be here shortly. Also Mr. Robb is here, and 
any others that might join us between now and then. Then we 
will also take time to listen to your opening statements, as 
    I will just say, if we go more than 6 or 7 hours, we will 
take one break in between. So, just to let you know.
    Mr. Kennedy. That is much appreciated, sir.
    Senator Grams. But, again, I want to welcome all of you to 
this first hearing of the Subcommittee on International 
Operations in the 105th Congress, and of course, I look forward 
to a very busy and also a very productive work schedule for the 
subcommittee in the weeks ahead. I also want to thank Mr. 
Patrick Kennedy, the Acting Under Secretary for Management at 
the State Department, for coming along today to testify before 
us on the President's fiscal year 1998 request for the 
``Administration of Foreign Affairs'' budget.
    Mr. Kennedy, at the outset, I would like to make it clear 
that I am proceeding with this hearing on the assumption that 
the administration is developing and will present to Congress a 
proposal for the reorganization of the State Department and 
also related foreign affairs agencies. While the subcommittee 
will not be questioning you today about the specifics of any 
State Department reorganization plan, I certainly intend to 
work on this issue with Chairman Helms, Senators Joe Biden and 
Dianne Feinstein, our distinguished ranking members 
respectively for the Foreign Relations Committee, and also for 
this subcommittee, along with Senator Chuck Hagel, who is the 
Chairman of the Subcommittee on International Economic Policy. 
It also should be noted that both Senator Sam Brownback and 
Senator Gordon Smith, who also will serve on this subcommittee, 
have also expressed considerable interest in this matter as 
    In recent months, Secretary of State Madeleine Albright, 
and her predecessor, Warren Christopher, have expressed their 
concern that America's ``diplomatic readiness'' had been 
undercut by inadequate resources. Now, given these statements, 
I think it is useful to put the President's request for the 
State Department's ``Administration of Foreign Affairs'' budget 
into some kind of a context. A comparison of the fiscal year 
1998 budget request to the estimated funding for fiscal year 
1997 yield an increase of only about 2 percent. That is just 
under the rate of inflation.
    Now, while I certainly intend to review the increased 
request of $60 million in the ``Administration of Foreign 
Affairs'' budget very carefully, it is a rate of increase that 
seems relatively modest, in light of the administration's 
somewhat alarmist rhetoric on our foreign affairs funding. The 
purpose of making this point is not to argue that the President 
should have submitted a higher budget request in this 
particular area, of course. Instead, it is to suggest that 
despite some of the finger pointing in the direction of Capitol 
Hill, the decision to curtail certain elements of foreign 
affairs spending has been driven by stark budgetary realities 
that both the administration and Congress realize.
    Moreover, these are the same realities that the Foreign 
Relations Committee recognized 2 years ago when it passed a 
State Department reorganization plan that would have yielded 
substantial savings. Now, obviously, as the Congress and the 
administration work toward a balanced budget, both branches are 
learning to live within new limitations. As a result, tough 
decisions in setting budget priorities must be made, and both 
branches should be prepared to take full responsibility for 
    Now, having said that, I want to make it absolutely clear 
that there is not a single member of this subcommittee or the 
Foreign Relations Committee who wants to see America's ability 
to conduct foreign policy undermined by vastly outmoded 
technology, by crumbling overseas facilities, or inadequate 
security for our U.S. diplomats. The challenge facing the 
administration is to demonstrate that not only have the 
fundamental needs been neglected, but also that the State 
Department has proposed the most effective and efficient 
solutions to meet these needs. If this is done, I believe you 
will find strong bipartisan support for these key areas of your 
    However, past experience should motivate Congress also to 
exercise thorough oversight regarding budget plans. Of course 
one notable example is the construction of the new American 
embassy in Moscow. Hundreds of millions of dollars have been 
wasted in a seemingly futile effort to address security 
problems, and the embassy is still not complete.
    I believe it is also reasonable for Congress to ask how 
some of the budgetary constraints for the State Department's 
fundamental needs have been compounded. For instance, let us 
look at the effort currently underway to modernize information 
technology. It is easy to poke fun at the Wang computers that 
still sit on so many desks at the State Department, but these 
monuments to 1970's technology did not just arrive there last 
year. In fact, this type of computer technology has been 
outdated for more than a decade.
    I understand that continued reliance on the State 
Department's Wang computers now presents an additional dilemma 
as the Agency tries to address the year 2000 problem in a cost-
effective manner. The essential question is whether this 
administration, and possibly previous administrations, have 
given sufficient priority in the past to maintain adequate 
information technology within the context of the entire 150 
    In some ways, this obviously goes beyond the scope of this 
hearing, but the administrative costs cannot be considered in a 
vacuum. It is more than a little puzzling that the 
administration has continued to request millions of dollars for 
certain development assistance programs which have not been 
proven effective, while the technology infrastructure that is 
necessary to carry out U.S. diplomacy has become woefully 
    But in any case, this hearing is really the Senate's first 
opportunity this year to examine the State Department's 
operations and programs in depth.
    So, again, Mr. Kennedy, we want to welcome you here to 
present the Department of State's Administration of Foreign 
Affairs budget for fiscal year 1998, and also to outline the 
Department's priorities. I hope that this hearing will be the 
first step in getting down to business to craft the 
legislation, within the context of a balanced budget, that 
adequately funds the infrastructure the United States needs to 
advance its foreign policy objectives.
    So, again, I want to welcome you. I see Senator Feinstein 
is here as well this morning, and I would like to turn it to 
you for your opening statement.
    Senator Feinstein. Thank you very much, Mr. Chairman. Let 
me begin by offering my congratulations on your chairmanship of 
this committee.
    Senator Grams. Thank you.
    Senator Feinstein. I was particularly impressed to learn 
you were in fact a delegate to the United Nations, and I look 
forward to your expertise as we try to restructure a much 
better and more positive relationship, bring reform to the 
United Nations, and, eventually, pay our dues.
    This hearing may not make front-page news, but I believe 
that the discussion that we start today is at least as 
important to the future of the world community as anything else 
that is happening in the world today. For well over a decade, 
the United States has been steadily reducing the amount of 
money it devotes to international affairs, its Agencies, and 
its programs. When current figures are adjusted for inflation, 
these cuts in recent years have been significant -- 50 percent 
since 1984. Fifty percent.
    As we move toward a new millennium and the creation of a 
new international system, the United States must have the 
resources to ensure that strong and proactive diplomacy secures 
American prosperity and security in the years to come.
    In 1991, the Soviet Union collapsed. By many measures of 
power, the United States is stronger today than at any time in 
the 20th century. Yet we are consuming our National security 
capital and diminishing our future influence by refusing to 
make necessary investments today. We put at risk our ability to 
continue to safeguard our future at precisely the time when we 
need to be able to act decisively to define the post-cold war 
world that is coming into being.
    There are many who believe the world is a safer place 
because of the Soviet Union's collapse. I am not one of them. 
With 30 wars now raging across the globe, with the growth of 
regional and ethnic conflict, with the ability to smuggle 
nuclear technology the world, in my view, is not at all a safer 
    Now, I do not suggest that we indiscriminately throw money 
at the Department of State or at any other Department. But I do 
believe that we must work together to create a more effective 
and efficient Department of State, and one that is really 
better able to handle the problems I have just enumerated -- 
the outbreak of regional and ethnic conflicts, the spawning of 
nuclear technology illegally around the world, the renegade 
states that potentially offer great threat to our own 
prosperity and our own security.
    So I was pleased to see that the administration has 
requested an increase in funds for international affairs in the 
1998 budget request. I have a number of questions.
    I must tell you I was delighted to hear, Mr. Chairman, when 
you mentioned crumbling facilities and outmoded technology, 
because I have been in many of our crumbling facilities and 
outmoded technological missions abroad, particularly, I must 
tell you, in Asia. In China, the most populous nation in the 
world, our embassy is in great disrepair. I have been there 
many, many times. I have never seen a single frill. I have seen 
leaking roofs. I have seen broken and outmoded facilities. I 
have seen very little modern technology.
    So the needs are there. I think our ability to respond to 
them, particularly at this time, when the world is once again 
going through a transition of leadership in the largest country 
in the world, is extraordinarily important.
    I look forward to working with you. I welcome Mr. Greene 
and Mr. Kennedy, and look forward to their comments.
    Senator Grams. Thank you very much, Senator.
    Senator Smith, did you have an opening statement that you 
would like to make?
    Senator Smith. Just, Mr. Chairman, congratulations on your 
    Senator Grams. Thank you.
    Senator Smith. I look forward to serving on your committee, 
and I welcome the witnesses.
    Senator Grams. Thank you very much. Senator Robb.
    Senator Robb. Thank you, Mr. Chairman.
    I am not a member of the subcommittee, but as a member of 
the full committee, I recognize the importance of the 
jurisdiction that this committee has, particularly at this 
important period. Your statement and Senator Feinstein's 
statement reflect the gravity of the kinds of choices that we 
are going to have to make. Although I will not be able to 
remain for the full hearing, I wanted to at least hear part of 
the presentation that our principal witness is going to make 
today, because we are all going to have to grapple with the 
ultimate conclusions of the subcommittee.
    I thank you.
    Senator Grams. I thank you for being here. Thank you very 
    Mr. Kennedy, I would like to open it up for you to have 
your opening statement. I would just request you try to keep it 
to about 10 minutes, and a reminder that your full statement 
will be entered into the record as if read.


    Mr. Kennedy. Thank you very much, Mr. Chairman. I am 
pleased to appear before the committee today, and I definitely 
appreciate your opening remarks about the need for appropriate 
diplomatic readiness.
    The Senate Foreign Relations Committee has a long history 
of assisting the State Department in its efforts to advance the 
foreign policy interests of the American people. Your efforts 
have been invaluable in the past, and I am seeking it again 
today as I testify in support of the Department of State's 
fiscal year 1998 budget request for those accounts which fund 
State Department operations.
    At your request, I will not read my entire statement today. 
I appreciate your entering the full statement in the record, 
and I will then summarize the major points.
    Secretary Albright spoke eloquently before this committee 
during her confirmation hearings about the foreign policy 
requirements that underpin this budget request. She outlined 
the principal foreign policy challenges before us today, and 
pointed to the challenges that lie ahead of us in what remains 
of the century.
    In order to meet these challenges, there is a real need for 
diplomatic readiness -- maintaining, or in many cases 
restoring, the human and material infrastructure that allows 
the Secretary and others, whether they work for the State 
Department or other Agencies of the U.S. Government, to advance 
the national policy agenda overseas.
    This is not an easy burden. To support and advance American 
interests around the world, the State Department maintains some 
250 diplomatic and consular posts in 164 countries. These 
platforms are the home bases not only for the Department of 
State, but also for more than 200 other U.S. Government 
entities that help support and advance American interests.
    The operation of these platforms clearly supports the 
Department's request for the amount specified in the 
President's budget, both for our own operations as well as for 
those we carry out as a provider of support services to all 
Agencies with an overseas presence.
    In order to help improve our ability to manage such a 
worldwide operation, and ensure that every tax dollar is wisely 
utilized, the Department has made significant progress on a 
number of important management issues. I will speak about them 
later in my presentation.
    Finally, we are making increasingly greater use of 
strategic planning -- in compliance with the Government 
Performance and Results Act -- to ensure that we allocate our 
scarce resources to the highest priorities. Let me begin by 
highlighting the major elements of our budget request.
    We need to fund mandatory pay raises -- and overseas as 
well as domestic inflation. We must continue to improve our 
information technology infrastructure. Our budget request seeks 
$40 million additional for funding in this area. We need 
additional funding for other initiatives as well -- hosting 
important international conferences, upgrading our entire 
infrastructure in China, and complying with legislated arms 
control mandates.
    We must continue to support an aggressive Border Security 
Program, particularly by upgrading consular systems, employing 
new technologies, and adequately funding worldwide consular 
operations. We must maintain our overseas inventory of 
facilities to promote operational efficiency, employee health 
and safety, and an extended useful life for our buildings.
    In her confirmation hearings before this committee, 
Secretary Albright noted that American leadership in the world 
derives from having the full range of foreign policy tools, 
including military force and vigorous diplomacy. We need to 
approach diplomacy with the same commitment that has made our 
Armed Forces what Secretary Albright referred to as the best-
led, best-trained, best-equipped, and most respected in the 
    Diplomatic readiness is the basic foundation of a vigorous, 
constant, creative, and effective diplomacy. There are three 
principal components of diplomatic readiness:
    The first is human resources. We need a work force that 
reflects the vigor and diversity of the Nation it represents. 
We also need the right number of skilled employees -- with 
foreign language, functional, and technical expertise -- who 
are well prepared to represent the varied interests of the 
United States overseas, build effective relationships with 
their international counterparts, exercise foreign policy 
leadership, protect American citizens, and provide operational 
support for the conduct of foreign affairs.
    The second is information. We need highly qualified 
personnel and the information technology capability to gather, 
analyze, and communicate information efficiently.
    Infrastructure and Operations is the third component. We 
need well maintained office and overseas residential 
facilities, supported by efficient administrative, financial, 
logistical, and security systems, which enable employees to 
conduct business properly at home and abroad.
    Diplomatic readiness helps achieve real foreign policy 
goals. For example, how can we maintain constructive relations 
with the great powers without the right people with the right 
skills in our most important diplomatic missions?
    How can we advance the Nation's economic and commercial 
interests abroad without properly trained and equipped 
personnel in the right places to help break down trade 
barriers, support U.S. business, and negotiate mutually 
beneficial investment and tax agreements?
    How can we effectively promote consular services to 
American citizens traveling and living abroad if we 
successively reduce budgets that cause us to close more 
overseas posts or reduce staffing at the posts that we are able 
to keep open?
    There has been a cumulative, negative impact on our 
diplomatic readiness produced in recent years by the flat 
budgets the Department has had since 1993. Information systems 
have, as you have noted, fallen behind in technology, 
interconnectivity, and reliability. Buildings, as Senator 
Feinstein has noted, require substantial renovation.
    For well over a decade, we have not been able to maintain 
realistic replacement cycles for critical equipment that 
support overseas operations, such as computers, telephone 
systems, vehicles, and office and residential equipment. 
Staffing gaps, even at key embassies, are now the rule, rather 
than the exception.
    Language training, arguably the most important training 
done at the National Foreign Affairs Training Center, has been 
cut back. Other training has been reduced even further. Without 
adequate security resources, the risks to our personnel, 
facilities, and information will soon exceed what is prudent.
    The Department has recently undertaken a number of 
management initiatives, which are designed to make the optimal 
use of the human and material resources that you provide us. 
The first is called ICASS, the International Cooperative 
Administrative Support Services system, which is a new way to 
manage and fund administrative support for all U.S. Government 
Agencies operating abroad. ICASS will fund and provide detailed 
information for senior managers so that for the first time they 
will have information on the full costs of overseas support, 
with the objective of obtaining quality services at the lowest 
possible cost.
    At the mission level, these costs will be distributed 
equitably and transparently under the guidance of a local ICASS 
council, composed of representatives of all U.S. Government 
    Logistics Re-engineering: The Department's logistics re-
engineering project is redesigning worldwide logistics support 
operations. Work will be organized around the total logistics 
process to provide materiel and services faster, better and 
cheaper. We hope to achieve greater efficiency in operations, 
move work from complex and expensive channels to simpler and 
more economical processes, and reduce inventory carrying costs, 
as well as transportation and internal processing costs.
    Our Overseas Staffing Model calculates staffing 
requirements for overseas posts based on their workload -- 
consular and administrative staffing -- or derivatively as a 
function of the post's global, regional, and bilateral foreign 
policy priorities, primarily political and economic staffing.
    Based on the relational assessment of the post staffing 
requirements worldwide, the model provides Department 
management with an analytical tool for allocating personnel 
resources consistent with foreign policy objectives and 
priorities, adjusting staffing levels proportionately to deal 
with any funding level for personnel, and determining staffing 
levels for any new posts. This staffing model will be 
revalidated on a regular basis.
    Border Security: The Department has an ambitious border 
security program that includes deploying advanced technology to 
all consular posts within 3 years. State and other agencies are 
actively sharing data to enhance the U.S. Government's ability 
to screen out terrorists, narco-traffickers, and other 
    Every visa-issuing post now has a sophisticated, automated 
name-checking system to help prevent the issuance of visas to 
people who should not receive them. Every post now also 
utilizes the Machine Readable Visa System, which offers 
numerous security features to help strengthen border security.
    In recent years, the infrastructure deficit has had a 
dramatic impact on many elements of the Department's 
information handling systems, as has been noted. For example, 
over 40 percent of the Department's overseas telephone switch 
gear is obsolete, 82 percent of all our radio equipment 
overseas is obsolete, and 55 percent of our overseas computer 
equipment is also obsolete.
    Like all organizations in the public and private sector, 
the Department must also accelerate planning for and 
implementation of measures to solve the year 2000 dilemma, as 
the chair has noted.
    A key strategy that we will actively pursue beginning in 
fiscal year 1998 is the retention of revenues generated by all 
fees. In the past, we have retained only those fees for the 
Machine Readable Visas and for expedited passport processing. 
In fiscal year 1998, we expect to retain the fees sufficient 
to: Support the delivery of high-quality standardized consular 
services that the American citizens expect from their 
Government, implement an effective immigration policy, improve 
the Nation's border security, and contribute to the delivery of 
other critical services.
    The Department is responsible for the acquisition, 
operation, and maintenance of some 12,000 office, residential, 
and other properties abroad, which support some 200 U.S. 
Government entities at over 250 posts. The Real Estate Asset 
Management Program disposes of unneeded properties and uses the 
proceeds to meet higher priority real property needs. This 
program generated $59 million in the past two fiscal years, and 
with these funds and other appropriated balances, new 
facilities were purchased which now save the U.S. Government 
over $12 million every year in avoided lease costs.
    Diplomatic Security: The most important security issue that 
we face now is the need to combat the threat of terrorism 
worldwide, particularly in the Middle East. To meet this 
threat, the Counterterrorism Budget Amendment provided an 
additional $38 million in no-year funding for the Department, 
of which $23.7 million will be used for improving and 
emphasizing security upgrades.
    While producing an immediate response on the terrorist 
threat, the Bureau of Diplomatic Security must also develop a 
longer-term strategy for a more stable budget level to address 
security requirements worldwide. We rigorously apply a risk 
management strategy to the implementation of our security 
standards at all overseas posts. We calibrate the established 
generic standards and countermeasures to meet specific posts, 
specific threats, and specific times. This technique avoids the 
waste inherent in using a one-size-fits-all approach to meeting 
security standards, and allows the Department to husband scarce 
security resources.
    The Department has also expanded its outreach to the U.S. 
business community overseas through the Overseas Security 
Advisory Council, which helps protect life and facilities 
through information-sharing activities, involving over 1,500 
American businesses having overseas operations.
    The State Department has also actively engaged in a 
strategic management process that includes meeting the 
requirements of the Government Performance and Results Act. 
Under the leadership of an advisory group of nine assistant 
secretaries, strategic planning teams are developing an 
overarching International Affairs Strategic Plan, covering all 
U.S. Government activities abroad and, based upon that plan, a 
Department of State Strategic Plan.
    Once reviewed by senior leadership, the plans will be the 
subject of consultations with our stake holders and customers, 
including other Agencies, OMB, and the Congress, in the coming 
    Finally, the Department already requires overseas missions 
and bureaus in Washington to prepare annual performance plans, 
which will now be derivative of the Department's strategic 
    In conclusion, Mr. Chairman, when Secretary Albright 
testified on the President's budget request before the House 
International Relations Committee, she observed that there will 
be many occasions, in many places, where we will rely on 
diplomacy to protect our interests, and we will expect our 
diplomats to defend those interests with skill, knowledge, and 
spine. But she also noted that we cannot have world-class 
diplomacy on the cheap. We must invest the resources required 
for American leadership.
    Mr. Chairman, that last sentence is the essence of my 
message today. To carry out a reasonable, forward-looking U.S. 
foreign policy -- one that advances the national interest 
everywhere in the world -- requires the level of diplomatic 
readiness that the President's fiscal year 1998 budget request 
supports. Give us the tools we need, and together we will do 
the job -- and do it well.
    Thank you very much.
    [The prepared statement of Mr. Kennedy follows:]
                   Prepared Statement of Mr. Kennedy
Introductory Remarks

    I am delighted to be here to testify in support of the Department 
of State's FY 1998 budget request for those accounts which fund 
Departmental operations. The opportunity to appear before you today is 
extremely important; the effort to secure the funding that will allow 
American diplomacy to do its job is one in which I believe and to which 
I am fully committed.
    Secretary Albright has already spoken eloquently before this 
Committee, and on other occasions in other fora, about the substantive 
foreign policy requirements that underpin this budget request. She has 
outlined the principal foreign policy challenges before us today, and 
pointed to the challenges that lie ahead of us in what remains of the 
century and beyond. In order to meet these challenges, there is a need 
for ``diplomatic readiness'' -- maintaining, or in many cases 
restoring, the human and material infrastructure that allows the 
Secretary and others, whether they work for the State Department or 
other agencies of the US Government, to advance the national policy 
agenda overseas.
    This is not an easy burden. To support and advance American 
interests around the world, the Department of State maintains some 250 
diplomatic and consular posts in 164 countries. These ``platforms'' are 
the home bases for not only the Department of State but also for more 
than 200 other US Government entities who help support and advance 
American interests. These platforms involve operating in 150 different 
foreign currencies, developing local compensation plans for every 
country where we have diplomatic and consular posts, maintaining 12,000 
buildings, and supporting 23,000 State Department employees -- American 
and foreign nationals, overseas and here at home -- and another 20,000 
employees of other US Government agencies overseas. Our 
telecommunications facilities handle over 4 million telegrams per year, 
our Passport Agency issues over 6 million passports annually, our 
overseas posts issue over 8 million visas each year, and our consular 
officers overseas annually respond to over 2 million requests for 
American citizen services.
    The operation of these platforms clearly supports the Department's 
request for the amount specified in the President's budget, both for 
our own operations as well as for those we carry out in our role as a 
provider of support services to all agencies with an overseas presence. 
In order to help improve our ability to manage such a world-wide 
operation, and insure that every tax dollar is wisely utilized, the 
Department has made significant progress on a number of management 
initiatives that deserve both your attention and your continuing 
support. I will speak about them later in my presentation.
    Finally, we are making increasingly greater use of strategic 
planning -- in compliance with the Government Performance and Results 
Act of 1993 -- to insure that we allocate our scarce resources to the 
highest priorities. We are doing this at the broad, international 
affairs level, and at the overall Department level and within our 
organization at the bureau and program levels. However, strategic 
planning -- while focusing resources on high-priority goals -- does not 
allow us to fund all of the foreign policy objectives that make up our 
national security agenda.

Budget Summary Comments

    Let me begin by highlighting the major elements of our budget 
request, before I discuss the programs and activities that contribute 
to ``diplomatic readiness'' and the management initiatives which we are 
implementing to manage our resources more effectively.

1. We need to fund mandatory pay raises and overseas as well as 
    domestic inflation.
2. We must continue to improve our information technology 
    infrastructure -- installing telecommunications systems, local area 
    networks, personal computers, and software; modernizing our 
    corporate information systems. Our budget request seeks $40 million 
    additional funding in this area.
3. We need additional funding for other initiatives as well -- hosting 
    the International Telecommunications Union Plenipotentiary 
    Conference and an international environmental cooperation 
    conference, upgrading our entire infrastructure in China, and 
    complying with legislated arms export control mandates.
4. We must continue to support an aggressive Border Security Program, 
    particularly by upgrading consular systems, employing new 
    technologies, and adequately funding worldwide consular operations.
5. We must maintain our overseas inventory of facilities to promote 
    operational efficiency, employee health and safety, and an extended 
    useful life for our buildings. We will continue to use the proceeds 
    of sales to make cost-effective real property purchases where there 
    is both a demonstrated need and documented cost benefits.

Diplomatic Readiness

    Secretary Albright, in the statement submitted to this Committee 
for her confirmation hearing last month, noted that American leadership 
in the world derives from having the full range of foreign policy 
tools, including military force and vigorous diplomacy. The Secretary 
also cited the direct contribution to sustained American leadership 
over the past half-century made by a constant and creative diplomacy. 
Noting that one of her principal tasks will be to work with the 
Congress to ensure that we have the diplomatic representation that our 
people deserve and our interests demand, she pointed out that ``first-
class diplomacy'' requires a serious investment of resources.
    We need to approach diplomacy with the same commitment that has 
made our Armed Forces what Secretary Albright referred to as the 
``...best-led, best-trained, best-equipped, and most respected in the 
world.'' Diplomatic readiness is the human and material infrastructure 
that allows us to advance our national policy agenda overseas. It is 
the basic foundation of a vigorous, constant, creative, and effective 
diplomacy. Diplomacy can prevent many crises, but it must also be 
poised to devote its resources to those crises which cannot be 
    There are three principal components of diplomatic readiness:

1. Human Resources: We need a workforce that reflects the vigor and 
    diversity of the nation it represents. We also need the right 
    number of skilled employees -- with foreign language, functional, 
    and technical expertise -- who are well prepared to represent the 
    varied interests of the United States overseas, build effective 
    relationships with their international counterparts, exercise 
    foreign policy leadership in embassies abroad and in Washington, 
    protect American citizens, and provide operational support for the 
    conduct of foreign affairs
2. Information: We need highly qualified personnel and the information 
    technology capability to gather, analyze, and communicate 
    information efficiently.
3. Infrastructure and Operations: We need well maintained office and 
    overseas residential facilities, supported by efficient 
    administrative, financial, logistical, and security systems which 
    enable employees to conduct business properly at home and abroad.

    But ``diplomatic readiness'' is also much more than words like 
human resources, infrastructure, and information normally evoke. 
``Diplomatic readiness'' has a much more direct link to achieving real 
foreign policy goals than is apparent from those words. For example:

   How can we maintain constructive relations with great powers 
        if we do not have the right people with the right skills 
        present in our most important diplomatic missions? Think of 
        Russia, and the critically important transformation it is 
        currently undergoing. And reflect on how important it is for 
        our future that we have good information about and good 
        communications with our former global adversary.
   How can we advance the nation's economic and commercial 
        interests abroad without properly trained and equipped people 
        in the right places at the right time to help break down trade 
        barriers, support US business efforts in foreign markets, and 
        negotiate mutually beneficial investment and tax agreements 
        with foreign governments?
   How could we have made meaningful contributions to 
        preventing the spread of weapons of mass destruction and 
        promoting peaceful solutions to regional conflict if we had not 
        been able to establish and staff properly embassies in the new 
        countries that emerged from the collapse of world Communism?
   And how can we effectively provide consular services to 
        American citizens traveling or living abroad if successively 
        reduced budgets cause us to close more overseas posts or reduce 
        staffing at the posts we are able to keep open?

    ``Diplomatic readiness'' is sustained, primarily but not 
exclusively, by the Administration of Foreign Affairs title of our 
appropriations. The increase above the estimated FY 1997 level we are 
requesting -- just under $60 million -- is a genuinely modest increment 
when you consider the return in terms of advancing our national 
interests that this investment can achieve. And it appears even more 
modest if one considers the cumulative, negative effects on our 
``diplomatic readiness'' produced in recent years by the flat budgets 
the Department has had since 1993.
    Let me review some of those negative effects.

   Information systems have fallen behind in technology, 
        interconnectivity, and reliability.
   Buildings require substantial renovation.
   For well over a decade, we have not been able to maintain 
        realistic replacement cycles for critical equipment that 
        supports overseas operations like computers, telephone systems, 
        vehicles, and office and residential equipment. And the 
        situation gets worse every year.
   Staffing gaps, even at key embassies, are now the rule, not 
        the exception.
   Language training, arguably the most important training done 
        at the National Foreign Affairs Training Center, has been cut 
        back. Other training -- the professional development, area 
        studies, and functional/technical courses -- has been reduced 
        even further.
   We must continue to address a security infrastructure gap. 
        Without adequate resources, the risks to our personnel, 
        facilities, and information will soon exceed what is prudent.

Management Initiatives

    The Department has undertaken a number of management initiatives 
over the past year which I would like to review for you today. They are 
all worthy of your attention, and are designed to help us make optimal 
use of the human and material resources you provide us.


        The International Cooperative Administrative Support Services 
        (ICASS) system is a new way to manage and fund administrative 
        support for all US Government agencies operating at diplomatic 
        missions abroad. ICASS is a customer-driven system that depends 
        upon the active involvement of all users. It will also capture 
        direct and indirect costs.

        Additionally, under ICASS, several categories of overseas costs 
        previously paid by the Department from its own base funding 
        (such as building operating expenses for government-owned and 
        long-term leased properties, and non-residential local guards), 
        -- which total about $100 million -- will be shared by all 

        ICASS will provide senior managers for the first time with 
        information on the full costs of overseas support, with the 
        objective of obtaining quality services at the lowest possible 
        cost. At the mission level, these costs will be distributed 
        equitably and transparently under the guidance of a local ICASS 
        council composed of representatives of all US Government 

        The financial underpinning of ICASS is the Department's Working 
        Capital Fund (WCF). Using the WCF will capture various costs 
        that comprise overseas administration and make reimbursement 
        more transparent and more equitable than under the old process. 
        During FY 1997, the Department is operating under ``virtual'' 
        ICASS, i.e., using ICASS methodology and the WCF, although 
        still billing other agencies under the old reimbursement 
        process (FAAS). In FY 1998, ICASS will go ``live.'' The 
        Administration will be submitting a budget amendment shortly to 
        reflect those shared administrative costs that will now be 
        borne by other agencies. We ask your support for that 

Logistics Re-engineering

        Antiquated and costly logistics operations have historically 
        impaired overall performance and reduced diplomatic readiness 
        for all US Government agencies operating overseas. 
        Additionally, funds for replacement systems and equipment have 
        been reduced over recent years, thus increasing maintenance 
        costs and rendering most operations significantly less 

        The Department's logistics re-engineering project is 
        redesigning worldwide logistics support operations. Work will 
        be organized around the total logistics process to provide 
        materiel and services better, faster, and cheaper. 
        Implementation of this project has begun, and it is expected to 
        take approximately two years. Affecting about 600 employees in 
        different organizations, 200 of whom are contractors, the 
        establishment of the new logistics management organization will 
        be started following a reprogramming notification to the 

        We anticipate savings will accrue from greater efficiency in 
        operations, and from the movement of work from complex and 
        expensive channels to simpler and more economical processes. 
        Other savings will come from reduced inventory carrying costs, 
        transportation and internal processing costs, and from less 
        dependence on contractors. Also, replacing about 30 old 
        computer applications with just a handful of new ones will 
        avoid the cost of upgrading and conversion, and reduce out year 
        maintenance and operating expenses. More efficient service 
        delivery and increased satisfaction on the part of internal 
        customers are also principal goals of this re-engineering 

        Overseas Staffing Model (OSM)

        After an intensive development project, we have produced the 
        Overseas Staffing Model (OSM). The OSM calculates staffing 
        requirements for overseas posts based on workload -- either as 
        objective data (consular and administrative staffing) or 
        derivatively as a function of the post's global, regional, and 
        bilateral foreign policy priorities (primarily political and 
        economic staffing). Based on the relational assessment of post 
        staffing requirements worldwide, the Model provides Department 
        management with an analytical tool for: (1) allocating 
        personnel resources consistent with foreign policy objectives 
        and priorities; (2) adjusting staffing levels proportionately 
        to deal with any funding level for personnel; and (3) 
        determining appropriate staffing levels for new posts.

        The OSM, which will be revalidated on a regular basis, provides 
        staffing guidelines not rigid templates to be applied 
        universally. There will always be special circumstances 
        produced by shifting policy priorities, the way in which 
        diplomatic relations are or must be conducted in certain 
        countries, and the ability to get work done in certain 
        environments. We have begun the validation process for the 
        staffing levels proposed by the OSM. We asked overseas 
        diplomatic missions to evaluate in this year's Mission Program 
        Plan submission how they would carry out their responsibilities 
        under the Model's proposed staffing levels.

        The Overseas Staffing Board (OSB) will review these findings 
        later this spring, and make whatever adjustments to post 
        categories are required. The OSB is expected to meet twice a 
        year to provide the Under Secretary for Management with 
        recommendations for staffing changes

        Border Security

        The Department has an ambitious border security program that 
        includes deploying advanced technology to all consular posts 
        within three years. State and other agencies are actively 
        sharing data to enhance the US Government's ability to screen 
        out terrorists, narco-traffickers, and other criminals. For 
        example, the Department -- in cooperation with the Immigration 
        and Naturalization Service (INS) -- is developing a prototype 
        system to capture fingerprint information on non-immigrants 
        from high-crime areas.

        Every visa-issuing post now has a sophisticated, automated 
        name-checking system to help prevent visa issuance to persons 
        whose presence in the US would constitute either a security 
        concern or be contrary to our immigration law. Every post now 
        also utilizes the Machine Readable Visa (MRV) system, which 
        offers numerous security features which strengthen US border 

        The Department's Bureau of Diplomatic Security (DS) has frilly 
        trained law enforcement agents in many US embassies abroad, and 
        works closely with our domestic passport agencies to 
        investigate the whole range of passport and visa offenses. DS 
        agents have doubled their number of passport and visa fraud 
        related arrests from 256 in 1992 to 567 last year.

        Since 1994, the Department has been authorized to collect and 
        retain fees from the issuance of MRVs for consular operations 
        and to enhance border security activities. Projected FY 1997 
        collections in MRV fees, which also help fund investments in 
        information management and communications networks, total $137 

Information Technology

        In recent years, the infrastructure deficit has had a dramatic 
        impact on many elements of the Department's information 
        handling systems. For example: About 40% of overseas telephone 
        switch gear is obsolete; 82% of all radio equipment overseas is 
        obsolete; and 55% of overseas computer equipment is obsolete.

        The Department has submitted its Strategic Plan for Information 
        Resource Management, as well as an associated tactical plan, to 
        the Congress. As part of the strategic planning process, the 
        Department has created a cost model for needed improvements to 
        meet the infrastructure and communications needs by the year 
        2001. Although the Department has not yet initiated a formal 
        Workforce study, our initial review already indicates 
        significant weaknesses in both total staffing and skill levels 
        needed to meet existing and expanded responsibilities by the 
        year 2001.

        Like all organizations in the public and private sector, the 
        Department must accelerate planning for and implement measures 
        to ``solve'' the problems posed by the Year 2000 dilemma -- the 
        fact that almost all current software and some hardware 
        recognize only two digits in a date, and thus will register the 
        year 2000 as 1900. This alone is expected to cost $135.2 
        million. To the extent that the Department will be required to 
        reprogram funds to cover such costs, such reprogramming could 
        divert resources that would otherwise go towards modernizing 
        our antiquated information technology capabilities.

Fee Retention

        A key budget strategy that we will actively pursue beginning in 
        FY 1998 is the retention of revenues generated by all fees. In 
        the past, we have retained only fees for Machine Readable Visas 
        (MRVs) and for expedited passport processing. In FY 1998 we 
        expect to retain fees sufficient to:

        1. support the delivery of standardized, high-quality consular 
            services that American citizens expect from their 
        2. implement an effective US immigration policy;
        3. improve the nation's border security; and
        4. contribute to the delivery of other critical services.

        In the long run, we expect to see gains in operational 
        efficiency and improvements in the way we manage our resources. 
        A user-charge system will enable us to gauge public demand for 
        services and to shift our resources to meet these needs. The 
        schedule of fees for consular services is also being revised, 
        with an eye toward updating the services provided overseas. 
        Services originally established in the days of sailing ships 
        are being streamlined and modernized.

Asset Management

        The Department is responsible for the acquisition, operation, 
        and maintenance of over 12,000 office, residential, and other 
        properties abroad which support some 200 US Government entities 
        at over 250 embassies, consulates, and other posts abroad. The 
        Department continually reviews its real property inventory to 
        determine which properties are no longer needed, which are too 
        big or too small, which are too expensive to maintain, and 
        which need improvements. The real estate asset management 
        program disposes of unneeded properties and uses the proceeds 
        to meet higher priority real property needs.

        This program generated $59 million in the last two fiscal 
        years, and with these funds and other appropriation balances 
        new facilities were purchased which are now saving over $12 
        million annually in avoided lease costs -- a saving which will 
        recur every year. Keeping leasehold costs under control is 
        critical to preserving funding for even a modest maintenance 
        and rehabilitation program, which is critical to the protection 
        of life and property, and to preserving the value of our real 

Diplomatic Security

        The most important current security issue is the need to combat 
        the threat of terrorism worldwide, especially in the Middle 
        East. To meet this threat, the Counterterrorism Budget 
        Amendment provided an additional $38 million in no- year 
        funding for the Department, of which $23.7 million will be used 
        for improvements emphasizing security upgrades (both physical 
        and technical security) and the deployment of additional 
        security personnel to the Middle East region.

        While producing an immediate response on the terrorist threat, 
        the Bureau of Diplomatic Security (DS) must also develop a 
        longer term strategy for a more stable budget level to address 
        the full scope of security requirements worldwide. After five 
        years of security infrastructure erosion, DS will begin to 
        address its highest needs both in terms of national security 
        information as well as personnel security. DS is also working 
        with other elements of the Department to develop cost-sharing 
        procedures for overseas security and for domestic criminal 
        investigations, using fees generated by the Machine Readable 
        Visa program to fund operational and systems support for the 
        ``border security'' initiative.

        DS has rigorously applied a risk management strategy to the 
        implementation of its security standards at all overseas posts. 
        We calibrate the established generic security standards and 
        counter-measures to meet specific threats at specific posts at 
        specific times. This technique avoids the waste inherent in 
        using a ``one-size-fits-all'' approach to meeting security 
        standards and allows the Department to husband scarce security 

        DS has also expanded its outreach to the US business community 
        overseas through the Overseas Security Advisory Council (OSAC). 
        Begun in 1994, OSAC has focused its efforts on the protection 
        of life and facilities, and accomplishes this through various 
        information-sharing activities involving over 1,500 American 
        businesses having overseas operations. In recent years OSAC has 
        also begun to focus on the protection of information with the 
        increase in international industrial espionage.

Strategic Planning

        The Department's is actively making progress in strategic 
        management, including meeting the requirements of the 
        Government Performance and Results Act (GPRA) of 1993. Under 
        the leadership of an Advisory Group of nine Assistant 
        Secretaries, a Strategic Planning Team is developing an 
        overarching International Affairs Strategic Plan covering all 
        US Government activities abroad and, based on that plan, a 
        Department of State Strategic Plan. Once reviewed by senior 
        leadership, the plans will be the subject of consultations with 
        our ``stake holders and customers'' (including other agencies, 
        OMB, and the Congress) in the coming months.

        Critical to our success is the development of meaningful 
        performance indicators, by which we can track our progress in 
        achieving goals and objectives. This task has been relatively 
        easy in the management area (such as consular operations, 
        administration, and diplomatic security). Policy areas in the 
        political and economic fields have proven to be more difficult.

        Finally, the Department already requires overseas missions, and 
        bureaus in Washington, to prepare annual performance plans 
        which will now be derivative of the Department's strategic 
        plan. The process in place now involves the development of 
        Mission Program Plans (MPPs) in the fall and Bureau Program 
        Plans (BPPs) in the spring. Efforts are underway to streamline 
        the process and to frilly integrate planning and other aspects 
        of resource management.


    Secretary Albright testified earlier this month before the House 
International Relations Committee to support the President's budget 
request for foreign policy resources. In addressing the variety of 
perils that have replaced the single, overriding threat of the Cold War 
era, she observed that ``there will be many occasions, in many places, 
where we will rely on diplomacy to protect our interests, and we will 
expect our diplomats to defend those interests with skill, knowledge, 
and spine.'' But she also noted that ``...we cannot have world-class 
diplomacy of the cheap. We must invest the resources required for 
American leadership.''
    Mr. Chairman, that last sentence is the essence of my appeal to you 
today. To carry out a reasonable, forward looking US foreign policy -- 
one which advances the national interest everywhere in the world -- 
requires the level of ``diplomatic readiness'' that the President's FY 
1998 budget request supports. Give us the tools we need, and we will do 
the job and do it well.

    Senator Grams. Thank you very much, Mr. Kennedy.
    We have been joined by Senator Biden. I would like to open 
it up for an opening statement if you would like to.
    Senator Biden. I will be very brief. Thank you, Mr. 
Chairman. I would ask unanimous consent that my entire 
statement be placed in the record as if read.
    Senator Grams. Without objection.
    Senator Biden. And I will just make two very brief points. 
One, I agree with Mr. Kennedy and Secretary Albright that it 
seems to me that the total number being requested is, from my 
view, a minimum number. I do not know how we can do less. 
Clearly, we can find savings. The committee has to work to 
eliminate wasteful or duplicate spending.
    But even if we were able to find considerable savings, 
assuming we agreed -- which we obviously would not, because you 
have submitted your best budget to us -- there are places where 
we should be spending more money. There are places we should be 
spending more money that I suspect you would like to have the 
money to spend, but you have not put it in your budget because 
you are realistic about what you think you can get.
    But, for example, if we find any savings -- and this is 
what one of the functions of this committee is -- I would not 
seek to use those savings to reduce the overall budget of the 
Department, but instead shift some of the resources. For 
example, the Department seeks $40 million to improve its 
information technology.
    Translated into non-State Department speak, that means 
telephones, that means computers, that means this State 
Department of ours is operating in a way, in terms of your 
technology base, like some companies were in 1980 or in 1978 in 
some case places. You need these kinds of upgrades. You need 
them badly. You need more than you have asked for, in my 
    A second point I would make, and then I will cease, Mr. 
Chairman, is that I would also, if we were able to find these 
savings here, I would caution my colleagues to look at whether 
or not we should really reduce the total number that some are 
talking about reducing. Because I would also redeploy some 
resources to ensure a much more robust diplomatic presence in 
Russia and the New Independent States, where our interests are 
in ensuring the success of the transformation from communism to 
democracy, from planned economies to market economies.
    This is a big, big deal. We are going to be judged, in my 
view, all of us, not just this committee, but everyone in 
Government -- my kids, who are just starting their careers, 
when their children are writing their graduate theses about the 
development of American foreign policy in the 20th century, 
they are going to look at this period and say we either hit a 
home run or we struck out. I mean this is a big deal.
    This is one of those rare instances in American diplomatic 
history where we are going to set the stage for what happens 
for the next 25 years. We do not get to do that very often. 
Usually, all we get to do is bend the curve a little bit, bend 
the curve of history slightly. Here we may be able to change 
the trajectory. We may not, but we have a chance, like we did 
in 1946, 1947, and 1948.
    So I think that redeployment of some of these assets are 
also something we should be considering. So, I am thankful that 
the administration and the witnesses are here to move, and the 
interest of the chairman and committee in this. But, again, I 
hope we are not looking at this in terms of -- we cannot afford 
-- I have heard the mantra -- we cannot afford to cut defense 
anymore, and I have shared that view. We cannot afford to cut 
the international budget anymore. We cannot afford to do it.
    At any rate, I thank you, Mr. Chairman, and thank you for 
allowing me to enter a more full statement in the record.
    [The prepared statement of Senator Biden follows:]
                  Prepared Statement of Senator Biden
    Mr. Chairman, today the committee begins a review of the budget of 
the Department of State.
    Of course, this review does not begin in a vacuum. We are all aware 
that a larger question looms: Whether to reorganize our foreign affairs 
    As I stated yesterday, I have an open mind about the question of 
reorganization. The stalemate of the last two years -- the result, in 
large part, of the paralysis of the election cycle -- need not 
    But everyone should understand that willingness to consider 
reorganization does not equate with a willingness to further reduce our 
budget for international affairs.
    Rather, the President's request of $19.5 billion for international 
affairs should be regarded as the bare minimum needed to assure that we 
can protect our interests around the globe.
    By any measure, spending on international affairs has dropped 
dramatically in the last several years. The $18.3 billion allocated to 
international affairs in fiscal 1997, if adjusted for inflation, is 25 
percent less than the average over the previous twenty years, and 
nearly one-third below the spending levels of a decade ago.
    As a bipartisan, blue ribbon panel recently stated: ``The cuts 
already made in international affairs [spending] have adversely 
affected, to a significant degree, the ability of the United States to 
protect and promote its economic, diplomatic and strategic agendas 
abroad. Unless this trend is reversed, American vital interests will be 
    It is commonly asserted that Americans have grown weary of 
international involvement and will not support adequate spending for 
international affairs. It is said that they are tempted by a so called 
    I believe this view underestimates the American people. The slogan 
``America first'' no doubt holds appeal. But as most Americans 
understand, we could not hide from the world if we tried.
    Instead, they understand that, even with the cold war over, our 
international responsibilities have not diminished. We face new 
security challenges in Europe and Asia, new narcotics threats in Latin 
America, and new proliferation challenges around the world -- to name 
just a few issues on the agenda.
    We cannot meet these responsibilities without adequate resources. 
In that regard, I am today sending a letter to the Senate Budget 
Committee in which I urge that the committee consider the President's 
budget request for foreign affairs -- the so called ``Function 150 
account'' -- as a floor for international affairs spending.
    Anything less should be regarded as a retreat from international 
    To be sure, the committee must seek to eliminate wasteful or 
duplicative spending. We should be rigorous in our oversight role -- in 
searching to reduce funding in areas that are no longer needed.
    But once we find those savings, I would not seek to reduce the 
overall budget for the Department -- but instead seek to shift those 
resources to areas of higher priority.
    For example, the Department seeks a $40 million increase to improve 
its information technology -- its computers and phones. This program is 
essential for the Department to carry out it basic mission.
    I would also redeploy resources to ensure that we have a robust 
diplomatic presence in Russia and the new independent states -- where 
our interests in ensuring the success of the transition from communism 
to Democratic capitalism are of critical importance.
    Mr. Chairman, I look forward to working with you and the Chairman 
of the Full Committee as we move forward in this process in the coming 

    Senator Grams. Thank you very much, Senator.
    Beginning on the questioning, Mr. Kennedy, as I said in my 
opening statement -- by the way, I think we will set a time of 
about 8 minutes in these rounds of questioning, which will give 
the Senators time, and time for you to respond adequately and 
not try to hurry it along, but to give a little bit of an 
opportunity. So, we will set the timer at 8 minutes, if that 
would be fine.
    Mr. Kennedy, again as I said in my opening statement, the 
subcommittee will not be engaging you today on the specifics of 
a State Department reorganization plan. However, I did want to 
mention that this issue did come up yesterday in Senator 
Hagel's subcommittee hearing on the budget for the Agency for 
International Development. My understanding is that, at that 
hearing, again, the distinguished ranking member of the Foreign 
Relations Committee, Senator Biden, made it very clear that he 
had an open mind on this issue. I want to express my 
appreciation to the Senator for his comments yesterday and to 
let him know as well that I want to work with him to craft a 
State Department reorganization plan which the committee as a 
whole can support.
    In that regard, Mr. Kennedy, let me just ask you if it is 
your understanding that the administration is developing a 
reorganization plan for the State Department and related 
foreign affairs agencies as well?
    Mr. Kennedy. Mr. Chairman, as Secretary Albright testified 
before this committee during her confirmation hearing, everyone 
at the State Department believes that it is very important to 
us to have an effective and efficient means to implement U.S. 
foreign policy. She and everyone have an open mind on this 
issue, and we look forward to continuing this dialog, because 
we do approach it with an open mind.
    Senator Grams. Can you tell us approximately maybe when 
this plan would be ready to come forward to this committee?
    Mr. Kennedy. The Secretary is personally addressing this 
Mr. Chairman.
    Senator Grams. But no timetable or -- --
    Senator Feinstein. Is personally -- I am sorry, is 
personally what?
    Mr. Kennedy. The Secretary has said she has an open mind on 
this and, as she indicated to this committee, she has an open 
mind on the subject.
    Senator Biden. Mr. Chairman, that is State Department-speak 
for he has no idea, and the Secretary has not begun to look at 
it yet.
    Senator Grams. I will make a note of that. I am learning 
the dialog.
    Senator Biden. But I promise you she will.
    Senator Grams. If I could just bring up one other 
housekeeping issue this morning, Mr. Kennedy. I have talked to 
Chairman Helms, and both of us have agreed that we want to move 
expeditiously to mark up the State Department authorization 
bill. Now, given that it is almost March, can you tell me how 
soon the State Department will be able to send us its 
legislative language for the basic authorizing or authorities 
that it is requesting for our fiscal year 1998?
    Mr. Kennedy. We are currently and actively working on our 
legislative package that would authorize not only the 
President's budget request, but update a number of State 
Department administrative procedures along the lines of good 
Government. I have every reason to believe and we hope that we 
are going to be able to submit this to you fairly soon.
    Senator Grams. Well, it would be for the committee's 
advantage and also for everyone else involved that it would be 
helpful if we could have the legislation from the State 
Department maybe by as early as next week. Would that be in the 
realm of possibilities?
    Mr. Kennedy. It is in the realm of possibility. We want to 
work with this committee and other key committees to make sure 
that we have the resources and the legislative authorities 
necessary to implement U.S. foreign policy in absolutely the 
best way possibility.
    Senator Grams. We appreciate the cooperation.
    The State Department's budget request includes a $40-
million increase in the capital investment fund, as Senator 
Biden mentioned, for the modernization of information 
technology infrastructure. Again, we can go back to phones and 
computers, and I know how they can be outdated. I bought a 
computer in 1990; in 1994 it was outdated. Everything had 
surpassed it as far as technology.
    In addition, you have sent Congress an extremely detailed 
tactical plan, describing the Department's ongoing investment 
in information resources management. I believe this is the 
binder of the plan that is involved with that?
    Mr. Kennedy. Yes, sir.
    Senator Grams. It is currently estimated to cost $2.7 
billion over 5 years. Could you describe for the subcommittee 
the nature of the crisis in information technology 
infrastructure that the State Department is facing?
    Mr. Kennedy. Certainly. As I mentioned earlier, 40 percent 
of our telephone switchboards overseas are now obsolete; 80 
percent of the radio equipment we use, both for emergency 
purposes and for management purposes abroad, is obsolete; and 
55 percent of the computer equipment at our posts abroad is 
obsolete. We arrived at this point because, over the last 
decade, the State Department's budget has declined in real 
purchasing power by about 17 percent. I am talking about now 
the State Department operating accounts for which I am 
    Over the last 5 years, the State Department's budget has 
been flat. During the last 5 years, we have also opened some 
score of new embassies in the former Soviet Union, in the 
Baltics, in the Balkans, and in South Asia. In order to open 
those new posts, which are very important for the 
implementation of U.S. foreign policy, the control of 
narcotics, the control of the spread of arms, to protect 
American citizens, to promote American business, to get the 
funds necessary to open those new posts with a static budget, 
we have essentially diverted funds from our replacement cycle, 
from our capital investment accounts--to open and establish 
those new posts, to obtain facilities for them, to buy them 
computer equipment, telephones, and to pay the salaries of the 
personnel at those installations. Many of those installations 
are exceedingly more expensive to operate in a relative sense 
because of their remote locations in Third and Fourth Worlds.
    So, over the past 5 years, the equipment replacement cycles 
that we should have been maintaining, especially in the 
information technology arena, have been essentially thrown out, 
and we have lived off the assets we now have. We have kept our 
current stock of computer equipment, our current stock of 
telephones, our current stock of radios, and simply used the 
funds that we should have used to replace that equipment to 
open these new posts. Now, we have reached the end of our rope.
    The equipment is literally dying. We have the year 2000 
problem that you have referred to, and therefore we need to 
move ahead. The $2.7 billion figure that is used in the 
tactical plan is for all costs, including the operation, the 
maintenance, the equipment replacement, the training, the 
applications. We currently spend now about $420 million a year 
on all the personnel costs that are related to information 
technology and information management on ongoing operations, on 
the important circuitry that links our far-flung network to 
Washington. But what we do not have is the replacement cycle.
    Senator Grams. What are the major initiatives or priorities 
that the State Department is proposing in the IRM plan to 
address what would be the most severe technology needs, 
especially those facing the immediate deadlines as you just 
mentioned--again, the 2000 problem?
    Mr. Kennedy. We have put together what is essentially an 
eight-point package, and let me just quickly run through that. 
First of all, to make sure we spend the money wisely, we need a 
coordinated standards and planning operation. We are 
implementing that through the aegis of the newly established 
chief information officer. On the year 2000 problem, we were 
given a grade of ``B'' by a recent Government Operations 
Committee, which I am not happy with; I much would prefer an 
``A,'' but I will settle for the ``B'' because I think it shows 
a significant degree of progress.
    Senator Grams. You did pretty good. Some got an ``F.''
    Mr. Kennedy. I understand that.
    One of the few advantages of having such antiquated 
equipment is that with the technology program we are putting 
into place, we can throw out all the old equipment, and we do 
not need to spend any money replacing that equipment. We have 
an infrastructure program that will put into effect the network 
that needs to be done. The $40 million will help bring the 
equipment to the desk top. We have an applications and software 
development group that is working to integrate the new 
equipment and the year 2000 issue and the far-flung network.
    We are going to spend just the minimum amount necessary on 
our legacy equipment, just to carry that limping forward until 
we get the new equipment in place. We have a training schedule 
in place for our human resources. Last, we have a configuration 
management committee that makes sure that everything we do fits 
together seamlessly, so that there is no waste.
    Senator Grams. And just to follow up quickly--I know my 
time is up, but what steps have you done to make sure that the 
new equipment that you buy and the technology you install will 
not become so obsolete so readily? Or how do you maintain the 
cutting edge, so to speak, of that technology? So what steps 
are you taking and how are we going to be assured that we do 
not invest today in something that is obsolete by the year 
    Mr. Kennedy. The combination of our chief information 
officer and our deputy assistant secretary for information 
management in the Bureau of Administration have formed a 
committee which has oversight from senior Department-level 
personnel. They are the ones what have put together the 
strategic plan and the tactical plan that has been submitted to 
the Congress.
    This plan builds in a 4-year replacement cycle, which is 
the current industry standard. That is part of the funding we 
seek. So, that everything does become obsolete, but it is not 
going to become obsolete faster than is rational and faster 
than industry standards would dictate. That is part of the 
strategic and tactical plan that is before you.
    We do not necessarily need to be cutting edge on 
everything. We just simply need to have a plan, which we 
believe we have submitted, that is rational and realistic.
    Senator Grams. And that it does the job?
    Mr. Kennedy. And that it does the job, yes.
    Senator Grams. Very good. All right. Thank you very much, 
Mr. Kennedy.
    Senator Feinstein.
    Senator Feinstein. Thank you very much, Mr. Chairman.
    Mr. Kennedy, I am just trying to understand some of this in 
the facility rehabilitation. You have a total request of $48.3 
million. That represents a $4.7 million increase. You are 
selling property. You hope to get, of those sales, as I 
understand it, $108 million from what is called major 
unbudgeted facility requirements. Is that a correct reading?
    Mr. Kennedy. We have split our efforts into two parts. We 
are seeking appropriated funds, as we have outlined in our 
budget, in order to carry a 5-year program. The General 
Accounting Office has identified some $250 million in deferred 
maintenance that must be caught up on. So, we are requesting 
facilities maintenance money on a 5-year schedule, in order to 
repair and rehabilitate our existing facilities. We know, in 
some locations, that we need new facilities.
    Senator Feinstein. But I think you are missing my point. 
These are unbudgeted facility--are these sales of things the 
Department would sell?
    Mr. Kennedy. That is the second part of our program.
    Senator Feinstein. That is what I am interested in.
    Mr. Kennedy. Yes.
    Senator Feinstein. What are they?
    Mr. Kennedy. OK. There are a number of locations where we 
know we do not have adequate facilities now. It is not that we 
can rehabilitate what we have; we simply do not have enough 
facilities. Examples might be Berlin. The German Government, by 
the year 2000 or 2002, is going to shift their capital of 
Germany from Bonn to Berlin. The Government of Nigeria is 
planning on moving their capital from Lagos to Abuja. We have 
never had an adequate embassy. We are now literally operating 
out of trailers in Luanda, Angola. So, we have these unbudgeted 
requirements. There is no capital program money submitted here.
    China, which you referred to earlier in your opening 
remarks, is another example where we have facilities that need 
to be rehabilitated. But even after we rehabilitate them, they 
will not be adequate. So, the State Department, under what we 
call our asset management program, has identified U.S. 
Government facilities around the world which we believe we can 
make excess to our needs. We will put those facilities on the 
market, generate proceeds of sale, and under the Foreign 
Buildings Act, we have the authority to receive those funds 
back into the Foreign Buildings Act, and then we will turn 
around and build or buy new facilities in other locations in 
order to meet the second part of the infrastructure deficit.
    Senator Feinstein. All right. I understand what you are 
doing. I am looking at the committee staff analysis here. It is 
listed. I guess I am not understanding it. It has listed $14 
million in housing and office space in Bangkok and China; $30 
million in new diplomatic facilities in Abidjan, Kampala; and 
$10 million in asset management initiatives in India; 18 
million in relocation of diplomatic facilities from Bonn to 
Berlin and Frankfurt; then $108 million in major unbudgeted 
facility requirements. That is what is puzzling me.
    Mr. Kennedy. All right. Those are facilities such as new 
facilities in Guanzhou.
    Senator Feinstein. But are not these things you are 
    Mr. Kennedy. No.
    Senator Feinstein. Oh, all right. I thought these were----
    Mr. Kennedy. These are our needs.
    Senator Feinstein. OK.
    Mr. Kennedy. These are new facilities, new office 
buildings, new support structures, new housing that we do not 
have, and I do not have room within----
    Senator Feinstein. Is that Guanzhou?
    Mr. Kennedy. Guanzhou.
    Senator Feinstein. OK.
    Mr. Kennedy. Guanzhou.
    Senator Feinstein. Canton, in other words?
    Mr. Kennedy. Canton.
    Senator Feinstein. Right.
    Mr. Kennedy. Those are new facilities that we need. I have 
nothing there to rehabilitate, so it is additive. But since I 
do not have room in my budget to request new capital money, I 
will sell other State Department facilities in other locations 
and take that money and apply it to the building or the 
purchase in these unbudgeted areas.
    Senator Feinstein. OK. All right. I think I understand now, 
and I thank you for that.
    It is also my understanding that a large part of the funds 
needed to upgrade the embassy facilities in Beijing are 
dependent on the sale of the old embassy building in Bangkok. I 
gather that building has been sitting for some time, looking 
for a buyer. Is this going to take a year or 2 years?
    I am very impressed with the China 2000 Plan that 
Ambassador Sasser has prepared. I would like to see it move 
ahead. I believe it is necessary and that our embassy in 
Beijing can be a much bigger help to America than it is today 
if it just has some adequacy.
    How long is it going to take, and will its sale hold up the 
remodeling of the embassy in Beijing or its replacement?
    Mr. Kennedy. The answer, Senator Feinstein, it 
unfortunately is. The work in Beijing is dependent upon the 
sale of our properties in Bangkok or elsewhere in the world. 
One of the compounds in Bangkok which formerly housed part of 
our embassy is on the market right now. We thought we had a 
buyer for it, and that buyer was the high bidder in an auction 
process we ran. That buyer has now defaulted on the contract, 
and we have now remarketed the project. But we are actively 
engaged in this effort.
    Since I have no money for capital programs, and as you 
rightly note, we have desperate needs in Beijing, I have the 
maximum incentive on me every day to move those properties in 
Bangkok or elsewhere in the world. In fact, we are trying to 
market three properties in Bangkok as we speak. I am doing 
everything I can with my colleagues every day to move those to 
sale at the right price so I can put that money into China as 
fast as I can.
    Senator Feinstein. Let me ask you, do your auction 
procedures say that if the high bidder defaults you go to the 
next bid, or do you have to re-bid the whole thing?
    Mr. Kennedy. We can go to the second bidder if there was a 
second bidder who has bid a reasonable amount of money.
    Senator Feinstein. Was there in this case?
    Mr. Kennedy. There was not a second bidder in Bangkok that 
bid anywhere close to the appraised value.
    Senator Feinstein. So the answer, really, bottom line, to 
the question is, nobody knows how long it will be?
    Mr. Kennedy. That is correct, but----
    Senator Feinstein. That is unfortunate.
    Mr. Kennedy. But we intend to move ahead as expeditiously 
as we can. I will be meeting with Ambassador Sasser next week. 
This is literally our highest priority.
    Senator Feinstein. Thank you.
    Mr. Chairman, I have a number of questions. Could I submit 
my questions to you and perhaps they could be submitted to the 
Department for their response?
    Senator Grams. Sure. You could take a couple of extra 
minutes, too, if you would like, before we move on.
    Mr. Kennedy. Senator, may I add one thing?
    Senator Feinstein. Certainly.
    Mr. Kennedy. While we are working on the building issues, 
which is certainly a major issue, we have already funded a new 
telephone system for Bangkok. We diverted other funds to that. 
The installation will begin shortly. The installation is taking 
    Senator Feinstein. You said Bangkok, did you mean----
    Mr. Kennedy. I am sorry, Beijing.
    Senator Feinstein. Right.
    Mr. Kennedy. My apology. Beijing. Right now, as we are 
meeting, the new computer equipment, the desktop computer 
equipment for our personnel in Beijing, is now being installed 
by a State Department team. So, while we are seeking the large 
capital sums that a building requires, we, at the same time, 
are moving ahead on those smaller components that we can 
immediately get our hands on.
    Senator Feinstein. May I ask one more question?
    Senator Grams. Sure.
    Senator Feinstein. I realize this is an open hearing, but I 
was wondering if you could provide us with any informational 
detail about the measures that are being taken by State to 
protect itself and its information against unauthorized access 
to its computer system or the decipherment of encrypted 
messages containing classified information? Are there 
additional security measures incorporated in this budget 
    Mr. Kennedy. We have interleaved the protection of national 
security information into every single aspect of our 
information technology program. The State Department rigorously 
adheres to the standards promulgated by the National Security 
Agency. So, everything we do in the information technology 
field, in the transmission of information, and in the handling 
of that information adheres to the national security standard 
    That is part of our plan here. The $260 million of the $2.7 
billion, which is part of the strategic and tactical plan for 
our 5-year program, is an information security portion.
    Senator Feinstein. And this is a very high priority to me.
    Mr. Kennedy. It is.
    Senator Feinstein. Do you feel you have adequate resources 
to be able to move vigorously, on a high-priority basis, to do 
what has to be done?
    Mr. Kennedy. If the President's budget is passed, the 
answer to that question is yes.
    Senator Feinstein. Thank you.
    Thank you very much, Mr. Chairman.
    Senator Grams. Also, Senator Feinstein, if there is a need 
or if the opportunity arises, we could maybe have plans to, 
maybe in a closed hearing, go into more detail on the security 
aspects and any questions that we might want to add to that. 
So, we are going to leave that as an open possibility, again, 
if the opportunity or needs arise, where we can get this 
    Senator Feinstein. All right. I am glad you share that 
interest, Mr. Chairman, because I think today our Ambassadors 
are more in physical jeopardy, as are the facilities and the 
embassy staff. We all recall what happened in Pakistan and 
other areas. I really think we need to beef up our security.
    Mr. Kennedy. I could not agree with that more. Security, 
both physical and technical, is literally one of our highest 
    Senator Feinstein. Thank you.
    Thank you, Mr. Chairman.
    Senator Grams. Thank you, Senator. We will submit the rest 
of your questions in writing, and hope that we can get these 
back within a week. I know we will have others that will want 
to submit questions in writing as well. We will probably follow 
up with some other questions in detail.
    Mr. Kennedy. Certainly, Mr. Chairman.
    Senator Grams. Again, trying to work together and as 
quickly as possible, if we could get you to respond within a 
week, we would very much appreciate it.
    Mr. Kennedy. We will certainly do that, Mr. Chairman.
    Senator Grams. Thank you very much.
    I would like to follow up on some of the questions that the 
Senator had dealing with real estate. Of course the most 
important thing is always location, location, location. Bangkok 
probably is not the most prime location right now. But, as you 
know, the General Accounting Office released a report on 
overseas real estate, which I have a copy of here, in April of 
last year. This report concluded that the State Department 
holds numerous excess properties that could generate, according 
to this report, about $467 million in revenue if sold--excess 
real estate.
    Given that the State Department's Budget-in-Brief, states 
that expected revenues from property sales for fiscal year 1997 
and fiscal year 1998 will total $316 million, can I safely 
assume that you agree with the GAO report? And since your 
current plans would still bring you up $152 million short 
compared to the GAO estimate, what efforts have been made to 
plan additional property sales?
    Mr. Kennedy. We agree with the principle that the GAO 
elucidated, which is our principle, which is to have a rigorous 
professional asset management program which identifies any 
excess U.S. Government diplomatic properties overseas, and 
immediately moves to sell those properties in order to generate 
the revenue needed to make the capital investments in 
properties we have talked about. We do not agree, however, with 
every single one of the properties that the General Accounting 
Office has identified for sale.
    There are some of the properties that they identified--and 
one, for example, they said we should sell a piece of property 
which was alongside one of our embassies. We informed the GAO 
that that vacant land--in their mind--was actually part of the 
security setback of our embassy, so that we could have an 
adequate set-off against the potential for truck bombs. We do 
not believe that we should sell that property and endanger our 
    They identified in their study other properties which they 
attached a value to based upon something that is called highest 
and best value. They just assume that there were no local 
zoning restrictions, no host country restrictions on the sale 
of properties, and that we could sell it to any bidder and 
generate the highest amount of money. That is not always the 
case. Just as the State Department and the Office of Foreign 
Missions rigorously enforces zoning rules in Washington and in 
surrounding areas so an embassy cannot do anything it wants, we 
have those same restrictions on us overseas.
    In one city, for example, the GAO suggested that we sell a 
property and we could make tens of millions of dollars because 
the builder would build a high-rise building on it. So, we said 
fine. We went and talked to the local government official who 
said, wait a minute now, that area is zoned for residential 
properties; we would not permit you to build a high-rise.
    So while we agree with the GAO and we are seeking, as is 
noted in our budget submission, to get every single possible 
dollar--because I am incentivized to do that--I do not agree 
with every single one of the examples they use.
    Senator Grams. But agreeing or not, there are plans to look 
at getting rid of additional excess property?
    Mr. Kennedy. Yes, Mr. Chairman. We have a committee that we 
are forming, composed of senior State Department officials who 
have no vested interest in the regional areas and three experts 
from outside the State Department, but who are other U.S. 
Government real estate experts, to sit down and review these 
issues, to make sure that we have the best possible advice.
    Senator Grams. Given the fact that in 1996, fiscal year 
1996, you had $18 million in sales, is it realistic to assume 
that there could be $180 million in fiscal year 1997?
    Mr. Kennedy. Sales are lumpy, Mr. Chairman. For example, we 
are already less than two quarters into this fiscal year and we 
have already sold $32 million worth of property already this 
fiscal year. We are only 5 months into it. We market properties 
as soon as they become available.
    For example, we have just finished constructing a new 
compound in Singapore. We have some very, very valuable 
property in the center of downtown Singapore that we will be 
able to put on the market. That property was not available last 
year, because we were moving into the new embassy. That 
property is being marketed right now.
    So as these properties come available, because of new 
construction or whatever, we immediately move to marketing 
them. So, I believe it is possible, although, with the vagaries 
of the real estate market, there is no guarantee that something 
we plan for fiscal year 1998 would not appear in the first 
quarter of fiscal year 1999.
    Senator Grams. I would ask you to detail the sales that are 
going to yield this estimated $180 million this year and the 
actions taken so far, but maybe I would ask you to do that in 
writing rather than going through them piece by piece. But if 
you could give us a report on what are some of the immediate 
plans and maybe detail what the properties are and the expected 
prices, that would be helpful.
    Mr. Kennedy. We would be pleased to do that, sir.
    [The following material was subsequently supplied for the 
hearing record by Mr. Kennedy.]
               Asset Management: FY 1997 Projected Sales
    The $180 million figure projected in the Security and Maintenance 
of US Missions FY 1998 Budget document is based on the total dollar 
amount to be realized if all properties projected for sale in FY 1997 
are in fact sold and if sales take place at or near estimated values.
    To date, 15 sales have been completed and approximately $38.5 
million in sale proceeds will be realized. In addition, offers have 
been accepted for another 19 properties, but sales have yet to be 
completed. The dollar value of these latter transactions is 
approximately $69.3 million.
    The ability to realize the full $180 million is dependent on 
multiple factors, many of which are beyond the Department's control. 
Changes in local real estate market conditions, delayed receipt of host 
government approval for sale and/or USG tax exempt status, unexpected 
financial difficulties encountered by purchasers, political upheavals 
and/or catastrophic events, unanticipated legal issues requiring 
resolution, and the like, frequently intervene and disrupt a sale time 
    The Department intends to use FY 1997 proceeds of sale for 
residential housing acquisition to buy down the lease hold account, and 
to acquire new office and other diplomatic facilities.

    Senator Grams. The April 1996 GAO report also determined 
that there was no systematic process for identifying and 
selling State Department excess property. In the report it 
recommended that the Secretary of State create an independent 
panel to make recommendations. Now, I do not know if this is 
what you were just referring to, of putting this panel together 
for the sale of excess property and the reducing of the current 
inventory. It also recommended that the Secretary require 
foreign building operations, FBO, to report annually to the 
Under Secretary for Management on all properties identified as 
    Again, is this what you were talking about in updating this 
    Mr. Kennedy. Yes, it is, Mr. Chairman. We have established 
the panel. I did disagree, in my discussions with the GAO, on 
the use of the words ``systematic process.'' I believe that we 
do have a systematic process in place now. Every post files an 
annual report of their property holdings. The Office of Foreign 
Buildings regularly dispatches personnel to review all of these 
property holdings onsite. So, while I believe we have a 
systematic process, we also went ahead and established this 
independent panel. Because I believe that anything that 
contributes to my ability to generate revenues to meet my unmet 
needs is something worth doing.
    Senator Grams. There have been a lot of statements from 
administration officials about, quote, dire conditions of many 
of the State Department's facilities overseas. We have heard 
that one Ambassador had to wash dishes in one of the embassy's 
bathtubs, that there are heating systems that do not work, and 
that some of the oldest buildings are literally falling apart.
    Would you give the subcommittee a picture of the overall 
state of U.S. facilities overseas and where the buildings in 
the worst shape are located, and again, how you are targeting 
your plans and priorities?
    Mr. Kennedy. Certainly, Mr. Chairman.
    Every building has a life cycle. The average life cycle, if 
you use the engineering standards that are published, says a 
building has a life cycle of about 40 years. At the end of 40 
years, you must replace the electrical systems, replace the 
heating, venting and air conditioning systems, replace the 
    The General Accounting Office, using figures that they have 
generated plus figures from the Office of Foreign Buildings, 
estimated that there is about a $250 million shortfall in 
deferred maintenance of buildings abroad. We use that data to 
identify the facilities that have the greatest need, and then 
we target the rehabilitation money, the $46 million to $48 
million, that we have put into our budget, for the 
rehabilitation of properties. We target those to the greatest 
    When you have a program where the average age of our owned 
properties is 38 years, we are at that life cycle point. So, 
using what we call the Global Maintenance Surveys, every post, 
in conjunction with the professional people from the Office of 
Foreign Buildings that we dispatch periodically, go out and we 
survey these buildings, and we survey the major life systems in 
each one of those buildings. We identify the worst cases, and 
then we target the fund to meet the facilities that need the 
most up-to-date work.
    Senator Grams. Can you describe the trend in funding levels 
for the account covering security and maintenance of U.S. 
missions in recent years? Has that account been cut 
    Mr. Kennedy. The account has been----
    Senator Grams. Not only cut, but I know you said you have 
transferred some funds for other Agencies. But I mean the 
account itself, has it been cut dramatically?
    Mr. Kennedy. For example, in fiscal year 1996, which is two 
fiscal years ago, we had $386 million in the account. In fiscal 
year 1997, the current year, it is $364 million. So, that was a 
cut of almost $25 million. Two years ago, about $50 million of 
balances were rescinded by the Congress. For this fiscal year, 
we are trying to work the appropriations request back up. For 
fiscal year 1997, it is about $364 million; for fiscal year 
1998, it is $373 million.
    If you go back, say, 5 years, it was a lot higher. It was 
$560 million in fiscal year 1993. It dropped to $400 million in 
fiscal year 1994, $410 million in fiscal year 1995, to $385 
million in fiscal year 1996, and then $389 million in fiscal 
year 1997, which included some supplemental funding. So, there 
has been a downward progression. We basically have not 
requested funds because of the need to balance the budget and 
make comparative tradeoffs.
    We have requested no capital money, no money for major 
rehabilitations, or no money for new construction. So, we have 
cut that off the top, and we are requesting this bare-bones 
budget for basically maintenance and rehabilitation.
    Senator Grams. You mentioned there was $50 million 
rescinded by Congress. Has there been any other requests from 
the State Department for which it has not received funding from 
    Mr. Kennedy. The question, for example, in fiscal year 
1997, our request was $400 million, and the enacted level was 
about $389 million this year. So, that was $11 million less in 
    Senator Grams. We will submit a lot of these details for 
you in writing, and then hopefully get back a lot of the 
number-crunching sort of aspects.
    Mr. Kennedy. We would be pleased to, yes, sir.
    Senator Grams. On diplomatic security, one of the most 
important responsibilities, as I think Senator Feinstein was 
pointing out in her final question, is to provide thorough 
oversight for the Department's efforts to ensure that all U.S. 
diplomatic personnel are operating in a very safe and secure 
environment. Certainly the recent deadly attacks on our 
military personnel in Saudi Arabia have only gone on to magnify 
the concerns of all members of the Foreign Relations Committee.
    Are you confident--I am going to ask this again--that the 
system that the State Department uses to assess the level of 
security, the security threat to U.S. personnel in each 
country, is providing an accurate picture of the security 
needs? And maybe elaborate on why you have those feelings.
    Mr. Kennedy. Certainly, Mr. Chairman.
    We run a very, very extensive and rigorous threat 
assessment. We divide the threat assessment question up in 
essentially three groups. We assess the criminal threat against 
our personnel, we assess the technical threats, and then we 
assess the terrorist threats. To each one of those levels we 
assign four gradations--low, medium, high, and critical threat 
levels. This is an interagency process.
    We draw information from the State Department's 
professional regional security officers, assigned at a large 
number of our missions overseas, and there is a regional 
security officer who has jurisdiction responsibility for each 
mission. We marry that up with our political analysis, and 
then, with an extensive interagency process to draw on the 
threat information from every possible Agency of the U.S. 
Government. Then we assign those threat levels.
    Once we have assigned a threat level for a post, we then 
tailor our deployment of resources to meet those threat levels. 
If you have a critical threat post, we certainly deploy 
significantly more resources than we do at a low-threat post. 
We analyze some 30,000 security incident reports a year on 
behalf of the Diplomatic Security Service, to see what the 
threat potential is, and then we tailor it that amount.
    The Congress has been generous to us in the last 2 years in 
providing supplemental funding which we have specifically 
devoted to that security threat. We have increased the number 
of local guards. We have increased the hiring and the 
deployment of Diplomatic Security agents. We have bought new 
armored cars, and we have begun to replace security equipment--
metal detectors, cameras, motion detectors, ultrasonic 
detectors--that are very, very much a part of our security 
package and our security profile.
    Built into the President's budget request is what we call 
annualization, bringing the funds along for fiscal year 1998, 
so that the equipment and the personnel that that supplemental 
made available to us, we can continue that, to meet those needs 
in the out years. Therefore, on the basis of the President's 
budget request, I think, with those fundings, we can feel that 
we have met the threat levels.
    On the other hand, as you well know, Mr. Chairman, 
incidents can occur tragically around the world in places where 
our threat level was low, where there was no information 
derived from any U.S. Government Agency that would have 
suspected an incident in that location. So, we engage in 
rigorous risk management, and putting the resources against the 
posts which are most threatened. But an individual threat can 
pop up almost anywhere.
    Senator Grams. But right now you feel comfortable that 
fiscal year 1998 requests provide the resources to meet 
adequately the needs forsecurity?
    Mr. Kennedy. Yes, Mr. Chairman, I do.
    Senator Grams. Could you also detail all the sources of 
funding in the State Department's budget that contribute to the 
security of overseas personnel? And I ask as well for any 
funding from other budgets, such as the Marine security guards, 
which is now being funded by the Department of Defense. Are 
there any other outside budgets or sources that are combining 
to add to the security budget?
    Mr. Kennedy. In addition to our basic operating account 
that provides for personnel, security officers and equipment 
overseas, that is one source. The Office of Foreign Buildings 
account, when they construct and maintain buildings, builds in 
security features into those buildings. The Defense Department 
has assumed the burden of paying for Marine security guards. 
However, it should be noted, whether the DOD assumed that 
burden, that same amount of money, $24 million, was reduced 
from the State Department's budget. So, there was no plus-up. 
This was essentially a transfer of responsibility.
    Also, the local guard forces that we deploy around 
facilities overseas, both office and residential, we do receive 
some reimbursements from other Government Agencies. For 
example, if another Government Agency other than the State 
Department is the exclusive occupier of an embassy annex, that 
Government Agency will reimburse the State Department for the 
cost of the local guards who patrol the perimeter of that 
    I would be glad to go into certain other matters in a 
closed session or briefly, after this, if you wish, sir.
    Senator Grams. I was just going to bring that up again. I 
would appreciate your cooperation if, again, the need or 
opportunity arises, to come and meet with this subcommittee in 
a closed session, again, so we could discuss some of the 
specifics of the security and the needs.
    Mr. Kennedy. Certainly, I am available at your call.
    Senator Grams. And also, Mr. Kennedy, I have a final 
message on this issue and I would appreciate you taking it back 
to the State Department. That is, if there is ever a point in 
the future when you feel Congress needs to do more to help 
protect the diplomats overseas, that again I hope you do not 
hesitate to call me directly. I feel confident that if you ever 
found the need to be there, that you would get a receptive 
response from me and any other members of this committee. So, 
again, to leave that door open. Because security has got to be 
first and foremost, of course.
    Mr. Kennedy. Mr. Chairman, I know where your door is. I 
promise to find you.
    Senator Grams. Thank you. The President's budget proposes--
I am going to be talking about user fees. In his budget 
proposal, it includes a government wide proposal to place 
greater reliance now on user fees rather than direct 
appropriations. The State Department's fiscal year 1998 request 
includes an indefinite appropriation of $595 million from such 
fees. What authorities will the administration be requesting to 
implement this user fee program?
    Mr. Kennedy. We will be seeking authorizing and 
appropriations language that would permit the State Department 
to retain fees that we currently collect for the provision of 
services. Our belief is that if we are able to tailor the work 
we do to certain fees that we receive, we will be able to be 
more responsive to the public and engage in a more rigorous and 
rational process.
    For example, over the last 5 years, the number of passports 
that we have issued annually to American citizens has increased 
by 60 percent; the number of visas that we have issued to 
foreigners to visit the United States is up by 12 percent; and 
immigrant visas are up as well. When you have this increasing 
demand for certain services--we also have increasing demand for 
authentication services in the United States, increasing demand 
from American businesses, under the Defense Trade Control Act, 
for licenses and processing--this constant growth in demand for 
these specified types of services, we are simply unable to keep 
pace with those for appropriated funds.
    If we have the ability to collect the fees that are related 
to the provision of those services, we feel we are going to be 
able to then increase the personnel, the equipment and the 
facilities to match those. Therefore fee retention will allow 
us to provide the American public, American business, the 
foreign traveling public which wishes to visit the United 
States, either for business or tourism, we will be better able 
to serve those multiple constituencies by taking those fees and 
turning them around and applying them to the resources 
necessary to deliver those services.
    Senator Grams. If Congress does not give you the authority, 
is the administration going to request additional moneys in 
    Mr. Kennedy. If we do not----
    Senator Grams. Or direct appropriations?
    Mr. Kennedy. We would have to come back to you to request 
additional direct appropriations, or we would have to simply 
cease doing other activities and shift those funds to keep pace 
with this workload. It is a Hobson's choice that I do not 
relish making. But that is why we are convinced that since the 
fee proposals we have laid before you are derivative of 
services that are directly provided to some elements of the 
public, but yet not the entire public--not every person 
requests a passport--why not take those passport revenues and 
apply them to getting that requester his or her passport, and, 
in effect, not tax the American public as a whole to provide 
that passport service?
    So that direct relationship between the fee and the 
passport, the fee and the visa, the fee and some other service, 
we believe is a good government proposal that we are very, very 
confident is in the best interest of everyone, including and 
specifically the American taxpayer.
    Mr. Greene. Mr. Chairman, I might add to that.
    Senator Grams. Sure.
    Mr. Greene. We have had lots of internal discussions about 
this proposal, and we cannot afford for this proposal to fail. 
We have got 25 percent of our worldwide operating budget at 
play here. For all the reasons that Under Secretary Kennedy 
laid out, we hope it gets passed. It makes a lot of good sense. 
But the ramifications for it not getting passed are huge for 
    Senator Grams. How so if the other appropriations--if there 
was direct appropriations to replace that, would that still 
have the negative effects that you are talking about?
    Mr. Greene. It would not be as bad as what I am talking 
about, but some of the reasons why we want to do this--the 
ability to capture the cost of inflation and constantly 
investing in these systems would be lost.
    Senator Grams. How does the State Department's fee proposal 
fit into the government wide proposal for greater reliance on 
user fees?
    Mr. Kennedy. It is one of, I believe, a dozen proposals 
that the administration is making to the Congress, that 
includes, I think, 11 other Agencies.
    Senator Grams. Now, Mr. Greene, you just mentioned 
something about inflation and other things, but what are the 
parameters for setting the fees on passports and visas and 
immigration? And the question is, will these parameters be 
included in the administration's requested authorization?
    Mr. Kennedy. Mr. Chairman, under OMB Circular A-25, there 
is a rigorous procedure in place that does not permit any 
Government Agency to collect a fee that exceeds the cost of 
providing the service. That is part of our proposal, that we 
will continue to adhere to OMB Circular A-25. To ensure and 
give confidence to you and the American public that we are not 
cooking the books on the fees, we turn to an outside entity--
Mitre Tech could be an example, the Mitre Corporation--to 
conduct a fee study to make sure that the fee-for-service 
figure that is set, what is called the cost of service, is 
specifically related to the actual cost of providing that 
    Senator Grams. So you could assure us, then, that the cost 
associated with these services could not be increased in the 
future, so that it could not only fund the passports, visas, et 
cetera, but be used to go on and support other expanding 
programs or new programs?
    Mr. Kennedy. The fees are related to the cost of providing 
the service. But what we need to do is ensure that those fees 
cover what we call the fully loaded cost of providing that 
service, including the utilities of the building. I mean 
obviously there is the cost of the passport book and the person 
who processes it, but then there is the other costs that are in 
there. Now, those are built into the fee proposal and would be 
part of the fee package as well--what is known as fully loaded 
costs, the actual and true cost to the American people of 
providing that full service.
    Senator Grams. OK. Moving on to another topic. This is very 
relevant to my home State of Minnesota, and Minneapolis. The 
International Telecommunications Union, which helps further 
global cooperation on telecommunications, is going to be 
holding its 1998 conference in my home State of Minnesota. The 
city of Minneapolis, of course, is going to be very delighted 
to be hosting this important conference, which is held only 
once every 4 years.
    Now, the State Department's Budget-in-Brief, mentions that 
the U.S. Government is trying to seek ways to let the private 
sector help reduce the expected costs or the estimated costs of 
the conference to the U.S. taxpayer. Now, I know that many 
companies in Minnesota and from across the country have shown 
substantial interest in the ITU conference, so could you 
elaborate on these cost-share plans and whether they are 
reflected or not in this budget request?
    Mr. Kennedy. Mr. Chairman, we believe that the host-ship 
costs of holding the quadrennial ITU, as you noted, will be 
approximately $14 million. The proposal by the administration 
is that that cost be evenly divided, $7 million from the 
Department of State and $7 million from the Department of 
Commerce. It has been suggested that the administration enter 
into discussions, which we have been entering into, with 
various business and aspects of the private sector, to see if 
they would wish to bear some portion of that cost.
    The private sector is already bearing a large number of 
those costs. I mean, thanks to the goodwill of the people of 
Minnesota, the conference site itself in Minneapolis is being 
made available at no cost. A large number of the transportation 
and other hospitality aspects of the conference are already 
being borne by the private sector. There is a parallel trade 
exposition that will take place and run concurrently with the 
conference itself. That entire cost is being borne by the 
private sector.
    We are and will continue to speak with representatives of 
the private sector in any and all opportunities. However, to 
date, while they have been very, very generous in making some 
sums available, the private sector also believes that there are 
certain inherently governmental aspects of the conference which 
should be borne by the host nation--in this case, the United 
States--and which is why we are seeking $7 million, and my 
colleagues at the Department of Commerce are also seeking $7 
million, in order that the inherently governmental host-ship 
aspects will be borne by the United States.
    Senator Grams. These shared costs among public and private 
is going well. Would this be used as a model for future 
conferences, the experiences that you----
    Mr. Kennedy. We actively seek private sector participation 
in any and all conferences which are of the nature of something 
like the International Telecommunications Union, which has a 
very, very high private sector interest. There are certain 
other conferences, such as arms control conferences, which 
would have no true private sector interest.
    But yes, the State Department has the authority to receive 
gifts, and we use that authority and actively seek the private 
sector's assistance and cooperation. We did that for the Summit 
of the Americas, which took place several years ago in Miami. 
The U.S., in Denver, Colorado, this year, will be host of the 
G-7 economic summit, and we are seeking private sector 
contributions to that as well.
    Senator Grams. I want to move on to another subject that 
you mentioned in your opening statement, and that was ICASS. As 
you know, the administration plans to fully implement the 
International Cooperative Administrative Support Services 
program in fiscal year 1998, a new system for cost-sharing 
among Federal Agencies. ICASS will provide for cost-sharing by 
Agencies operating overseas, relative to their total overseas 
presence. Can you detail or give us more information on how 
that program is going to operate?
    Mr. Kennedy. Certainly, Mr. Chairman.
    Two years ago, at the initiative partially of the Congress, 
partially of the State Department, and partially of the Vice 
President's National Performance Review, the State Department 
asked and the President's Management Council convened, an 
interagency group to look at the support model overseas. The 
State Department currently has about 30 percent of the U.S. 
Government personnel overseas and is paying approximately 70 
percent of the cost. So, in effect, we are subsidizing other 
Agency presence overseas.
    This is a significant burden on the Department of State, on 
the order of at least $100 million.
    The other Agencies were not very pleased with the level of 
service they were receiving, because in these tight budget 
times, the State Department constricted, they felt they were 
not receiving adequate support. Other Agencies felt that they 
needed to expand their overseas presence--law enforcement is a 
good example. The State Department could not take on the 
additional burden of carrying another 70 percent of an 
increased cost.
    So this interagency working group engaged in an extensive 
study and came up with the ICASS model. The ICASS model is 
essentially a transparent, equitable way of allocating the full 
cost of doing business overseas. A local council, composed of 
all Agencies of the post, sits down and negotiates levels of 
service and who is the provider of that service--the State 
Department, maybe the Agency for International Development in 
some other post, maybe the United States Information Agency has 
surplus printing capacity in that country and so it would do 
all the printing.
    We have identified some two dozen factors--motor pool 
maintenance, communications--an Agency will take 
responsibility, and in most cases, it will be the State 
Department--for providing those identified services, and will 
work out a level of service that the Agencies want, and then 
develop a cost of service. That will then be divided up, and 
each Agency will then pay its fair share for the actual 
services it consumes.
    Senator Grams. Is there a particular Agency that will have 
ultimate authority over activities funded by ICASS?
    Mr. Kennedy. The State Department is the coordinating 
organization for ICASS. We have a small staff that share in the 
ICASS Service Center, the interagency group that will provide 
the coordinating mechanism and provide the rules and 
regulations. But it is truly an interagency group, with 
participation from every U.S. Government Agency abroad.
    Senator Grams. Any estimates on savings? I know you want to 
provide the better service, but sometimes you can provide 
better service and at less cost. Are you accomplishing both or 
do you think you are achieving both goals, and what is the 
estimate on the savings?
    Mr. Kennedy. I do not--I regret I do not have a cost 
savings estimate yet, but I believe I will. It is for this 
reason. Right now no Agency really knows what its cost of doing 
business overseas is. There is no aggregation of that figure. 
Once we get ICASS into place, once Agencies all of a sudden 
have to pay their full cost of doing business, we are going to 
be incentivizing everyone to look for the absolutely lowest-
cost means of providing a minimally adequate level of service.
    We are going to be fully implementing ICASS this October 1. 
I believe that, within a year or two, we will see savings. 
Because this incentivization of seeking the lowest adequate 
service provider will be something that is very new, very 
radical, and very necessary.
    Senator Grams. But the initial stage of it, you feel 
confident or pleased?
    Mr. Kennedy. Yes, sir. Yes, Mr. Chairman. We have had--this 
fiscal year, we have been doing what is called virtual ICASS. 
We have established the working groups at every posts. We have 
set service standards. We have continued to fund the entire 
operation out of the State Department's operating account. But 
5 months into this fiscal year, we are seeing greater 
cooperation, greater teamwork, and a greater incentivization to 
look for the best and the lowest-cost way of doing business.
    We have provided the other Agencies with mock bills for 
this fiscal year, telling them what they would have had to pay 
under the system and actually what they will have to pay come 
October 1, and therefore the incentives are flowing.
    Senator Grams. OK. Next year, we will come back and follow 
up on this and see how this year has gone.
    Mr. Kennedy. I look forward to it.
    Senator Grams. Mr. Kennedy, the fiscal year 1998 budget 
request lists a conference on international environmental 
cooperation as a high-priority foreign policy initiative. Now, 
already the United States is participating in numerous 
environmental organizations, including the United Nations 
Global Climate Change Convention, which will be having a major 
conference, by the way, in 1998 in Japan.
    In addition, last year's omnibus appropriation bill placed 
a moratorium on U.S. participation in global conferences. Now, 
given the level of resources already devoted to high-level 
international environmental meetings and congressional calls to 
limit global conferences, how does the administration justify 
this particular budget request?
    Mr. Kennedy. Mr. Chairman, there are a number of new 
emerging issues that have come to the fore since the end of the 
cold war--narcotics, human rights, and the environment are 
three, just to name a few. Environmental issues have an impact 
on the American citizenry.
    Bad air and bad water can have a deleterious impact on the 
United States, as well as on any other country in the world. We 
believe that Secretary Christopher made the correct decision 
when he identified this as one of his priorities. That $1.7 
million is truly a significant sum of money in the State 
Department's constrained budget environment. However, given the 
importance of these issues, we need to find solutions to 
environmental problems before they begin to lap over our shores 
or blow through our atmosphere.
    We believe that it is important for the State Department to 
address these issues, as the practitioner of international 
diplomacy, and to get countries together to address these 
issues before they have a deleterious effect on us. The $1.7 
million then represents an important initiative, in our minds, 
to protect the American public through our diplomatic outreach.
    Senator Grams. Some of the concern is, with already all the 
resources going there, to add on another $1.7 million--I know 
it is an important area, but when you put it in the list of 
priorities, and especially, again, going back to a 
congressional call to limit global conferences, that this $1.7 
million could be spent better maybe elsewhere--communications, 
capital improvements, security, et cetera. That is the question 
that we have. It is not like we are not spending money already 
in these areas that concern us, but to really up the ante, so 
to speak, at the expense of other programs.
    Mr. Kennedy. I agree, Mr. Chairman, that we have to make 
sure that we rigorously apply any expenditure, but this kind of 
environmental conference would literally be the first one of 
its kind. We have other conferences that have addressed pieces 
of the puzzle. But when you look at the environment, the pieces 
of the puzzle come together and present a very, very specific 
picture. In order to protect life, property, and the health of 
the American people, we believe that the U.S., as the global 
leader, ought to take this first step, ought to take this 
initiative in the environmental area as well, in effect, in a 
case of enlightened self-interest.
    Senator Grams. Moving on to another topic--and I have a few 
more questions here that I would like to get through yet--but, 
again, the November 1996 GAO report found that the present 
cable writing and review process--this is talking about what is 
considered the antiquated cable system that we have--and the 
review process for cable writing may be too cumbersome, 
especially given the widespread use of electronic mail and the 
possibilities of the Defense Messaging System for transmitting 
classified communications. In addition, the report found that 
the need for face-to-face diplomatic meetings might be reduced 
by using other communication methods, again, such as video 
conferencing. What efforts are being made to readapt these 
systems and achieve savings, given the modernization of State 
Department technology and infrastructure?
    Mr. Kennedy. We have been working very, very closely with 
the Department of Defense, ever since they announced their 
Defense Messaging System initiative. I have personally met with 
Lieutenant General Al Edmonds, who is the head of the Defense 
Information Systems Agency, to make sure that our respective 
teams are fully interrelated. We are working with DMS. We are 
following this.
    We have spoken to DOD, and they have assured us, for 
example, that under the contracts that DOD is letting, there is 
a significant portion of each one of those contracts that may 
be ridden by other national security Agencies to ensure that we 
can buy compatible equipment and take advantage of the research 
and development that they have been engaged in. So, we are 
monitoring DMS. We will have a system that is fully compatible 
and uses DMS-like pieces.
    At the same time, we realize that while we are using 
electronic mail extensively--and one of the easiest measures of 
that is, up until several years ago, the average number of 
cables that the State Department would send out every year, 
formal messages, was in the range of, I think, about 325,000--
the number in the last 2 years has dropped below 300,000, 
because more and more administrative and other business can be 
done effectively and more cheaply through the electronic mail 
means--at the same time, we also need to see that we still have 
a formal message traffic potential of communicating to an 
ambassador an official set of instructions, so that he or she 
knows exactly what they want to do. So, we want to retain that.
    That is a feature of the Defense Message System and its 
State Department parallel as well. But we are not going to 
stint on electronic mail. Our estimates, and it is hard to 
count electronic mail, but using the traffic figures, we 
believe that we are generating at least 40 million electronic 
e-mail messages every year. So, we are following this.
    We are also testing video conferencing. The Diplomatic 
Telecommunications Service pilot test that was recently 
completed tested video teleconferencing with both one post in 
Europe and one post in the Far East, to find out what are the 
technologies and what are the best ways to do it.
    My only concern about video conferencing, which we intend 
to rigorously pursue, is that there is no industry-wide 
standard yet for video conferencing, and we do not want to get 
too far ahead of the leading edge and buy a technology that is 
not going to become the industry standard. So, we are pursuing 
that, but we want to make sure that we do not get ahead of the 
    Senator Grams. How much do you use private industry 
consultants in knowing what is available, what to purchase, 
when, how to integrate it? Rather than inside sources, are you 
using also private-sector sources?
    Mr. Kennedy. We use outside consultants extensively. We 
want to take advantage of the outside expertise. There is no 
reason for an Agency that is as small as the State Department 
to ever reinvent the wheel. It is simply too expensive to us. 
That is why we will be riding the Defense Message System 
contract. That is why we use contractors all the time. The 
Gartner Group, which is a very, very distinguished outside 
consulting group, works with the State Department extensively, 
as do any number of other companies and private individuals.
    Senator Grams. I see we have a vote on, but I want to just 
close up with a couple of quick questions on personnel. As we 
prepare the authorization bill, I believe it is very important, 
very essential for this subcommittee to have accurate figures 
about the number of people employed by the State Department. 
Can you tell us what is the total number of people who are 
currently employed worldwide by the State Department in any 
capacity--that includes our Foreign Service, Civil Service, 
foreign nationals, part time, temporary employees and 
contractors--to get a handle not only on authorized positions, 
but really how many people do we have on the payroll?
    Mr. Kennedy. Active people around the world? Well, this is 
a moving snapshot you realize, but on any given day, there are 
deletions and accessions, but----
    Senator Grams. If you can get within 100,000, that would be 
    Mr. Kennedy. I believe, on September 30th, of 1996, at the 
end of fiscal year 1996, we had in all the categories you 
listed, 23,022 personnel on board. That is down some 2,700 
people, 10 percent, since the end of fiscal year 1993. We had 
almost 26,000 people on board at the end of fiscal year 1993, 
and we were down to just a hair over 23,000 personnel, all the 
categories you listed, at the end of fiscal year 1996.
    Senator Grams. Great. We will ask you to provide some 
information in categories for us in a written question, as 
    Mr. Kennedy. Certainly, Mr. Chairman.
    Senator Grams. We appreciate that. Well, that is all the 
questions I had. Would you like to make a closing statement of 
any kind, Mr. Kennedy?
    Mr. Kennedy. Mr. Chairman, only that we have worked with 
the Senate Foreign Relations Committee for many, many years. We 
actively seek to continue to work with you. This committee has 
been a great supporter of the State Department, and we hope to 
be able to continue that relationship. We are always at your 
disposal. You, your staff, anyone should always feel free to 
contact us at any moment. If there is any question or any issue 
that we can clarify, we are here.
    Senator Grams. Mr. Greene, you have been awfully quiet.
    Mr. Greene. We really appreciate the comments you said 
throughout this in terms of supporting our operations 
worldwide. It does not get a lot of attention. It genuinely 
helps us a lot.
    Senator Grams. And I think we share the same goals. I think 
it is to the benefit of the American taxpayer and American 
society as a whole to provide the best foreign services that we 
can through the State Department, and to update technology to 
make sure the facilities, and also the security, are the best 
in the world. I think what Secretary Albright said, that we 
should be and that we are the leader in the world, and that 
should be reflected in our foreign services as well. So, I 
really appreciate that.
    Of course, while we will be asking you for this 
information, we leave the door open for cooperation from our 
end, too, in any upcoming questions or concerns as well.
    So, finally in this hearing, I would ask unanimous consent 
that this hearing's record be kept open for 3 business days for 
the submission of written questions by any member of the 
Foreign Relations Committee.
    Mr. Kennedy, I do not believe these written questions will 
be unreasonable. Again, in view of the fact that the Foreign 
Relations Committee is preparing the State Department 
authorization bill, I hope that you can assure us that you will 
be able to respond within a week to any of these questions that 
are presented to you so we can move ahead as judiciously as 
    [The answers to Members written questions was subsequently 
received and appear in the appendix.]
    Senator Grams. So, again, I want to thank you both for your 
time and for your very candid answers. Thank you very much. 
This committee is now in recess. Thank you.
    Mr. Kennedy. Thank you, Mr. Chairman.
    [Whereupon, at 12:39 p.m., the hearing adjourned, to 
reconvene at 10:05 a.m., March 6, 1997.]



