    [House Hearing, 106 Congress]
    [From the U.S. Government Publishing Office]

          FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS
                            APPROPRIATIONS FOR 2000

    _______________________________________________________________________

                                    HEARINGS

                                    BEFORE A

                               SUBCOMMITTEE OF THE

                           COMMITTEE ON APPROPRIATIONS

                             HOUSE OF REPRESENTATIVES

                           ONE HUNDRED SIXTH CONGRESS
                                  FIRST SESSION
                                    ________
       SUBCOMMITTEE ON FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED
                                    PROGRAMS

                        SONNY CALLAHAN, Alabama, Chairman
     JOHN EDWARD PORTER, Illinois     NANCY PELOSI, California
     FRANK R. WOLF, Virginia          NITA M. LOWEY, New York
     RON PACKARD, California          JESSE L. JACKSON, Jr., Illinois
     JOE KNOLLENBERG, Michigan        CAROLYN C. KILPATRICK, Michigan
     MICHAEL P. FORBES, New York      MARTIN OLAV SABO, Minnesota
     JACK KINGSTON, Georgia
     JERRY LEWIS, California

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

         Charles Flickner, John Shank, and Christopher J. Walker, Staff
                                  Assistants,
                         Lori Maes, Administrative Aide
                                    ________
                                     PART 3
                                                                       Page
     Export and Investment Assistance.................................    1
     AID Administrator................................................  115
     FY 1999 Emergency Supplemental Request for Central America and
    the Caribbean.....................................................  217

                                    ________
             Printed for the use of the Committee on Appropriations
                                    ________

                         U.S. GOVERNMENT PRINTING OFFICE
    57-468                      WASHINGTON : 1999

                            COMMITTEE ON APPROPRIATIONS

                       C. W. BILL YOUNG, Florida, Chairman

     RALPH REGULA, Ohio                    DAVID R. OBEY, Wisconsin
     JERRY LEWIS, California               JOHN P. MURTHA, Pennsylvania
     JOHN EDWARD PORTER, Illinois          NORMAN D. DICKS, Washington
     HAROLD ROGERS, Kentucky               MARTIN OLAV SABO, Minnesota
     JOE SKEEN, New Mexico                 JULIAN C. DIXON, California
     FRANK R. WOLF, Virginia               STENY H. HOYER, Maryland
     TOM DeLAY, Texas                      ALAN B. MOLLOHAN, West Virginia
     JIM KOLBE, Arizona                    MARCY KAPTUR, Ohio
     RON PACKARD, California               NANCY PELOSI, California
     SONNY CALLAHAN, Alabama               PETER J. VISCLOSKY, Indiana
     JAMES T. WALSH, New York              NITA M. LOWEY, New York
     CHARLES H. TAYLOR, North Carolina     JOSE E. SERRANO, New York
     DAVID L. HOBSON, Ohio                 ROSA L. DeLAURO, Connecticut
     ERNEST J. ISTOOK, Jr., Oklahoma       JAMES P. MORAN, Virginia
     HENRY BONILLA, Texas                  JOHN W. OLVER, Massachusetts
     JOE KNOLLENBERG, Michigan             ED PASTOR, Arizona
     DAN MILLER, Florida                   CARRIE P. MEEK, Florida
     JAY DICKEY, Arkansas                  DAVID E. PRICE, North Carolina
     JACK KINGSTON, Georgia                CHET EDWARDS, Texas
     RODNEY P. FRELINGHUYSEN, New Jersey   ROBERT E. ``BUD'' CRAMER, Jr.,
     ROGER F. WICKER, Mississippi            Alabama
     MICHAEL P. FORBES, New York           JAMES E. CLYBURN, South Carolina
     GEORGE R. NETHERCUTT, Jr.,            MAURICE D. HINCHEY, New York
    Washington                             LUCILLE ROYBAL-ALLARD, California
     RANDY ``DUKE'' CUNNINGHAM,            SAM FARR, California
    California                             JESSE L. JACKSON, Jr., Illinois
     TODD TIAHRT, Kansas                   CAROLYN C. KILPATRICK, Michigan
     ZACH WAMP, Tennessee                  ALLEN BOYD, Florida
     TOM LATHAM, Iowa
     ANNE M. NORTHUP, Kentucky
     ROBERT B. ADERHOLT, Alabama
     JO ANN EMERSON, Missouri
     JOHN E. SUNUNU, New Hampshire
     KAY GRANGER, Texas
     JOHN E. PETERSON, Pennsylvania

                     James W. Dyer, Clerk and Staff Director

                                      (ii)

          FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS
                            APPROPRIATIONS FOR 2000

                                  ----------

                                           Thursday, February 11, 1999.

                        EXPORT AND INVESTMENT ASSISTANCE

                                   WITNESSES

    JAMES A. HARMON, PRESIDENT AND CHAIRMAN, EX-IM BANK
    GEORGE MUNOZ, PRESIDENT AND CHIEF EXECUTIVE OFFICER, OPIC
    J. JOSEPH GRANDMAISON, DIRECTOR, TDA

                     Chairman Callahan's Opening Statement

        Mr. Callahan. We are going to go ahead and get started even
    though many of the members are not here yet, but we want to
    finish this thing as expeditiously as we can.
        I would like to compliment Mr. Knollenberg and two of our
    newer members for being prompt, Ms. Kilpatrick and Mr. Jackson.
    We hope you will set an example for the other members of the
    committee that when we say 10 o'clock, we mean 10 o'clock. Good
    morning.
        Before turning to my statement, I do want to introduce Ms.
    Kilpatrick of Michigan. We are happy to have you on our
    subcommittee and we know you are going to enjoy it. We try not
    to work too hard, but we have a lot of serious work to do and
    we do it for the most part in a very nonpartisan fashion. I
    think you will thoroughly enjoy our committee. We certainly
    welcome you here, as well as Mr. Jackson of Illinois.
        We are happy to have you as well on our committee. You will
    notice some of the beautiful paintings here in this room.
    Brumidi frescoes. It is very historical. We will certainly have
    our staff brief you on this, because it is a great place to
    show off to constituents when they come to Washington.
        Good morning, Ms. Pelosi.
        Ms. Pelosi. Good morning, Mr. Chairman.
        Mr. Callahan. It is 10:04.
        Ms. Pelosi. We won't take it out of your time.
        Mr. Callahan. In any event, I was just introducing two of
    our new members----
        Ms. Pelosi. Isn't that wonderful? Bravo.
        Mr. Callahan [continuing]. Welcoming them here and telling
    them we don't have the bells and the buzzers and the red lights
    and the green lights. We are very generous. But we do have a
    silent timer, and we try to have the