                        THURSDAY, MARCH 6, 1997

                               U.S. Senate,
           Subcommittee on International Operations
                     of the Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Rod Grams, 
(chairman of the subcommittee), presiding.
    Present: Senators Grams, Biden, Feingold, and Feinstein.
    Senator Grams. I would like to call this hearing to order. 
I would like to welcome, Mr. Duffey, Mr. Klose and also Mr. 
Silverman, and thank you for your time to be here.
    I want to welcome all of you for the second in a series of 
budget oversight hearings being held by the Subcommittee on 
International Operations. Today's hearing will focus on the 
fiscal year 1998 budget request for the United States 
Information Agency.
    Now, again, let me thank the two officials who have agreed 
to testify before the subcommittee today. Again, they are Dr. 
Joseph Duffey, who is the Director of USIA; and Mr. Kevin 
Klose, President of Radio Free Europe Radio Liberty, and 
Associate Director-designate of the International Broadcasting 
    At the outset, I would like to make the same statement to 
both of you that I made to Acting Under Secretary of State 
Patrick Kennedy when he testified before the subcommittee last 
week on the State Department's ``Administration of Foreign 
Affairs'' budget. I am proceeding with this hearing on the 
assumption that the administration is developing and will 
present to Congress a proposal for the reorganization of the 
State Department and also related foreign affairs Agencies, 
including USIA.
    While the subcommittee will not question you about the 
specifics of any Agency reorganization plan, there is 
considerable bipartisan interest in this issue. I look forward 
to receiving the administration's reorganization proposal, and 
also truly hope that we can reach agreement on a plan that the 
Foreign Relations Committee as a whole can support.
    Today, however, this subcommittee will focus on the 
programs and activities included in USIA's fiscal year 1998 
budget. As you know, there is broad support in this 
subcommittee for strong and effective American public 
diplomacy. As a former broadcaster and journalist, I certainly 
understand the powerful impact of using var- 
ious media to get the American message out to the people around 
the globe. The importance of having an effective organization 
to advance America's democratic principles increases 
substantially in countries where the freedoms of speech and the 
press are subverted.
    During the height of the cold war, the U.S. relied heavily 
on public diplomacy as an essential foreign policy tool for 
reaching out to peoples living behind the Iron Curtain and 
under oppressive regimes elsewhere in the world. Although 
closed societies still exist, USIA must restructure its 
programs to meet the new and the diverse challenges of the 21st 
century and the information age.
    I recognize that USIA has made some tough choices to 
downsize and streamline its operations. However, I believe that 
a more focused commitment by the Federal Government in this 
area can actually strengthen those programs essential to U.S. 
public diplomacy.
    In recent months, administration officials have announced 
that America's diplomatic readiness has been undercut by 
inadequate resources. Well, frankly, I have been disappointed 
by the tone of some of the more heated comments which have been 
made. In his farewell address, former Secretary of State Warren 
Christopher faulted Congress for what he termed as the slashing 
of international affairs spending. Moreover, he claimed that: 
``The amazing thing is that these cuts have not been 
accompanied by any serious congressional debate. They have not 
been motivated by any reassessment of our interests in the 
world. As a result, we are endangered by a new form of 
isolationism that demands American leadership, but deprives 
America of the capacity to lead.''
    Well, first, I feel compelled to rebut some of Mr. 
Christopher's patently false assertions. In fact, there was 
extensive debate in the 104th Congress on legislation to 
restructure U.S. foreign Affairs Agencies, and to make them 
better prepared to address American interests in the 21st 
    Second, as the President's past and present budget requests 
reflect, the Congress and the administration have worked 
together to downsize and reorganize USIA. Now, given Mr. 
Christopher's questionable premise that, ``the biggest crisis 
facing our foreign policy today is whether we will spend what 
we must,'' I think it is important to put USIA's budget in some 
context, as I did last week with the State Department's budget.
    In fiscal year 1998, USIA is requesting a budget of $1.08 
billion. Compared to the President's budget request for USIA in 
fiscal year 1993, this represents a decline of 28 percent in 
actual dollars over the 5 years. Moreover, a comparison of the 
administration's fiscal year 1998 budget request for USIA to 
the Agency's estimated funding for fiscal year 1997 yields an 
increase of only about 1.7 percent--a figure which is under the 
rate of inflation and hardly matches the administration's 
alarmist rhetoric.
    The point of spelling out these numbers is not to argue 
that the President should have asked for more money or that 
Congress will not review his request for increased USIA funding 
very carefully. Instead, it is to demonstrate that both 
Congress and the administration have recognized stark budgetary 
constraints, while setting funding priorities for international 
affairs. Both branches should be prepared to take full 
responsibility for their actions.
    Now, having said that, I would emphasize that there is firm 
bipartisan support for USIA's major endeavors, including 
international exchange programs and international broadcasting. 
Every Member of the Senate knows someone who has participated 
in a USIA exchange program, and some may have experienced one 
    Yet budgetary limitations and oversight responsibilities 
demand a constant review of exchange programs to determine 
which are most effectively meeting U.S. foreign policy 
objectives. One problem that continues to raise questions is 
how to eliminate duplication among exchange programs in various 
U.S. Agencies and with the private sector.
    In the area of international broadcasting, questions 
persist regarding duplication of functions within USIA itself. 
I hope today to begin an examination of the intent and also the 
implementation of the International Broadcasting Act of 1994, 
which consolidated all activities under a newly established 
Broadcast Board of Governors.
    So, I wrap up by again saying I look forward to a very 
constructive discussion on these issues and many others during 
the hearing. I hope that it will produce information that will 
help us and assist us in shaping the State Department 
Authorization Bill.
    So, Dr. Duffey and Mr. Klose, I welcome both of you, again, 
here today to explain USIA's fiscal year 1998 budget request, 
and also to outline some of the Agency's priorities. So, again, 
thank you very much for being here.
    I would now like to ask the Ranking Member, Senator 
Feinstein, for an opening statement.
    Senator Feinstein. Thank you very much, Mr. Chairman.
    I am pleased also to be here today to examine the budget 
request of the USIA. I am in agreement with much of what you 
said. I think it is clear to most of the people, perhaps in 
this room and maybe in many other rooms, that in a world which 
is increasingly determined through satellite television 
broadcasts, where revolution is sometimes fostered by 
videocassettes, and where information can be transmitted 
instantaneously over the Internet, public diplomacy and 
information disseminated in support of American foreign policy 
goals occupies an ever more central place in foreign policy. I 
believe it will in the future as well.
    We need only to look at the violence in Rwanda and Bosnia 
to appreciate the power of the media in shaping and moving 
international events. In both cases, government authorities 
used mass media propaganda to incite violence and bloodshed. In 
fact, several prominent analysts have contended that both of 
these tragic civil wars were only made possible because of the 
use of mass media by people we now consider war criminals. In 
both cases, the ability of the international community to 
provide unbiased information and news is vital to establishing 
stability and peace.
    USIA programs, such as the International CIVITAS Consortium 
in Bosnia and Voice of America's work with international radio 
broadcasters in Africa, are important elements of a U.S. policy 
intended to build a stronger and more durable civil society 
around the globe.
    USIA is all too often ignored or given short shrift in the 
debate about how best to secure America's security and 
prosperity. But I think the record is clear. For over 40 years, 
USIA has played a vital role in promoting American national 
interests through its overseas information dissemination, 
through international broadcasting, and through education and 
exchange programs. I do not think anyone on this committee 
doubts the importance of the substance of the work carried out 
by USIA.
    What has been questioned--and I think it is a valid 
question--is whether USIA has been structured to do this work 
in the most effective and efficient way possible. Although for 
the last 2 years the USIA budget has been relatively stable, 
the earlier part of this decade saw drastic reductions in 
USIA's budget and operations. I believe Dr. Duffey has made 
many changes as well, which hopefully he will outline today.
    I must say that from my perspective, not all of these 
reductions were unwarranted. I think that the management 
overhaul, the program consolidation and the reinvention that 
USIA has undergone, while at times painful, have helped create 
what in 1997 is a more effective and efficient Agency.
    So, I look forward to today's testimony and to the 
opportunity to discuss USIA's operations.
    Thank you, Mr. Chairman.
    Senator Grams. Thank you, Senator Feinstein.
    We would like the opening statements now from our members 
of the panel. I would just like to request that you keep the 
opening statements to within 10 minutes if possible. Also a 
reminder that your entire statement will be entered into the 
record. So, Dr. Duffey.


    Dr. Duffey. Thank you, Senator Grams, Senator Feinstein.
    Let me introduce, first, some of my associates who are with 
me today, the Associate Directors of USIA--for Management, 
Henry Howard; Educational and Cultural Affairs, Jack Loiello; 
the still new Information Bureau, Barry Fulton; our Counselor, 
Anne Sigmund; and someone who has just taken up her duties this 
week, the new Director of the Voice of America, Evelyn 
Lieberman. We also have a member of the Broadcasting Board of 
Governors, Alberto Mora.
    I appreciate the opportunity to come before this committee 
and to express my views about the mission and work of USIA and 
to respond to your questions.
    It is no secret that I began 4 years ago to lead this 
Agency in a process of change. I believe that change has been 
more dramatic than any change in the foreign affairs area of 
our Government. The path I chose involved a thoughtful 
examination of how the world has changed, along with the 
national interests of the United States. But I have had 
guidelines from the past, and I want to refer to some of those 
as I go through this testimony.
    One of the early directors of USIA was a journalist, Edward 
R. Murrow, and widely respected. We sometimes think of Mr. 
Murrow as standing on the other side of some kind of a wall of 
isolation from U.S. foreign policy, and his name is sometimes 
evoked in that regard. I would like to quote what he said, 
coming before the Congress in March 1963. He referred to a 
committee--this all perhaps puts the present in some history--
he told the Jackson committee, which 10 years before, had 
stated that any program supported by Government funds can only 
be justified to the extent that it assists in the achievement 
of national objectives. Mr. Murrow said, it is the sole purpose 
of USIA today to further the achievement of U.S. foreign policy 
    I quote that as one source for the analysis I have begun. 
The second is perhaps a little less precise, but it has to do 
with the conversations that all of us have every week with our 
colleagues and others about increasing cynicism in America and 
among the America voters--perhaps as great a threat to the 
future of our democracy as any other.
    As I listen to conversations about this, I remember, first 
of all, that Americans have always been skeptical about their 
Government. That is a tradition particularly the English and 
the Irish brought to contribute. That is not always unhealthy. 
But there is a sense that today there is something deeper. 
Generally, those conversations frustrate me, because they end 
with the suggestion that this is some condition out there and 
we deplore it, and that is about all we feel we can do.
    To some extent, we have created that condition in 
Government, I believe. We are all unacknowledged conspirators 
in creating a Government that has made the American people more 
skeptical. I believe that one of the things we can do is look 
inside to our own accountability, to our ability to explain 
what we do and our ability to account for how we use public 
    We have examined the mission of USIA in the context of the 
end of the cold war, the new threats we face, the new global 
technologies, and the current goals and needs of this Nation. 
In our various incarnations over the past decades, we have had 
a long and honorable tradition of serving the interests of the 
United States. But it is also clear from reading history that 
from time to time our mission has been redefined by changing 
conditions and new technologies, and the demands and priorities 
of the time.
    For example, in 1945, one of the predecessors of USIA as an 
Agency was called upon by President Truman to see--and I 
quote--``that other peoples have a full and fair picture of 
American life and of the aims and policies of the U.S. 
Government, supplementing the work of private organizations and 
    Only 5 years later, the times had changed. President Truman 
called for a ``campaign of truth.'' These were the words he 
used: ``We must wage a struggle for the hearts and minds of 
men--I am sure he would say men and women today--to counter 
deceit, distortion and lies, used in a deliberate campaign by 
our adversaries. We must make ourselves heard around the world 
in a great campaign of truth.''
    In a milder tone 3 years later, President Eisenhower called 
upon USIA to make more effective all activities of the 
Government relat- 
ed to international information and to seek to present overseas 
a full exposition of U.S. actions and policies.
    So, over time, with these changing missions, USIA became at 
one stage the largest official information organization in the 
world, the largest radio system in the scope of its languages 
and range of transmitter sites around the world, the largest 
library system in the world in terms of branches and 
distributions of books and magazines, the largest noncommercial 
news distribution system in the world in terms of language and 
global reach, the largest noncommercial film distributor in the 
world, and a major source of programs for the movement and 
exchange of students and scholars around the world.
    None of that is true today. Because in every one of those 
areas, there are now global organizations and partnerships with 
the private sector. The times have changed. The demands are 
different. The resources are more restrained. The mission is 
far more subtle and far more sophisticated. But, for that, it 
is no less important nor less critical in terms of very 
practical, direct U.S. national interests that are not being 
served by any other Agency of the Government or in the foreign 
affairs community or any organization in the private sector.
    The great threat to U.S. interests today is not that we not 
be loved and admired in some far corner of the world; it is 
that we be misunderstood, that misjudgments be made by other 
nations about our interests, our motives, and our willingness 
to defend those interests when they are threatened.
    America is a very puzzling Nation for many who seek to 
understand how our system works. The contradictions and the 
ironies that go into our way of making policy and defining our 
national aspirations befuddle even our most friendly inquirers 
around the world. We cannot take for granted that even those 
who seek, in sympathy, to understand our behavior can do so 
without our being more forthcoming.
    Two forces of historical significance are shaping the world 
we live in--the information/communications revolution and the 
shift of power away from central Government authority to 
individuals and publics. These forces require us to reexamine 
the way in which we engage the world.
    I believe that for American leadership to be successful, 
traditional diplomacy today must be complemented by an open and 
creative public diplomacy which focuses on the values and 
beliefs and attitudes and opinions of foreign publics. These 
new challenges also highlight the need to engage to a much 
greater extent the talents and resources of our own citizens.
    Just 10 years ago, President Reagan foresaw this in a 
comment he made on the 40th anniversary of USIA. He talked then 
about what was happening to traditional diplomacy. He referred 
to how far we have come from the Congress of Vienna--as he put 
it, when relations between countries had less to do with the 
people of those countries than with their governments, and when 
small numbers of diplomats often settled matters of world 
importance among themselves.
    He immediately talked about the appreciation and support of 
trained diplomats, and made it clear that his remarks were not 
meant to be some kind of cheap shot with respect to traditional 
diplomacy. But then he said: This is the information age, the 
age of mass media and the microchip, telecommunications and 
satellites above the planet, and fiber optic cables 
underground. In this age, traditional diplomacy is not enough. 
He referred to the fact that Castlereagh, as he said, spoke to 
Metternich, but leaders today must speak to the peoples of the 
    In the 10 years since that statement, this revolution has 
been far more dramatic than perhaps even President Reagan 
foresaw. Even 4 years ago, when USIA ventured out, the first 
institution in foreign affairs, into the Internet, we were the 
subject of some derision in this city. Even today, many State 
Department computers and the computers we have at the U.N. are 
not hooked up to the Internet.
    We started that process. When I think of what has happened 
in 4 years, it is astonishing. The exchange of information, the 
bringing together of nongovernment organizations across 
international borders. Last year, in Canada, I understand more 
computers were sold than television sets. I am not sure what 
the figures were for the United States, but it has been an 
absolutely dramatic change. While I am far from a total 
believer in cyberinformation, it is clear that it is changing 
the whole context. It is eroding national sovereignty, for one 
thing, and changing the whole context both of communication and 
of the mobilization of peoples and resources.
    The United States has newer goals today, newer priorities. 
What are they?
    Greater deregulation of trade and investment, the 
protection of intellectual property rights, the enactment of 
laws and agreements regarding transnational investment, and the 
spread of fundamental freedoms and human rights--an issue that 
we address in our civic education initiative, called Education 
for Democracy.
    USIA is today ready for a new century. For 4 years, we have 
worked to become practiced in the art of pursuing these new 
national interests in an era of frugal diplomacy. We have a new 
and clear understanding of a more limited but crucial mission 
in the service of the American people. President Clinton has 
affirmed our new definition of our mission, and it is this: To 
promote the national interest and national security of the 
United States through understanding, informing and influencing 
foreign publics, and broadening dialog between American 
citizens and institutions and their counterparts abroad.
    This clear and brief statement is much less heroic and 
ambitious than statements that have been made in the past. But 
it is the first step toward this Agency's effort to implement 
the Government Performance and Results Act. Around our place, 
we have been talking now for some months about GPRA. We have 
tried to make our presentation in the ``Budget in Brief'' to 
you structured around these new requirements set by the 
Congress, which will be in effect next year.
    Each of the objectives that we have outlined directly 
supports the foreign policy priorities of the Department of 
State and the White House. The process of arriving at those 
goals is closely integrated with the Department of State's own 
planning process. This is more true today than at any time in 
the history of the USIA.
    Our activities cannot always be measured by standard 
indicators, nor can our customer and stake holder satisfaction 
be gauged in the usual way. Our mission supports U.S. national 
interests and advances national security. This means we try to 
build international support for American policies even when 
they are unpopular. We base our public diplomacy on the 
principles of American democracy, even when the target audience 
is hostile to them. We respond to crises that cannot be 
foreseen by any planning process, and we operate programs that 
are longer-term investments in stability, political security 
and open markets, though they may show fewer immediate results.
    We are fully committed, however, to the implementation of 
the letter and the spirit of the Results Act. We have begun to 
much more precisely try to measure some of the outcomes. You 
have some examples; let me just add a few others.
    We are prepared and beginning actively to provide support 
for an open and democratic Europe and for the expansion of 
NATO. We have already organized programs for this purpose. A 
week from today, USIA will be the central convener of 
representatives from the National Security Council, the State 
Department and others to look at the public strategies 
necessary to pursue our objectives with respect to NATO 
    Recently we brought six key Hungarian parliamentarians on a 
program that ultimately contributed to the decision of the 
Hungarian Parliament to authorize the transit and stationing in 
Hungary of IFOR forces involved in the implementation of the 
Dayton Accords. Hungary became the first country with a 
specific budget line item for the Partnership for Peace 
Program, and the first Partnership for Peace country to sign 
the NATO Status of Forces agreement.
    There are countries today, though relatively few, that work 
to prevent their citizens from having access to accurate 
independent news and information. The Voice of America, other 
broadcasters, Radio Free Europe, Radio Liberty, Radio Free 
Asia, play a part, an important part, around the world in 
providing a free flow of information. When Serbian leader 
Milosevic closed down the independent radio station B-92, RFE/
RL responded immediately with expanded hours, and also with 
facilitating continuation of those broadcasts. Within 24 hours 
the Milosevic Government relented, and they were back on the 
air, and the Voice of America carried programs with B-92 
correspondents reports immediately.
    An exchange visitor from Italy, a government official, who 
came to the United States for a program on intellectual 
property rights, was the chief organizer of a raid on local 
centers of software piracy in that country shortly after 
participating in our program. Our Information Resource Center 
in Budapest fostered contacts between American and Hungarian 
business communities that have resulted demonstrably in 
business partnerships in the food industry and other sectors. 
There are other examples I could use. We are prepared in this 
budget and in future budgets to show that we are bringing those 
measures of outcomes to direct relationship to our programs. We 
are prepared to adjust, rethink, and revise them in light of 
the estimate of those outcomes.
    We are one-third smaller than we were 4 years ago, but the 
goal has not been simply to downsize, it has been to 
selectively reorganize and reexamine our work. We have invested 
more of our resources in the last 4 years relative to our total 
budget in training and retraining our employees and into new 
technology than in any other period in our history. We are 
retooling for future service in a changed and changing world. 
What we do, we do more creatively and more efficiently. We are 
trying to present ourselves not as an organization with a bag 
of tools and a list of programs, as we may have been tempted to 
do in the past, but as a team of experienced experts in 
communicating these important policies, facts, opinions, 
nuances, and corrections that most often do not make the 
headlines or even the body of the story on CNN or Reuters or 
any other commercial news service.
    We have already begun to build on this, and request this 
year a $1.078 billion budget, significantly down from what the 
budget of this Agency was in the 1980's. But this Agency's 
budget for 45 years grew practically ever year. With this 
budget, however, we will have further program and staff 
reductions. USIA is making reductions deliberately and 
strategically as a part of our extensive reinvention project. 
But this has been disrupted in the last few years by even 
deeper cuts than we had planned for. I believe in view of the 
challenges that this country confronts and the importance of 
the work USIA has undertaken in a new spirit, in a new way, in 
a new organization, that we must resist the temptation to make 
deeper cuts and instead stabilize at this point as we continue 
to plan for the future.
    What I have tried to say today is that USIA understands the 
changes and the nature of this time, that we have heard what 
the American people are saying about their Government, that we 
understand the changes that have taken place in our interests 
and objectives, and that we are changing to meet the demands of 
the times. But we remain unabashed advocates for the interests 
of the American Nation and a team of strategists with an 
understanding of the publics that we need to reach and reform.
    Let me just close by referring to an article in the Wall 
Street Journal a week ago by two prominent members of the 
congressional majority leadership, Representative Gerald 
Solomon of the House Rules Committee and Representative 
Christopher Cox of the House Republican Policy Committee. They 
discussed the elements necessary for U.S. global leadership. 
They discussed issues that are going to be the central item of 
debate about the foreign policy and foreign affairs requests 
you have before you. I refer to one sentence in that article 
that the two Congressmen wrote: American leadership, they said, 
derives, one, from our powerful ideas and values, our global 
military presence, and the economic benefits of the free 
enterprise system.
    Whatever differences may emerge in this session of Congress 
about our foreign affairs budget, I believe that those words do 
express a minimum consensus. One third of the three elements 
the Congressmen cite, our powerful ideas and values, represents 
the central focus of every program that the USIA is engaged in. 
I suggest to you that, however the world has changed in terms 
of technology, these are not the main objectives of CNN or 
Reuters or global technology. Our ideas and values must be 
pursued in a concentrated and deliberative and as wise an 
effort as we can muster. Compared to the costs of our other 
activities overseas, this one-third of the agenda represents a 
very modest but powerful investment that directly relates to 
the future of U.S. leadership.
    I have provided, for the members of the committee, lists of 
the changes that have taken place; a CD ROM which shows some of 
the application of new technologies to a specific national 
interest; and some graphs demonstrating the changes that we 
have made in our administration.
    Thank you.
    [The prepared statement of Mr. Duffey follows:]
                    Prepared Statement of Mr. Duffey
    Chairman Grams, Senator Feinstein, Members of the Subcommittee: I 
appreciate this opportunity to appear before the Subcommittee today to 
express my views on the mission and the work of the United States 
Information Agency and to respond to your questions.
    It is no secret that I began four years ago to lead this Agency in 
a process of change. The path I chose involved a thoughtful examination 
of how the world has changed along with the national interest of the 
United States.
    We have examined the mission of USIA in the context of the end of 
the Cold War, the new global technologies and the current goals and 
needs of our nation.
    The USIA--in its various incarnations over the past several 
decades--has a long and honorable tradition of serving the interests of 
the citizens of the United States.
    It is also clear from a reading of history that, from time to time, 
our mission has been redefined by changing conditions, new 
technologies, the demands of the time and the priorities of the day:

   In 1945, President Truman called upon one of our predecessor 
        organizations to work to see that ``other peoples receive a 
        full and fair picture of American life and of the aims and 
        policies of the United States government . . . supplementing 
        the work of private organizations and individuals''
   Five years later, in 1950, the times had changed and 
        President Truman called for a ``campaign of truth,'' waging a 
        struggle for ``the hearts and minds of men''-``to counter 
        deceit, distortion and lies used in a deliberate campaign by 
        our adversaries . . . We must make ourselves heard around the 
        world,'' he said, in ``a great campaign of truth.''
   In a milder tone, three years later, President Eisenhower 
        called upon the USIA to ``make more effective all activities of 
        the Government related to international information'' and to 
        seek to present overseas ``a full exposition of U.S. actions 
        and policies.''

    And so, over time, the USIA and the U.S. Government's international 
broadcasting, the major part of which has been administered by USIA, 
became during several points in the history of the Agency:

   one of the largest official information organizations in the 
   the largest radio system in the scope of its languages and 
        range of transmitter sites in the world;
   the largest library system in the world in terms of branches 
        and distribution of books and magazines;
   the largest noncommercial news distribution system in the 
        world in terms of languages and global reach;
   the largest noncommercial film distributor in the world; and
   a major source of programs for the movement and exchange of 
        students and scholars around the world.

    None of this is true today. The times have changed; the demands are 
different; resources are more restrained; the mission far more subtle 
and sophisticated--but for that, no less important nor less critical in 
terms of very practical U.S. national interests that are not being 
directly served by any other agency of the government or any 
organization in the private sector.
    Today, the great threat to U.S. interests is not that we not be 
loved and admired in some corner of the world--but that we be 
misunderstood--that misjudgments might be made by other nations about 
our interests and our willingness to defend those interests when they 
are threatened.
    America is indeed a puzzling nation to many who seek to understand 
how our system works--and the contradictions and ironies that go into 
our way of making policies and defining our national aspirations. And 
we cannot take for granted that even those who seek in sympathy to 
understand our behavior can do so without our being more forthcoming.
    Two forces of historic significance are shaping the world we live 
in--the information--communications revolution and the shift of power 
away from central government authority to individuals and publics. 
These forces require all of us to reexamine the way in which we engage 
the world. believe that for American leadership to be successful, 
traditional diplomacy must be complemented by an open and creative 
public diplomacy which focuses on the values and beliefs, attitudes and 
opinions of foreign publics. These new challenges also highlight the 
need to engage to a much greater extent the talents and resources of 
our own citizens. These are tasks to which USIA is well-suited.
    We have, in addition, newer goals in the world--quite practical 

   greater deregulation of trade and investment;
   protection of intellectual property rights;
   the enactment of laws and agreements regarding transnational 
        investment; and
   the spread of fundamental freedoms and human rights. An 
        example of this is our civic education initiative, called 
        ``Education for Democracy,'' which emphasizes the rights and 
        roles of citizens as full participants in the political and 
        economic life of their societies.

    Today the USIA is ready for the new century.
    For the last four years we have worked to become practiced in the 
art of pursuing these new national interests in an era of frugal 
    We have a new and clear understanding of a more limited but crucial 
mission in our service to the American people and American interests 
    President Clinton has affirmed our updated definition of USIA's 
    It is this:

   to promote the national interest and national security of 
        the United States of America through understanding, informing 
        and influencing foreign publics, and broadening dialogue 
        between American citizens and institutions and their 
        counterparts abroad.

    This clear and brief statement of our mission is also the first 
step in the Agency's implementation of the Government Performance and 
Results Act. We have broken down this mission into three broad 
strategic goals and, under those objectives, we have established more 
specific target outcomes for our worldwide activities. Each of our 
objectives directly supports the foreign policy priorities of the 
Department of State and the White House. The process of arriving at 
these goals, moreover, is closely integrated with the Department of 
State's own planning process. This is more true today than at any time 
in the history of the USIA.
    As a foreign affairs agency of the United States Government, our 
activities cannot always be measured by standard indicators, nor can 
our customer and stake holder satisfaction be gauged in the usual way. 
Our mission supports the U.S. national interest and advances American 
national security. This means:

   we build international support for American policies, even 
        when they are unpopular;
   we base our public diplomacy on the principles of American 
        democracy, even when our target audience is hostile to them;
   we respond to crises that cannot be foreseen by any planning 
        process; and
   we operate programs that are long-term investments in 
        stability, political security and open markets and may show few 
        immediate results.

    Nonetheless, we are fully committed to implementation of the letter 
and the spirit of the Results Act throughout USA Let me give you some 
specific examples of how we judge ``outcome'' and not just ``output'':

   As part of our support for an open and democratic Europe and 
        for the expansion of NATO, USIA organized a program for six key 
        Hungarian parliamentarians. this program contributed to the 
        decision of the Hungarian Parliament to authorize the transit 
        and stationing in Hungary of IFOR forces involved in the 
        implementation of the Dayton Accord. Hungary also became the 
        first country with a specific budget line item for Partnership 
        for Peace and the first PFP country to sign the NATO Status of 
        Forces Agreement.
   Many countries try to prevent their citizens from having 
        access to accurate, independent news and information. The Voice 
        of America and other broadcasters play an important role around 
        the world in providing a free flow of in- 
    formation. When Serbian leader Slobodan Mliosevic closed down the 
independent radio station B-92, VOA and RFE/RL responded with expanded 
hours of both medium and shortwave broadcasts in Serbian. VOA and RFE/
RL also carried B-92 correspondent reports. After one such day of media 
exposure, Mllosevic relented and B-92 was back on the air.
   An exchange visitor from Italy who came to the United States 
        for a program on intellectual property rights later organized a 
        major raid on local centers of software piracy.
   The USIA Information Resource Center in Budapest fostered 
        contacts between the American and Hungarian.business 
        communities that resulted in business partnerships in the food 
        industry and other business sectors.
   Members of the first Palestinian Legislative Council were 
        brought to the United States by USIA to experience firsthand 
        how the U.S. Congress and state legislatures function. This 
        knowledge will assist them in establishing the basic governing 
        institutions of the Palestinian Authority.
   A USIA grant to Southern Illinois University led to FCC 
        collaboration with the newly created South Africa Independent 
        Broadcasting Authority to establish the regulatory framework 
        for South Africa's first electronic media.

    We are not only adapting our programs to meet new challenges, we 
also are preparing our work force for the twenty-first century. It is 
already one third smaller than it was four years ago. But just resizing 
our work force is not the point We are far more focused and more 
flexible than we were four years ago.

   Over the past four years, the new USIA has invested of its 
        resources, relative to the total annual budget, in training and 
        retraining its employees and into new technology each year than 
        in any other period in its history. We are retooling for future 
        service in a changed and changing world.
   Our work force is reduced by one third, but what we do, we 
        do more creatively and efficiently.
   We seek to present ourselves today not as an organization 
        with a bag of tools and a list of programs, but rather as a 
        team of experienced experts in communicating those important 
        policies, facts, opinions, nuances and corrections that most 
        often fail to make the headlines and, too often even the body 
        of the story on CNN or Reuters or any other commercial news 

    This is indeed a new time.
    To continue our support for American leadership in the world and to 
build on the work that has already been done, we are requesting $1.078 
billion for FY 1998. This will cover most of the costs of the Agency's 
current service requirements and enable the Agency to stabilize core 
programs and operations.
    With this budget, however, further program and staff reductions 
will be necessary in FY 1998. While USIA is making reductions 
deliberately and strategically as part of its extensive reinvention 
efforts, the Agency has been forced over the past several years to make 
faster and deeper cuts than I believe are wise in view of the 
challenges which confront America around the world.
    With FY 1998 program reductions of $13.9 million, USIA's 
appropriations under this request will be 33% below the 1993 level in 
constant dollars. Staff reductions of 128 in FY 1998 will bring total 
workforce reductions to 29% in the same time frame.
    Although we project further reductions, we propose $3.4 million to 
allow innovative expansion of technology for Agency programs, 
strengthen broadcasting audience research and establish a new office to 
increase cooperation and eliminate duplication among agencies 
conducting international exchanges and training.
    This Agency also continues to streamline its operations and to work 
with other agencies to integrate administrative functions.
    We have also proposed draft authorizing legislation together with 
several changes to existing statutes for the Committee's consideration 
as the budget is prepared for 1998.
    What I have tried to say to you today is that USIA understands the 
changes and the nature of this new time. We have changed and will 
continue to change with the times and the demands of the time.
    We remain, however, unabashed advocates for the interests of the 
American nation--a team of strategists and tacticians with an 
understanding of the publics we need to reach and inform and convince 
if our national policies are to be successful.
    Mr. Chairman, Members of the Subcommittee, I believe that the 
public diplomacy programs of USIA remain an important strategic 
investment that America must support to protect and sustain its vital 
interests in the future.
    Last week, The Wall Street Journal carried on its editorial page an 
article by two prominent members of the Congressional majority 
leadership. Representative Ger- 
ald Solomon, Chairman of the House Rules Committee, and Representative 
Christopher Cox, Chairman of the. House Republican Policy Committee, 
wrote about the elements necessary for U.S. global leadership. Their 
discussion of a number of established programs will contribute to the 
debate we are having about how to pursue our national interests as we 
look to a new century.
    At one point the two Congressmen wrote the following: ``American 
leadership derive . . . from our powerful ideals and values, our global 
military presence and the economic benefits of our free enterprise 
    Whatever differences may emerge in this session of the Congress 
about our foreign affairs budget and strategies, I believe that these 
words do express a consensus. Now one third of the three elements the 
Congressmen cite, ``our powerful ideals and values'' represent the 
central focus of every program that USIA is engaged in. Compared to the 
costs of other activities overseas this one third of the agenda 
represents a modest investment, but a powerful one, an investment 
directly related to the future of US leadership in the world.
    Thank you, Mr. Chairman. I would be happy to address any questions 
you or your colleagues may have.



    Senator Grams. Thank you very much, Mr. Duffey. Mr. Klose, 
your opening statement.

                    U.S. INFORMATION AGENCY

    Mr. Klose. Mr. Chairman and members of the committee, I am 
very pleased to appear before you today as the representative 
of David W. Burke, Chairman of the Broadcasting Board of 
Governors. I am Director designate of the International 
Broadcasting Bureau, and have served as President of Radio Free 
Europe/Radio Liberty for the past 2\1/2\ years.
    We in international broadcasting owe a special debt to the 
Senate Foreign Relations Committee and your subcommittee for 
continuing support of our activities and missions in 
furtherance of America's foreign policy goals. I would like to 
add a personal note of thanks to Senator Biden for his 
steadfast dedication to the principle of the independence and 
integrity of all our broadcasters, as is enshrined in the 
Broadcasting Act. I would also like to thank Senator Feingold, 
because by insisting that Radio Free Europe/Radio Liberty must 
economize, you helped us take a good, hard look at ourselves 
and come up with a more cost-effective way of achieving our 
    Mr. Chairman, I have a prepared statement. I ask the 
committee's permission to submit it for the record.
    Senator Grams. It will be so submitted.
    Mr. Klose. Thank you.
    I would like to briefly mention that the 1998 request for 
international broadcasting is a total of $399.5 million. The 
question for all of us is what does that money buy in terms of 
U.S. foreign policy goals, in terms of the national security 
interests of the United States. Mr. Chairman, I need only look 
at the headlines in recent days and in recent weeks to see the 
interplay of the international broadcasting entities of the 
United States and foreign policy goals of the United States and 
major national issues that stand before us.
    I would mention Albania, which is now in a state of crisis. 
That crisis in part focuses on demands that are sweeping the 
country for freedom of expression, for new politics, for 
democracy to express itself. In this crisis situation the Voice 
of America has been a principal actor bringing voices of 
democracy forward, and the regime has responded in kind. Five 
in-country affiliates of the Voice of America, radio stations 
on Albania, have been silenced.
    There is now widespread state censorship of all the media. 
VOA's dedicated and resourceful stringers in-country are in 
hiding, fearing further measures of repression from the 
government. There is one Voice of America affiliate still 
functioning in the capital of Tirana. We are now broadcasting 
into Albania using short-wave transmitters that are out-
country, that are from elsewhere in Western Europe, and we are 
reaching listeners as well by several medium-wave transmitters 
into Albania.
    This crisis, and the earlier crisis that we saw centered on 
Radio B-92 in Belgrade, and the broader crisis in Serbia, are 
distinctive in my mind because they focus on rights of free 
information and they focus on the mass media. The 6-month 
crisis in Serbia which ultimately focused American interest on 
the role of independent media in places where independent media 
struggles to exist at all became for us a focal point and an 
object lesson about how international broadcasting, led by the 
U.S. international broadcasting entities, in this case the 
Voice of America and Radio Free Europe/Radio Liberty, combined 
to in effect force the Milosevic Government to put B-92 back on 
the air, and in fact by that solidarity of the international 
broadcasters showed the reach and the relevance of our 
broadcasters and our broadcasting effort every day.
    These two countries--Albania, Serbia--are, of course, 
located in what has been a historic human seismic zone where 
issues of government repression and the aspirations of 
individuals and whole societies to break out of entrapment to 
find their own way to take on for themselves self government 
and to emulate and then become functioning civil societies 
under rule of law. This seismic zone is, in effect, in my view, 
analogous to the situation that U.S. international broadcasters 
face in many other parts of the world, in China, in parts of 
Africa, elsewhere in Asia.
    The international broadcasting community, fueled by 
American taxpayer dollars, is leading in bringing ideas, in 
bringing American values, American perspective, and American 
explanations of how you achieve democracy, to those people in 
the surrogate grantee operations of Radio Free Europe, Radio 
Liberty, and Radio Free Asia. There, the broadcasting is 
focused much more in the region, and allows people in the 
region to have access to balanced, accurate objective 
information that is relevant in a specific way to their own 
lives and their own concerns on a daily basis, while the Voice 
of America conveys America's ideas and American perspectives to 
    These organizations in these countries, and I have traveled 
in many of them personally, the organizations, Voice of 
America, Radio Free Europe, Radio Liberty, and Radio Free Asia, 
and Radio Mari--I have not been able to travel to Cuba--but 
these radio voices, and now increasingly television and our use 
of Internet, stand as not just symbols, but reality of American 
presence in the effort to transform struggling societies and to 
bring them into the democratic era.
    Many people have said that the 21st century may be the 
century of democracies, and we see the trends gathering. We 
know that the developments in Central Europe and elsewhere in 
the last quarter of this century have set the stage for what is 
to happen in the 21st century. The international broadcasting 
community of the United States is a front-line player in that 
activity, in that effort to transform those societies and bring 
stable civil societies forward.
    Other places we could think of are, for example, in Iran. 
The Voice of America is now simulcast, television and radio 
service in the Farsi language. We know it is having an effect, 
because we have reports, credible reports, of Iranian 
authorities going literally from house to house taking down the 
satellite dishes, removing them, and people have found ways 
themselves to remove them in the daytime and put them up again 
at night. The responses that we have seen, both anecdotally and 
in fact to this kind of co-broadcasting or simulcasting into 
Iran, sets the stage for what we are looking at going forward 
in the 21st century with the international broadcasting 
    The cooperation and coordination which came out of the 1994 
International Broadcasting Act which Voice of America, RFE/RL, 
and all the entities have engaged in has shown that although 
there are differences, and distinctly so, and in my view those 
differences are a rich mix of American contact in different 
ways with many different audiences and for different reasons, 
these entities have also cooperated in new ways. There was 
overlap prior to 1994 in such things as Russian broadcasting by 
the Russian Service of Voice of America and Radio Liberty's 
Russian service. That has ended. Significant economies have 
been made in the transmission schedules, and cooperation 
continues amongst these broadcast entities.
    The interactive nature of the 21st century beckons to us in 
a very strong way. Most of these radio or broadcast entities 
have home pages on the Internet, and are receiving thousands 
and thousands of inquiries or hits a day. They are putting 
their own news in real audio on the Internet, and we are 
beginning experiments, I believe, with real video. Soon that is 
going to be available to us, as well.
    Most of us are aware of the views of people such as Michael 
Bloomberg and our own board members on the Broadcasting Board 
of Governors, Mark Nathanson, who is a very successful 
television entrepreneur in Southern California and worldwide; 
Carl Spielvogel; Chairman Burke, himself, who comes out of 
American television and knows the broadcast business, are very 
eager to help us shape a future which is interactive, in which 
the visionary notions that people are having now about the 
interactivity of the 21st century will be part and parcel of 
what we do as we go forward.
    I would like to end my comments in this part of my 
testimony simply by citing several, in effect, eyewitnesses, or 
ear-witnesses, in this case. These are anecdotal examples of 
the power of these broadcasting services even now, today.
    Here is a letter which the Voice of America received from 
Hopei Province in China: I am a loyal listener of VOA. So long 
as there is time, I cannot pass up the chance to listen to your 
station's broadcast. I think that VOA is the world's most 
impartial, most objective, speediest news station. You could 
say that no station can rival VOA. That is from VOA's China 
    In Russia, I would like to quote to you from the Financial 
Times of London, in its editions of January 4-5 of this year. 
This was from a piece written by Chrystia Freeland, who is a 
correspondent, bureau chief for Financial Times of London in 
Moscow. She writes: This decline in the credibility of Russian 
journalism has had one bitterly ironic result. According to 
Andre Pyontikovski, a Russian political scientist, 5 years 
after the collapse of the Soviet Union, the country is again 
tuning into the foreign radio broadcasts originally created to 
upset the communist regime. Quote: Radio Liberty has again 
become Russia's best source of objective information.
    We have seen this phenomenon at Radio Free Europe across 
our region. When the countries that we are broadcasting to in 
that part of the world encounter political difficulties, 
turmoil, upheaval, scandal, there is an instinctive interest on 
the part of people who have been listening to their indigenous 
radio and television, watching television and reading the local 
media. Two things happen. There is a rise in the polemics 
inside the country, and there is instinctively a wish to find 
objective, reliable sources of information which have been out 
there for many, many years, and people turn to these radios, 
both Radio Free Europe/Radio Liberty, and to Voice of America. 
In my view, those are the kinds of lively examples that prove 
both the relevance of the enterprise and sets the stage for us 
to further evolve and accept and make use of the revolutionary 
new technology which is coming on line soon.
    Mr. Chairman, thank you very much.
    [The prepared statement of Mr. Klose follows:]
                    Prepared Statement of Mr. Klose
    Mr. Chairman and Members of the Committee, I am pleased to appear 
before you today as a representative of David Burke, Chairman of the 
Broadcasting Board of Governors. I am also the Director-designate of 
the International Broadcasting Bureau, a position I will assume after 
4\1/2\ years with Radio Free Europe/Radio Liberty, Inc., the last 2\1/
2\ as RFE/RL President. I am honored to have been asked to help meet 
the challenges for change that face U.S. international broadcasting in 
the 21st Century and would like to share with you my perspectives as 
you preview our Fiscal Year 1998 and 1999 budget request.
    U.S. international broadcasting has consistently served as an 
inexpensive, effective tool for encouraging peaceful change and 
democracy. It is an essential element in defending and promoting the 
freedom and security of the United States abroad while encouraging the 
evolution of a more stable and peaceful world. What excites me about 
our broadcast entities is that, despite budget reductions of over 30% 
in the past four years, U.S. international broadcasting today is 
engaged with its audience. It is interactive, it is shortwave, it is AM 
and FM, it is satellites, it is television, it is the Internet and 
``real audio,'' available via home computer worldwide in over 17 
languages. It has evolved to meet the challenges of today, to meet the 
needs of its listeners and to serve U.S. foreign policy interests 
    The broadcast elements under the new Broadcasting Board of 
Governors include the Voice of America, WORLDNET television, Radio and 
TV Marti, and the grantee organizations Radio Free Europe/Radio liberty 
and Radio Free Asia. Each of these entities is engaged in the daily 
struggle to encourage the free flow of information and ideas and to 
promote human rights from China to Cuba, from Zaire to Serbia.
    The world to which we broadcast has changed. There is greater 
truthfulness and candor in the media of a number of former communist 
countries than there was eight years ago. But the role of RFE/RL, VOA, 
RFA and the Martis remains critical. We need only to look at the past 
six months in Serbia as an example. Coverage of pro-democracy 
demonstrations in Belgrade was forbidden and absent on state-controlled 
media. In December, Serbian President Slobodan Milosevic silenced the 
Belgrade independent station Radio B-92. Both RFE/RL and VOA responded 
immediately to the need for accurate, fair reporting on the scope of 
the opposition forces and government reaction to their activities. The 
expansion of shortwave, medium wave and television broadcasting to the 
region, as well as Internet access, provided audiences with in-depth 
coverage and analysis of events as well as U.S. and world reaction to 
developments there. Veran Matic, senior editor at Belgrade's B-92 
station, has confirmed the significant role both RFE/RL and VOA played 
in returning that station to the airwaves. The pro-democracy movement 
was supported and strengthened by U.S. international broadcasters in a 
dramatic example of fulfilling U.S. foreign policy goals in a troubled 
and volatile part of the world.
    In the U.S., freedom of the press and access to multiple sources of 
news is guaranteed by our Constitution. But the world to which we 
broadcast knows the reality of powerful governments controlling radio 
and television, intimidating or shutting down independent media that 
criticize or speak truthfully of shortcomings and political repression. 
The internationally recognized Committee to Protect Journalists is 
scheduled to release its annual survey on press freedom violations 
around the world on March 14. It will report that in 1996, 26 
journalists were murdered and 185 imprisoned in 24 countries. This grim 
toll - murder and imprisonment of journalists outside our borders - is 
powerful testimony to the need for the work we do.
    A keen example of meeting today's challenges with innovative 
programming is our expansion of interactive programming with listeners. 
Last Fall, the Voice of America launched five of its regular radio 
shows on television, in Farsi, Russian, Serbian, Mandarin and Arabic. 
This type of radio/TV simulcast is cost efficient and feedback from the 
listeners is impressive. The Iranian government's response to the one-
hour issue-oriented call-in show ``Roundtable With You'' was an 
accelerated confiscation of private citizen's satellite dishes. People 
still watch at great risk and call-in to the program, at great expense. 
Dedicated viewers install their dishes at night to tune-in and then 
remove and hide them in the morning, often taping the simulcast to 
share with those who do not have dishes.
    From its new, highly efficient broadcast center in Prague (rent, 
$12 a year for the entire former Federal Parliament Building in 
Wenceslas Square), Radio Free Europe/Radio Liberty has strengthened its 
surrogate ``home radio'' presence throughout Central Europe and the 
former Soviet Union. Interactive call-in segments in which listeners 
speak with experts on international relations, economic reform, family 
health, ethnic diversity, and similar issues are featured in the 
Russian, Slovak, South Slavic, Ukrainian and other RFE/RL services.
    The Marti's demonstrated their critical role in providing news and 
information to Cuba following the shootdown of Brothers to the Rescue 
last February, and more recently with its balanced coverage on the 
licensing of news organizations in Cuba and the plan for a democratic 
transition there.
    Feedback from China on Radio Free Asia is received via RFA's Hong 
Kong mailbox where letters arrive from throughout China expressing 
overwhelming support. A loyal listener in Tianjin says, ``. . . our 
television reports and papers are filled with false stories, which has 
seriously limited fur understanding of domestic and international 
politics . . . But Radio Free Asia's news reports and interviews with 
activists in the democracy movement feel very warm and honest...''
    The thread which links all of our broadcast-entities is the 
commitment to fair and balanced reporting. Each U.S. international 
broadcasting entity adheres to these standards while fulfilling 
American foreign policy objectives, providing viewers and listeners 
with information they cannot get from commercial sources. For example, 
VOA's recent broadcast of the President's State of the Union Address, 
including the Republican response by Representative J.C. Watts, is 
consistent with our commitment to fairly project American policy and 
    Technology is evolving rapidly for international broadcasters. In 
parts of the world where TV and the Internet are accessible, we are 
delivering. But in many parts of the world, shortwave radio remains the 
most valid means for delivering programs. Radio remains the predominant 
vehicle for information in much of Africa, for example. Although the 
number of radio stations in Africa has increased, most are still 
government controlled, a circumstance that actually increases the need 
for accurate, balanced information from and about the United States and 
the world.
    Mr. Chairman, a word about our 1998 budget. We are requesting 
$399.5 million--$366.8 million for International Broadcasting 
Operations and $32.7 million for Radio Construction. This represents a 
current service level for the most part--with one enhancement for 
additional audience research to increase the availability of valid, up-
to-date information on our audiences.
    A quick review of broadcasting's recent budget history may provide 
a useful perspective on this modest request. During the period 1994 to 

   international broadcasting's budget has decreased 31%;
   the staff of international broadcasting has been reduced by 
        over 1450 positions;
   over 490 direct broadcast programming hours via IBB-operated 
        shortwave and medium wave transmitters per week have been 
        eliminated (about 29%).

    Despite these severe reductions, our broadcast operations have 
   the launching of Radio Free Asia in its first 5 languages, 
        as mandated by Congress;
   joint ventures with USAID and Carnegie Corporation to 
        provide programming about Angola, Central Africa, and on 
        conflict resolution initiatives in the Balkans, Afghanistan, 
        and South Africa;
   a reunification program in Central Africa through VOA's two 
        new languages to that area, Kirundi and Kinyarwanda, helping 
        hundreds of refugee families separated by the mass exodus there 
        to reunite;
   the technical coordination of RFA, VOA and RFE/RL broadcast 
        schedules to avoid overlap;
   crisis coverage of events this past year in Albania, Burma, 
        Rwanda, Zaire, Serbia, Belarus, and other regions;
   intensive human rights coverage by all services, including 
        RFA's focus on repressive policies in China and Tibet and Radio 
        and TV Marti's regular program, ``Tus Derechos, Cubano (Your 
        Rights, Cuban).''
   500 WORLDNET interactives dialogues with newsmakers beamed 
        via satellite to all regions of the world;
   a joint initiative with the Justice Department and VOA to 
        broadcast ``International Crime Alerts'' profiling 
        international fugitives on VOA weekly and on VOA's world wide 
        web page;
   initiation of the conversion to digital technology;
   expansion of broadcast affiliates to broaden coverage and 
        access to listeners globally;
   strengthening of RFE/RL journalism training program in 
        Prague, linking with privately-funded Foundation for 
        Independent Journalism to teach fact-based journalism to 
        promising reporters and editors from the region;
   expanded live RFE/RL programming from its news bureaus in 19 
        capitals, adding new relevance to its daily broadcasts in 19 

    Mr. Chairman, international broadcasting is a real bargain. Our 
successes in Africa, Iran, China, Serbia, Russia and elsewhere around 
the world were accomplished with a 1997 budget that represents 
approximately two percent of total Federal spending on international 
    I believe that enactment of our 1998 request will enable 
international broadcasting to stabilize operations after an unsettling 
period of reorganization and downsizing. It will provide a solid 
platform from which to advance our mission into the twenty-first 
    I look forward to working with members of this committee as the 
budget process proceeds and can assure you that I will work toward the 
most efficient utilization of funds entrusted to us by Congress. I 
would be happy to answer any questions you may have at this time.
    Senator Grams. Thank you very much, Mr. Klose.
    Senator Feinstein just had to attend another hearing, but 
she plans on returning shortly this morning to also ask more 
questions of this hearing. So, I would like to just start out 
by addressing Dr. Duffey first of all, and also, Mr. Klose, if 
anytime you want to chime in if some of these questions are not 
directed specifically at you or for both of you.
    Dr. Duffey, as I said in my opening statement, the 
subcommittee is not going to be questioning you today on any of 
the specifics of a particular proposal to reorganize the State 
Department and related foreign affairs agencies. However, this 
issue came up twice last week during hearings on the budgets 
for the State Department and also the Agency for International 
Development. Therefore, Dr. Duffey, I would like to just ask 
you if it is your understanding that the administration is 
developing a reorganization plan for U.S. Foreign Affairs 
Agencies, and that this proposal will be presented in the near 
future to Congress.
    Mr. Duffey. It is my understanding, Senator Grams, that 
Secretary Albright, Vice President Gore, members of the 
National Security Council, are consulting, and will have 
prepared for the Congress a program for addressing the issue of 
    Senator Grams. Of course, the obvious question would be 
have they consulted you? Have you had your input on how USIA is 
going to figure in or be reconfigured in this new organization 
    Mr. Duffey. Well, several of these consultations have gone 
on for several years. USIA has worked closely with the State 
Department to consolidate certain functions to make them more 
efficient and reduce costs. The consolidation of the Office of 
Inspector General, which has achieved considerable savings, was 
a proposal by USIA, and I believe it has already been 
demonstrated that it is successful. We have expressed our 
views. They are very consistent with the testimony I have just 
    My hope for USIA is first of all that it serves more than 
the State Department and is not the public relations arm of the 
State Department. We have a major presence overseas and provide 
port to Justice, Treasury, Commerce, and other Agencies. USIA 
must serve all of those Agencies.
    I have tried very hard to make USIA a less bureaucratic, 
more agile, flexible institution. I think we have already 
demonstrated that we can respond more quickly and more directly 
than some of the larger institutions. We are not an Agency that 
makes policy, we are a service Agency to the Government in all 
our presence overseas.
    We have been a part of the conversation. The Secretary, 
looking at this with fresh eyes, and I think a great deal of 
familiarity with the institutions involved, will bring forth 
her proposal. I think to date she has kept her counsel, but I 
am quite sure the proposal will come to the Congress.
    Senator Grams. OK. As you know, this committee is moving 
ahead as quickly as possible to try to put this together. So, 
we appreciate any effort on your part, and also on Secretary 
Albright's, to forward that information.
    Dr. Duffey, as you know, the International Broadcasting Act 
of 1994, which you refer to, and also Mr. Klose, consolidated 
all international broadcasting activities under a nine-member 
Broadcasting Board of Governors, the BBG, of which you are a 
statutory member. The statute creating the BBG specifies that 
it is established within the United States Information Agency. 
Now, the statute also specifies that the BBG should forward its 
recommendations concerning its proposed budget to the Director 
of the United States Information Agency for consideration of 
the Director as part of the Agency's budget submission to OMB.
    However, the statute also grants the board the authority to 
direct and supervise all broadcast activities conducted by 
USIA. So, the question, could you describe for the committee 
how you view the institutional relationship between the Office 
of the Director of USIA and also the Broadcasting Board of 
    Mr. Duffey. Well, let me say first of all, Mr. Chairman, 
that we are dealing here with an extraordinarily complicated 
set of institutions and problems. The Congress did not have 
responsibility for the Board of International Broadcasting, 
which supervised Radio Free Europe and Radio Liberty for the 
first 20 years of its existence. It had ample funding, but this 
was covert funding.
    Congress then began to work out an arrangement to have an 
International Broadcasting Board, which was at the same time a 
publicly designated and Senate-confirmed group that awarded the 
funds they received to a corporation of which they were the 
members to administer the Radio Free Europe/Radio Liberty 
programs. When I came on board in May 1993, the previous 
administration had proposed that this funding be eliminated 
    It became clear to me that there was a need for changes. 
Any institution that had existed with this kind of history 
faced a difficult transition. But also that there was an 
important need for this institution to continue. The Congress 
then--we began to work with a great deal of consultation. 
Representatives of RFE/RL will remember spending 2 or 3 days in 
hotel rooms in various parts with Voice of America and other 
personnel, and with an enormous show of good spirit and I think 
great imagination, a proposal was made to you.
    Before I talk about that I just want to say the following: 
Just less than 2 years ago the Wall Street Journal commented in 
its lead editorial on this proposal to close the Munich 
operation, which had been incredibly expensive--1600 people--
and move it to Prague. The Journal's editorial was entitled 
``Radio Free Europe/Radio Liberty, Rest in Peace.'' And at the 
end of the editorial the writer said only time will tell what 
will happen to the Prague-based RFE/RL, whether it will live up 
to the reputation of its predecessor. We hope so for the sake 
of the audiences it served, but we lament that its mission was 
so abruptly and inappropriately halted.
    In less than 2 years, I think we have evidence that this 
move has, thanks in large measure to the leadership of Kevin 
Klose, really invigorated this institution. Four hundred people 
now in Prague, with the use of digital technology--something we 
must bring to the Voice of America. Digital technology has made 
a dramatic cut in our expenses. We need the investment 
resources and we need to work with our unions to make this 
change possible everyplace. But it just made a significant 
    Far more important--far more important--is the respect that 
Radio Free Europe/Radio Liberty has gained for its 
understanding of a new time, taking on a new mission, moving 
into the Internet wisely, broadening its sense of what it is 
trying to do in terms of training and facilitation of the 
growth of indigenous broadcasters. I simply want to say to 
Klose and to the people at the Voice of America who have worked 
together to make this move possible that they have already, I 
think, been vindicated in a dramatic reinvention and 
    I would like to say, Mr. Chairman, in response to your 
question, that I think the best way to address this, if this 
committee wishes to, is perhaps to look at the original 
legislation submitted to the Senate in June 1993. That was 3 
months after I began my responsibilities. I brought along 
copies of that bill. History passes us all by so quickly with 
all the changes that take place. But this is the bill, this 
proposal was signed by Chairman Mica of the Board of 
International Broadcasting and myself. It was discussed for a 
number of weeks. It was the administration's proposal for the 
way in which this new and rather complicated arrangement might 
    Now, I am not suggesting that administration proposals are 
the first and last word. Indeed, our system works well because 
of the accountability of the Congress and the administration to 
each other. In this particular case, however, I would point out 
that what was proposed--carefully thought out and with very 
wide participation--was that the direction and supervision of 
broadcasting should be the task of the Director of 
International Broadcasting, accountable to the board, and 
accountable to the Director of USIA. This is a position that 
Mr. Klose, I am delighted to say, is about to assume.
    That was the proposal that was made in the legislation that 
was submitted to you, and this is the description of the 
Broadcasting Board of Governors, I quote: ``To provide guidance 
and oversight to the International Broadcasting Bureau, which 
is authorized to administer Radio Free Europe/Radio Liberty, 
Voice of America, the Office of Cuba Broadcasting, Asia 
Democracy Radio, and such serv- 
ices of Worldnet Television and Film as are determined by the 
board with the concurrence of the Director of USIA.'' The bill, 
adopted by the Senate after discussion and consideration, 
authorized the board to direct and supervise all broadcasting 
activities conducted pursuant to this title.
    There is an ambivalence involved there between the role of 
USIA and the Broadcasting Board. I think it arose from the 
great concern, which I share, that there be some protection 
from intrusion on the professional status and responsibilities 
of the journalists in radio, but it might be at least a place 
to begin by looking at the proposal that came to you and was 
signed by the Chairman of the Board of International 
Broadcasting, as well as the language that was adopted by the 
Congress at a later point under which we now function.
    Senator Grams. When you say direct and supervise, the BBG 
has the authority or oversight for all international 
broadcasting. Is it correct to assume, then, that you, as the 
senior U.S. official in charge of the overall public diplomacy 
effort, then have oversight of that board?
    Mr. Duffey. No, I do not think that is the understanding at 
the moment. I sit on the board and we work together. I have 
certain responsibilities having to do with the appropriation 
and personnel and other matters that I believe are clear. But 
it is a state of ambiguity and difficulty that I think puts the 
board in a difficult position, and occasionally me in a 
difficult position.
    I am not sure that a board, however large a staff they 
have, can administer a Government Agency. A board can be one of 
the bodies to which that Agency is accountable, but it is 
probably unfair to the board and unfair to the Director of 
International Broadcasting who is hired to describe the board's 
function as administering. I think that is something that is 
done day to day by the person who is hired to do the job and 
who has accountability.
    Senator Grams. To follow up on that, do you believe that 
you have or should have authority over the activities of the 
BBG, or should it be an autonomous unit within USIA?
    Mr. Duffey. I am uncomfortable responding to that without 
Mr. Burke's presence. I think the two of us could have some 
debate, I think perhaps in good faith, about the problems that 
are created by the ambiguity of the language. The last thing, 
frankly--with a job that has lots of responsibilities--that I 
want to fight for is more authority. I have a lot on my plate. 
I consider I do have budgetary and oversight supervision for 
many aspects of broadcasting because it is a part of USIA, and 
have found that the Congress and the administration both hold 
me accountable, as they should.
    But the board also lives with this ambiguity and 
difficulty, and I think it is a point of stress with whoever 
serves as the administrator, the Director of the Broadcasting 
Bureau, as well as with the Director of USIA.
    We can generally live with these things, and it is not the 
only contradiction we live with in the government. But if the 
committee wishes to address it, I think some guidelines might 
be the original way in which the proposal was made. As I say 
again, that, as it came to you, was signed by the Chairman of 
the International Broadcasting Board, and it came out of a 
great deal of careful consultation over some weeks.
    But it is not a constant stress and difficulty. It may 
create a problem more for the board than it does for me. I 
understand what I am being held accountable for, and will make 
the decisions necessary to be accountable.
    Senator Grams. Well, there appears to be some of this gray 
area that you have talked about, the ambiguity. Would you 
recommend any changes that this committee could make or direct 
to the International Broadcasting Act that would try to clarify 
that relationship between the Director of USIA and the BBG?
    Mr. Duffey. I think rather than making changes I would 
think this is in the province of the committee. My 
recommendation would be that the original language be examined 
again and perhaps the board will want to inquire about the 
reasons for that language. I have stated some of them, but we 
could provide you in writing other reasons, because it had very 
wide circulation, a very wide discussion. If the committee 
pursues this, I think my recommendation would be that is a 
place to begin.
    Senator Grams. I know you talked about the professional 
status and responsibility of journalists. As I mentioned, I was 
in that field for a number of years, and I know the role and 
the responsibility we had. I am not sure that it carries the 
same 100 percent translation into this department. There are 
some other--as you go back to what you said Mr. Murrow said in 
1963, it is to further U.S. foreign policy objectives. There is 
a difference there, and so again, if there is anything this 
committee can do, or we will be looking at that and maybe 
seeking information from both Mr. Klose and yourself, to maybe 
help erase some of this gray area and to put in some definition 
or lines, so we will work on that.
    Dr. Duffey, also the Foreign Relations Committee will soon 
be considering other legislation, as well, to streamline our 
foreign affairs agencies and reduce duplication of services, 
again an important area. As we continue that process, we will 
be looking to steps, if any, that the USIA has undertaken to 
eliminate such duplication. In that regard, could you explain 
why USIA has had an Office of Congressional Affairs, yet the 
Broadcasting Board of Governors, the BBG, which exists within 
USIA, also has its own separate congressional affairs officer?
    Mr. Duffey. The Broadcasting Board of Governors has the 
authority under the legislation to create such staff as they 
deem necessary, and so they have created a staff that addresses 
congressional relations, budget matters, and other matters, at 
the direction of the board.
    Senator Grams. They have the authority, but is it 
streamlining the efforts or is it duplicating some of the 
    Mr. Duffey. Well, I think you would get different views on 
that. Obviously there is some duplication involved, but I am 
sure members of the board would feel that given the definition 
of their responsibility to administer the Agency, this is 
appropriate. It does create some duplications. These, I think, 
are now sort of off limits for the Director to address. We have 
other duplications that we are still trying to address in 
personnel offices and others that I think we have to deal with 
in the next year or so. This has now been de- 
clared, I think, simply by the understanding of the 
legislation, off limits for such examination.
    Senator Grams. To move on a little bit further, does it 
also make sense for both the BBG and the Voice of America to 
have their own budget officers? Again, USIA already has an 
Office of the Comptroller, which is basically in charge of the 
Agency's overall budget.
    Mr. Duffey. Broadcasting activities here are about a third 
of the Agency's budget. A consolidated budget office that works 
together where people are assigned the broadcasting 
responsibility, I think, is one way this could be organized, 
rather than having a separate office. Our office at USIA 
assumes and will continue to exercise the priority role, 
because we are the ones who are held directly accountable by 
the Congress and the administration. It could be organized as 
it is now, or it could be organized with specific functions.
    Part of what we are trying to do here is to--and I think we 
have been partially successful--is to eliminate so much of the 
duplication in engineering, transmitters, all which existed 
earlier between RFE/RL and the Voice of America. I think that 
there has been enormous good cooperation in that regard, and 
the board has worked hard for that.
    I think we all recognize that we have not achieved the 
consolidation that we proposed, and we will continue to work 
toward that. I recently submitted a memo to the board with 
respect to other things I think we can do, and we have yet to 
fulfill the provisions that were incorporated in a proposal we 
made about true consolidation. We need to look carefully at the 
areas where that is not necessarily productive, but I think we 
have yet to achieve that.
    Senator Grams. Not to belabor the point, but looking at 
another example, does it make sense for the BBG to have its own 
legal counsel when USIA has an entire legal staff with 16 
attorneys? Does that not inevitably lead to, again, duplication 
of effort?
    Mr. Duffey. It may lead to duplication of effort. I am sure 
members of the board could also provide a rationale for why the 
decision was necessary from their point of view, given the way 
the legislation now reads.
    Senator Grams. Mr. Klose, any comments before we move on to 
other areas of this?
    Mr. Klose. Mr. Chairman, I would only--from the 
broadcasting perspective of Radio Free Europe, which is where I 
would like to speak from, our concern is, and I think this is 
probably reflected in the concerns of the other broadcast 
entities, are the issues of fire walls which ensure the very 
areas that you were speaking of yourself and which you know 
from your professional career as a journalist are extremely 
important, which is that there be a sense of independence, both 
symbolic and real, of the Voice of America's charter and the 
unique nature of the grantee organizations, RFE/RL, RFA, and 
the slightly different provisions that have been taken in the 
creation of the Office of Cuban Broadcasting, are all efforts 
to address that in different and unique ways.
    I believe that the broadcast mission is enhanced by that, 
and as a person who reported to the Board of Directors of RFE/
RL, I felt very comfortable knowing that it was a corporate 
board that I was speaking to, and that it had a natural history 
of independence all by itself in addition to the relationship 
it had to the Federal entities.
    Mr. Duffey. I would like to underscore that, Mr. Chairman. 
The principal role of the board as we proposed it initially and 
its function even now is to be a protector of the professional 
status of broadcasting. I think that, even with the VOA 
charter, which now would extend to the Broadcasting Bureau, it 
is still necessary for the board to take that responsibility. 
However this committee decides at the end to adjust this 
legislation, I assume that that role would be once again 
affirmed. I certainly believe it is an important role.
    Senator Grams. Not to cast any aspersion on the activities 
of the international broadcasting and anything that has been 
done in the past, but I know even the media in this country is 
coming under scrutiny for its reporting practices and biases or 
et cetera. The old quote is if the media is watching society, 
who is watching the media? They are not, I do not think, 
unaccountable for what they are doing, and I just want to 
prevail that oversight will be just who is watching and who is 
going to be responsible if and when questions arise.
    Let me move on to some other areas. Again, when other 
members of the committee return, and I expect Senator Biden to 
be here as well, he may have some further questions in this 
area, or comments. But let us talk more about the direction or 
the mission of USIA. In the 1990's there have been two major 
events that I assume have had a profound impact on USIA's 
mission and its basic operations for its efforts to carry out 
public diplomacy. The first, of course, was the fall of the 
Berlin Wall and the end of the cold war. The second would be 
the ongoing technology explosion that you have all talked about 
so far this morning that has led to greater worldwide access to 
information than ever before.
    Could you explain how USIA has restructured, in the last 
couple of years, its operations? And I know you have touched on 
this, but just more detail to adapt to the post-cold war 
environment, and what has been the impact of these changes in 
terms of the USIA's focus on various regions?
    Mr. Duffey. Let me say first of all that 4 years ago we 
made a decision to end the publication of magazines. For 40 
years, USIA had published magazines that were circulated around 
the world. It took about 9 months to get the copy. There was an 
extraordinarily competent professional team here in Washington. 
The magazines were sort of real show pieces; they had wonderful 
photography, and articles about American life. While it was a 
bit traumatic to make a decision to end them, I think everyone 
would agree now that in a time when magazines circulate freely 
in almost every part of the world, and there is need for 
shorter term communications, that that was a wise decision.
    Many of the men and women who earlier edited those 
magazines have learned now to design home pages, to produce 
material for publication, what we call electronic journals, 
which we do not send around the world because we think people 
are going to read them via the Internet on a computer screen. 
We have a broader audience of people who are curious, but the 
main reason is to give our posts very quickly all the 
formatting they need to download and publish in place magazines 
and journals and fresh information about developments in 
American life or American policy.
    Then we abandoned the practice of producing and sending 
large exhibits around the world, and we now work with other 
agencies and organizations to facilitate their exhibits, 
occasionally to work with them on design and planning, but we 
are not in that business any longer.
    We have integrated our support for arts and cultural 
activity--from a very fine office of 24 people with an 
admirable reputation that was administering a budget of about 
$3 million--into all our programs. We have a much more 
efficient operation that also recognizes that there are many 
parts of the world now where the commercial exchange of art and 
culture needs to be perhaps supplemented or encouraged, but 
does not require the kind of funding it did.
    It was important that our Embassy in India recently brought 
the Paul Taylor dancers there for an anniversary. We got 
terrific press, but I am proud to say that no Government money 
went into that. It was done by the corporations that have an 
interest in that country, and they essentially got the credit. 
But USIA's role was absolutely vital. Our officers--
significantly more than in the past--are learning to be 
entrepreneurs with the private sector and to work to facilitate 
the many things that are happening.
    We dismantled the Bureau of Policy and Programs and created 
a new Bureau of Information which was 30 percent smaller. Mr. 
Fulton is here now. I would be delighted to have some members 
of the committee come down to learn more about that bureau. As 
one example of the type of work this bureau does, take China, 
where articles or issues of debate about the United States and 
its intentions are viewed by the younger generation in China as 
hostile and that we are trying to restrain development of 
China. We pride ourselves in being able to turn around in just 
a few days and translate a relevant article that is published 
here, and have it back at the post where the men and women 
working at the post can get it into the hands of journalists or 
    The human element, the man or woman, the team at the post 
who have relationships with opinion leaders, with younger 
people being educated for roles of leadership, are an 
indispensable element in this. We will never substitute that 
with electronic communication. But we can make their jobs 
easier. We can serve them better.
    Another thing you would see, however, if you came to visit 
Mr. Fulton, are two floors of USIA in which there are no longer 
individual offices, private secretaries, and deputies, where 
men and women work together on teams, in what I call the 
architecture of reinvention. This is something fairly new to 
the Government. Frankly, it is almost old hat now at General 
Motors and most progressive American corporations. But it 
represents our effort to take out layers of hierarchy and to 
create a new atmosphere or new work culture.
    There are a significant number of those changes that have 
taken place. Other parts of the Bureau are looking at how they 
may apply to their future. But without that we could not have 
worked our way through the 33 percent reduction in real dollars 
and about 30 percent reduction in staff.
    Senator Grams. You made a mention of shortened term from 
publishing to broadcasting. CNN often reports on events before 
the U.S. Government even knows about them, and information can 
be transmitted instantly worldwide through the Internet, so 
when you talk about shortened term, how has this information 
revolution affected your operations? Again, I think what you 
have mentioned to some of the examples such as the publishing--
    Mr. Duffey. Well, let me say first of all, this revolution 
is not a complete blessing. First, let us recognize we have 
this technology which is really the engine now of U.S. economic 
revival. It is a most entrepreneurial, capitalistic explosion; 
it is dramatically affecting our imports, our exports. We have 
it because of the wise planning that went on by the Department 
of Defense and others during the 1980's when we were trying to 
find a method of communication that would be secure in the 
event of major attacks. So, in a sense we developed it out of 
sense of need, and now it has blossomed.
    But it frankly, as we now know, is a tool for communication 
and rallying of people for all kinds of purposes. The 
terrorists in Peru have a fine home page. You can see them 
talking about their message across the world, as the rebels and 
the Chiapas have. On the one hand, the young people in Belgrade 
who have been conducting, I think, the very effective 
demonstrations in the streets, have also made extraordinarily 
effective use of the Internet to communicate with networks. 
There must be five languages, the last time I looked at it.
    The young man who came over to talk about it recently said 
they were told that perhaps this was too sophisticated for 
them. He said I got the sense the rest of the world thought we 
should be using jungle drums. But they have been 
extraordinarily effective in building a large network of 
    We also know the militia groups in the United States use 
this as a form of communication. I think many Americans are 
getting information, making decisions about their lives with 
new information, in terms of health and other things that are 
very liberating. I suppose the generation of most of us, at 
least on this side of the table here, caught up with this very 
late. We have not been raised with this, as has a large part of 
America for whom it is just sort of second nature.
    We have moved early and quite boldly, and I think it has 
enabled us to do more, to do it more effectively and more 
rapidly than we would have been able to.
    We are also looking at the problems that will emerge.
    Let me just tell you one story. I had difficulty getting my 
colleagues at the State Department to understand the 
significance of this. One of my colleagues every morning looks 
at The New York Times web page, and they have a kind of forum. 
One morning about a year ago he found an incredibly crude 
attack. It seems to me it was on the Chinese or on the 
Taiwanese. It was signed by Winston Lord.
    I sent over to Mr. Lord a copy of what had appeared that 
morning, and he called back immediately and we went to work to 
do a correction and make it clear that this kind of thing can 
happen on the internet.
    So, we need to be vigilant about it. It has changed our 
work dramatically, because it has helped us understand new 
    I would just close with one more example. Whereas we used 
to have a situation where people would wander or come 
deliberately into our centers for information, our libraries 
and others, we are far less involved today in the investment in 
property, because this material can just be available to the 
inquirer who knows about it. Young people in schools and 
colleges and others, journalists, can go directly to this 
information. It simply reaches a much wider audience.
    The CD ROM you have on American higher education and 
opportunities, explaining it to foreign students. It is a $7 
billion industry in the United States, and it makes a great 
difference to our schools, many of them, to have these students 
from overseas, and I hope we will continue to be the leading 
place where students will come to study.
    I do not believe anything else we have ever done has been 
as influential around the world as the number of people who 
come here to study and then become leaders in their countries.
    This little CD-ROM can now provide information about study 
in the U.S. to inquirers in their colleges, their high schools. 
It used to be they had to come directly to the USIA center, and 
many still do--I have seen the lines of young people waiting--
but it is far more effective as a supplement to have this 
information available in other posts, other areas.
    I think it is important that we have taken some of our 
library collections and given them to universities, 
particularly in Western Europe, where we have closed our 
traditional libraries. We are not trying today to encounter in 
most societies of the world the dissidents, the people whose 
aim it is to disrupt their society. We are trying to encounter 
the leadership, those who are going to shape the future, and we 
must encounter them in their schools, their public areas. They 
are not going to come to our centers, so this communication has 
strengthened our ability to do that.
    Senator Grams. I would like to go back again to a question 
dealing with some of the congressional concerns about the 
extent to which USIA's mission of public diplomacy reflects the 
official foreign policies of the U.S. Government. The question 
I would like to ask is, what do you believe should be USIA's 
role in spreading the American viewpoint on world affairs? Is 
it supposed to be to present a more neutral perspective, or 
should it be able to advocate U.S. policies in an effort to 
directly promote American national interests?
    Dr. Duffey. Advocacy of the U.S. policy is the way we 
understand the work of USIA. Now, a particular problem that you 
have referred to earlier arises with respect to broadcasting. 
Broadcasting will only have credibility if it does not appear 
to be or is not, in fact, sort of a propaganda operation. I, 
however, still believe that broadcasting has a responsibility 
to convey amply U.S. positions and U.S. policy, so we come down 
to the question of separating reporting of the news and other 
matters from the presentation of U.S. policy pursuit of U.S. 
    That is a delicate call. I would be far happier if our 
broadcasting did that in more than just the editorials. I would 
be happier if it did it in more programming that was directed 
to that end, and explained. There is--it is a difficult problem 
for some of our journalists, but I sometimes think that we do 
not give ample attention to the third part of the Voice of 
America charter which describes this as one responsibility.
    There was resistance, significant resistance initially to 
working with the Department of Justice and the worldwide effort 
to publicize terrorists and others from our broadcasters, but 
they wisely I think found ways to adjust, and that is now 
something we are very proud of.
    We need to find ways to clearly distinguish what we are 
doing. I think that the reporting of the news must be dealt 
with with a kind of objectivity and neutrality, but we could 
stand more genuine advocacy with every tool we have for U.S. 
interests, because that, as Edward R. Murrow says, that is the 
justification for using the public's money.
    Senator Grams. You mentioned editorials, Dr. Duffey and Mr. 
Klose. The Office of Policy in the International Broadcasting 
Bureau produces editorials for broadcast for all the VOA's 
language services, and the editorials are identified as 
``expressing the policies of the U.S. Government,'' and that is 
in order to distinguish them from other VOA programming.
    Many of the editorials have played key roles in the past in 
influencing events overseas, and I think you all will recall 
the famous 1990 editorial titled, No More Secret Police, which 
sparked an outburst from Saddam Hussein in that case. I have 
heard that some individuals at USIA are questioning whether or 
not VOA should continue broadcasting these editorials. Maybe 
you would like to comment. What are your views on that concern 
or question?
    Dr. Duffey. Well, let me make a comment, and Mr. Klose, who 
has not had to face this yet, will I am sure be looking at it.
    I do not think there is much questioning of the editorials. 
I think the question arises as to whether that fully meets the 
responsibility of that part of our expectation that American 
policy would be explained. I think that perhaps the resistance 
is to a little more ample commentary in some programs that 
might contribute to a better understanding of American policy.
    I can understand resistance to this because of the 
historical feelings that come out of the cold war, and all of 
the tensions that were involved in addressing the complicated 
task we have there.
    The Broadcasting Board of Governors to its great credit has 
been discussing this, and continues to discuss it.
    I do not think that the editorials should be used as a way 
of saying, well, that discharges our responsibility. We have 
nothing more to do by way of accountability. I think we could 
have more programming labeled for what it is and directed at 
trying to explain certain aspects of U.S. policy.
    There will always be tension over this role. Senator Biden 
has pointed out, I think wisely, that to be a broadcaster and 
to be a Government employee is an inherent tension.
    But in these days when there is more broadcasting, and when 
we do have quite specific objectives explaining ourselves to 
the world, as I said earlier, which I think we must not take 
for granted. I think this is a major problem in Western Europe 
with the new generation, understanding why America is pursuing 
certain policies, why we take the position we take with regard 
to Iran, which has not received a lot of sympathy from our 
allies, but which will persist.
    We need to examine this relationship between advocacy and 
news reporting and work out a better solution.
    Senator Grams. So you think it is important, extremely 
important for the U.S. Government to use VOA to present very 
clear statements on our Government policy.
    Dr. Duffey. Well, it is important to every instrument in 
which we invest to see this as a major responsibility.
    I can tell you that USIA advocacy is what this institution 
is about. Oftentimes, explaining, as I have said, is the way we 
go about it. Quite often we may report debates that go on in 
the United States, and we should make it clear that our 
spokesmen do not always speak for the majority point of view.
    We have been sending a number of people who have worked in 
both administrations in the White House and the Government to 
China to explain to a younger generation there that the 
presidents of the United States do not make foreign policy 
arbitrarily, that it is a discussion, that it involves many, 
many elements in our society. I think it is important to get 
that message across.
    It will be fatal when the Hong Kong transition takes place 
if the Chinese do not understand the reaction of citizens and 
others in the United States to even more flagrant violations of 
human rights. That is a sort of advocacy in the sense of 
explaining ourselves, but I see advocacy as the central role of 
everything we do.
    Senator Grams. Mr. Klose, any comments to add?
    Mr. Klose. Mr. Chairman, this rubicon I have not crossed 
yet, and I look forward to a vigorous discussion on these 
    My experience of news-gathering and dissemination is that 
it can often be a contact sport when it comes to issues of what 
actually ought to be said and how it is said. People's 
reputations can rise or fall on exactly, even, intonation of 
the delivery of a sentence, or paragraph spoken or done by 
video, so it is a very, very sensitive area, and it is one that 
I know with Evelyn Lieberman at the Voice of America and our 
other colleagues, that we will be able to engage in a full 
embrace of this issue.
    Mr. Chairman, if I may, I wanted to make a comment on your 
earlier question about the modernization issues, if that is all 
    Senator Grams. That is fine. Go ahead.
    Mr. Klose. I would like to say that in terms of the 
broadcast entities with regard to stepping forward into this 
interactive world, the reality is that the broadcast entities 
moved very quickly when the world started to change, especially 
in Central Europe and further East in the former Soviet Union, 
when jamming stopped and the wall came down.
    Both the Voice of America and the radios RFE-RL quickly 
moved in the region. VOA was doing that in its own other 
broadcast areas anyway. There is an active affiliates operation 
that we have now, about 1200 affiliates worldwide. These are 
local radio and television stations which take down 
broadcasting segments, or in some cases hours at a time off 
satellites and rebroadcast this in AM/FM to their local 
audiences. It is a whole new way of reaching different kinds of 
    At the same time, Mr. Chairman, I would emphasize that in 
the world today there remain 600 million short-wave sets, 
receivers, and short-wave is a major means of reaching all 
kinds of not only remote audiences but audiences who, for 
example, in the case of the Albanian situation right now, we 
have turned to short wave not as a back-up but as the main way 
to get there.
    These assets of the U.S. Government which are worldwide, in 
the worldwide transmission system are crucial and very 
important strategic assets going forward into the 21st Century, 
and as we move forward into the interactive internet age, we 
want to make sure that these stay robust, that we have the 
surge capacity in place when we need it.
    Senator Grams. Moving on to other areas, we heard your 
testimony, your talk earlier this morning about how important 
it is to have students exposed to American policy. Although 
USIA has had the authority to perform oversight for all 
Government exchanges, the duplication and overlap of these 
programs among Federal Agencies still remains a serious 
problem, or a concern.
    The most recent USIA report shows that 38 Departments and 
Agencies spend more than $1.6 billion every year on foreign 
exchange and training programs. Now, by comparison, as you have 
said here, the USIA's entire fiscal 1998 budget request is just 
over $1 billion.
    The administration is requesting right now $565,000 to 
establish an office within USIA that would coordinate exchange 
programs among the Agencies. Under that, will any of the other 
Agencies be required to justify their exchange programs, in 
addition to just submitting the data on them? What is this 
office going to be looking for and trying to coordinate or 
    Dr. Duffey. Mr. Loiello, who is here today, has worked 
closely first of all with Members of Congress who have 
expressed this concern over the last several years, and with 
the Office of Management and Budget.
    It is my understanding, and Jack may want to comment on 
this, that there will be representatives of other Agencies on 
this team that will try to gather the information and sort it 
and make it available, but that a working group from all the 
Agencies involved will examine the duplications and clarify the 
justification for many of the programs.
    I think the intent of Congress and the Office of Management 
and Budget, the administration, is that programs not continue 
just because we have had them there for 20 years. Maybe Jack 
wants to comment on the process that will ensue now if the 
Congress responds to this request.
    Dr. Loiello. Thank you.
    Senator Grams. Jack, would you like to slide up and take a 
microphone, so it will be a little easier to hold you 
accountable for what you say?
    Dr. Loiello. Yes, Mr. Chairman. First of all, as the 
director has said, this initiative builds on what this 
administration has been doing through the NPR process, but it 
also takes a page from Chairman Helms' book on this whole 
question of interagency exchange coordination.
    What is looked at here is the creation of such an office, 
but it is simply being placed in the United States Information 
    The interagency working group that is called for by the 
executive order, and the legislation which has been submitted 
to the Congress makes it very, very clear that this is an 
effort of all the Agencies of Government involved in exchanges 
and training.
    Now, the interagency working group itself mentions five 
other Agencies, specifically State, Justice, Education, AID, 
and Defense, and also representatives from the Office of 
Management and Budget and the National Security Council and 
such other Agencies among those 35 to 38 that you have 
mentioned that are appropriate.
    We have found already that there have been a number of 
Agencies that have expressed a desire to participate since this 
draft legislation has been circulated around the other 
    This iniative builds on legislation which, of course, had 
already given the Bureau of Educational Cultural Affairs in the 
United States Information Agency some authority to collect data 
and publish an annual report on exchanges and training 
government wide. That is the report that you just made 
reference to which lists the 39 Agencies involved.
    This initiative gives it much more authority because of the 
$565,000, for example, that has been requested to create five 
FTE's, but we do not expect these to all be from The United 
States Information Agency. We expect these to be from other 
involved Agencies as well.
    Two responsibilities that are specifically assigned for the 
working group in setting up this office, the office which will 
serve as its secretariat, one is an annual--well, first of all, 
within 1 year a report which outlines a strategy of cooperation 
and looks at the issues of duplication and provides that to the 
President of the United States through the Director of the 
United States Information Agency.
    Then, an annual assessment of that strategy each year. But 
a second mandate, as the legislation proposed would put it, is 
that in 2 years the working group must recommend to the 
President, through the Director of the United States 
Information Agency, a series of bench marking and performance 
measures looking specifically at the question of duplication, 
and this is what is principally new, I think, in the 
    It also is to lay out a series of strategies for the 
engagement of the private sector in a complementary way in the 
whole area of exchanges and international training.
    Again, if I may say so, our own Agency in this particular 
area has set the standard for leveraging of private sector 
funds and NGO funds.
    So, this is a very serious effort. I think it is responsive 
first of all to what we have been trying to do through the NPR 
process within this administration, but second responsive to 
the Congress as well.
    Dr. Duffey. The only thing I would add is the question of 
duplication is not where we would stop. We will look at the 
question of purpose and effectiveness in light of the new 
budgeting process.
    Senator Grams. You mentioned, will recommend, I think you 
said benchmarks and performance markers, I think.
    Dr. Loiello. Yes, sir.
    Senator Grams. In that regard, will this new office have a 
mandate, or will it have the authority to see that those 
directives or recommendations are carried out? Are you given 
that type of authority? Have you identified, like Dr. Duffey 
said, the purpose to carry out these recommendations?
    Dr. Loiello. That authority is not specifically addressed, 
Mr. Chairman, but it is very, very clear from the fact, first 
of all, that this proposal comes from the Office of Management 
and Budget as part of our pass-back. The very fact that these 
recommendations are being made to the President, the character 
of the office itself, as I have already described it, which is 
not just USIA-centered, and the fact of the participation of 
these other Agencies underscores its authority.
    Senator Grams. Will you have any authority to deny funding 
for exchanges that overlap or that fail to demonstrate adequate 
    Dr. Duffey. Only the Congress has that authority, and the 
information will be available.
    Senator Grams. So you can make these recommendations to us, 
and then Congress can then react?
    Dr. Duffey. Well, I think we will first of all make the 
information available. Even though USIA has been charged with 
compiling this information every year, it has been 
extraordinarily difficult to get Agencies to cooperate from 
time to time, and I think Mr. Loiello has done a very good job 
in the last 2 years of getting a much more comprehensive 
report, but it still lacks information from some Agencies. We 
will provide that, and I think--I hope the working group will 
also be prepared to provide some recommendations. I am sure 
that OMB will.
    Senator Grams. And other Agencies, as you mentioned, will 
be involved. Are there any ideas or plans to have them pay part 
of this budget, or to contribute to the efforts?
    Dr. Loiello. Well, like I said, the proposal for this 
initiative came back in our pass-back from the Office of 
Management and Budget. We hope, in a sense of collegiality, 
that if this is an effective mechanism, obviously that it will 
extend to the budgeting process in future years.
    Senator Grams. The issue of duplication in exchange 
programs always comes up for USIA, because it is part of your 
signature program, you could say, but since USIA's annual 
budget for exchange programs is under $200 million, it is clear 
that your Agency does not have administrative control over the 
vast majority of exchange programs run by the U.S. Government.
    The Department of Energy alone has a $100 million budget 
for international exchange and training programs.
    As you have gained familiarity in recent years with the 
scope of the exchange programs throughout the Government, are 
you concerned that other Agencies' exchange programs do not get 
the scrutiny and the oversight that they deserve, especially 
compared to USIA?
    Dr. Duffey. I think the other programs have a history. 
First of all, I think it to be a compliment to USIA's long-term 
strategy that exchange has been recognized as in the end one of 
the most effective instruments for our work in the 
international community, and they have blossomed and increased 
I think precisely because they are effective in training and 
    I was involved in an effort like this 20 years ago with 
arts Agencies in the United States and the chairman of the 
Federal Council on the Arts and Humanities. When we began, we 
had a number of organizations whose programs duplicated the 
number getting into international affairs, because every Agency 
wants to have an international side to its work. Just the 
making available of the information and the coming and working 
together led us to the point where we could make some 
assignments, establish some guidelines for Agencies.
    I hope that will be the outcome here. Then that gives the 
Congress at least one benchmark to look at when they need to 
make decisions.
    Senator Grams. I only have one more question in this area 
that I would like to complete before I recognize Senator Biden, 
who just joined us, but there has also been a report--I think 
the USIA report--that has identified exchange programs that 
total at least $600 million from private sector agencies or 
foreign governments.
    In that respect, will the USIA's new office also tackle the 
issue of duplication there, in other words, try and coordinate 
not only among U.S. Government Agencies but also look at how 
you can best coordinate using private sector and other exchange 
type programs as well? Is there going to be a combined effort 
in this area?
    Dr. Duffey. Our effort with the exchange programs, again 
with the Fulbright program is to move closer and closer to the 
time where none of these programs will simply be funded by the 
U.S. Government.
    Last week, when President Frei visited here from Chile, he 
announced a participation of $1 million a year from the Chilean 
Government in Fulbright program. The Secretary of State signed 
that agreement. I think as I stood there waiting for it to be 
signed Jack informed me that Venezuela now has a third of a 
million dollars prepared to participate. That has begun to 
happen in other parts of the world.
    I believe that even in the countries that are developing 
countries, what we used to call Third World countries, there is 
a role that governments and institutions can play at 
contributing in these programs. Sometimes it may be tuition 
scholarships and resident support for our students who want to 
go and study in those countries, and there are an increasing 
number who do. We would like to move in the educational 
exchanges at least, as rapidly as we can, to move these 
programs from strictly U.S.-funded programs to where there is 
some appropriate measure of support from the other governments.
    Senator Grams. All right. I would just like to recognize 
two other Senators who have joined us, Senator Biden and 
Senator Feingold. Thank you for being here. We have limited 
ourselves to just 30 seconds in opening statements.
    Senator Biden. That is OK. I am against whatever Duffey is 
for. Will that do it?
    Senator Grams. That will do it.
    Senator Biden. And I mean it.
    Senator Grams. I would like to offer you an opportunity for 
an opening statement.
    Senator Biden. Joe Duffey is the only man I ever made a 
deal with who honestly told me that when you make a deal, you 
have a deal. If it changes, you do not like it, you just say 
you changed. You learned that from Bailey you told me, Joe, and 
you are practicing it very well.
    I understand--let me make clear, last week I indicated I am 
willing to reconsider any reorganization proposal. I am 
presently working with the chairman of the committee in doing 
just that, as long as we provide the resources commensurate 
with our international responsibilities to ensure that 
important functions are properly protected.
    Although I have an open mind about the overall structure of 
the reorganization, my mind is already made when it comes to 
one issue. I would oppose any restructuring that would diminish 
the powers of the Broadcasting Board of Governors or that folds 
the broadcasting Agencies into the Department of State.
    If anything, Joe, I have a solution for you. We will just 
make them independent, independent of you and independent of 
everybody, independent of the State Department as well.
    I just want to make it clear that there has been a lot of 
talk about how my friend Russ Feingold and I had disagreements 
on this, and we did have some disagreements on this, and that I 
engaged in or threatened to engage in the only filibuster that 
I have ever threatened to do in 24 years as a Senator, and that 
is true, but it was not about the power of the board. It was 
not about the power of the board. That was not the basis of our 
disagreement as relating to the power of the board.
    As a matter of fact, the President's original draft of this 
legislation that he sent up to us on June 15, 1993, he stated, 
``We will create a new and independent board of Governors that 
will replace and perform similar tasks as the Board of 
International Broadcasting.''
    It was new and independent. I know that bothers you, Joe, 
the independent part, but that is what it was intended to be, 
and I am amazed that we are still relitigating this battle, 
when I thought we all had an agreement that we all sat down and 
settled this issue, but in terms of reorganization, Mr. 
Chairman, I think we should and will, and I think we will do it 
in the next 3 to 6 months, come up with a reorganization plan 
for our whole foreign policy apparatus. At least, that is my 
hope and expectation that that will occur.
    I have an open mind as to how we do that in terms of what 
we are going to do relative to broadcasting, and relative to 
USIA generally.
    I have one question, Mr. Chairman. I am interested in how 
decisions to allocate resources, both in terms of funds and 
personnel to the USIS posts are made. Director Duffey, what is 
your system for allocating these resources, funds as well as 
personnel? Do you have a methodology? Do you have a system you 
go through? How do you go about it? What is involved in the 
decisionmaking process?
    Dr. Duffey. We have a process and, of course, within the 
State Department there is a process involving the Ambassador 
and his concurrence with any plan that he receives from, say, 
the USIA, so at the end of the process it becomes a dialog and 
a negotiation in that respect.
    Senator Biden. Between you and the Ambassador?
    Dr. Duffey. No, between the Secretary--well, it begins 
between the Ambassador and me, and generally, if we can settle 
the matter, as we most often do. If not, it goes to the 
Secretary. There have not been any cases during the last 4 
years in which the Secretary did not accept the recommendation.
    First of all, we have, as you recognized, faced a serious 
decline in available officers and budgets, so we have had to 
make those reductions.
    We begin with, first of all, not a permanent grid but kind 
of a template that is revised every year, looking at the size 
of nations, the size of U.S. relationship, the existence there 
of communication and other facilities and U.S. presence.
    Senator Biden. Would you be willing to make that available 
to the committee?
    Dr. Duffey. Certainly.
    Senator Biden. I would appreciate that.
    [The following material was subsequently supplied for the 
hearing record by Mr. Duffey.]
    The Resource Allocation Group (RAG) system is USIA's framework for 
relating country-specific Agency resources with U.S. national interests 
and policy objectives. It raises resource issues for discussion and 
review by the Area Offices and the Resource Management Committee and 
for final decision by the Director. It is designed to help establish 
resource priorities and to identify resource anomalies.
    RAG rankings are based on factors which indicate the level of U.S. 
interests in each country and the potential for USIA programs to affect 
U.S. interests. These factors include statistics derived from common 
reference sources, such as population, gross national product, 
bilateral trade, U.S. investment, U.S. assistance, U.S. mission size, 
and media densities. Initial rankings based on the factors are analyzed 
by the Area Offices and adjusted to reflect current policy 
    RAG rankings are reviewed annually. This review normally takes 
place each spring, in sequence with Agency planning and budget cycles.

    Dr. Duffey. That is called a resource allocation grid.
    Then, however, we need to bring other questions. Are there 
anticipated problems or tensions in the area that should be 
taken into consideration and are there specific objectives that 
must be taken into effect?
    These days we are also looking, Senator Biden, at can we 
effectively or sometimes more effectively do the work by 
approaching this with a different structural organization, or 
working in regions and areas.
    Senator Biden. Can you give me an example?
    Dr. Duffey. Well, let us take the Caribbean. We have 
Ambassadors and staffs on every island and country. We are 
asking ourselves whether we cannot do what other countries do 
and have somebody accredited to two or three places. It is 
regrettable that we need to do that, but if we have a circuit 
rider we can work stra- 
tegically with the posts looking at a common program for the 
embassy and sharing resources so that speakers or programs are 
arranged, they are not just arranged for one country.
    Senator Biden. You obviously have had--and I will yield, 
Mr. Chairman, after this comment or question. You obviously 
have had to deal with the constraints of the budget and budget 
cuts; but I am a little confused. The resources allocated to 
Western Europe versus the resources allocated to Eastern Europe 
and the NIS seem to be a little out of whack.
    You have 93 American officers covering 22 countries in 
Western Europe, while in Eastern Europe and the NIS you have 73 
covering 25 countries, and moreover, you reduced the presence 
in the East between fiscal 1996 and 1997 from 81 to 74.
    Now, I recognize the budget cuts, and I do understand that. 
We have all been doing that with our staffs, with everything, 
and we should. But what I am confused about is, it would seem 
to me that if there is any time in our history when our 
presence and the functions that you provide are most useful in 
Eastern Europe and the NIS, it is now, and where they are least 
needed is in Western Europe. Can you explain to me what I am 
missing here?
    Dr. Duffey. Well, some of this relates to the burden of my 
opening statement. Let us begin with Western Europe. You recall 
that we were given very few new resources at the turn of the 
decade when we needed to staff the new countries in the former 
Soviet Union. We had to find some place, as the State 
Department did, from which to take the resources we had 
available to open these new posts.
    Since 1995, we have cut funding in Western Europe by 24 
percent. We have closed four posts and cut 139 positions.
    One can say on the one hand, look, it is a place with a lot 
of communication. There is a lot of American presence. It 
troubles me a great deal that we have made those cuts in 
Western Europe.
    Senator Biden. Why?
    Dr. Duffey. Because I think that--I will go back to Senator 
Dole's comment in the campaign after our recent experience in 
Iraq, when he said, where are our allies? With new generations 
we have got to work at explaining why we have the policies we 
have toward Iran, as I said a few moments ago, why the policies 
toward Cuba are our position and that we intend to stick by 
those policies. We must show our resolve, and we must explain 
that. We simply cannot, I think, change generations----
    Senator Biden. Does that compare in your view to the needs 
that exist in Eastern Europe and what is going on now to 
explain to the Poles or to the Czechs----
    Dr. Duffey. Let me explain a little bit about that. We are 
moving into Eastern Europe at a time when, unlike the 45 years 
of the cold war, all we did was sort of snap our fingers and 
the resources were there, 45 years of growth. We had to 
confront new ways to do our business.
    First of all, we have gotten away from the edifice complex. 
We are not making very large investments in property and 
buildings. We think the resources we have can much better be 
invested in programs and people.
    As I said earlier, we are not in those countries now 
seeking to contact the dissidents. We are seeking to establish 
relationships with the men and women who are going to build the 
future, and they are not going to wander down the street to a 
U.S. center. They are in a university. They are doing other 
    Senator Biden. Why the hell would they wander down the 
street to the U.S. center in France, Germany, England, or any 
place else?
    Dr. Duffey. I am referring to the old days. Actually, of 
course, in Western Europe those libraries and centers as you 
know have regrettably been closed even earlier. That is where 
we got some of the resources.
    What I am saying is----
    Senator Biden. I am talking about the assignment of 
personnel. Either I did not say it clearly, Joe, or you are 
avoiding the answer. Why are there more personnel assigned to 
fewer countries in Western Europe than there are to more 
countries in Eastern Europe and the NIS? That is my question. 
No edifice.
    Dr. Duffey. I wish I had more resources to apply to Eastern 
Europe. We are understaffed there. That is why we are 
    Senator Biden. That is what you get paid for, the big 
decisions. Why are they in Western Europe and not in Eastern 
    Dr. Duffey. I think it has to do with tradition and 
momentum from the past and efforts to change. There is a 
professional Foreign Service----
    Senator Biden. Bingo. I do not have any further questions.
    Dr. Duffey. There are many institutions from the past, and 
we are struggling against that, but we are also being called 
back a bit to understanding that Western Europe is not 
unimportant. I think we need to work differently in Western 
    Senator Biden. Joe, if you think there are avenues in 
Eastern Europe and the universities, you and I should talk 
about the 6 million additional avenues there are in Western 
    Thank you, Mr. Chairman.
    Senator Grams. Senator Feingold.
    Senator Feingold. Thank you, Mr. Chairman. I commend you 
for holding this hearing today. Since I am not a member of this 
subcommittee, I really appreciate your continuing the hearing 
so I could participate.
    I also want to acknowledge the Ranking Member, Senator 
Biden. We had a disagreement on this issue, and I learned right 
there and then, and have followed the advice since then, that 
it is really better to be in agreement with Joe than to be in 
disagreement, and we have had great fun and have been 
tremendous allies.
    Senator Biden. I do not think we disagree on anything else.
    Senator Feingold. No, but it is just better that way.
    Senator Grams. And now you agree on that.
    Senator Feingold. In fact, on this issue itself I have had 
nothing but good feelings about the way Senator Biden and I 
have worked on it since that time, and I hope that continues.
    I want to thank the witnesses and I want to thank the 
witnesses for some of the kind words about my efforts in this 
area. I recognize the valuable contribution that USIA makes to 
our foreign policy, but since the time is late, I do want to 
talk particularly about RFE/RL, Radio Free Europe.
    I am still of a mind that many, although not all of USIA's 
broadcast activities are relics of another age, when our 
foreign policy goals and priorities look much different than 
they do today.
    Unfortunately, as we knew from our debate several years 
ago, there are also many examples of fiscal abuse which have 
been talked about at length in the committee with regard to 
Radio Free Europe and Radio Liberty in the management of the 
activities, and many of these abuses, of course, took place in 
far-away places.
    That is why in 1994 I introduced the consolidation 
legislation. My intention with that language was that these 
surrogate radios should figure out how to function as privately 
funded entities within a certain timeframe, and if that could 
not be achieved, then maybe it was time to put these entities 
out of business.
    Mr. Chairman, we set that forth in legislation, and we now 
in March 1997. That puts us just under 3 years since the 
statute went into effect, and just under 3 years before the end 
of 1999, which is the period when the privatization is to be 
complete, or the time by which the privatization is to be 
    So, we are half-way through the transition period, and I 
want to take just a few minutes today to take stock of where we 
    Mr. Klose, can you detail for me what the status of your 
efforts to privatize are?
    Mr. Klose. Yes, sir. We thank you, Mr. Chairman and Senator 
Feingold. I am pleased to respond to that issue.
    Late in March 1996 we established an office of development 
at the radios in Prague and set forth as its primary goals 
finding ways in the venue of Central Europe, where the 
broadcast services would most likely be plausibly administered, 
in a way, and where most plausibly we could find outside 
investment and private investors. That effort has gone forward.
    We have in the Czech service, which previously was spun off 
as a separate small subcorporation of RFE/RL and became a 
subgrantee of the radios, the Czech service, which is called 
RSE, Inc., formed a joint venture with Czech National Radio. We 
have created a new independent public affairs network that is 
nationwide in the Czech Republic, in cooperation with Czech 
National Radio. It is called Radio-6, Radio Free Europe.
    It is an international broadcaster. It includes programs 
supplied by the Voice of America,the BBC, Deutschewelle, German 
Wave. RFE-RL's support for this Czech enterprise in the past 
fiscal cycle has dropped from $2 million a year down to 
$450,000 in 1997, and we have found private means of some 
support, or in effect institutional support in the Czech 
Republic by institutional large companies, who are interested 
in taking, in effect their institutional advertising. We would 
call it program underwriting. That is perhaps the best way to 
describe it.
    Several hundred thousand dollars has been gained that way. 
It is a very difficult situation, but it is an important one. 
This is a nonprofit venture between Czech National Radio and 
RFE/RL. It has a very interested and engaged audience.
    If I may, Senator, I would quote from a Czech news agency 
report of 1 January. This is the Czech telenews agency. Czech 
Radio-6, Radio Free Europe, has gained a public image as a 
highly profes- 
sional commentator of political events. Public opinion regards 
it as the best of all radio stations in this particular field.
    We have also created an addition to the internal 
development office. We have a group of private advisors outside 
with whom I consult or have consulted as president of the 
radios consistently, and we are about to go forward with an 
initiative to a major private media company which is interested 
in activities essentially making investments in Europe and 
further East.
    The Polish service of Radio Free Europe was also spun off 
as a separate subcorporation several years ago. We viewed these 
entries as Lunar landers, in effect, to put us down so they 
could do some experimentation in the area and find out as a 
test bed how you do this.
    The RWE, Inc., as it is called, again a nonprofit radio 
corporation that is based in Poland and also has a 
representation, a legal entity in Washington, has created in 
effect a private independent network in Poland of some 30 
individual radio stations that we feed via satellite 18 news 
feeds a day plus current affairs and current events, and this 
enterprise after a stubborn and consistent due diligence search 
for a series of investors, both Western and Polish-based, we 
are now about to make an initiative through, again, a large 
non-Polish independent media company which is interested in 
investments in Poland.
    We believe that the Polish and the Czech entities are 
important to continue operating, because the media markets in 
the Czech Republic and in Poland are the most viable in terms 
of advertising dollars going in, in terms of people learning 
how to make money, especially in television.
    Radio is in a more parlovs state, but it is at a more 
transition stage. We are there with these two activities.
    With regard to RFE/RL itself, the large enterprise, a major 
function of the move from Munich to Prague was to reshape, 
modernize, and reinvent this enterprise so that it would have 
the potential for viable interests by non-Federal broadcast or 
media entities, and that process we believe we have been able 
to do successfully.
    We have gone to digital. We resemble in many ways a very 
modern Western profit-driven radio operation, and with this 
outside private group of advisors we are in the process of 
pulling together in effect a business plan and proposal for a 
particular set of people who we have been talking to outside.
    Senator Feingold. Thank you. I appreciate the specificity 
of your answers with regard to the Czech operation and the 
Polish operation, but I want to get back to my main concern, of 
course, which is that the public side of this be eliminated in 
the appropriate timeframe in terms of the dollars.
    I understood that the Czech and Polish services were going 
to be the first of the RFE/RL services to be made fiscally 
independent of U.S. support, and I of course recognize the 
historical significance of these two operations, but now this 
year, 8 years after the fall of the Berlin Wall, I would argue 
that they are the best candidates for privatization. These two 
countries are the shining examples of democratization in 
Eastern Europe, and Congress actually specified that the 
services in these two countries, which you have identified as 
RSE, Inc. RWE, Inc., respectively, should be privatized soon 
after the passage of the Broadcasting Act.
    I would like to quote from the conference report. It says, 
``The committee on the conference expects that the BIB and the 
Broadcasting Board of Governors will do everything possible 
within available resources to support this privatization 
effort. It is not anticipated that the BIB or the board will 
make grants to these entities after September 30, 1995.''
    September 1995 was about 18 months ago, and still these 
services which you have been discussing in some detail are 
receiving subsidies from RFE/RL. I do not know how to 
specifically characterize the level of progress toward 
privatization based on your answer, which I thought had a fair 
amount of specificity to it, but I guess I have to ask, given 
where you are, what is the likelihood that RFE/RL as a whole 
will be able to make progress in privatization to the point 
where you can reach the 1999 deadline which is called for in 
the legislation?
    Mr. Klose. Senator, at Radio Free Europe we have understood 
that deadline very well. We are exercising within our 
competencies, we believe, due diligence on this effort. I 
cannot tell you as to a certainty that we are going to reach 
that point ahead of 31 December, 1999.
    This is a very difficult situation, and most people who 
have engaged in efforts of privatization in that part of the 
world both in Central Europe and further East, where a 
substantial amount of our operations are based, find--you can 
ask any major oil company in the United States of America, 
looking at the massive resources available to them, for 
example, in Kazakhstan or in Russia or around the Caspian 
Basin, how difficult getting these deals done really is, and we 
have that issue ourselves.
    What we do know is that there is intensifying interest in 
the international media world amongst the giant players as they 
continue to conglomerate, and as they continue to explore ways 
to reach specific segments of audiences, and as the market 
itself segments as to who listens to what and why.
    We have had very interesting conversations. That is all I 
can say about them. But they are positive conversations. There 
is a kind of interest out there.
    I would say, Senator, that one of the issues that is for 
real in my view, in terms of what these particular broadcast 
services do in terms of American presence in the region comes 
up against some of the commercial realities that sometimes 
play. There are some famous cases in recent history where, for 
example, one of the major global media players, in control of 
programming to China, took off the air the BBC World Service 
because the authorities in China objected to the programming.
    The point here is that the Radio Free Europe/Radio Liberty 
and the kinds of information and flow of current affairs which 
they provide to millions of people in the region are the kind 
of asset that is there on behalf of American foreign policy. 
There are two worlds. There is a commercial world and then 
there is the world of American national security interests. 
That is an issue which I think is also out there.
    Senator Feingold. Well, I appreciate your response, again. 
Let me just say, I think you understand how strongly I feel 
about this. This was the first piece of legislation that I ever 
introduced as a Member of the U.S. Senate. We passed it. After 
a hard-fought debate in this committee, the Senate passed it. 
The House passed it. The President signed it. Although, 
certainly, we can argue about whether it was the right policy, 
it does call for the finalization by 1999. Although I obviously 
recognize there could be practical problems involved, I have 
always thought that was a fair amount of time to be given for 
this to happen. Perhaps you disagree.
    I am somewhat disappointed at the amount of progress that 
has been made. I want to have communication with you with 
regard to how we can accelerate this. Because I am determined 
to meet that deadline. I would like to note that my office has 
been in touch with the State Department's Office of the 
Inspector General, which has responsibility for USIA as well, 
regarding this point. We have received assurances that part of 
the 1997 audit plan will include a review of RFE/RL's efforts 
to privatize.
    But my preference, of course, is that we simply work 
together to meet the deadline. So, I appreciate your response, 
but I just want to use this opportunity, even though I am not a 
member of the subcommittee, to say this is one thing that we 
got done in the Foreign Relations Committee to save this 
country some money, to reduce the deficit. We ought to do all 
we can to finish the job in a timely manner for the taxpayers 
of this country.
    Thank you, Mr. Chairman.
    Senator Grams. Thank you very much, Mr. Feingold.
    I know Senator Biden is going to return, but in the 
meantime I just have some brief questions that I would like to 
wrap up with and to pose to you this morning--or now, 
afternoon. They deal with the East-West Center and the North-
South Center. USIA's budget request also includes several pass-
through budgets on which, again, I would like to focus.
    I realize you may not be familiar with some of the specific 
programmatic details of the budgets, but there are some general 
questions I think we should get on the table. First, the fiscal 
year 1998 budget request for the East-West Center has 
decreased, but it is only $1.8 million below the fiscal year 
1997 request, even though the administration announced years 
ago that it was going to phase out funding for this supposedly, 
quote, private entity.
    The East-West Center has been receiving a direct 
noncompetitive taxpayer subsidy for over 35 years. In just the 
last 10 years alone, it has received $200 million. Now, given 
that the East-West Center has access to private funding already 
and that it can compete for other Federal grants, has the 
administration determined exactly when it will no longer be 
requesting a direct subsidy for this program?
    Dr. Duffey. We do not have a plan, Senator. I have known 
the East-West Center for many years. I used to sit on its 
board. As the importance of the relationship with China and the 
Pacific emerges, the center becomes more and more a rather key 
place for the kind of interactions that, frankly, are not going 
to take place under direct U.S. Government auspices. They are 
going to need that kind of center that has built some 
confidence and respect from both sides of the Pacific.
    I think the center has made significant progress in 
adjusting to these lower subsidies. There is certain work that 
I believe is very much in the national interest. Maintaining, 
for example, a new, younger cadre of scholars, who can teach 
and understand, spend their time working on the developments in 
China. Their role in teaching and preparing us for the future 
is very important. The publications there are fresh and used by 
all our areas of government in trying to assess this important 
    While I believe that the board of directors understands the 
intent of Congress and of the USIA to move to a relationship of 
significantly lower subsidy, I am not prepared at the moment to 
recommend at some point at which I would withdraw all support 
at the risk of losing some resources that I frankly do not 
think we can duplicate anyplace else. It is a very unique role, 
being established where it is and having the history it has.
    So, I think I consider my job to be to try to assess those 
things that are in our vital interest, which I do not think, 
frankly, we are going to find subsidy for from the private 
sector, and work with the center to try to effect a kind of a 
transition. But I am not prepared yet to put the center on sort 
of a schedule that would lead to no support. Because I think we 
are gaining too much from it, and all the Agencies of 
Government. I include, by the way, Commerce and others, because 
it is a source of information and of meetings and of dialog 
that just does not take place on our shores at all.
    Senator Grams. Well, I am sure those at the East-West 
Center would agree that they are important and should not be 
    Dr. Duffey. Well, I think our perspectives are different. 
But I think we must continue to work them through.
    Senator Grams. But I think you have got to look at, I 
think, as Senator Feingold was mentioning, trying to save the 
taxpayers some dollars and to streamline. When you look at the 
East-West Center, which is not the only access to this type of 
information, they have private funding. They have access to 
other Federal grants. So, there are some of us that feel and 
have worked toward completely eliminating funding for the East-
West Center as well as the North-South. We will continue to do 
    But with the administration already having announced years 
ago that it was going to phase out the funding, I guess what we 
are really looking for is a time line. Is it going to have to 
come through congressional action and impose this time line, or 
is it going to be an area where they are going to finally say 
we are going to phase this out?
    Dr. Duffey. Well, Mr. Silverman tells me that OMB is now 
indicating the year 2001 as the time line. We will ask for some 
clarification on that.
    Senator Grams. All right. I will move ahead, then. I will 
remember that year 2001.
    I also raised concerns about funding for the North-South 
Center 2 years ago. I was told that its direct subsidy was 
going to be phased out last year. That is why I say I am going 
to remember 2001. Because we had assurances and an agreement 
worked out on the floor, in the last minutes of the FY96 
Appropriations Bill that it was going to be phased out. There 
was going to be one more year of funding. Yet the $1.5 million 
in the fiscal year 1998 budget request for the North-South 
Center is actually $500,000 more than it was in 1997.
    So, all the good intentions and all the deals and 
agreements that we work out and adhere to, yet here we come 
back and now we are not only not going to phase it out, but we 
are going to increase the funding for the North-South Center. 
So, prior to 1991, the North-South Center relied on private 
funding, it relied on competitive Federal grants, but since 
that time it has received direct subsidies totaling $40 
    Now, given all this, can you explain why the administration 
is requesting any funding for this organization and why we 
should even continue to the year 2001 with the East-West 
Center? And, again, I will say, Dr. Duffey, that there will be 
efforts made, on my behalf and others, that we are going to try 
to eliminate this funding, if not before 2001, at least in the 
very near future. But the justification?
    Dr. Duffey. Well, the Office of Management and Budget is 
now talking about the year 2000. My perspective at the moment, 
frankly, is not to set time lines for the following reason. Our 
relationship to Latin America is changing dramatically. We have 
very few AID and support mechanisms there, and I think that is 
appropriate. These nations, almost all, have become democracies 
and they are developing their own engines of trade and 
development. We can relate to them in a more mature way.
    Our military presence is not as large and significant as it 
once was. We are increasing rather dramatically our trade 
relationships. We need some mechanisms that we can devote much 
more directly to the items we have talked about earlier here 
this morning--understanding information.
    Now, I would be, with respect to both of these 
institutions, more in favor of the grant that is written with a 
specific purpose in mind. The Congress has not made that option 
available to us. We may want to go that way. I think USIA, with 
respect to both of these institutions, would see some needs 
that we would be prepared to spell out and argue for with 
respect to grant-making. It may be that what we ought to do 
with the Congress is work on a clearer understanding of what 
the objectives are, and not have these set as completely by the 
institutions and academic interests as we have in the past.
    But I understand the position of the Congress, and I hope 
the institutions understand it as well. It is a question of 
moving from a blank subsidy to a directed subsidy that we could 
more carefully defend and that serves the interest of the 
United States.
    Senator Grams. Just as I noted on North-South Center, which 
you have just talked about, before 1991, they did not receive 
this, and now, all of a sudden, they have received more and 
more money. With promises to phase out, they have just gotten 
bigger. So, it is like many other Government programs or 
Agencies--they take on a life of their own. All of a sudden, 
they become--they gain more support and more funding, and it is 
harder and harder to wean them. So, we think it is very 
important that we do take the first steps.
    Another point is the National Endowment for Democracy. I 
think a total of $30 million is requested for this Agency, the 
same as it received, by the way, in 1997. There have been 
concerns, such as those expressed last year in the Senate 
Appropriations Committee report, that 65 percent of the 
endowment funding is provided to four core groups without any 
competition or competitive bidding. Moreover, these four groups 
are affiliated with organizations that already have significant 
private resources.
    So, again, when we are looking at where this funding is 
going and the need for public funding for some of these groups, 
and in a noncompetitive environment, do you know if the 
endowment has taken any steps to address these concerns?
    Dr. Duffey. I believe there is a representative of the 
endowment here. This program was created by the Congress more 
than 10 years ago. I admire what the NED has been able to do, 
confronting a level and, in fact, some reductions in funding in 
the last few years. Perhaps Mr. Lowe can respond to your 
    Mr. Lowe. Senator Grams, first of all, that 65 percent 
figure is not correct. It is 55 percent. These core groups 
represent major sectors of American life--the political 
parties, the trade unions, the business interests. They have 
been a part of the endowment since the beginning. They do very, 
very important work. They have, as you know, as you suggested, 
made efforts to get funding from other sources, just as the 
endowment is moving in that direction as well.
    Senator Grams. Could I have you just identify yourself for 
the record?
    Mr. Lowe. I am sorry; I am David Lowe. I am an official 
with the National Endowment for Democracy.
    Senator Grams. OK, go ahead, sir. I am sorry.
    Mr. Lowe. And so that those four institutions represent, as 
I said, important sectors of American life. They do very 
important work. They have a very important track record that 
they can point to, in terms of party development, in terms of 
trade union development, in terms of working to open markets to 
help countries privatize their economic structures. We feel 
that the work that they do is very integral to the work of the 
    Senator Grams. I guess our concern or the question was that 
these groups have a lot of money and access to private sector 
funding. I guess the question is--I know it all could be spent 
in good areas, but to continue this funding into the future, 
    Mr. Lowe. Well, again, they do have other sources. They do 
leverage a tremendous number of resources in terms of the work 
that they do. We are looking at this. The board is very 
independent. They take a very careful look at this every year. 
We will certainly take those comments under advisement.
    Senator Grams. All right. Thank you very much.
    Mr. Lowe. Thank you.
    Senator Grams. Just some closing comments. I understand 
that Senator Biden will not have time to return. But if I could 
just bring up a couple of other quick housekeeping issues 
before we close out this hearing.
    I have talked to Chairman Helms, and both of us have agreed 
that we want to move expeditiously to mark up the State 
Department authorization bill, as we noted earlier in this 
hearing. Given that it is already March--I guess, Dr. Duffey, I 
would address this question to you--can you tell me when the 
USIA will be able to send its proposed language for the basic 
legislative authorities it is requesting for fiscal year 1998?
    Dr. Duffey. We are very close to that. It is practically 
there. I believe that we should be able to get it to you next 
    Senator Grams. OK. I appreciate that. The sooner, the 
better, of course. Finally, I am also going to ask unanimous 
consent of my colleagues that this hearing's record be kept 
open for 3 business days. That is for the submission of written 
questions by any member of the Foreign Relations Committee. I 
do have some other questions that I will also propose to you in 
writing. If we could expect to have those back also in a timely 
    [See appendix for questions submitted by Senator Grams, 
along with answers subsequently received.]
    Senator Grams. Dr. Duffey, I do not believe these written 
questions would be unreasonable. Of course in view of the fact 
that the Foreign Relations Committee, again, is preparing the 
authorization bill, I hope you can assure us that you will be 
able to respond within a week of the submission of the 
    Dr. Duffey. Might I just enter into the record, Mr. 
Chairman--I am sorry Mr. Biden is not returning. I am not sure 
what deal he is referring to. I want it noted for the record 
that I have not come to this committee with any complaints 
about the Broadcasting Board of Governors. The questions are 
raised out of concerns from the Congress.
    I have suggested that there was an agreement from all the 
parties in the legislation submitted. That was examined and 
should continue to be carefully examined.
    For the record, I would also like to point out that the 
budget you have before you for 1998 calls for, in terms of the 
allocation of resources, Eastern Europe's allocation is $130.4 
million. What may escape Mr. Biden's notice immediately is that 
we do much more radio there, where it is important. We also 
have significantly more exchanges.
    The Western Europe budget, compared to that $130.4 million, 
is still $92.5 million. I quite agree with the Senator that we 
need to keep reexamining, and we are engaged in an intense 
effort to do that now, on how we use those resources in Western 
Europe. But we also have to acknowledge now that, where our 
allies are, we need to work very hard to communicate with the 
new generation and in changing conditions exactly what U.S. 
policies are and how we will respond to any number of 
situations that may develop in the future. I think that is very 
important for the pursuit of our policy objectives.
    Senator Grams. I do not know if he will accept that. He is 
not here to answer. But I thank you for the explanation. It 
will be noted.
    Also, Dr. Duffey, just again to clarify, we are hoping that 
you can get back the responses to our questions within a week 
if possible. If we could have that commitment from you, we 
would appreciate it.
    Dr. Duffey. Thank you.
    Senator Grams. Thank you very much. I appreciate your being 
here. The hearing now is adjourned.
    [Whereupon, at 12:35 p.m., the hearing was adjourned, to 
reconvene at 10:05 a.m., March 12, 1997.]



                       WEDNESDAY, MARCH 12, 1997

                           U.S. Senate,    
     Subcommittee on International Economic
                Policy, Export and Trade Promotion,
                     of the Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Chuck Hagel 
(chairman of the subcommittee), presiding.
    Present: Senators Hagel and Sarbanes
    Senator Hagel. The subcommittee will come to order.
    Gentlemen, welcome. Today, the subcommittee will hear 
testimony in support of the President's fiscal year 1998 
security assistance budget.
    Our witnesses today are the Honorable Thomas McNamara, 
Assistant Secretary of State, for Political-Military Affairs, 
and Lieutenant General Thomas Rhame, Director of the Defense 
Security Assistance Agency.
    The President's budget seeks $5.9 billion for a range of 
security assistance programs, including $3.2 billion for the 
Foreign Military Financing Program, $2.5 billion for the 
Economic Support Fund, and $50 million for the International 
Military Education and Training Program.
    The request also includes $90 million in funding for U.S. 
voluntary peacekeeping programs, and $15 million to fund 
international non-proliferation activities.
    Our Nation's security assistance programs have gone through 
a substantial evolution with the end of the cold war. Only a 
few years ago a significant portion of our security assistance 
was dedicated to rent payments for U.S. access to overseas 
military installations.
    Countries that assisted America in projecting its military 
presence, Portugal, the Philippines, Spain, and Turkey, were 
major recipients of American aid. But the emergence of 
democracy in Eastern and Central Europe has brought with it a 
new focus of our security assistance, targeted at potential new 
NATO partners.
    Hungary, Poland, and the Czech Republic, which only a few 
years ago poised their weapons at NATO, now seek to become part 
of it, and military officers in Russia and Bulgaria, who once 
prepared to battle U.S. troops, now train side by side with 
their American counterparts.
    A vast majority of our security assistance during the past 
2 decades has been dedicated to one region, the Middle East, 
where American interests and the real risk of conflict remain 
great, the peace process not withstanding.
    In fact, the President's fiscal year 1998 request seeks to 
allocate 94 percent of our entire FMF budget, and 88 percent of 
the ESF resources to Middle East countries. There continues to 
be strong bipartisan support for this, which advances the cause 
for peace.
    While its geographical focus may have shifted, the 
rationale for a robust security assistance budget remains. 
Without question, there have been instances, Zaire and Somalia 
come to mind, in which USA aid propped up corrupt despots 
during the cold war, but that has been the exception rather 
than the rule.
    The program remains essential to assist the President in 
buttressing our allies, increasing military interoperability 
with friendly nations, generating necessary exports for 
American business, and helping professionalize foreign 
    Mr. McNamara, General Rhame, welcome to our subcommittee. 
We look forward to your testimony this morning. I am going to 
continue on with your testimony, and with our questions.
    We have colleagues coming, and I suspect by the time you 
are complete in your remarks, then my colleagues will join me, 
and if it is OK with you, I would like very much to ask for 
your comments, and I know neither of you are strangers to this 
process, and you know what the deal is.
    So, with that, again, I welcome you, look forward to your 
testimony, and General Rhame, I would ask you to lead off this 
morning. Thank you.


    General Rhame. Mr. Chairman, members of the committee, good 
morning. It is a pleasure for us to be here to testify in 
support of the administration's request for security assistance 
for 1998.
    Mr. Chairman, I will keep my remarks fairly brief. I would 
ask that you put my formal longer statement into the record, if 
you would, please.
    Senator Hagel. Yes.
    General Rhame. In the security assistance portion of the 
budget this year, as you know, we are requesting an increase 
over the 1997 appropriation.
    We believe the programs are strong, solid, and are fully 
justified. Our goal of preserving Mid-East peace remains of 
paramount importance to us.
    This year you will find we are asking for increased support 
for Jordan. This assistance will enable us to continue the 
ongoing F-16 lease program that we have working for Jordan, and 
strengthen this critical Mid-East peace partner.
    Another of our critical challenges is to continue to 
support the building of our new security relationships in 
Europe. As a result of the requirements of preparing the new 
democracies in this region and the former Soviet Union for full 
participation in our Partnership for Peace initiative, and in 
some cases, actual NATO membership, these requirements account 
for a significant amount of the requested increase, which you 
see in the Partnership for Peace account, or as we call it, the 
Warsaw Initiative.
    Mr. Chairman, we are also requesting money for programs in 
the budget this year to train the forces of friendly nations 
for peacekeeping and humanitarian assistance duties, which will 
thus reduce, hopefully, the need to commit American troops to 
these kinds of operations in the future.
    Mr. Chairman, sometimes despite our best efforts, our 
military forces get committed to regional disputes, and in that 
case, we believe that security assistance has proven a benefit 
to helping to ensure that our friends and allies have the 
equipment, training, and infrastructure which allow them to 
work with our American forces.
    As a commander during the recent Desert Storm operation, I 
was able to see firsthand how those years of active planning 
and effort of building our military-to-military relations with 
friendly governments, and the interoperability developed 
through security assistance programs contribute greatly in the 
operation of our coalition partners, and paid bid dividends for 
us during the war.
    As the director of the Defense Security Assistance Agency, 
I focus on both those goals. One is to allow our friends and 
allies to prepare themselves for their legitimate self-defense 
requirements, and at the same time, hopefully, prepare them to 
be interoperable with us, if a situation should arise, in which 
we need their assistance.
    This budget, Mr. Chairman, is fully supported, although it 
is a State Department budget, by the Department of Defense.
    Mr. Chairman, I also would say to you that IMET, 
International Military and Education Training, is considered by 
the Defense Department as being one of our most cost-effective 
programs in the 150 account.
    Every regional commander-in-chief repeatedly states, when 
asked orally in front of the secretary, the importance that 
IMET plays in his regional plan, and how it enhances his 
political-military relationship with the countries of his 
    Further, in my travels, I find that our Ambassadors posted 
abroad all actively and energetically support IMET and the 
objectives it attains.
    This year, Mr. Chairman, we are asking for $50 million in 
the 1998 request. This is an increase of $6.25 million over 
what was appropriated last year.
    The two factors driving this increase are the increased 
number of countries that we support with the IMET program, and 
some rising costs within our training base.
    Since 1991, we support, with the IMET program, 28 countries 
that we previously did not support. These countries are found 
in Central Europe, predominantly, and in the newly independent 
states of the old Soviet Union, and increasingly, our IMET 
program has been focusing on preparing these countries for 
their participation in Partnership for Peace, and in some cases 
down the road, hopefully, NATO membership.
    We are excited about what is going on in the traditional 
IMET program, what is happening in the Expanded IMET portion of 
the program, and we would strongly plead that this institution 
of our Government strongly support our request for the IMET 
program this year.
    Likewise, the Congress provided to us $23.25 million last 
year, and that is requested this year in FMF administrative 
expenses, which allow us to support the non-foreign military 
sales aspects of the security assistance business we do in the 
    This goes to support administrative costs within the 
unified commands, and those portions of our embassies abroad 
which do not support the generation of the FMS administrative 
fund. These funds are critical to our overseas presence and the 
operation of our unified commands, and like IMET, we would ask 
for your strong support in those programs.
    Mr. Chairman, that will complete my brief summary remarks 
of my longer statement. With your permission I will turn to Mr. 
    Senator Hagel. General, thank you.
    [The prepared statement of Lt. Gen. Rhame follows:]
               Prepared Statement of Lt. Gen. Rhame, USA
    Mr. Chairman, members of the committee, good morning. It is a 
pleasure to be here today to testify in support of the Administration's 
security assistance request for fiscal year 1998.
    In our request we are asking for substantial increase over the FY 
1997 appropriation. The security assistance part of this budget alone 
represents a $55.775 million increase. We believe that this increase is 
fully justified. It has become clear that even though the challenges we 
face today may not be of the same magnitude as those we faced during 
the Cold War, they nevertheless require American engagement. Many of 
these challenges are better and more effectively met by the kind of 
foreign policy instruments contained in this foreign aid request than 
by direct military action. Old goals such as preserving Middle East 
peace are no less important today, but we have important new goals as 
well. Probably the single biggest of these is the challenge of building 
a new security structure in Europe. As a result, the demands of 
preparing the new democracies of Central Europe and the former Soviet 
Union for full participation in the Partnership for Peace (PFP) and in 
some cases, NATO membership, account for a significant amount of the 
requested increase. We are also requesting small amounts of money for 
programs to train and equip foreign troops for peacekeeping and 
humanitarian assistance duties and thus reduce the need to commit 
American troops for these kinds of operations in the future.
    Sometimes, despite our best efforts, our military power must be 
employed. In that case, security assistance has the proven benefit of 
helping to ensure that our friends and allies have the equipment, 
training and infrastructure to fight along side us if necessary. As 
commander of the 1st Infantry Division in operation Desert Storm, I saw 
first hand how our years of active planning and effort in building 
military-military relations and interoperability through the security 
assistance program with our coalition partners paid big dividends 
during the war. As Director of the Defense Security Assistance Agency, 
I am responsible for both of these major goals of the security 
assistance program--preparing our friends and allies worldwide to 
defend themselves, and preparing them to work better with us, if need 
be. This budget request, therefore, has the strongest backing of the 
Department of Defense.
    Before I discuss our budget request in detail, I would like to 
acknowledge the much-needed improvements to the Foreign Assistance Act 
and the Arms Export Control Act made by P.L. 104-164. We look forward 
to working with you on future security assistance authorization bills.

International Military Education and Training (IMET)

    IMET is our single most cost-effective security assistance program. 
IMET fosters military-to-military relations, promotes military 
professionalism, and, via the Expanded IMET program, addresses issues 
of military justice, respect for internationally recognized human 
rights, effective defense resources management, and improved civil-
military relations. The Commanders in Chief of the unified commands 
have consistently identified IMET as a key tool for enhancing 
political/military relations with the various countries in their 
    Since 1991, we have broadened the reach of the IMET program to 28 
new countries, primarily in Central Europe and the Newly Independent 
States of the former Soviet Union (NIS). Increasingly, our IMET program 
in this region has come to focus on preparing these countries for full 
participation in the Partnership for Peace, and, in some cases, NATO 
membership. Accordingly, we continue to work towards restoring the 
level of IMET funding to a level commensurate with the program's global 
utility and the new requirements for training in these new democracies. 
This year we are asking for $50 million, an increase of $6.525 million, 
of which $3.550 million is for countries in Europe and the NIS. Of 
this, $1.5 million is for three countries, Poland, Hungary and the 
Czech Republic.
    Given that IMET was one of the few programs to be increased last 
year, you might well ask whether this additional funding is really 
justifiable in a time of budgetary stringency? The answer is yes. IMET 
course costs are rising by an average of eight percent per year due to 
reductions in the DoD student population that increase per-student 
costs, along with normal inflation. Further, costs increase as country 
programs mature. Starting an IMET program with a new country is 
relatively inexpensive. English-language training is often a 
prerequisite for IMET students before they can take the more costly 
professional military education courses that bring the real benefits. 
The early, inexpensive phase for these new countries is largely 
complete, and follow-on training needs to be funded. At the same time, 
we are also proposing to bring in 570 more students worldwide, of which 
the majority will be from Central European and NIS countries. So this 
proposed expansion in the IMET program is in part a natural consequence 
of seeds planted several years before, and a component of our larger 
efforts to improve the professionalism of, and enhance interoperability 
with, the militaries of Partnership for Peace countries as well.

Foreign Military Financing (FMF)

    We are requesting $49.25 million more than last year's allocations 
for the FY 1998 FMF program, after accounting for the funding of 
``FMF'' demining in the new Non-proliferation Anti-terrorism, Demining 
and Related programs account.

Central Europe and the NIS

    As with IMET, our interests in Central Europe are an important 
factor in our request for increased funding. We are requesting $70 
million in FMF grant funding for the Partnership for Peace initiative, 
an increase of $10 million. Support for the Partnership for Peace helps 
to ensure that Partners invited to join NATO will be ready to accept 
the military, political and economic burdens of membership. It also 
helps to keep the door open to countries not initially invited. The 
necessarily flexible nature of the NATO enlargement process makes it 
essential that we fund the program at a level sufficient to make the 
armed forces of the earliest prospective NATO members truly 
interoperable with NATO, while helping the other Partner countries 
progress. At the same time, funds are needed to enhance cooperation 
with eight countries of the NIS that we expect will become eligible for 
FMF grant funding for the first time in FY 1997.

Loans to Central Europe

    We are also requesting $20 million to subsidize an estimated $402 
million in loans to Central European (CE) countries. Unlike the grant 
assistance requested for the Partnership for Peace, these loans are 
intended to help address major infrastructure deficiencies, such as 
lack of airlift capability and NATO-compatible air defense, radar and 
communications equipment. In some cases, loans may be used to support 
transfers of excess equipment.
    One important aspect of assistance to CE countries, especially 
those that may not be invited to join NATO initially, is peacekeeping. 
Virtually all of the CE countries already maintain or are forming 
dedicated peacekeeping units. Unfortunately, lack of compatible 
transportation and communications equipment is a major limitation on 
these countries' ability to work alongside U.S. or NATO troops in 
international peacekeeping missions. Grants and loans to these 
countries can make their peacekeeping contributions more effective in 
the near term, while helping to make them better prepared for possible 
future NATO membership.

Greece and Turkey

    We are requesting $46 million to subsidize the same FMF loan values 
authorized for Greece and Turkey in FY 1997, $122.5 million and $175.0 
million, respectively. In both cases, the loans are needed to continue 
sustainment of existing U.S.-origin assets. Greece also plans to use 
these funds to refurbish and upgrade existing U.S. equipment as well as 
articles that will be acquired through the reduction of conventional 
forces in Europe and the Excess Defense Articles program.
    I appreciate that the proposed assistance to Turkey and Greece may 
be controversial because of Turkey's problematic human rights record 
and the potentially volatile situation with regard to Cyprus and the 
Aegean sea. Yet the strategic importance of this region cannot be 
overstated. We are committed to balancing tensions between Greece and 
Turkey, and to promoting Turkey's place in the Western security system. 
Turkey's secular-oriented, Western-leaning military establishment 
remains a moderating force in the country and needs our continued 

Middle East Peace

    Once again we are requesting $1.8 billion in FMF grants for Israel 
and $1.3 billion for Egypt to fulfill our commitment under the Camp 
David accords. Maintaining Israel's qualitative advantage and 
modernizing the Egyptian armed forces continue to be major goals of 
these programs. Regarding Egypt, I would like to point out that in 
addition to its role in promoting regional peace, our aid there has had 
the additional benefit of building a strong and reliable coalition 
partner. Egypt provided over 40,000 troops in the Gulf War, troops 
whose interoperability with U.S. forces was greatly increased by U.S.-
provided training and equipment.
    Foremost among Arab countries that have recently taken risks for 
peace in the region is Jordan. As part of our policy of assisting such 
countries, we are requesting $45 million this year for Jordan to 
continue with the F-16 aircraft lease program for which Congress has 
already appropriated $100 million in FY 1996 and $30 million in FY 
1997. The program is on schedule, with the first six aircraft scheduled 
to be delivered in December 1997 and the remaining ten by February 


    The demining program is an important initiative this Administration 
has undertaken. The FY 1998 request of $15 million will help to make a 
reality President Clinton's pledge in May 1996 to strengthen global 
efforts to deal with the tragic consequences of land mine contamination 
of farmland and infrastructure in over seventy countries worldwide, 
principally in Africa and Asia. This effort is intended to help 
thirteen of the most severely afflicted countries by providing defense 
articles and services needed to develop indigenous mine clearing and 
awareness programs.

Enhanced International Peacekeeping Capabilities (EIPC)

    I have already mentioned that providing training and equipment to 
friends and allies for peacekeeping duties is an increasingly important 
use of security assistance funds. In an effort to improve the 
peacekeeping readiness of countries that have demonstrated significant 
potential for greater contributions to international peacekeeping 
operations, and at the same time reduce U.S. costs for such missions, 
we are proposing a new program called EIPC--Enhanced International 
Peacekeeping Capabilities. We are requesting $7 million to be allocated 
regionally. The funds will be targeted to help selected countries 
improve their ability to develop and implement effective peacekeeping 
training and education programs consistent with internationally 
approved standards. The effort will focus on the development of 
peacekeeping training centers rather than on training and equipping 
standing peacekeeping units. Through the procurement of special 
education training aids, information technologies, and instruction on 
the development of national-level peacekeeping training and education 
programs, we will significantly improve the confidence and capability 
of developing countries to contribute to international peacekeeping 
missions. This program is being developed in consultation with selected 
allies to ensure cooperative efforts at implementing common 
internationally approved peacekeeping training standards. Standardizing 
peacekeeping training via EIPC will enhance the cohesion and 
credibility that often challenge a rapidly assembled multinational 
peacekeeping force.
    You may ask, why do we need a new FMF account separate from the 
traditional voluntary peacekeeping account (PKO)? The answer is that 
EIPC's program requirements will rely upon DoD to provide Mobile 
Training Teams (MTTs) and specialized training and equipment. FMF, 
which is administered by DoD, is better suited than PKO to procure 
defense articles and services from the Department of Defense.

African Crisis Response Force (ACRF)

    Humanitarian and peacekeeping crisis for Africa and beyond are 
likely to be a recurrent problem in the near future. To deal with those 
crises, we are requesting $5M in FMF for the African Crisis Response 
Force (ACRF) initiative. Through provision or training and some 
equipment, the ACRF initiative will enhance the capabilities of up to 
10,000 African troops designated by African countries, for rapid 
deployment in international peacekeeping and humanitarian operations. 
Recently, the con- 
cept has evolved away from the concept of a standing force and has 
moved towards more emphasis on capacity building. In this form, several 
countries, including France, have evinced support for the initiative 
and have begun to make tangible commitments to provide training and/or 
equipment or money.

East Africa Regional Assistance

    Sudan, Africa's largest country, remains a destabilizing factor in 
the Horn of Africa. Both the Organization of African Unity and the UN 
Security Council have condemned the government of Sudan for its 
involvement in the attempted assassination of Egyptian President 
Mubarak in June 1995. Sudan continues to sponsor or assist efforts to 
destabilize its neighbors, notably in Uganda, Eritrea and Ethiopia. 
Under the rubric of East Africa Regional Assistance, we are requesting 
$5 million in FMF to help these three countries resist Sudanese-
fostered destabilization.


    Our FMF request for Cambodia is $1 million, as it has been for 
several years. In concert with programs funded in other parts of the 
President's foreign aid budget, we aim to use this small amount to help 
preserve hard-won democratic gains in this devastated country, promote 
continued democratization, and prevent the return to power of the Khmer 
Rouge. This year's FMF request is intended to help develop the Royal 
Cambodian Armed Forces engineers' capability to build and improve civil 
infrastructure, support the Cambodian government's establishment of 
development centers to provide employment for Khmer Rouge defectors, 
and aid Cambodian efforts to remove an estimated 5 to 8 million anti-
personnel landmines.

Caribbean Regional Fund

    Caribbean nations traditionally have been strong allies of the U.S. 
Our long-term objectives in the Caribbean region include maintenance of 
regional stability, as the Caribbean constitutes America's ``third 
border.'' This entails assistance to cooperative security 
organizations--principally through regional coast guards--against 
international crime, including terrorism, narcotrafficking, arms 
trafficking, money laundering, and illegal migration; plus search and 
rescue and natural disaster response. We are requesting $3M for the 
regional fund, a $1M increase, for long-deferred operations and 
maintenance support to the Eastern Caribbean's Regional Security System 
(RSS) and the broader Caribbean Community and Common Market (CARICOM) 

Administrative Expenses

    The $23.25 million we are requesting for FMF Administrative 
Expenses--the same amount for the past several years--pays for the 
expenses of administering the non-Foreign Military Sales aspects of our 
security assistance program worldwide. This includes financing for the 
administrative costs for the security assistance activities of the 
Unified Commands as well as the Security Assistance Offices in our 
embassies abroad. IMET administration is a particularly important 
component of these costs. Yet, despite the recent increase in IMET 
programs, and thus the need for SAOs, in Eastern Europe and the NIS, we 
intend to hold costs to the same level in FY 1998 as FY 1996 and FY 

Korean Peninsula Energy Development Organization (KEDO)

    On behalf of the Department of Defense, I would like to mention 
this critical issue. The State Department has requested $30 million to 
support KEDO for FY98. This amount is within the range for US 
contributions anticipated by former Secretary Christopher in Senate 
testimony in early 1995. KEDO is charged with implementing technical 
aspects of the Agreed Framework, including delivery of heavy fuel oil 
and construction of two light water reactors in North Korea, in return 
for the North freezing activities at its nuclear facilities. From DoD's 
perspective, this project is critical to safeguarding the security 
interests of the US and its allies in the region. A failure of KEDO's 
efforts could lead to a reactivation of North Korea's nuclear program, 
which would pose a substantial risk to US forces in the region as well 
as heighten tensions and insecurity among all Northeast Asian 
countries. US financial backing is extremely important in demonstrating 
to our partners in KEDO, particularly the ROK and Japan, that the US is 
willing to assume its share of the burden in this security enterprise. 
US funding also sets an example for other potential contributors that 
are trying to assess the importance of this project.

    I would like to conclude by reiterating that this budget request is 
very much in our interest. These programs contribute directly and 
indirectly to the security of the American people. The request is a 
reasonable compromise between our worldwide commitments and 
responsibilities on the one hand, and our budget constraints on the 
other hand. The Department of Defense supports it completely. Thank 

    Senator Hagel. Secretary McNamara.

                            OF STATE

    Mr. McNamara. Thank you, Mr. Chairman. I am pleased to be 
here today to testify in support of the administration's budget 
request. I have a longer written statement, which covers the 
submission in detail, and I would like to ask that that 
statement be included as part of the record.
    Senator Hagel. Yes.
    Mr. McNamara. Secretary Albright has laid out 6 mutually 
reinforcing objectives, which form the framework of our 
international affairs budget request for fiscal year 1998.
    These objectives are securing peace, promoting U.S. 
prosperity through trade investment and employment, fostering 
sustainable development, providing humanitarian assistance, 
building democracy, and advancing diplomacy and diplomatic 
    Today, I would like to address the programs which serve two 
of those objectives, securing peace, and building democracy. 
These programs all increase the security of the American 
people. That point is central to everything that I would say 
here today.
    The basic purpose of these programs is, indeed, to 
strengthen the security of the United States, of the American 
people, but they also improve the security of many of our 
allies, partners, and friends as a secondary benefit, and 
demonstrates the interrelationship of our security with that of 
other nations.
    But the strongest reason for supporting these programs is 
that they reinforce American security.
    Rather than refer to this as our security assistance 
budget, I think it is more accurate to refer to it as our 
security reinforcement budget. When we promote peace in the 
Middle East, we promote American security.
    When we improve our new security relationships with the 
states of Central Europe, we improve American security. When we 
strengthen other democracies, we strengthen our democracy.
    If we can reinforce the nonproliferation norms and 
institutions that have been established in the international 
world, we reinforce American security. I repeat, this is not 
security assistance for someone else, this is security 
reinforcement for ourselves.
    Let me turn first to our $5.78 billion budget request 
devoted to securing peace. Ensuring the security of our Nation 
remains our principal obligation, and there are dangers today, 
in an uncertain world, presenting serious threats to that 
    American military power is one of the principal means by 
which we protect our interests against these threats; however, 
at the same time, we must seek to prevent conflict and contain 
these conflicts through strengthening our allies and partners, 
specifically, the Middle East peace process.
    Secretary Albright has set forth key areas that are 
particularly significant opportunities for the U.S. in the 
coming year. Helping to achieve a lasting peace in the Middle 
East is one of the most important of those.
    Peace would be impossible without U.S. leadership, and this 
administration is determined to do everything it can to support 
those who are willing to take risks for peace. Our budget 
request includes $5.34 billion to support our efforts to bring 
peace in the Middle East.
    The request includes traditional amounts of economic and 
military support for Israel and Egypt, and for other countries 
which are important to the peace process, notably, Jordan.
    This helps to meet their legitimate security needs, and to 
promote continued economic reform and broad based economic 
growth. Our request for the West Bank in Gaza is intended to 
continue to promote Palestinian self-government through 
economic development and institution building.
    Mr. Chairman, in the past, Members of Congress have 
expressed concern about the large piece of the pie which goes 
to the Middle East peace process, and I can assure you that we 
in the administration share that concern, especially as overall 
discretionary fund levels continue to decrease. However, the 
Middle East peace process is at a crucial point.
    Through our diplomatic and financial engagement, we must 
maintain the conditions necessary for peace by giving Israel 
and the others in the region confidence to take further 
difficult steps toward peace.
    Through continued diplomatic and financial engagement, we 
seek to avoid the costs of another Middle East war, and to 
ensure that our vital oil supplies are protected. $5.3 billion 
is a significant amount of money, but I believe, Mr. Chairman, 
that it is money well spent to advance vital U.S. interests in 
a stable Middle East, in which Israel is secure and at peace 
with its Arab neighbors.
    The next major area I would like to address is European 
security. Secretary Albright also identified promoting European 
security as an area of opportunity for U.S. foreign policy.
    Our budget requests include $204 million in military and 
economic support for our security objectives in Europe. Of this 
total, $108 million represent programs of military cooperation 
designed to help build new European security structure through 
programs of security cooperation with the new democracies of 
Central Europe and the newly independent states of the former 
Soviet Union.
    These nations are taking difficult steps to influence 
social, political, and economic reforms to catch up with their 
Western neighbors. Clearly, some have a longer way to go than 
others, but we are committed to helping these countries build a 
stable and integrated democratic Europe.
    Of the $108 million, $70 million is for the Partnership for 
Peace, and $18 million for the International Military 
Educational and Training Program, IMET; $20 million is for 
Central European defense loans.
    The PFP program, Partnership for Peace, and IMET program, 
will assist the partners to continue their active cooperation 
with NATO and other partners, as we help those countries which 
want to join NATO better prepare for that membership.
    By developing the capacity of the partners to contribute to 
actual operations, the PFP program will help to ease demands on 
the U.S. allied forces, and other resources.
    Since the establishment of the PFP a few years ago, this 
program has been extremely successful in easing cold war lines 
of confrontation, and in bringing former adversaries into a 
community of shared values, principals, and interest.
    As an example and demonstration of the effect, the 
participation of 13 partners in the ICOR in Bosnia has shown 
that the PFP is of value for in-the-field operations.
    Our request for $20 million in loan budget authority is 
going to provide approximately $402 in low-cost loans for 
credit-worthy Central European nations to allow them to address 
infrastructure deficiencies.
    The loans, while they are distinct from the PFP request, 
certainly complement the efforts of PFP nations who seek NATO 
membership and commonality in their infrastructures.
    We also plan to continue our support for two key NATO 
allies, in recognition of their importance in maintaining 
stability in a region that is critical to U.S. interests.
    Our request of $46 million for subsidy costs, for a total 
of $298 million in FMF loans for Turkey and Greece, will 
support sustainment of U.S. equipment.
    We are also requesting $50 million in economic assistance 
for Turkey to assist in resolving their economic situation, 
caused in part by its support for the Iraq sanctions.
    It will be hard to overstate the importance of Turkey as a 
U.S. ally. It sits at the crossroads of Europe, the Middle 
East, and the newly independent states. It plays a critical 
role in a wide range of issues vital to U.S. interests.
    Achievement of U.S. goals in the region will depend largely 
on our ability to maximize Turkish-U.S. cooperation on a broad 
range of issues, where we have overlapping interests. Among 
these are stability in the Caucases and in the Northern Gulf 
area, lowering tensions in the Aegean, and a solution in 
    Cooperation in these issues is dependent on preserving 
Turkey's position as a democratic secular nation in a region 
with weak democratic traditions and where political instability 
    We seek, therefore, to strengthen Turkey's ability to carry 
out its essential security role in the region, both through 
democratic tradition through continued emphasis on human 
rights, and to help its economy grow and prosper.
    Now, let me turn to the global programs, which account for 
$167 million of our request. First, peacekeeping. The budget we 
are seeking of $102 million is to support a broad range of non-
U.N. multilateral peacekeeping programs and operations.
    The number of contingencies requiring peacekeeping 
operations has risen dramatically in recent years, and we 
expect the trend will continue, especially in politically 
charged areas of Central and East Asia, Europe, Africa, and 
even in Latin America.
    While the bulk of funding for multilateral peacekeeping 
operations goes to the United Nations, it is sometimes in our 
interest to support on a voluntary basis peacekeeping 
activities that are not U.N. mandated or U.N. funded.
    In addition to supporting long-term non-assessed 
commitments, such as the Multinational Force and Observers 
(MFO) in the Sinai, and in the Organization for Security and 
Cooperation of Europe, the OSCE, this $102 million will be used 
to promote regional involvement in the resolution of 
neighboring conflicts.
    In Africa, for example, we are requesting funds to support 
a multinational African crisis response initiative, that seeks 
to improve and expand on the abilities of African nations to 
respond to peacekeeping and humanitarian crises in Africa.
    Our request also addresses potential voluntary operations 
in other continents, Europe, Latin America, and the Caribbean.
    Second, a global program, which the General has referred 
to, IMET. For fiscal year 1998, we are requesting $50 million 
for IMET, a $6.5 million increase over 1997, so that we can 
provide essential training to the emerging democracies of 
Central Europe, the newly independent states of the former 
Soviet Union, and our PFP partners, so that they will move 
closer to NATO membership.
    It will also provide important funding for programs in the 
Near East, South Asia, Latin America, the Caribbean, Africa, 
and East Asia.
    While the bulk of the $6.5 increase will go to support 
maturing IMET programs in Central Europe and the newly 
independent states, it also is needed to offset rising IMET 
    Over the past 3 years, costs have increased about 25 
percent, and the increase is attributable partly to inflation, 
but mostly to the reduction in U.S. military training, so that 
the increase of per-student tuition costs has risen.
    The third element of the global program is demining. Mr. 
Chairman, the demining program is one of the important 
initiatives that this administration has undertaken. Clearly, 
the removal of landmines is a major challenge, requiring long-
term solutions.
    The United States has some compelling interests to promote 
national and regional security and political stability, and 
economic development, by reducing civilian land mine 
casualties, and the tragic human, social, and economic costs of 
countries with land mine problems.
    Since the start of this program in fiscal year 1994, we 
have worked closely with other Agencies on the program to 
develop indigenous capabilities to remove landmines from mine-
inflicted countries.
    Our request for $15 million this year will support programs 
around the world, in Afghanistan and Angola, in Cambodia, 
Ethiopia, Jordan, Laos, Mozambique, Rwanda, and in Latin 
    Non-proliferation, with the dissolution in the Soviet 
Union, and the proliferation of weapons of mass destruction now 
being threatened, poses one of the greatest threats to the 
security of the United States and of our allies.
    Preventing the threat of these and other dangerous weapons 
is an administration priority, and Secretary Albright has 
identified non-proliferation as one of her foreign policy 
priorities, as has the administration in the preceding 4 years.
    We have been working diligently with the states of the 
former Soviet Union to help dismantle their nuclear arsenals, 
prevent the proliferation of the fissile materials that come 
out of those arsenals, direct nuclear technologies to the civil 
side, and to reduce the numbers of weapons of mass destruction. 
Also, very important is to develop comprehensive and effective 
export control regimes in those countries. Today, Ukraine, 
Belarus, and Khazakistan are nuclear-weapons-free states.
    We have established Science Centers in Kiev and Moscow to 
provide meaningful research alternatives to former weapons 
scientists, to prevent a brain drain to rogue states, and to 
move these scientists into peaceful, civil scientific pursuits.
    On the Korean peninsula, the KEDO program is preventing 
North Korea from developing a nuclear arsenal that would 
destabilize the entire region.
    We hoped to make the future safer through this program, not 
only for the next generation in those countries, but most 
importantly, for our own country as well. However, that work is 
not yet done, and so we are requesting $101 million in fiscal 
year 1998 to continue these vital programs in the non-
proliferation area.
    Building democracy, in this area, let me turn to the 
Clinton administration's commitment to support democracy and 
defend human rights, and how it reflects American ideals. Over 
the past several years, the growing movement toward political 
freedom around the world has profound and positive implications 
for the United States.
    Democratic transformation in Central Europe, and the birth 
of democratic institutions in the states of the former Soviet 
Union, has led to emergence of new partners in security and in 
    In the Western Hemisphere, all but one nation are now led 
by elected governments. As a result, tensions have declined, 
violent conflicts have been resolved, and market reforms have 
led to impressive economic growth.
    For example, Latin America is now the fastest growing 
market for American exports. In Asia, our treaty alliances are 
stronger than ever now that each of our allies is a democracy.
    In Africa, we have seen that participatory democracies are 
far more likely to avoid the man-made humanitarian disasters 
that touch our conscious and require such large infusions of 
resources from the international community and from the United 
States; hence, our fiscal year 1998 budget request, $205 
million to support a range of programs to help strengthen and 
consolidate these democratic processes and institutions in 
countries that have embarked on that course.
    In Haiti, our $70 million request will help consolidate 
Haiti's transition from military to civilian rule, and enhance 
the training of the Haitian national police.
    In Cambodia, another country making a difficult transition 
to democracy, following decades of conflict, the Cambodian 
coalition government is struggling to build a culture of 
democracy in the face of enormous challenges. Our $37 million 
request will enable the U.S. to advance democratic and economic 
development through health care, education, rural development, 
and legal, regulatory, and judicial programs.
    In Latin America and the Caribbean, we are requesting $49 
million in military and economic programs to promote and 
strengthen democratic institutions, local governments, law 
enforcement administration of justice, and the regional 
security system in the Eastern Caribbean. We are also seeking 
$39 million for similar programs in other areas of the world.
    In conclusion, Mr. Chairman, let me return to the central 
point of my presentation. The funding we are requesting in our 
overall security budget directly increases the security of the 
United States and of American citizens.
    The U.S. security depends on promoting peace in the Middle 
East, building a new security order in Europe, preventing the 
spread of weapons of mass destruction, and helping emerging 
    These programs to strengthen American security are 
essential tools to pursuing American interests abroad, and for 
our security here at home. Without adequate funding, however, 
American leadership in the world and our vital interests are 
going to be at risk.
    The support of this committee is essential to achieving 
these goals, and we are looking forward to working closely with 
you and your staff to fully address any concerns or questions 
you may have.
    I want to thank you, Mr. Chairman, and the members of the 
committee for your attention, and now I will be pleased to 
answer any questions you may have.
    Senator Hagel. Mr. Secretary, thank you.
    [The prepared statement of Mr. McNamara follows:]
                   Prepared Statement of Mr. McNamara

    Thank you, Mr. Chairman. I am pleased to testify today in support 
of the Administration's FY 1998 security assistance budget request for 
foreign operations.
    As America stands at the threshold of a new century, we face a 
challenge that recalls the opportunities and dangers that confronted 
our nation at the end of the First and Second World Wars. Then, as now, 
two distinct choices lay before us: either to claim victory and turn 
inward, or to continue to provide strong-American leadership in 
international affairs and enhanced U.S. national security. After World 
War I, our leaders chose the first course and we and the world paid a 
terrible price.
    No one can dispute that after the Second World War, our leaders--
and most of all the American people--wisely made the second choice. By 
choosing a path of engagement, America made possible the construction 
of a more secure, democratic, and prosperous world. To meet the 
challenges of the next century and to build an even safer world for our 
children, we must plot a similar course marked by vision and 
steadfastness of purpose.
    The United States has a remarkable opportunity in the years ahead 
to shape a world conducive to American interests and consistent with 
American values--a world of open societies and open markets. But the 
pathway to a more peaceful, secure, and democratic world remains beset 
with uncertainty. As in the past, the critical test of American 
leadership will be our willingness to dedicate the resources necessary 
to protect and enhance American national interests abroad. This task 
will not be easy, in light of budget constraints and our commitment to 
balance the federal budget.
    However, if we fail to exercise our leadership now in meeting the 
threats to the security of our nation posed by the proliferation of 
weapons of mass destruction and other dangerous arms, drug trafficking, 
terrorism, and other activities that undermine regional security, 
impede democratic reform and stifle economic growth, we will pay an 
enormous price later.
    President Clinton's fiscal year 1998 International Affairs budget 
request of $19.451 billion, a modest increase over the FY 97 
appropriated level of $18.227 billion, will provide the minimum 
essential tools for maintaining America's strong global leadership 
role. The foreign operations component of this request totals $13.324 
billion, up from $12.250 billion in FY 97. We look to Congress for 
solid, bipartisan support in rebuilding a foreign affairs program base 
that in recent years has slipped to dangerously low levels.
    Mr. Chairman, the purpose of American foreign policy is to protect 
and promote American interests. We can no longer afford to cut our 
International Affairs budget and risk crippling U.S. prestige, 
credibility, and influence on the international stage. If we do, we 
threaten to jeopardize important political and economic interests, and 
potentially compromise our national security. By supporting our FY 98 
budget request, you and the members of this committee will enable a 
dedicated corps of public servants to champion American political and 
economic interests, further democracy, and maintain American leadership 
abroad. Although the future may be uncertain, one thing is for sure: we 
will continue to face crises and challenges. As we move toward the 
twenty-first century, we must remain willing and prepared to protect 
our nation's vital interests.
    Secretary Albright has laid out six mutually reinforcing objectives 
which form the framework of our International Affairs budget request 
for fiscal year 1998. They include:

   Securing peace;
   Promoting economic prosperity;
   Fostering sustainable development;
   Providing humanitarian assistance;
   Promoting democracy; and
   Promoting diplomatic readiness.

    Today, I would like to address in greater detail programs which 
respond to two of those objectives: securing peace and promoting 
democracy. First, let me discuss key regions where we are pursuing 
peace. In each, these programs not only build but also leverage support 
from our friends and allies for our common goals. From there, I will 
review our security assistance programs that promote democracy, and 
conclude with an overview of programs that confront global threats to 
our national security.

Securing Peace in Regions of Vital Interest

    Ensuring the security of our nation remains our principal 
obligation. Today's uncertain environment still presents a variety of 
threats to U.S. security including:

   Efforts by rogue regimes to build or acquire weapons of mass 
        destruction, their delivery systems, and other dangerous arms;
   Attempts by regional forces hostile to U.S. interests to 
        dominate their respective regions through aggression, 
        intimidation or terror; and
   Internal conflicts among ethnic, national, religious or 
        tribal groups that undermine regional stability, impede 
        democratic reform, stifle economic growth and create major 
        humanitarian tragedies and refugee flows.

    While American military power serves as the principal means by 
which we can protect our interests against these threats, our critical 
mission is to prevent such threats from requiring military 
intervention. We do this through intensive diplomacy, multilateral 
peace operation efforts, and strengthening of our alliances and 
coalition partners. The foreign operations budget funds these important 
efforts and, in the end, helps us avoid the costs of armed conflict 
while preserving international peace and stability.

Middle East Peace

    The Middle East is an area of vital concern to the United States. 
Thus, a just, lasting, and comprehensive Arab-Israeli peace, including 
full implementation of existing agreements between Israel and its 
neighbors, remains a high priority for U.S. foreign policy. The 
agreements achieved over the last two years between Israel and Jordan 
and between Israel and the Palestinians, negotiation on the Israel/
Syria and Israel/Lebanon talks, the expansion of political and economic 
contacts between Israel and Arab countries, and the long-standing peace 
between Israel and Egypt form the foundation of a comprehensive 
settlement of the Arab-Israeli conflict.

            FY 98 Request for Assistance for the Middle East            
                          (dollars in millions)                         
                                       FMF          EST         Total   
Israel...........................    1,800.000    1,200.000    3,000.000
Egypt............................    1,300.000      815.000    2,115.000
Jordan...........................       45.000       25.000       70.000
ME Dev Bank......................                    52.500       52.500
West Bank-Gaza...................                    75.000       75.000
Other ME.........................                    29.000       29.000
     Total.......................    3,145.000    2,196.500    5,341.500

Israel and Egypt

    As in past years, support for the Middle East Peace Process 
commands the largest share of the FY 1998 International Affairs 
budget--about $5.3 billion. The Administration seeks traditional 
amounts of economic and military support for Israel and Egypt to meet 
the legitimate security needs of these countries and to promote 
continued economic reform and broad-based economic growth. America's 
commitment to Israel's security is strong and unshakable. Our 
assistance is intended to strengthen a free and democratic Israel, as 
well as to facilitate a negotiated peace and stability in the region. 
U.S. assistance to Egypt reinforces its moderating influence in the 
region and helps it play a crucial role in the negotiation process.
    Mr. Chairman, in the past members of Congress have expressed 
concern about the large percentage of our budget which goes for Middle 
East peace. We in the Administration also share that same concern, 
especially in this era of declining discretionary resources. 
Nevertheless, we believe that this is money well spent. We are closer 
now than ever before to achievement of a comprehensive Arab-Israeli 
peace, but much work still remains. Political, social, and economic 
developments in the region continue to present obstacles which must be 
    Through our diplomatic engagement and financial assistance, we must 
maintain the conditions necessary for resolution of long-standing 
conflicts. We must help Israel and her neighbors implement existing 
peace agreements and conclude new ones to move us closer to our common 
goal. The U.S. stake in promoting peace in the Middle East cannot be 
overemphasized; the consequences of renewed conflict would be dire for 
U.S. interests. Without these resources, we put at risk the overall 
Peace Process.
    In FY 98, our military assistance (FMF) program will help maintain 
Israel's qualitative edge by allowing the continuation of cash-flow 
funding and providing follow-on support for major multi-year 
procurement programs, such as the advanced long-range F-15I fighter 
aircraft, SAAR corvettes, and continued upgrades of Israel's Apache and 
Blackhawk helicopters. In addition, the proposed economic assistance 
program (ESF) will promote economic reform, financial stability, and 
structural adjustments needed for rapid and sustainable growth.
    U.S. assistance to Egypt reinforces its moderating influence in the 
region and encourages its continued participation and leadership in the 
Middle East Peace Process. Given its key role in the Peace Process and 
in regional politics more generally, the United States has a strong 
interest in maintaining its long-established bilateral security 
relationship, and in supporting Egypt's critical political and military 
role as a moderating force in the region. Our assistance also serves 
U.S. strategic interests by providing the United States with a capable 
ally willing to contribute to international peacekeeping efforts such 
as Rwanda, Somalia and, most recently, Bosnia.
    Our FY 98 FMF program will allow Egypt to continue five major 
programs--armor modernization, F-16 and Apache aircraft purchases, Hawk 
modernization, and frigate procurements. Funding will also allow for 
upgrading of secondary systems and increasing concentration on 
interoperability and sustainment of U.S.-origin equipment. Supporting 
such modernization is crucial to maintaining the military balance in 
the region--demonstrated by the Egyptian commitment to Desert Storm--
and strengthening the security of those states at the forefront of the 
Peace Process.
    The FY 98 ESF program will target infrastructure development 
and.policy reforms essential to basic economic growth. We will work 
closely with the Egyptian government to encourage policy reforms which 
promote macroeconomic growth and support structural change in the 
agricultural, trade, and financial sectors. The ESF program will allow 
us to expand upon the gains already achieved under the Gore-Mubarak 
Partnership for Economic Growth and Development in privatizing public 
sector enterprises and private sector investment. Finally, programs 
will focus on infrastructure development of water and sewage treatment 
systems, as well as electricity and communications networks.

West Bank and Gaza

    Central to U.S. support for the Middle East Peace Process is 
facilitation in Israeli-Palestinian implementation of the Interim 
Agreement of September 1995 and in the permanent status negotiations, 
which began May 5, 1996. The United States is fully committed to 
supporting these processes, and to enabling the Palestinian Authority 
to increase its economic growth and to advance democratic institutions 
in the West Bank and Gaza. Stable economies in the West Bank and Gaza 
are vital to the viability of new political structures, including the 
new, democratically-elected Palestinian Legislative Council. With these 
economies now severely depressed, the Palestinians need extensive 
economic assistance to help them create effective institutions of self-
rule and to translate-the peace agreements into real and lasting 
changes on the ground.
    To provide a stable foundation for long-term prosperity and 
Palestinian self-rule, the Administration is requesting $75 million in 
ESF for programs that stress economic development based on private 
sector activity and regional economic cooperation. Assistance programs 
will focus on economic development through job creation activities, 
improving the quality and sustainable use of water resources, and 
promoting sustained production of goods and services by Palestinian 
producers. U.S. assistance provided in coordination with other donors 
is essential for the formation of the political, economic, and 
institutional infrastructure necessary for self-government and economic 


    Under King Hussein's leadership, Jordan continues to play a 
positive, vital role in the Middle East Peace Process. Our assistance 
provides tangible evidence of the U.S. commitment to Jordan for the 
bold, courageous steps it has taken for peace in the region. Our FY 98 
FMF and ESF programs are designed to expand and deepen Israeli-
Jordanian ties while enhancing Jordan's economic stability, promoting 
its economic development, and building its military capabilities.
    U.S. military assistance augments Jordan's important role in 
contributing to the peace and security of the region and supports 
Jordan as it enforces UN sanctions against Iraq. Our FY 98 FMF request 
of $45 million will provide for the delivery and maintenance of a 
squadron of F-16s provided under a no-cost/low-cost lease agreement. 
These aircraft are crucial to sustaining Jordan's strategic and 
security interest in the region. This assistance also assures strong 
U.S. military access, and promotes interoperability of the Jordanian 
Armed Forces with U.S. forces in potential military missions.
    The $25 million ESF request will promote Jordan's long-term 
economic viability by targeting two threats to Jordan's economic 
growth: a major financing gap resulting from inadequate foreign 
exchange; and an increasingly serious water shortage. USMD has focused 
its efforts on increasing Jordan's foreign exchange earnings by 
promoting economic reforms needed to improve its investment climate, 
such as simplifying customs procedures, and automating export incentive 
programs. ESF programs will permit construction of water treatment 
facilities, and fund feasibility studies and infrastructure pilot 
projects involving the private sector to allow upgrades for more water 
supply and sewage treatment systems.


    The United States believes that a peaceful, prosperous, and stable 
Lebanon can make an important contribution to stability and a 
comprehensive peace in the Middle East. For this reason, the U.S. has 
publicly committed to support Lebanon's reconstruction and national 
reconciliation following 17 years of civil war. The FY 1998 budget, 
therefore, includes a modest $12 million economic support program for 
Lebanon to assist in the rebuilding of civil administration 
institutions vital to restoration of the government's ability to 
provide basic services.

Middle East Development Bank

    The Bank for Economic Cooperation and Development in the Middle 
East and North Africa (MEDB) is the result of an historic joint 
proposal by Egypt, Israel, Jordan, and the PLO, and is a key element of 
the effort to strengthen the economic foundation essential to a lasting 
peace in the Middle East. Our FY 98 ESF request of $52.5 million 
represents an initial contribution to the MEDB, which has been de- 
signed to leverage significant resources to address clearly identified 
economic needs in the region in ways that cannot currently be met by 
existing bilateral or multilateral programs. The bank will have a 
strong private sector focus and a lean management structure. It will 
support regional projects, particularly transborder infrastructure 
systems for water, electricity, transport, and telecommunications, 
private sector entrepreneurship, and regional economic cooperation.

Building a New European Security Structure

    America's has a great stake in preserving and promoting peace, 
democracy, and security throughout the European continent. Deep 
political, military, economic, and cultural ties link Europe's security 
and prosperity to our own. Twice in this century, Americans have gone 
to war in Europe to protect our vital interests, and American troops 
have remained in Europe since World War II. Europe is now in a period 
of transition and transformation as we attempt to overcome Cold War 
divisions in building a New Atlantic Community. But regional conflicts 
persist in the Balkans, the former Soviet Union, Central Europe, and 
the eastern Mediterranean, posing serious threats to regional--and 
global--security and stability.
    U.S. security policy in Europe rests upon the cornerstones of NATO; 
the Organization for Security and Cooperation in Europe (OSCE); 
cooperation with Russia; and an enhanced partnership with the European 
Union on regional and global issues. The point of departure has been 
and will remain the preservation of U.S. leadership in a robust 
Atlantic Alliance. We have led in adapting NATO to meet the challenge 
of ensuring peace and stability in Europe in light of the changed 
security environment. In NATO, we face several critical, ongoing tasks: 
1) continuing the momentum toward gradual, transparent enlargement of 
the Alliance; 2) establishing a new, cooperative relationship between 
NATO and Russia, expressed in a formal charter; 3) promoting a more 
visible and capable European role; and 4) enhancing the Partnership for 
Peace program.
    The potentially volatile situation in Europe's southeastern corner 
requires particular care. The United States is committed to promoting a 
settlement on Cyprus, controlling tensions between Turkey and Greece, 
and strengthening Turkey's place in the Western economic and security 
system. The United States gives high priority, not only to bilateral 
relations with these countries, but also to promoting ties between this 
region and Western Europe.
    For FY 98, we are requesting $219.3 million in military and 
economic assistance to support our security objectives in Europe. 
Together with our requested economic assistance program for Central 
Europe and the Baltic States ($492 million) and MS ($900 million) these 
funds will help to build a stable, free, undivided, integrated and 
democratic Europe.

    FY 98 Budget Request--Building a New European Security Structure    
                          (dollars in millions)                         
                                            FMF        ESF       Total  
CE Defense Loans \1\...................     20.000                20.000
Cyprus.................................                15.000     15.000
Greece \1\.............................     12.850                12.850
PFP \2\................................     70.000                70.000
Turkey \1\.............................     33.150     50.000     83.150
IMET...................................                           18.300
    Total \3\..........................    136.000     65.000    219.300
\1\ Loan amounts: CE--$402.000; Greece--$122.500; Turkey--$175.000.     
\2\ Does not include approximately $33.000 from Function 050 for PFP.   
\3\ Does not include $19.600 in ESF for the International Fund for      

Partnership For Peace

    In 1994, the President proposed, and allies embraced, a program of 
NATO adaptation. The goal is to create a new NATO, internally 
restructured, equipped for new roles and missions, and open to new 
members and deeper partnership. NATO's Partnership for Peace (PFP) 
program is designed to strengthen practical cooperation and establish 
strong security ties between NATO and participating countries in 
Central Europe and the New Independent States of the Former Soviet 
Union (NIS). It can also serve to prepare those Partners interested in 
joining NATO for the obligations of membership. By forging close 
cooperative ties between NATO and its Central European and MS Partners, 
PFP will help erase Cold War lines of con- 
frontation and bring former adversaries into a community of shared 
values, principles and interests. The transformation of NATO's 
relations with the rest of Europe will help provide a secure and stable 
environment conducive to increased trade, development and market-based 
    NATO enlargement creates a special need to enhance support to those 
countries seeking NATO membership. Those countries which will be 
invited to open accession talks need assistance to make their military 
forces operable with Alliance forces. We must therefore increase the 
FMF grant assistance available to these countries. For those countries 
which desire to join NATO but will not be part of the first accession, 
the need is equally critical. PFP links between Central European, 
Baltic states, the MS and the West must be strengthened to reassure 
these countries of their place in the West, and to prevent any sense of 
a security vacuum.
    Partner nations, while generally committed to making their forces 
capable of cooperating with NATO, currently lack the necessary 
resources to undertake improvements in logistics, equipment, and 
training. We must be willing to contribute adequate resources to ensure 
PFP's success. This assistance aims to improve Partners' abilities to 
contribute to peace operations, search and rescue, humanitarian 
assistance operations, and other joint operations that may be necessary 
in the future. For example, the participation of 13 Partners in the 
multinational Implementation Force in Bosnia reflected initial returns 
on the small investments we have made in PFP, and provides an 
indication of the potential for long-term benefits.
    In FY 98, the Administration is requesting $103 million for PFP: 
$70 million in FMF and $33 million within the DoD request. In Central 
Europe, foreign assistance funds will support expansion of the Regional 
Airspace Initiative, which will provide NATO-compatible air traffic 
control systems in selected countries, English language training, 
search and rescue equipment, communication and command,and control 
systems, and transportation and logistical support for participation in 
PFP exercises. Funds will also provide ongoing support for the Baltic 
Peacekeeping Battalion. In the MS, we will build upon the foundations 
that we expect to lay in FY 97 in the areas of language training and 
communications equipment, to include emphasis on a Central Asia 
peacekeeping battalion and a Ukrainian-Polish peacekeeping battalion. 
The combined State/DoD request will continue support for Partner 
participation by relieving some of the logistical and resource 
deficiencies, equipment obsolescence, and operational shortcomings 
which have hampered such participation.

Central Europe Defense Loans

    In the interest of contributing to the stability of Europe, the 
United States has a clear and compelling rationale for nurturing 
expanded defense cooperation with the friendly, democratic states of 
Central Europe and the Baltics. Our FY 98 request for $20 million in 
FMF loan subsidies will provide approximately $402 million in market-
rate loans. The Central Europe Defense Loan (CEDL) program will 
increase our ability to assist the region, in light of limited grant 
resources, by encouraging credit worthy countries with growing 
economies to use national funds to meet their defense sustainment/
modernization needs, ultimately improving compatibility with NATO 
forces. Although the CEDL contributes to the overall goal of NATO 
enlargement, it is separate and distinct from our PFP program in that 
it addresses deeper infrastructure deficiencies, such as lack of 
airlift capability or incompatible radar and IFF systems.
    The CEDL program will enhance the defensive military capabilities 
of Central Europe and Baltic states by assisting in the acquisition of 
defense equipment and training such as: NATO-compatible airfield 
navigation aids; computers for Defense Ministries, individual soldier 
equipment for peacekeeping or rapid deployment units; transportation 
equipment, including vehicles and aircraft; ground-based radar 
upgrades; search-and-rescue equipment; communications modernization; 
and airfield radars, navigational aids, and airfield landing systems. 
Moreover, by focusing on qualitative improvements in defense 
infrastructure, this program will allow some of the oversized, Soviet-
equipped militaries to continue down sizing and restructuring their 
forces while maintaining essential defensive capability. The CEDL 
program will support the trend in the region towards supporting 
smaller, more capable, and more professional militaries.

Key NATO Allies

    We are also planning to continue our support for two key NATO 
allies in recognition of their importance in maintaining stability in a 
region that is critical to U.S. interests. Our FY 98 request of $46 
million for the subsidy cost of a total of $297.5 million in FMF loans 
for Greece and Turkey will support sustainment of U.S.-origin 
equipment. We are also requesting $50 million in ESF to assist Turkey 
to address long-term structural reforms necessary to sustain growth, to 
ease the transition as Turkey joins the EU Customs Union, and to help 
offset the significant economic costs to Turkey associated with 
enforcement of UN sanctions against Iraq.
    It would be hard to overstate the importance of Turkey as a U.S. 
ally. It sits at the crossroads of Europe, the Middle East, and the 
Newly Independent States of the Former Soviet Union. It plays a 
critical role in a wide range of issues vital to U.S. interests. 
Achievement of key U.S. goals in the region will depend largely on our 
ability to maximize Turkish-U.S. cooperation on a broad range of issues 
where we have overlapping interests. Among these are stability in the 
Caucasus and the northern Gulf region, lowering tensions in the Aegean, 
and a solution in Cyprus. Cooperation on these issues is dependent on 
preserving Turkey's position as a democratic, secular nation in a 
region with weak democratic traditions and where political instability 
prevails. We seek therefore to strengthen Turkey's ability to carry out 
its essential security role in the region, to bolster its secular 
democratic' tradition through continued emphasis on human rights, and 
to help its economy grow and prosper.

Voluntary Peacekeeping Operations

    While the bulk of ending for multilateral peacekeeping operations 
goes for assessed United Nations operations, it is sometimes in the 
U.S. interest to support, on a voluntary basis, peacekeeping activities 
that are not UN-mandated and/or are not funded by UN assessments. The 
Peacekeeping Operations (PKO) account has a demonstrated capacity, 
under appropriate circumstances, to separate adversaries, maintain 
cease-fires, facilitate delivery of humanitarian relief, allow 
repatriation of refugees and displaced persons, demobilize combatants 
and create conditions under which political reconciliation may occur 
and democratic elections be held. This account provides the flexibility 
to support pro-actively conflict prevention and resolution, 
multilateral peace operations, sanctions enforcement, and similar 
efforts outside assessed UN peacekeeping operations. The costs to the 
United States of such voluntary operations are often much lower than in 
UN-assessed operations.
    For FY 98, we are requesting $90 million in PKO for voluntary 
peacekeeping activities. In addition to supporting long-term, non-
assessed commitments, such as the Multinational Force of Observers 
(MFO) in the Sinai and the Organization for Security and Cooperation in 
Europe (OSCE), these ends will be used to promote regional involvement 
in the resolution of neighboring conflicts. In Africa, for example, our 
PKO request, combined with a small amount of FMF, will be used to help 
sustain and enhance the African Crisis Response Force (ACRF) 
initiative, which seeks to improve and expand the abilities of African 
militaries to respond quickly to humanitarian crises on the African 
continent and elsewhere. The ACRF represents a regional application of 
our new global initiative, the Enhancing International Peacekeeping 
Capabilities (EIPC), for which the Administration is requesting $7 
million in FMF. The EIPC will assist selected ``focus'' countries in 
improving their capabilities and readiness for peacekeeping operations, 
thereby reducing the burden on the United States. Finally, the FY 98 
PKO request also addresses potential operations in Europe, Africa, 
Latin America and the Caribbean.


    Mr. Chairman, the demining program is one of the most important 
initiatives this Administration has undertaken. As you know, the United 
States has a compelling interest to promote national and regional 
security, political stability, and economic development by reducing 
civilian land mine casualties and their tragic human, social, and 
economic costs in war-torn countries. In May 1996, President Clinton 
pledged to strengthen global efforts to clear mine fields through 
developing better mine detection and mine-clearing technology, and to 
expand demining training programs in countries with landmines.
    The problem is enormous: more than 100 million mines have been 
placed in the last 55 years in about seventy countries, mainly in 
Africa and Asia. Clearly, the clearing of landmines represents a major 
challenge requiring long-term solutions. Since FY 94, we have worked 
together with DoD to design programs wherein FMF funds for demining are 
used primarily to provide equipment to complement comprehensive 
demining training programs funded by DoD humanitarian assistance ends. 
Together, these resources have begun to develop indigenous capabilities 
to remove landmines from mine-afflicted countries.
    Our FY 98 FMF request for $15 million will support demining 
programs around the world. We will build upon ongoing programs in 
Angola, Cambodia, Eritrea, Ethiopia, Jordan, Laos, Mozambique, Namibia, 
Rwanda, and Central America, as well as with the UN Office for the 
Coordination of Humanitarian Assistance to Afghanistan, to assist with 
their mine clearance/mine awareness programs.

International Military Education and Training (IMET)

    IMET is an instrument of national security and foreign policy--a 
key component of U.S. assistance that provides U.S. training on a grant 
basis to students from allied and friendly nations. IMET is an 
investment in ideas and people which has an overall positive impact on 
the numerous people trained under the program. It is a program that, 
for a relatively modest investment, presents democratic alternatives to 
key foreign military and civilian leaders. My DoD colleagues frequently 
cite this program as the best return dollar-for-dollar on investment 
that we make.
    From a military perspective, the principal value of IMET is to 
enhance the military efficiency and effectiveness of participating 
nations. Professional military competence is improved at all levels, 
thereby promoting self-sufficiency as well as furnishing many skills 
essential to nation building. This, in turn, provides a wide range of 
benefits to the United States in terms of collective security, 
stability, and peace. As foreign militaries improve their knowledge of 
U.S. military principles, military cooperation is strengthened. IMET 
fosters important military linkages throughout the world essential to 
preserving the security of U.S. friends and allies, as well as for 
advancing the global security of the United States.
    In FY 98, we are requesting $50 million for IMET. This increase 
over the FY 97 enacted level will provide essential interoperability 
training to assist PFP nations as they move closer to NATO accession. 
It will also provide important funding for programs in Near East and 
South Asia, Latin America and the Caribbean, Africa, and East Asia and 
the Pacific. Additionally, I'd like to point out that over the past 
three years tuition costs for IMET students have increased about 25%. 
This increase is attributed partly to inflation, but mostly to the down 
sizing of our own military forces and training base. This decrease in 
our force structure and training base has caused overhead costs for 
foreign students to increase.

Promoting Democracy

     The United States has a strong stake in supporting the growth of 
democracy globally. In countries such as Haiti and Cambodia, where the 
United States has invested significant resources and taken 
international leadership to stop collapse and crisis inimical to U.S. 
interests, assistance programs support democratic transitions, judicial 
reform, and reconstruction. In these and other countries in transition, 
assistance programs nurture the formal institutions of democracy and 
the organizations of a vital civil society, combined with balance of 
payments and other economic support measures designed to create 
employment and conditions conducive to international investment and 
trade. We are also requesting finding for programs to enhance the 
administration of justice, including assistance to police through the 
International Criminal Investigative Training Assistance Program 
(ICITAP) administered by the U.S. Department of Justice.
     Through regional accounts, ESF supports carefully-targeted 
programs to assist democratic forces in emerging or threatened 
democracies, and, in some cases, programs designed to strengthen pro-
democratic forces. Typical areas of assistance include technical 
assistance to administer and monitor elections, capacity-building for 
non-governmental organizations, judicial training, and women's 
participation in politics. In FY 1998, ESF for building democracy will 
continue to be used for a range of programs to help strengthen and 
consolidate democratic processes and institutions in countries that 
have recently embarked on a democratic course, or where democracy is 

     FY 98 Security Assistance Budget Request--Support for Democracy    
                          (dollars in millions)                         
                                            FMF        ESF       Total  
Angola.................................                10.000     10.000
Africa Regional........................                15.000     15.000
East Africa Regional Asst..............      5.000                 5.000
Cambodia...............................      1.000     37.000     38.000
Mongolia...............................                 7.000      7.000
East Asia Regional.....................                 6.250      6.250
South Asia Regional....................                 3.000      3.000
Peru/Ecuador Peace.....................                 5.000      5.000
Haiti..................................                70.000     70.000
Latin American & Caribbean.............      3.000     31.000     34.000
Human Rights & Democracy...............                 8.000      8.000
AOJ/ICITAP.............................                10.000     10.000
ME Democracy...........................                 5.000      5.000
    Total..............................      9.000    207.250    216.250

    For FY 98, we are requesting $70 million to strengthen Haiti's 
nascent democratic institutions and foster economic development. U.S. 
assistance, in coordination with donations from the international 
community, will help consolidate Haiti's transition from military to 
civilian rule by enhancing the training of the Haitian National Police 
(HNP) and coast guard, fostering more effective and responsive 
democratic institutions, including an independent judiciary; 
facilitating private sector employment; and promoting sound 
environmental resource management and sustainable economic growth.
    Cambodia is another country making the difficult transition to 
democracy following decades of conflict. The peaceful status of the 
country and the strength of the government are fragile. Cambodia's 
coalition government is struggling to build a democratic culture in the 
face of enormous challenges, including a weakening but ongoing threat 
posed by the Khmer Rouge insurgency. Our $37 million FY 98 ESF request 
will enable the United States to advance democratic and economic 
development through provision of technical assistance for health care, 
education, rural development, and democracy promotion programs, 
including legal, regulatory, and judicial assistance to the National 
Assembly and courts. The $1 million in military assistance supports 
ongoing efforts to develop the Royal Cambodian Armed Forces engineers' 
capability to build and improve civil infrastructure. The funds will be 
used to provide training and sustainment to maintain over 40 pieces of 
engineering equipment already granted to Cambodia as DoD excess defense 
    We are also seeking $108.25 million in military and economic 
assistance funds to advance important democratic gains in Latin 
America, Africa, the Middle East, South and East Asia. We request for:

   Latin America and the Caribbean, $49 million for programs to 
        promote and strengthen democratic institutions, local 
        governments, police training, administration of justice, and 
        the Regional Security System in the Caribbean; also to 
        facilitate implementation of the Peru-Ecuador border dispute 
        settlement agreement;
   Africa, $30 million for programs to support free elections, 
        respect for the rule of law, and enhancing government 
        accountability; support for Ethiopia, Eritrea, and Uganda to 
        defend against Sudanese-sponsored aggression in the region; and 
        support democratic institution-building and election 
        preparation in Angola;
   East Asia, $13.25 million for regional programs to reinforce 
        pluralistic civil society and accountable government, and in 
        Mongolia to promote private sector-led economic reform and 
        build democratic institutions through technical assistance in 
        regulatory and legal reform;
   Middle East, $5 million to support democratic governance and 
        basic human rights on a regional basis through programs managed 
        by local and U.S. NGOs in countries of the region currently 
        receiving little or no Peace Process-related assistance; and
   South Asia, $3 million to support the consolidation and 
        strengthening of democratic systems, respect for human rights, 
        and the rule of law in South Asia.
   Human Rights and Democracy, $8 million to respond to 
        conflicts, human rights emergencies, and implementation 
        requirements of international agreements.

Confronting Transnational Security Threats

    With the dissolution of the Soviet Union, the proliferation of 
weapons of mass destruction, their delivery systems, and advanced 
conventional weapons now poses the gravest threat to the security of 
the United States and our allies. As Secretary Albright emphasized to 
you last month, arms control and non-proliferation efforts remain a key 
part of our foreign policy strategy to keep America safe. The 
objectives of our non-proliferation programs are to reduce the risk of 
war by limiting and reducing destabilizing forces, inhibiting the 
spread of weapons of mass destruction and delivery systems, and 
building confidence through measures which enhance transparency and 
verification of compliance with national commitments. In addition to 
enhancing our security directly, these measures also support other 
important U.S. interests, including economic and political reform in 
Russia and the other newly independent states, our economic interests 
in Asia and the Pacific, and our broader political efforts to resolve 
long-standing disputes in the Middle East and South Asia.

                 FY 98 Budget Request--Nonproliferation                 
                          (dollars in millions)                         
                                 IO&P       NDF        NIS       Total  
NDFF........................                15.000                15.000
Science Centers.............                           15.000     15.000
IAEA Voluntary Contr........     36.000                           36.000
KEDO........................     30.000                           30.000
Defense Enterprise Fund.....                            5.000      5.000
    Total...................     66.000     15.000     20.000    101.000

    To help us achieve our overall nonproliferation objectives, we are 
requesting $101 million in FY 98. Through the Nonproliferation and 
Disarmament Fund (NDF), we will undertake a variety of bilateral 
assistance programs, including export control assistance. Under the 
International Organizations and Programs (IO&P) account, we will 
contribute to the International Atomic Energy Agency (IAEA) and support 
the Korean Energy Development Organization (KEDO). Under the FREEDOM 
Support Act, we are also seeking funding for the International Science 
Center in Russia, the Science and Technology Center in Ukraine, and the 
Defense Enterprise Fund (DEF).

The Nonproliferation and Disarmament Fund

    The Nonproliferation and Disarmament Fund (NDF) was established in 
1994 to implement specific nonproliferation projects. Since its 
inception, the NDF has funded numerous projects for dismantling and 
destroying conventional weapons and weapons of mass destruction and 
their delivery systems, and for strengthening international safeguards, 
export control, and nuclear smuggling efforts. Current NDF projects 

   Elimination of SCUD missiles and their launch systems from 
        Romania and Hungary;
   Dismantlement of South Africa's Category I missile 
        production infrastructure;
   Assistance in the procurement of highly enriched uranium 
        stocks from the former Soviet Union;
   Procurement of verifications and safeguards equipment for 
        the IAEA;
   Procurement of seismic arrays in support of the 
        Comprehensive Test Ban Treaty.
   Completion of the Phase I engineering assessment needed to 
        convert Russian plutonium production reactors to a power only 
        mode of operation;
   Provision of export licensing and enforcement assistance to 
        Central Europe, the Baltics, and the former Soviet Union; and
   Successfil deployment of an automated system in Poland for 
        tracking the export of sensitive materials.

    To date, NDF has considered over 90 project proposals with an 
estimated cost of $120 million; and has approved projects totaling over 
$30 million. On March 5, we notified Congress of our intent to provide 
$12.2 million for new NDF activities, leaving an available balance of 
$10.6 million in the NDF. The FY 98 request of $15 million will 
continue to provide ending for proposals to achieve our goals of 
preventing the proliferation of weapons of mass destruction and 
combating nuclear smuggling.

IAEA Voluntary Contribution

    For the United States, the most critical function of the IAEA is 
the implementation of safeguards to nuclear activities to deter, 
through timely detection, the diversion of material and equipment for 
nuclear weapons purposes. Safeguards establish the critical arms 
control precedent of voluntary verification of compliance with 
nonproliferation obligations, including on-site inspection, by a 
sovereign state.
    For FY 98, we are requesting a $36 million voluntary contribution 
to the IAEA within the IO&P account to support safeguards and non-
safeguards-related technical assistance. Safeguards are the principal 
but not exclusive U.S. concern with the IAEA. Another fundamental 
premise of U.S. nuclear nonproliferation policy, also embodied in the 
Treaty on the Nonproliferation of Nuclear Weapons, is the commitment to 
facilitate the exchange of equipment, materials, and scientific and 
technological information for the peaceful uses of nuclear energy. A 
significant portion of the U.S. voluntary contribution to the IAEA is 
used to fulfill this obligation. Because the vast majority of IAEA 
member states consider this objective of paramount importance, 
continued U.S. support for technical cooperation is crucial to maintain 
support for a strong safeguards system.

Korean Peninsula Energy Development Organization (KEDO)

    KEDO is the international consortium established to implement the 
Agreed Framework between the United States and the Democratic People's 
Republic of Korea (DPRK) signed on October 21, 1994. The Agreed 
Framework will ultimately dismantle North Korea's nuclear weapons 
capability. KEDO's central task is to manage the financing and 
construction of the light-water reactor (LWR) project in North Korea, 
to provide annual shipments of heavy fuel oil to the DPRK, and to 
implement other aspects of the Agreed Framework. The U.S. role in this 
consortium is to organize and lead KEDO and, with the help of the 
Republic of Korea (ROK) and Japan, support the consortium in fulfilling 
its tasks.
    Our FY 98 request for $30 million within the IO&P account for KEDO 
is essential to finance KEDO's administrative expenses and projects, 
particularly the provision of heavy fuel oil to the DPRK. Support for 
the LWR project and the majority of KEDO administrative expenses and 
heavy fuel oil deliveries will come from cash and in-kind contributions 
from other KEDO members, especially the ROK and Japan. Eleven 
countries, spread over five continents, have become members of KEDO, 
reflecting the organization's global character, composition, and 
significance. The U.S. contribution is necessary to demonstrate U.S. 
leadership and to supplement and leverage contributions from other 
countries. Without this finding, KEDO will not be able to operate or 
carry out its objectives, thereby weakening the credibility of U.S. 
leadership, jeopardizing the implementation of the Agreed Framework, 
and contributing to rising security tensions on the Korean Peninsula. 
Full funding of this request is the best way to promote U.S. objectives 
for peace, security, and nuclear nonproliferation in Northeast Asia.

International Science and Technology Centers

    The International Science and Technology Center (ISTC) in Moscow, 
operational since 1994, and the Science and Technology Center in 
Ukraine (SYCU), which began to fund scientific research in early 1996, 
help to counter the weapons expertise proliferation threat by putting 
former Soviet weapons scientist to work on civilian projects. These 
projects benefit all Science Center members and partners, including--in 
many instances--U.S. universities, national laboratories and 
corporations, which participate as unfunded partners. This program 
seeks: 1) to encourage the transition to market-based economies; 2) to 
help find solutions to nationally-and internationally-recognized 
problems, such as nuclear safety, energy production, and environmental 
protection; and 3) to integrate MS scientists and engineers into the 
international community.
    In FY 98, we anticipate providing up to $15 million under the 
FREEDOM Support Act to continue the important work of these two 
centers. The European Union and Japan also provide voluntary 
contributions to the ISTC, and Sweden and Canada contribute to the 
STCU. Procedures have recently been implemented to allow other 
governments, inter-governmental organizations, and NGOs (including the 
private sector) to participate in Science Center activities. To date, 
the ISTC has funded 202 projects in Russia, Kazakstan, Georgia, 
Belarus, and Armenia, with the participation of nearly 17,000 
scientists and engineers, the majority of whom have expertise on 
weapons of mass destruction or their delivery systems.
Defense Enterprise Fund

    Our FY 98 assistance for the MS includes $5 million for the U.S. 
contribution to the Defense Enterprise Fund (DEF), which is now 
expected to reach self-sustainability in 1999. The DEF, initially 
authorized by Congress and established with a grant from the DoD 
Cooperative Threat Reduction (Nunn-Lugar) program, was incorporated as 
a private, non-profit venture capital fund in March 1994. 
Responsibility for funding the DEF shifted to the State Department in 
FY 97.
    Like other enterprise funds, the DEF assists the MS in the 
development of successful private sector entities which contribute to a 
stable market economy. However, the DEF focuses on the privatization of 
weapons of mass destruction (WMD)-related defense industries and 
conversion of WMD-related military technologies and capabilities into 
civilian activities. It provides both equity investments and loans to 
qualified joint venture initiatives which include personnel and/or 
facilities currently or formerly involved in research, development, 
production or operation, and support of the former Soviet Union WMD-
related defense sector.
    The DEF encourages private sector participation in the ownership 
and management of the entities in which the DEF invests, and only makes 
investments involving enterprises committed to privatization. U.S. 
assistance to the DEF significantly leverages private U.S. investment: 
every $1 we have provided to date has leveraged an average of $5 of 
private investment. Thus, the DEF supports both the national security 
objective of nonproliferation--eliminating WMD production capability--
as well as economic reform objectives by promoting the development of 
market economies.
    Mr. Chairman, these nonproliferation programs are both critical for 
the security of America and extremely cost effective. By making very 
small investments today to help other countries prevent the spread of 
sensitive materials and technologies, we obviate the need to spend 
larger sums in the future to protect ourselves against weapons that 
have fallen into the wrong hands.


    Let me conclude by returning to the central point of my 
presentation: the ending that we are requesting directly increases the 
security of Americans and advances our direct interest in a stable, 
peaceful and prosperous international system. We undertake these 
programs to achieve specific objectives, each of which can be measured 
in terms of their successes, and each of which makes America and the 
world safer. U.S. security depends on promoting peace in the Middle 
East, building a new security order in Europe, preventing the spread of 
dangerous weapons, and helping foster emerging democracies.
    Foreign assistance is an essential tool to pursue American 
interests abroad and our security at home. Without adequate funding, 
strong American leadership in the world and our ability to protect our 
vital interests will be at risk Strengthening our diplomatic efforts to 
address these threats now will help avoid the far greater costs, in 
lives as well as resources, of military interventions later. The 
support of this Committee is essential to achieving those goals and we 
are ready to work closely with the Committee and staff to fi1lly 
address any concerns and questions that you and they may have.
    Mr. Chairman, I wish to thank the members of the Committee for the 
opportunity to provide testimony on the FY 98 budget request, and would 
be pleased now to answer any questions you may have.

    Senator Hagel. I would now like to call upon my colleague, 
Senator Sarbanes, from Maryland.
    Senator Sarbanes. Mr. Chairman, thank you very much. I will 
be very brief.
    I was not able to here right at the outset. I want to join 
with you in welcoming General Rhame and Secretary McNamara 
before the subcommittee this morning.
    It is interesting, that security assistance, which includes 
economic support funds, ESF, as well as foreign military 
financing, and other forms of military assistance, is by far 
the largest share of our foreign aid budget.
    It does not always receive the same scrutiny and the focus 
and attention as some other components of the foreign aid 
budget. At $6 billion, that makes up almost half of the foreign 
aid budget, so obviously, we need to pay some careful attention 
to it, as we reorient ourselves to new global challenges, and 
reexamine our national priorities.
    Of course, one reason the security assistance budget 
remains at high levels, despite the end of the cold war, is 
that we have important interests in sustaining peace 
agreements, and supporting traditional allies.
    Israel and Egypt account for the major portion of our ESF 
and FMF programs, but I think there is widespread recognition 
that such assistance is essential to the continued success of 
the Middle East peace process, and essential to sustaining 
Israel's qualitative edge against threats to the very 
existence, which continue to present themselves in that area of 
the world.
    There are other elements, though, of this security 
assistance program, whose rationale I think is less clear. As 
military grants have declined overall, there seems to have been 
a very substantial expansion of other mechanisms and 
authorities through which the U.S. provides arms and training 
to foreign militaries.
    IMET is slated for substantial increases in this budget, a 
new military loan program has been established for Eastern 
European countries, most of whom are still struggling to get 
their economies into some sort of decent shape.
    Excess defense articles and defense draw downs have become 
a major source of weapons transfers, one I think that the 
Congress has not paid adequate oversight attention--to which 
the Congress has not paid adequate oversight attention.
    We have this defense export loan guarantee facility, about 
which I have very substantial reservations, now just beginning 
its operations. We continue to have some cascading of 
conventional forms in Europe.
    Last year, we worked on a bipartisan basis in this 
committee and with the House, and the administration, to enact 
a new law that would establish modest restrain on certain types 
of military transfers, and improve disclosure, monitoring, and 
    Later in this hearing, when I get to my questions, I want 
to address the implementation of that new act, so I look 
forward, Mr. Chairman, to this hearing this morning, and again, 
I want to thank you, and commend you for this series of 
hearings you are having with respect to the budget, which I can 
play a very important base for the committee later to take 
action on the authorizing legislation. Thank you.
    Senator Hagel. Senator, thank you.
    I would like to pick up, if I might, on a little of what 
the ranking minority of this subcommittee referenced, as well 
as each of you, and if we could, stay in the Middle East here 
for a bit.
    It has been noted on a number of occasions that Israel's 
prime minister, fairly soon after he took office, talked about 
moving Israel away from American foreign assistance.
    Mr. Secretary, can you enlighten this committee on any 
discussions that have been had in that area, or anything you 
know about it, when we might start that, if we should start 
that, anything you care to comment on regarding that point?
    Mr. McNamara. Senator, I am not familiar with any specific 
conversations that are designed to immediately lower the level 
of as- 
sistance that is now being given to Israel. I think it is 
obviously an objective of both Israel and the United States, as 
the peace process moves forward, to be able to reduce those 
    The levels and their reduction are directly related, it 
seems to me, to the progress in the peace process and in the 
achievement of a comprehensive peace.
    What is most important, it seems to me, is that as we move 
down the road toward a comprehensive peace, that there is a 
sense of security in Israel that will enable it, as I said in 
my opening remarks, to take those risks, to take those steps 
leading to peace, which, in turn, leads to the requirement of 
much less military expenditures by Israel, and, therefore, much 
less security assistance coming from the United States.
    I do not know of any conversations that have immediately 
and directly addressed the question, for example, for fiscal 
year 1998.
    Senator Hagel. General Rhame, would you care to add 
anything to that?
    General Rhame. No, sir, I would support it. I have not 
participated in any discussions either.
    Senator Hagel. Thank you.
    Secretary McNamara, do you believe that the security 
assistance level that we are providing, have been providing, at 
the President's request, is adequate?
    Do we need more, do we need less? Is this about right? 
Maybe you could break that down for us a little bit?
    Mr. McNamara. I think given the fiscal constraints under 
which we are operating, given the number of programs that we 
are conducting around the world, and the competing interests 
for those programs, I think we have, through compromise within 
the executive, and through consultations here on the Hill, come 
up with the best quantities and the best funding levels that we 
think are possible under the current circumstances.
    I would not argue that in a better world, with fewer fiscal 
constraints, that we could not do better with more; indeed, we 
very well could, but I think we all recognize the real world 
that we are operating in, and, therefore, we have to do as much 
as we can with what is available given competing interests on, 
not only foreign affairs budget items, but also in domestic 
spending, defense spending, and other areas.
    So, I think we are satisfied, we want to see those levels 
go up, and we think we can justify our request for the 
increases where we have indicated that we wish increases, such 
as in IMET and some other areas.
    Senator Hagel. Thank you.
    General, would you like to respond?
    General Rhame. Yes, sir. Mr. Chairman, I sit on the 
consultative committee with Egypt, that deals with how the 
security assistance resources are used in their 5-year plan, I 
have extensive conversations with representatives of the 
Israeli government on transfers and acquisitions, and in both 
countries, at any given time, you can see a need for more.
    However, it is my view, after working this for the time 
that I have, that I think the balance is about right. I would 
support Mr. McNamara's view, given where we are in our 
resources in this country and the status of the peace 
situation, that the dollars are about right in the program and 
where they should be.
    Senator Hagel. Thank you. Let me come right back to you on 
another point. The United States is, I understand, paying for 
F-16s for Jordan. With the military assistance that we have 
been giving to Egypt, and with our assistance programs to 
Jordan, at what point do you think those nations will be 
sufficiently strong enough that our programs will no longer be 
    General Rhame. First, Mr. Chairman, let me address the 
Jordan question. We started and embarked on a lease program for 
F-16s in FY 96 through a total appropriation of $100 million, 
and an appropriation of $30 million in this appropriation for 
FY 97.
    This year, for FY 98, we are requesting $45 million for 
Jordan. The plan, our objective is to ask for another $45 
million in 1999, which will complete the F-16 lease program 
with Jordan, which was King Hussein's number one priority with 
us, in his requirements.
    Jordan's ground forces and naval forces continue to have 
many needs, many requirements. At this time, we have 
prioritized with their leadership, the F-16 program and have 
not been able to address their ground forces requirement in FMF 
    However, we have executed last year a draw down in the 
amount of $100 million for Jordan, in which we have flowed some 
major items of equipment and spares to their ground forces, a 
C-130 to their air forces, and some things to their navy, and 
also have watched very carefully older spare parts, which fit 
their equipment, and excess ammunition, and light trucks and 
medium trucks, and have provided those to Jordan through the 
excess defense article programs, in accordance with the 
approval of the State Department, and the appropriate 
notifications to the committees of Congress.
    Senator Hagel. Mr. Secretary.
    Mr. McNamara. I agree. I think what we have done is we have 
responded, following the peace agreement between Jordan and 
Israel, to the main strategic interests and concerns of Jordan 
with this program.
    We have not limited ourselves to that, however. In the 
request for this year, we have an ESF request which would 
permit us to undertake expansion of programs aimed at expanding 
Jordan's economic reforms and improving Jordan's overall 
economic situation, because we think, particularly in the area, 
for example, of water shortages, that these need addressing.
    I will point out, as kind of a footnote to this, that even 
with the Jordan program and the other areas where we have asked 
for some slight increases, that the overall percentage, or 
proportion of the ESF and FMF requests for fiscal year 1998, 
for the Middle East, is lower than the percentage that was 
requested in 1997. So, I think we are getting the balance about 
    Senator Hagel. Moving around in that area a little bit, I 
have heard reports that the administration is considering 
selling F-16 aircraft to Saudi Arabia. As you know probably 
better than most, there has been some concern in this country 
regarding trying to get at least a perceived cooperation from 
the Saudi government regarding the bombing over there a year 
    Is this a sale, first of all, that might take place 
politically in the environment that we are dealing in now, is 
this something that we should be doing?
    Mr. McNamara. Mr. Chairman, the fact is that over the 
period of the last 4 or 5 years we have been talking with the 
Saudis on a number of occasions, and General Rhame can expand 
on this, about replacement of their F-5 aircraft, which are 
coming to the end of their life cycle.
    As that F-5 problem, if you will, approaches, it is clear 
that the Saudis are going to have to replace those aircraft 
with newer aircraft.
    The possibility of F-16s being that replacement aircraft 
exists, but as of right now, there has been no request from the 
Saudi government for such a replacement, even though there have 
been press reports reporting on conversations with American 
    We believe that it is possible to have such a replacement 
program that will keep Saudi military readiness, which is very 
important to us and vitally important to both regions at its 
current level. When such a request comes in, and if such a 
request comes in, we are going to give it very serious 
consideration. We will be consulting throughout the executive 
branch, with Congress, and with other interested parties about 
such a potential sale. But I want to emphasize that that has 
not happened yet.
    With respect to the Khobar Towers, I think we are getting 
increasing cooperation from the Saudis in that area, and that 
relatively short-term situation, I think, should be clearer 
over the course of the next few months.
    I do not anticipate that we will make any linkage with a 
request for aircraft at this point, I do not think that is 
    I do want to also point out that as we examine this issue, 
we will examine it in the context of the Middle East peace 
process, of Israel's security situation, and our commitment to 
Israel for maintaining the qualitative edge.
    Senator Hagel. Thank you. General.
    General Rhame. Sir, I would add, I served there for 2 years 
before coming to this job as the chief of the U.S. mission 
    We have worked on the replacement of the F-5 over the last 
5 years with the provision of capability data, price and 
availability, those kinds of questions. It would be my view 
that they have a clear aim to replace their F-5. We would hope, 
in the long term, that it would be a U.S. platform.
    It would also be my view that the decision to proceed with 
that acquisition also would be tempered by the financial 
ability within their trust fund to pay for the FMS 
expenditures, which is one of the other things that I supervise 
within the Department, is the administration of their trust 
fund to pay for the obligations owed to U.S. industry for 
previous acquisitions.
    It is my view that right now at this moment, I believe that 
Government will delay giving us a letter of request to proceed 
with the acquisition for a year or two, until they have better 
bought down the owed balance in their trust fund for previous 
FMS acquisitions.
    I would agree with Mr. McNamara that when the letter of 
request is forthcoming, it will be carefully evaluated. 
Technology will be a key issue, which will be discussed at 
great length between De- 
fense and State and will be carefully looked at before we make 
a clear indication of how we intend to proceed.
    Senator Hagel. Thank you.
    Senator Sarbanes.
    Senator Sarbanes. Thank you very much, Mr. Chairman.
    Gentlemen, the first question I want to put goes to the 
military authorities bill, to which I made reference in my 
opening statement, we enacted last year, P.L. 104-164.
    That reinstates a report, listing the value and quantity of 
defense articles, defense services, and IMET provided each 
country over the past year. The President was required to send 
up that report not later than February 1.
    Today is March 12th, and to my knowledge, we have still not 
seen the report. First of all, am I correct in that statement, 
and if so, what is the status of this report?
    Mr. McNamara. Senator, you are correct in the statement, 
and we are working on that report, and we expect it to be 
forwarded very soon.
    Unfortunately, in compiling a massive amount of export 
license data that the report requires, we have had some 
unforeseen problems with the computer data that need to be 
    We are working to resolve the problems, and, indeed, it is 
a technical delay at this point that is causing the report not 
to be already here before the Congress. But we expect to get 
this data assembled properly, put together very quickly.
    Senator Sarbanes. Could you give use some definition of the 
phrases ``very soon'' and ``very quickly''?
    Mr. McNamara. I would hope within weeks.
    Senator Sarbanes. Within weeks. Less than a month?
    Mr. McNamara. If possible, it will be up here in less than 
a month. Unfortunately, Senator, I do not have a specific--I 
cannot absolutely guarantee you that we can do that. But as I 
say, it is a question of assembling the data and getting it up 
here, and we have had these problems.
    I am not a computer expert, so I am not, myself, competent 
to say just exactly how they are going to go about solving that 
    Senator Sarbanes. Well, let it be noted that there is an 
awareness here of the fact that the report is not yet in, and 
we are looking for this report. We just enacted this 
legislation, and we want to see this legislation implemented.
    Now, I would like to turn to the FMF loans and loan 
subsidies. As I understand it, in the budget you have 
submitted, you are taking the FMF loan level up from $540 
million to $700 million, is that right----
    Mr. McNamara. I believe that is correct, sir.
    Senator Sarbanes. [continuing]. and you are taking up the 
FMF loan subsidy to support of that level from $60 million to 
$66 million, is that correct?
    Mr. McNamara. I believe that is correct.
    Senator Sarbanes. So you are raising the loan level by 30 
percent, but you are raising the subsidy level by 10 percent. 
Now, this has a little bit of a fishes and loaves----
    Mr. McNamara. Pardon?
    Senator Sarbanes. This has a little bit of a sort of fishes 
and loaves perspective, if I may. It is a biblical reference, 
Mr. Secretary.
    Really, it is close to a miracle here. I mean if you can 
continue to this, we ought to bring you up here to solve all 
the budget problems. How do you do that? I am just kind of 
    Mr. McNamara. Well, I am not sure. If I understand it 
correctly, it probably has to do with the countries that are 
going to receive the increase, what their particular credit 
rating, and status, and standing is, and, therefore, how much 
of an amount needs to be actually appropriated for the 1998 
fiscal year, in order to support an amount of loan that would 
then be underwritten by that appropriation.
    Senator Sarbanes. Let us pursue that for a moment. As I 
understand it, you are supporting--in fact, you state in your 
testimony, you are supporting $297 million in FMF loans for 
Greece and Turkey, with $46 million worth of subsidies. Now, 
that means you are supporting a balance of $402 million with 
$20 million worth of subsidies. That is a pretty good trick. 
How do you accomplish that?
    Mr. McNamara. In the case of Turkey, the fact is that we 
had, I believe, a larger amount in the preceding fiscal years 
for the Turkey loans, and that currently, what we are asking 
for does not raise the amounts that we were requesting for the 
appropriated funds at the same rate as it raises the amount of 
loans that is possible to be underwritten by those funds.
    Senator Sarbanes. No, no, no. You are missing my question. 
Let me refer to your statement, your own statement, at pages 9 
and 10, the statement you submitted to the committee.
    On page 10, you say, ``Our fiscal year 1998 request of $46 
million for the subsidy cost of a total of $297 million in FMF 
loans for Greece and Turkey will support sustainment of U.S.-
origin equipment.''
    Now, I may come back and ask about that, but for the 
moment, let us set that aside.
    So, you are doing $297 million on the basis of a $46 
million subsidy cost, correct?
    Mr. McNamara. Correct. That----
    Senator Sarbanes. All right. Now, let us turn to the rest 
of it.
    On page 9 you say, referring to Central Europe and the 
Baltics, ``Our fiscal year 1998 request for $20 million in FMF 
loan subsidies will provide $402 million in market rate 
    So, in the one instance you take $46 million to support 
under $300 million, and in the other, you support $400 million 
with $20 million, half as much.
    Mr. McNamara. Correct.
    Senator Sarbanes. Less than half as much. How do you do 
that? That is a nice trick.
    Mr. McNamara. Well, the amount that is required to be 
appropriated in order to support the loan depends upon the 
country that is receiving the money, and what the credit rating 
of that country is----
    Senator Sarbanes. OK.
    Mr. McNamara. [continuing]. for the loan designated, or 
expected to be designated, for that country. If a country's 
rating is X,`` then a certain amount of money is required. If 
the country's rating is worse than that, than more money needs 
to be appropriated in order to cover an equivalent amount of 
    Senator Sarbanes. Which countries are receiving the $402 
million in FMF, so we can make some judgment about their credit 
    Mr. McNamara. Well, I do not have that here in front of me, 
but we can certainly get that for you. But it is essentially 
the countries in the defense loan program in Central Europe.
    Senator Sarbanes. Well, I have been looking for lists of 
those countries, and I have not been able to get it, and I am 
not sure it has been submitted to the Congress.
    Mr. McNamara. Three of them are Poland, Hungary, and the 
Czech Republic, and I do not know--for fiscal year 1998--there 
conceivably could be some others, which would then cause these 
figures to be adjusted.
    Senator Sarbanes. Have you allocated out the $402 million, 
    Mr. McNamara. No, but we have done it----
    Senator Sarbanes. If you have not done that, how are you 
able to assess the credit risk, and thereby reach a specific 
determination on the amount of loan subsidy?
    Mr. McNamara. Well, you will notice the loan says 
approximately $402 million, and the reason for the word 
approximately is because, indeed, the final loan that would be, 
or loans--plural--that would be underwritten by that depends 
upon how much goes to each of the countries, and what each 
country's credit rating is.
    Senator Sarbanes. You surely do not regard that as an 
adequate response, do you? I mean how were you able to 
calculate a $20 million in loan subsidy required to support 
$402 million, unless you hide it country-specific, and did an 
analysis of the credit risk of the country, or is it just sort 
of kind of a floating figure?
    Mr. McNamara. No. I think it is country-specific, with 
respect to Czech Republic, Poland, and Hungary.
    Senator Sarbanes. How much of the $402 million do they get?
    Mr. McNamara. At the current time, they would get all of 
it, unless we were to come here and add other countries, that 
is suggest that there be other countries added to that. But 
right now, it is based, I believe, on those three countries.
    Senator Sarbanes. Is that right, only those 3 countries are 
going to receive the $402 million?
    Mr. McNamara. Yes.
    General Rhame. In 1997, Senator Sarbanes, the loans were 
earmarked for those 3 countries in Central Europe, FMF loans 
for Central Europe.
    Senator Sarbanes. How much for those?
    General Rhame. The subsidy, sir, was $20 million. I do not 
    Senator Sarbanes. But how much loan?
    General Rhame. The loan value was $242 million.
    Senator Sarbanes. $242 million, and you earmarked $20 
million, is that right?
    General Rhame. That is correct.
    Senator Sarbanes. For the year we are in right now?
    General Rhame. 1997. Yes, sir. 1997.
    Senator Sarbanes. Next year, you are going to do $402 
million, which is, what, about a 60 percent increase, and you 
are going to do it with the same amount of loan subsidy, is 
that right?
    General Rhame. The current projection of the credit ratings 
of the countries involved, that would be correct.
    Senator Sarbanes. Who makes these projections?
    Mr. McNamara. OMB is the one who makes the projections, and 
who determines the credit rating.
    Senator Sarbanes. Well, I would be interested in seeing an 
analysis. As I understand what I am now being told, is that you 
have gone from requiring $20 million to be set aside in the 
budget to cover these loans in fiscal 1997, to support $242 
million, and in fiscal year 1998, in a 1-year period, the same 
amount will support $402 million.
    So, your analysis of the credit rating, as such, that you 
are able to take it from $242 million to $402 million, which is 
an increase of $160 million, that is a 60 percent--more than a 
60 percent increase, and sustain it on the same amount of loan 
subsidy, is that correct?
    Mr. McNamara. That is the projection, Senator.
    Senator Sarbanes. Well, I am interested in how that was 
arrived at.
    Mr. McNamara. Let me try and get you the details. I will go 
back and talk to OMB, and give you an answer.
    I believe, as I said, that it has to do with the different 
credit ratings of the countries, and could possibly have to do 
with what is the going rate for credit, and, therefore, how 
much the subsidy is buying down from that rate.
    Senator Sarbanes. On Greece and Turkey, how is that 
allocated out between the two countries? I mean in your 
statement you group them.
    You are going to provide us with the analysis that supports 
a submission, with respect to these Central European countries, 
that makes it reasonable and accurate to take the loan amount 
from $242 million to $402 million, without increasing at all, 
the amount of loan subsidy, is that correct, you are going to 
submit that to us.
    Mr. McNamara. I will so submit.
    Senator Sarbanes. OK. Now, let us turn to Greece and 
Turkey. How is that divided between the two?
    Mr. McNamara. $175 million for Turkey, and $122.5 million 
for Greece, and the subsidy division is $33.15 million for 
Turkey, and $12.85 million for Greece.
    Senator Sarbanes. All right. Well, that reflects, I guess, 
the weakness of the Turkish economy, is that correct?
    Mr. McNamara. Relative to Greece, yes.
    Senator Sarbanes. Well, and relative to your Central 
European countries.
    Mr. McNamara. And also relative to Central Europe, correct.
    Senator Sarbanes. In fact, there the subsidy is 8 percent 
of the total, Greece, it is 10 percent of the total, and 
Turkey, it is 19 percent of the total, correct?
    Mr. McNamara. Correct. Once again, these are OMB 
calculations, based on the credit ratings.
    Senator Sarbanes. OMB gives you these figures, you do not 
provide them up to OMB.
    Mr. McNamara. It is determined by OMB.
    Senator Sarbanes. I would be very interested in seeing that 
    Now, let me ask you, in your congressional presentation 
document for fiscal year 1998 you state, ``Grant ED aid to 
Albania promotes sovereignty, stability, and security in the 
volatile southern Balkans. Fiscal 1996, the latest year for 
which we have figures, the U.S. delivered over $33 million 
worth of excess defense articles at no cost to Albania, more 
than any other country in the world, except Egypt, and vastly 
    Now, what kind of excess defense articles did we provide, 
and how have they promoted stability? Let me just take the 
question a step further, the New York Times editorialized only 
a few days ago that we should stop military assistance to 
    What is the position of the--is any thought being given to 
that in the Department?
    Mr. McNamara. I would have to get you the specifics on what 
was provided, I do not have it here. I do know that a 
significant amount of it had to do with transport and other 
non-lethal equipment that was provided to the government.
    Our objective there was, in fact, to maintain stability in 
Albania. Circumstances totally apart from the U.S. security 
programs, and, indeed, from the security area, have led to a 
great deal of political unrest and instability in Albania, 
which was our hope to avoid.
    It is not beneficial to the United States or to that region 
and sub-region that Albania be destabilized. That has come 
about despite our best efforts. It sometimes happens.
    What we are now doing is we are looking very carefully at 
    Senator Sarbanes. Do you think the fraudulent elections of 
last year contributed to the potential for instability in 
    Mr. McNamara. I am not expert in that area, but I believe 
that there were a number of factors that had to do with 
elections, democratic institutions, the weakness of those 
institutions, this financial scheme that appears to have caused 
enormous losses and a great deal of economic hardship to 
segments of the population, in fact, maybe most of the 
population, I am not sure. All of those, I think, were 
contributing factors.
    Senator Sarbanes. Does the Department have a firm position 
on whether we should stop military assistance to Albania at 
this time?
    Mr. McNamara. I do not believe that we have determined that 
we will stop all military assistance to Albania at this time. 
We are reviewing what the situation is in Albania, and what the 
proper policy----
    Senator Sarbanes. Now, Burns was asked about this at a 
State Department briefing, and he made reference to the fact, 
he was asked a broader question on assistance generally, and he 
said, ``Well, some of that assistance goes to non-governmental 
organizations, and is designed to promote democracy building, 
and respect for human rights, and so forth.''
    The military assistance does not go to non-military 
organizations, does it.
    Mr. McNamara. No.
    Senator Sarbanes. No. It goes to the government.
    Mr. McNamara. Yes, sir.
    Senator Sarbanes. It seems to me that the administration 
ought to be considering terminating it, at least the military 
    Mr. McNamara. Well, I am sure that is being looked at along 
with a number of----
    Senator Sarbanes. Well, why do you not take that message 
back with you, if you would. Let me turn to co-production. 
Increasingly, as I perceive it, there is a growth in co-
production agreements, under which U.S. defense companies do 
not merely sell finished weapons to foreign countries, but help 
those countries to build the weapons themselves.
    Now, it seems to me that such agreements are likely to lead 
to the export of the very U.S. jobs which we claim we are 
saving by allowing the sales to go forward. In other words, we 
may save a few jobs in the short run, but we are certainly 
guaranteeing their loss in the medium and long run.
    Second, it means transferring some of the technologies that 
give us our strategic advantage, perhaps losing control over 
the weapons that are manufactured, and then may be sold to 
third countries.
    What is the general position on co-production agreements, 
and how are these concerns I have outlined being addressed?
    Mr. McNamara. Well, Senator, I can start from the--you have 
listed three concerns, as I have noted them. Let me start with 
the third, and that is the loss of control of the end items 
that are produced as a result of the co-production.
    The controls, when there is co-production, are the same as 
the controls that we place on end items that are exported from 
the United States as end items, so that the controls on, for 
example, a tank or a gun that might be produced in a co-
production arrangement is very similar, and it requires the co-
producing country to come to the United States to request 
permission for the sale to other countries.
    We have agreements with the co-producing country as to 
where it can sell, what it can sell, so we do retain the 
control over the co-produced item in much the same way as we 
maintain the control of an item that would be exported in 
finished form from the United States.
    Senator Sarbanes. How do you sanction that?
    Mr. McNamara. How do we sanction that? Well, the sanctions 
would be the same as the sanctions that are available if the 
item were sold from the United States.
    Senator Sarbanes. If a country develops a productive 
capacity, then it can proceed with that, cannot it not?
    Mr. McNamara. Well----
    Senator Sarbanes. I mean I take it when you sell them--if 
they then use it, you will say, ``Well, we will not sell you 
any more,'' is that correct?
    Mr. McNamara. Well, there is that, and----
    Senator Sarbanes. So if we produce the item here and sell 
it to them, and they then violate the agreement, what is the 
sanction in that instance?
    Mr. McNamara. That you stop exporting, and with co-
production, it is the same sanction, in essence, because it is 
co-produced. That is to say, the APC, or the tank to be 
produced in that country requires production in the United 
States, and that gets back to your first concern, and that is 
the export of jobs.
    The fact is that jobs are there. There is some work, and, 
therefore, presumably some loss of jobs by doing some of the 
production in country ``X,'' but there is also production that 
takes place in the United States, particularly of components 
that go into the final assembly, in which the jobs here in the 
United States are increased by the fact that there is more 
production of that equipment here in the United States than 
there would be were there not such an agreement.
    For example, if such an arrangement were struck between a 
country and Great Britain, then Great Britain would have the 
additional production of generators, tank treads, and other 
components that would go into a co-produced product in a third 
    Senator Sarbanes. I thought that the co-production, though, 
was leading inevitably to increased production abroad and less 
here, is that not the case, even when it may start out with a 
fairly reasonable allocation between the two countries?
    The countries entering into it are invariably moving to 
have their own arms industry, and have not these agreements, 
over time, shifted continuously toward more and more of the 
production being done abroad rather than here?
    Mr. McNamara. Well, since these co-production agreements 
are in large measure put together with private enterprise, they 
have a major interest protecting their job base and market here 
in the U.S. I do not know whether if you look just at the end 
    Senator Sarbanes. Why is that?
    Mr. McNamara. [continuing]. it is probably----
    Senator Sarbanes. Why is that? If you are an international 
firm, they may make a significant profit out of the production 
abroad, rather than a production here, depending on the nature 
of their contracts with the producing country, might they not?
    Mr. McNamara. That might be the case, but I believe it is 
true that--if you look at just the end product, I think what 
you are saying is probably correct, that the number of tanks 
that would, therefore, be produced here in the United States is 
less than if it was all done in the United States, but if you 
look at the components that are then produced here in the 
United States to be put into these co-produced items in a 
foreign country, I am not sure whether the equation is the 
    Senator Sarbanes. I invite you to look at some of the 
statements that these ministers of defense production make in 
some of these other countries, because it is invariably along 
the lines that they are going to buildup their own capacity to 
be producers, that this is simply a way station along the track 
to becoming an arms producer themselves.
    Of course, once that happens, the argument you have just 
advanced, about which I have some skepticism even in and of 
itself, but that argument would cease to apply at that point, 
would it not, on the job front?
    Mr. McNamara. It may and it may not. If it is a U.S.-
produced item, then the controls would be maintained on that. 
So also, if half or less than half of the co-production occurs 
in the United States, then that item that comes out of the 
factory in that country is going to be controlled by the United 
    If a number of countries take on these co-productions, it 
has been my experience that the reason they do it is for the 
short-term job benefits, not that they expect to be able to 
sustain a wide-ranging industry independent of the co-producing 
countries working with them, the United States, in some cases.
    Senator Sarbanes. Well, I think we are losing jobs, and I 
think we are giving away a significant defense capacity. This 
is something I will come back to.
    Let me ask you this question. Recently, an article in the 
New York Times reported that the U.S. has approved the sale of 
AMRAAM missiles to the UAE and Thailand. Is that correct?
    Mr. McNamara. It is not completely correct, Senator. In the 
context of the purchase of American aircraft platforms, there 
have been request for missiles from those two countries, and we 
have responded, in the case of the UAE, that in connection with 
a purchase of those aircraft, that we would entertain and 
commit to the sale of the AMRAAM missile to the UAE, but only 
in the context of the purchase of U.S. aircraft.
    In the case of Thailand----
    Senator Sarbanes. Well, let me read to you from this 
    It says, ``Until now, those missiles have been sold only to 
NATO allies, and even countries such as Saudi Arabia and Egypt 
have been turned down on their request for the same missiles.'' 
After the sale to the United Arab Emirates, Thailand demanded 
the same missiles. ``We caved to them as well,'' said a State 
Department official in Washington. ``It shows how the threshold 
gets past. Now, Saudi Arabia and Egypt, which have been turned 
down in the past on a request for AMRAAMs, are expected to come 
knocking again, and this time it will be hard to say no,'' an 
American official said this week.
    It sounds pretty accurate, does it not?
    Mr. McNamara. Senator, I think that whether it is hard to 
say no or not hard to say no, there are times when we say no 
even if it is hard to say no. I am not saying in the specific 
case cited in that article that we will or will not, we have 
not gotten a request at this juncture.
    In fact, we treat each of these cases separately, on a 
case-by-case basis. In the case of the United Arab Emirates, it 
was the decision of the administration that there was a serious 
security concern that could be met by the aircraft, and if 
those aircraft were sold, that we were willing to sell AMRAAM 
missiles for those aircraft.
    That does not necessarily mean that any other case that 
particular comes up will get an agreement for the sale of 
AMRAAM. They will be treated on a case-by-case basis, and it is 
very possible that the sale will not be agreed to.
    Senator Sarbanes. Now, this article says, and let me just 
quote it, ``These days American officials say it is business, 
not ideology that is driving sales. During the cold war the 
Pentagon advocated restrictive policies on arms sales, 
particularly sophisticated weap- 
ons that might fall in enemy hands. Now the military services 
push the arms trade as a way of helping defense contractors.''
    Is that correct?
    Mr. McNamara. I do not think any more so than in the past. 
I think ``ideology.'' I am not sure what that means. You are 
asking me to comment on an article in which I see a number of 
inaccuracies and suppositions that are not accurate, and, 
therefore, it is difficult.
    I would rather address the issue myself, rather than reply 
to an article that I have not read.
    Senator Sarbanes. Was there an intense debate within the 
administration, including sharp opposition from the Arms 
Control and Disarmament Agency, to the sale of these AMRAAMs?
    Mr. McNamara. There was a substantial debate within the 
administration as to whether or not the AMRAAMs ought to be 
sold and where they ought to be sold.
    Let me correct another inaccuracy in the article with 
respect to Thailand. We have not yet released the AMRAAM to 
Thailand. With respect to Egypt and Saudi Arabia, which I think 
they were mentioned in the article, we have----
    Senator Sarbanes. We have not decided to sell the AMRAAM to 
    General Rhame. No, sir, we have not.
    Mr. McNamara. We have not yet released them. That is 
    Senator Sarbanes. What does the word ``release'' mean?
    Mr. McNamara. Release means that we have not told the Thais 
that we will send them the AMRAAM missile. We are still in 
the--we are still talking to them about it.
    Senator Sarbanes. So it is still an open decision.
    Mr. McNamara. It is a decision that is in progress right 
now. We do not want to be the first to introduce that 
capability into the Southeast Asian region, and, therefore, we 
are hoping that we can see a policy of restraint practiced in 
the region by the states in the region.
    Senator Sarbanes. Well, I want to be clear on what you are 
telling me, because I am hearing a lot of phrases that I cannot 
sort of nail down. What is the status of providing this missile 
to Thailand?
    Mr. McNamara. The status is that we have not yet released 
the missile.
    Senator Sarbanes. No, I do not want the word ``released.'' 
I do not understand what the word ``released'' means.
    Mr. McNamara. We have not yet sold the missile to Thailand.
    Senator Sarbanes. Have you made a decision to sell it to 
    Mr. McNamara. We have told the--no, we have not introduced 
a beyond-visual-range missile, which is what the AMRAAM is, 
into the region, and we believe unless there is a comparable 
beyond visual range missile released into the region that it 
would be best that there not be beyond visual range missiles in 
the region. We are talking to the Thais about this.
    Senator Sarbanes. Well, now Malaysia is getting the MG-29s 
from Russia.
    Mr. McNamara. MG-29s, I believe. Yes, sir.
    Senator Sarbanes. Are they going to get sophisticated 
missiles for the MG-29?
    Mr. McNamara. We have no information that they have the 
equivalent or roughly the equivalent with the BVR capabilities 
of the----
    Senator Sarbanes. What you are telling me is that you are 
not going to provide this missile to Thailand unless someone 
else in the region gets a comparable missile, but if that 
happens, then the Thais will get it, is that right?
    Mr. McNamara. That would be the import of the policy line.
    Senator Sarbanes. Now, we are complaining about Russian and 
South African arms sales around the world, is that correct?
    Mr. McNamara. We have talked to the Russians and South 
Africa about arms sales that concern us, with respect to 
specific countries. Not around the world. I am not sure what 
around the world means.
    Senator Sarbanes. Have we dropped our policy of restraint 
on the sale of advanced aircraft in Latin America?
    Mr. McNamara. Yes, we have. To Russia, are you talking 
    Senator Sarbanes. Pardon?
    Mr. McNamara. Do you mean to Russia?
    Senator Sarbanes. No. In Latin America.
    Mr. McNamara. I am sorry. I missed the question.
    Senator Sarbanes. Have we dropped our policy of restrain on 
sales of advanced aircraft in Latin America?
    Mr. McNamara. I am sorry. I thought you were still asking 
about Russia. No, we have not. The policy of the United States 
with respect to advanced weapons systems, including advanced 
aircraft in Latin America, is under review.
    The situation in Latin America, politically, economically, 
socially, has changed dramatically in recent years. The need 
for reasonable modernization of Latin American armed forces is 
an issue that is very much alive in the region.
    Senator Sarbanes. Now, if country ``A'' in Latin America 
modernizes, then, of course, country ``B,'' its neighbor would 
then have to modernize, is that right, and country ``C,'' which 
is a further neighbor of the two?
    Mr. McNamara. It is conceivable, but what modernization 
means is another question, and that is one of the items that we 
are discussing with our Latin partners, that there be 
modernization in a context of restraint, in a context in which 
it does not lead to either arms competition or to regional 
    Senator Sarbanes. Well, why will it not invariably lead to 
that? What is the modernization directed toward, if it is not 
some other party in the region?
    Mr. McNamara. I think every country, Latin America, and 
other regions, considers that the legitimate and modest self-
defense capability is essential to them as a nation, and that 
is true in Latin America as elsewhere.
    Senator Sarbanes. For what purpose?
    Mr. McNamara. For the purpose of protecting their borders 
and defending their----
    Senator Sarbanes. Against their neighbors.
    Mr. McNamara. Against neighbors and more distant----
    Senator Sarbanes. Well, why can they not do that at a lower 
level of arms technology instead of at a--if you take one to a 
higher level, you are then going to have to take the rest to a 
higher level, will you not?
    Mr. McNamara. Well, Senator, the problem is--let us talk 
about aircraft. As aircraft come to the end of the life cycle, 
they start falling out of the skies, or they do not make it 
into the sky, because they cannot be sustained, the aircraft 
are either replaced, or the air force falls into disuse.
    When they get replaced, the older aircraft are no longer 
produced. So, eventually, after an extended period of time in 
this situation, one could imagine that they come to the 
conclusion that they are not going to have fighter aircraft, or 
they are going to have more advanced fighter aircraft, because 
that is all that is available.
    Senator Sarbanes. Are you telling me that is the situation 
that prevails in Latin America?
    Mr. McNamara. I am saying that in certain countries in 
Latin America their aircraft are coming, as one projects out 
several years, in fact, up to 5 to 10 years out, that these 
aircraft are coming to the end of their life cycle, and, 
therefore, they must be replaced or there will be no aircraft 
for the air force to fly, no fighter aircraft.
    These countries, in fact, are spending lesser amounts now 
than they have in the past on their military budgets, some of 
them dramatically so, for example, Argentina. We are talking to 
these countries and they are talking to each other about how 
they go about modernization in a way that does not disrupt 
either the downward trend in defense expenditures and the 
maintenance of social and other programs that are very 
important to these democratic governments. But at the same 
time, that a legitimate national defense structure remains in 
place in these countries.
    It would be unrealistic and actually a policy doomed to 
failure to say that they require no defenses, no air forces, no 
fighter aircraft.
    How one goes about, therefore, in this imperfect world 
balancing the requirement of other needs with a legitimate 
national defense. This is the desirable goal: That those 
legitimate defenses not either take excessive amounts of their 
budgets, do not lead to regional instabilities, and do not 
create arms competition and arms races. This is what we are 
    Our policy of restraint, which we are discussing with the 
Latin countries, is the result of a number of bilateral and 
multilateral contacts and discussions in the region, among the 
countries themselves, discussing with each other. It leads us 
to believe that we can, in fact, practice a policy of 
restraint, and does not lead to instability in an arms race in 
Latin America. But it does not mean that we embargoing the sale 
of fighter aircraft. To do so, I think, would be a failure.
    Senator Hagel. Senator, may I ask a follow up question on 
this point?
    Senator Sarbanes. Sure.
    Senator Hagel. When do you think the administration will, 
in fact, have a decision on this issue?
    Mr. McNamara. I asked that before I came up here, Senator, 
and I was told, soon, but it is, as they say, above my pay 
grade, and I do not have an answer as to exactly when. I would 
expect that the issue certainly is going to be a topic of 
discussion when the President visits the region, and that 
certainly will be an event that will require a review of the 
    Whether or not the decision will be made before or after 
that visit, I cannot say.
    Senator Sarbanes. When is that going to be?
    Mr. McNamara. I believe he goes down in May.
    Senator Sarbanes. So I take it that the soon, in this 
context, is later than the very soon that was used in the 
context of the annual report, would that be correct?
    Mr. McNamara. In the case of the annual report, I have more 
control over that, and, therefore, I will say, very soon. In 
the case of the second, I just do not know.
    Senator Sarbanes. OK.
    Senator Hagel. General, I do not want you to feel left out.
    General Rhame. I do not, sir.
    Senator Hagel. Let me ask a question regarding the part of 
the world that Senator Sarbanes has been talking about. I am a 
little confused on the ESF account being used for programs that 
are, at least the way I understand them, similar to 
developmental assistance programs, AID funds.
    I want to focus on Haiti for a moment. I think you have 
requested $70 million in ESF funds for Haiti, and really, we 
are going to come back to you, Mr. Secretary, and I would be 
very interested in both of your comments on this, but let me 
quote, if I have accurate information here, on your $70 million 
request for Haiti out of the ESF fund.
    ``For fostering more effective and responsive democratic 
institutions, including an independent judiciary facilitating 
private sector employment, promoting sound environmental 
resource management, and sustainable economic growth.''
    How does this differ from our large developmental 
assistance programs that AID is funding?
    General Rhame. Mr. Chairman, I do not do economic support 
funds in defense, I would have to defer to Mr. McNamara.
    Mr. McNamara. In trying to put Haiti back on its feet, both 
economically and socially, we have a number of programs down 
there, some of which are directed at raising the economic level 
through ESF, and through other programs, for the transition 
period that Haiti is now going through, from a united 
tyrannical regime, to, we hope, a functioning and sustained 
    But also, in moving in that direction, some of the problems 
had to do with law and order, and, therefore, police functions, 
some of them had to do with establishing a judicial system and 
a court structure that leads to a functioning justice system, 
and a sense, among the population at large, that justice is 
being carried out.
    Therefore, we have taken some of the ESF, other funds, and 
devoted it to strengthening the law and order judicial 
institutions in Haiti, that we think are necessary for a 
democracy to survive in that country, as, indeed, a functioning 
system of law and order and judicial institutions are necessary 
in any democratic society.
    Senator Hagel. But how does that $70 million differ from 
what AID is doing down there? I do not disagree with what you 
are say- 
ing, but I am not sure where that $70 million is going 
specifically, and how it differs from what AID is doing.
    Mr. McNamara. Well, I think that the main difference, as I 
understand it, I do not have the specifics here in front of me, 
maybe someone behind me would be able to find it, but the AID 
programs are primarily aimed at getting the economy running, 
and getting a market economy in place in Haiti.
    The ESF that is devoted to security and to judicial 
programs are aimed at strengthening judicial institutions, the 
Haitian police, and other institutions.
    There is also an effort under way, which is not aimed at 
economic development, subdemocracy-building programs that are 
designed to assist the Haitians in their election processes, in 
establishing political parties, and opposition, loyal 
opposition within the Haitian political spectrum. There is a 
range of programs going on.
    Senator Hagel. Do you believe we are making some progress, 
    Mr. McNamara. I have been down to Haiti a number of times 
since we ousted the dictators, and I think it is very clear 
that we are making progress. I think it is clear that we have 
not succeeded completely yet.
    We knew when we went in there that we were looking at a 
long-term program. One does not take, after so many years of 
dictatorship and oppression, one does not take a country into a 
stable democratic phase immediately.
    I refer to it as a transition period, and, indeed, we are, 
but there has been progress. For the first time in the history 
of the country, we had the successful conclusion of one 
Presidential term, a free election, a free and fair election, 
and the inauguration and installation of a successor, and the 
successor is now undertaking to carry on the Presidential 
functions, with good expectations that there will be a 
successful election and another president freely elected.
    That, in Haitian terms, is a historic process that has not 
occurred before. So, yes, we are making progress, but no, we 
have not finished, and neither have the Haitians.
    Senator Hagel. General, I want to go back to some of the 
earlier conversation that Senator Sarbanes was having with 
Secretary McNamara on Latin America, and the policy that the 
administration is going to be coming forward with soon.
    How much involvement do you and your people have in helping 
craft that policy that we will be seeing come forward, I guess 
timed with the President's trip in May?
    General Rhame. Sir, we have worked extensively with our 
Assistant Secretary for International Security Affairs, Under 
Secretary of Defense for Policy and the Secretary himself, to 
make sure that the Department of Defense's position is clearly 
understood, and is represented as the policy being formulated 
by the administration, and we have played quite extensively in 
    I deal a lot with Latin American letters of request for 
military assistance, sales, et cetera, and everything has to be 
worked with the State Department, in sync with the current 
    Senator Hagel. Now, it is my understanding that some of the 
countries in Latin America are in the process of negotiating 
with or are close to signing contracts.
    I have some information here concerning Peru, for example, 
that they have purchased MIGs, Chile is looking at French 
aircraft, Brazil is looking at Russian, French, and Swedish 
aircraft. Does that concern you, that we are getting left 
behind here?
    General Rhame. Sir, it is our understanding that Peru has 
purchased MIG-29s. They are also looking at another Russian 
aircraft. We know that there is a competition going on in 
Chile, in which they have asked for bids and proposals.
    It is our belief that the French are competing with the 
Rafale, it is our belief that the Swedes are competing with the 
JAS-39, and we believe in the case of Chile that as advanced 
aircraft are approaching, the technology has to be looked at 
very carefully, and yes, it is a concern, because while these 
air forces are going to modernize, we would like in Defense the 
ability to very carefully, look very carefully on a case-by-
case basis of how we are allowed to develop those air forces.
    Senator Hagel. Do you want to add anything to that, Mr. 
    Mr. McNamara. I think that there is a common desire on the 
part of the different Agencies in the executive branch to see 
that as the modernization, of whatever necessary modernization 
takes place in Latin America, as it takes place, that the 
United States and United States industry benefit from that 
    I think that in some cases the sales will go elsewhere. 
Historically, Peru has bought Russian military items, 
particularly aircraft, and, therefore, they have continued 
along that line.
    In other markets, in other countries, we would like to see 
the United States participate. Exactly how we will participate, 
and precisely what the request will be is what remains to be 
    How we will participate will be known as a result of the 
review that is now ongoing. What those countries wish will 
depend upon what their requests are . So, far we have not 
received requests for a sale from Chile or other countries down 
    The Chileans had told us that over the course of the next 
year they wish to examine and to evaluate a variety of 
aircraft, including American, European, and other aircraft, to 
see what they themselves think their needs are in the future. 
At this point, we will have to get our policy settled, and then 
address the issue of how we will respond to Chile's request for 
    Senator Hagel. Thank you. I want to go back to the Middle 
East, Lebanon. I noted that you are requesting an increase in 
the ESF fund for Lebanon.
    If I understand this right, the $12 million that would go 
there is--I am not sure what it is for, and I would like to get 
your thoughts on that, and explain to me what that money would 
be used for, but I am a little puzzled. Here is a country 
that--well, I am not sure it is a country.
    I think you have Syria as an occupying force power there, 
we have travel embargoes, we have an unstable situation, I'm 
not sure anybody really knows what is going on there.
    What would we be doing sending $12 million to Lebanon? Do 
you have confidence that we can use that in the right way? I do 
not know who wants to answer that first, but I would be 
interested in why we are sending $12 million to Lebanon. I know 
you cannot buy a jet aircraft for $12 million, so that probably 
rules that out.
    Mr. McNamara. That is correct. With ESF we do not buy 
military equipment anytime.
    Senator Hagel. Yes.
    Mr. McNamara. Basically, what we are looking at here is a 
very modest program in Lebanon to try and rebuild and to 
strengthen the infrastructure of the country. To walk away from 
Lebanon and leave it to Syria would be a grave mistake.
    Lebanon has an important role to play in the Middle East, 
Lebanon is an important country in the Middle East, although, 
in recent years it has gone through some trials and 
tribulations that have sorely stressed it.
    We would like to see this money used to build 
infrastructure, to train civilian administrators, to provide 
more efficient services, to support the American-based 
university system in Lebanon so that there would be American-
type universities, training Lebanese in mid-level management 
    We are also hoping that the infrastructure for water, 
electricity, telecommunications, and other utilities and 
facilities can be strengthened by this $12-million program.
    Also, housing has been sorely hit in recent years, because 
of the civil war in Lebanon. There is intense poverty and lack 
of housing, and some of these funds will be trying to make some 
corrections in that sad situation.
    So, generally, it is infrastructure building in Lebanon to 
enable Lebanon to get through this difficult period that it is 
in, and resume its normal structure and its normal place in the 
Middle east.
    Senator Hagel. Who administers the $12 million? Where does 
that go physically?
    Mr. McNamara. AID administers most of the ESF programs, 
    Senator Hagel. So they have the administration 
    Mr. McNamara. They have the responsibility----
    Senator Hagel. [continuing]. in Lebanon.
    Mr. McNamara. Yes.
    Senator Hagel. OK. General, I know this is a little out of 
your area, but if you would care to respond, that would be 
    General Rhame. Our dealings with Lebanon, Mr. Chairman, 
have revolved around the sale of some light UH-1 helos, some M-
113s, all of which is equipment designed to strengthen their 
armed forces for the future.
    It has been a modest program. It has mostly been done for 
sale, and no grant FMF, to my knowledge, has been administered 
with Lebanon.
    Senator Hagel. It has not been administered----
    General Rhame. We have sold $6 million in major defense 
items under FMS using Lebanese national funds. We have also 
provided Lebanon with $13.5 million worth of miscellaneous non-
lethal equipment under the grant EDA program.
    Senator Hagel. OK. General, you mentioned in your remarks 
that you think we have gotten a considerable return on our 
investment in the IMET program.
    General Rhame. Yes, sir.
    Senator Hagel. I would like you, if you could, to give me a 
little clearer understanding of what we are doing now with the 
military-to-military contact program, and how that works.
    General Rhame. Yes, sir. In IMET, Mr. Chairman, there are 
three components that I see. One is the professional military 
education, which is going quite well, with numerous officers 
from countries that previously we simply did not talk to from 
Central and Eastern Europe, which we used to call the Warsaw 
Pact, and newly independent states of the former Soviet Union 
on and on again, and that has been exciting to watch them 
    I submit that our officers in our schools learn as much as 
the foreigner does, because I think we are strengthened 
professionally and intellectually by their presence in our 
    Second, an Expanded IMET program, which allows, in this 
case, for both military and civilian people of foreign 
governments to attend our institutions, to be exposed to the 
way the democracy functions, how civilian leadership has 
exercised control over the military, how that military performs 
in a democratic society with civilian leadership.
    We started out on this program attempting to do $5 million 
of Expanded IMET a year, and last year we did almost $8 
million. It is an exciting program. Countries like it. We like 
it, we think it is making great contributions.
    Third is technical training. We are doing--a minor portion 
of IMET is dealing in technical training. Because of the 
shortage of dollars and the demands in this new modern world to 
do the things we do, we are not doing the expensive things like 
pilot training, and the other things that used to consume large 
amounts of money, we do not do that any more.
    So, it is focused, and it is an exciting program, and we 
are getting a lot of benefits.
    The mil-to-mil contact program is a different program. IMET 
is an educational program in which we develop officers here in 
our training base or send our people there to do it.
    Mil-to-mil contact teams are uniformed military personnel 
of the armed forces, which are posted in the foreign countries 
of Central and Eastern Europe and the Newly Independent states, 
work for the unified command, to represent them for exercises 
in mil-to-mil contact with those governments.
    At the time these were put into place, Mr. Chairman, we did 
not have officers out there doing security assistance, they 
were an augment team to our attaches to assist them to develop 
the mil-to-mil relationship with those countries.
    So, the mil-to-mil contact program is a Title X program, 
supported by Defense, with people in-country. IMET is an 
educational program which seeks to bring those officers into 
our educational system for professional development. That is a 
long answer, but I hope I have answered your question.
    Senator Hagel. Mr. Secretary.
    Mr. McNamara. Mr. Chairman, I think that I could make a 
very strong argument that dollar for dollar there is no U.S. 
security money that is better spent than IMET. Let me approach 
it from the point of view of education.
    The ties that are formed between humans are strongest in 
families, and they are weakest among people who do not know 
each other. The second strongest ties that I know of, after 
family ties, are educational ties.
    If educated with somebody, there is a certain bond that 
occurs that lasts in many cases, as we all know, for years and 
    This is true in the military, also. Taking young military 
officers to the United States, and exposing them to American 
culture, American lifestyles, and teaching them how to do 
things the way we do it is one of the best ways to ensure that 
those officers go back to their home country, one, with a 
favorable disposition toward the United States, two, with an 
understanding of the United States and how to work with us, and 
to get along with us, and three, how to perform their jobs and 
their functions in the home country in a way that comes close, 
as close as we can, to replicating the way we do it.
    For example, we have noted peacekeeping operations in which 
the United States has taken the lead and others have followed 
    In those operations, invariably, American-trained officers 
from the other countries perform those peacekeeping operations 
in a manner more consistent with our values and our approaches 
to peacekeeping than those that have not. In peacekeeping 
operations that, for example, have been performed by Eastern 
Europe and Russia, their way of doing peacekeeping is quite 
dramatically different from ours, much rougher and, in fact, 
more violent than we think is necessary.
    Training those East European officers to do it the way NATO 
and the U.S. does it in the long run means that we are going to 
see them doing it that way.
    To cite an even more distant example, Indonesia has got a 
reputation, particularly here on Capitol Hill, of being pretty 
difficult and not really responsive on human rights concerns.
    There are some examples that I could cite of IMET-trained 
officers who have undertaken hostage rescue operations in 
Indonesia, crowd control and riot control in Indonesia, which 
have received compliments from many international 
organizations, NGO's, the International Red Cross, the U.S. 
Government, as well as American citizens who are involved in 
these incidents in Indonesia.
    They were IMET trained, and they did the job the way, or 
very close to the way we would like to see it done, because 
when those officers went home, the way they knew how to do that 
job was the way they were trained here in the United States.
    I think that the IMET program, we should be devoting even 
more money to it, but as I said earlier on, given the imperfect 
world in which we live in, and the constraints on us, in terms 
of budget, the modest increase in the IMET program is well 
worth it.
    Senator Hagel. I appreciate your thoughts. Indonesia is an 
interesting example to use, since that country has been in the 
news recently for a number of things.
    On the military-to-military program, Mr. Secretary, what 
role do you play in selecting those countries?
    Mr. McNamara. The Department of Defense consults with us, 
and obviously, also, with our Ambassadors in the field. The 
CINCS in the different regions come back with their 
recommendations and suggestions for which countries and what 
types of mil-to-mil contacts, and there is the usual inter-
agency consultation before the final decisions are made.
    Ultimately, the Department of Defense makes the decisions 
with respect to the mil-to-mil contacts, in much the same way 
as we make the ultimate decisions on the IMET program, which is 
State Department funded. But we do it hand-in-hand with the 
Department of Defense.
    Senator Hagel. General, I happen to be well acquainted with 
one of your predecessors, General Charlie Brown----
    General Rhame. Yes, sir.
    Senator Hagel. [continuing]. who is from, as you probably 
know, Nebraska, and he is out punching cattle and living the 
good life in western Nebraska, and I just want----
    General Rhame. I have been told he is living a very good 
    Senator Hagel. Yes, he is. Well, that is what happens with 
retired generals. I know you have a lot to look forward to.
    Gentlemen, I am grateful that you would take the time this 
morning to come up. I have some other questions, I know my 
colleagues do, on this committee, and what we will do, as is 
always the case, is submit those for the record.
    What I will do is leave the record open until close of 
business Friday. If there is anything that you need to respond 
to, please do. Are there any other comments that you-all would 
like to include on the record for this hearing?
    General Rhame. I do not have any.
    Mr. McNamara. I do not have any, Senator, and I thank you 
for the opportunity to be here.
    Senator Hagel. Well, much success to you. Thank you.
    General Rhame. Yes, sir. Thank you.
    Senator Hagel. This hearing is adjourned.
    [Whereupon, at 11:55 a.m., the hearing was adjourned, to 
reconvene at 10:44 a.m., March 13, 1997.]



                        THURSDAY, MARCH 13, 1997

                               U.S. Senate,
           Subcommittee on International Operations
                     of the Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:44 a.m. in 
room SD-419, Dirksen Senate Office Building, Hon. Rod Grams 
(chairman of the subcommittee), presiding.
    Present: Senators Grams and Feinstein.
    Senator Grams. Good morning. I would like to bring this 
hearing to order. I am pleased to welcome all of you to what is 
the third in a series of budget oversight hearings being held 
by the Subcommittee on International Operations. Today's 
hearing will focus on the fiscal year 1998 requests for the 
Arms Control and Disarmament Agency budget, and for the portion 
of the State Department's budget covering International 
Organizations and Conferences.
    I want to thank the two officials who have agreed to 
testify before the subcommittee. The first panel will be Mr. 
John Holum, Director of the U.S. Arms Control and Disarmament 
Agency, or the ACDA. The second panel will be Ambassador 
Princeton Lyman, Acting Assistant Secretary of State for 
International Organization Affairs. I should note that 
Ambassador Lyman's nomination has been unanimously reported out 
of the Foreign Relations Committee and is currently awaiting 
action by the full Senate.
    Now, risking the accusations of my colleagues that I sound 
like a broken record, I would like to start out again today by 
making the same statement to Director Holum that I made to 
Acting Undersecretary of State Patrick Kennedy and also to USIA 
Director Joseph Duffey during those previous hearings. I am 
proceeding with this hearing on the assumption that the 
administration is developing and will present to Congress a 
proposal for the reorganization of the State Department and 
also for related foreign affairs agencies, including ACDA. 
While the subcommittee will not question you about the 
specifics of any reorganization plan, you should note that 
there is considerable bipartisan interest in this issue, and I 
look forward to receiving the administration's reorganization 
proposal and also to working with members of the Foreign 
Relations Committee to craft a plan deserving of broad support.
    I should also point out that this hearing will not focus on 
the debate over the Chemical Weapons Convention since 
discussions between the administration and Congress on that 
treaty are being handled on a separate track. Of course there 
may be some questions on the CWC-related funding request that 
is included in ACDA's budget.
    Turning to the budget request for the International 
Organizations, the predominant issue on everyone's mind is 
United Nations reform and also the repayment of U.S. arrears to 
that body. Since the purpose of this hearing is budget 
oversight on a broader basis, I do not intend to explore the 
whole range of proposed U.N. reforms in any great detail today 
as well. But, given that the administration has requested 
almost $1 billion for U.S. arrears to the United Nations, let 
me reiterate a couple of principles which I believe reflect the 
general consensus of many, if not all, Senators who are working 
on this issue.
    That is, first, the repayment of U.S. arrears should be 
explicitly linked in legislation to the achievement of 
significant reforms at the United Nations. Second, that the 
repayment of arrears should take place over several years to 
ensure that it is feasible within budget constraints and that 
reforms are proceeding at an appropriate pace. And third, 
whatever agreement may be reached between Congress and the 
administration should be considered during the normal 
authorization and appropriations process, and this includes a 
thorough review by this subcommittee and a markup within the 
context of the State Department Authorization Bill by the full 
Foreign Relations Committee.
    Let me add that I truly appreciate the repeated offers that 
have been made by the distinguished ranking member of the 
subcommittee, Senator Feinstein, to work together on these U.N. 
issues. I know that U.N. reform is a high priority for Chairman 
Helms, the majority leader, Senator Judd Gregg, who is Chairman 
of the Appropriations Subcommittee with oversight for the 
United Nations, and also Senator Biden, the distinguished 
ranking member of the Foreign Relations Committee. It is 
certainly my intent to work with all of these Senators to see 
if we can reach some consensus on U.N. legislation.
    Finally, we should not forget that there are assessed 
contributions for 48 other international organizations included 
in this budget request. Although these organizations do not get 
the same level of media attention as the U.N., budgetary 
limitations and oversight responsibilities demand their 
constant review. The subcommittee needs to make sure that every 
U.S. contribution, no matter how small, is furthering specific 
national interests that must be addressed on a multilateral 
basis. All organizations should also be scrutinized for 
duplicative functions or ineffective management practices.
    With that, I look forward to a constructive discussion 
today on a number of issues that will be raised by both panels. 
Director Holum and Ambassador Lyman, we welcome you here to 
outline the priorities for your respective areas of the 
President's budget request for International Affairs.
    Now I would like to turn to Senator Feinstein for some of 
her opening remarks. Senator.
    Senator Feinstein. Thank you very much, Mr. Chairman. I 
will be very brief and enter my remarks in the record. I do 
want to say a couple of things on each of the subjects.
    The first is on the Arms Control and Disarmament Agency. 
For many of us, when we think of arms control we think of the 
U.S.-Soviet summitry of the cold war. There are those in 
Congress that believe that because the Soviet Union is no more 
that the world is necessarily a much safer place. I do not 
necessarily agree with that. When I look around the world I see 
a myriad of problems: Advanced missile proliferation in the 
Persian Gulf, so-called non-weaponized nuclear deterrents in 
South Asia, the threat of loose nukes in the former Soviet 
Union, the danger of terrorists armed with chemical or 
biological weapons, and,of course,certain renegade nations run 
by people that simply just do not care. So in many ways the 
work of the Arms Control and Disarmament Agency is even more 
vital for American security today than it was at the height of 
the cold war.
    During the height of the cold war the world was a very 
simple place. You had two very large nations, both sides lined 
up in camps. If you were pro-free world you lined up behind the 
United States. If you were pro-Soviet you lined up behind the 
Soviet Union. There was a certain symmetry and control. That is 
gone now, and consequently what we see are a lot of floating 
weapons, a lot of floating technology, suddenly nations moving 
weapons and moving this technology. I, for one, have very 
serious concern about it, so I look forward to hearing the 
    You are right, Mr. Chairman, I do look forward to working 
with you with respect to handling the United Nations, our 
arrearages, and the dues that we owe. I understand that the 
meeting we had for later today has been postponed. I am very 
hopeful it will be rescheduled rapidly. I think the word has 
gotten through that both sides of the aisle in the Senate are 
eager to have something worked out whereby there can be some 
benchmarks attached to real reform, a statement of mission that 
is clear and defined, and so on. So I just want to say that I 
think we can get to that point, and hopefully it will be sooner 
rather than later. So I am very happy to join with you here 
today and welcome our witnesses.
    Senator Grams. Thank you very much, Senator.
    Mr. Holum, I would like to turn it over to you. I would 
just remind you, I know you have to leave at 11:30, so if you 
could keep your remarks as brief as we have so we could get 
into a few questions, I would appreciate it. By the way, your 
full statement will be entered into the record as read.

                       DISARMAMENT AGENCY

    Mr. Holum. Thank you, Mr. Chairman, and Senator Feinstein. 
I am pleased to be with you to discuss the President's agenda 
for arms control and nonproliferation and our efforts to 
advance it. The staff has advised me that there would be no 
objection if I cut my statement shorter even than I had 
planned, so I will do that as I go through.
    I ask that you consider the President's fiscal year 1998 
request of $46.2 million for ACDA in this light: We are a 
compact agency under instruction to do more while becoming even 
smaller, and we are succeeding on both counts. I would like to 
briefly describe, first, our mission and second, the continuing 
reform and streamlining our budget represents.
    As President Clinton has stressed, we are pursuing the most 
ambitious agenda to dismantle and fight the spread of weapons 
of mass destruction since the atom was split. We have had some 
successes, including the 1995 decision to make the Nuclear Non-
Proliferation Treaty permanent, and the 1996 completion of an 
effort that began with President Eisenhower to negotiate a 
global ban on nuclear explosive tests. But more work lies 
    The cold war left behind a massive overhang of arms, and, 
as Senator Feinstein has noted, a growing danger that weapons 
of mass destruction will fall into the hands of terrorists or 
into the arsenals of rogue states.
    ACDA is engaged in literally scores of activities to serve 
that core purpose. Much of that work is out of the public eye, 
consisting of things like reviewing export licenses, reporting 
to the Congress on compliance with arms control, or evaluating 
intelligence and preparing demarches to interrupt shipments of 
dangerous goods to bad places.
    Let me just highlight some of our leading negotiating 
priorities. First, in the strategic area we want to continue 
reducing strategic nuclear arms. Once START II is in force, 
President Clinton has made clear that we are prepared to 
discuss further cuts.
    We are working in Geneva to negotiate a cutoff in 
production of fissile material for weapons.
    Another priority is to strengthen the Nuclear Non-
Proliferation Treaty (NPT) regime, including its safeguards, to 
ensure that another clandestine program, such as that uncovered 
in Iraq in 1981, does not happen again.
    We will press to ratify and implement the Comprehensive 
Nuclear Test Ban Treaty. After conducting more than 1,000 
nuclear tests, we gain security to the extent we lock all 
nations in place on the nuclear weapons learning curve.
    Our most urgent priority, as you know, is ratification of 
the Chemical Weapons Convention (CWC) and the adoption of the 
implementing legislation. I will not review here the reasons 
why this treaty is important, as you have said it is being 
worked in another context. But let me just underscore that the 
treaty is a priority for President Clinton not only for its own 
considerable value, but because failure to ratify would set 
back the United States' role as the world's leader in building 
global coalitions and enforcing strong export controls, and in 
fashioning international regimes against all weapons of mass 
    We are leading now in the 93+2 safeguards regime. We led in 
negotiating the CWC itself under Presidents Reagan and Bush. 
With proliferation dangers rising, this is not a good time to 
weaken America's hand.
    We are also working hard to enhance compliance with the 
Biological Weapons Convention. Finally another leading priority 
is our work in the Conference on Disarmament to negotiate a 
global ban on antipersonnel land mines. We are determined to 
meet President Clinton's charge to the U.N. last September that 
our children deserve to walk the earth in safety.
    As we pursue these and other arms control advances, we have 
to attend to something less glamorous but certainly no less 
important, arms control implementation. We are piling up arms 
control implementation and verification requirements: 
Conventional Forces in Europe, Open Skies, INF, START I, START 
II, the CWC, Test Ban. These are joining older agreements to 
form a prodigious architecture of international arms control 
law. Realizing its full potential is becoming a momentous 
    With my South Dakota farm roots, I think of this as the 
arms control harvest, where we actually reap the benefits of 
all the work that has gone before. Implementation is assigned 
by law to ACDA, and it occupies more and more of our time. 
While it is a national security bargain, it is neither 
effortless nor free.
    Notwithstanding this expanding mission, ACDA is a 
streamlined agency committed to efficient and effective arms 
control. To date we have reduced our annual operating budget by 
$2 million. We have reorganized internally to eliminate 
unnecessary management layers and streamline for a more 
efficient and effective operation.
    ACDA has also worked with the Department of State to 
eliminate unnecessary duplication by reorganizing, reducing 
positions, and coordinating all arms control and 
nonproliferation work.
    For fiscal year 1998, the administration is requesting 
$46.2 million for ACDA's responsibilities. That includes $42 
million, a little over, for ACDA's ongoing activities, and $4 
million for new activities related to the CTBT, the CWC, and 
    Our 1998 operating budget request of $42 million is $2 
million less than our appropriation 4 years ago. It is 18 
percent below the appropriation for 1993. It also represents a 
reduction of another 10 positions from the personnel ceiling 
established for 1997. Those reductions in both personnel and 
funds are part of the administration's right sizing initiative 
across the Federal Government, and we continue to look for ways 
to enhance productivity and provide more effective and 
efficient arms control to the taxpayer. There is a list of 
those efforts attached to my statement, and I invite your 
attention to it.
    I especially want to point out that ACDA has been working 
hard to reduce its administrative support infrastructure. Over 
the past 3 years our down sizing and streamlining efforts have 
eliminated a total of 28 authorized administrative positions in 
our domestic and overseas offices. Domestically we have reduced 
administrative support by 23 percent, or 19 positions. Overseas 
we have reduced administrative support by 45 percent, 
eliminating another 9 positions.
    We are continuing to search for ways to operate more 
efficiently, including some legislative changes we have 
submitted when we proposed our 1998 budget.
    Mr. Chairman and Senator Feinstein, few doubt that the 
world today still bristles with cold war over armament, and 
faces new dangers of proliferation, terrorism, convulsive 
nationalism, environmental pressures, drug trafficking, and 
many others that directly affect us. Those challenges require 
ever more effective diplomacy, what Hans Morgenthau called the 
most important component of a nation's international power. 
They certainly demand that we work together, even when our 
government is divided, in fashioning the kind of unified 
foreign policy that befits a great power in a perilous world.
    It is in that spirit that ACDA presents to you the 
administration's request for $46.2 million to fund its arms 
control and nonproliferation work in fiscal year 1998.
    Thank you.
    [The prepared statement of Mr. Holum follows:]
                    Prepared Statement of Mr. Holum
    Chairman Grams and Senator Feinstein, I am pleased to be with you 
to discuss the President's ambitious agenda for arms control and 
nonproliferation and our efforts to advance it.
    I ask that you consider the President's fiscal year 1998 budget 
request of $46.2 million for ACDA in this light: we are a compact 
Agency under instruction to do more while becoming even smaller. And we 
are succeeding on both counts. I'd like to briefly describe, first, our 
mission and second, the continuing reform and streamlining our budget 

                                *  *  *

    As President Clinton has stressed, we are pursuing ``the most 
ambitious agenda to dismantle and fight the spread of weapons of mass 
destruction since the atom was split.''
    We have had some signal successes--including the 1995 decision to 
make the Nuclear Non-Proliferation Treaty permanent, and the 1996 
completion of an effort that began with President Eisenhower, to 
negotiate a global ban on nuclear explosive tests. A detailed 
description of ACDA's contribution to U.S. national security is 
attached to my prepared statement which is before you. I request that 
both the prepared statement and this attachment be inserted in the 
    But more vital work lies ahead. For the Cold War's end has left 
behind a massive overhang of arms--and a growing danger that weapons of 
mass destruction will fall into the wrong hands. Experience and 
advances in technology have opened the way to new tools for building 
our security by dismantling and averting threats, through the 
preventive defense of arms control.
    These are not abstract issues. Each indiscriminate incident of 
terror, either the poison gas attack on the Tokyo subway or closer to 
home in the Olympic Park bombing should fortify our determination to do 
all we can to ensure that weapons of mass destruction are kept away 
from terrorists and out of outlaw states arsenals.
    ACDA is engaged in literally scores of activities to serve that 
core purpose. Much of the work is out of the public eye, consisting of 
things like reviewing export licenses, reporting to the Congress on 
compliance with arms control agreements, or evaluating intelligence and 
preparing demarches to interrupt the shipment of dangerous goods to bad 
places. I'll just summarize some of our leading priorities, as defined 
by President Clinton, and invite your attention to the attachment for 
more detail.


    First, in the nuclear area, we want to continue reducing strategic 
nuclear arms.
    We have made clear that this first requires Russian ratification of 
the START II Treaty, which will complete a two-thirds reduction in the 
ability to deliver strategic nuclear warheads and bombs. START II is 
the door to START III, and there's no way around it.
    But once START II is in force, President, Clinton has made clear 
that we are prepared to discuss further cuts. This will address Russian 
concerns over being unable to maintain parity with the United States at 
the START II 3,000-3,500 warhead levels. If Russia wants to maintain 
parity with the U.S. at START II levels, it would need to build 
hundreds of new single warhead missiles, which it cannot afford, as it 
eliminates remaining multiple warhead missiles as required by the 
Treaty. Without START II, the U.S. would retain START I force levels of 
6,000 weapons, making Russia's dilemma even greater. But reductions 
beyond START II are warranted on their own merits, and a follow-on 
negotiation can also open a new phase of arms control, in which we not 
only control delivery vehicles, but also limit and monitor nuclear 
warheads and materials, to help ensure that our hard-won nuclear 
reductions are never reversed.
    Strategic arms control has meant thousands fewer warheads 
potentially aimed our way. And in a speech before the National Press 
Club on April 27, 1995 Tony Lake, then-Assistant to the President for 
National Security calculated that the U.S. has been able to ``pull back 
from the Cold War nuclear precipice--and save some $20 billion a year 
on strategic nuclear forces.'' Strategic nuclear arms control provides 
both real security and savings benefits to the American taxpayer.
    We are working in Geneva to negotiate a cutoff in production of 
fissile material for weapons.
    The highest obstacle to someone who wants to make a nuclear weapon 
is not the technology, but the material--the highly enriched uranium or 
plutonium. A non-discriminatory ban on production would cap global 
stocks of these deadly materials, add momentum to further nuclear 
disarmament steps, and help fulfill the promise of the 1995 NPT 
Extension and Review Conference.
    Another priority is to strengthen the Nuclear Non-Proliferation 
Treaty regime including its safeguards.
    In 1995, we succeeded in making the NPT permanent--a national 
security triumph for the United States and all peace-loving nations. It 
is also becoming more nearly universal--now with 185 member states, and 
only five remaining outside.
    Now our top priority is to further strengthen its safeguards. 
Notwithstanding its NPT membership, we learned in 1991 that Iraq had a 
well-advanced clandestine nuclear weapons program. We need to do all we 
can to ensure that doesn't happen again--by adding new technologies and 
access, such as environmental monitoring away from declared facilities, 
to sharply increase the chances of uncovering secret nuclear weapon 
programs. The 93+2 program we have been negotiating in Vienna will do 
that. We hope to wrap up this long-sought initiative in May.
    We will press to ratio and implement the Comprehensive Nuclear Test 
Ban Treaty or CTBT.
    It is possible to make a nuclear weapon without testing. Remember, 
however, that our first nuclear weapon was so big that a trench had to 
be dug underneath the B-29 which was to carry it. Without testing, it 
is dramatically harder for anyone to advance to thermonuclear designs 
or to make weapons small enough to fit into a light aircraft, a 
rudimentary missile, or a terrorist's suitcase.
    The United States has conducted well over 1,000 nuclear tests--
hundreds more than any other country. So we gain security to the extent 
we lock all nations in place on the nuclear weapons learning curve. For 
any tiny increment in knowledge we might gain from more tests is 
dwarfed by the value of preventing tests by others--including rogue 
states who could derive quantum leaps of capability from even a few 
    Our most urgent priority is ratification of the Chemical Weapons 
Convention and adoption of the implementing legislation.
    The CWC will give us better tools to deal with some 20 countries--
many hostile to the United States--that have active chemical weapons 
programs. As the Acting Director of Central Intelligence recently 
testified, its verification provisions will give us more information 
than we have now about threats we need to assess with or without the 
treaty. And the information will be actionable, because even possession 
of chemical weapons will be illegal, which is not the case now.
    The CWC will also help address the threat of terrorist use of 
poison gas. As Attorney General Reno said last month of the treaty and 
its implementing legislation, ``these new laws will help law 
enforcement agencies worldwide to investigate and prosecute chemical 
weapons-related activities, and improve chances of detecting terrorists 
before they strike.''
    Keep in mind that this treaty is not about U.S. weapons. A 1985 
law, signed by President Reagan, mandates destruction of the vast 
majority of our CW stockpile, which is underway. The treaty requires 
other countries to do the same. It is a bipartisan treaty, mandated by 
President Reagan and concluded under President Bush, who said last 
month, ``We don't need chemical weapons, and we ought to get out front 
and make clear that we are opposed to others having them.'' Now the 
treaty is being pushed for ratification by President Clinton.
    Our military wants it--as exemplified most recently by the strong 
support of General Norman Schwarzkopf, who led the troops facing poison 
gas in the Gulf War. The affected business community, most notably U.S. 
chemical manufacturers, strongly supports it. And so do the American 
people--by a margin of 84 to 13 percent, according to a recent Wirthlin 
Worldwide poll.
    And now we no longer have the option of delay. The CWC enters into 
force on April 29, with or without us. If we are not a party by then, 
the U.S. will have no place on the Executive Council. Americans will be 
ineligible to serve as inspectors. Americans now serving as head of 
administration, head of industrial inspections, and head of security 
will be removed, and those key jobs will go elsewhere. American 
chemical companies will begin losing trade to their overseas 
competitors--as much as $600 million, they estimate--as mandatory trade 
sanctions against non-parties phase in. We will not have access to the 
treaty's tools against rogue state and terrorist CW activities.
    Let me conclude on CWC with a broader point. The CWC is a priority 
for President Clinton not only for its own considerable value, but 
because failure to ratify would be a grave, self-inflicted wound for 
our country. For the United States is the world's leader--in building 
global coalitions, in enforcing strong export controls, in fashioning 
international regimes against all weapons of mass destruction. We led 
in negotiating the CWC under the Reagan and Bush administrations.
    With proliferation dangers rising, there could not be a worse time 
to weaken America's hand. I can't imagine a worse time to tell the 
world, we're less interested in fighting proliferation than in fighting 
among ourselves.
    I say this on behalf of people who deal with these problems 
routinely--not as a genteel intellectual exercise or political outing, 
but in the trenches--where shipments are made or stopped, where other 
countries listen or turn a deaf ear, where negotiations succeed or 
    It is from this intensely practical perspective, among others, that 
we need the Convention. For it is unavoidable that if you want results 
in our global efforts against proliferation and terrorism, you'll get 
less if this treaty fails--both because we won't have the tools in the 
CWC, and because our leadership and effectiveness will be depleted 
across the board.
    The campaign against the CWC is effectively a far broader assault: 
against our ability to follow through at home on what we have urged 
abroad--against our claim to global leadership against all weapons of 
mass destruction and terror.
    So I urge the Senate to act promptly on the Convention, and I also 
urge this Subcommittee and the Congress to act as quickly as possible 
on implementing legislation--to help us keep chemical weapons off 
future battlefields and streets.
    We are working hard to enhance compliance with the Biological 
Weapons Convention (BWC).
    Biological weapons are often grouped with chemical weapons; but, in 
my view, their destructive potential is more like that of nuclear arms. 
Chemical weapons become less lethal as they are dispersed; biological 
weapons are living things. So, in the right environment they can 
multiply, mutate, and resist treatment.
    The 1972 Biological Weapons Convention has broad prohibitions, 
but--unlike the CWC--lacks teeth. To further deter violations, the U.S. 
has supported a negotiation to achieve a legally binding protocol of 
mandatory measures to enhance compliance, including both off-site and 
on-site measures. We are aiming for a legally-binding protocol by 1998.
    Even though treaties such as the BWC are aimed against countries, 
they and their implementing legislation can have important anti-
terrorist uses at home. In 1995, for example, a member of a hate group 
in Ohio fraudulently ordered the bubonic plague bacillus by mail from a 
specialized supplier in Rockville, Maryland. The order was filled. But 
the supplier also notified law enforcement officials, who, in turn, 
searched the would-be terrorist's home, and stymied whatever plans he 
was brewing. This happened, in part, because of a law, the Biological 
Weapons Anti-Terrorism Act, which is on the books because of the BWC.
    Finally, another leading priority is our work in the Conference on 
Disarmament to negotiate a global ban on antipersonnel land mines.
    If you consider the potential of arms to inflict damage, you are 
obviously drawn to weapons of mass destruction, which can wipe out 
whole cities at a time. But if you consider their actual impact, you're 
drawn to conventional weapons, which routinely are wiping out whole 
cities, a few people at a time.
    Antipersonnel landmines are scattered across the globe. They kill 
or maim some 25,000 non-combatants every year--mostly children playing 
or farmers returning to their fields, long after a war is over.
    Last year the United States led a successful international 
negotiation to prohibit anti-personnel mines that can't be detected, 
and unmarked anti-personnel mines that don't self-destruct and self-
deactivate. Now we are pressing ahead to fulfill the President's call 
for negotiations leading to a complete ban on the use, stockpiling, 
production and transfer of anti-personnel landmines. We are determined 
to meet President Clinton's charge to the UN last September, that our 
children deserve to walk the earth in safety.
    Mr. Chairman, I have been grateful for the determined and 
productive leadership of Senator Leahy on the land mine issue for a 
number of years in the Congress and internationally. He described it in 
a letter to me shortly after President Clinton an- 
nounced the U.S. goal of eventual elimination of antipersonnel 
landmines, ``There are at least 85 million unexploded landmines in over 
60 countries, where they cause immense suffering among local people and 
pose a grave danger to returning refugees, humanitarian relief workers, 
and United States troops whether engaged in combat or as part of 
international peacekeeping operations.''


    As we pursue these and other arms control advances, we must attend 
to something perhaps less glamorous, but certainly no less important--
arms control implementation, or the steady work of translating the 
gains agreed to on paper into real results on the ground.
    Functionally, implementation, not negotiation, is where most of the 
action takes place in arms control--in monitoring behavior, evaluating 
intelligence and inspection reports, challenging misconduct, resolving 
issues of interpretation, and reporting on compliance to the Congress 
and the American people.
    And as we succeed in negotiations, we are piling up arms control 
implementation and verification requirements. A number of recent 
agreements--such as Conventional Forces in Europe, Open Skies, INF, 
START I and START II, the Chemical Weapons Convention, the 
Comprehensive Test Ban Treaty--are joining older agreements such as the 
ABM Treaty and the NPT to create a prodigious architecture of 
international arms control law. Realizing its full potential is 
becoming a momentous mission.
    With my South Dakota farm roots, I think of this as the arms 
control ``harvest,'' where we actually reap the benefits of all the 
work that has gone before. It is work specifically assigned, by law, to 
ACDA. It occupies more and more of our time. And while it is a national 
security bargain, it is neither effortless nor free.
    We implement our agreements scrupulously. I see no sign that the 
Congress wants us to relax or let down our guard. We must finish the 
jobs we have started.
    For this, after all, is what arms control means to Americans. They 
know that arms control agreements represent only the promise that an 
adversary's arsenals will be avoided or destroyed--that the promise 
isn't kept until those arsenals are actually taken down. And they 
understand something that we inside the Beltway often forget: After the 
Rose Garden ceremonies have ended, and the strains of ``Hail to the 
Chief'' have died away, the heavy lifting has just begun.


    Notwithstanding this expanding mission, ACDA is a streamlined 
    ACDA is committed to efficient and effective arms control. We are 
able to do more with less in part because we have set priorities 
through a strategic planning process that is now in its third year.
    ACDA developed a strategic plan three years ago because we saw the 
need for such a plan as the agency identified two major objectives: to 
implement an expanding arms control agenda and to downsize.
    Therefore, I note with interest the fact that the Government 
Performance and Results Act (GPRA) of 1993 starts this year. ACDA 
welcomes this opportunity to consult with the Subcommittee on the 
strategic plan that we have already been implementing. ACDA is 
committed to working with this Subcommittee to improve our efficient 
and effective operation thereby enhancing the contributions we make to 
U.S. national security.
    To date, we have reduced our annual operating budget by $2 million. 
We have reorganized internally to eliminate unnecessary management 
layers and streamline for a more efficient and effective operation.
    ACDA has also worked with the Department of State to eliminate 
unnecessary duplication by reorganizing, eliminating duplication, and 
coordinating all arms control and nonproliferation work. This on-going 
joint ACDA/State dialogue has resulted in both ACDA and State 
continuing to make their respective unique contributions to national 
security while saving hundreds of thousands of dollars by sharing 
scarce resources and avoiding unnecessary expenditures. For example:

   In our Geneva operations we have moved our Conference on 
        Disarmament Delegation from commercial office space in the 
        Botanic Building into the U.S. mission for a savings of 
        $750,000 per year;
   ACDA has eliminated administrative duplication with State in 
        the areas of document and treaty retrieval and dissemination of 
        diplomatic and other communications; and,
   ACDA has closed its library by transferring it to the State 
        Department's library, and has eliminated its photographic 
        services by out sourcing with State as needed.

    As a small, nimble organization, we have also continuously 
restructured ourselves to meet new objectives as earlier ones are 
achieved. For example, once the recent NPT and CTBT agreements were 
achieved, the divisions assigned those missions were realigned to work 
on other challenges. We have also worked closely with our colleagues in 
the Department of State to ensure that missions are assigned to those 
best qualified to perform them.
    For Fiscal Year 1998, the Administration is requesting $46.2 
million for ACDA's responsibilities. This request provides $42,058,000 
for ACDA's ongoing activities and $4,142,000 for new activities related 
to CTBT, CWC, and NPT, which address some of the most dangerous 
proliferation threats.

   $2.8 million will partially fund the CTBT Preparatory 
        Commission's work to establish the Treaty's verification 
        regime, including networks of seismic, radionuclide, 
        hydroacoustic, and infrasound sensors.
   $892,000 is for the Office of National Authority for the 
        Chemical Weapons Convention, needed under the treaty to compile 
        declarations and reports, interact with the OPCW, and provide 
        administrative support for U.S. implementation activities.
   $250,000 will support preparation for the Nuclear 
        Nonproliferation Treaty (NPT) Review Conference. The first 
        preparatory committee meeting takes place in New York this 
   $200,000 is to address special requirements of ACDA's Data 
        Repository. We need to upgrade our technical capabilities in 
        order to keep pace with the many treaties now entering 

    Leaving aside these special requirements, our FY 1998 operating 
budget request of $42 million is $2 million less than our appropriation 
four years ago. Our FY 1998 request also represents a reduction of 
another 10 positions from the FTE personnel ceiling established for the 
FY 1997 Budget.
    These reductions in both funds and personnel are part of the 
Administration's systematic right-sizing initiative across the federal 
government. And ACDA continues to look for ways to enhance productivity 
and provide more efficient and effective arms control to the U.S. 
taxpayer. I will cite a few examples and invite your attention to the 
attachment for more.

   We consolidated most of ACDA's export control functions into 
        a single Division and implemented a new licensing referral 
        system, resulting in faster processing time.
   We dual-hatted personnel among the CTB, Fissile Cutoff, and 
        Landmines initiatives without adding new personnel.
   We have implemented a system for computerized storage and 
        retrieval of policy documents and decisions. Now, within 
        minutes, we can retrieve information which once took days.
   Over the past four years, ACDA has completely modernized its 
        computer systems without increasing our annual budget request. 
        This achievement prompted the computer industry to rank ACDA as 
        the first among all federal agencies in terms of a working 
        environment for computer professionals.

    Mr. Chairman, I want to point out that ACDA has been working hard 
to reduce its administrative support infrastructure. Over the past 
three years our downsizing and streamlining efforts have eliminated a 
total of 28 authorized administrative positions in our domestic and 
overseas offices.

   Domestically, we have reduced administrative support by 23%, 
        or 19 support positions.
   Overseas, we have reduced administrative support by 45%, 
        eliminating another 9 positions.

    This reflects both internal economizing and the results of Vice 
President Gore's National Performance Review, which reaffirmed ACDA's 
importance to effective arms control, but also set specific 
requirements for consolidating administrative functions across the 
foreign affairs agencies. We have taken that mandate seriously. We are 
also keeping faith with the Arms Control Revitalization Act of 1994, 
reflecting the shared view of the President and the Congress that U.S. 
national security in the post-Cold War world requires a revitalized 
    We are continuing to search for ways to operate more efficiently. 
For example, in legislation submitted on February 14, 1997, we propose 
a number of changes which should result in additional efficiencies and 
savings beyond the $2 million already specified. These changes would 
eliminate a redundant report, streamline our publication efforts, and 
achieve economies in our security clearance process.
    Mr. Chairman, ACDA is a small, expert agency charged with 
advocating, negotiating, implementing and verifying arms control. Next 
year we will have less than 250 people, plus detailees. We have a 
continuous presence only in Washington, Geneva, Vienna and The Hague.
    That means I'm as concerned about the State Department and other 
150 budgets as about ACDA's own. For we are among the many who throw 
our voice abroad through others, especially State's embassies and 
missions. And very often we need that voice in remote places. On the 
NPT extension, for example, Micronesia's vote counted exactly the same 
as China's.
    On this basis, I also urge your careful attention to the budgets of 
all the foreign affairs agencies, including ACDA's.


    Mr. Chairman and Members of the Subcommittee, few doubt that the 
world today still bristles with Cold War overarmament--and faces new 
dangers of proliferation, terrorism, convulsive nationalism, 
environmental pressures, drug trafficking, and many others that 
directly affect us.
    Those challenges require ever more effective diplomacy--what Hans 
Morgenthau called ``the most important'' component of a nation's 
international power.
    And they demand that we work together--even when our government is 
divided--in fashioning the kind of unified foreign policy that befits a 
great power in a perilous world.
    It is in that spirit that ACDA presents to you the Administration's 
request of $46.2 million to fund its arms control and nonproliferation 
work in Fiscal Year 1998.



   Led the successful USG preparations for and managed the U.S. 
        delegation to the Extension Conference of the Nuclear Non-
        Proliferation Treaty -- the fundamental basis for our nuclear 
        nonproliferation policy. The decision of the Conference, taken 
        without a dissenting vote, made permanent this indispensable 
        legal and political barrier to the spread of nuclear weapons.
   Led interagency efforts that resulted in strengthened 
        security assurances for non-nuclear weapon states party to the 
        NPT through action by the President and adoption of a Security 
        Council resolution, steps which enhanced the NPT and 
        contributed to achievement of its indefinite extension.
   Managed USG policy (through backstopping and representation 
        on the U.S. delegation) for successful negotiation of a 
        Comprehensive Nuclear Test Ban Treaty.
   Managed USG policy (through backstopping and heading the 
        U.S. delegation) for negotiation of a legally-binding protocol 
        to strengthen the Biological Weapons Convention.
   Continued to manage U.S. participation in the Chemical 
        Weapons Convention Preparatory Commission and organized the 
        U.S. Office of National Authority for implementation when the 
        United States ratifies the CWC.
   Managed USG policy (through chairing backstopping) for 
        negotiations of a future Fissile Material Cutoff Treaty.
   Managed USG policy preparations for negotiation in the 
        Conference on Disarmament in Geneva of a comprehensive ban on 
        Anti-Personnel Land Mines.
   Led USG participation in negotiations leading to the African 
        Nuclear Weapons Free Zone and coordinated interagency 
        preparation of legal documentation for U.S. signature to its 
        protocol. Coordinated preparation of legal documentation for 
        U.S. signature to the protocol to the South Pacific Nuclear 
        Weapon Free Zone.
   Contributed significantly to the IAEA's ability to detect 
        undeclared nuclear activities by leading U.S. Delegation to 
        IAEA committee on strengthening international nuclear 
        safeguards (more than 65 countries; final agreement expected in 
        May 1997).
   Developed and negotiated with North Korea procedures for 
        dealing with plutonium bearing spent fuel to ensure its safe 
        storage under IAEA safeguards and continue to coordinate U.S. 
        support for IAEA activities in North Korea.
   Provided essential technical and nonproliferation policy 
        expertise leading to enhanced transparency measures for the 
        agreement to purchase HEU from Russia, the end of production of 
        weapons-grade plutonium, and setting of the direction for 
        international cooperation within the G-7 to help Russia secure 
        and ultimately dispose of its excess weapons plutonium.
   Led interagency efforts to develop a verification regime for 
        the agreement to end permanently Russian production of weapons-
        grade plutonium and led the technical team that successfully 
        negotiated these provisions.
   Initiated and implemented a training program on arms control 
        verification for the Korean Arms Verification Agency to enhance 
        regional arms control; a similar program has been approved for 
        delivery to Chinese arms control officials.
   Ensured restoration of funding for several NTM systems, 
        including COBRA DANE and COBRA JUDY radar systems, assets vital 
        to the verification of compliance with arms control agreements.
   Became the sole USG entity responsible for developing, in 
        coordination with other national security agencies, the 
        analysis of other nations' compliance with arms control 
        agreements and the assessment of the verifiability of arms 
        control provisions.
   Coordinated USG arms control research and development 
        through the Nonproliferation and Arms Control Technology 
        Working Group, for which ACDA is the Executive Secretary and 
        co-chair (with DOD and DOE).
   Played a key role in developing U.S. policies which led to 
        START I Treaty entry into force, the withdrawal of nuclear 
        weapons from the territories of Belarus, Kazakstan, and 
        Ukraine, and the accession to the Nuclear Nonproliferation 
        Treaty as non-nuclear weapon states by those same countries.
   Managed the negotiation of the START II Treaty, which 
        increases national security by providing for a dramatic 
        reduction in the total number of strategic offensive arms as 
        well as prohibits heavy ICBMs and multiple warhead ICBMs.
   Played a leading role in advocating U.S.-Russian 
        negotiations on nuclear warhead controls and monitoring to 
        reduce the threat of ``loose nukes,'' now a key component of 
        the U.S. post-START II strategic arms control negotiating 
   Led and managed policy implementation of the INF and START 
        Treaties. For example, the Joint Compliance and Inspection 
        Commission (JCIC), for which ACDA provides the U.S. 
        Representative, has concluded to date a number of documents 
        clarifying START Treaty provisions and codifying agreement on 
        procedures mandated by the Treaty.
   Provided the U.S. Representative to the CFE Review 
        Conference, the U.S. chief delegate to the CFE Joint 
        Consultative Group, and the U.S. Representative to the Open 
        Skies Consultative Commission in Vienna.
   Provided U.S. Representatives to the Comprehensive Test Ban 
        Treaty Organization, the Preparatory Commission of the 
        Organization for the Prohibition of Chemical Weapons, the 
        Conference on Disarmament, and the U.S. head of delegation to 
        the Biological Weapons Convention Ad Hoc Group.
   Provided the U.S. Representative to the Special Verification 
        Commission (INF Treaty) and the U.S. Commissioner for the 
        Standing Consultative Commission (ABM Treaty). ACDA also 
        provides the head of delegation, delegation executive 
        secretary, and technical experts for State-led delegations on 
        nuclear transparency, plutonium production cessation, and 
        related activities.
   Provided staff support for both the U.S. delegation and the 
        international staff in supervising implementation of Article IV 
        of the Dayton Accords in Bosnia.
   Ensured that nonproliferation equities were taken into 
        account so that the use of the Global Positioning System would 
        not be used for providing guidance to, and improving the 
        accuracy of, missiles employed by governments with interests 
        inimical to the United States.
   Ensured that U.S. National Space Policy took account of arms 
        control treaty equities regarding the use of space, and sought 
        to ensure that the National Space Policy adequately guarded 
        against military activities in space by governments with 
        interests inimical to the United States.
   Commenced a dialogue with China on strategic and other arms 
        control issues as a component of the United States strategy of 
        constructive engagement.



   Reduced the administrative support infrastructure by 
        eliminating 19 FTE within the Offices of Administration, Public 
        Affairs, Congressional Affairs and General Counsel since FY96. 
        This represents a 23% reduction in these domestic support 
        offices. Additionally, since FY95, nine administrative 
        positions, representing a 45% reduction, were eliminated 
   Avoided a capital investment of approximately $90,000 and 
        sourced referral and counseling services through an MOU with 
        the Department of State for ACDA use of the State Career 
        Development and Resource Center.
   Reduced the number of executive vehicles by 50% and 
        apartments overseas by 40%.
   Consolidated office space in Geneva into the U.S. Mission 
        for a savings of $750,000.
   Supported USG preparation for participation in the 1995 NPT 
        Review and Extension Conference through reorganization and 
        identification of temporary resources; after the Extension 
        Conference was successfully completed, reorganized again to 
        optimize ability to address other nonproliferation challenges.
   Reduced number of ACDA personnel in The Hague (CWC PrepCom 
        Delegation) by acquiring detailees for permanent change of 
        station from other agencies.
   Co-chaired with OSD the task force for development of 
        verification elements of BWC Protocol.
   Dual-hatted the ACDA representative as the Deputy Head of 
        the U.S. Delegation to the Conference on Disarmament and the 
        IVI Bureau representative as the Deputy Head of the U.S. 
        Delegation to the Biological Weapons Convention Ad Hoc Group, 
        consolidating administrative and functional responsibilities 
        and saving personnel slots; and dual-hatted ACDA staff among 
        CTBT, UNFC, Fissile Cutoff and Land Mines activities, allowing 
        absorption of additional backstopping responsibilities without 
        personnel increases.
   Absorbed Office of National Authority requirements for CWC 
        implementation into existing manpower structure.
   Reduced overall personnel requirements by two people by 
        managing inter-bureau task force on Fissile Cutoff 
   Consolidated the Agency role in the development and 
        implementation of verification and compliance policy within a 
        single bureau, the Bureau of Intelligence, Verification, and 
        Information Management.
   Consolidated most of ACDA's export control functions into a 
        single ACDA Division and implemented a new automated 
        interagency export licensing referral system for dual-use goods 
        and technologies, under Executive Order 12981, achieving 
        unparalleled processing time.
   Consolidated ACDA's Vienna operations for CFE 
        implementation, OSCE, Open Skies, and Bosnia (Dayton Article 
   Eliminated a division and its division chief SES position by 
        transferring the Defense Conversion Division from NP and 
        incorporated it within SEA's Strategic Transition Division.
   Eliminated the International Security Division of the Bureau 
        of Multilateral Affairs by dividing its functions among the 
        remaining divisions of that Bureau.
   Avoided expensive duplication by using the State Department 
        and Diplomatic Telecommunications Service communications lines 
        to connect ACDA computers to overseas delegations.
   Decreased the need for paperwork and meetings on 
        intelligence and technology matters and increased dramatically 
        the amount and kinds of information that will be made available 
        to interagency delegations by working with DOD and the 
        Intelligence Community to establish connectivity to Intelink, 
        Intelink-S, and SIPRNET.
   Saved hundreds of thousands of dollars by jointly developing 
        with the Department of Commerce the Chemical Weapons Convention 
        data declaration software.
   Reduced costs for both ACDA and State by jointly developing 
        with the Nuclear Risk Reduction Center the CWC communications 
   Streamiined and sped the formulation, implementation and 
        recording/reporting of arms control and nonproliferation 
        deliberations and policies and eliminated reliance on tedious 
        outdated processes by implementing a system to enhance 
        accountability for and rapid access to sensitive diplomatic, 
        Presidential and Executive Branch arms control and disarmament 
        correspondence, decisions and policies.

    Senator Grams. Thank you very much, Mr. Holum. We will 
begin a couple rounds of questioning, and maybe hold them to 
about 7 or 8 minutes each, so we can get through a number of 
questions with you before the half hour.
    Director Holum, as I said in my opening statement, the 
subcommittee will not be questioning you today at all on the 
specifics of any particular proposal to reorganize the State 
Department and its related foreign affairs agencies, but this 
issue has come up repeatedly in earlier hearings that have been 
held by me and by Senator Chuck Hagel, who is Chairman of the 
Subcommittee on International Economic Policy. So therefore I 
would just like to ask you, is it your understanding that the 
administration is developing a reorganization plan for U.S. 
foreign affairs agencies, and that this proposal will be 
presented to Congress?
    Mr. Holum. We are certainly looking very hard at how we can 
restructure and integrate our functions in the most effective 
and efficient way to carry out the various missions of the 
Department of State and the three foreign affairs agencies. It 
is premature, I think, to forecast a specific outcome of that 
review, but it is consistent with Secretary Albright's 
testimony during her confirmation hearing that she wanted to 
examine these issues carefully. I think we have a continuous 
obligation to do that.
    The extent to which any change would require legislative 
authorization is still an open question. There are a lot of 
things, obviously, we can do, including the streamlining we 
have done under the Gore Reinvention Plans, without legislative 
authority, but it is something we obviously want to work on 
with the Congress. We certainly want to hear your views, as 
well as present our ideas.
    Senator Grams. In that respect, has there been an effort to 
actively seek your input specifically into any of this 
development of a proposal?
    Mr. Holum. Yes.
    Senator Grams. So you have been talking to them?
    Mr. Holum. Yes.
    Senator Grams. When the Foreign Relations Committee 
considers legislation to streamline our foreign affairs 
agencies and reduce duplication of services, we will look to 
steps, if any, that ACDA of course has undertaken to eliminate 
duplication within its sister agencies. But, as you know, ACDA 
already relies on the State Department's Inspector General for 
audits and investigations. In its fiscal year 1998 budget, your 
agency is requesting a total of about $15 million to employ 63 
staff in its offices of administration, Congressional affairs, 
general counsel, and public affairs.
    So what attempts has ACDA made to insure that these 
functions do not overlap with State Department activities?
    Mr. Holum. As I mentioned in my statement, Mr. Chairman, we 
have eliminated roughly 28 total, including overseas and 
domestic, administrative positions. We have also eliminated 
positions in the Office of Public Affairs. So we are scaling 
back in those areas.
    One of the consequences of our legislative mandate is that 
we conduct public information activities, so I hesitate to say 
that ACDA is excessive in that area. We, for example, maintain 
a Web page and we circulate a lot of information. We have 
thousands of requests annually from the public, so a lot of our 
work is devoted to serving those concerns. But we are 
continuing to streamline in all of those areas.
    I might mention that in terms of consolidating 
administrative services, it is not always a case of 
consolidating into the State Department. In the case of the 
motor pool in Geneva, a rather mundane subject but nonetheless 
important, and expensive, the decision was made that the ACDA 
operation was more efficient. So on the basis of that, the 
State mission in Geneva has relied on our motor pool for their 
services. But that is the kind of activity that is under 
continuous review.
    Senator Grams. So in other words are you saying that ACDA 
has explored ways of relying on existing offices within the 
State Department for some of these functions in an effort to 
find some cost savings, that you are looking at ways to 
integrate and to use those facilities or officials when 
possible, and vice-versa?
    Mr. Holum. That is right. And in fact that was one of the 
mandates that came out of the Reinvention examination of the 
foreign affairs agencies under Vice President Gore. We looked 
at thirty-some administrative areas. In many of those cases, 
because we are physically inside the State Department and 
because we do not maintain a presence continuously in more than 
three places abroad where we have negotiating missions, we are 
already heavily integrated with the State Department and have 
been historically, but we looking at more. As you said, the 
Inspector General of ACDA and State have been merged, and that 
has been true for a number of years.
    Senator Grams. So, as you said, we will look forward to the 
details on that type of activity. When it comes to 
streamlining, ACDA's Inspector General determined, it was back 
in August 1995, that, quote, ``ACDA's overall response has been 
slow,'' and that, quote, ``even the modest proposals made by 
the National Performance Review Task Force have not yet been 
implemented.'' That judgment seems to have been reiterated in 
an October 1996 IG report which stated that ACDA's actions have 
not yet resulted in a net reduction of full-time equivalent 
    ACDA's fiscal year 1998 budget request contemplates a cut 
of 10 positions, but in the 1995 Pell report ACDA declared 
that, quote, ``our streamlining will eliminate 34 full-time 
equivalent positions.'' Do you contemplate any further 
personnel reductions in the future then?
    Mr. Holum. We are about to submit a final duplication 
report that was mandated in a House Appropriations subcommittee 
report. We have gone through a very diligent and careful effort 
to eliminate duplication and overlap.
    One of the things that is difficult to get a handle on is 
the extent to which people might be working on the same thing 
in State and ACDA generally but doing different work related to 
it. A good example is our delegation to the International 
Atomic Energy Agency that monitors safeguard agreements under 
the Non-Proliferation Treaty. The U.S. Governor for that agency 
is a State Department official. Our Ambassador to the 
international organizations in Vienna is a State Department 
official. But the technical expertise and the delegations that 
go over to negotiate the details of changes in safeguards are 
ACDA personnel with a long technical history in the area. You 
could say that they are all duplicative in the sense that they 
work on the same thing, but they do different work. We need to 
be careful not to just eliminate on the basis of line items of 
    What the first duplication report concluded was that there 
were some 37 people in the State Department working on arms 
control, the primary mission of ACDA, and half of those were 
affiliated with the Nuclear Risk Reduction Center, which is an 
administrative function that the whole government relies on. Of 
the others, many, I think all but nine have since been 
eliminated. We have also since eliminated a number of 
positions, and we are in compliance with the Inspector 
General's requirement.
    Senator Grams. I would just like a quick follow up. How 
many of the ACDA 28 personnel reductions were full-time 
equivalent, compared to part-time or temporary staff? Do you 
have those numbers?
    Mr. Holum. There were 19 full-time equivalent personnel.
    Senator Grams. Thank you very much. Senator Feinstein.
    Senator Feinstein. Thanks, Mr. Chairman. Mr. Holum, some on 
this committee have questioned whether ACDA is the most 
appropriate agency to house the Office of National Authority 
for the Chemical Weapons Convention. Assuming, of course, that 
this body ratifies the treaty, which I hope we will, does ACDA 
provide any special expertise or abilities that make it the 
best or most logical place for this office to be housed, and 
what would be lost if it were located somewhere else in 
government, such as in the Departments of Defense or Commerce?
    Mr. Holum. The Office of National Authority is, as you 
know, the agency that interacts between the United States and 
the international body. ACDA will provide the staff support for 
that, but the function will be an interagency function 
involving all the agencies that have responsibilities. I think 
the main reason why ACDA is the logical agency to do this, 
aside from the mandate of legislation assigning us the 
implementation function, is that ACDA is the agency that 
negotiated the treaty, and therefore has the deepest expertise 
in the substance of the treaty, and also in developing and 
being very frugal, I might say, in developing the Preparatory 
Commission activities that have been underway until now. I 
think it is most efficient to have the people that are 
knowledgeable and experienced do the work.
    If it were assigned elsewhere, the likely outcome would be 
that they would try to hire the people from ACDA who have been 
doing it, and it would mean we would lose some of our in-house 
expertise on chemical weapons and other issues because a lot of 
these people work on more than one thing.
    Senator Feinstein. Thank you very much. Given that the 
Comprehensive Test Ban Treaty cannot enter into force until 
India and North Korea have acceded to the treaty, could you 
describe your current negotiating efforts to implement this 
treaty? I think it is extraordinarily, very important. 
Yesterday I had a brief meeting with the vice foreign minister 
of North Korea, and made the point to him how important the 
agreement with respect to the nuclear power plant was in their 
country, and that it must be followed. He indicated their 
willingness to have peaceful reunification and confidence 
building with South Korea.
    I would be very interested in any comments you might be 
able to make which could update us both on the Indian situation 
and the North Korean situation.
    Mr. Holum. In the case of the test ban, actually, North 
Korea is a transition point in this answer because they are one 
of the indispensable countries for the entry into force of the 
test ban, along with India and Pakistan. Forty one out of the 
44 necessary countries have signed the treaty. We have a great 
deal of work to do to persuade the Indians that it is in their 
interest to ratify. I think if the Indians do, the Pakistanis 
will. They have said that they will not until India does.
    Our approach is a careful one, making clear to India that 
the test ban is consistent with India's long-standing position, 
going back to Prime Minister Nehru in the 1950's, that this is 
something that they have agitated and led for, and that it does 
not undermine their security interests. They have an interest, 
I think, in making sure that their neighbors do not advance 
their nuclear capabilities.
    Senator Feinstein. Not to interrupt you, but I do not 
understand why they would not ratify it, unless again it is the 
Pakistani situation, and what we are going to see is an 
    Mr. Holum. Well, they have given several reasons, a 
principal one being their concerns about China and their 
interest in preserving their nuclear option. But the test ban 
as such does not change their ambiguous nuclear posture. I 
think they will make this decision in the first instance based 
on their national security interests.
    They also make the argument that the Conference on 
Disarmament should establish a committee to negotiate a time-
bound framework for the elimination of all nuclear weapons. It 
is just not going to happen that way, that is a non-starter in 
terms of negotiations, and I think a way to prevent the test 
ban from entering into force and prevent progress rather than 
accelerate it.
    But we have 2 years, I am sorry, 3 years to work on this 
ratification issue. 2 years to ratify--the earliest it can 
enter into force is in 2 years, and then after a third year, if 
it is not in force, there can be a special conference to 
examine steps to encourage the further ratifications. We plan 
to be very active in all of those efforts.
    Senator Feinstein. Would you speak a little bit about North 
Korea, because if it is going to keep its agreement, there is 
no reason why it should not sign this treaty.
    Mr. Holum. That is right, and North Korea has not, to our 
knowledge and I think we would know, conducted any nuclear 
explosive tests. I have always maintained that as we go through 
and implement the agreed framework and freeze their nuclear 
facilities, that the implementation would be every bit as 
complicated as the negotiation of that framework, which is to 
say very complicated and very difficult. And it has proven to 
be that way. Political disruptions, any kind of event, can set 
things off track.
    But the bottom line is that we are satisfied that the 
agreement is being kept, that the reactors, the small reactor 
that was producing the potential for plutonium is shut down, 
that the canning operation is proceeding on the spent fuel so 
that it cannot be reprocessed, that the reprocessing plant is 
closed, and that the other re- 
actors are not being built. So, I think we have averted the 
threat of not only the material they diverted a couple of years 
ago, but the potential for a number of nuclear weapons every 
year to be produced out of those additional reactors.
    But it is not over yet. The end point is when the North 
Koreans will have the obligation to persuade the IAEA not only 
that they are not producing plutonium now, but to account for 
the discrepancies in their past behavior. And that has to 
happen before there will be the first item of value provided 
that will make the light water reactors operational. So we have 
a lot of work to do. The interim steps are being fulfilled, but 
this is a long way from over.
    Senator Feinstein. Could I ask one other quick question?
    Senator Grams. Sure.
    Senator Feinstein. The Ambassador from South Korea 
indicated to me his country's concern about an agreement for 
Taiwan to store their nuclear waste in North Korea. Could you 
tell us what you know about that agreement, and what 
precautions are being taken? Because all of that water flows 
north into the Arctic, and unless the nuclear waste is really 
properly stored it could present real hazards, I think, to a 
large area of that ocean bed.
    Mr. Holum. Yes. We are not supporting that idea at all, for 
the reasons you cite. There is a serious risk that the 
material, while probably not a proliferation risk, is a 
pollution risk, and there are very serious doubts about the 
capacity of North Korea to handle that material properly. I 
cannot go into much more detail in an open session about 
specifically what we know and where the transaction stands, but 
we can provide additional information either in a closed 
briefing or for the record.
    Senator Feinstein. If you could do that, I would appreciate 
it very much. I am very interested.
    Mr. Holum. I would be happy to.
    [The following material was subsequently supplied for the 
hearing record by Mr. Holum.]

    We first raised this issue with Taiwan Atomic Energy Council 
officials in December, 1996. These officials confirmed that they had 
heard a rumor of a deal involving the Taiwan Power Company (Taipower), 
but they assured us that before any such shipment could take place, a 
license would be required and that this would provide an opportunity 
for review.
    We subsequently had numerous discussions with various officials 
from Taiwan. We have consistently emphasized that we do have concerns 
about this shipment based on regional sensitivities, and that we want 
to ensure that (1) the transfer does not interfere, even inadvertently, 
with the IAEA implementation of the U.S.-DPRK Agreed Framework; and (2) 
that the transfer conforms to the safety and environmental aspects of 
the IAEA's Code of Practice on the International Transboundary Movement 
of Radioactive Waste.
    We have consistently urged Taiwan to discuss all aspects of this 
shipment with the IAEA. We understand that a team from Taipower visited 
Vienna last month for preliminary discussions, and we expect more 
consultations to follow.
    As we understand that no uranium or plutonium is involved, we have 
no reason to believe that this deal is a proliferation concern. 
However, Taiwan has invited the IAEA to make a special visit to Taiwan 
to confirm this, and we expect the IAEA to accept that invitation. We 
hope that the IAEA would be invited later to visit the disposal site to 
confirm the safe disposal of the material.

    Senator Feinstein. Thank you, Mr. Chairman.
    Senator Grams. Thanks, Senator. Back to some questions on 
staff, technical experts, Mr. Holum. In the July 1995 Pell 
report, you heralded the value of ACDA as an independent, 
technically competent arms control agency. In February 1995, 
ACDA declared to Congress its intent to, quote, ``strengthen 
its scientific and technical capabilities, coupled with new 
authority to hire specialized technical and expert personnel.'' 
Yet in August 1995 the Inspector General concluded that ACDA's 
managers have not considered it necessary to increase the 
proportion of scientific or technical specialists on its staff.
    When you look at an internal review of ACDA's staff in 
1994, it shows a total of 80 academic degrees in political 
science, government, and international relations, and that was 
compared to 57 degrees in the hard sciences. Now, the IG report 
said, again, quote, ``the agency's instinct to duplicate policy 
expertise already found in other agencies, as well as a 
disinclination to give higher priorities to scientific 
expertise, removes a creditable additional argument for its 
existence.'' So with that, what steps have you taken since then 
to reverse this imbalance, and also to try and ensure the 
majority of ACDA's personnel are trained scientific or 
technical specialists?
    Mr. Holum. Our ability to hire additional technical 
specialists depends to a considerable extent on where the 
vacancies occur. That is not the only skill we require. A lot 
of our work is in active negotiations, which requires the 
skills of a negotiator. A lot of our scientific personnel have 
developed those capabilities, but there are others who have 
them as well. So I would disagree with the notion that we 
should be completely dominated by technical staff. We are a 
negotiating body to a very large extent.
    As the positions open, we look very hard for qualified 
scientific personnel. Another thing we do is rely on our Foster 
Fellows Program, which is almost entirely made up of 
scientists, because our need for a particular expertise will 
change over time. When we are negotiating a compliance protocol 
for the Biological Weapons Convention, we need biological 
experts, experts in the biosciences. For the CWC, obviously, we 
needed chemists. What we do is go for the short-term period 
through the Foster Fellows Program, is bring in academics for a 
year. We also use consultants extensively for short-term 
    I will get you an updated figure on the proportion of our 
personnel, which I will be happy to do. My impression is that 
we have continued to look for qualified scientists, but I do 
not know the ultimate impact. Remember that we have been 
shrinking, so we have not been doing as much recruiting as we 
might otherwise.
    Senator Grams. I do not think the intent was that you be 
inundated with all technical experts, but you are satisfied, 
then, with the ratio, you believe, of the expertise that you 
need compared to administrative duties?
    Mr. Holum. What I can say is that when I look for technical 
expertise for a particular function, I do not find us missing 
it in the agency, that it is inaccessible. It is there. For 
example, ACOA has a former military officer who is one of our 
leading experts on chemical weapons. He is not a scientist, but 
because he has worked with these issues for the last 20 years, 
I would not trade him for a leading chemist because he knows 
the ins and outs of the disciplines that are relevant to the 
arms control mission. All I am saying is that it is not as 
stark a picture as one group does one thing and one group does 
    Senator Grams. ACDA's fiscal 1998 budget request included 
$2.8 million as an assessment that was to establish a 
preparatory commission for the Comprehensive Test Ban Treaty. 
Aside from the fact that I am concerned that the administration 
is seeking money for an organization established by a treaty 
for which the Senate has not given its advice and consent, 
there is also concern that money spent on this organization may 
be wasted. Entry into force of CTBT requires ratification by 
44, I think as Senator Feinstein mentioned, specific nations. 
One of these, India, has sought to block the CTBT at every 
step, vetoing it in the Conference on Disarmament, voting 
against it in the United Nations, and declaring that it will 
not sign the treaty. North Korea, again as the Senator 
mentioned, a similar case because the CTBT will not enter into 
force until these countries have ratified it.
    I believe swift implementation is unlikely, so how can you 
assure the subcommittee that ACDA is not requesting money for 
an organization that will have little to do for years to come, 
that is until India and North Korea agree to let the CTBT move 
    Mr. Holum. The basic premise is similar to the one that has 
been applied in the case of the Chemical Weapons Convention: 
that is, the treaty contemplates that once entry into force 
arrives, the ability to monitor compliance should be up and 
running. Therefore, we are beginning our own program to add the 
sensors that will be required by the treaty, including various 
kinds of sensors on United States territory. And we are anxious 
for others to do that because when the treaty enters into force 
we want the system to be operational.
    The amount requested for fiscal 1998 is $2.8 million. Our 
share of the operations of the CTBT organization, whose first 
year budget has just been funded, is 25 percent, and we think 
it is essential to have this structure ready for operation when 
the treaty enters into force.
    Senator Grams. One final question I would like to ask is, 
again I will go back to August 1995 when ACDA's Inspector 
General determined, and I quote again from that report, ``the 
utility of the many research projects commissioned by the 
agency have come into question as bearing little relation to 
the agency's priority goals and objectives. The policies 
established by the agency for its external research programs 
require that the research review board identify arms control 
issues over a 3 year planning period and select the external 
research necessary to support such issues. So far the process 
has not been undertaken.''
    So at the time ACDA was requesting $1 million in funding 
for external research projects. It seems that ACDA is still 
spending money on these projects since the fiscal year 1998 
budget request includes another $822,000 for external research. 
Has ACDA implemented the planning process referenced in the 
Inspector General's report?
    Mr. Holum. All of the recommendations in the Inspector 
General's report have been closed. There were 28 
recommendations and they have all been resolved but one. That 
one relates to the question of examining or predicting the 
costs of arms control treaty implementation.
    I can tell you that our external research budget is devoted 
to immediate and high priority matters. In fiscal 1977 we have 
allocated it for Comprehensive Test Ban implementation and 
verification studies, Chemical Weapons Convention 
implementation and verification, looking to the future of 
strategic arms control in START III and beyond, and studies on 
regional arms control issues which are a very important part of 
our mission.
    So we devote the money to high priority, current matters, 
number one and number two, this research is highly leveraged. 
Very often what we do is propose a small amount of ACDA funds 
that would be accompanied by large amounts of funds from the 
Department of Energy, Department of Defense, or another agency 
or the intelligence community to focus on a particular issue. 
So I think we get very good value for our research funding.
    Senator Grams. A lot of the concern was how they differ 
from the studies that are undertaken by the agencies such as 
DOE, the Defense Special Weapons Agency, et cetera. So it seems 
like it is duplicative, again, studies or projects.
    Mr. Holum. It is not duplicative, and in fact one of the 
things that I am proudest of that ACDA has been doing, and this 
is pursuant to the 1994 legislation, is basically being the 
organizer, the convener of a nonproliferation and arms control 
technology working group whose specific responsibility is to 
examine the possibility of both overlaps and gaps in our arms 
control and nonproliferation research. So we are working very 
hard, in fact I think improving dramatically across the board 
not only our own technical investigations and research, but 
roughly $5 billion of funds that are being spent on these 
subjects across the government. But in the case of our own 
funding, it is almost in every case seed money for additional 
studies by other agencies.
    I also want to say that we try first to find, because our 
amount is so small, to find somebody else to do this, to do the 
work that we need, and we look first to see if it has already 
been done. The technology working group helps us do that.
    Senator Grams. I am sorry I ran over my time a little bit. 
Senator Feinstein, I will turn to you. I know when you have to 
leave. If somebody from your staff wants to raise their hand, 
we will try and accommodate that.
    Senator Feinstein. Thank you, Mr. Chairman. Mr. Holum, I 
wanted to spend just a few moments on this changing world as we 
know it today. I know when TWA flight 800 went down some people 
reported seeing this streak in the sky, and we began to take a 
look and we found that there are something like 60 stinger 
missiles that could be launched from the shoulder in a small 
boat floating around unaccounted for. That is point one. There 
is also the question of the loose nukes that I spoke about very 
briefly that are moving around the world and no one really 
knows too much about. There is the India-Pakistan situation, 
where both countries have the potential and perhaps already the 
ability to be indigenous nuclear producers, and can launch 
devices within a couple of weeks. Then we move to the Aum 
Shinryko cult in Japan and the production of chemical weapons 
in a civilian society, let alone what we know about chemical 
weapons that are still being produced around the world. So the 
list of these new challenges kind of goes on and on.
    How has ACDA adapted itself, organizationally as well as 
substantively, to try to be pro-active and move ahead in this, 
quote, new world?
    Mr. Holum. I would say the major way we have done that is 
through the strengthening of our nonproliferation bureau and 
its expanded work, as mandated by the Congress, in dealing with 
the proliferation threat in dealing with export licenses in 
particular. Up until 1994 the agency had very often been 
excluded from review of sensitive export licenses, for example 
to countries like Iraq, which was a proliferation concern in 
that period. That is being remedied.
    The reason why the independent and purist, if you will, 
perspective of an arms control agency is important is because 
there may be a diplomatic reason why a military sale or an 
export, dual use export license should go through, and you need 
somebody there to say wait a minute, let us look clearly at the 
proliferation impacts. That is one of the things that we do 
more and more of.
    Senator Feinstein. Let me just stop you on this one point. 
OK, these are the legal movements of weapons. What is 
concerning me most are the illegal movements, the things that 
are found in flukes where you discover large caches of weapons 
that may be moving from one country to another. I think this is 
something to really be concerned about. How can you meet that? 
Does your budget allow for it? Do you consider this as part of 
your mission?
    I happen to believe, and I am just speaking for myself, 
that this is a major problem in the world today, and we had 
better be on top of it.
    Mr. Holum. Well, I personally believe that the most serious 
proliferation threat, certainly in the nuclear area, that we 
have to address is the danger that material coming out of 
nuclear weapons in Russia or out of research reactors scattered 
across the former Soviet Union, out of naval fuel facilities, 
will fall into the wrong hands. ACDA does not have the 
resources to deal with that issue exclusively, nor should we. 
It requires a whole range of answers, including by law 
enforcement agencies. We have an FBI office in Russia for the 
first time. Including, obviously, by the intelligence 
community, by military planning.
    But there certainly is an arms control role in dealing with 
strengthening safeguards of those materials, arguing for and 
negotiating for limitations on the production and secure 
storage, and ACDA is very much involved in that, but it is 
something that needs to involve all agencies with relevant 
expertise because the danger is so high.
    I hope that is responsive to your question.
    Senator Feinstein. Yes, except to this point. I think we 
are in a non-traditional time, and I think the seeds of 
potential future destruction can be well established in this 
non-traditional window of opportunity that is out there. Some 
agency--I understand law enforcement, I understand the FBI, I 
understand the CIA, I understand all of this--but somebody on 
behalf of this nation has to really take the responsibility. In 
terms of arms control, I think the whole kind of untapped area 
is the illegal movement of arms, and there I think we are way 
behind the action. I do not think we are ahead of the action. I 
do not think we have the intelligence sources that are 
    You say your agency really is not staffed to do this, and, 
Mr. Chairman, I would agree they are not staffed to do it, but 
in my opinion this is an unmet need out there and I think we 
have got to get cracking to take a look at it.
    Mr. Holum. I would make the argument that there is quite a 
bit going on.
    Senator Feinstein. Well, tell me who knew about Aum 
    Mr. Holum. I am glad you brought that back up, because that 
is one I would specifically want to refer to. There is not a 
silver bullet to deal with these issues. It requires a whole 
range of capabilities. That is one of the reasons why I think 
the Chemical Weapons Convention will help. I do not maintain 
that this treaty is even aimed at terrorism. Its purpose is to 
be a treaty that deals with chemical arsenals maintained by 
countries, and obviously terrorist groups do not join.
    But the treaty requires every country that is a member of 
the treaty to adopt domestic implementing legislation to make 
possession of chemical weapons against the law. It is not 
against the law here now, and it was not against the law in 
Japan at the time when the Aum Shinryko cult was buying 
chemical weapons precursors. That would be controlled by the 
treaty and would be controlled under implementing law on the 
market in Japan. Japan's reaction was to ratify the Chemical 
Weapons Convention and to pass, more particularly, the domestic 
implementing legislation.
    We have had experiences here to show how that can help. 
Under the Biological Weapons Convention, which does not have a 
verification regime but does have domestic implementing 
legislation, we have interrupted potential domestic terrorism 
using biological agents. In 1995 there was a case where a 
medical supply house in Rockville, Maryland got an order from 
an organization in Ohio for plague bacillus, and they filled 
the order but reported it to the authorities because of the 
domestic implementing legislation. They interrupted the 
shipment, which turned out to be, I think it was a skin head 
group that was trying to acquire this stuff.
    So I think it goes to the point that you need the whole 
range of additional tools, and obviously an enforcement 
determination, strong intelligence capabilities. And I agree 
with you, Senator, the non-traditional threats are the ones we 
need to worry about the most now.
    Senator Feinstein. Could I just ask one other question? 
Could you provide to this committee, and if you need to do it 
on a classified basis that is fine, I am also ranking on the 
terrorism subcommittee of Judiciary, how the specific 
components of the Aum Shinryko sarin gas was purchased, and 
from where it was purchased, and exactly how this was done?
    Mr. Holum. Sure. We can do that.
    Senator Feinstein. I appreciate that very much. Thank you. 
Thank you, Mr. Chairman.
    Senator Grams. I have just one clarifying question before 
you leave, Mr. Holum. Declassified statements by the 
intelligence com- 
munity make it quite clear that the CWC would not have done 
anything to stop that terrorist chemical attack in Tokyo. Is 
that true?
    Mr. Holum. I am not sure I agree. It is true that that is 
what the statements say, or the examinations say. But what I am 
referring to is the broader chilling effect of the domestic 
implementing legislation and the impact that might have had. 
You would still have to have law enforcement under that 
domestic implementing legislation. I started out by saying the 
treaty is not aimed at that kind of thing. I have said that I 
think it would help deal with that kind of problem.
    Senator Grams. So it would not provide the type of security 
or calming effect that we might have it projected to do?
    Mr. Holum. On the contrary, Mr. Chairman. My feeling is 
that the treaty, by giving us more information about the 
dangers, will cause us to be more prepared than we are. This 
treaty is not going to make the danger of chemical weapons, 
either by countries or terrorists, go away. What it will do is 
give us some additional tools to deal with those dangers, but 
those dangers will persist. There are going to be countries 
that will join and try to cheat, there will be countries that 
will not join. So we are still going to need to keep our guard 
up, and we are going to need the political will, and to amass 
the political will internationally to enforce the treaty.
    Senator Grams. I want to thank you for your time. I know 
you have to leave, but I just wanted to ask unanimous consent 
that this hearing's record be kept open for 3 business days for 
the submission of written questions by any member of the 
Foreign Relations Committee. Mr. Holum, I do not believe that 
these written questions will be unreasonable. Of course, in 
view of the fact that the Foreign Relations Committee is 
preparing the State Department Authorization Bill, I would just 
like to ask if you could assure this committee that you will be 
able to respond within a week of the submission to you?
    Mr. Holum. I am quite confident we can, and would be happy 
to do that. I would also like to submit for the record, if I 
can, more specific detail, if I did not ask to do that, on the 
breakdown of scientists and professionals.
    Senator Grams. We would appreciate that information.
    I have a couple of questions that I will submit in writing, 
and others have as well. So again, if you could promptly get 
them back to us so we can move ahead with this project.
    Thank you very much, Mr. Holum. I thank you for your time.
    Mr. Holum. Thank you.
    Senator Grams. Our next panel, again I want to welcome the 
Honorable Princeton Lyman, Acting Assistant Secretary of State 
of International Organization Affairs. Mr. Lyman, welcome to 
the committee. I want to thank you for taking your time to be 
here, and I would like to open it up for your opening remarks 
if you have those, and again just ask if you could keep them 
brief if possible. Welcome.


    Ambassador Lyman. Thank you very much, Mr. Chairman, and 
Senator Feinstein. First of all, let me express my personal 
appreciation and gratification for the support of the committee 
for my nomination. I am very honored. I am grateful also for 
the opportunity to testify this morning on behalf of the 
administration's request for our contributions to international 
organizations. I have provided the committee a written 
statement, and with your permission, perhaps that could be put 
in the record and I will just summarize some comments here.
    Senator Grams. It will be accepted into the record.
    Ambassador Lyman. Before going into the details, however, 
with your permission I would like to call attention to a 
presentation I heard just the other day on the child survival 
program, a program that involves both multilateral and 
bilateral donors and a major role by the private sector. As you 
know, this program has operated over 10 years with very strong 
bipartisan support, and it seeks to immunize children and 
provide other support to decrease dramatically the tragedy of 
child mortality. I learned in this presentation that because of 
this program 3 million children each year are now saved, 
children that would otherwise just a few years ago have died in 
    My wife and I know the pain of losing a child, so perhaps 
that is why I was so attracted to this presentation. Millions 
and millions of children are alive today, and so much terrible 
family pain and tragedy is avoided because of this 
collaborative effort. I raise it because it is a program of 
which we can all be proud. It has been a bipartisan effort. It 
involves international organizations such as UNICEF and WHO. 
USAID has been a major donor; the private sector--Rotary, 
Kiwanis--are involved in a major way. It is the kind of results 
that we all want from the U.N.
    When we talk of dreary things, if you forgive me, like 
budgets and reform and restructuring, we are all of us, as you 
said to me yesterday in your office, Senator, we are really 
talking about making the U.N. a strong, effective organization 
that delivers results like these to people, our people and 
people around the world. We want a U.N. that will deliver just 
as strongly as it does in this program of child survival in 
preventing new infectious diseases from spreading across the 
world, dealing effectively with the threats of terrorism and 
drugs, which have been discussed earlier, with corruption that 
robs countries of development and business of honest profits. 
We want a U.N. that helps in conflicts which cause such havoc 
and humanitarian disaster and send thousands upon thousands of 
refugees and migrants out of their country. This is what U.N. 
reform and U.N. support are all about.
    There is another aspect of our interest that I would like 
to call attention to. In the proposals that I will summarize 
shortly is our proposal to address the arrears problem. There 
are many reasons to do this, but the one that concerns me the 
most is the preservation of U.S. influence. And let me be very 
candid. Today the European Union countries provide 35 percent 
of U.N. finances, something the EU is very quick to point out. 
Japan provides nearly 18 percent. Together they provide more 
than half the funding for the United Nations, the specialized 
agencies like the FAO and for peacekeeping. They are our 
allies, and their contributions are a boost to our own 
    But we also differ on some issues, and in the economic area 
we are competitors and our interests do not always coincide. 
Many of the organizations that we are discussing today are 
charged with making findings, sometimes very technical but 
which have a major bearing on our trade. For example, FAO--
where the European commission is a member in addition to the EU 
member states--together with WHO sets the phytosanitary 
standards which govern much of the $60 billion of U.S. 
agricultural exports. At this very time FAO is studying the 
issue of biotechnology and its proper role in setting these 
standards. It is an issue of tremendous importance to our 
agribusiness industry, affecting virtually every State in the 
    Up to now the FAO has responded to these issues with the 
best evidence and on a scientific basis. Our voice has been 
strong. But agricultural interests in the U.S. are worried 
about the future if we continue to fall behind as others 
maintain their place. Today we owe FAO over $100 million in 
arrears, more than a full year's assessment. I want the United 
States to maintain its influence, its presence, its place in 
all these discussions, in all these decisions, so that they 
remain scientifically based and fully fair to our trade. We 
cannot concede our proper place.
    That, and a dozen other examples I might give, are the 
concerns that have led the administration to seek to deal with 
the arrears question comprehensively this year, to remove it 
from the international agenda, keeping the U.S. in a strong 
position wherever its interests are at stake.
    We are thus at a critical juncture regarding future U.S. 
participation in international organizations, but it is also a 
time of exceptional opportunity. We believe we can accomplish 
three ambitious and demanding tasks working together over the 
next few years.
    First, substantially reform and reinvigorate the system so 
that it can meet the challenges of the 21st century. Second, 
reassert and sustain American leadership. And third, reduce 
U.S. financial contributions to a politically sustainable level 
in the United States. And that is what our proposal is designed 
to achieve.
    In concrete terms we are proposing $969,491,000 to cover 
the full assessment of these organizations for the calendar 
year 1997, which we pay from our fiscal 1998 appropriations. 
For peacekeeping, $240 million, and I want to note that that is 
$66 million below last year's request. It is still vitally 
important, but we have been able to reduce the number of 
peacekeepers from 85,000 a few years ago to just over 25,000 
today. And for international conferences and contingencies, 
$4.9 million. Finally, and I know those are not the subject 
necessarily of our hearing today, international organizations 
and programs, our voluntary contributions, $365 million.
    At the same time, as you noted, Mr. Chairman, we are 
requesting that we pay in full the arrears that we recognize 
under the first two of these accounts, that is the 
contributions to international organizations and to 
peacekeeping. We are requesting $100 million in fiscal 1998 for 
this purpose, and an advance appropriation for fiscal 1999 of 
$921 million.
    I want to underscore the importance of all these requests 
because they all serve American interests. From your opening 
remarks, Mr. Chairman, and from those of the distinguished 
Senator from California, I think we are very much in agreement 
on the principles by which we should proceed to address these 
problems, because parallel to the provision of the funds that 
we have requested, the administration does indeed intend to 
continue its very vigorous pursuit of U.N. reform.
    Largely at U.S. instigation and indeed with very strong 
Congressional support, several significant reforms have already 
been introduced. We have a no growth budget in the United 
Nations, we have the creation of an inspector general function, 
we have substantial cuts in staffing, we have an informal 
moratorium on future global conferences, we have, as I said, a 
substantial reduction in the number of U.N. peacekeepers, and 
much closer review and consultation in the U.N. and with the 
Congress on any new or expanded peacekeeping operation. But we 
still have a long way to go, and we know that.
    We are pursuing a broad range of reforms designed to 
introduce better efficiency and budgetary discipline in every 
part of the U.N. system in which we operate, in UNCTAD, in the 
economic commissions, and in the specialized agencies. On the 
budgetary front in particular, and parallel with this funding 
request, we seek this year to cut overall U.N. costs and the 
U.S. share of these costs. It is particularly timely this year 
because in these next few months the budgets for the 
specialized agencies will be established for the 1998-'99 
period, affecting our contributions in our fiscals 1999 and 
2000. And this is the year in which the scale of assessment 
will be set for the next 3 years. So this is the year, if we 
are going to not only bring about budget discipline but lower 
the share of U.S. costs.
    We have put on the table at the U.N. in New York a proposal 
to do that, to do two things: To get the U.N. to recognize the 
congressionally mandated cap of 25 percent on peacekeeping, and 
to bring our regular assessments down closer to 20 percent. 
That is going to be debated and it is going to be a tough 
debate, and we need your help. We have had support from allies, 
from others, from the Secretary General, from the U.N. General 
Assembly President, whom I think you met here in Washington not 
long ago, to carry out these and other reforms. But everybody 
says to us the same thing, we have to have a commitment from 
the United States that your arrears are going to be paid and 
this future funding arrangement will be one on which we can 
    That is why we have asked for the good faith indications 
present in both the FY-98 request and the advance 
appropriation. We think we need that leverage this year, indeed 
in the next few months, to carry out these reforms. I think 
with that we are going to get them, I really do.
    I just want to say, Mr. Chairman, in closing, that, as you 
know, the Secretary has emphasized how important this is for 
the administration for our overall foreign policy. She 
welcomes, as do all of us in the administration, the formation 
of the leadership group to work with her and Ambassador 
Richardson and ourselves on this. I want to assure you, Mr. 
Chairman, on behalf of the administration, that we want to work 
with the relevant committees who authorize and appropriate 
throughout this process. This has to be a collaborative 
process, it has to be one in which we reach an agreement on how 
to proceed.
    On that basis, Mr. Chairman, I am more than happy to answer 
any questions that you have. Thank you.
    [The prepared statement of Ambassador Lyman follows:]
                 Prepared Statement of Ambassador Lyman
    Mr. Chairman, members of the subcommittee;
    I am grateful for this opportunity to testify before the 
subcommittee in support of the Administrations request for funding for 
international organizations and conferences for fiscal year 1998. This 
is considerably more than a routine funding request, and I hope to be 
able to use this session to explain what we are trying to achieve by 
it. Let me note at the outset that Secretary Albright and other 
Administration representatives are looking forward to the meeting with 
the Congressional leadership later today to engage more fully on 
proposals for reform of the United Nations.
    We are at a critical juncture regarding future U.S participation in 
international organizations, especially the United Nations system. As 
recent experience has shown, the and its affiliated organizations are 
vitally important for the United States, as a forum for pursuing our 
broad policy goals in such diverse areas as security, trade and human 
rights, and as a source of practical benefits to the American people 
and American business. For example:

   The UN has helped to end civil wars and build democracy 
        throughout the globe, notably in several Central American 
        countries close to our own borders; massive flows of refugees 
        from these countries can now be concluded;
   The World Health Organization, having eradicated smallpox at 
        a savings to the U.S. of more than $300 million annually in 
        immunizations costs, is now embarked on a similar worldwide 
        campaign against the scourge of polio;
   The Food and Agricultural Organization sets quality and 
        safety standards that help protect American consumers and 
        facilitate U.S. food exports, which earn us more than $60 
        billion annually;
   And in the new threat areas of terrorism, crime and drugs, 
        the UN is becoming an important force in mobilizing the 
        international cooperation we need.
   The UN system serves our interests well. But our ability to 
        use it effectively in the future will be undermined unless we 
        can accomplish three ambitious and demanding tasks over the 
        next few years: first, substantially reform and reinvigorate 
        the system so that it can meet the challenges of the 21st 
        Century; second, reassert and sustain American leadership; and 
        third, reduce U.S. financial contributions to a politically 
        sustainable level. The Administrations budget proposal is 
        designed to give us the tools to achieve these goals.

    In concrete terms, this proposal is as follows:

        --for Contributions to International Organizations (CIO), 
        $969,491,000, which would fully fund our assessed contributions 
        for calendar year 1997;
        --for Contributions to international Peacekeeping Activities 
        (CIPA), $240,009,000;
        --for International Conferences and Contingencies (ICC), 
        --and for International Organizations and Programs (IO&P), 

In addition, the Administration is seeking funding to pay, in full, our 
arrears under the first two of these accounts. We are requesting $100 
million in FY 1998 funds, $54 million for UN regular budget arrears in 
the CIO account and $46 million for CIPA; and an FY 1999 advance 
appropriation of $921 million as an FY 1997 supplemental.
    While requesting this funding to cover our current obligations and 
past arrears, the Administration will at the same time continue its 
vigorous pursuit of UN reform. Largely at U.S. instigation, several 
significant reforms have already been introduced: adoption of a no-
growth regular UN budget; creation of an inspector general function; 
and substantial cuts in staffing. An informal moratorium on global 
conferences is in place. The number of troops involved in UN 
peacekeeping operations has been reduced from 78,000 to about 25,000 
over the past two years. New peacekeeping proposals are far more 
carefully reviewed for size, mission and exit strategy, as well as 
appropriateness to the task.
    We have made a good start on our reform agenda, but clearly much 
more is required. And indeed our efforts continue unrelentingly. We are 
pursuing a broad range of reforms designed to introduce greater 
efficiency and budgetary discipline in every part of the UN system in 
which we participate--in UNCTAD, the economic commissions, FAO, the ILO 
and every other part of the system.
    The Secretary General has the authority to adopt significant 
managerial reforms within the UN Secretariat, and we will continue to 
urge that he do so as quickly as possible. But the broader budgetary 
and structural reforms that we also seek must be negotiated with the 
other member states of the UN as well as with the governing councils of 
affiliated organizations. If we are to succeed in these negotiations, 
we will need the powerful leverage that will come from having in hand 
an authorized and appropriated funding to pay our arrears. This is 
where the advance appropriation we are seeking for fiscal year 1999 is 
so important to our reform efforts.
    The broad reforms that we intend to pursue fall into five general 
categories: budgetary, personnel, oversight, management peacekeeping. 
We seek to eliminate functions that are no longer relevant, consolidate 
overlapping programs, and set priorities that are clear and achievable. 
We aim to set up or strengthen effective oversight systems in the major 
UN specialized agencies.
    Specifically on the budgetary front, we seek to cut both overall UN 
costs and the U.S. share of those costs. Our goal is a reduction of 
five percent in the budgets of the major UN specialized agencies for 
the 1998-99 biennium, together with a ceiling of zero nominal growth in 
other UN budgets. We will also seek to trim the budgets of other 
international organizations not part of the UN system. In upcoming 
negotiations on the United Nations scale of assessments, our objective 
will be to lower the U.S. share of regular UN costs from 25% to 
something closer to 20%. At the same time, we would bring our UN 
assessment for peacekeeping down to the 25% mandated by Congress. We 
will work to ensure that any revised scale of assessments agreed in New 
York would also be adopted by the specialized organizations affiliated 
with the UN.
    Our intent here, with the help of the Congress, is to reduce U.S. 
assessed contributions for FY 1999 and 2000 to international 
organizations currently funded by the CIO account to about the level 
actually approved by the Congress for fiscal years 1996 and 1997--about 
$900 million. This would represent a reduction of about ten percent in 
our current obligations to these organizations. Assuming the Congress 
would be willing to continue to appropriate funds at this level, the 
U.S. would not incur further arrears. We would thus have established a 
sound and sustainable basis for U.S. participation in a reformed and 
more effective UN.
    The Administration has heard the message from the Congress. You 
want a UN system that is leaner and more efficient, that costs less, 
and that is responsive to U.S. interests in the international arena. So 
do we. This is the overall purpose of our reform effort.
    But reform will not be an easy task. Crucial to the success of our 
efforts will be decisive action on our part to pay our current arrears 
to the UN and to prevent any future build-up. These arrears now total 
more than $1 billion, and if we are not able to reduce our assessments 
as planned and Congressional appropriations remain at the FY 1997 
level, they will grow by some $100 million annually. Our influence and 
reputation have already suffered appreciably as a result of this heavy 
indebtedness; further erosion of our ability to lead is manifestly not 
in our interests. Our allies and friends are increasingly eager to work 
with us to bring about the reforms that we need; but without exception 
they insist that we must at the same time demonstrate that we will 
promptly pay our arrears.
    Thanks in large part to the groundwork that we have carefully laid 
over the past few years, there is a momentum for reform throughout the 
UN system. The new Secretary General has voiced strong support for 
reform and has undertaken both to introduce managerial improvements in 
the Secretariat and to put forward proposals for wider reform for 
consideration by the member states. The current President of the 
General Assembly is likewise a firm supporter of reform. We need to 
move swiftly and decisively to take full advantage of this window of 
    The coming nine months present a unique opportunity to achieve 
budgetary reform. During this period budgets for the 1998-1999 biennium 
will be set and the triennial review of the scale of assessments will 
be conducted. Decisions on several of these budgets will be made by 
June. We are fully committed to pursuing the targets for these 
negotiations which I have just outlined. But our ability to achieve 
them will depend substantially on our credibility regarding our 
arrears. Early approval of our FY 1997 supplemental request for an 
advance appropriation of $921 million, payable in FY 1999, to help 
clear these arrears will provide us the negotiating leverage we require 
during this critical period to achieve the reforms I've been discussing 
with you today. We are asking the Congress to come together with the 
Administration to give a prompt and clear signal that the U.S. will pay 
its debts. If we can do this, we stand a good chance of success. But if 
we cannot, then we will have lost a valuable opportunity to secure the 
changes in the UN system that we both agree are necessary.
    I would stress one other point: this proposal for the U.S. to get 
out of debt and stay out of debt depends not only on budgetary reforms 
and provision of funds to pay existing arrears but also. on full 
funding to cover our regular contributions for FY 1998. U.S. 
assessments for calendar year 1997--paid out of FY 1998 monies--are 
already set in the 1996-97 biennial budget. They cannot be changed in 
the budget negotiations we will undertake this year. Failure to fund 
these FY 1998 assessments fully would land us back in debt right away.
    Mr. Chairman and members of the subcommittee, Secretary Albright 
has emphasized in recent statements the importance that the 
Administration attaches to moving forward with a better set of 
international organizations led by a strong and respected United 
States. But doing this, as she points out, requires us to put the issue 
of arrears behind us, for once and for all.
    The Administration and the Congress share the goal of a reformed UN 
system that costs less and in which the U.S. continues to lead. We are 
prepared to work intensively with the leadership group established by 
the Majority Leader as well as with the relevant committees and 
subcommittees of Congress in order to reach agreement on the means to 
achieve this goal.
    Thank you very much.

    Senator Grams. Thank you very much, Mr. Lyman. I would like 
to just start out talking about the arrears, and of course the 
mandated U.N. reforms that Congress is looking for. Just to 
kind of go back a little bit, you know, the administration has 
frequently disagreed with some of the congressionally mandated 
withholdings of U.S. payments to the U.N. to gain leverage on 
the reforms that we have been seeking. However, we should look 
at the results.
    Do you think that the U.N. and other member states would 
have agreed to set up an inspector general's office or adhered 
to a no growth budget for the 1996-1997 biennium without this 
type of pressure from the U.S.?
    Ambassador Lyman. I think there is no question, Mr. 
Chairman, that without extraordinary U.S. efforts and pressure 
this would not have been accomplished. I think that the U.S. 
has unquestionably been the leader in getting these reforms. No 
question about it.
    On the other hand, there is also a negative side to it in 
that there is a very strong feeling, including among some of 
our allies in the reform process, that the United States tends 
to be unilateral about it, tends to legislate on commitments 
that need to be worked out in the context of the United 
Nations, such as on the scale of assessment. So it cuts a 
little both ways. But I have to tell you, Mr. Chairman, I 
agree, there is no question that without the strong pressure 
from the United States, and I mean both the Congress and the 
administration, we would not be where we are today.
    Senator Grams. In fiscal year 1997 Congress did appropriate 
$50 million to begin repaying some of the peacekeeping arrears. 
However the payment was conditioned on at least two of the 
following three reforms being achieved. One would be the 
savings of at least $100 million in the expenses of certain 
U.N. divisions and activities. Two, a reduction of 10 percent 
in the number of U.N. staff. Or three, the adoption by the U.N. 
of a budget outline for the 1998-1999 biennium that was below 
the current no growth budget for 1996-1997. So although we are 
now almost halfway through the fiscal year 1997, the $50 
million still has not been released, pre- 
sumably, because the administration cannot certify that the 
above reforms have been achieved.
    Ambassador Lyman, can you give us an update on the status 
of the certification that would be able to release the $50 
million? What are some of the specific problems making the 
certification yet to this point?
    Ambassador Lyman. I am glad you raised that, Senator. We 
take these certifications very, very seriously, and we look at 
them with a great deal of attention, including all our lawyers. 
We have just sent up to the Congress our certification 
determination on the inspector general's office, which was also 
in the legislation. We wanted to be very, very careful in that 
case that we had indeed satisfied ourselves that the terms of 
the legislation were met.
    I am very confident we are going to be able to meet the 
terms with regard to the $50 million, particularly the latter 
two of the three that you mentioned. As you know, we have been 
working very hard to get detailed figures on staffing, which we 
just got yesterday, and that is going to help us greatly on one 
of those. The budget outline has been submitted but we have to 
see the recosting of it to get the final costs of it. I am 
confident that we will be able to meet those criteria, but I 
want to be absolutely certain and on very solid ground before I 
recommend to the Secretary.
    Senator Grams. In another area, on U.N. tax credit, kind of 
controversial, but in the State Department's budget request the 
administration is utilizing a U.N. tax credit of $27 million 
from the 1994-1995 biennium. Those dollars are being used to 
offset new U.S. contributions to the U.N. for fiscal year 1998. 
Now, that is kind of complicated for me anyway, but can you 
explain exactly how this U.N. tax credit, how the procedure 
works and why this credit is left over from the 1994-1995 
    Ambassador Lyman. Boy, I was afraid you would ask about 
that. That is one of the most complicated things in this whole 
business. In essence what the U.N. does is reimburse employees 
of countries who require their citizens to pay income taxes, 
because in general international employees do not. So what they 
do is estimate the amount that they would have to reimburse the 
American employees for their payment of income taxes, and put 
aside funding for that from our contribution.
    What happened in this case is that after the fact they 
discovered that they set aside much too much money, and they 
have now said they have $27 million in excess. They wanted to 
apply that to our arrears. We said no, we would rather use it 
to reduce our assessment, and we want to deal with the arrears 
question in the way we have. So that is the way it works.
    It is not a happy situation. We do not like this whole set-
up. To change it we have to work with our Internal Revenue 
Service on a different way of doing it. We are engaged with 
them on that, and it is one of the things we hope to work on 
over the next year.
    Senator Grams. Why not apply it to the arrears rather than 
future contributions?
    Ambassador Lyman. Well, because we thought in the first 
instance we would be able to reduce our request for this fiscal 
year and second, we wanted to deal with the arrears, as we said 
before, in the context of getting changes in the way we are 
financed across the board in the U.N. as part of this overall 
package. We felt that it was best to not apply that to arrears, 
but to just reduce our requirements for this year. It could 
have gone either way, but we just felt this was better.
    Senator Grams. In February of this year, two officials with 
the Rwandan war criminals tribunal were forced to resign after 
the U.N. office of Internal Oversight Services, the OIOS, found 
serious problems in the operation of their offices. Do you know 
what other actions have been taken to address the serious 
management and operational difficulties at the tribunal at all?
    Ambassador Lyman. Yes. They have put new people in charge 
there of those operations. Two senior officials have been 
dismissed. I think there are further actions being studied 
which have not been announced yet. I think that is a good 
example of why it was so important to get an independent 
inspector general function into the United Nations. I do not 
know what further steps, whether restitution or other things 
are being pursued, and I will try and get you that information.
    [The following material was subsequently supplied for the 
hearing record by Ambassador Lyman.]

    Upon the issuance of the report by the UN Office of 
Internal Oversight Services (0105), Secretary-General Kofi 
Annan stated that he is ``committed to closing the gap 
identified by the 0105 and taking all required measures to 
streamline and strengthen the Secretariat's support to the 
Tribunal.'' The 0105 report made 26 recommendations for 
improving the functions of the ICTR. Certain of the 
recommendations, such as appointment of a new Registrar and a 
new Deputy Registrar, have already been completed. The report 
also recommended selection of a qualified Deputy Prosecutor, 
and we are aware that Chief Prosecutor Louise Arbour is close 
to making her selection to fill this key post. She is also 
visiting the region frequently and reviewing prosecution 
    Previously, no single Department of the UN Secretariat had 
been assigned to oversee the Tribunal's operations. The 0105 
report recommended that the UN Department of Administration and 
Management be designated as the lead department in the UN 
Secretariat to support and monitor the Tribunal's operations.
    The U.S. mission to the UN is having meetings with 
appropriate UN Officials to impress upon them that, in addition 
to implementing other 0105 recommendations, the Department of 
Administration and Management must carry out this 
responsibility completely, intensively, and on a sustained 
    The OIOS has committed to conduct a follow-up review in the 
areas where serious problems were noted. This review is 
scheduled to take place in the second quarter of 1997.

    Senator Grams. But right now do you feel the U.S., or maybe 
the U.N. are confident that the Rwandan tribunal is now 
competent to deal with the crimes that it is investigating?
    Ambassador Lyman. I think so, and at least we have put an 
end to what was going on before and we have got better people 
out there to do these functions. You know, it comes at a very 
sensitive time because the trials are beginning, and they are 
very important trials of people accused of genocide. So it came 
at a terrible time. They work under very difficult conditions 
in Arusma They work under much more difficult conditions 
physically than in The Hague. But I think the Secretary General 
has acted very quickly. He wants to put this on a very sound 
    I will get you updated information as we get it on what is 
being done.
    Senator Grams. Thank you very much, Mr. Lyman. Senator 
    Senator Feinstein. Thank you very much, Mr. Chairman.
    I am glad you mentioned Rwanda and the war crimes 
tribunals. I have had real concern, Mr. Lyman, for some time, 
particularly with respect to Bosnia. I gather in Bosnia there 
have been some 75 people who are wanted for prosecution in The 
Hague for war crimes, and I cannot remember the exact figure, 
like 5 or 6 delivered.
    To those of us that happen to be women, and I have 
discussed this with women of both political parties in the 
Senate, I think it is fair to say that we feel very strongly 
that these people should be brought to justice. This is the 
first, well, not the first time, but a major instance where 
rape was used as an instrument of war, and to let people get 
away with this I find is most obnoxious and unacceptable.
    I notice this small amount in the budget of $6.2 million 
for Bosnia and $6.2 for Rwanda. How exactly is this money used? 
Where does the money come from for the exhuming of graves? Many 
of us would like to see the situation in Srebrenica, where 
there are still some 6,000 or 7,000 people missing, resolved. 
Could you explain how this part of that budget works, and how 
we can have some confidence that these war crimes criminals are 
going to be brought to justice, and that these graves are going 
to get exhumed?
    Ambassador Lyman. Well, on the funding, the tribunals are 
funded in an unusual way. They are funded half through the 
peacekeeping assessment and half out of the regular U.N. 
budget. It just happens to be the way in which the tribunals 
got started. We fully fund our share in both cases, both 
through the regular budget and through the peacekeeping. 
Funding is not a major problem for the tribunal. I might add 
that we have seconded expert staff to the tribunal.
    Senator Feinstein. So what you are saying is there is 
adequate money.
    Ambassador Lyman. There is adequate money. The problem is 
more in access and, of course most of all, the cooperation of 
the parties in turning over those who are indicted.
    This is of major concern to us. Cooperation with the 
tribunal was written into the Dayton Accords. It continues to 
be a major concern on our part. I know the administration is 
giving a lot of thought to how to have this more fully 
    I might say, you point out something very, very important. 
I discussed this question with Justice Goldstone, who was the 
first prosecutor and whom I had known in South Africa, and he 
felt too that it was extremely important that the tribunal had 
identified and made this kind of terrible rape a war crime. 
That had never been done before; now that the tribunal has so 
designated it people can be indicted on that basis and brought 
to justice.
    There is a lot of thought and work going on, which I can 
have briefed to you, on what we believe can be done to get the 
war crimes aspects of Dayton fully implemented. But it is not a 
funding problem. It is much more a political problem.
    Senator Feinstein. This is just my feelings, Mr. Chairman, 
but I am going to express them not being terribly reserved. In 
some way aid development help really ought to be conditioned on 
the turning over of war crimes criminals. If we cannot do it in 
this sit- 
uation, think of what the future could portend. The atrocities 
that were committed, I mean, I really thought that the whole 
world learned from World War II. If anything, what this war 
points out is that the world did not learn at all. I think what 
some of the situations in African countries point out is that 
the world did not really learn at all. So I think those of us 
that really believe that there has to be some morality, some 
responsibility for that morality in the world, this becomes a 
very important focus. I really want to stress that.
    Ambassador Lyman. Senator, you are absolutely right. Not 
only is it a moral necessity, but there is no way to end this 
kind of enmity and conflict if there is not some justice. If 
people do not feel, for example in Rwanda or in Bosnia, that 
there is culpability and justice, then what will happen is a 
thirst for revenge will fester and fester and manifest itself 
in a worse way. So it is not only a moral necessity, which it 
is, but it is also necessary to take this kind of a conflict 
out of the revenge-counter revenge cycle, and get at it into a 
way that people do not continue to carry out this kind of 
    Senator Feinstein. Are we pushing for more exhumation of 
    Ambassador Lyman. I will have to get an answer from our 
people who work directly on Bosnia on that, but I will get you 
an answer on that.
    Senator Feinstein. I would appreciate it if you would.
    [The following material was subsequently supplied for the 
hearing record by Ambassador Lyman.]

    Under the auspices of the Office of the High Representative 
(OHR), the Bosnian parties have agreed on an exhumations 
program which will commence in a few weeks. The U.S. Government 
is supporting the program by providing demining assistance. We 
see exhumations as a confidence-building measure among the 

    Senator Feinstein. There is one other area that I wanted to 
ask you about, and it has to do with Afghanistan. I have 
watched this, and it is just one horror story after another. I 
believe that since 1979 more than a million of Afghanistan's 16 
million inhabitants have been killed, and millions more have 
become refugees. Kabul has virtually been obliterated by 
factional fighting, with over 45,000 civilians killed, almost 
every prominent building is either destroyed or damaged.
    Now, with the ascendancy of the Taliban, Afghanistan really 
is going through a new conflict. Some say it is true Islam, 
others say it is rampant abuse of human rights, with the women 
of Afghanistan really becoming the latest victims. Could you 
provide us with more detail on exactly the contours of a United 
Nations led peacekeeping mission in Afghanistan? What it might 
look like, what sort of plans are being used to provide you 
with the means to estimate the costs of the operation? Beyond 
the $15 million requested in this budget, would there be any 
additional U.S. obligations or involvement?
    Ambassador Lyman. Senator, I share your horror at what has 
been happening in Afghanistan over these many years. We put in 
a budgetary request for Afghanistan on the hope and possibility 
that the conditions would be right some time during the coming 
year for the U.N. to play a peacekeeping role. But one thing we 
have learned painfully over the last few years is the only time 
a U.N. peacekeeping force or presence is effective is where the 
parties have come to an agreement that they want peace, and 
where the U.N. is therefore an effective bolster to that 
process, and there is a political process going on to resolve 
the issues.
    Those conditions do not exist today in Afghanistan, and 
without them, putting in a U.N. peacekeeping would be like the 
terrible things we saw in Bosnia when the U.N. went in when 
there was no peace. But there is a U.N. envoy and there are 
lots of other efforts going on trying to get to that point, 
either because the parties get exhausted from fighting or 
because they realize there is no military solution or because 
moderates who feel that enough is enough decide that it is time 
to have a process and to stop the fighting. At that point we 
hope the U.N. can indeed play a role.
    We have done very rough estimates here, and they are not 
based on any detailed planning from the United Nations, because 
we are not at the point where we have the conditions to say OK, 
here is what the parties are ready to do, here is the kind of 
peace process they are willing to engage in, and here is what 
the U.N. specifically has to do, whether it is to observe, 
whether it is to walk a line, et cetera. Until we get to that 
kind of a point, I am afraid we do not have those details. But 
as soon as we think that is possible we will start consulting 
with the Congress on it. For now, the efforts are 
overwhelmingly on the diplomatic side to bring about those 
    Senator Grams. Thank you, Mr. Lyman. We will move onto 
another round of questions here while the Senator gets a drink. 
Duplication among some of the international organizations is 
what I would like to focus on, and to refer back to the fiscal 
1998 budget, the State Department is requesting contributions 
of $50 million for the Pan American Health Organization, which 
is an inter-American organization, and then another $107 
million for the World Health Organization, which is a U.N. 
specialized agency.
    Can you explain the relationship between these two 
organizations in the funding requests?
    Ambassador Lyman. The Pan American Health Organization 
precedes the U.N. it was created earlier and was in existence 
when WHO was created. The agreement was that the Pan American 
Health Organization, in addition to its original role, would 
also serve as the regional arm of WHO. But when the Pan 
American Health Organization puts together its budget, it does 
so based on the contributions that come through the inter-
American system and a contribution from WHO, and presents a 
single budget to the board. So we are able to look at that 
budget in terms of what we contribute to each organization.
    PAHO has been very well run. I have to say much better run 
than WHO is right now. It has been doing some very fine things 
in the Americas. There is a worldwide campaign, as you know, to 
stamp out polio. Already the transmission has been stopped in 
the Americas. No measles cases have come into the United States 
in the last year from other parts of the Americas. So it is a 
good operation.
    But there too we are going to call for some budget 
    Senator Grams. Has there been any concern by the U.S. of 
any overlaps of the two organizations? And if so what has been 
done, are efforts made there?
    Ambassador Lyman. We do it by looking at the total budget 
which incorporates both the contributions to the inter-American 
system and the WHO, so that in effect anything that is carried 
out in the Americas from WHO is really carried out through 
PAHO. They are the arm. So by looking at the PAHO budget, 
examining it, seeing what it is doing, we get a handle on what 
WHO does in the region.
    As I said, their budget is more transparent than the WHO 
central budget. They are better managed. And therefore we have 
a better understanding of where there is duplication or overlap 
or just not lack of prioritization. We have lots of problems 
with WHO on this.
    Senator Grams. I guess the obvious question would be why 
are they not just merged, consolidated?
    Ambassador Lyman. Well, in effect they are because PAHO is 
the entity.
    Senator Grams. But with separate budgets.
    Ambassador Lyman. They get a contribution from the central 
budget, but the larger part of their budget comes through the 
inter-American process.
    Senator Grams. Are there any other reforms that the U.S. is 
looking at as far as PAHO goes that you would like to highlight 
or talk about?
    Ambassador Lyman. I think in PAHO and in WHO in general we 
are arguing for much more prioritization. In health you can 
look at almost everything, and we are saying, you know, there 
are some things that PAHO and WHO do not have to look at. 
Therefore we think by focussing on the most prominent disease 
threats PAHO could reduce its staff somewhat, reduce some of 
its studies and concentrate on things like measles, like polio, 
et cetera, and in their strengthening country capacities to 
carry out these programs. That is why--with that and some 
management improvements--we are calling for a 5 percent 
reduction in their budget.
    Senator Grams. Other international organizations in the 
question of duplication, again I will go back to the fiscal 
1998 budget which requests contributions of $17 million for 
what is called the Inter-American Institute for Cooperation on 
Agriculture, and $81 million for the Food and Agricultural 
Organization, which you highlighted, the FAO. Again, one is an 
inter-American organization and one is a U.N. specialized 
organization, both having the same goals.
    Could you explain again the relationship between the two, 
and if there are any U.S. concerns over the overlap of 
responsibilities or services?
    Ambassador Lyman. Where the overlap comes is in a problem 
we have with some of the specialized agencies. In other words, 
we think an organization like FAO ought to concentrate on 
establishing norms, setting standards, providing a scientific 
and professional basis for trade and agriculture for problems 
of food security, et cetera, and should be less of an 
operational, technical assistance agency. FAO, because most of 
its members are developing country members, is under pressure 
to do a lot of technical assistance as well as these other 
things, and that is one of our problems in the FAO because then 
it ends up duplicating UNDP or the World Bank or the Inter-
American Development Bank.
    The IICA in our view can focus best on issues particularly 
in the Americas of producing better trade in agriculture, 
better development of seeds and testing, and things that 
facilitate growth of agricultural trade and development in the 
Americas. It is a very country-specific and region-specific 
    There are problems of overlap, and it is part of the reform 
we are pushing in this organization and in FAO exactly along 
the lines you have suggested.
    Senator Grams. Again, the question is why not 
consolidation, where both sides could work for a mutual goal, 
still having their specialties but under one set of 
administration, so to speak, and be able to downsize?
    Ambassador Lyman. I think some of the Latin American 
countries would probably prefer to have FAO consolidated in 
IICA than the other way around. Your point is very well taken, 
and we will pursue that further, Mr. Chairman.
    Senator Grams. Going back to the World Health Organization, 
I had another question I would like to ask on that. Again, a 
February 1997 GAO report indicated that WHO trails other 
agencies in management and budgetary reforms. I think you have 
kind of alluded to maybe not as good as PAHO. But according to 
the report the U.S. and others have urged the organization to 
eliminate non-priority programs to bring the budget in line 
with available resources. Instead of eliminating non-priority 
activities to meet shortfalls caused by late or non-payment of 
regular budget assessments in 1995, WHO froze 10 percent of the 
budget program. In addition GAO reports that from 1991 to 1995 
the number of senior level promotions given by WHO's director 
general have increased. Senior level ungraded posts increased 
by 23 percent, and also other senior level graded posts 
increased by 16 percent.
    So, should the U.S. pay its arrears to WHO if reforms to 
correct these kinds of problems are not implemented?
    Ambassador Lyman. Mr. Chairman, as I mentioned before, we 
have serious, serious management problems at WHO, and we feel 
very strongly, and we make no secret of it, that it needs new 
leadership. Some of the reforms--most of the reforms--probably 
are not going to be implemented until we get new leadership. 
Here is one of the most distinguished, and should be one of the 
most revered organizations in the international system, with a 
history of achievement and importance, but quite frankly the 
very things you have mentioned have bothered us.
    We are not getting the shifting of resources into the 
priority programs. We are not getting the staffing transparency 
that we want or the allocation of staff that we want.
    What some other donors have done, because they feel 
differently than we do about assessed contributions--they do 
not feel that they can withhold those under treaty provisions--
but some of the other donors cut back their voluntary 
contributions. For example, a year ago Denmark, which is a 
major contributor in foreign aid, cut its voluntary 
contributions to WHO by 50 percent in order to get cer- 
tain reforms. One of the other Scandinavian countries did the 
same. And they got the reforms in those programs they were 
working on. We have talked to them about this question and they 
said well, they do not believe in doing that with assessed 
contributions but they agree with us on WHO reform.
    With an eye to the general assembly of WHO, the World 
Health Assembly in May, we have already started demanding not 
only budget reductions but a much more transparent budget. We 
are going to keep fighting for that. There is a lot of 
resistance for a lot of reasons, but I think we are building up 
support. Quite frankly, I think we need new leadership to get 
the full range of reforms we want.
    Senator Grams. Some of the concern has been we are facing 
these budget restraints and the reforms have not been coming. 
Full funding of WHO, how would that lead to reform?
    Ambassador Lyman. WHO has done something we do not like, 
and we have raised this throughout the U.N. system. When they 
have shortfalls they borrow internally, including from their 
own pension fund. It is not a way to deal with financing. It is 
not a way to deal with budget transparency, and that is another 
complaint we have had and one of the reasons we have argued for 
a different approach to the budgeting in WHO.
    Senator Grams. The U.S. has completely withdrawn from some 
agencies. An example is the United Nations Industrial 
Development Organization. We withdrew at the end of 1996. Could 
you explain the reasons for the U.S. withdrawal from this 
    Ambassador Lyman. We have a lot of problems with UNIDO for 
two basic reasons. One, we did not think it was terribly well 
managed, and second, we did not think it deserved to continue 
to operate as a separate entity.
    One of the things I think we have all learned is that when 
it comes to industrial development, the private sector plays 
the major role and should play the major role. Where assistance 
can be useful is in developing the laws, the framework, et 
cetera, to allow private investment to flourish. And there are 
other aspects of training, et cetera, that could be valuable.
    We did not think UNIDO was therefore playing a role that 
justified this kind of assistance and we withdrew because we 
were not getting the changes we wanted. Other donors to UNIDO 
feel very much the same way. They are debating now a number of 
things, either reform of the entity or its being folded into 
another organization. Some people want to fold it into UNCTAD 
so it is strictly related to policy and training; others want 
to fold it into UNDP for technical assistance purposes. We are 
not party to that discussion anymore because we are not there.
    The treaty required that we pay the following year's dues 
when we withdrew. We have not done so. Congress has not 
permitted us to do so. But even if you abolish the 
organization, some of the other donors pointed out, you have 
got to fund out the pension plan; and if the U. S. does not 
make its last contribution we all get stuck with it. So we do 
owe that money, but I think there is a lot of feeling that 
UNIDO is not carrying out a function of the kind that was 
originally intended and which is as relevant today.
    Senator Grams. I think you have half answered my follow up 
on that. The administration is asking, I believe it is for $68 
million to fund an organization that we have pulled out of. 
Again, why should we fund this? But maybe you can elaborate on 
    Ambassador Lyman. The agreement governing UNIDO, to which 
we were a party--and this is true of most of the U.N. 
organizations--says that if you withdraw from the organization 
it takes effect at a certain date but you are obligated to pay 
that and the following year's dues. So we owed them the 
following year's dues and there was a shortfall from the 
previous year, and that is what adds up to this. So by the 
agreement we entered into when we joined UNIDO we are obligated 
to pay those funds even though we withdrew. Congress put a 
prohibition on doing so last year, but we feel that we should 
come back because we will not get that wiped off the books as 
arrears because it is clearly part of the obligation when we 
    Senator Grams. So even if the organization was disbanded, 
the obligations would still be there in some respects?
    Ambassador Lyman. The obligations would still be there, and 
as I mentioned, some of the people I have talked to who are 
thinking of abolishing it are worried about how one takes care 
of things like pension funds, et cetera.
    Senator Grams. In addition to that organization, UNIDO, the 
U.S. also withdrew from the Pan American Railway Congress 
Association and the World Tourism Organization. Again, can you 
outline the reasons for the U.S. decisions to withdraw from 
these organizations?
    Ambassador Lyman. Well, we took a look at all the 
international organizations to which we belong--and you made a 
very good comment in your opening remarks about the number of 
such organizations of which we are members. We did two things: 
We prioritized them, and then we looked at ones that really did 
not serve American interests enough to be worthwhile. We did 
not think either of those organizations served significant 
enough interests to stay in them.
    Tourism issues can be taken care of much better in other 
forums, and frankly I do not think anybody is going to miss our 
participation in the railway commission.
    We looked at the other smaller organizations that deal with 
highly specialized parts of our economy or trade or law. In 
those areas they are very, very important, but we needed to 
prioritize them since last year Congress's appropriation was 
$85 million short of our total assessments. So we took the 
priorities and we said OK, there are certain organizations for 
which we will make no cuts, like NATO, et cetera. Then there 
are others which are of very special importance to the United 
States because they touch a lot of Americans in a very 
significant way or they are very close to our region, like OAS, 
OECD--we will cut them a little. And then for the other 
organizations we will hold back even more. Now, we buildup 
arrears in doing that, but we took the largest percentage cuts 
in the category that we felt had very specialized but not very 
broad scale interest.
    We are continuing to look at this list, and have to 
continue to evaluate whether we should stay in each and every 
one of the orga- 
nizations. For each one there is a constituency, but we have to 
decide whether that is a significant enough interest for the 
United States, for taxpayers' funding.
    Senator Grams. So in other words of all the organizations 
we still are members of, this prioritization is going on and 
assessment is being made on whether we are going to remain or 
maybe the possibility of withdrawing from some others?
    Ambassador Lyman. You are exactly right.
    Senator Grams. Outside of the U.N. system the largest 
amount of funding for arrears that the administration has 
requested is a line of $24 million for OAS, the Organization of 
American States, an inter-American body. Since the U.S. already 
pays for almost 60 percent of the OAS budget, the sum of which 
I guess totals $53 million in fiscal year 1998, how can the 
arrears really affect our influence within that organization?
    Ambassador Lyman. Well, I think we are, as you point out, 
paying close to 60 percent. We obviously play a major role. 
What happens when you fall into arrears is you do not 
immediately lose influence in that sense. You do create some 
resentment because people feel it is an obligation and they 
worry that we are setting a precedent that individual countries 
can decide yes or no, whether, when, where they want to pay 
their obligations. We remain a major player in the OAS. I think 
the issue about arrears in this case is more that this 
organization is important and it does good work, and that when 
we fall into arrears there are some things that the OAS is just 
not going to be able to do.
    OAS has really come a long way in being an important force 
for democracy and human rights in Latin America in a way that 
just was not true 10 or 15 years ago. It has played a very 
important role in preventing reversals of democracy in places 
like Paraguay or Haiti or Peru. Now it is focussing more on the 
agenda of the Summit of the Americas to produce more trade, 
more economic development, more markets. So the real problem 
with the arrears is just reducing the amount that the OAS can 
do. I cannot say honestly that at this point it is curbing our 
    Senator Grams. When we talk about assessments versus 
voluntary participation, and again I will go back, we have 49 
international organizations for which the President is 
requesting assessed contributions. The U.S. participates in 
dozens of international organizations programs that it funds on 
a voluntary basis. Last year, just to throw some figures out, 
those voluntary contributions totaled $267 million, which the 
U.S. thought was important to be a part of, to support and to 
help, and that included donations to such programs as UNICEF, 
the U.N. High Commissioner for Refugees, et cetera. As you 
know, your predecessor, Mr. Bolton, had recommended that the 
U.S. consider moving to a more voluntary agreement for many of 
the organizations to which we currently must make those 
assessed contributions.
    I guess the question would be if we went to more of a 
voluntary system would it create more of a free market type of 
an attitude in which contributions were directly linked to the 
performance of the organization? In other words, try and get 
them to respond to the most important part, and that is to 
donations. So would it help, would it be a good idea to 
increase this and be more accountable to the taxpayers, again 
looking for the results from these agencies?
    Ambassador Lyman. Well, the assessed contributions are for 
the maintenance of an organization in general, which does not 
necessarily cover assistance programs for example, but does 
include, like in WHO's case or FAO's case, setting norms, 
standards, et cetera. These functions require a constant 
infrastructure of expertise. There is a very strong feeling 
within the U.N. that you need a base of assessed contributions 
to maintain that structure.
    On the other hand, we have taken the position that in major 
assistance programs, whether humanitarian or development, we 
want to do those on a voluntary basis. So UNDP, UNICEF, et 
cetera, are done by agreement on a voluntary basis. That is the 
distinction we have made, giving our country and others the 
right to judge whether a particular assistance program is a 
good one, is in our interest, and is well run.
    But if you applied that approach to many of these 
organizations, their very future would be uncertain. The 
ability to keep a certain minimum staff, to maintain a basic 
set of ongoing operations would always be subject to up and 
down fluctuations. I think we would get tremendous resistance 
from the other countries if we tried to move many of these 
particular organizations in that direction.
    Many other countries prefer the assessed system anyway. But 
I think it is more because of the need for a certain base 
infrastructure that has to be predictable.
    Senator Grams. Would it not mean that the well run and the 
well producing agencies would always get the funding, and that 
would be the incentive?
    Ambassador Lyman. That is true, but it may be essential to 
keep going even one that is not running as well as you want. I 
mentioned how some of the other donors have handled the WHO 
problem, for example. They cut the voluntary side but not their 
assessed contributions to WHO, and it had some impact. In fact 
WHO's voluntary programs are larger than their assessed 
programs, because other donors like us make a distinction 
between that basic infrastructure, which is to set norms, 
standards, et cetera, and carrying out assistance programs 
overseas on which donors should make individual decisions.
    Because you enter into an agreement at the beginning to 
provide a certain base contribution on a regular basis, that is 
the way almost all of these organizations are set up. I think 
we would get very great resistance trying to change that.
    Senator Grams. One of the biggest areas of concern of 
course has been peacekeeping contributions. Many Senators will 
note that the President's request for U.S. contributions to 
international peacekeeping activities has gone down to $240 
million, and I think that is from $304 million in fiscal 1997, 
excluding the proposed arrearage payments. Moreover, this is 
significantly less than the U.S. contribution of over $1 
billion as recently as back in fiscal year 1994. As you know, 
the U.S. unilaterally lowered the U.N. peacekeeping assessments 
from 35 to 21 percent, and that was done in 1994. The law 
passed, then by a Democratic controlled Congress, and was 
signed into law by President Clinton.
    The question is, Ambassador Lyman, do you think this action 
by the U.S. has caused the U.N. and also some of its member 
states to think more carefully about what peacekeeping 
operations they initiate, and then to calculate and to try and 
determine how much they are going to cost in advance? So again, 
has this not been a move to try to reign in some of these 
budgetary questions?
    Ambassador Lyman. I think, Senator, that what has motivated 
the U.N. the most to reevaluate peacekeeping operations much 
more carefully were the failures in Bosnia and Somalia and 
Rwanda. There was recognition that all of the members were 
attempting to put peacekeeping operations in place of political 
settlement, if you will, to try to put in peacekeeping where 
there was no peace. Out of that came a very extensive internal 
study in the United States, and most of the principles that 
came out of that study have now been adopted by the Security 
Council itself and its peacekeeping office--principles such as 
looking very, very carefully at the mission, its 
appropriateness, its size, and its cost before you commit. I 
think that sobering experience has had more to do with it, 
frankly, than the change in our contribution.
    What has caused a problem from the contribution side--not 
so much the reduction to 25 percent as the general arrears--is 
that peacekeeping nations are not being paid. This creates a 
problem in recruiting peacekeeping nations in the future.
    I think we all learned a lesson, and I think the 
consultation process that Congress has called upon us to do and 
which we have been carrying out has been very helpful to us. It 
gives us the chance to discuss peacekeeping operations--we 
meet, as you know, with the staffs once a month for a review--
and then we formally notify Congress in advance of any new or 
expanded peacekeeping mission. I think it has given us all a 
chance to look much, much more carefully at these operations.
    Senator Grams. Just a couple of quick questions before we 
adjourn, one dealing with Haiti and another with Africa. On 
Haiti, the administration is required by statute to brief the 
Foreign Relations Committee monthly on U.N. peacekeeping 
missions around the world, and during the December 1996 
briefing of the committee the State Department officials 
informed the committee that the Security Council had renewed 
the U.N. special mission in Haiti, but it also added that the 
council did decide this would be the final extension of the 
Haiti mission, so this operation would end no later than July 
    The President has not requested any fiscal 1998 funds for 
peacekeeping in Haiti, yet during the March 1997 peacekeeping 
brief the administration did inform the committee that 
consultations currently are underway to create a third mission 
for Haiti, so that would thereby extend the U.N. presence 
    Ambassador Lyman, does the President's fiscal year 1998 
budget request accurately reflect the administration's current 
consultations at the U.N.? And how does the administration, how 
would it intend to pay for any follow up mission in this 
    Ambassador Lyman. It is a very good question, Senator. This 
is a difficulty in so many of these peacekeeping operations. 
You always have to look at the situation on the ground and make 
sure not only that you have examined the appropriateness to 
start with, but that the exit strategy is right in terms of the 
objectives. In the case of Haiti we had a lot of opposition 
from some members of the Security Council to continuing the 
operation at all, and the agreement was to make it final. But 
there is a feeling that some kind of international presence, 
although not the same structure, is going to be needed when 
this present operation ends.
    What the form of that will be is still very unclear within 
the U.N. and in our own discussions. If there is a follow on, 
and if it is under U.N. auspices, there are two ways it might 
be financed. It might be financed still in fiscal 1997 because 
the bills might come in then, or we might have to come to you 
with a revision of those estimates in 1998, within the overall 
total though, and say look, now we think we need to reprogram 
to cover it.
    But no decision has been made on that yet. I know that 
there have been a lot of discussions, there are still more 
visits going on down to Haiti. We will be keeping very closely 
in touch with you on what, if any, U.N. presence is going to 
follow the July 31 deadline.
    Senator Grams. So the administration is not committed then 
to an exit date yet out of Haiti?
    Ambassador Lyman. We have not made a final decision on what 
kind of international presence is appropriate after this 
particular presence reaches the July 31 date. A lot of focus is 
on the police side; that is where a lot of the attention is 
being put.
    Senator Grams. On the police?
    Ambassador Lyman. On the police.
    Senator Grams. Also, in dealing with the Africa issue, in 
the fiscal 1998 budget for peacekeeping the President is 
requesting $50 million for an African crisis fund. As you know, 
the administration created this fund I think last year. It was 
appropriated $20 million for peacekeeping efforts in the great 
lakes region of Africa, particularly again Rwanda and Burundi. 
Ambassador Lyman, the Budget in Brief for fiscal year 1998 
indicates that the money will be used for large scale 
peacekeeping efforts in the great lakes region. Does the 
administration support sending a large scale mission to the 
region, and if so, what kind of conditions would have to exist 
for the U.S. to support such a mission by the Security Council?
    Ambassador Lyman. I am sorry we used that term.
    Senator Grams. Which term?
    Ambassador Lyman. Large scale. First of all, I think the 
Congress was tremendously responsive in putting in the $20 
million in 1997. It was an extraordinary act by the Congress. 
We were faced at that time with what we thought might be an 
immediate and impending crisis in the Great Lakes region which 
would require a peacekeeping effort. That has not developed 
yet, and we have not drawn on those funds yet, but that 
situation remains so delicate and explosive in Burundi in 
particular. Now we have this whole new situation in Zaire.
    Quite frankly, Senator, we have been looking very hard at 
this issue. There are very different opinions in the 
international arena about how the U.N. might play a role in 
this. We continue to feel, as we do in general, that you do not 
structure an operation in that area of that kind unless you 
have some framework, some political framework and some process 
of cease-fire and political movement. You cannot just put a 
peacekeeping operation in the middle of a civil war.
    We are very concerned about the humanitarian circumstances. 
We are working very closely with UNHCR to see if they can get 
to those refugees without the need for a force to do it.
    When you look at Zaire and you look at the size of that 
territory, I think we feel very strongly you cannot just assume 
that you can put in enough forces to monitor the whole country. 
So what we are looking at is first of all the political 
process, to get stabilization of that situation politically, so 
that the sides are ready to talk about peace and about a 
political process, in which the United Nations, beyond its 
diplomatic efforts, can play a role. Then we would look very, 
very carefully at the most practical way in which the U.N. and/
or others could reinforce that process; but we would not be 
looking at it in a massive, large scale way. We do not think 
that makes a lot of sense at all.
    It is too early to give you details, because we do not 
really have them. That is why I said I am sorry about that 
term, large scale. The shape of this is still yet to be seen, 
and we have to think of not only the Zaire case but the still 
very dangerous situation in Burundi. But we do not have 
specifics, we are not ready to even agree that a force should 
be put there, and we just have to stay very, very closely in 
touch with you on a regular basis.
    Senator Grams. If no money has been drawn on the account 
yet, the $20 million, and another $50 million being requested, 
is this going to be used as some kind of a slush fund for 
activities in Africa like Angola, et cetera? You mentioned 
    Ambassador Lyman. No reprogramming nor other use of that 
fund will be made without consultation with Congress. That is 
clear and certain on our part. This year we may still have some 
use for that fund. There is an operation possible in Sierra 
Leone, but again the conditions are not yet right. But most 
likely of all, we could have the conditions for doing something 
in the Great Lakes region before this fiscal year is out.
    I am glad we have not spent the $20 million without the 
right conditions, quite frankly. We will not use it as a slush 
fund. We will come to you whenever we think the conditions are 
right for spending that in an appropriate way.
    Senator Grams. One final question, I would just like to 
know how long did it take to learn all the acronyms for all 
these programs, and do you have them all down pat now? You have 
done a good job.
    Ambassador Lyman. I am glad you did not quiz me on it. It 
has taken a long time.
    Senator Grams. You have done a great job on it. Thank you.
    Finally, I just want to ask unanimous consent that this 
hearing's record be kept open again for 3 business days, and 
that is to allow for any further questions by any member of the 
Foreign Relations Committee or this subcommittee to submit to 
you in writing any questions. Again, Mr. Lyman, I do not 
believe these written questions will be unreasonable. In view 
of the fact that the Foreign Relations Committee is again 
preparing the State Department Authorization Bill. Again I 
would just ask you, can you assure me that you will do your 
best to have them back within a week of receiving these?
    Ambassador Lyman. We will do so, Mr. Chairman.
    Senator Grams. Thank you very much again, Mr. Lyman. Thank 
you for your time today. I want to thank you for all of your 
    Ambassador Lyman. Thank you.
    Senator Grams. The committee stands adjourned.
    [Whereupon, at 12:44 p.m., the hearing was adjourned, to 
reconvene at 10:05 a.m., April 9, 1997.]



                        WEDNESDAY, APRIL 9, 1997

                           U.S. Senate,    
     Subcommittee on International Economic
                Policy, Export and Trade Promotion,
                     of the Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:05 a.m. in 
room SD-419, Dirksen Senate Office Building, Hon. Chuck Hagel, 
(chairman of the subcommittee), presiding.
    Present: Senators Hagel and Sarbanes.
    Senator Hagel. The committee will come to order.
    Today the subcommittee meets to receive testimony in 
support of the President's Fiscal Year 1998 budget request for 
multilateral development banks.
    We are pleased to have with us the Deputy Secretary of the 
Treasury, Hon. Larry Summers.
    Secretary Summers, welcome. It is nice to have you.
    The President's 1998 request for the multilateral banks 
totals $1.5 billion. This amounts to $583 million more than 
Congress appropriated for Fiscal Year 1997, and $143 million 
more than the President's Fiscal Year 1997 request.
    Secretary Summers, you and I had an opportunity to meet in 
my office a little earlier this morning and I appreciated that 
opportunity because we were able to talk a little bit about 
your assignment and what we hope to accomplish this morning.
    This is a challenging time for you, for all of us, as we 
prioritize resources. And I really do, as I said in the meeting 
this morning, look forward to understanding in more detail, as 
I am sure that the committee does, what your thoughts are, as 
well as the Secretary's, as to what we want to do and what we 
want to accomplish as we go forward into the next fiscal year.
    Most Americans and many Members of Congress do not accept 
the notion that the foreign aid budget must be increased at a 
time when our Nation is $5.4 trillion in debt and is running an 
almost $200 billion annual deficit.
    I appreciate that this administration has negotiated new 
replenishments with various multilateral institutions and I 
suspect my colleagues are grateful for that as well. These 
replenishments are 40 percent lower than in previous years, as 
we discussed. But the President's budget will face a bumpy road 
ahead. Given our Nation's enormous debt and deficit and given 
that the World Bank has just celebrated its 50th anniversary, 
it seems to me, and I sus- 
pect to many of my colleagues, that we must reassess our 
Nation's role in these institutions to determine if they are 
worthy of U.S. support into the next century.
    Again, we were able to talk a little bit about that this 
morning. As I said to you, Mr. Secretary, I certainly did not 
come to the U.S. Senate to defend the status quo. Let's look at 
all our programs, all our resources. Let's prioritize them, 
let's sort out what works and what does not work. I think along 
with that we will, and should, develop some confidence in the 
American public and within the American public, which is, after 
all, the taxpayer and the bill payer for all of this. We want 
them with us as we go forward and use this money in efficient 
and effective ways.
    The United States should participate in multilateral 
lending institutions -- the World Bank, IDA, and the other 
regional banks -- only if they can demonstrate tangible, 
positive effects on the lives of Americans and only if we have 
the ability to stop loans which run counter to U.S. economic 
and security goals.
    The first question we should ask is do these banks further 
U.S. national interests and bring stability, democracy, and 
respect for human rights to the developing world. Often they do 
not. Many times they do. Let me cite a few examples. I cite 
these, Mr. Secretary, for the record. You have been up here 
many times and you know the drill around here. We do things for 
the record. Then we can get into some serious dialog.
    Syria, black listed by the State Department for its support 
for international terrorism, received $660 million from the 
World Bank. Mauritania received $20 million from IDA in 1996. 
Meanwhile, the State Department's 1996 human rights report 
states, and I quote: ``Mauritanians continue to suffer the 
effects of slavery, many years and generations of slavery.'' 
The people of Somalia and Liberia have watched while their 
countries' economies collapsed despite $760 million from IDA. 
And, of course, the Government of China, which has received 173 
loans from the IBRD and IDA worth more than $25 billion, as we 
know, is no champion of democracy or basic human rights and we 
should take a careful look in that direction.
    Second, we must ask ourselves do the multilateral banks 
promote economic growth. Let me again cite for the record some 
examples. According to the Heritage Foundation, of the 66 
developing countries which have received World Bank loans for 
the past 25 years, 37 are no better off today economically than 
they were prior to receiving World Bank loans.
    The Ivory Coast, which received more World Bank aid than 
any other African nation in 1996, has seen its Gross Domestic 
Product fall 18 percent since first receiving World Bank aid in 
1968. Between 1965 and 1995, Nicaragua received $637 million in 
World Bank aid. Meanwhile, its GDP has plummeted by 50 percent 
during the same period.
    Perhaps as we consider these examples, we will see that 
some are exceptions rather than the rule for these institutions 
and I am well aware of that. But in any event, literally 
billions and billions of American taxpayers' dollars have been 
misspent over the years in pursuit of policies at these 
institutions that are fundamentally inconsistent with American 
    If these organizations claims that they are worthy of 
continued United States taxpayer support, they are going to 
have to change the way they have traditionally done business in 
some respects.
    Again, Mr. Secretary, as you and I discussed earlier, I 
think we all agree that we want to pursue that and that is in 
the interest of all of quite. Quite frankly, it is in the 
interest of the recipient nations as well and the people of 
those nations.
    I look forward to your testimony and I would now like to 
say that the ranking minority member, my distinguished 
colleague from Maryland, Senator Sarbanes, I think is engaged 
in another hearing where I should be. But you take precedence, 
Mr. Secretary, so I am going to leave the housing issues of 
America at this time to Senator Sarbanes and trust that his 
able leadership will see us through this morning. And if he 
trusts me to get started, which I understand he does, we will 
move forward, sir. I am very, very pleased now to ask you for 
your comments.


    Mr. Summers. Thank you very much, Mr. Chairman. I am 
grateful to the close attention that you have paid to a set of 
issues that I think are profoundly important to the future of 
our country.
    In many ways, the most important foreign policy challenge 
we face, as the post World War II generation faced the 
challenge of containing communism, is addressing the tremendous 
change that is taking place in the developing world where five-
sixths of humanity lives and where almost all of the world's 
future population growth is going to come.
    Differences across the developing world are seismic, with 
more than 2 billion people living in countries where standards 
of living double within a decade but with hundreds of millions 
of other people living in countries that are poorer today than 
they were 20 years ago.
    Prospects for the United States remaining secure depend 
critically on what happens in the developing world and so, too, 
the capacity of the United States to remain prosperous. Nearly 
42 percent of our exports, nearly $350 billion last year, went 
to developing countries. Our exports to the developing 
countries of Asia exceed our exports to Japan.
    I believe that the international financial institutions are 
a central tool of U.S. policy addressing change in the 
developing world. That is why I welcome this opportunity to 
discuss them today.
    I believe that these are extraordinarily cost effective 
tools of policy in the sense that they lever U.S. resources in 
an extremely efficient way. They lever U.S. resources because 
our contributions are pooled with the resources of other 
countries, and they lever U.S. resources because, by virtue of 
providing loans to other countries rather than grants, we get 
something back.
    Indeed, the leverage is so profound that the $1.2 billion 
of scheduled payments from the United States to the 
multilateral development banks give us a profound influence 
over some $46 billion of annual development lending that they 
undertake each year. This is far more than we can afford to do 
    By far, the multilateral development banks are the world's 
largest supporters of AIDS programs, child survival programs, 
girls' education programs, clean water, and other essential 
investments in basic poverty reduction. They are also a 
principal tool that we have in seeking to bring about trade 
    Indeed, it is worth remembering that a large fraction of 
the trade liberalization that has taken place in the developing 
world has taken place in the context of adjustment programs 
supported by the multilateral development banks. Mexico's 
tariffs came down from 30 percent and more to 10 percent in the 
context of a World Bank structural adjustment program prior to 
discussions on NAFTA beginning. India's tariffs were brought 
down very dramatically in the context of an IMF/World Bank 
program in 1991, following their financial crisis. These kinds 
of examples can be multiplied.
    The international financial institutions also have a 
crucial role in advancing our security interests by supporting 
reconstruction in places like Bosnia where the World Bank is 
coordinating donor funds, in Russia where the IMF has played a 
crucial role in encouraging a process that, while still 
incomplete, has produced a sea change in the value of the 
Russian currency and a very important disinflation.
    In Africa, where the international financial institutions 
have struggled, there are some important results. Uganda and 
Mozambique have pursued concerted economical forms that have 
translated into annual growth rates of nearly 10 percent a 
year. Overall, in Africa the growth rate has risen from 1 
percent to 4 percent in the last 3 years.
    You mentioned in your prepared statement Cote d'Ivoire. 
While Cote d'Ivoire has struggled and is, indeed, poorer today 
than it was 2 decades ago, in the last year supporting a 
vigorous adjustment program, growth in Cote d'Ivoire has 
actually come to approach 7 percent.
    The many disappointments that we face in the effort to 
develop some of the poorest countries should not blind us to 
profound progress that has taken place in the last generation. 
For IDA countries, countries that are only eligible for 
concessional lending, the poorest countries in the world, 
standards of living on average have doubled in the last 25 
years. Infant mortality rates have declined by nearly 40 
percent, fertility rates have declined by nearly 40 percent, 
primary education rates have increased by a third, and life 
expectancy has increased by 8 years. It is worth putting that 
last figure in perspective.
    If you eliminated all cancer in the United States, life 
expectancy would increase by less than 3 years. So that 8 year 
increase represents a substantial achievement in human 
development. This is not to say there have not been huge 
disappointments, there have not been occasions where resources 
have not been used as well or as selectively as they could have 
and they should have been.
    The United States has an important role in shaping policies 
of these institutions to the extent that we are able to meet 
our obligations. The IMF is now emphasizing earlier detection 
of emerging problems, encouraging countries to cut unproductive 
expenditures, and expanding its financial market surveillance.
    The World Bank has increased the transparency of its 
operation, encouraged much greater participation of affected 
peoples in project design, created an independent inspection 
panel and auditing department and focused more attention on 
basic issues of governance, such as corruption.
    The World Bank's reform efforts have culminated in a major 
new program recently proposed by President Wolfensohn. Under a 
strategic compact, the bank will move staff and decisionmaking 
into the field and develop an improved information system so 
that organization can better learn from its experience.
    The administration supports this effort at reform and we 
continue to work with the bank on ways to refine the compact.
    Let me say this, Mr. Chairman. I am convinced that 
leadership is not free and that we cannot lead with other 
people's money. Questions legitimately raised by others 
regarding our commitment to these institutions as large arrears 
accumulate erode our international influence and our 
    To preserve our capacity to lead, it is essential that we 
find a way to pay off our large and persistent arrears to the 
multilateral development banks which currently total $862 
million. These arrears have accumulated. They are a legacy of 
commitments that have been made over many years.
    Over the last 4 years, we have negotiated, as you mentioned 
in your statement, down the continuing budgetary cost of the 
multilateral development banks by 40 percent. In fact, the 
total of scheduled commitments of the United States to the 
multilateral development banks is now less than the annual 
commitment just to the IDA program that was entered into by 
President Bush and his administration. And yet, our failure to 
meet even these reduced commitments calls into question our 
commitment to the international system. We are at a critical 
point in our relationship with other donors and with these 
institutions. Our $1.56 billion request for the MDB's therefore 
includes $314 million as the first of 3 installments to clear 
our arrears by the year 2000.
    Let me just in conclusion spend a couple of minutes ticking 
off the specific authorizations we are seeking.
    For the IMF, we are requesting approximately $3.4 billion 
for U.S. participation in the new arrangement to borrow. This 
action, which does not have budgetary cost, represents a 
contingent set of credit lines to the IMF to deal with 
financial crises that could potentially threaten the stability 
of the international financial system. It provides us a way of 
locking in burden sharing in the event of any future Mexico 
type crisis.
    IMF members are also reviewing the adequacy of current IMF 
quotas which finance the ordinary lending of that institution. 
If as a result of that review we believe that an increase in 
IMF quotas is needed and we are able to negotiate a 
satisfactory agreement, we will propose the Congress authorize 
an increase in the U.S. quota. We will consult with Congress as 
this review proceeds.
    Again, let me emphasize that the administration and the 
Congress have agreed for many, many years under administrations 
and Congresses of both parties that transfers to the IMF, such 
as the new arrangement to borrow and the quota increase, are 
treated as exchanges of monetary assets and, therefore, do not 
-- do not -- increase the budget deficit.
    We are also requesting authorization for the remaining $75 
million of the $100 million that we pledged to the ESAF 
program, the IMF's program for the poorest countries in 1993.
    Let me turn to the multilateral development banks. Our 
authorization request for IDA is $1.6 billion, which we have 
pledged to fund the 2 year IDA replenishment for Fiscal Year 
1998 and 1999. This commitment of $800 million per year is a 36 
percent reduction from the $1.25 billion annual IDA 10 
contribution negotiated by the Bush administration in 1992.
    IDA has improved its effectiveness by increasingly 
concentrating on supporting health and institution building and 
education, which are building blocks of market led development. 
IDA has also -- and this, Mr. Chairman, I think is a crucial 
point and one that Secretary Rubin and I have asked our 
executive directors in the banks to push -- concentrated on 
becoming more selective and focusing resources on those 
countries that can use it well. 84 percent of lending over the 
last 4 years has gone to countries rated average or above 
average in terms of economic reform.
    Our second request is for authorization for the final 3 
years of the Inter-American Development Bank's eighth capital 
increase, agreed to in 1994. This would, at a cost of only $25 
million a year to the United States, support $7 billion per 
year in lending to our hemisphere.
    Third, we are requesting authorization for what we expect 
to be an important milestone, a final recapitalization of the 
European Bank for Reconstruction and Development. Our request 
for $35 million per year for the next 8 years is a 50 percent 
reduction from our previous annual commitment and would 
represent a terminal capital increase for that bank after which 
it would be operate in a fully sustainable way without further 
Congressional funding.
    Fourth, we are requesting authorization for the Asian 
Development Fund, where we have recently concluded a remarkable 
successful replenishment agreement despite our $237 million 
arrears. This 80F7 agreement incorporates a 41 percent 
reduction in the annual U.S. commitment, as well as increased 
burden sharing from Asian donors.
    Finally, we are requesting $34 million to cover recognizing 
the reality of debt reduction costs for the poorest countries 
and for Jordan.
    Mr. Chairman, as I said in beginning my statement, I 
believe that what we do in the developing world will probably 
be the most important chapter that we will contribute to 
history books a century from now. I believe that these 
institutions, because of their leverage, because they take 
relatively small sums of American money and are able to do 
large things in the developing world, are as potent a tool of 
leverage in the developing world as any that we have.
    At this point, we face a fundamental choice as a Nation. We 
can meet our obligations to these institutions and change them 
so they pursue our interests or we can fail to meet our 
obligations and allow them to pursue other agendas that may be 
much less related to American interests.
    So I believe an agenda of meeting our obligations for 
bringing about the necessary changes is the right one for this 
country, and that is what is reflected in this budget.
    Thank you very much.
    [The prepared statement of Mr. Summers follows:]
                   Prepared statement of Mr. Summers
    Mr. Chairman, it is a pleasure to testify before you today on the 
President's authorization requests for the International Financial 
Institutions (IEFIs). I have worked with these institutions for many 
years and I am pleased to have the chance to discuss with you how they 
serve our interests and how our continued leadership can make them 
    I will focus my comments today on authorization requests for the 
IMF's New Arrangements to Borrow (NAB) and Enhanced Structural 
Adjustment Facility (ESAF), on Multilateral Development Bank 
authorization requests for the World Bank's International Development 
Association (IDA), the European Bank for Reconstruction and Development 
(EBRD), the Inter-American Development Bank (EDB) and the Asian 
Development Fund (ADF), and on our debt reduction programs. These 
institutions are a critical piece of the Administration's overall 
international affairs request which also includes our diplomatic 
resources, our bilateral aid programs, and agencies such as the Export-
Import Bank and OPIC which level the international playing field for 
American companies.
    The President has often said that America is the world's 
indispensable Nation -- that there are certain critical tasks on which 
the world depends that only the United States can perform. Leadership 
of the multilateral economic system is unquestionably one of these 
    As the world's largest economy, its largest exporter, and a country 
with truly global interests and reach, we have an enormous stake in 
ensuring that the global economy remains stable and growing. America's 
prosperity depends on the prosperity of our trading partners, who 
increasingly are in the developing world. The share of our exports 
going to developing countries is 42% and rising. US exports to 
developing countries were $351 billion in 1996.
    The IFIs serve more than just our economic interests. Peace and 
democracy cannot flourish amidst abject poverty and financial crisis. 
In places like Haiti and Albania poverty and economic collapse were a 
prelude to social upheaval and violence. In the Middle East, lack of 
economic opportunity is a major factor contributing to political 
conflict. In the former Soviet Union, the path to stable democracy 
depends on the success of economic reforms. Our economic leadership is 
thus vitally linked to our national security and to our values as a 

The Role of the IFIs

    The IFIs -- which include the International Monetary Fund (IMF) and 
the Multilateral Development Banks (MDBs) -- are the linchpins of U.S. 
international economic leadership.
    The IMF oversees the operation of the international monetary system 
and responds to shocks to the global financial system such as the debt 
crisis in the 80's and the Mexican financial crisis in 1994-95. It 
provides essential guidance and support to countries making free market 
economic reforms. Its normal lending, primarily to middle income and 
emerging market countries, promotes sound fiscal and monetary policy 
and open markets. Its concessional loans to the poorest countries 
through the Enhanced Structural Adjustment Facility (ESAF) support 
comprehensive reform programs which prepare countries for full 
participation in the global economic system.
    Our participation in the MDBs determines our direct influence over 
$46 billion of annual development financing and our indirect influence 
over at least as much in co-financing. This is far more than we could 
ever provide bilaterally. MDB loans and policy advice support basic 
infrastructure, human capital development and institution building -- 
all essential building blocks of equitable, sustainable, private 
sector-led growth. The MDBS, led by the World Bank's International 
Development Association (IDA), are by far the largest supporters of 
AIDS programs, child survival, girls' education, clean water and other 
essential investments in basic poverty reduction. The MDBs directly 
invest in private sector projects in countries where their presence can 
unlock additional foreign investment. The MDBs often take the lead in 
coordinating aid programs, as the World Bank is currently doing in 
Bosnia, and thus are a major leverage point for how other international 
assistance is directed.

IFI Support for U.S. International Interests

    By leveraging our relatively small contributions to these 
institutions we ensure that they are responsive to our priorities and 
support our foreign policy. Let me cite just a few examples of where 
the IFIs are advancing our interests:

   In Bosnia, where the U.S. has provided the leadership to 
        begin the reconciliation process, the World Bank and the EBRD 
        are coordinating $5.1 billion of their own and other donor 
        funds to support the massive rebuilding process. These efforts, 
        which build upon and extend U.S. bilateral assistance to the 
        region, are critical to maintaining peace once the U.S. 
        military presence is removed.

   In Russia, the IMF and the MDBs have helped keep fundamental 
        economic reforms moving forward. The government's commitment to 
        the program objectives of the IMF's current $10 billion loan 
        remains strong, and the close working relationship between IMF 
        and Russian government officials maintains momentum despite 
        periodic difficulties. The World Bank and EBRD have supplied 
        nearly $10 billion thus far in direct investments in private 
        sector ventures, and to privatization and institution-building 
        projects which lay the groundwork for foreign investment.

   In the Middle East, the World Bank is financing jobs 
        programs in the West Bank and Gaza to help alleviate the 
        employment crisis -- a key requirement for regional stability. 
        Long-term MDB support for countries such as Tunisia, Jordan, 
        Morocco and Turkey have helped those countries achieve economic 
        progress and encouraged them to be moderating forces in support 
        of the peace process. In the future, key MDB support for Middle 
        East peace will be provided by the Middle East Development Bank 
        which Congress authorized last year and for which the 
        Administration has requested appropriations. This Bank will 
        support cross-border infrastructure projects and regional 
        private sector investment that will help to cement a peace 

   In our own hemisphere, the World Bank, the Inter-American 
        Bank and the IMF's ESAF program are providing hundreds of 
        millions of dollars to support the difficult transformation of 
        countries like Haiti and Guatemala. In Mexico, IMF balance of 
        payments support has been integral to the recovery that has 
        allowed the country to repay its loans to the United 
        States.while continuing on its reform path. The MDBs are 
        working aggressively on the basic policy reforms needed to 
        cement the gains made thus far.

   In Africa, the MDBs are providing support for basic health 
        care, institution building and infrastructure to countries such 
        as Uganda and Mozambique. These programs underpin ESAF and IDA 
        sponsored economic reforms which are allowing these countries 
        to return to growth and stability after years of civil war. In 
        Uganda, the rewards of nine years of concerted economic reform 
        have translated into annual growth of around 10%. Mozambique is 
        also showing signs of accelerating growth as a result of an 
        IDA-led fiscal stabilization, privatization and demobilization 
        plan. Foreign investment was nearly $500 million last year and, 
        according to The Economist magazine, an additional $6 billion 
        is under consideration by investors.

    The recent records of these countries belie the view that the IFIs 
        cannot effectively assist African countries in private sector-
        led development. When the institutions and the countries 
        themselves pursue a sound, market-driven growth strategy, the 
        results can be impressive.

    In these and many other areas, the IFIs are vital partners in our 
foreign policy. We have a strong interest in maintaining our leadership 
position so that they remain responsive to our international 

The IFI Reform Agenda

    Our traditional leadership role in the IFIs also gives us a strong 
voice in setting the reform agenda for the institutions.
    In the IMF, we have concentrated on improving the quality of the 
Fund's economic reform advice and its early warning capacities. With 
strong U.S. encouragement, the IMF is emphasizing earlier detection of 
emerging problems, and in its lending programs is focussing on the 
quality of fiscal adjustment. It is also encouraging countries to cut 
unproductive expenditures such as military spending and to shift more 
resources to primary education and health care and to essential capital 
investment. Since 1990, military spending has declined significantly in 
countries with IMF programs while social spending has increased as a 
share of government outlays.
    Responding to G-7 initiatives, the IMF has expanded its 
surveillance activities to give greater emphasis to financial markets 
and has developed a Special Data Disclosure Standard (SDDS) to guide 
countries in the provision of comprehensive, timely, and accurate 
economic and financial data. To improve its capacity to deal with 
crises in the event that prevention fails, the IMF has adopted new 
streamlined emergency procedures that permit the institution to respond 
more quickly to a member's request for emergency access to Fund 
    The MDBs have also been actively reforming. Largely as a result of 
U.S. efforts, the World Bank has increased the transparency of its 
operations, encouraged greater participation of affected peoples in 
project design, created an independent inspection panel and an auditing 
department to evaluate project implementation, and focussed more 
attention on issues like the environment, corruption and labor rights. 
The Bank has also cut its administrative budget by 10% in the last two 
    The World Bank's reform efforts have culminated in a major new 
program recently proposed by President Wolfensohn. The ``Strategic 
Compact'' is an ambitious plan designed to improve the effectiveness of 
Bank programs in addressing poverty, particularly in Africa, and to 
focus the Bank on a fundamental set of development issues private 
sector development, environment, governance, corruption and 
participation which are key to sustainable development in a world where 
private capital flows are surging. Under the plan, the Bank will move 
more staff and decision-making to the field, develop an improved 
information system so the organization can better learn from 
experience, and adjust its skill mix to fit its evolving role in 
development. The Administration supports this effort at reform and has 
been working intensively with the Bank on ways to further define the 
Bank's mission -- including phasing out of some current activities -- 
and to reduce the cost of the Compact. President Wolfensohn and his 
staff have been responsive to our concerns and are committed to 
continuing to refine the Compact.

The Need for Continued Engagement

    Mr. Chairman, the IFIs support our international interests and they 
are actively reforming along lines that we support. But they will not 
continue to do so if we fail to meet our obligations and pay our fair 
share. Leadership is not free and we cannot lead with other people's 
money. Questions regarding our commitment to the IMF, and our large 
arrears to the MDBS, erode our international influence and credibility.
    Our leadership in the IMF over the last 50 years has helped ensure 
adequate resources for the Fund to meet both normal and extraordinary 
challenges to the global financial system. But with the rapid growth in 
world GNP and trade -- growth that this institution has directly helped 
to bring about -- the Fund has been steadily shrinking in size relative 
to the world economy and capital markets, even after the increase in 
quotas agreed to in 1990 and endorsed by the Congress in 1992. World 
GDP and trade have roughly doubled from the time of the quota review 
which resulted in that increase. The rapid growth of international 
capital markets increases the risk that crises can erupt very suddenly, 
resulting in a large financing gap for a country in crisis. In this 
time of rapid global economic change, it is particularly important that 
we remain fully engaged in determining and supporting an appropriate 
level of resources for the IMF which includes emergency borrowing 
    Paying off our large and persistent arrears to the MDBS, currently 
$862 million after the recent release of IDA funds appropriated in 
FY97, is also vital to preserve America's international leadership. 
Ironically, these arrears have accumulated during a period in which we 
were already sharply reducing our new commitments to the IFIS. Account 
by account, over the last four years we have negotiated down the 
budgetary costs of the MDBs by an average of 40%. This is appropriate 
given the increased capacity of other countries to share the burden and 
higher repayments from borrowers. Yet we have consistently failed to 
meet even our reduced obligations, calling into question our commitment 
to the international system that we largely created and that we have 
shaped over the last 50 years. As other donors have stepped in to pick 
up the slack, we have faced procurement restrictions on U.S. business 
and threats to our voting power in the Banks. I believe that while our 
leadership position in the multilateral arena remains largely intact, 
continued failure to meet our commitments would pose a growing threat 
to our long-term interests. We are at a critical point in our 
relationship with other donors and with these institutions and we must 
act decisively to fulfill our promises to them.

The Administration's Budget Request

    Before I discuss our proposed authorizations, I would like to 
highlight the Administration's proposed $1.6 billion budget request for 
the IFIs which is part of the President's 5-year plan to balance the 
budget. This amount does not include the required budget authority for 
the U.S. share of the IMF's New Arrangements to Borrow (NAB), since 
transfers under these arrangements are treated as exchanges of assets 
that are not scored as outlays and thus do not increase the deficit.
    Our request achieves the following main goals:

   Meets our $1.2 billion of scheduled MDB commitments -- what 
        we owe excluding our arrears. This reduced annual commitment 
        level to the entire institutional system is less than our 
        annual IDA commitment alone under the prior IDA-10 agreement, 
        reflecting the 40% reduction in U.S. commitments we have 
   Fully clears our $234 million of arrears to IDA, which is 
        the most important source of development aid to the poorest 
        countries and where arrears present the greatest problem for 
        our international leadership.
   Begins a three-year process of clearing our $862 million of 
        overall MDB arrears. This will lead to a permanently lower 
        level of required MDB funding after the year 2000.
   Provides approximately $3.4 billion in budget authority, and 
        a related adjustment to the budget caps, for U.S. participation 
        in the NAB, the IMF's new emergency reserve tank to be used in 
        the event of a major international financial crisis.

    The Administration's request for the IFIs represents our firm 
belief that, in the context of diminishing budget resources, these 
institutions cost-effectively serve the foreign policy, economic and 
security interests of the American people.

IMF Authorization Requests

    The Administration is requesting authorization to provide the 
dollar equivalent of 2.462 billion Special Drawing Rights (SDRS) 
(approximately $3.4 billion) for U.S. participation in the NAB. This 
amount would be in addition to the SDR 4.25 billion previously 
authorized and appropriated for the General Agreements to Borrow (GAB).
    The NAB was endorsed by the IMF in January, 1997. Modeled on the 
GAB, which was created in 1962, the NAB is a set of contingent credit 
lines to the IMF to deal with financial crises that threaten the 
stability of the international financial system in the event that the 
ordinary resources of the IMF are inadequate. The NAB would double the 
resources available under the GAB, bringing the total credit line to 
SDR 34 billion or approximately $47 billion. The GAB would remain in 
effect and could be activated independently, but the NAB would be the 
facility of principal recourse and no more than SDR 34 billion could be 
provided under the GAB and NAB combined. G-10 countries would 
participate in both facilities. By bringing in additional countries, 
the NAB provides better burden sharing among the international 
community than the GAB, while enhancing our ability to block 
inappropriate activation. The United States will have just under a 20 
percent share of the total amount of the NAB which gives us sufficient 
voting power to block activation with the concurrence of one other 
participant, or in some cases on our own.
    IMF members are also reviewing the adequacy of current IMF quotas, 
which finance the ordinary lending of the institution. If, as a result 
of that review, we believe that an increase in the IMF quotas is needed 
to ensure that the IMF has adequate resources to carry out its 
responsibilities well into the next decade -- and if we are able to 
negotiate a satisfactory agreement -- then we will propose that 
Congress authorize an increase in the U.S. quota. We will consult 
closely with Congress as this review proceeds.
    With respect to credit lines to the IMF and quota subscriptions, 
the Administration and Congress have agreed since 1968 that transfers 
to the IMF are treated as exchanges of monetary assets and therefore do 
not increase the deficit. When we provide such resources to the IMF, we 
get a liquid interest-bearing claim on the IMF which is backed by its 
substantial reserves, including gold. Our claim is like a deposit in 
the soundest of banks on which we are paid interest and which we can 
withdraw on very short notice if needed. Since 1980, authorizations and 
appropriations have been required, but the ``no outlay'' treatment has 
remained in place. Consistent with this treatment, the Budget 
Enforcement Act of 1990 (BEA) provided for an adjustment to 
discretionary spending limits to accommodate the previous increase in 
the U.S. quota for the IMF. Following the precedent of the BEA, we will 
propose that there be an adjustment to the discretionary budget 
authority caps for the NAB and have already done so for a possible 
quota increase.
    We also are requesting authorization for the remaining $75 million 
of the $100 million we pledged in 1993 to the ESAF for its Interest 
Subsidy Account. The ESAF provides up to $1.4 billion annually in 
concessional lending to the poorest countries in Africa, Latin America, 
the Caribbean and the former Soviet Union who commit to making 
comprehensive, market-oriented structural reforms. The ESAF is also the 
vehicle for IMF participation in the multilateral initiative to relieve 
the unsustainable debt burden of the most heavily indebted poor 
countries (HIPC). ESAF donor funds are drawn very slowly and we are 
only asking for $7 million in appropriations for FY98. Nonetheless, as 
a way of affirming our commitment to this program which has helped 
create budding success stories such as Uganda and Mozambique, it is 
important that we provide full authorization. If we step back from our 
commitment to the poorest, others will join the retreat.
    Finally, we may request authorization to vote in favor of an 
amendment to the IMF articles of agreement to provide a special, one 
time allocation of SDRs to enable newer members of the IMF to 
participate on an equitable footing in the SDR arrangement. Any 
allocation of SDRs would not require appropriation of budget authority

MDB and Debt Reduction Authorization Requests

    Mr. Chairman, our current arrears situation with the MDBs makes 
this year's multi-year authorization requests for the Banks 
particularly important. It is vital that we send the signal that we are 
committed to these institutions for the long haul and are willing to 
bear our share of the financial burden.
    Our authorization request for IDA is for $1.6 billion, which we 
have pledged to fund the two-year IDA-11 replenishment for FY98 and 
FY99. This commitment of $800 million per year is a 36% reduction from 
the $1.25 billion annual IDA-10 contribution negotiated in 1992.
    IDA has become increasingly effective in its role of fostering 
private sector-led growth in the poorest countries. By concentrating on 
support for basic education, health and infrastructure, it is fostering 
the building blocks of economic growth. By helping build institutions 
to improve the legal system, enforce contracts, and reduce corruption, 
it is helping create an atmosphere where the free market can thrive. 
IDA has also become more selective by concentrating its resources in 
countries who show commitment to reform and privatization but do not 
have access to private capital. Eighty-four percent of lending over the 
last four years has gone to countries rated by the Bank as average or 
above in terms of economic reform. China will graduate from IDA in FY99 
and its borrowing this year will be less than 20% of prior levels.
    Results are starting to show. Average growth among IDA-only 
borrowers, excluding blend borrowers India and China, went from 1% in 
1991 to 6% in 1995. In Africa, even with all of the crises of the last 
few years, overall growth has risen from 1% to 4% during the same 
period. As the World Bank continues to reform and the effectiveness of 
IDA programs improves, the return on our modest investment in this 
institution in terms of better trading partners and increased stability 
will continue to grow.
    Our second request is for authorization of the final three years of 
the Inter-American Development Bank's eighth general capital increase, 
agreed to in 1994. This authorization would continue our annual 
commitment of $25.6 million of paid-in capital to the EDB which lends 
approximately $7 billion per year and leverages an additional $2.4 
billion in co-financing. It continues to be instrumental in supporting 
the region's dramatic shifts toward greater democracy, lower tariffs, 
fiscal responsibility and economic growth. On the ground, the IDB is 
helping cement the Guatemalan peace process by funding roads into 
isolated areas and rural development programs to raise incomes in 
indigenous communities. It is helping countries like Mexico and 
Argentina to privatize and strengthen their financial sectors to reduce 
vulnerability to external shocks. It has also been a leader in 
developing effective micro-enterprise programs which bring financing 
and technical assistance to private enterprise at the grass roots 
    Third, we are requesting authorization for what we expect to be the 
final recapitalization of the European Bank for Reconstruction and 
Development. Our request for $285 million of paid-in capital over 8 
years, or $35.8 million per year, is a 50% reduction from our previous 
annual commitment. We nevertheless maintain our status as the largest 
single shareholder in the Bank with a 10% share.
    After deep internal reform, the EBRD has matured into an effective 
catalyst for economic reform and democracy in transition economies. 
Seventy percent of the EBRD's $10 billion in cumulative funding has 
gone directly to private sector projects where it has leveraged over 
$20 billion in private co-financing. As part of its charter, the Bank 
may only operate in market-oriented economies applying the principles 
of multi-party democracy. If a country's reform program lags, the EBRD 
reduces or ends it participation. The EBRD also is effectively 
targeting its resources to where they are most needed. As countries 
such as Poland, the Czech Republic and Hungary attract more private 
capital, the EBRD is shifting its focus further East to the former 
Soviet Union, where its role as an a magnet for private capital is more 
sorely needed.
    Fourth, we are requesting authorization for the Asian Development 
Fund where we have recently concluded a remarkably successful 
replenishment agreement. It is remarkable because we face arrears in 
the ADF of $237 million, slightly larger than our arrears to IDA. 
Despite this situation, the ADF-7 agreement incorporates a 41% 
reduction in the annual U.S. commitment with only a small reduction in 
our share from 16% to 15%. In addition, we achieved all of the major 
goals we had laid out when negotiation began:

   There are no procurement restrictions or special funds in 
        the ADF which mirror IDA's Interim Trust Fund (ITF). I credit 
        this result in large part to Congressional reaction to the ITF 
        and the strong case the Administration made to lift the ITF's 
        procurement restrictions.
   Despite the wishes of many donors, China and India will 
        continue not to have access to the Fund.
   Very importantly, the Fund has set a goal to become self-
        financing in half a generation (about 15 years) which would 
        eventually eliminate the need for future funding from donors.
   New high-growth Asian donors such as Korea, Malaysia and 
        Thailand are taking a greater share of the burden. For the 
        first time Asian donors as a group will provide \1/2\ of the 
        total funding for the replenishment. The new donor's among them 
        have benefited greatly from the Asian Bank and Fund's support 
        and are now showing their commitment to helping their poorer 
        neighbors lift themselves out of poverty.
    Finally, we are seeking authorization for our debt reduction 
programs for the poorest countries. Of the $34 million that we are 
requesting, $22 million will fund U.S. participation in Paris Club debt 
reduction for approximately 10 countries that may be eligible in FV98. 
Our request anticipates that Cote D'Ivoire, Ethiopia, Mozambique and 
Bolivia may qualify for treatment under the new Heavily Indebted 
Poorest Countries (HIEPC) Debt Initiative. Our debt reduction programs 
are part of a coordinated multilateral effort to ensure that the 
poorest countries which are undertaking economic reforms can reduce 
their debt burdens to sustainable levels. The remaining $12 million in 
our request will allow us to finalize the U.S. program of debt 
reduction for Jordan.
    In conclusion, let me say that these MDB and debt agreements are a 
good deal for America - they significantly reduce the MDBs budgetary 
cost and they advance American interests. Together with the IMF 
programs you are considering, they will enhance our financial security 
and improve our long term trade opportunities. But, as I have said, we 
cannot lead in the multilateral system if we are unwilling to fund our 
commitments or to act to head off potential crises. I urge you to 
support the Administration's budget request and full authorization of 
these institutions as a statement of our commitment to international 
engagement and leadership.
    Thank you. I look forward to your questions.

    Senator Hagel. Secretary Summers, thank you very, very 
much. What I would like to do is start a flow of exchange here 
with a number of questions and then we can, I suspect, use this 
opportunity to talk about all the dynamics of what you want to 
talk about and some of the things that we want to talk about 
for the record and just enter into a good, open dialog.
    Mr. Summers. Terrific.
    Senator Hagel. Some of my colleagues will be coming, and 
while they are not here I will take advantage of the 
chairmanship to enter into and engage you in some of these 
    First, I think our role as the preeminent world leader is 
not only critical to understand and essential to implement, as 
you are talking about the resources that you and Secretary 
Rubin have obviously given some thought to as to where we want 
to go and how we want to prioritize those resources, but, as I 
said earlier and you and I have had a private conversation 
about this, this is a very unique opportunity and time in our 
history where we can prioritize our resources not just with 
what you are doing financially but as you touched in some of 
the areas on what we will want to do and how it affects people, 
our national interest, and how it develops our foreign policy.
    I think that is something that we want to get at, Secretary 
Summers, as much as anything else. Obviously we want to talk 
about numbers and dollars, but we want to talk about the long-
term investment in lives and how that, then, relates in a 
relevant, direct manner to foreign policy for this country and 
our people.
    With that, I see my distinguished colleague, Senator 
Sarbanes, has joined us. Since he has cured all of the housing 
ills in America, he can now turn to foreign policy. Senator 
    Senator Sarbanes. Well, we have only begun, Mr. Chairman. I 
have to go back to that hearing as well.
    First of all, I want to welcome the Secretary before our 
subcommittee this morning. The Secretary and I have worked 
together over the years on a number of important international 
economic issues and we look forward to continuing that 
cooperation in the period ahead of us.
    I actually think that this issue of the multilateral 
development banks is an important issue. We can't on the one 
hand argue that we want to share the burden with other 
countries whose economies have advanced, the international 
burden of one sort or another, you know, recognizing the 
importance of development for the under developed countries, 
and then pull back on our support for the multilateral 
institutions which are a classic example, I think, of effective 
burden sharing.
    In fact, the U.S. percentage contribution in those 
institutions is, I think it is fair to say, on a very steadily 
declining downward trend line. I think there are a lot of 
misperceptions about the multilateral development banks and how 
they work. They have not been an unalloyed success but they 
have had some good stories, and I think if the U.S. is smart, 
the international financial institutions can play a key role in 
advancing our foreign policy and security interests.
    As I noted, by leveraging contributions from other 
countries, each dollar we provide to the MDB's allows us to 
have far greater influence over policies and events than we 
otherwise would be able to exert.
    Finally, let me say that I really have a very strong view 
on this question of arrearages. As I have just indicated, I 
would argue that the MDB's play an important role and, 
therefore, we should be supportive of them out into the future. 
But it seems to me there is no acceptable rationale that would 
justify failing to pay off the past commitments that the United 
States undertook and, therefore, other countries undertook 
commitments, in effect matching the U.S. decision. The other 
countries, with few exceptions, have paid those commitments and 
we have not yet made good on these obligations.
    I know the administration has made some requests here in 
order to try to meet that problem, and I very much hope that 
the Congress will respond to that.
    I, frankly, see this as a whole separate issue. This was an 
obligation we undertook. We constantly pound our chests that we 
are the world's leading power, the leader of now the entire 
world since there has been an implosion of the Soviet Union, 
and I think it is a highly embarrassing position in which to 
find ourselves to be in arrearages to these institutions.
    So I think it is critically important that we meet those 
arrearages. Failure to do so undercuts our influence in these 
institutions. Any time the U.S. comes to the table and sort of 
insists on reforms or on a policy change, everyone sits around 
the table and if they don't laugh directly in our face they 
laugh up their sleeves in the sense of who are you to come to 
the table when you are the biggest deadbeat here in the 
    I just find that an embarrassing situation in which to find 
ourselves. Many of these replenishments that we are talking 
about date back to previous administrations. It is not a 
Democratic or Republican issue. These undertakings have been 
made and continue to be made over time in more or less 
consistent fashion by administrations. I just think we should 
meet the arrearages, clearly.
    The next issue is what do we do going forward. I am 
supportive of continuing participation. But that is an issue 
for debate and we will have to weigh the pluses and the cons of 
doing so, and I would hope that the pluses would prevail out 
and that then we would move forward. So that is how I see the 
    I hope, Mr. Secretary, we will be able to do something in 
this Congress to try to respond to this situation.
    Now, Mr. Chairman, am I in a question session as well? Have 
you had a chance to ask your questions?
    Senator Hagel. Senator, since the two of us are running the 
show this morning, I think we will just do about anything we 
want. So you go right ahead.
    Senator Sarbanes. Well thank you. I do have a couple of 
    Am I right in my perception that our failure to pay our 
full assessments in some of these MDB's has impacted negatively 
on our influence in the institutions?
    Mr. Summers. I don't think there is any question about it. 
As you may know, Senator, before I came into the administration 
I worked for 2 years at the World Bank. So I have a fairly 
clear sense of that institution. If you think about things that 
are important to the American Government--lending, finding ways 
to channel more money to the private sector and less money to 
public enterprises, putting a larger fraction of lending into 
support for programs like girls' education, putting more 
emphasis on selectivity and the avoidance of lending where 
there are serious corruption problems, applying leverage 
through lending to other countries, former colonies, to reduce 
their military budgets, just to give examples of the kinds of 
issues that those institutions face where we feel strongly, and 
making records public would be another one--these are all 
issues where American attitudes differ somewhat from those of 
our allies. And while we have made progress on each of those 
things over the last 4 years, I don't think there is any 
question but that if the United States was meeting its 
financial obligations and people didn't say why are you even 
voting as you are not paying your bills, that we would have 
been able to move those institutions much further and we would 
have been able to much more potently influence the way that $46 
billion was being lent at a price that I think would have been 
relatively small for us, small numbers of hundreds of millions 
of dollars per year.
    I think regarding influence, our executive directors come 
back each year for a retreat where we discuss our policies 
toward all the banks. We are always saying we've got this idea, 
we've got that idea, we think it is very important that you get 
your bank to do something different in Country X, and they say 
to us look, on the ground the only thing the bank wants to talk 
about with us is how come we have not paid our bills. Countries 
with a tenth of the per capita income of the United States have 
paid their bills. How come the United States has not paid its 
bills and met its commitments?
    So I think it has a tremendously corrosive influence in the 
sense that we have just been emphasizing that it reduces our 
influence. It also, frankly, reduces our leverage and our 
ability to get others to contribute more money to these 
institutions. And it leads to an unraveling of the multilateral 
approach to assistance in these situations, since you get these 
situations where each country decides not to work through the 
World Bank but to do its own projects and to plant its own 
flag. And when there is a good project to be done on the West 
Bank, you have 9 different countries rushing to do it first, 
bidding up the salaries of a small number of officials who can 
carry on a program competently.
    So I think it is terribly destructive in terms of our 
influence in these institutions and I think it is terribly 
destructive to cooperation and efficiency in assistance efforts 
in places that are desperately important, like Bosnia and 
    Senator Sarbanes. Let me turn to another area.
    I am concerned about the amount of information and 
disclosure that these institutions make on occasion. Much of it 
involves environmental issues. For instance, I understand that 
the IFC, the World Bank's private sector arm, has an 
information disclosure policy that is quite restrictive. I am 
told it does not allow for the release of any information once 
a project is approved by the Board of Directors.
    I wonder if our representatives at the IFC have any plans 
to try to improve this information policy.
    Also MIGA, the bank's political risk insurance arm, needs 
an information policy. As I understand it, you cannot even get 
information about environmental assessments of MIGA backed 
projects. They are not publicly available.
    How much of a problem do you perceive this as being and 
what can be done about it?
    Mr. Summers. This is something that has been a concern of 
ours, and I think most people would agree that there has been 
real progress in the last 4 years, particularly at the bank, 
but that there has been somewhat less progress at the IFC.
    We actively support the creation of an independent 
inspection function in the IFC which would serve to permit much 
of this information to come out in the way that many of the 
environmental groups have been concerned about. This has been a 
concern in particular of Congresswoman Pelosi over the years.
    There are some important issues that need to be worked out. 
The issues I think are of two kinds. One is that the businesses 
that are carrying on these projects do not want full 
descriptions out for their competitors to see for a variety of 
competitive reasons. The other is that other countries, 
frankly, are less enthusiastic about a fully transparent 
approach. But this is one of the--and I don't know whether it 
is one or two, or three or four--but this is one of the highest 
priorities of our officials at the World Bank and it is 
something that President Wolfensohn has proposed.
    So I think we are likely to see progress on that going 
forward. But the thing that has to be balanced and that I think 
we can do a better job of balancing, frankly, is business 
interests and not disclosing all of the details of projects 
versus the legitimate environmental interests in knowing what 
is going to happen to affect the people.
    I think this is very much a work in progress.
    Senator Sarbanes. Some of the environmental interests have 
assaulted the bank and even suggested it ought not to function. 
Now that, it seems to me, would raise very serious questions 
about how you get sustainable development around the world.
    The argument that the environmental groups made is that the 
bank's private sector lending operations are replicating what 
the commercial banking sector can do and are not focused 
sufficiently on the sustainable development issue. Then, of 
course, it is compounded in that, even when they do focus on 
that issue, there is not sufficient transparency to allow the 
environmental considerations to be taken into account.
    What is your response to that line of argument?
    Mr. Summers. Let me, if I could, Senator, just step back 
slightly from your question to try to put it in a framework.
    We did an exercise several years ago as we thought about 
the various replenishments that were coming up of asking what 
was the role of the banks in today's world. When these banks 
were set up, there was no private capital market that financed 
projects in developing countries. The idea of India issuing an 
international bond issue was just something that was not on the 
radar screen.
    Today, $250 billion a years in private capital is going 
into the developing world. So the question is what is the role 
of the banks in a world where that is happening.
    Our answer was that there were three crucial roles that the 
banks have to play in such a world. First is support for 
projects that had a high social return but not a pecuniary 
bankable return, such as educating girls, which many of us have 
estimated as maybe the highest return project in the developing 
world. Carrying out sewage treatment, protecting tropical 
forests are others. These need to represent a much larger share 
of the banks' portfolio in the future than they have in the 
    In fact, over the last 4 years, the share of lending to 
these sectors has more than doubled, to the point where it now 
represents about a third of lending, and that has been in 
response to pressure from us and some other share holders, 
reflecting exactly the salience of environmental concerns.
    Second, we recognize that there are many countries that are 
not yet fully able to access private markets for which the 
banks had a role in bridging their work to private markets. Of 
that $250 billion, some 90 percent goes to 12 countries.
    Third, the banks have an important role in doing what is 
very difficult for a private sector agency to do, which is 
making loans that are conditioned on policy changes. For 
example, loans that are conditioned on policy changes to reduce 
subsidies to coal, which, in turn, lead to a great deal of 
environmental degradation; or loans that support infrastructure 
development but only on the condition that there is full 
popular participation.
    So our focus in the banks is on supporting the kinds of 
policy reforms that promote our environmental, democratic, 
economic values, focusing on countries which will have 
difficulty accessing the private market and on supporting the 
kinds of projects that are not bankable in a commercial sense.
    I think that approach, which was quite unconventional 4 
years ago, has come to be a much more conventional approach and 
is leading to substantial reallocations of their portfolios.
    I also think under Jim Wolfensohn's leadership and under 
Enrique Iglesias' leadership at the Inter-American Development 
Bank, the banks have drawn closer to a number of the 
environmental groups and have come to a greater understanding 
of the concerns of a number of the groups.
    Senator Sarbanes. I think Iglesias, in particular, has 
provided a really first rate leadership at the IDB. I attended 
an IDB conference many, many years ago in which he, or I think 
the first amongst many of the multilateral development banks 
held almost an all day session with the environmental groups 
and has subsequently tried, I think, to show a sensitivity to 
their concerns.
    Mr. Chairman, could I just put two more questions to our 
witness? I don't want to impose.
    Senator Hagel. Sure. Go ahead.
    Senator Sarbanes. Thank you.
    Would you say, Mr. Secretary, that often--because you 
mentioned this conditionality issue--by working through the 
multilateral institutions, the U.S. is able, along with others, 
to have important conditions imposed that are really necessary 
to get the discipline into the economies but without taking the 
blame or the finger pointing, which would occur if we tried to 
do that with respect to bilateral assistance. People sometimes 
say why do it multilaterally rather than bilaterally. Well, of 
course, multilaterally you get leveraging and you get burden 
sharing. But it also seems to me you can get discipline without 
being made the fall person in the politics of the country for 
doing that, which might well be the case and often is the case 
if it is done in connection with bilateral assistance.
    Mr. Summers. Senator Sarbanes, that is an absolutely 
crucial point and it is a point that is probably particularly 
crucial with respect to the International Monetary Fund, 
although it is also crucial with respect to the World Bank.
    I give you an example of an area in which we have pushed 
the IMF and the World Bank to be more active. That is the whole 
area of financial supervision.
    One of the security issues that has been in the headlines 
for the last several weeks has been events in Albania. That 
situation basically has, as its root, a failure of financial 
regulation, a massive pyramid scheme that blew up, 
impoverishing a significant fraction of the population and 
almost completely undermining legitimacy of large parts of 
their government.
    If we can avoid those kinds of situations within countries 
in the future, we need to have a mechanism that does that. It 
will always be extraordinarily difficult for the United States 
to say we are going to condition financial support on your 
having a bank regulatory system that meets the standard, or 
that standard, or some other standard.
    On the other hand, an institution that can speak with the 
legitimacy of the entire international community, not just the 
United States, and which is there to take the heat--so it is 
not America that is doing this to Country X, or Germany that is 
doing this to Country X, or Japan that is doing this, but it is 
an international institution that is set up for this purpose, 
that has common standards that it applies to a large number of 
countries--I think there is no question that the kind of 
conditionality that is involved would be something that would 
be almost impossible for us to pursue diplomatically.
    It is difficult in a session like this to give some of the 
specific examples where loans have been held up until corrupt 
officials were changed or until an instance of corruption was 
removed. But they represent a kind of activity that I think 
would be extremely difficult for us or for any other single 
country to undertake unilaterally.
    Senator Sarbanes. And, of course, if a single country tries 
to do it, then other countries may not do it in order to be 
able to gain an inside track in the country.
    Mr. Summers. Particularly where procurement is involved.
    Senator Sarbanes. Yes. I want to ask, finally, about 
procurement. Am I correct that, at least with respect to many 
of these institutions, the amount of procurement done in the 
United States significantly exceeds the U.S. contribution to 
the institution?
    Mr. Summers. I think in aggregate, Senator, we will furnish 
exact numbers for the record. But I recall numbers that are now 
probably a couple of years old that suggest that our 
procurement that is generated for U.S. firms in aggregate from 
the banks is about twice as large as the U.S. annual 
contribution to these institutions. So just in a very direct 
sense of payback, in terms of demand for U.S. products, they 
pay off, not to mention the contribution from, for example, 
joint ventures. Recently I have been in touch with officials 
from the European Bank, which works in Central Europe and 
Russia. They have a quite impressive record. $1 in every $7 of 
investment that has gone into their region has gone in in 
connection with one of their projects.
    [The following information was subsequently received for 
the hearing record from Mr. Summers:]

    The latest complete procurement data (1995) indicates that 
US firm procurement from the MDBs was $3.2 billion including 
loans and equity payments, while our contribution in that year 
was $1.8 billion, a roughly 1.8:1 to 1 ratio.

    Mr. Summers. Often their contribution is only 10 percent. 
They have really leveraged a large part of the private 
investment into it, and nearly 25 percent of those projects, 
those joint ventures, are with American companies, even though 
our share in the bank's capital is only 10 percent.
    I have just been passed a number. Recalling that our annual 
commitment to these institutions is $1.2 billion, last year we 
received over $3.2 billion in business from the institutions. 
So that is a 2.7 to 1 ratio.
    Senator Sarbanes. Just to underscore the obvious, the 
balance of that procurement was, in fact, resulting as the 
consequence of the contributions made by other governments to 
these institutions.
    Mr. Summers. That's right. Exactly.
    Senator Sarbanes. Do you have all your positions filled at 
the various institutions?
    Mr. Summers. I believe that all the executive director 
positions are now filled, yes. They have been filled.
    Senator Sarbanes. Well, we are anxious that that be the 
case, that you have your team in place.
    Mr. Summers. Yes. We have actually been very fortunate. We 
have a first rate group of executive directors, and many of 
them, at least one of them has at least some past service as a 
staff member of this committee. This is Karin Lissakers at the 
    I am told that we have an executive director designate at 
the European Bank for Reconstruction and Development who has 
already been in a position to provide us with some very 
important advice on issues facing that bank. We are very much 
focused on the need to fill this team out.
    Senator Sarbanes. Yes, and Senator Hagel, to his credit, 
scheduled a hearing for her at really the earliest opportunity. 
We have reported it from this committee, and I think it is now 
pending on the Senate calendar. Hopefully, we will be able to 
get it through the Senate shortly.
    Mr. Summers. Yes, and thank you very much.
    Senator Sarbanes. I want to thank the chairman again. He 
really moved with great alacrity in handling that nomination.
    Thank you, Mr. Chairman.
    Senator Hagel. Senator, thank you.
    Secretary Summers, let me go back to the arrears issue that 
Senator Sarbanes talked a little bit about. As you know, I am a 
United States Senator for all of about 3 months. So I do not 
have the traditional base of information that most of my 
colleagues have.
    Explain to me why we are in arrears, how that works. Are 
arrears considered in these multilateral banks definitionally 
the same way we reference arrears at the U.N.? Are these 
commitments that we make or are the terms that we use the same? 
Are they obligations? Are they voluntary obligations?
    If you can, take me back through that and start with this 
question. Why have we found ourselves in the position, as you 
state, of being behind in these payments?
    Mr. Summers. If I commit a legal inaccuracy, somebody 
behind me will whisper in my ear.
    In many ways it is parallel to the U.N. situation, but not 
in all ways. The administration negotiates replenishment 
agreements or capital agreements for these various banks. These 
agreements are negotiated with representatives of the other 
countries that are involved and they represent a total, and 
then that total is allocated among the different countries and 
an agreement is reached.
    We, as a matter of practice, which I suspect is nearly 
compulsory--it probably is legally a compulsory practice--have 
close consultations with the Congress prior to entering into 
the replenishment negotiations and on what the U.S. strategy 
will be. So while there is no formal role prior to entering 
into the agreement, there is close consultation, and my staff 
and yours, for example, have been and will be in touch with 
respect to future negotiations that are coming up and that 
would require this committee's authorization.
    The commitments typically are multi-year commitments, and 
the commitments are then authorized by the Congress. The 
question is then whether the funds are appropriated by the 
Congress to meet the commitment.
    When I speak of $862 million in arrears, I am speaking 
about money that has been committed by the executive branch to 
the institutions and subsequently has been authorized by the 
Congress. So the only gap is that the funds have not been 
appropriated and, therefore, they cannot be paid.
    But all of the $862 million in arrears represents funds 
that were committed with prior consultation and then were 
authorized by the Congress.
    I should emphasize that, while I do not have the exact 
figures in front of me, the lion's share of the commitments 
which produced these arrears are commitments that were entered 
into by the previous administration.
    Senator Hagel. Do you think it is a result of the Congress 
not feeling that objectives have been met as to why we have had 
this arrearage problem? Are there thresholds or are there 
    Obviously, one of the things that you stated earlier, when 
talking about investment, is measurable standards. These, in 
many cases, as you get down into these 7 multilateral 
institutions, are loans, not grants. I am trying to get my arms 
around a little bit as to why we are in this problem and then, 
second, what do we do about it and how you can make your best 
case to the committee, to the Senate and to the Congress as to 
how and why we should get caught up, which I assume you would 
like to do.
    Mr. Summers. I am not sure that I am the best authority on 
why the funds have not been appropriated. While clearly there 
is a range of concerns of the kind that you expressed in your 
statement and I expressed in mine about the performance of the 
banks, these are funds that were authorized. So I think the 
failure to appropriate them in part reflects the very strong 
budget pressures that Congress has felt in recent years. And it 
may reflect some sense that it doesn't make any difference, 
that it's, oh, just some international institution, it is a 
long way away, and it won't have any effect.
    Well, I am here to tell you that it has a very, very 
important effect on our leadership.
    I suspect also--and this is a tendency that I know exists I 
think with all of us--that it is more exciting in certain ways 
to start new things than to meet old obligations. So there is a 
tendency to want to earmark money for the newest international 
program or to start a new international initiative, rather than 
say well, we have not been meeting our obligations and now we 
are. It does not have quite the same sizzle.
    This is why we took a look at this situation starting in 
1993 and set very strong standards that, given the budget 
situation of the country, there were limits to what we were 
going to be able to do. We negotiated the commitments downward 
to the level that we could sustainably afford.
    This was, I think, a very important step. But this does not 
solve the problem of the overhang from the commitments that 
were negotiated in the early 1990's. So I think we have to work 
off that obligation, and when we do, we will be in a position 
to have these accounts be running at a much lower level.
    But I don't think there is a tenable alternative approach. 
It is hard to see how we could justify the United States being 
a kind of international outlaw, failing to meet what was a 
solemn agreement on which other countries reasonably could have 
relied. I think that if we continue to try to do that, we will 
pay a very substantial price, not just in terms of lost 
influence but I think as we are already starting to see in the 
IDA case, U.S. businesses will pay a price because their access 
to procurement will be put under increasing pressure if we are 
not contributing to the institutions that are generating the 
    Senator Hagel. I note here from some of the information I 
have that, if these numbers are correct, African nations now 
owe more than $52 billion to the World Bank and IDA. I suspect 
things like that have an effect as well on how the 
representatives of the people in this body have pulled back a 
little bit and are concerned about where is this money going if 
we have a $52 billion debt that is outstanding by African 
    I am not picking on Africa, but I suspect you could go 
across the globe and find that elsewhere as well. It gets back 
to our original point about investment. I don't know if those 
numbers are correct, but certainly that is having an effect 
that is out of your control, too.
    Mr. Summers. If I could say, though, the figure you cite 
represents a cumulation of 40 years of lending.
    Senator Hagel. Yes.
    Mr. Summers. I think if you look, and we have looked rather 
closely at the financial position of the World Bank, you will 
find that it is really very, very strong; that the number of 
defaults has been quite low; that that has been the case even 
in situations where--of course, when you hear the statistic 
that the number of defaults are quite low, you ask the question 
has there just been relending to avoid default.
    Senator Hagel. Sure. There is then a new infusion of 
capital coming from the United States and everybody else.
    Mr. Summers. Sure. But I think you would find that there 
have been quite a number of countries that have been, for a 
period of several years, in a position of repaying the World 
Bank, even when they weren't getting new loans from the World 
Bank, which I think is really the right test for whether the 
loans are good.
    Senator Hagel. Do you have that number, by the way, that 
ratio of bad debt versus good debt?
    Mr. Summers. We will furnish it for the record.
    [The following information was subsequently received for 
the hearing record from Mr. Summers:]

    The number of countries with net negative flows to the 
World Bank -- ie. who on balance are repaying old loans rather 
than incurring new debt is 57 out of the 96 current and former 
borrowers from the Bank.

    Mr. Summers. The number of loans that are nonperforming now 
I suspect is under 2 percent of the portfolio and the reserves 
are much closer to 10 percent of the portfolio.
    Mr. Summers. I think it is also important in assessing the 
$52 billion figure to note that at least a part of that, and I 
suspect a significant part of it, is concessional loans that 
are 40 years loans at interest rates of 1 percent, which have 
been budgeted for and are part of what we paid for up front. 
But it is not that on those kind of loans there would be the 
same concern that there was an unpleasant surprise awaiting for 
us, since we have already budgeted for them to have a 
substantial concessional component.
    I think that the concerns about lending and whether 
adequate standards of credit worthiness have been applied, I 
think most of the experts who have looked at this would say 
that that was not a major concern at the World Bank. I think 
that concern would be more serious, perhaps, at some of the 
regional development banks, and particularly that concern could 
be asked at the African Development Bank.
    We have been working very hard with that bank to assure a 
tightening of standards and to assure that lending on a hard 
basis goes only in situations where it is warranted.
    I think you will find at the World Bank, though, that one 
should never be absolutely certain, but that most of the people 
who look at it, who look at the performance record on loans and 
then look at the size of reserves, would feel that there is a 
lot of financial prudence there.
    Senator Hagel. Well, certainly you were there and you had 
your strong, insightful, clear-eyed arms around that when you 
were there. I know that.
    Mr. Secretary, let me get back to a point that you made, 
too, because it kind of intrigues me and you started to get 
into it with Senator Sarbanes. If I have this right, you 
mentioned that $250 billion of private capital is going into 
developing countries. Is that right, as you know it?
    Mr. Summers. (Nods affirmatively)
    Senator Hagel. Should we be restructuring these 
multilateral banks in some way? I don't know where $250 billion 
stacks up in the last 40 years. I suspect we have never had 
that much private capital going in. I don't know that. But what 
I am getting at is something you and I talked about earlier, 
which is how do we do this better. How can we do it better? You 
talked in your statement about leveraging these resources.
    Do you have any ideas about that?
    Mr. Summers. Yes. First, Senator, your premise is right. 
Flows in the last several years have been almost unprecedented, 
far larger than they have been in the past.
    But, again, I think the first point to emphasize is that 
the vast majority of that goes to 12 countries, and there are 
another 100 countries that get much less.
    I think the basic restructuring that is called for in 
response to that in the banks' activities is lending only where 
there is something to add. I tried, in answering Senator 
Sarbanes' question, to identify what I thought were crucial 
categories where the banks had things to add.
    There is the whole human development and environmental 
area, where it is profoundly important to send a kid to school 
but there is not a payback screen to pay back a bank for doing 
that. The countries where credit worthiness has not been fully 
established but where the opportunity to borrow from the World 
Bank contributes to the establishment of credit worthiness is 
another example. Also are loans where the World Bank, by virtue 
of being an international, kind of quasi-governmental 
organization, can impose conditions of a kind that a private 
bank could not on reducing tariffs or privatizing enterprises. 
Finally there are loans that are directed at catalyzing further 
private sector lending.
    For example, when I was in Russia just several weeks ago, I 
visited a project under development for the World Bank where 
the World Bank's only role would be to provide a guaranty 
against expropriation type risk that would then be cross-
guaranteed by the Russian Government. That makes it easier for 
a major U.S. aerospace company to come in there and once they 
are in there, there is no incentive to violate the covenants 
because the Russian Government would just have to make a 
payment to the World Bank.
    So you can lend in a way that supports without supplanting 
the private sector.
    I think these kinds of ideas, restructuring around what the 
private market cannot do, are very much the essence of what Jim 
Wolfensohn is trying to do in his strategic compact at the 
World Bank and is very much what Enrique Iglesias at the IDB 
has done. I think that we, the United States, can take some 
credit for the fact that the terms that we have reached in 
these agreements that you asked me a few moments about--you 
know, how we came to these arrears--as part of these 
replenishment agreements, there is a replenishment agreement 
which addresses in important ways the bank strategy.
    So there are, in effect, conditions on the institutions as 
a condition for getting the money. We have negotiated a set of 
conditions that have basically produced substantial movement 
toward this kind of reinvention, away from things that the 
private sector could be and perhaps should be doing in today's 
    I don't want to oversell this. I don't want to tell you 
that there aren't more ways in which we would like to see the 
banks change, or that they are not still doing some things that 
it might be better if they stopped doing. But I think we would 
be in a much greater position to accelerate this process of 
reinvention if we were meeting all our financial obligations.
    Senator Hagel. Do you think the multilateral institutions 
that we are involved in are more significant today, less 
significant, about the same, than, say, 20 years ago?
    Mr. Summers. I think they are probably more significant for 
three reasons.
    First, they have a crucial role in addressing problems 
within countries. If you think about our crucial security 
problems today, whether it is Bosnia, whether it is Haiti, 
whether it is Russia, they, in many, many cases, not to mention 
global warming security problems, in many, many cases they 
involve problems that take place within countries rather than 
problems that take place between countries.
    So our capacity to influence policies within countries in 
our interests, I think these are our best tool for doing that 
for the reasons Senator Sarbanes and I discussed, in terms of 
the ability to maintain political distance.
    Second, I think that the developing world, frankly, 25 
years ago was marginal to U.S. economic interests. Today it is 
the most rapid growing source of export demand and exports are 
the most rapidly growing source of advantage for our economy. 
So supporting economic reform in developing countries is much 
more important then than it is now.
    Third, I think they are most important right now in a 
political sense because with the security organizations in some 
cases less salient than they once were, they are the one set of 
institutions where countries come together and they do not just 
talk but actually do something. They work together to promote 
common interests in key regions, like Latin America.
    In a real sense I think you might say that the multilateral 
development banks are to the New World Order what the 
collective security organizations were to the former world 
    So I think they are much more important, basically, because 
the developing world is much more important than 25 years ago. 
Something that is very disturbing to me is if you look at the 
size of our contribution in real terms, after correcting for 
inflation, now versus 20 years ago or now versus 15 years ago, 
it is just way, way down. That makes it a particular tragedy, 
that we are not even able to meet the size of the contribution 
that we have committed, which is much reduced from a time when 
these institutions were probably less central to our interests 
than they are today.
    Senator Hagel. Would you apply that to China, for example? 
China is receiving as massive amount, as you know, of private 
investment, still, I believe, taking down World Bank loans.
    Would you characterize China as still being in that part of 
the orbit that you have just characterized as to the importance 
of these multilateral banks today versus 20 years ago?
    Mr. Summers. China is a complicated case.
    As you know, China had a major change in course in 1978 
toward economic reform. A substantial part of the blueprint for 
that reform and for moving toward more capitalist institutions 
came from a major World Bank six volume study that was done in 
    Frankly, it has been my view, and I think the view of most 
American officials for some time now, that China was an 
inappropriate candidate for concessional lending.
    As part of the international negotiation process since 
others disagreed, we continued concessional lending in the 
current IDA, but have now reached an agreement that starting in 
1999 the World Bank will cease making any concessional loans to 
China, which I think is an important milestone given the size 
of their reserves.
    The bank will continue to have a role in making loans on 
hard money terms to China in certain areas, and I think their 
lending has been importantly catalytic with respect to certain 
aspects of environmental sensitivity and certain aspects of 
private sector development in China.
    But, clearly, in looking at the lending program for China, 
it is very important--and this is the guidance our executive 
directors give--that the lending be directed at being 
constructive with respect to our broad agenda with respect to 
China, rather than supporting the kinds of things we would like 
to try to bring about change in China.
    But I think the end of concessional lending to China 
represents a really substantial and important milestone.
    Senator Hagel. Thank you.
    Senator Sarbanes.
    Senator Sarbanes. Mr. Chairman, I do not really have any 
further questions. I do want to make this observation.
    I think it is important to recognize on the public record 
the efforts that Treasury has made to reduce the budgetary 
costs of the international financial institutions. I mean, when 
we do these hearings, it is always about the budget request for 
the next year and there tends to be a focus, then, on the 
amount that is being asked for in the budget context in which 
we find ourselves.
    It seems to me, just to sort of broaden the context a 
little bit, as I understand it, there has been a sort of multi-
pronged effort to address this question.
    First of all, I gather you have lowered the ratio of paid 
in to callable capital.
    Mr. Summers. (Nods affirmatively)
    Senator Sarbanes. Second, you have stretched out 
replenishments over longer periods of time, so the cycle has 
been lengthened. Reflows and net income are being used for the 
soft loan windows as a way of addressing that issue, and new 
donors have been brought in. I think the percentages of some 
countries have, I think, been adjusted upward--I am not certain 
about that, but I think that is correct--to reflect the 
relative strengths of their economy. And there has been a major 
negotiation reducing the U.S. commitment.
    Am I right that our overall annual commitments are now 40 
percent lower than they were under the prior set of 
replenishments? Is that correct?
    Mr. Summers. That's correct, yes.
    Senator Sarbanes. Well I think that is a very striking 
achievement, frankly, to in effect continue out the work of the 
IFI's and to have the subsequent replenishments, but for the 
U.S. burden in those subsequent replenishments to have been 
reduced 40 percent.
    One of the problems we are facing now is we are trying to 
meet the current obligations and clear the arrearages. Now if 
we could once clear the arrearages, as I understand it, the 
permanent obligations would represent a significant drop from 
the previous level of obligation.
    Is that correct, Mr. Secretary?
    Mr. Summers. That is correct. In the current appropriation, 
in the current request, about more than 20 percent of it, in 
excess of $300 million, is to clear about one-third of the 
arrearages we have accumulated in the past.
    Senator Sarbanes. Then you are going to have to ask for 
that in subsequent years to finally clear it all.
    Mr. Summers. That's right.
    Senator Sarbanes. Once it is finally cleared off, where are 
we going to be in terms of what you will be asking for each 
year--this is with no arrearages, then, to deal with--compared 
with what was previously being sought? Will not there have been 
a significant drop in the amount?
    Mr. Summers. That, Senator, is the 40 percent reduction. We 
will be seeking about $1.2 billion, just above $1.2 billion a 
year for these institutions, and the commitments that were 
inherited in January 1993 were in the range of $1.9 billion to 
$2 billion a year.
    We have negotiated those commitments down with, frankly, I 
think it has been two parts good negotiating and good financial 
engineering and one part, because we are able to contribute 
less, the institutions are able to do with a little bit less. 
So it is both, I think, some tough minded financial management 
and it is also just a recognition of reality and making painful 
    Senator Sarbanes. But that part of it is accepted by the 
international community, is it not?
    Mr. Summers. That part has come to be accepted. It has come 
to be accepted.
    So I think it is important to emphasize in the overall 
budget context that the cut the Congress has put in the 
appropriation for the multilaterals in the last 2 years of 45 
percent is one of the deepest cuts that you can find anywhere 
in the foreign affairs area or, indeed, more generally, looking 
across the whole budget.
    Senator Sarbanes. And, of course, that is right in the face 
of a very skillfully negotiated reduction in the U.S. 
    I think that really needs to be put on the record because 
there is a tendency to take what you have done and just kind of 
put it in your pocket without recognizing the achievement it 
    Mr. Chairman, I think it is very significant that if we 
could just clear this arrearages problem at a level of $1.2 
billion, they could carry through from what was previously a 
level of just under $2 billion annually, which is obviously no 
small achievement, particularly when you factor in, which we do 
not, the fact that on the procurement side we are getting $2.50 
in American procurement for every $1 that we are putting in.
    I don't think we ought to let the Secretary come and go 
without some recognition of the skillful negotiating they have 
been doing in the face of having to carry this burden of the 
arrearages problem, which is not a good way to be at the table 
trying to negotiate a tough deal.
    Thank you very much.
    Senator Hagel. Senator, thank you.
    Mr. Secretary, let me ask a couple of other questions and 
then we will submit questions for the record as we always do. 
Then I would be pleased to entertain any additional comments.
    I wanted to ask a question regarding the budget. In your 
testimony, you make clear that the administration wants very 
much to participate in the IMF's new agreements to borrow. The 
President's budget contains a line item of $3.4 billion to help 
establish this new international line of credit.
    However, the President's budget did not seek a waiver, as I 
understand, of Section 251 of the Budget Act relating to how 
this funding will be scored against overall discretionary 
spending caps.
    I understand Senator Domenici, the chairman of the Senate 
Budget Committee, would like the administration to request a 
budget waiver for NAB funding. Can you shed a little light on 
    Mr. Summers. It is our intention to seek the waiver that 
Senator Domenici would like us to seek.
    Senator Hagel. All right. Thank you.
    I have some prepared questions here that we have really 
kind of gotten to in general ways and in some more specific 
direct ways. But let me ask you, Mr. Secretary, if you would 
like to add anything for the record or conclude with any 
    Mr. Summers. If I could, I will not try to summarize the 
basic argument, because I think I have stated it. But let me 
try to just make three additional points if I could.
    First, there are important programs that are not being 
funded that do not require authorization that we have not 
mentioned here today--new authorization. I would highlight in 
particular the Global Environmental Facility, which has been 
the lead international organization in taking on problems like 
biodiversity, the deterioration of international waters, and 
depletion of the ozone layer. We have been funding only a small 
portion of what we owe to that institution, and I think in 
light of our commitment and desire to show leadership on global 
environmental problems our failure to make an additional 
contribution, whatever it is--the increment is less than $100 
million a year, the total that we would need is $100 million a 
year; we have been funding it at a rate of closer to $30 
million--is just a terrible tragedy for America's ability to be 
able to be a leader in those institutions.
    Second, we have spent most of our time talking about the 
multilateral development banks. I just want to highlight for a 
second that there is also the question of support for the IMF, 
which really is crucial to economic reform in many countries. 
One thing that I think the science of economics does know is 
that economies and democracies do not survive hyperinflation, 
and that if we are to have a chance of promoting the kind of 
stability in countries that we want to see, we have to enable 
them to create a stable financial environment. That is the task 
of the IMF and it has had a number of very conspicuous 
successes in that task in recent years.
    If we do not want to be called on when there is a financial 
crisis to provide a bail out, we need for there to be an IMF 
that is working to prevent financial crises.
    I think they have done a particularly important thing in 
the last year by setting a standard that exists for countries 
on the way they have to disclose all their data. In many ways, 
it is like generally accepted accounting principles here in the 
U.S. we are finally getting something like that for developing 
    I think that is going to have a big effect in making 
markets surveil people and, probably more importantly, as 
accounting standards do in this country in reducing the 
tendency to slip and slide when you have a problem.
    The third thing I would just say is that if I had to reduce 
everything we have been saying here today to one thought, it 
would be this one. This is forward defense of American 
interests. This is forward investment in our security, by 
creating conditions that will prevent kinds of conflicts from 
emerging in which Americans will have to intervene much more 
expensively in a military way and much more expensively in 
terms of human life. And to invest another few hundred million 
dollars in making it possible to create greater stability in 
the developing world where most of the world's people live, 
even if there is only a small chance that each bit of it will 
prevent another Somalia, or another Bosnia, or another Haiti, 
just in terms of its direct consequence for the U.S. budget, 
not mentioning any economic benefits to exporters and all of 
that, if it has even a small chance of preventing one of those 
incidents, fully meeting our obligations will pay for itself 
many times over.
    Thank you very much.
    Senator Hagel. Mr. Secretary, as always, we are grateful 
for you coming before us today and giving us your thoughts. I 
might echo my colleague, Senator Sarbanes, and his compliments 
to you and your team. We appreciate the work you are doing.
    We all have an obligation here and a responsibility. We are 
on the same team and we will look forward to working with you 
as we go down the road.
    Mr. Summers. If we have done things right in the last few 
years, it is in no small part due to Bill Schuerch, who has 
worked on these issues for many years from both a Congressional 
perspective and, more recently, from an executive branch 
perspective, and his extraordinarily able predecessors, Lionel 
Johnson and Susan Levine, who I think have really done an 
absolutely fantastic job of standing up for the United States 
in these negotiations.
    Senator Hagel. Thank you. The record will reflect that.
    I got acquainted with Susan Levine many years ago, when we 
were both interest he real world and actually making more 
progress maybe than what I am doing here. She has always been 
very talented and has been an asset to this country in every 
    I would remind you, Mr. Secretary and your team, that we 
will keep the record open until close of business on Friday for 
my colleagues to submit any questions. We will have written 
    Thank you.
    [Whereupon, at 11:30 p.m., the hearing was adjourned, to 
reconvene at 2 p.m., June 12, 1997.]



                        THURSDAY, JUNE 12, 1997

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2 p.m. in room 
SD-419, Dirksen Senate Office Building, Hon. Jesse Helms, 
(chairman of the committee), presiding.
    Present: Senators Helms, Lugar, Coverdell, Hagel, Smith, 
Thomas, Grams, Ashcroft, Frist, Brownback, Biden, Sarbanes, 
Dodd, Kerry, Robb, Feingold, Feinstein, and Wellstone.
    Also present: Senator Gregg.
    The Chairman. Thank you, Senator Robb, for joining us. The 
committee will come to order. This afternoon the committee is 
meeting, of course, to consider the Foreign Affairs Reform and 
Restructuring Act of 1997, which, as is well-known, provides 
sweeping and long-overdue reforms to America's foreign affairs 
agencies, and mandates tough reforms of the United Nations.
    From the beginning it has been my hope that this effort 
would be a bipartisan one, dedicated to the reorganization and 
revitalization of our foreign policy institutions. 
Unfortunately, in the 104th Congress the effort degenerated 
into regrettably a partisan battle, and when Congress finally 
enacted legislation to send it to the President, the President 
vetoed a bill that would have eliminated just one Federal 
Agency which had temporary status for half a century. Ronald 
Reagan used to say there was nothing so near eternal life as a 
temporary Federal Agency.
    In any case, this year I was determined that this spectacle 
would not be repeated. Shortly after the election last November 
I spoke with the President and I expressed the hope to him that 
we would and could work together this time around, thereby 
forging a proposal to give the American taxpayers a break, 
certainly a more efficient and effective foreign affairs 
apparatus, and the President agreed.
    I also conveyed this hope both publicly and privately to 
Secretary of State Albright, who unhesitatingly agreed to work 
with us in a bipartisan fashion, and she has been true to her 
    Also, I discussed this matter with the distinguished 
Ranking Member, Senator Biden, who readily agreed that it was 
essential that this be a bipartisan project.
    Thereby, we together sent the administration a clear 
message that there must be no repeat of the unsuccessful 
battles waged in 1995 and 1996, and to the credit of both the 
President and the Sec- 
retary of State, the administration came forward with a reform 
plan addressing many, though not all of my key concerns, and in 
the ensuing months Senator Biden and I, along with our 
respective staffs, devoted dozens of hours to hammering out the 
final package that we have before us today.
    Let me make this clear. Neither of us got everything we 
wanted, but the result of that give-and-take is the legislation 
that we have before us, a bipartisan bill that will abolish two 
of those 50-year-old temporary Federal agencies, the Arms 
Control and Disarmament Agency, ACDA, as it is known, and the 
U.S. Information Agency, USIA, and bringing some of the 
functions of a third such agency, the Agency for International 
Development, AID, under the direct control of the Secretary of 
    Candor requires that I make clear that if I had my way we 
would abolish AID entirely and start over again, but I also 
recognize that this bill is the first step in a long process of 
inventing and reinventing our foreign affairs apparatus.
    Now, rest assured we will seek further reforms in the years 
ahead if I have anything to do with it, but for now this 
legislation does disestablish AID's independence from the 
Department of State.
    By transferring many AID functions to the Department, 
including the legislative affairs and the public affairs 
functions, and it will assure that the allocation of economic 
assistance henceforth will be administered by the State 
Department and directed by the Department of State. Under this 
reform package the Secretary of State will at long last--at 
long last--have policy control over this Nation's foreign aid 
    Now then, the legislation also contains the U.N. reform 
benchmarks that I promised United Nations Secretary-General 
Kofi Anon. He instructed me to remember that his last name 
rhymes with canon, Kofi Anon when he came down and visited with 
our committee back in January.
    I believe it is fair to say that this bill represents the 
most comprehensive and far-reaching U.N. reform package ever 
considered by the Congress of the United States. Among other 
reforms this bill will require the United Nations to reduce the 
size of the U.S. contributions from 25 percent today to 20 
percent by the year 2000, a measure that will save the American 
taxpayers roughly $100 million a year.
    It will require the United Nations to adopt a real negative 
growth budget and eliminate at least 1,000 bureaucratic jobs. 
It will prohibit future United Nations global conferences--for 
example, the Beijing Women's Summit and the Rio Earth Summit--
meaning that the American taxpayers will not have to pay the 
large cost of such meetings.
    It will require the United Nations to reimburse the 
American taxpayers for United States contributions to U.N. 
peacekeeping operations, meaning that the U.S. defense budget 
will no longer be raided to support U.N. experimentation with 
such operations.
    And most importantly, this bill would prohibit the payment 
by the American taxpayers of any so-called U.N. arrears until--
and let me emphasize, until these congressionally mandated 
benchmarks have been met by the United Nations.
    The message to the U.N. is simple but clear: No reform, no 
American taxpayer moneys for so-called arrears.
    Last but certainly not least, this legislation is 
authorizing funding for the Department of State and other 
related agencies, and imposes very strict and very specific 
disciplines on spending.
    Now, let me reiterate at this point that this so-called 
chairman's mark is a bipartisan effort. It does not contain 
everything that I wanted. Senator Biden is a tough but fair 
negotiator. Nor does it reflect everything that the Minority 
desires, but in the end, all things said, I believe we have 
produced a bill containing important reforms for this country 
and for the taxpayers of this country.
    And let me say, with all the sincerity I possess, that I 
appreciate Senator Biden's effective cooperation in helping to 
move this process along. It says a great deal that this package 
is being introduced today as the Helms-Biden bill.
    Of course, calling it the Helms-Biden bill is in a way a 
misnomer, because this legislation would not have been possible 
without the tireless efforts of the chairman of the 
International Operations Subcommittee, Senator Rod Grams. 
Senator Grams has devoted countless hours presiding over 
oversight hearings on issues contained in this bill and to 
working with other Senators and me to craft legislation that 
the committee can support.
    I have particularly relied on Senator Grams' special 
expertise as the congressional delegate to the United Nations 
in the crafting of a comprehensive United Nations reform 
proposal. Senator Grams is the author of many of these historic 
reforms, and I believe he has earned a place in the annals of 
U.S.-U.N. relations for his work in designing this package.
    I hope that the spirit of bipartisanship so evident today 
will continue throughout this meeting today, and that the 
committee can complete its markup today.
    As I said earlier, I intend for this committee meeting to 
continue until we have finished our work on it, because if we 
can complete our work today I am told by the Majority Leader 
that the full Senate can consider this legislation as early as 
next week, and in that way this bill will be on the President's 
desk at the earliest possible time, at which point it is my 
full expectation that the President of the United States, 
continuing the spirit of bipartisanship so evident today, will 
sign this bill into law.
    With that in mind, I now yield to the distinguished Ranking 
    Senator Biden. Thank you, Mr. Chairman. We are scaring the 
living heck out of everybody. Helms-Biden, I am sure that half 
the guys on your side are going, oh my God, it cannot be any 
good if Biden signed on with you, and I know half the people on 
my side are saying that to me.
    But this is not just the Helms-Biden proposal here. I want 
to make it clear that the administration has been aware of 
every single solitary compromise that I have agreed to. They 
have not necessarily agreed with every one of them, but they 
have been aware of it all.
    And so I fully expect--and I spoke with the President last 
night about this. I fully expect--he did not comment, he did 
not respond to me, I want to make clear--that I fully expect 
that if we pass this bill in the essential form it is in now 
that it will be signed by the President.
    I want to thank you personally, Mr. Chairman. I know that 
we are sort of this year's odd couple in the Senate, most 
people think, but you and I have been working together for 24 
years. We came the same day, and we have very different views 
on a number of things.
    But when I took over this spot on the retirement of 
Claiborne Pell you and I had a long talk, and I think it is 
appropriate to lay it out here very briefly, which is that I 
went over to you not only to pay my respects to you as 
chairman, but you and I talked about the future of this 
committee, and I indicated to you then, as you did, that we 
wanted to make this committee relevant.
    We wanted to make this committee relevant in the sense it 
makes no sense to be on this committee if we do not pass an 
authorization bill. I might as well have joined the 
Appropriations Committee and forgotten this committee, and 
there is the Appropriations Committee member who writes our 
bill for us, and he is generous all the time, I know.
    But I might as well have stayed on the Intelligence 
Committee or moved to the Armed Services Committee, because the 
practical fact of the matter is the major items on the agenda 
of this committee, in large part because of lack of any 
bipartisanship, have in fact been determined by other 
committees, and I did not sign on for a fifth term to be 
irrelevant in that sense.
    You made it clear that it was your intention to do the 
same. As a consequence of that you have made some, and I can 
see it on your face, some very, very difficult compromises. I 
quite frankly know it has been hard for you on some of these 
compromises, as it has been for me, but these compromises have 
not been compromises that have, I think, in any way compromised 
principle that we each of us share.
    We are not in agreement on all that is in this package, but 
in a sense, in the 24 years that I have been on this committee, 
I do not know of any package that has been as significant or as 
broad or as all-encompassing as this one effort we are 
attempting to make.
    And I might add Lee Hamilton and Chairman Gilman attempted 
and thought we had all talked about this--they were going to 
attempt to do the same thing. It is just a little more 
difficult over there.
    But this mark has three big components. When we talked at 
the beginning of the year we both said there are five major 
items on this committee. One we disagreed on, but agreed to 
fight out, and that was the chemical weapons treaty.
    The second one was the U.N. arrearages and reform. The 
third one was the authorization. The fourth one was the 
reorganization of the State Department, and one left to go--or 
these still have to go, but the last one was the expansion of 
the United Nations. I mean, the expansion of NATO.
    That is a Freudian slip on my part, and my desire to expand 
our efforts at the United Nations. I am sorry, Mr. Chairman.
    So here we are. This is the basic authorization legislation 
for the Department of State, the U.S. Information Agency, the 
Arms Control and Disarmament Agency, and the Peace Corps.
    The funding levels in this bill closely reflect the 
President's budget. The total bill for fiscal 1998 is $6 
billion as compared to the request of $6.1 billion that the 
President asked. In fiscal 1999 the amount provided in this 
bill is $5.9 billion. This is a modest reduction, and the 
reduction is in the international organizations account, 
consistent with the administration's commitments.
    Within this framework we have provided full funding for the 
State Department's core activities, and that is the diplomatic 
and consular program salaries and expenses, protection and 
maintenance of embassies. After years of reductions in spending 
on diplomatic readiness I am heartened that we have provided 
the full amount of the President's request in this account, 99 
percent of the funding for USIA diplomatic programs, full 
funding for exchange programs, full funding for international 
broadcasting, full funding for the National Endowment for 
Democracy, the Peace Corps, the Asia Foundation, and most 
international commissions, and $819 million for 3 years, to pay 
on our U.N. arrearages.
    The only reductions of note come in two accounts, 
Contributions to International Organizations, and Contributions 
to International Peacekeeping Activities. I regret the cuts in 
these important activities, but recognize we are closer today 
than last week, and hope we can make further adjustments prior 
to this bill becoming law.
    I point out to my colleagues who support these programs 
that they are fully funded, or nearly fully funded in the House 
authorization bill. I also regret, as I am sure you do, various 
portions. I also regret the inclusion of certain foreign policy 
provisions to which the administration and some of my 
colleagues have registered their objections. I hope we can 
continue the dialog about modifying these provisions as the 
bill moves forward, and in that spirit I would hold proposing 
any amendments to these provisions at this time.
    A second point I would like to make. The bill provides a 
framework for reorganization of the foreign affairs agencies 
that is consistent--that is consistent with the plan announced 
by the President on April 18, and you have come a giant step in 
accommodating their registered concerns, sticking to your 
commitment to have a fundamental reorganization downtown.
    Like the President's plan, the bill provides for 
integration of ACDA into the State Department within 1 year, 
but ensures that arms control function is maintained in the 
position of prominence by establishing a position of Under 
Secretary of State for Arms Control and International Security.
    Like the President's plan, the bill provides for 
integration of USIA into the State Department within 2 years, 
and creates the position of Under Secretary of State for Public 
Diplomacy. There is only one minor difference. It integrates 
the Office of Public Liaison and Legislative Affairs into State 
in 1 year.
    In addition, the bill puts flesh on the bones of the 
President's plan with regard to international broadcasting. The 
President's plan is virtually silent on the question, stating 
only the ``distinc- 
tiveness and editorial integrity of the Voice of America and 
the broadcasting agencies would be preserved.''
    This bill upholds and protects that principle by providing 
the existing Broadcasting Board of Governors will be maintained 
as a separate Federal entity. All the broadcasting agencies 
will be under the oversight of the board. There will be a 
dotted line relationship to the State Department, and the Under 
Secretary of State for Public Diplomacy will have a seat on the 
board. Additionally, the Secretary of State will provide 
foreign policy guidance to the board.
    I should emphasize here that all the existing principles 
and guidelines for international broadcasting set forth in the 
legislation enacted in 1994 will be retained. So that everyone 
may have full appreciation of these standards, we will 
circulate a copy of the relevant sections of the existing 
statute and show how we have amended the statute in the mark.
    Like the President's plan, the bill maintains AID as an 
independent agency. Let me repeat that. It maintains AID as an 
independent agency but provides for partial integration of the 
Agency for International Development into the State Department.
    Just as the President announced, the AID administrator will 
be placed under the direction of the Secretary of State, and 
consistent with the plan's objectives to improving coordination 
between the regional bureaus in State and AID, the Secretary 
will have the authority to coordinate aid policy. This is 
hardly a radical concept, Mr. Chairman. We have had aid 
coordinators in the State Department since the early 1990's to 
supervise aid programs in Eastern Europe and the former Soviet 
    This legislation is modeled on that concept. Indeed, the 
language is borrowed directly from the Freedom Support Act, 
which I had the privilege of coauthoring.
    It bears emphasis that, unlike the bill reported by the 
committee last Congress, this bill does not--does not--mandate 
specific reductions in budgets or personnel. Instead, it 
requires only periodic reports on savings that are achieved.
    Additionally, the legislation provides considerable 
flexibility to the administration to reorganize the foreign 
affairs agencies within the framework we have provided. The 
President and Secretary are given the authority to develop and 
implement a reorganization plan. Ultimately, there will be some 
transition and personnel authority that the administration will 
need. I hope the administration will be prepared, by the time 
we go to conference, to present us with the proposed 
legislation in that regard.
    The administration has submitted legislation which would 
authorize it to reorganize with maximum flexibility--their 
phrase--but this plan does not provide any less flexibility to 
    To be sure, the plan locks in the date for the ultimate 
integration of the two agencies into State, and it speeds up 
the partial integration of AID into State. That is the 
difference. But I think it is good policy.
    But within the broad outline, the administration has 
considerable flexibility to take and implement the thousands of 
decisions required under the reorganization. Ultimately it will 
have to come back to Congress for certain authorities. This is 
not extraordinary. This is the daily business of Government, 
and so I hope the administration will work with the committee 
on this procedure.
    If the administration is committed to the reorganization 
outlined by the President on April 18, as I believe it is, then 
it should have no trouble implementing the legislative 
framework laid out in this bill.
    Finally, Mr. Chairman, the bill provides for payments of 
U.S. arrears to the United Nations. The agreement which is 
before us in division C will allow us to pay $819 million in 
arrears to the United Nations over a 3-year period, contingent 
upon the United Nations achieving specific benchmarks, to 
borrow your expression.
    I will mention a few of the particularly noteworthy 
benchmarks. The plan calls for a two-stage reduction in our 
regular assessment from 25 to 20 percent. At today's budget 
level, that would mean the United States would save nearly $65 
million in each year of regular U.N. dues.
    Now, those who say to me, and the editorials I read, and 
some of my friends in this committee say, we should not be 
having any benchmarks. Well, I have been here a long time, and 
I notice we have tried to pay these arrearages for a long time, 
and we have got nowhere, so we either compromise or we get 
    And the fact of the matter is, the House has nothing, and 
the fact of the matter is, as well, that this notion of telling 
the U.N. that certain things have to change I am not making a 
lot of apologies for, for if we were today to be establishing 
the U.N. in the first instance, does anyone think, in light of 
the other world economies, we would be assessed 25 percent?
    Now, granted, it would be better if it was not conditioned, 
in my view. That is where my friend and I have a disagreement. 
But my choice here, as I see it, is to condition and get what 
the administration says is the bare bones they need, or get 
nothing, and it seems to me it is vitally important to get what 
you were willing to commit to, Mr. Chairman.
    But again, I also think on a policy basis--just think of it 
in these terms, folks. If the U.N. were being organized today 
in San Francisco, would the United States be assessed 25 
percent? I do not think any reasonable person would suggest 
that would be the assessment.
    The plan also requires the U.N. make a commitment that the 
United States will be reimbursed for support we provided for 
peacekeeping operations, something that is very important to 
the chairman. It also conditions payment on assurance that the 
United Nations has no designs on American sovereignty. I 
believe they have none, but it makes it very clear.
    In addition, the plan calls for a number of budgetary and 
oversight reforms that promise to improve efficiency in both 
the U.N. Secretariat and the largest specialized agencies. I 
met with the President of the General Assembly for a couple of 
hours and a number of people who are part of his staff, and 
members of the United Nations, and they came to see me, and 
they said, we do not want any conditions.
    I said, fine. What changes do you think have to be made? 
They outlined changes, and they are the same changes you think 
should be made.
    I said, well, you have choice here. You have a choice of 
making the changes you think have to be made under the 
understandable resistance of saying the United States is making 
us do it, or making the changes on your own and getting no 
    So it seems to me again I would prefer it not be 
conditioned, like my friend from Indiana, but the truth of the 
matter is, I would also prefer that we get this behind us and 
get in good stead with the United Nations and move on.
    I thank the chairman for working through this issue on a 
bipartisan manner. I would also like to take a moment and 
recognize and commend the efforts of Ambassador Lyman and his 
team, who probably spent more time in his office and my office 
and yours as well, with your staff, than they ever intended to 
do and probably hope never have to do again. Ambassador Lyman, 
who more than anyone else in the administration--and this will 
probably get him in trouble, by acknowledging how helpful he 
was--provided valuable assistance to me and to the chairman 
over 4 months of very detailed negotiations that have led to 
this bipartisan agreement.
    Let me conclude by saying this. I know a lot of you--and I 
do not blame a lot of my colleagues on my side, at least--are 
understandable concerned that this is being presented to them 
in a way where they are not in on every bit of the negotiation. 
Well, the truth of the matter is we try to keep everyone 
informed. The administration was informed. I do not blame them 
if they--but I do not know any other way to do this. I do not 
know any other way to do this.
    Maybe I spent too much time doing criminal justice 
legislation. I do not know how it gets done if it does not get 
done this way. But I want to acknowledge that I respect the 
views of any of my colleagues who may disagree with the 
totality of this. But put it in this context. If the Senator 
and I had come to you all and said, in January, we will be able 
to present to you a package we can both agree on, that funds 
the U.N. to the degree the administration says it needs, it 
reorganizes the United States foreign policy establishment in a 
way that the administration agrees with 99 percent of, and 
basically fully funds for the next 2 years authorization for 
the State Department, I think you all would have thought we 
were crazy.
    Well, that is where we are. Now I urge you all not to let 
the perfect become the enemy of the good. This is a first-rate 
move, in my view. This is an important step in the direction of 
not only making this committee relevant, but, in my humble 
opinion, of establishing for the first time in a long while a 
genuine sense of bipartisanship in the conduct of American 
foreign policy, at a time when much of it is necessarily up for 
    And so I thank you, Mr. Chairman. I yield the floor.
    The Chairman. I thank you, Senator. I thank you for the 
hours that you have spent working with us and with the staff. 
You have been most helpful and generous.
    I note the presence at the table of the distinguished 
Senator from New Hampshire, Mr. Judd Gregg. He is the 
distinguished chairman of the appropriations subcommittee which 
oversees the Departments of Commerce, State and Justice. I 
think what he may be preparing to see will be important, in 
terms of launching consideration of this bill.
    I guess it would be accurate to welcome you back, Judd. He 
was formerly a member of this committee. But I understand why 
he changed to Appropriations. But his expertise in foreign 
affairs obviously has served him well in his new role on the 
Appropriations Committee.
    As a matter of fact, to be honest about it, I do not think 
we would be here today without Judd Gregg's early and active 
support of the concept of this legislation. He has been a major 
contributor to almost every aspect of it. Indeed, his tireless 
work in promoting this legislation signalled, I think, to the 
administration early on that the appropriators and authorizers 
could not be divided and conquered, that we were a united 
front, and that we meant business.
    So we welcome you and your comments sir. Welcome home.
    Senator Gregg. Thank you, Senator. I appreciate the 
invitation to be here. I recognize that you have got a lot of 
work to do. I thank you very much for the chance to speak with 
you, which was an invitation extended by yourself. I do not 
want to take a lot of your time. A lot of what I have to say 
has been summarized by yourself and Senator Biden.
    I simply want to make a couple of comments. First, I 
believe the bill that you are about to mark up is an 
extraordinary document, that is a very positive step forward 
for our foreign policy as a Nation. As chairman of the 
committee on appropriations, which has oversight over a large 
percentage of this bill in the spending side ledger, it is 
going to be the courses we are going to follow as we sail down 
the process of funding the agencies.
    Second, I want to speak specifically to the U.N. agreement. 
This, as has been mentioned, was an agreement which took 
literally months of intense negotiation. When it started out, I 
think most of us did not feel we would reach an agreement. But 
with the strong leadership of yourself, Senator Biden, and 
especially Senator Grams, whose efforts in this area have been 
extraordinary, and the imprimatur of get something done that 
was given to us by Senator Lott, we were able, working closely 
with Secretary Albright and Ambassador Richardson, to reach 
this understanding.
    And the way I view this understanding is as follows: 
Basically, what we are going to do--well, there were three 
issues. The first was we had an issue of the amount. How much 
do we owe in arrears? The second issue was, what should the 
benchmarks be? What should we set as the goals that we feel the 
U.N. should try to obtain? And, third, what would be the 
payment procedure?
    What I think we ended up with was essentially a letter of 
credit. We are saying to the United Nations, you reach certain 
conditions and we will pay you. All letters of credit require 
that obligations be met. So we are going to expect some 
obligations. But if they meet those benchmarks, we are going to 
pay. The benchmarks that we have set out are reasonable. They 
are negotiated benchmarks with the administration and with the 
understanding of what the U.N. felt it could do and it could 
not do. They are not unreasonable demands.
    If you go down through the list, they involve fairly 
obvious things, such as that our Constitution will be 
recognized as sovereign; that there will not be a standing army 
at the U.N.; that there will not be any tax policy initiated by 
the U.N.; and substantive things on the area of fiscal 
management, which I happen to think are very important, because 
I think the U.N. has serious fiscal management problems; things 
like an accounting procedure, where we can actually find out 
where the money goes; a personnel procedure, so we can know who 
they hire and why they hire them; a procedure for evaluating 
when they deliver a service, whether it was actually delivered 
or whether it was not delivered.
    And then, third, an issue that has been of significant 
concern, which is, what is the proper burden for the American 
taxpayer to pay of the cost of managing the U.N.? And we have 
reduced that burden, and reduced it, I think, in a reasonable 
way. We are still picking up a huge percentage of the U.N. 
burden, but it will not be quite as large as it has been in the 
    And, of course, the bottom line to all this is that I 
believe, after you have passed your bill and we have put in 
place the language which spends the money conditioned on the 
language of your bill, that we will be able to return to our 
people in our States, our taxpayers, and say yes, the dollars 
that you are sending to the U.N. are going to be spent 
effectively. The U.N. is an institution which deserves support. 
It is an institution which should have a positive impact in 
international affairs. It is an institution which can have a 
positive impact on American policy. But we have to make sure 
that we can say to our taxpayers that they are spending our 
dollars well.
    And the end result of this effort, which has been put 
together by Senator Helms, Senator Biden, Senator Grams, and 
Senator Lott, who played a major role, Secretary Albright, and 
Ambassador Richardson, is to produce a package which 
accomplishes that goals.
    Also, I would like to thank the staff. Because the staff 
hours on this, as in anything else, were extraordinary. My own 
staff person, Vas Alexopoulos, spent literally hundreds of 
hours on this; Tom Kleine, Patti McNerney, Chris Walker, and of 
course the inimitable and unreplaceable Admiral Nance, who did 
an extraordinary job of keeping this moving.
    So I thank you, Mr. Chairman, for allowing me to come here 
today and just simply say thank you for the effort you put 
together, because it is going to make my job as an appropriator 
a heck of a lot of easier.
    The Chairman. To the contrary, sir, we thank you. We thank 
you for being here today. Thank you for your comments.
    Now, then, my recommendation is that we should proceed 
through the bill by division, beginning with division A, 
relating to reorganization. Then we can turn to division B, 
related to State Department basic authorities. Then division C, 
relating to reform at the United Nations. If there are no 
objection, then, I suggest that the committee now begin 
consideration of any amendments to division A.
    Now, on both sides, I believe--I know on my side--I want 
the experts to be able to answer technical questions that may 
be raised about phraseology or procedures and so forth. So I am 
delegating Tom Kleine to do that job on our side.
    Are there amendments to division A?
    Senator Coverdell. I move the adoption, Mr. Chairman.
    Senator Feingold. Mr. Chairman, I offer an amendment.
    The Chairman. The Senator will state it.
    Senator Feingold. To strike the provisions establishing a 
new independent Agency for International Broadcasting. Mr. 
Chairman, if I can proceed?
    The Chairman. Yes, absolutely.
    Senator Feingold. Mr. Chairman, I am very concerned about 
the provisions included in the committee mark that will 
establish a new independent Federal Agency to administer United 
States international broadcasting programs. I just do not see 
how this section of the bill makes any sense, in light of the 
hard work this committee invested in 1993 and in 1994 in 
restructuring the U.S. role in overseas broadcasting by 
consolidating various programs and taking clear steps to move 
Radio Free Europe and Radio Liberty down the road toward 
    In 1994, this committee took the lead in doing something 
very unusual in Washington. This committee wiped out a Federal 
Agency. It finally did it. I do not know if it was Reagan or 
Bush who said that the only thing that is immortal in 
Washington is a Federal Agency. Well, unfortunately, if we take 
this step, we are going to prove them right again.
    The agency was called the Board for International 
Broadcasting, or the BIB. We consolidated international 
broadcasting programs in the Voice of America, along with all 
the surrogates within a Federal Agency--one Federal Agency, the 
USIA. We imposed tight fiscal controls on the two programs that 
were just rife with fiscal abuses and mismanagement, and 
mandated steps toward privatization for RFE/RL. In fact, we 
said that Radio Free Europe and Radio Liberty should be 
completely privatized by 1999. It is Federal law right now that 
that should happen. We have saved the taxpayers close to $1 
billion over a 9-year period by doing this.
    At the time the committee took this action, Mr. Chairman, 
as you well recall, RFE/RL was spending 25 percent of their 
budget on administrative costs, while the Voice of America was 
only spending 12 percent on theirs. Extremely lavish 
government-paid salaries and perks for executives were a deeply 
ingrained way of life for these programs.
    Now, today we have before us a proposal to recreate what 
appears to be something virtually identical to the old Board 
for International Broadcasting, an independent Federal Agency, 
governed by a board of directors. Now, colleagues, this is a 
road map to return to where we were 3 years ago.
    I find it incomprehensible that just as we, under the 
chairman's leadership, are consolidating our foreign policy 
apparatus under the reorganization plan in this bill, that we 
would create a new Federal Agency virtually identical to the 
one we wiped out less than 3 years ago.
    Let me very briefly outline the problems I have with the 
Biden proposal. Let me just say that Senator Biden and I have 
been at this for years and understand each other on this. We 
have agreed on almost everything since I have gotten here, but 
this one was our first encounter and it is going to be 
apparently a continuing encounter.
    Senator Biden. And hopefully our last.
    Senator Feingold. Well, it depends on how it comes out.
    But these are my problems. First of all, fiscal abuse. The 
structure Senator Biden has proposed has historically been a 
breeding ground for fiscal abuses. These were not just 
uncovered in 1993. I have a stack of GAO reports and I.G. 
reports going back two decades, documenting the fiscal abuses 
that this independent structure generated. Senator Howard 
Pastore, in his 1976 account of this problem, said the abuse 
has reached the point of becoming almost scandalous. That is 
what we put an end to in 1994. We finally put an end to the 
    Second, privatization. There was a commitment made in 1994, 
put into the law, that we would eliminate this thing and 
completely privatize it by 1999. Why would we recreate an 
independent agency to administer the grants for RFE/RL for this 
short period of time? If we recreate this entity, I can assure 
you, as all Federal programs do, it will find a justification 
to continue. All the hard work and consensus that was developed 
around the idea that RFE/RL should be privatized will be under 
    And, third, there may be attempts to suggest that this 
somehow is not a new Federal Agency. But I assure you it is 
simply a new Federal Agency. I find it hard to believe that the 
members of this committee, many of whom are deeply committed to 
downsizing the Federal Government and achieving deficit 
reduction, want to have a hand in creating a new Federal 
Agency, an agency that not only would be new, but just is not 
needed. That is exactly what these provisions will do--create 
an unnecessary new Federal Agency, with all the overhead and 
bureaucracy and trappings of a brand-new agency.
    And I am not alone in this view. I think, if I could, Mr. 
Chairman, I would like to put a letter from the Taxpayers for 
Common Sense in the record.
    The Chairman. Without objection.
    [The information referred to follows:]

                                Taxpayers for Common Sense,
                                                     June 12, 1997.
The Hon. Russell Feingold
United States Senate,
SH-716 Hart Building,
Washington, DC 20510

                  Re: Support Feingold amendment to
                           State Department reauthorization

    Dear Senator Feingold: Taxpayers for Common Sense supports your 
amendment to the State Department Reauthorization bill that will be 
marked up today. We urge all members of the Committee on Foreign 
Relations to support your amendment.
    In 1994, Congress passed legislation terminating the Board of 
International Broadcasting, (BIB), an independent federal agency 
responsible for administering the grant for Radio Free Europe and Radio 
Liberty (RFE/RL). In doing so, the legislation mandated that steps be 
taken to privatize RFE/RL. The legislation also established a 
Broadcasting Board of Governors within USIA in order to curb extensive 
internal problems that plagued the programs under the BIB structure.
    Contrary to the law and to congressional intent, the committee 
version of the State Department Authorization Bill that will be marked 
up today would create a new federal agency strikingly similar to the 
BIB. Congress terminated this just three years ago by an overwhelming 
bipartisan vote. The BEB structure fostered rampant fiscal abuses, 
lavish executive salaries and executive perks, despite numerous GAO and 
Inspector General reports noting fiscal problems over the course of two 
    Your amendment would simply strike the committee's language on this 
issue. TCS supports your amendment because it would prevent creation of 
a new federal agency. While the budgetary savings may be relatively 
small compared to the entire federal budget, the principle at stake is 
large. Can Congress follow through on budget cuts? Finally, your 
amendment is a step in the right direction at a time when many believe 
it is important to restore confidence of American taxpayers that U.S. 
international programs are wise expenditures.


                                             Ralph Dennaro,
                                                Executive Director.

    Senator Feingold. And if I may, Mr. Chairman, everyone 
should have received a copy of this. It says as follows, in a 
letter dated today to me, which I have distributed:
    Taxpayers for Common Sense supports your amendment to the 
State Department reauthorization bill that will be marked up 
today. We urge all members of the committee on foreign 
relations to support your amendment.
    Contrary to the law and congressional intent, the committee 
version of the State Department authorization bill that will be 
marked up today would create a new Federal Agency strikingly 
similar to the Board for International Broadcasting. Congress 
terminated this just 3 years ago by an overwhelming bipartisan 
vote. The BIB structure fostered rampant fiscal abuses, lavish 
executive salaries and executive perks, despite numerous GAO 
and Inspector General reports noting fiscal problems over the 
course of two decades.
    Your amendment would simply strike the committee's language 
on this issue. Taxpayers for Common Sense supports your 
amendment because it would prevent creation of a new Federal 
Agency. While the budgetary savings may be relatively small 
compared to the entire Federal budget, the principle at stake 
is large: Can Congress follow through on budget cuts?
    Mr. Chairman, I submit that this is a significant issue, 
just in general, because of the deficit issue and our efforts 
on balancing the budget, but specifically, in light of the 
spirit and the accomplishments embodied in the rest of the 
agreement, which is in the direction of consolidating, not 
creating, new agencies in the Federal Government.
    Thank you, Mr. Chairman.
    Senator Biden. Mr. Chairman, let me respond, if I may.
    First of all, let us understand what the fundamental 
disagreement the Senator from Wisconsin and I have. He does not 
believe, I think it is fair to say--and please correct me, 
Senator, if I am wrong--that there is a need for private, 
public or in any circumstance Radio Free Europe, Radio Liberty 
or Radio Free Asia. That is the fundamental disagreement we 
have to begin with, number one.
    Number two, if they are to exist, the issue is they only 
have efficacy if they are totally independent. They cannot be 
the voice of the official policy of the United States in order 
for them to have any efficacy. That was why Radio Free Europe 
helped bring down the Berlin Wall. No one doubted its 
independence, its journalistic integrity.
    So I will acknowledge one thing. If there is no 
journalistic independence, then there should not be the radios.
    So the key here is, if you start off and say there are to 
be the radios, the radios make sense--if you agree with the 
Senator, having the radios, public, private or otherwise, makes 
no sense, then you are right. Because to fold them into the 
State Department completely eliminates their objectivity in the 
minds of the people we are trying to get to. That is number 
    Number two, this notion that we are creating a new agency. 
What we are doing is stripping everything out of an existing 
agency except for one thing. The only reason we are not 
stripping it away is because of the need for independence, 
journalistic independence.
    Now, it may seem strange that a guy like me would be 
spending so much of my time in the last 10 years doing this. 
But I think, I truly believe, there is as much a need for 
unfiltered, reliable information, not able to be--not able to 
be--censored by even our government, to get to a part of the 
world that will be in chaos and confusion for the next two 
decades, particularly the establishment of Radio Free Asia, 
which so many of you supported me on.
    Now, this notion that it undermines privatization. I agree 
with my colleague when we reached a compromise a year and a 
half ago or whenever it was that we should work toward 
privatization. But, quite frankly, that is more consistent with 
my notion of its independence.
    Let me ask you the rhetorical question: How many of you 
think there is a greater chance of it being privatized if it 
sits out here by itself with that mandate attached to it or if 
it is subsumed into the State Department with USIA? What do you 
think, folks? Where do you think it is more likely to have a 
shot at being privatized and having the push to privatize it?
    This does not in any way change the directive by 1999. 
Kevin Klose is here. I do not want to take up the committee's 
time, but he is prepared to testify and tell you about the 
efforts toward privatization.
    The third point--and there is much more to say, but we have 
many more things to cover I acknowledge, and I am not in any 
way trying to trivialize the amendment--it is very important, 
and it is very important to me--but this notion that we are 
going to put in place this sort of spendthrift cesspool that is 
going to go out and do all these things now. The truth of the 
matter is this is a broadcasting board we put in place 3 years 
ago. It has a direct line responsibility, answering to--in 
terms of connection to--we handed out this little 
organizational chart for you here--to the State Department. The 
State Department has, as a permanent voting member, the Under 
Secretary of State, who will give policy guidance on that 
board, but is only one of the board members--only one of the 
board members.
    Now, the idea that this broadcasting board of Governors, 
which, by the way, all the savings my friend has acknowledged 
we have accomplished, through his leadership on this, were 
accomplished by this board--these are the folks that went out 
and did it. These are serious people. They moved the operation 
from Germany to Prague. They modernized it. They consolidated. 
They cut.
    I love my staff, but I drive them crazy and they drive me 
crazy. They want me to point out that this says dotted line, 
not straight line. I apologize.
    But, at any rate, they are the ones--they are the ones--the 
board are the ones that initiated these savings. These are 
serious people. This is not a boondoggle.
    And the last thing I will ask you: Do you think it is 
harder to hire, do you think it is harder to hide, do you think 
it is harder to waste the taxpayers' money sitting within the 
gigantic bureaucracy called the State Department or sitting out 
there all by yourself with my good friend from Wisconsin, with 
his--as my kids would say--spyglass, watching everything they 
    So I would argue the following, and conclude with this. 
One, privatization is more likely keeping it where we have it 
in the bill. Chicanery relating to spendthrift tendencies is 
less likely with it sitting out there in the cold light of day 
rather than buried in the bowels of the State Department. 
Three, it is absolutely critical, if you think Radio Free 
Europe, Radio Liberty and Radio Free Asia has any relevancy, it 
is absolutely critical that they maintain their journalistic 
independence. They cannot do that, with all due respect to a 
Secretary of State I love and future Secretary of States who I 
may, it cannot do that within the State Department.
    So the fundamental difference my friend and I have--and we 
had this conversation yesterday--is, at its root, in addition 
to saving money, which this has become the most fiscally 
conservative guy I know from the time he got here--I do not 
know, I mean this is an unusual guy--but the root problem is 
not just saving money, it is you do not think these Radios make 
any sense any longer, do not have any relevance any longer. So, 
for all those reasons, I would urge my colleagues to vote 
against the amendment if and when we get to that vote.
    The Chairman. I agree with the Senator, and I find it 
somewhat novel that I am indirectly or implicitly being charged 
with favoring the creation of a new Government Agency.
    The fact is that this provision does not create a 
Government Agency. What is does, as Senator Biden has so 
eloquently demonstrated, it simply keeps a current function of 
USIA--namely, the freedom radios--separate from the Department 
of State. No new missions are created. No new bureaucracies are 
established. We simply maintain the independence and editorial 
integrity of the already existing radios.
    Now, I understand the arguments that the Senator has made. 
I think I made some of them myself when I introduced the 
reorganization in 1995. But then I was approached by a number 
of distinguished Americans who have been active in this field--
people like Jeanne Kirkpatrick, who made the case for their 
independence, and Steve Forbes, and others. I took note then, 
as I do now, that the clamor for maintaining the independence 
of the radios is coming not from an entrenched bureaucracy 
opposed to reforms, but rather from the very conservatives who 
have championed reforms.
    So I think most Senators will agree that, thus far, freedom 
radios have served us well, as Senator Biden has said. So well, 
in fact, that we recently created a new Radio Free Asia to 
broadcast to the oppressed peoples of mainland China and Tibet 
and East Asia. At the behest of Senator Brownback, we are, in 
this very bill, creating a new Radio Free Iran, with a similar 
purpose, with offsets of course.
    So I thank the Senator for his comments, and I join him in 
hoping that we will defeat this amendment.
    Senator Brownback. Mr. Chairman.
    The Chairman. Yes.
    Senator Brownback. Thank you very much.
    I want to reemphasize a point, if I could, and make certain 
that--I know the chairman is with this--that we are going to 
continue the privatization effort on those entities within the 
radio free area that we can, at the same time that we are 
adding into areas where we think we really--we can go again and 
do and accomplish again, with these new radio messages, into 
areas what we have already accomplished in some others areas 
that we ought to be privatizing.
    The Chairman. Exactly.
    Senator Brownback. And that the chairman and I think the 
rest of the committee is committed to privatizing. I hope that 
message goes through to the people that are operating these 
radio free operations.
    The Chairman. I thank the Senator. I can assure him that 
will be done.
    Senator Feingold. Mr. Chairman.
    The Chairman. Yes, sir.
    Senator Feingold. May I respond?
    The Chairman. The Senator is recognized.
    Senator Feingold. This is exactly how they told me it would 
go once I got out here. Eliminate an agency, but then they 
would figure out a way to give it a different name, recreated a 
couple of years later, and you are off to the races again. This 
is a boondoggle. This is a boondoggle that is going to be 
    Senator Biden says let it sit out there in the plain light 
of day and not in the State Department and see what happens. 
Well, we saw what happens for 20 years when it sat out there by 
itself. Salaries exceeding $200,000 and $300,000 a year for 
executives in Munich. This committee worked long and hard, with 
the support of the chairman and others, to finally say enough 
is enough, there needs to be accountability.
    The only accountability that is left after this agreement 
is what Senator Biden correctly said--one guy from the State 
Department is going to sit on a board--one vote out of nine. 
There is no direct budgetary responsibility to the USIA, which 
exists under the current agreement. Under Senator Biden's 
provision, this organization does not have to go through the 
USIA for their budget. They go straight to OMB. A separate, new 
pleader in the Federal Government for Federal dollars.
    And let me correct something Senator Biden said. I never 
said I was against any form of RFE/RL. If it wants to privatize 
and compete against CNN and BBC and the private, free 
enterprise market to do a better job, I am all for it. Why 
should we subsidize it at this point? What is the justification 
for creating a brand-new agency that will do this?
    Senator Biden. Freedom.
    Senator Feingold. Oh, it is government-subsidized freedom.
    Senator Biden. I do not care; it is freedom.
    Senator Feingold. Yes, well, the information I have gotten 
from a number of my colleagues here is they think other 
entities that are not government funded are able to do this and 
are doing it well. But the point is that there is no 
credibility to the notion that this is not a new Federal 
Agency. You can put as many words around it as you want, but it 
is. It is appointed by the President. It is accountable to no 
one but the President himself. I got a feeling he has got a few 
other things to do than to micromanage this deal.
    So, my colleagues, I assure you, I certainly will want it 
taken up here and hope we can defeat it here, if not on the 
floor. But this is just a classic example--a classic example--
of where the rhetoric does not meet the reality. We finally 
hunkered down on something, consolidated, and saved. I thank 
the Senator from Delaware for acknowledging the savings that 
came out of this.
    You know, you made the comment that this agency worked hard 
and made the savings. They did not make the savings. They were 
mandated to by Congress. We cut their budget to $70 million a 
year and they had to. It was not out of the goodness of their 
    So the fact is here, Mr. Chairman, that this is reversing 
course in a way that it is inconsistent with what I think is 
really a commendable direction of your overall proposal. I 
think it is regrettable, and I will certain revisit it as many 
times as I need to in order to make sure that we do not make 
this mistake and start moving in the opposite direction of why 
so many of us came here in the first place--to bring this 
government spending under control and to have a little 
rationality to the organization of the government.
    The Chairman. Senator Coverdell.
    Senator Coverdell. Senator Feingold, an interesting debate 
here. Are you asserting that the mandates and construction in 
your initial work is deemed obviated by the plan that is 
supported by the chairman and ranking member? In other words, 
the financial mandates and construct of your original work, is 
it not still in place?
    Senator Feingold. I am suggesting--a portion of it, of 
course, is still there. We still have the same financial limits 
that were there before, and I do not dispute what Senator Biden 
has said on that. What I do dispute, however, is the notion 
that we are not creating the scenario where it will happen 
again. In fact, I think we are setting up the road map, with no 
accountability, with a direct opportunity to plead for funding 
directly with the OMB. What you are doing is essentially 
creating a Federal Agency that cannot be eliminated.
    And I think what will happen is that the very limits that 
we have established will come off, just as I notice the 
slippage of the commitment to consolidation on this very 
committee that was so clearly identified a few years ago, when 
we did require that this go under the USIA, on a 15 to 4 vote.
    Senator Kerry. Mr. Chairman.
    The Chairman. Senator Kerry.
    Senator Kerry. Mr. Chairman, having chaired that component 
of what happened 3 years ago, I must confess that I am somewhat 
baffled, and I share the feelings of the Senator from 
Wisconsin. This is the 1993 committee report on what we did. It 
says the committee bill incorporates, with some modifications, 
the administration's draft bill. This was the administration. I 
mean, are they signing off on this? It is a reversal of 3 years 
of policy if they are.
    Because they said, the administration's draft bill, to 
consolidate the broadcasting activities of USIA and the Board 
for International Broadcasting. We consolidated Radio Free 
Europe, Radio Liberty, Radio and TV Marti, Voice of America, et 
cetera, for a lot of different reasons. One of the reasons was 
that it was out of control. I mean we had spending abuses. We 
had extraordinary salaries. We had lack of management. So we 
brought it in to get control of it.
    We mandated that. They did not do that because they were an 
independent agency. It was because they were an independent 
agency that we saw fit to rectify the problem. The consequences 
of our action was the following. We created the board and we 
put the board into USIA.
    Now, that same board--I do not know what the 
administration's consolidation plans are, but USIA is now going 
into State. So what is all this malarkey about independence? I 
mean you are going to have the USIA board now in State. The 
board is going to be still appointed. They are still going to 
seek money.
    I mean if we are kidding ourselves that the United States 
of America thinks that because we overtly set up some separate 
entity, quote, but we are funding it every year, and they are 
competing for appropriations with everything else in the 
budget, that we have created independence of editorial, I mean 
that is ridiculous. No more than you can guarantee it in its 
current form, which is----
    Senator Biden. Will the Senator yield on that point?
    Senator Kerry. It is one of the things that we debated. Let 
me just finish. It is what we debated 3 years ago. We all 
worried about whether or not they could be independent within 
the State Department. We set up a structure that, at that point 
in time, we thought created sufficient independence, and the 
committee signed off on it. We saved $240 million over 4 years 
because we did that.
    Now, all of a sudden we are coming back in an age where the 
BBC is the most important and single best coverage in all of 
Asia, where you have got faxes--the fastest-growing form of 
communications in Asia today is wireless. They cannot control 
that, and you have got satellite television and a host of other 
things with dishes more available than ever before. Go over to 
China, you will see them.
    And we are sitting here worrying about setting up some kind 
of cold war construct again to go back and expose ourselves to 
all those abuses. I do not know what the rationale is, I 
honestly do not.
    Senator Biden. Mr. Chairman, let me just take 120 seconds 
to respond to that. Number one, I think you make the best 
argument, John. You do not think these radios are necessary, 
whether they spend money or do not spend money, either funded 
or not funded.
    You make the argument about BBC, and satellite dishes, and 
you may be right. That is what we have a fundamental 
disagreement on. But the notion that they can maintain 
independence and still be funded by the Federal Government, 
there is a little thing called Radio Free Europe. It worked 
that way for 50 years. For 50 years it was funded by the 
Federal Government, and guess what, the rest of the world 
treated it like it was. It had journalistic independence.
    Senator Kerry. That is precisely my point, Senator. If you 
have it, one way or the other they still know it comes from the 
United States of America. It is not because of how it was 
funded. It is because of either the integrity of the news, the 
reliability--it is the only thing they get.
    Senator Biden. It is the integrity of the process.
    The Secretary of State cannot pick up the phone and could 
not pick up the phone and tell the editorial board at Radio 
Free Europe do not put out that editorial. Everybody in the 
world knew that, and they still know that.
    They cannot do it now, but if you put it within the State 
Department, and let us make it clear, we set up this new board 
within an existing independent agency called USIA, which was 
not part of the State Department, so it was never part of the 
State Department, and in the reorganization efforts it was 
never intended to be part of the State Department.
    Now we have stripped away all the stuff that it need not be 
independent and put it inside the State Department and left the 
part that should be.
    Again, this is like beating a dead horse here, but the 
bottom line here is, keep in mind, listen to what we all say 
here. The question is, are these radios relevant and 
independent? Does it make any sense, or do we not need them, 
and count on--which is a legitimate argument--CNN World News 
and BBC and the rest, and we do not need to be in the game.
    I think we need to be in the game. I think they make sense. 
Nothing changes. That is my answer to my friend from Georgia's 
question about the mandates that we have in terms of 
accountability for this board, any more than we did a year-and-
a-half ago. I still think they are relevant. If you do not 
think they are relevant, then you should vote with my friend. 
If you do, then I think you should vote with us.
    Senator Kerry. Let me just say, Mr. Chairman, the vote is 
not over relevance. They are relevant. That is why we kept 
them. The vote is not over relevance. The vote is over control 
with respect to spending, and whether or not you believe that 
where it lands distances it sufficiently from the fact that we 
are funding it.
    If you think independence comes from creating a separate 
agency that will compete for funds, but still gets funded by 
us--if you think it gets independence from that, fine. In my 
judgment, there is no difference, except that you are creating 
an entity that will compete for funds and take us back to the 
era of lack of control.
    This is about Government efficiency. It is about size of 
Government. It is about how we spend money. That is the vote.
    Senator Feingold. Mr. Chairman, one quick other point, if I 
may. Let me just remind my colleagues that in addition to this 
notion that we are going to have RFE/RL and this board out 
there for just a couple of years, when it is supposedly going 
to be privatized, after we do all of this, the Voice of America 
is going out there, too. The Voice of America has been under 
the USIA.
    Senator Biden. But not the State Department.
    Senator Feingold. We are moving the USIA into the State 
Department because we want consolidation. That is not what we 
are doing here. We are taking not only Radio Free Europe, what 
is left of it, but we are also taking the Voice of America and 
just leaving it hanging out there without that.
    Senator Biden. Senator, you are making the point, if I may. 
You are making the point. Our reorganization effort, if we 
wanted to do what you and the Senator from Massachusetts have 
done, when we reorganized we would have put it in the State 
    We chose not to, and all I am doing is stripping away some 
of the things that were part of USIA and putting them in the 
State Department and keeping the radios where they were and 
where the reorganization called for them to be, outside State.
    Senator Feingold. That is inconsistent with the very 
purpose of the agreement.
    Senator Biden. You know, Mr. Chairman, there used to be an 
expression that Ralph Waldo Emerson used. He said foolish 
consistency is the hobgoblin of little minds. I just think 
where we are now, this is getting to be foolish consistency.
    The Chairman. We will leave the little minds out of it.
    Senator Biden. I did not mean it that way. That sounded--
that came out the wrong way.
    That is why I do not do radio.
    The Chairman. Are we ready to vote? Would the Senator want 
a roll call vote?
    Senator Feingold. I sure do.
    The Chairman. The clerk will call the roll.
    The Clerk. Mr. Lugar.
    Senator Lugar. No.
    The Clerk. Mr. Coverdell.
    Senator Coverdell. No.
    The Clerk. Mr. Hagel.
    Senator Hagel. No.
    The Clerk. Mr. Smith.
    Senator Smith. No.
    The Clerk. Mr. Thomas.
    Senator Thomas. No.
    The Clerk. Mr. Grams.
    Senator Grams. No.
    The Clerk. Mr. Ashcroft.
    Senator Ashcroft. No.
    The Clerk. Mr. Frist.
    Senator Frist. No.
    The Clerk. Mr. Brownback.
    Senator Brownback. No.
    The Clerk. Mr. Biden.
    Senator Biden. No.
    The Clerk. Mr. Sarbanes.
    Senator Sarbanes. Present.
    The Clerk. Mr. Dodd.
    Senator Dodd. No.
    The Clerk. Mr. Kerry.
    Senator Kerry. Aye.
    The Clerk. Mr. Robb.
    Senator Biden. No by proxy.
    The Clerk. Mr. Feingold.
    Senator Feingold. Aye.
    The Clerk. Mrs. Feinstein.
    Senator Feinstein. No.
    The Clerk. Mr. Wellstone.
    Senator Wellstone. Aye.
    The Clerk. Mr. Chairman.
    The Chairman. No.
    The Clerk. Mr. Chairman, the vote is 3 yeas, 14 nays, 1 
    The Chairman. I thank the clerk. Are there further 
    Senator Coverdell. I move the adoption of section A as 
    Senator Biden. I second that, Mr. Chairman.
    Senator Sarbanes. Can I be heard on that? Are we going to 
vote on each division as we go?
    The Chairman. Yes, sir.
    Senator Sarbanes. I am opposed to this division. I do not 
think that a reorganization plan should be forced on an 
administration which has indicated that it is willing to 
undertake a reorganization and is very much in the throes now 
of trying to plan it, and I think the administration ought to 
have the opportunity to lay out its reorganization plan to the 
    Now, if we differ with it, we may then find ourselves 
imposing a reorganization of the executive branch, which the 
executive branch does not want, particularly a reorganization 
in the very area that is generally regarded as primarily an 
important Presidential responsibility under the Constitution, 
but I think an administration--and I took this attitude with 
both the Reagan and the Bush administrations--ought to have the 
opportunity to shape and frame their own reorganization, submit 
that to the Congress.
    I would give it great weight. I would not regard it 
necessarily as definitive, but I would give it great weight, 
and I think the Congress, if it is going to act on 
reorganization of the foreign affairs agencies of the executive 
branch of our Government at a minimum should have before it the 
blueprint that the executive has proposed.
    We are not at that point. Therefore I oppose this.
    Senator Biden. Mr. Chairman, just a 30-second response. The 
administration does not agree with every piece of this 
reorganization, but the administration is aware of every aspect 
of this reorganization. They have been consulted by me and by 
the chairman.
    There is only one place I am aware that the administration 
does not and would rather there be change in it, and the truth 
of the matter is that this is the bulk of everything they have 
agreed to.
    I have had private, personal, public discussions with the 
Secretary, with the others in the State Department, with the 
USIA, with AID, with ACDA, and all the leaders of each of those 
organizations. They would all have a preferred view.
    On principle they would rather not have us do anything, but 
knowing that we are going to do something they have laid out an 
outline the President sent to us. This is consistent with the 
outline they sent to us.
    One change that they would like is a change, and I on a 
policy basis disagree with them on it, and it is whether or not 
the Regional Assistant Secretaries, who are part of policy 
decisions made by AID along with the Secretary, they would 
rather not have that interjected in there. I disagree with them 
on policy grounds, but let us make it clear, this is consistent 
with the framework laid out by the President.
    I have a letter here--you have a letter here, Mr. Chairman, 
from the Secretary of State, and it says, internal 
deliberations are underway to develop a detailed reorganization 
plan--excuse me. Internal deliberations are underway to develop 
a detailed reorganization plan consistent with the President's 
decision, implementation of which will require action by the 
    As a matter of principle, the administration supports 
legislation which provides the President maximum flexibility 
and does not prejudice the outcome of our internal 
deliberations, and to that end has shared proposed language 
with this committee.
    The administration also supports a reorganization along the 
lines of H.R. 1757, the foreign relations authorization bill 
passed by the House of Representatives. The draft of the 
committee bill most recently provided to the administration, 
however, goes well beyond the President's plan in several 
instances, and we cannot support where it goes well beyond, but 
then they go on to point out that the essence of what we have 
done is consistent.
    But I want to make one other point. Even if it was not, the 
administration has a very difficult decision. This is a 
package. In order for me to get my good friend here to move 
that number on the U.N. to where it is, this is part of the 
deal. It is a policy standpoint. It makes sense in my view, but 
beyond that, we all talk about ideally what we would like. This 
is part of an overall package, three pieces here, and so--well, 
anyway, I think it is a good reorganization plan, Mr. Chairman.
    The Chairman. Senator Kerry.
    Senator Kerry. Mr. Chairman, just very quickly--and I am 
not going to delay the vote, but we worked long and hard 
through the Arms Control and Disarmament Agency to buildup 
expertise in the analysis of treaties and compliance with 
treaty requirements as well as legal analysis and advice, which 
has paid off on many occasions.
    The risk of proliferation right now, though it does not get 
the focus that many people think about, is as significant as it 
has been in a long time, and I am talking about all kinds of 
proliferation--mass destruction weapons, ballistic cruise 
missiles, other threatening weaponry.
    I am concerned that we do not lose that expertise in the 
process of this reorganization, and I think our security 
depends on that. Now, I explored through staff with you the 
possibility of having some kind of an amendment to guarantee 
that. You preferred--and I wanted to retain it, obviously, 
within the Under Secretary for Arms Control and International 
Security which we establish.
    I would have preferred to have done that statutorily. You 
want to do that in report language. I respect that, and I am 
pleased that you are willing to accept fairly detailed report 
language which will help make that happen.
    I would like, once we go to conference on this, Mr. 
Chairman, to at least have your support and help in trying to 
guarantee that you would do all you can to make sure that it is 
included in the conference report.
    The Chairman. Very well.
    Senator Sarbanes. Mr. Chairman.
    Senator Kerry. By very well, does that mean very well, yes 
you will, Mr. Chairman?
    The Chairman. Yes.
    Senator Sarbanes. Mr. Chairman, I just want to read again 
from the letter that Senator Biden quoted, because I want to 
pick up on the last sentence as well. The administration also 
supports the reorganization provisions along the lines of H.R. 
1757, the foreign relations authorization bill passed by the 
House of Representatives yesterday.
    A draft of the committee bill, meaning this committee, most 
recently provided to the administration, however, goes well 
beyond the President's plan in several instances which we 
cannot support. We urge the Senate to adopt an approach similar 
to the House, and it seems to me that in a matter of this sort 
we should have the benefit of the administration worked-out 
reorganization plan before we move to, in effect, impose a 
reorganization plan. Therefore, I oppose division A.
    The Chairman. The chair feels there ought to be a roll call 
vote on this. If there is no further debate, the clerk will 
call the roll.
    Senator Dodd. Mr. Chairman, just a moment. I am going to 
support Senator Sarbanes on his motion, not because I disagree 
with reorganization, but I do agree with his underlying concept 
that the executive branches, be it this administration or 
others, need to be able to function without being micromanaged. 
We hear this consistently in the context of our debate about 
foreign aid generally.
    I do not disagree, and I applaud the efforts being made 
here, but I think a message about whether or not we are going 
to do this all across the Federal Government runs a high risk 
of mismanagement in the final analysis, but I applaud the 
efforts of the chairman and the Ranking Member.
    The Chairman. Very well. The clerk will call the roll.
    The Clerk. Mr. Lugar.
    Senator Lugar. Aye.
    The Clerk. Mr. Coverdell.
    Senator Coverdell. Aye.
    The Clerk. Mr. Hagel.
    Senator Hagel. Aye.
    The Clerk. Mr. Smith.
    Senator Smith. Aye.
    The Clerk. Mr. Thomas.
    Senator Thomas. Aye.
    The Clerk. Mr. Grams.
    Senator Grams. Aye.
    The Clerk. Mr. Ashcroft.
    Senator Ashcroft. Aye.
    The Clerk. Mr. Frist.
    Senator Frist. Aye.
    The Clerk. Mr. Brownback.
    Senator Brownback. Aye.
    The Clerk. Mr. Biden.
    Senator Biden. Aye.
    The Clerk. Mr. Sarbanes.
    Senator Sarbanes. No.
    The Clerk. Mr. Dodd.
    Senator Dodd. No.
    The Clerk. Mr. Kerry.
    Senator Kerry. Aye.
    The Clerk. Mr. Robb.
    Senator Biden. Aye by proxy.
    The Clerk. Mr. Feingold.
    Senator Feingold. No.
    The Clerk. Mrs. Feinstein.
    Senator Feinstein. Aye.
    The Clerk. Mr. Wellstone.
    Senator Wellstone. No.
    The Clerk. Mr. Chairman.
    The Chairman. Aye.
    The Clerk. Mr. Chairman, there are 14 yeas and 4 nays.
    The Chairman. We now move to division B, which is subject 
to amendment. Tom Kleine tells me that several Members have 
proposed changes on both sides which have been accommodated, 
and he knows of no further amendments.
    Senator Biden. Mr. Chairman, I think most of the concerns 
raised by the Democrats have been incorporated. I am not aware 
of any amendments on division B.
    Senator Sarbanes. Mr. Chairman, could I ask some questions 
about division B, the meaning of some of these sections.
    The Chairman. Sure.
    Senator Sarbanes. First of all, in section 1166 about 
aliens who aid international child abductors, and it says that 
no one shall be admissible who is a spouse or a relative of 
such an alien.
    Now, the question I have is, often the fight is between the 
spouses. If one spouse takes a child and goes back to country 
X, and the other spouse goes to country X in order to get the 
child back, as I read this section that person would then be 
inadmissible, since it says--there is no qualification on this, 
is that correct?
    The Chairman. I believe that is correct. This is Senator 
Feinstein's contribution. I would like her response.
    Senator Feinstein. Mr. Chairman, if I may try and respond 
to the Senator from Maryland, this amendment would deny visas 
to individuals who assisted in carrying out international child 
abductions, who provide safe haven and material support to 
child abductors overseas, or who are immediate family members 
of a child abductor.
    The bill was inspired by the case of one Patricia Roush, 
whose two children were abducted by her ex-husband.
    Senator Sarbanes. I am not really questioning the section, 
except for what I perceive to be either a mistake or an 
oversight, or if it is not I would like to be reassured on it, 
and that is, go to paragraph 3, which says, a spouse of the 
alien who is an abductor.
    Now, often these abduction cases involve a conflict between 
the spouses. Now, would that spouse then be inadmissible if he 
or she left the country in order to claim their child?
    Senator Feinstein. This is not intended to target American 
spouses. It is intended to target the spouse in another country 
who has stolen the child.
    Senator Sarbanes. Let us say you have two people from 
country X in the United States, resident aliens. One of them 
takes the child and leaves the country and goes back to his 
country. The wife then goes after the child to try to get the 
child back. As I read this, the wife would then be inadmissible 
to come back in.
    Senator Feinstein. No, that is not correct. It is intended 
to target the second spouse. This is a situation where there is 
not a binding marriage, but the former spouse abducted the 
    There is a court order. There is no extradition treaty with 
the nation. The individual has tried--the woman has tried to 
get her children back for 10 years, has not been able to do so. 
Our Ambassador tried to do this informally, found it began to 
bring pressure on the family, and worked, but could not 
continue to do it because there was no law.
    So we are now presenting a law whereby we could add some 
pressure to people who abduct their children against court 
orders and move to another country, remarry, and like to keep 
coming back and forth to our country. They would not be able to 
come back.
    Senator Sarbanes. I want to try to get the focus on the 
issue I am raising, because I do not disagree with the purpose 
or the objective of the section. What I am concerned about is, 
the section says on pages 33 and 34, any alien who, and then 
paragraph 3 says, is a spouse, is a spouse of an alien 
described in clause 1, that is the spouse who has engaged in 
abduction, but any alien who is a spouse of such a person would 
be inadmissible.
    Senator Feinstein. I think this is a drafting error. Let us 
see what we can do with it, if you will give us time. It should 
exclude former spouses, and let us take care of that, if we 
    Senator Dodd. Why do you not just leave it to the 
discretion of the Secretary, and that might cover the kind of 
cases you want.
    Senator Feinstein. That is fine with me.
    Senator Sarbanes. Well, I think we should try to work this 
    Now, Mr. Chairman, if I could ask a further question about, 
would someone tell me why we are withdrawing from the 
Interparliamentary Union? I am not pressing that. I would just 
like to know the reason. That is section 1213.
    Senator Lugar. Can either a Senator or staff offer an 
    Mr. Kleine.  Senator, this was a recommendation from the 
Office of the Secretary of the Senate. I think it is a 
reflection of the concern that there has not been a great deal 
of participation in the Interparliamentary Union, and we have 
been contributing over a number of years, and so the provision 
would limit the contribution to $500,000 a year or withdrawal, 
but it is language that is crafted on language that was 
provided by the Secretary.
    Senator Sarbanes. How much do we pay now, then?
    Mr. Kleine.  The request was $1 million, and the estimate 
for 1997 was $740,000.
    Senator Sarbanes. So we are just going to impose a flat 
ceiling on this?
    Mr. Kleine.  Yes, sir.
    Senator Sarbanes. I take it the IPU works it out on some 
sort of rational basis, one assumes.
    Mr. Kleine.  Yes, sir. That is our understanding from the 
Office of the Secretary.
    Senator Sarbanes. We are not going to accede to that? We 
are going to put it below that?
    Mr. Kleine.  That is right. It caps our contribution at 
    Senator Sarbanes. So this is an instance in which we are 
part of an international organization which sets the dues but 
we are in effect going to set our own dues, regardless, is that 
    Senator Lugar. Is there any other view from anyone involved 
in the drafting?
    Senator Sarbanes, have you concluded your questions?
    Senator Sarbanes. I guess so. I cannot get the answer at 
this point.
    Senator Biden. Senator, I can give you an answer. This was 
something insisted on by the Majority, and it is part of the 
compromise. That is the answer.
    Senator Sarbanes. Well, I do not think that is the answer, 
or that ought not to be the answer. There ought to be some 
rational reason.
    Senator Biden. The rational reason, and I happen to agree 
with you, but the rational reason is that there is a fairly 
widely held view on the other side of the aisle that these 
organizations are not of very much consequence or use, and the 
practical matter is I think, if given the opportunity, they 
probably would not exist.
    The question comes down to whether or not----
    Senator Sarbanes. You mean the U.S. participation would not 
    Senator Biden. Obviously, we cannot unilaterally cease and 
desist, but I think the Senator is right. I do not think this 
is a good idea, but this is a part of about 4,000 things that 
were part of an overall compromise.
    Senator Sarbanes. Could I ask about section 1164, on the 
inadmissibility of members of former Soviet Union intelligence 
services? My understanding is that there have been occasions 
when these aliens have come in for conferences, or in a sense 
almost debriefing when it serves our purposes that they come. 
Now, this would be inadmissible?
    The Chairman. State your name.
    Mr. Biegun. My name is Steve Biegun. I am with the Senate 
Foreign Relations Republican committee staff.
    Senator Biden. The answer?
    Mr. Biegun. I am sorry, I did not hear the question.
    Senator Sarbanes. The question deals with section 1164, the 
inadmissibility of members of former Soviet Union intelligence 
ices. They are inadmissible to the country under the section, 
    Mr. Biegun. Correct, sir.
    Senator Sarbanes. My understanding is, there have been 
instances in which such former agents have come in to 
participate in conferences.
    In fact, I have here the cold war international history 
project where they were brought in, and we have been able to 
get out of them their version of what transpired, and that has 
turned out to be helpful information and knowledge we would 
like to have.
    This section would preclude that from happening, right?
    Mr. Biegun. What this does is, it puts reciprocal treatment 
on Russian intelligence service former officers which is being 
given to our intelligence services currently, our retired 
officials from our intelligence services who are seeking to get 
into Russia.
    It basically is a reciprocal measure, and would prohibit 
that kind of activity. The intention of this provision is to 
elevate this to the State Department to hopefully find some 
balanced approach.
    Senator Lugar. Was the Intelligence Committee consulted on 
    Mr. Biegun. Yes, and they had no objection.
    Senator Lugar. I am surprised. My own view is that we have 
utilized these people frequently in conferences, and, as 
Senator Sarbanes mentioned, conceivably this is a unilateral 
decision by the Foreign Relations Committee. But I am not 
certain the precise origin of the idea and why it appears in 
this particular text.
    Senator Sarbanes. Is there any further explanation? There 
is no exception or waiver authority, correct? Is that correct? 
There is no waiver or exception authority?
    Mr. Biegun. That is correct.
    Senator Sarbanes. So they would just be precluded 
altogether. All right.
    Senator Biden. Mr. Chairman, I have a question. The points 
raised by Senator Sarbanes and by Senator Lugar I think are 
valid, as you know.
    I wonder whether the chair--and I will stay with the 
commitment of this bill, but I wonder whether the chair would 
consider at least making it discretionary and maybe put the 
discretion for allowing these folks in if, with the Director of 
the Central Intelligence, or the State Department, to allow 
those circumstances, because they do exist, as we all know. I 
have served on the Intelligence Committee. They do exist where 
there is efficacy and usefulness, and where our intelligence 
people would like these people in.
    I would like you to consider the possibility of language 
that would allow an exception to be made by whomever you think 
appropriate. I would think the Secretary of State, but with the 
Director of Central Intelligence, or someone you had confidence 
in, that would know whether it was in our national interest to 
allow that to occur.
    The Chairman. I have no problem with that.
    Senator Biden. Well, I would so move, that it be made 
discretionary, Mr. Chairman, and with the permission of the 
Senator from Maryland, run the language by him to see if he 
approves, and you approve, and otherwise bring it back to the 
    But if I understand it we would make it discretionary 
subject to you seeing the language and approving the specific 
    The Chairman. Very well.
    Senator Sarbanes. I have one other question, or maybe two, 
on the reporting of foreign travel by United States officials.
    Now, as I understand this, no officer or employee of the 
U.S. executive agencies can travel abroad unless prior to the 
commencement of the travel the individual submits a report to 
the director--I am not sure which director that is--that states 
the purpose, duration, and estimated cost of the travel, is 
that correct?
    Mr. Kleine.  Yes, sir, that is correct, and the director is 
the Director of the Office of International Conferences of the 
Department of State, and the purpose of this provision is to 
capture overseas travel by U.S. executive branch officials, to 
see what the cost is associated with that, but it also exempts 
out travel for intelligence purposes, for purposes of military 
deployment, it exempts travel by the President and Vice 
President and people associated.
    This was a result of a hearing that the chairman held 
looking at international conference travel, and the realization 
that there was no comprehensive data on the cost associated 
with all overseas travel by U.S. executive branch officials.
    Senator Sarbanes. Of course, this is not limited to 
international conferences. It says, or engaging in any other 
foreign travel.
    Let me just try to be specific. I take it under this 
provision, when Dennis Ross goes to the Middle East he has to 
file such a report.
    Mr. Kleine.  Under this provision he would have to file a 
report on the cost and duration, the purpose of the trip. If it 
is an international emergency or if the President needs to 
deploy him overseas there is a period during which he can file 
that report after he returns as well.
    Senator Sarbanes. Where is that stated? This says updated 
report, not later than 30 days after the conclusion of any 
travel for which a report is required they shall submit an 
updated report. But this language says that they shall--prior 
to the commencement of the travel shall submit a report.
    When Kissinger as a national security advisor went from 
Pakistan to China, I take it he would have had to submit a 
report under this provision?
    Mr. Kleine.  No, sir. There is an emergency waiver there 
which states--this is on line 1 of page 7, and it says, shall 
not apply if the President determines an emergency or other 
unforeseen event necessitates the travel and thus prevents a 
timely filing of a report, in which case he would file the 
report 30 days after returning.
    Senator Sarbanes. Well now, suppose, you know, you are 
going to do it. You just want to keep it as secret as you can. 
Some of these visits--suppose Dennis Ross goes to Oslo, to use 
an example. He would have to file a report before he went, is 
that correct?
    Mr. Kleine.  He would file a report before he went, or 
after he went if the President determined it was an 
international emergency. If it was intelligence-related 
travel--the intent of this is not to hamper diplomatic 
activity, but rather to capture the expenses associated with 
the executive branch travel.
    Senator Sarbanes. I guess the point I want to make is, if 
you want to get at international conferences, which was the 
first answer I was given, then that is one thing, but to then 
expand this to the point that it has been expanded it seems to 
me is going to cause a tremendous amount of mischief.
    Senator Kerry. Not to mention the paper addition act.
    Senator Feinstein. Mr. Chairman, I think that is a good 
point. Essentially what you are asking, or what the bill is 
asking is everybody telescope their intent, which might be a 
mistake. It may be enough just to have a report when the 
individual returns.
    Mr. Kleine.  Senator, we can modify the language. The 
objective is to capture the cost associated with all executive 
branch travel.
    Senator Kerry. Do you not capture that in the budget? You 
have got accountability every year. If you do not like--I mean, 
you are going to drown people.
    Senator Dodd. Why don't we just have them check with the 
Foreign Relations Committee?
    Senator Kerry. After all, they come to us every year for a 
    My question is whether or not we do not have sufficient 
capacity for oversight at the current moment with respect to 
    The Chairman. I do not think we do, and we have agreed to 
modify it to the extent that it has been stated. I have no 
problem about the executive branch, just as I have no problem 
about the U.S. Senate and the travel that goes on in this 
place, and I have some problems with the extent of how much it 
is, and I think the American people do, and I think the same 
thing applies to the executive branch.
    If the Senator is suggesting it is too much to ask to have 
a record made----
    Senator Kerry. Mr. Chairman, I am absolutely not. I am all 
for having a record made.
    The Chairman. What is the Senator's objection to having it 
made when he gets back?
    Senator Kerry. I believe there are records of all trips, 
and what we are creating is the reporting on top of the 
    The Chairman. Well, we will modify to that extent, and I do 
not want to go any further unless I am instructed to do it. We 
will go to a roll call vote of this committee if we do not have 
a specific suggestion.
    Senator Kerry. Mr. Chairman, I certainly welcome, as does 
Senator Sarbanes, the modification. I just think we might want 
to, between now and going to the floor, relook at the issue of 
what is accessible to us now, and I would respectfully suggest 
we have the opportunity to have a report any day, any week, on 
any travel, and we have obviously the overall budget at our 
    The Chairman. I think we have agreed to that.
    Senator Kerry. Mr. Chairman, with your permission, Mr. 
Chairman, could I ask Secretary Larkin to just come to the 
table for a moment? I wanted to ask a couple of questions 
before we vote on section B, if I can, just to understand 
    The Chairman. We might want to ask her a question, too.
    Senator Thomas. Mr. Chairman, what did we do with the 
travel matter? I do not think I understood how it was disposed 
    The Chairman. It has not been disposed of yet.
    Senator Kerry. Mr. Chairman, my question is not with 
respect to the travel issue.
    Senator Biden. Mr. Chairman, on the travel matter, is it 
appropriate to suggest that we ask the staff to sit down and 
see whether or not we can reach the objective which you seek to 
reach without doing the damage that potentially could be done? 
The larger point is even if after the fact a travel voucher is 
submitted on an emergency, it may be a travel voucher that the 
administration would want anyone to know existed other than in 
their internal records because they did not want anybody to 
know they were there because they met with Yasser Arafat in 
such and such, or they met with whomever. So I do not think 
that is the Senator's intention.
    The Chairman. No, it is not.
    Senator Biden. I would respectfully suggest what we try to 
do is before this goes to the floor see if we could accommodate 
what I think we are kind of all in agreement on.
    Senator Coverdell. Senator Biden, I think if we are going 
to take the course of refinement here that the staff should 
look at the fact that this data is collected already.
    Senator Biden. That is my point.
    Senator Coverdell. The data is collected. There is nobody 
traveling in the executive branch for which there is not a 
record of the travel. It is rather elaborate, so compilation is 
what is missing. If you get a raw number, sometimes it is hard 
for the appropriate oversight to occur, and so maybe the staff 
could use existing data in a configuration that would solve the 
chairman's goals here in the committee.
    Senator Sarbanes. I am sure when you were Director of the 
Peace Corps you did not have to meet this ahead of time.
    Senator Coverdell. Actually, you did not have to do it in 
advance, but everything is recorded and documented.
    Senator Sarbanes. I think the problem here is doing it in 
advance, although I do not think probably the Peace Corps had 
to do some of the secret missions. Who knows? You may have.
    Senator Coverdell. No, but there were emergencies. When we 
came out of the Gulf we had to move very quickly. So you 
sometimes have to move very quickly. But my point is that the 
data exists, the compilation we are struggling with here, and 
to the chairman and the ranking member, maybe that could be 
    The Chairman. Sure. Let me assure you that I want to meet 
you at least halfway on this and other issues that come up, and 
I suggest that on the two issues that have been raised here 
that your staffs and ours get together, and there is such a 
thing as a technical amendment, and we will probably have 50 of 
them before this bill is passed. So we will work with you. I 
see no problem.
    Senator Kerry. Thank you, Mr. Chairman.
    Mr. Chairman, if I could, I just wanted to inquire. We have 
a letter from you today which in the first page in the last 
paragraph says we are strongly disappointed that the funding 
levels associated with this bill, while in flux, appear to be 
about $265 million below the President's request for 1998. Now, 
I have got the chart that I think is a committee chart here 
which shows those numbers, in fact, different. Now, is that the 
in flux you are referring to?
    Ms. Larkin. I presume so, yes, Senator.
    Senator Kerry. Do you know where we are now?
    Ms. Larkin. No, we do not, frankly. We got a mark when we 
got here.
    Senator Kerry. Can you therefore say whether you are happy 
or unhappy?
    Ms. Larkin. I can say one thing: Generally I am happy. On 
funding, however, this, I think as you all know, has been a 
major priority for Secretary Albright, and I think probably she 
has spoken on this issue to every member of this committee and 
a lot of other people, as well. She worked very hard. We have 
got for the 150 account full funding under the budget 
resolution which allows a balanced budget by the year 2002. The 
whole counterpart of this bill includes full funding of the 
President's request, and we would very much like to see full 
funding of the request in this bill, as well.
    Senator Kerry. Well, let me ask you this: When you were 
referring to the 265 million, what were the areas of concern 
that you were expressing? What was contained in the 265? I know 
there has been some add-back. I just want to try to reconcile 
    Ms. Larkin. I can tell you, Senator, the things that we 
were aware of that had been cut in the bill that these were 
prepared on were the peacekeeping account, the international 
organization account. On our operating expenses there were 
questions on MRBC's, which I understand involves a scoring 
issue, though, with CBO, not with this bill.
    Senator Kerry. Peacekeeping was how much below what you had 
    Ms. Larkin. Forty million.
    Senator Kerry. Forty million. Is there any add-back to that 
at this point, Mr. Chairman? No.
    What else was below?
    Ms. Larkin. The international organizations.
    Senator Kerry. How much below?
    Ms. Larkin. Sixty.
    Senator Kerry. Sixty million below where you would like to 
be on international organizations.
    What would that specifically effect, that the 
administration wants to achieve?
    Ms. Larkin. Senator, overall the problem is arrears, and we 
have gone through all this good work with the committee and the 
staff on paying our arrears to the United Nations and other 
international organizations, and if the accounts end up short 
at the end of this process we would be accumulating more 
    Senator Biden. Will the Senator yield for a point of 
    Senator Kerry. Yes.
    Senator Biden. They were 60 below. They are now 31 below.
    Ms. Larkin. Right. That is what I meant, sir.
    Senator Biden. We got back a total of 42 this morning. But 
let me make two things clear. One of the big chunks here is 140 
million that relates to the way in which we deal with visas. I 
would like to ask Brian McKeon of my staff to explain this 
budget scoring problem we have with a point of order on the 
floor in the Budget Committee.
    Mr. McKeon. In the 1995-97 authorization bill we authorized 
the Secretary to collect fees for visas and spend up to $140 
million. The Office of Management and Budget, in presenting the 
budget appendix this year, has indicated that the money is 
already there in the administration's baseline. In other words, 
they have been collecting it, and we had a provision that would 
essentially release that money. That is considered direct 
spending, and it creates a pay-as-you-go problem, to use budget 
jargon. We would face a budget point of order.
    We are trying to rectify the problem working with OMB and 
the Budget Committee, and we hope to fix it by the time we get 
to the floor.
    Senator Biden. And that is 140 million of this 200 million 
we are talking about.
    Now, the second point is in addition to that we restored 
40. The chairman agreed to restore another 40 million today, 
and so the really we are talking about now is close to what? 
What is the total? $71 million difference between what the 
administration asked in a $5-plus billion bill and what this 
committee is voting for them now. It was as high, John, as 240, 
it is now down to 71.
    Now, again, if we cannot solve, we have got a Budget 
Committee problem over here on this 140. That is a big deal, 
and OMB, us, and the Budget Committee have to figure out how we 
deal with that. But the intention of the chairman is that money 
should be available to the State Department. So if we work that 
out we are then $71 million difference in what was requested 
and what is going forward.
    I apologize for the jargon, but that is the complicating 
    Senator Kerry. If we do not work it out we are 211, right?
    Senator Biden. Well, that is true, but there is nothing the 
chairman can do about that unless we then come back and they 
seek a supplemental or whatever. But that is a matter relating 
to the way in which we score this thing. It is not the chairman 
is trying to keep that out.
    Senator Kerry. Fair enough. I understand. I understand. I 
am just trying to get the picture because I want to understand 
it before we vote.
    Ms. Larkin. Senator Kerry, there are some other cuts in 
other agencies that are included in this bill, as well. ACDA, I 
know are concerned about their expenses. The last version that 
we saw was cut $7.2 million, and USIA took cuts in salaries, 
expenses, international broadcasting, and East-West and South 
    Senator Biden. That is true. It was 39 million instead of 
46 which was requested.
    Senator Kerry. Well, 41.2 would leave it--I beg your 
pardon--would at least be equivalent to this year.
    Senator Biden. 41 was appropriated last year.
    Senator Kerry. Correct. So it is a cut.
    Senator Biden. And this is 2 million under that.
    Senator Kerry. Now, can you just give me a breakdown on 
that 71 million? Where will that come from? What will be not be 
doing that you wanted to do, or nothing affected?
    Ms. Larkin. Senator, I cannot because I do not have the 
most recent numbers, so I am not sure where the money has been 
taken out.
    Senator Biden. I can help you in that, if you want. I think 
the State Department will confirm as they learn the numbers; 40 
million of that is in peacekeeping--40 million of that. So the 
request for peacekeeping was 240 million. This includes 200 
million for peacekeeping.
    There is also--contributions to international 
organizations. The request is--or what is authorized is 31 
million below what is requested, and those are the two places, 
assuming we solve the 140 million problem with the visas, those 
are the two places where the bulk of these cuts, 95 percent of 
the cuts, this is where 95 percent of the cuts come from.
    Senator Kerry. Now, just with respect to rationale, we had 
that big Blair House meeting and it was a bipartisan effort to 
try to understand the how postcold war world and our 
obligations in it, and the Secretary has been very outspoken 
about her perception, and I think the administration's, of the 
need to augment, not diminish, our presence in a number of 
areas. Is the Secretary--I mean, Ms. Larkin, are we sort of--is 
there a sign-off on this with the notion that this is sort of 
the best we can get, or does this represent what the 
administration wants?
    Ms. Larkin. The administration would like full funding of 
all the 150 accounts.
    Senator Kerry. Is it possible for the administration to 
submit to us--I mean, we are not going to obviously do it 
today, but between now and the floor, what the difference is in 
terms of these things that matter to the administration, the 
difference in performance or efficiency or presence or whatever 
it is?
    Ms. Larkin. Yes.
    Senator Biden. Mr. Chairman, if I can respond to the 
Senator on two points, because I had the same concern about the 
arrearages and we had a little bit of a disagreement here on 
how to deal with the peacekeeping piece, which is one of the 
big cuts. The peacekeeping account, the way in which--even 
though it is funded at 200 million, should not create any 
arrearages, and I have had this discussion with the State 
Department. The budget estimate, for example, the 
administration's, includes $15 million for a possible 
peacekeeping mission in Afghanistan. Given nearly total control 
of that country, there is no reasonable observer who expects 
there will be a deployment of any U.N. force there. If there 
was, we would be $15 million short.
    Additionally, the budget includes $50 million for an 
African crisis fund, which I support. But this is not a U.N. 
operation, but part of the U.S. initiative to build this 
peacekeeping capacity in the region. So there will be no 
arrearages here relative to the U.N.
    So there is no reason why there will be any U.N. 
arrearages, even though we are at 200 instead of 240 which the 
administration asked for. I support the 240. I think the 
Senator supports a lot less. With regard to whether this meets 
the request, the total money request of that meeting we had at 
the Blair House, I would make, I think, a cogent observation. 
The chairman was not there.
    And so this is, I think, in my discussions with the 
Secretary as recently as last night sitting next to her for 
dinner for 2 hours was I think she acknowledges this is the 
best she can possibly get, and to be blunt about it, you have 
got the House fully funding it, we funding now $71 million 
short and a 2-year budget plan of $6 billion.
    Now, I have been here a long time. Administrations who come 
in that close to what they request usually in their heart are 
not disappointed. So we are talking about an important amount. 
I would like to fully fund it, but I think it is fair to say, 
based on the information I have gotten from the administration, 
because of Afghanistan and because of this African crisis fund 
not being a U.N. operation, the idea that we are going to 
create new arrearages as we are cleaning up old ones is a 
nonexistent concern.
    Senator Sarbanes. The money for the international account 
is in division C, not division B, is that correct?
    Senator Biden. I believe that is correct, yes.
    Senator Sarbanes. I think this is a very important point.
    Senator Biden. Well, he raised the question on this point.
    Senator Kerry. I raised it in the overall context because 
there is money in this division for the consulates and the 
missions and the protection and all the other, the maintenance 
of our embassies and all of that projection. That is why I 
wanted to get at the money now just to make certain that with 
respect to those things, because there was some discussion 
about the state of some of our buildings, our properties, our 
security, living conditions of many of our Foreign Service, and 
so forth, and I want to make sure that, since that is in this 
title, that we are reflecting accurately what the 
administration felt.
    Senator Biden. All those are fully funded, Senator.
    Senator Kerry. I understand.
    The Chairman. Can we move on? I would like to finish up 
    Senator Lugar. Let me just mention that in division C I 
will offer an amendment that will make it possible for full 
funding of the international organization account, but let me 
say in section B I would like your opinion, Ms. Larkin, about 
the foreign policy changes your letter indicates the 
administration does not support. There are too many to mention 
or have debates today, but how serious is the objection? Is 
this serious enough that the administration is not going to 
support the bill all of these initiatives are adopted?
    Ms. Larkin. If they are all adopted? Senator, there are 
foreign policy provisions in both this bill and the bill as it 
came out of the House of Representatives, and there are a 
number of them that we need to work on. I think for the 
President ultimately to sign this bill they would have to be at 
least modified and some deleted.
    But I think at this point what we would like to do is try 
to work these issues through the process. So we are not 
opposing the bill on that basis at this time, but a number of 
them are serious and need to be worked on.
    Senator Lugar. Thank you.
    Senator Sarbanes. A number of the foreign policy provisions 
that are in this section, in this division B?
    Ms. Larkin. Yes, Senator.
    Senator Sarbanes. Did you indicate which ones in your 
letter, or did you just make a general point?
    Ms. Larkin. Senator, we have indicated some of them in our 
letter. It is difficult to refer to sections because I think 
the bill that came out for markup is different than the last 
version that we had.
    Senator Sarbanes. It is a moving target, no question.
    Ms. Larkin. One that I am aware of is the Jerusalem 
provision. There are some related to Asia and Taiwan.
    Senator Biden. We dropped the Taiwan. They are now dropped.
    Mr. Chairman, if I may respond, and in fairness to the 
administration there is no way they would know this. The 
provisions referred to are related to provisions relating to 
Jerusalem. For example, one of them was the U.S. consulate in 
Jerusalem would be placed under the supervision of the Embassy 
in Tel Aviv. The U.S. Government publications must identify 
Jerusalem as the capital of Israel. $100 million is available 
for building the U.S. Embassy in Jerusalem in the next 2 years, 
et cetera, all of which the administration opposes, all of 
which every time we vote on them on the floor vote 
overwhelmingly, and I will bet if you vote in this committee 
they would all pass.
    One of them has been deleted this morning. U.S. officials 
will not be allowed to meet with Palestinian officials in 
Jerusalem. That had been in the mark. That is out of the mark. 
That is what I refer to when I say the Jerusalem provisions. 
That is what the administration means by the Jerusalem 
    Now, you are looking at me with a funny look. Correct me if 
I am wrong. They are the portions of the bill that relate to 
Jerusalem that you do not like, right?
    Ms. Larkin. Yes, sir. They are a little bit more serious 
than that. There is one that withholds a substantial amount of 
funds unless an Embassy is built in Jerusalem and involves 
contractual obligations in the last version that we saw.
    Senator Biden. No. That has been deleted. There is no 
specific earmark any longer. This says that the U.S. 
consulate--excuse me--that the 100 million is available--
available. There is not a mandate it be built within 2 years. 
There is no mandate at all. So that is deleted, as well.
    OK? I mean, just so you know. That was giving you great 
heartburn. That has been deleted through the leadership of 
Senator Feinstein and her importuning the chairman. The Taiwan 
provisions are deleted, as well.
    Now, what is left, though, there is still in here the 
provisions on Jerusalem that you do not like, the ones I named. 
The ones that remain are, so everybody knows what we are 
talking about, are U.S. consulate in Jerusalem will be placed 
under the supervision of the Embassy in Tel Aviv; U.S. 
Government publications must identify Jerusalem as the capital 
of Israel; 100 million is available for building a U.S. 
Embassy--available; U.S. citizens born in Jerusalem can have 
Israel listed as their place of birth on U.S. passports, which 
is not the case now. Now, they remain in the bill.
    I share the administration's view that it would be better 
for us not to dictate that in this bill, but the truth of the 
matter is every time we go to the floor and we vote on these 
things the chairman wins and others win on these items. But 
they are the ones that remain that will continue to give you 
heartburn. There may be others on Israel that I am unaware of.
    Senator Feinstein. Can I ask a question?
    It is my understanding that, for example, the one that you 
have very graciously deleted that I was concerned with----
    Senator Biden. Well, the chairman did. I did not want it 
in, in the first place.
    Senator Feinstein. Excuse me, that the chairman deleted. It 
is my understanding that placing the consulate under the 
jurisdiction of the Ambassador now, does not preclude any 
meetings in the consulate in Tel Aviv?
    Senator Biden. Absolutely right. The big provision that was 
deleted--the two big provisions that the chairman accommodated 
were, one--and we have been talking about this and trying to 
get them moved, and he agreed to do that today--one is there 
was a provision--so no one has an old draft and they do not get 
confused--there was a provision where U.S. officials would not 
be allowed to meet with Palestinian officials in Jerusalem, 
period. That is deleted.
    The second provision was that we must build the U.S. 
embassy in Jerusalem within--what was it, a 2-year timeframe? 
The $100 million was available only for the purpose of building 
that embassy--you follow me--in Jerusalem. That is no longer in 
the bill. Only that provision. They are the two things that 
have been deleted.
    As you well know, Senator, it has been U.S. policy under 
five Presidents that we were going to stay neutral on 
Jerusalem. It has been a fight we have on the floor every year. 
The Senate always votes against every President. It relates to 
whether or not the consulate in Jerusalem is just a consulate 
to Jerusalem or it is part of the U.S. embassy in Tel Aviv. The 
symbolic importance of that obviously is, if it is part of the 
U.S. Embassy in Tel Aviv, we are recognizing, in effect, 
Jerusalem officially as the capital. That is the concern. That 
is in the bill. That is in this bill.
    The administration, understandably, and the last one and 
the one before that and the one before that, they do not like 
that. I happen to think they are probably right that we should 
not insist that they do that. But the point is, when we vote on 
that on the floor, I do not know about you, but I think almost 
every Member goes ahead and votes for that.
    So the things that are these big foreign policy concerns on 
Jerusalem are things they are not going to win on anyway on the 
floor. You are going to flat lose on those anyway. So the 
question is, do we not go ahead and do this because of things 
that I would rather not be in the bill, but the chairman is 
going to win on anyway.
    The most noxious provisions, as I see it, the chairman has 
accommodated and taken out. Notwithstanding the fact, I would 
argue, take them all out--but he has gone a long way.
    The Taiwan provisions you raised today, the chairman, 
because of your request--it did not work for me when I tried to 
get it out--you have got it out today. Now, the only thing left 
is--what is the other area, Taiwan, Jerusalem, what is the 
other one?
    Ms. Larkin. Iraqi claims, Belarus.
    Senator Biden. Oh, yes, this creates a special envoy to 
Tibet. You all do not like that, right?
    Ms. Larkin. Right.
    Senator Biden. Right. Now, let me ask you a question. On 
the floor and in this committee, we are going to vote on a 
special envoy to Tibet. What do you think wins? I love the 
administration, but I mean these great foreign policy concerns 
they are talking about, in a $6 billion bill, quite frankly, I 
understand their concerns and they are legitimate concerns, but 
if the President were to veto the bill over this, I will eat 
this microphone, OK.
    Senator Feinstein. May I ask a question on the Tibet issue 
and the special envoy?
    The Chairman. Senator Feinstein.
    Senator Feinstein. Thank you, Mr. Chairman.
    Let me ask Ms. Larkin. It is my understanding that the 
Secretary of State is considering appointing a coordinator, who 
will coordinate United States policy vis-a-vis issues that are 
Tibetan. And I would hope that those who put this in the bill, 
with the rank of Ambassador, would remove it as soon as that 
appointment is made. I would like to corroborate that, because 
I think the State Department is proceeding along the right 
lines here, and I wish we could get that coordinator position 
    The problem in this is the Ambassadorial status. It is my 
hope that the chairman of this committee and the chairman of 
the House committee would be willing to remove that in 
conference if the appointment is made in the interim.
    The Chairman. Did you get that information from Barbara? I 
did not give you that.
    Senator Feinstein. No, you did not give that information to 
me, Mr. Chairman. My staff gave that information to me.
    Senator Coverdell. Mr. Chairman.
    The Chairman. Let me say parenthetically, we have a vote on 
the Senate floor at 4:45, and I hope that we will not have to 
come back here.
    Senator Coverdell. Yes, I was going to address that point, 
Mr. Chairman. Hearing the opening statements from the chairman 
and the ranking member, it sounded like a peace treaty that had 
been difficult to work out, but that had been, including the 
administration. Now, if that is the case, I think are we 
reopening all the negotiations here?
    Senator Biden. Not really.
    Senator Coverdell. But there was an implicit agreement that 
we are not at the total end of the road yet and through with 
the process, that other things might happen and this is still a 
work in progress. But I am beginning to lose the sense of that 
    Now, is that where we are? And if it is, I think we can 
facilitate the points.
    Ms. Larkin. Senator, I think that is correct. There are 
things in this bill that we would like to see changed, and we 
will continue to work to do that.
    Senator Coverdell. But essentially, you have the Helms-
Biden proposal, and it is something that you are not here to 
try to defeat or block?
    Ms. Larkin. That is correct.
    Senator Coverdell. Thank you.
    The Chairman. Very well.
    May we vote on provision B now?
    Senator Sarbanes. Mr. Chairman, could I ask a question?
    I am curious and I do not know, I would like to know who 
Mr. Pierre Telenti is, who gets two pages in the bill to deal 
with his confiscation of property case. That is on pages 19 and 
    Mr. Kleine.  Sir, Mr. Telenti is an American citizen who 
was living in Rome at a period of time in which certain 
properties were confiscated from him. There is currently a 
friendship agreement between the United States and Italy that 
outlines provisions for receiving compensation for properties 
that have been compensated. Mr. Telenti had approached us--it 
has now been several years. The Department of State has 
determined that they would officially espouse his claim with 
respect to the Government of Italy. That provision is just 
expressing the sense that that confiscation claim should be 
    Senator Sarbanes. Well, who is he and how did this--I mean 
what is the factual basis? I mean this fellow is getting two 
pages out of this bill.
    The Chairman. Well, he probably gave a million dollars to 
the Democratic Committee.
    You know we could pull threads from the fabric all 
afternoon here. Are you opposed to this? Is the State 
Department opposed to this?
    Ms. Larkin. This particular provision?
    The Chairman. Yes.
    Ms. Larkin. Senator Helms, we have not seen the provision. 
It was not in the last draft that we saw.
    The Chairman. Oh, yes, you have. Yes, you have. We worked 
with you on it.
    Ms. Larkin. OK, but I think that it was added after the 
letter was prepared.
    The Chairman. Well, somebody go call the Secretary and ask 
her if she had not talked about it. I mean I do not want to get 
the suspicion that there is an effort to delay the 
consideration of this.
    Ms. Larkin. Senator, I misspoke. We do have them.
    The Chairman. Pardon me?
    Ms. Larkin. We do have them.
    Senator Biden. And they have had it.
    The Chairman. Yes.
    Ms. Larkin. This is the sense of the Congress provision?
    The Chairman. Yes.
    Senator Biden. Yes.
    Senator Dodd. Can I find out who he is? I am just curious.
    The Chairman. Well, I think we are being a little flippant 
now. Let us move ahead.
    Senator Kerry. Mr. Chairman.
    The Chairman. Yes, sir.
    Senator Kerry. When you said move ahead, are you preparing 
to vote right now?
    The Chairman. Yes, sir.
    Senator Kerry. I just wanted to make a comment, then, and 
it will not upset anything. In fact, I wanted to thank you for 
working with me to deal with some of the concerns that we had 
with respect to section 1610 on the greenhouse gas emissions 
    And I just wanted to mention, Mr. Chairman, the Kyoto 
meeting is of enormous importance on this subject. I share your 
concern for the need for the administration to share with us 
the economic analysis that is critical to developing a 
position. I want to emphasize that if I can to Ms. Larkin and 
the administration today. I think it is very important for this 
committee now, soon, to begin to have those economic 
assumptions and the analysis which will develop our position. I 
am disappointed that we do not have it yet. I hope we are going 
to have that soon. I think it is terribly important to us.
    But, Mr. Chairman, I just want to call your attention to 
one thing. The Justice Department has let me know today that 
they believe this section of the reorganization bill could 
conceivably affect the ability of the President to be able to 
actually sign an agreement in Kyoto because of the potential 
for judicial review and litigation. I do not think that is your 
intention. I do not think that is what you are setting out to 
    So what I would like to simply do is agree that we will 
flag this, work on it between now and going to the floor, and 
see if we can work it out.
    The Chairman. Absolutely. This is not the end-all, be-all. 
There is going to be a lot of technical amendments.
    Senator Kerry. I understand.
    The Chairman. There are going to be a lot of other kinds of 
    The Clerk will call the roll on division B.
    The Clerk. Mr. Lugar.
    Senator Lugar. No.
    The Clerk. Mr. Coverdell.
    Senator Coverdell. Aye.
    The Clerk. Mr. Hagel.
    Senator Hagel. Aye.
    The Clerk. Mr. Smith.
    Senator Smith. Aye.
    The Clerk. Mr. Thomas. [No response.]
    The Clerk. Mr. Grams. [No response.]
    The Clerk. Mr. Ashcroft.
    Senator Ashcroft. Aye.
    The Clerk. Mr. Frist. [No response.]
    The Clerk. Mr. Brownback.
    Senator Brownback. Aye.
    The Chairman. Mr. Frist votes aye, by proxy. Mr. Thomas 
votes aye, by proxy.
    The Clerk. Mr. Biden.
    Senator Biden. Aye.
    The Clerk. Mr. Sarbanes.
    Senator Sarbanes. No.
    The Clerk. Mr. Dodd.
    Senator Dodd. Aye.
    The Clerk. Mr. Kerry.
    Senator Kerry. Aye.
    The Clerk. Mr. Robb.
    Senator Biden. Aye, by proxy.
    The Clerk. Mr. Feingold.
    Senator Feingold. Aye.
    The Clerk. Mrs. Feinstein.
    Senator Feinstein. Aye.
    The Clerk. Mr. Wellstone. [No response.]
    The Clerk. Mr. Chairman.
    The Chairman. Aye.
    The Clerk. Mr. Chairman, the vote is 14 yeas to 2 nays.
    The Chairman. I thank the Clerk.
    Now, we proceed to division C. The floor is open for 
    Senator Biden. Mr. Chairman, I have an amendment that 
relates in part to what Senator Lugar is going to do. It may 
make it easier or harder--I do not even think we need a roll 
call vote on it. But right now, in division C, which is the 
U.N. arrearages, there is $819 million in arrearages to the 
U.N. related to the committee mark. Division C, on page C-25, 
lays out the schedule on which this payment would take place: 
$100 million in fiscal year 1998, which is accommodated in the 
budget agreement, and it says 419 in fiscal year 1999, and 300 
million in fiscal year 2000.
    In my discussions with Ambassador Richardson and with the 
Secretary of State--but precisely with Ambassador Richardson--
he strongly, strongly believes he needs, in order to 
accommodate the intention of this legislation, which he thinks 
he can, and the mandates, he needs 475 in the second year. So I 
would move--and if we can do it by voice or you want a roll 
call, Mr. Chairman--by voice vote that we amend that section, 
instead of reading 100, 419 and 300 in successive years, to 
100, 475 and 244. In other words, we are loading up another--
well, it is obvious.
    So I would move that amendment, Mr. Chairman.
    The Chairman. Without objection, it is approved.
    Senator Biden. I thank the chair.
    Senator Kerry. Mr. Chairman.
    Oh, I am sorry, I apologize to Senator Lugar.
    The Chairman. Senator Lugar.
    Senator Lugar. Mr. Chairman, let me begin a discussion of 
two amendments. I will ask staff to distribute two amendments 
that I would like to discuss together. One deals with the 
potential new arrearages or current dues. We discussed this a 
little bit during our division B debate. The other is a more 
serious problem with regard to the arrears of the past.
    I would cite for the attention of Senators, and I 
distributed yesterday in a Dear Colleague letter, polling data 
from the Wirthlin Group which indicate that American citizens 
find membership and participation in the United Nations to be 
very important, 54 percent; somewhat important, 28 percent. And 
with regard to the following statement, we should cooperate 
fully, the Times-Mirror Group says 65 percent in favor of doing 
that and 29 opposed.
    Coming down to getting out of the United Nations, 72 are 
opposed and only 22 favored. But when it comes to paying our 
dues, it is a somewhat closer issue: 30 favor strongly paying 
up; 28 percent somewhat favor, 13 were somewhat against, and 16 
opposed. So it is roughly 58/29 in terms of paying our dues. 
Americans believe by 78 to 13 that we should always pay as a 
matter of general principle. But in a Wirthlin poll, by 64 to 
28, Americans believe that the United States should pay its 
dues notwithstanding what other nations do.
    Now, I cite this because it seems to me there is a general 
view, as we have discussed the United Nations, that the United 
Nations is an unpopular group, imposing its will upon us. In 
essence, the American people, by 2 to 1, like the United 
Nations. They feel we ought to be vitally a part of it and pay 
our dues. It goes at variance with the nature of this debate. 
Just at the outset, it seems to me, and each Member must make a 
judgment of his or her own constituency, but there is sentiment 
that the United Nations is useful for our foreign policy. I 
believe that.
    And the reason I offer an amendment, in spite of the 
remarkable work by the chairman and the Ranking Member to 
negotiate a very difficult situation--and I acknowledge their 
work and that of the administration--is that I truly believe 
the adoption of division 6 as we now see it is likely to lead 
to a severe weakening of the United Nations, to a point that it 
will face, if not bankruptcy, then continuous short-term 
borrowing requiring a shuffling between accounts.
    And that is simply the basic organizational structure. But 
the nature of my amendment and the explanation for it goes much 
deeper than this. The arrearage account--I call for the payment 
of the $819 million in a 2-year period of time, during the 
period of this Congress, so we can take responsibility for it, 
to be paid in equal amounts. We will have to finally check the 
Budget Act and the appropriation process to be doable.
    I would like to pay our arrears in 2 years, in equal 
installments. I would like to do it without conditions. In 
short, about 18 pages of division C are devoted to conditions--
the hoops through which various entities must go in order to 
get the money.
    Now, the facts are that 65 percent of this money is not 
devoted to the Secretary-General or the bureaucracy of the U.N. 
or any of the problems we find with it. The money is money we 
owe to other countries--mostly to our allies for peacekeeping.
    And to state it very candidly: They sent troops, we sent 
money. We both pledged to do that. We voted for every single 
dollar of that money, as well as for sending their people into 
harm's way. We owe them that money. Now, I think it is 
indisputable that we owe them that money.
    Now, these are countries, such as--as I cited in a letter 
to colleagues yesterday--Great Britain, 41 million; France, 60 
million; the Netherlands, 21 million; Pakistan, 20; Germany, 
18; Belgium, 17; Italy, 17, Canada, 14 million. We owe them the 
money. The United Nations is simply a pass-through for this 
money. It is not administering or keeping that money, it is a 
    Now, the proponents of division C say if we withhold this 
money from our allies and from those that we voted to send into 
harm's way, we will have leverage to force them to vote for our 
reduction of dues from 25 percent to 20, or our peacekeeping 
dues from 31 to 25 percent. These are also arrangements that we 
negotiated with other countries, and we shall have to continue 
to do so.
    But I think it is fair to say the proponents of division C 
say that, even though we owe them the money, this thing has got 
so confused that somehow the U.N. is an organization running 
out of style and a bureaucracy running amok. By continually 
attacking that situation, which is only 5 percent of the 
arrears problem, we obscure 65 percent--namely, payment for the 
peacekeeping operations to countries we owe.
    Now, the proponents may be right. If they pass this 
legislation, history will record whether they were or not 
correct. My own judgment, very frankly, is that we have a lot 
at stake beyond these sums. We are negotiating now and will be 
for some time, about NATO reorganization. There are very large 
obligations involved--burden sharing, as to who will be 
included in an expanded NATO. Some of the same nations on this 
list now are among the nations with whom we will be 
    We have very high stakes in agricultural negotiations with 
the European Community, and large dollars are involved. Our 
success in negotiating with Europeans in particular is going to 
be related to the good faith effort we have on obligations that 
are contractually clear.
    How Senators can believe that somehow an argument on the 
United Nations, with all the pejorative references there, does 
not ricochet with other issues escapes me. This has been a fun 
game for a long while, to attack the U.N.--much like the 
billboards in my home State that used to say get us out of the 
U.N. But I am saying that 70-some percent of Americans do not 
want to get out; 22 percent do, and I acknowledge that fact. 
But the 22 percent are not the majority.
    If we do not settle the arrears in a way comparable to the 
way I have suggested, and that is promptly and without 
conditions, I predict that the United Nations, structurally, 
will be weak and much less use to us. Second, I predict very 
great problems of negotiations with our allies and with others 
who have had some faith in us.
    I would say to those who believe, well, fair enough, if all 
of the qualifications of division C are met, these countries 
get their money. But, this is disingenuous to suggest that they 
go through all the hoops to get the money we have already 
contracted to pay. I would suggest anybody making a thoughtful 
reading of those 18 pages will be hard-pressed to understand 
how any country will ever get all the money owed them.
    As a matter of fact, I do not believe it is doable. 
Therefore, I think the real question before us is division C, 
an attempt simply to say take it or leave it to the President, 
and to the rest of the world. It really is not a take it or 
leave it, because the possibilities of taking it are not there. 
I would simply say that, as Senators read through this, they 
had better be thoughtful about all of the hoops that are there.
    Now, having said this, I appreciate there is a certain Don 
Quixote effort going on here, and it is self-imposed by myself. 
I would say that it is clear that this has been negotiated 
carefully by the chairman and the distinguished ranking member, 
and normally I would defer to their judgment. But I think this 
is so serious I believe this could very well be the end of the 
line for the United Nations, and we are still in very difficult 
circumstances for the United States vis-a-vis our allies and 
our contractual relationships.
    Therefore, Mr. Chairman, I respectfully propose the 
amendment that deals with this issue in a very straightforward 
fashion: Pay our arrears in 2 years, equal amounts, no strings 
attached, on the logic that our ability to negotiate at the 
U.N. is likely to be enhanced by the good faith with which we 
approach this problem.
    Make no mistake about it, there is no enthusiasm at the 
U.N. for giving us a dues reduction. There might be in the 
event that there is some good faith as we take a look at our 
responsibility in Europe, in NATO particularly, and with our 
trade relations, to take a look in the total American foreign 
policy picture.
    Senator Biden. Mr. Chairman, I think Don is doing the right 
thing. Senator, you are correct in this regard, in my view, 
that it would be much better if we fully funded this and there 
are no strings. But as they say both in domestic and 
international politics, politics is the art of the practical. 
Let us talk about where we started from.
    We start from zero. We start from no money, and we start 
from the inability over the last several years to get any 
movement on doing this. We start from the premise that in the 
House there is nothing.
    Now, you are correct in what most people do not understand 
is the vast majority of the arrearages we owe we owe to our 
allies: France, Great Britain, the Netherlands, Pakistan, 
Germany, Belgium, Italy, India, Canada, all friends and/or NATO 
allies. You are correct that at the very time we are expanding 
NATO that we are going to go out and try to get them to take on 
a larger burden, we are going to be telling them we are not 
going to give them all that we owe them.
    But the fact of the matter is this: I sat at length--hours 
and hours--with the Ambassador to the United Nations, with our 
Secretary, and I basically asked at the front end, I said, what 
is the bottom line drop-dead number you need to get the job 
done? Now, my good friend here was not enthusiastic about any 
of this, and the highest number we got up until 4 days ago was 
600 million. He is taking a lot of heat, I expect--I am sure he 
can take it--from a constituency and a part of your party that 
he is probably the most well known figure. The bottom line came 
down to what was the drop-dead number, and the drop-dead number 
was 819.
    Now, let me make two other points: I met with the President 
of the General Assembly, as you probably did. I met with five 
of his associates, Ambassadors from other countries. This 
notion of can we get down from 25 percent, the answer is yes, 
we can. The constant refrain they kept telling me was but you 
have got to show good faith. Movement now is urgent. Movement 
now is urgent. Urgent. If this goes on for another year, 
Senator, they think you are right, things will fall apart.
    So here we are faced with a dilemma. I cannot agree with my 
colleague, Richardson cannot agree with the chairman, and say 
we want it all, that we think we have to have and should have. 
This is going to go on for another year. We are going to end 
up, I respectfully suggest, Senator, right where you are 
fearful we will be.
    The flip side of that is if we pass this, if it becomes 
law, and I want to make it clear, and the chairman knows this, 
this is not something I am prepared to negotiate down in 
conference; 819 is a drop-dead number. So I am not prepared to 
vote for anything less than that in the conference. The 
chairman knows that, we have never misled each other, he knows 
where I am, and I am expecting this is the number or no number.
    But the truth of the matter is if we are able to get within 
this next fiscal year 100 million bucks, if the U.N. 
understands we have appropriated the money, everything is in 
terms of what is realistic. They know where we have been. They 
know the numbers. I have to rely on Ambassador Richardson--me 
personally--and I have to rely upon the State Department when I 
ask them can you do the job with this money.
    Now, they could be wrong. I could be wrong for listening to 
them. I want to make it clear, they love your amendment. If you 
recall, I called you when the Senator was at 600 to say--and I 
called several others on the committee saying hey, we should do 
an amendment to fully fund this. I did. You know that, Mr. 
Chairman. Then the chairman came back and said look, this 
overall deal is more important to me than it all falling apart. 
I assume that was the rationale.
    So I want to emphasize this is going to be the hardest no-
vote I have cast. I made an agreement. I stick by my agreement. 
I made the agreement though not merely to get a deal. I made an 
agreement conditioned upon my being assured by our Ambassador 
that this can get the job done for him. I think it can, but I 
do not know nearly as much about it as he does or many of you 
here who have spent more time with regard to United Nations.
    I conclude, Mr. Chairman, by saying you are right about the 
U.N. It is important, it is relevant the American people, 
notwithstanding the disagreement my friend from North Carolina 
and I have occasionally on this. Support it. It makes sense. I 
would argue there is one significant benefit for if we pass 
this and it eventually becomes law and is signed by the 
President, and that is for the first time in the time that I 
have been here--maybe I should not say this, but I am going to 
say it anyway--since I have been here, we may begin to put an 
end to the polemic debate about the United Nations, because 
when Mr. Conservative in the United States of America, and I 
challenge anybody to name anybody in America who is a better 
known conservative and a better known person in terms of his 
opinion about the U.N. than the chairman, the fact that he is 
willing, reluctantly, to sign on $819 million in arrearages is 
a political statement of consequence that I do not think we 
should underestimate. I would love, like the Senator from 
Indiana, to put behind us this polemic debate that has 
dominated us in the Senate for the last 7 or 8 years.
    A guy ran against me who is a wonderful man. His whole 
campaign was blue helmets and sovereignty. I mean, you know? 
All I have to do next time--this is really going to get the 
chairman in trouble--is say Helms supported it. Woah.
    Now, I am not kidding, folks. Understand the political 
significance of this, what it says for the United Nations. I 
think this compromise, in addition to being able to get the job 
done, will send a message and put on an even keel the notion 
that the U.N. is relevant, important, and we are going to be 
players in it. There is no one I respect more, and you know 
this, in the Senate; no one I think knows more about foreign 
policy than you do, Senator; but I am going to, with great 
reluctance, but for the reasons I stated, vote against you 
because I think this total package is the only thing to avoid 
what you most fear.
    Senator Sarbanes. Mr. Chairman.
    The Chairman. Senator Sarbanes.
    Senator Sarbanes. Mr. Chairman, I want to commend Senator 
Lugar for offering these amendments. I think this is an 
extremely serious matter. If another country came to the U.N. 
in arrearages as we are, and laid out all of these conditions 
for meeting its obligations, we owe this money. We undertook 
this obligation. None of those peacekeeping efforts could have 
happened without the support of the United States. They all 
required the approval of the Security Council, on which we sit 
and where we have a veto. So presumably it was our judgment 
that they served our interest to move forward.
    I am telling you, if another country showed up with these 
kinds of demands we would be enraged. Just kind of turn it 
around and put yourself in the other person's shoes. They come 
on, they have not paid their dues, they are delinquent, they 
assert they are paying too much. Well, are we? I do not know. 
Here is the U.N. scale versus the share of world income. The 
U.S.'s share of the U.N. is less than our share of world 
income. The European share is higher than their share of world 
    Senator Coverdell. Could you respond to a question?
    Senator Sarbanes. Certainly.
    Senator Coverdell. When does the chart begin?
    Senator Sarbanes. This is at the 25 percent figure for the 
regular budget contribution.
    Senator Coverdell. Today. But if you took the period of 
time from the beginning of the U.N.----
    Senator Sarbanes. Oh, when we began the United Nations, the 
U.S. paid 39 percent in 1946 to 1949, and that figure has come 
down. Since 1974 it has been 25 percent. I do not have the 
figure for what the U.S. share of world income was in 1946, but 
I daresay it probably approximated the 40 percent that we were 
paying of the U.N. dues. I mean, we came out of World War II 
with an intact economy.
    We are paying 25 percent, Japan is paying--how much do 
people think Japan is paying? Let me ask that question. Who can 
give me a figure on this committee? What do you think Japan 
pays, its percentage share of the U.N. dues; 15.4 percent. 
Germany is at 9 percent. Germany and Japan together pay as much 
as the United States, and their share of world income is 
significantly less than ours.
    Senator Biden. Senator, can I make a point on that point?
    Senator Sarbanes. Sure.
    Senator Biden. Also, we pay for their defense. We do more 
in terms of basic world security with our military that never 
even gets calculated any place, any way, any circumstance, in 
terms of us carrying our weight around the world.
    You are absolutely right on the principle that this is 
wrong to go and try to change the game after we made a deal. I 
agree with that. You are right about that. But on its overall 
argument or the United States share of its income is relative 
to the United Nations, name me another country--name me another 
country--that essentially underwrites the security of the rest 
of the world irrespective of the U.N. We carry more than our 
    Senator Sarbanes. Well, we do that because we perceive that 
we have important national interests.
    Senator Biden. Bingo. But would not it be nice to have the 
rest of the world stop pillorying us about why we do not carry 
our weight?
    Senator Sarbanes. Well, I think Senator Lugar has made a 
very strong argument why clearing up these arrearages would 
improve our position in a number of different bargaining arenas 
in terms of sharing responsibility.
    Senator Biden. You are correct on that. But I do not think 
the argument, Senator, about this notion about share of world 
income versus carrying our weight relates to that. You are 
right. We made a deal, we should pay for the deal.
    Senator Sarbanes. We should keep the deal.
    Senator Biden. Keep the deal, you are right.
    Senator Sarbanes. That is right.
    Senator Biden. Now, the other alternative is let us figure 
out if we do not do this deal how we pay any of the deal. Does 
anybody have an idea how you do that? I would like to know, 
because the last 4 years we have gotten zip, zero, nothing.
    Senator Sarbanes. Well, it is a wonderful process. We 
negotiate amongst ourselves in the Congress and with the 
administration. The U.N. is up there. I mean, they are not in 
this process.
    Senator Biden. No, they are not in the process.
    Senator Sarbanes. Then an understanding is reached, and 
then that is going to be presented to the U.N. and they are 
going to be told look, take this or leave it.
    Let me tell you, look, we have got a provision in this 
division C, let me just read it to you, I mean, and let the 
snake out on the floor in itself. The total amount of funds 
made available for all United States memberships in 
international organizations for which contributions are 
assessed may not exceed $900 million.
    Senator Kerry. What page are you on, Senator?
    Senator Sarbanes. Page 6. Notwithstanding any other 
provision of law, the United States shall withdraw from an 
international organization or other wise reduce assessments in 
the following budget cycle of that organization, et cetera.
    I think any proposal here that puts out on the table this 
snake of withdrawal, and the rest of this section goes on at 
great length to discuss withdrawal, consultation with the 
Congress, the deadline, the report, where are we going?
    I think the United Nations has served very important 
American interests. People undertake these peacekeeping 
operations, and we do not have to send our own troops in. Every 
time one of these things happens people say, well, let us get 
the U.N. to do something about it.
    Senator Biden. Senator, you are right, but how long do you 
think it would last if we would come up another year without 
any funding for the arrearages?
    Senator Sarbanes. I think we should pay off these 
    Senator Biden. I do, but are you going to write a check, 
get John Rockefeller to do it, or are you going to get 51 
    Senator Sarbanes. I think we should have a clear issue, as 
this amendment poses, on meeting in full our obligations to the 
United Nations. These are past obligations. These are past 
    Senator Biden. You are right. We have got to get 51 votes.
    Senator Sarbanes. These are things we failed to do. 
Therefore, I very strongly support these amendments.
    This, in many respects, may be an historic vote, I think.
    The Chairman. We are going to have a vote on the Senate 
floor, and I would like to get this matter settled before we 
    Senator Kerry. Yes, sir. I understand that. I will try to 
be very brief, and I know I am not going to change the vote. I 
kind of come out in between a little bit, Senator Sarbanes, but 
I am very, very supportive of what Senator Lugar is asserting 
here. I understand what Senator Biden is saying.
    This has been a struggle. When I was serving as chair of 
the subcommittee I worked with Senator Pressler. We were very 
tough on the United Nations, with Senator Coverdell. We put in 
a lot of restrictions, and in effect we brought about a 
significant change, Mr. Chairman, a new Secretary General, 
commitments to reform, a very significant attitude shift, I 
think, and we have a new Ambassador there, and so forth.
    I believe this will work, unlike maybe some of my 
colleagues. But I do not think it is the right thing to do. I 
think we are going to pay a longer-term price for it. I mean, 
diplomacy and relations with other countries are not just 
always bludgeoning and waving the big stick and achieving your 
short-term goal. There are longer-term goals. We have got major 
long-term interests in Europe, with former Yugoslavia, Bosnia, 
the emergence of the new NATO, and so forth. I must say as I 
have talked to people in New York, and I met with the 
Ambassador, too, and others, while this may work and we have 
been put in a position of accepting it, it does not mean we 
have to like it or vote for it or support it. It certainly does 
not mean we should not lay out for colleagues and others what 
the price is.
    Now, I believe we have put ourselves in a position where 
private diplomacy, Mr. Chairman, could have achieved a 
commitment from Kofi Anon and others to proceed forward and get 
a reduction in the level. I happen to think we deserve it. I 
disagree with my colleague there. I do not think that 
particular measurement is the accurate measurement of today. 
But nevertheless, I am convinced we could have achieved a 
reduction without this bludgeoning. In my judgment, the result 
of this is going to be to lose votes down the road on countless 
different occasions where we might have won them.
    We would not have been hurt one iota to ante up 1 year's 
payment on a 2-year schedule or 3-year schedule without 
condition. We certainly would have been prejudiced on 2 years. 
There is nothing to stop the Congress after that from coming 
back and saying OK, we gave you every chance in the world, you 
made your commitments, you did not change, nothing has 
transitioned, and so we are going to proceed.
    But it seems to me that when you do it retroactively rather 
than prospectively on the money yet to come, you are really 
behaving in a way that I think invites a lot more mischief than 
the short-term gain is going to produce, and in the long run I 
think we will pay a price for that.
    The Chairman. Thank you, Senator.
    All the Senators have made good points. What has not been 
expressed here is who on this committee and who in the Senate 
was responsible for the arrearages in the first place: Liberals 
and conservatives, Democrats and Republicans, and I remember 
Nancy Kassebaum was a leader because she was fed up with the 
conditions in the United Nations.
    Now, all these platitudes that I am hearing, I am just 
about to get sick at my stomach. I move to table the amendment 
and the clerk will call the role.
    Senator Biden. Which one are we moving.
    Senator Lugar. Let us vote first of all on the arrearages 
    The Chairman. Which one did you offer first?
    Senator Lugar. The arrearage. Then second the money for 
FY98, the 71 million.
    The Chairman. The clerk will call the role.
    Senator Coverdell. The motion is to table the amendment?
    The Chairman. Yes.
    The Clerk. Mr. Lugar.
    Senator Lugar. Nay.
    The Clerk. Mr. Coverdell.
    Senator Coverdell. Aye.
    The Clerk. Mr. Hagel.
    Senator Hagel. Aye.
    The Clerk. Mr. Smith.
    Senator Smith. Aye.
    The Clerk. Mr. Thomas.
    Senator Thomas. Aye.
    The Clerk. Mr. Grams.
    Senator Grams. Aye.
    The Clerk. Mr. Ashcroft.
    The Chairman. Aye, by proxy.
    The Clerk. Mr Frist.
    Senator Frist. Aye.
    The Clerk. Mr. Brownback.
    The Chairman. Aye, by proxy.
    The Clerk. Mr. Biden.
    Senator Biden. Aye.
    The Clerk. Mr. Sarbanes.
    Senator Sarbanes. Nay.
    The Clerk. Mr. Dodd.
    Senator Biden. Nay, by proxy.
    The Clerk. Mr. Kerry.
    Senator Kerry. Nay.
    The Clerk. Mr. Robb.
    Senator Robb. Aye, reluctantly.
    The Clerk. Mr. Feingold.
    Senator Feingold. Nay.
    The Clerk. Mrs. Feinstein.
    Senator Biden. Aye, by proxy.
    The Clerk. Mr. Wellstone.
    Senator Biden. Wellstone, nay, by proxy.
    The Clerk. Mr. Chairman.
    The Chairman. Aye.
    The Clerk. Mr. Chairman, the vote is 12 ayes, six nays.
    The Chairman. I move to table the other Lugar amendment.
    Senator Lugar. This is the 71 million for this year.
    Senator Sarbanes. This is so we do not get further behind 
than we already are.
    Senator Biden. Mr. Chairman, on that point, let me make it 
clear we will no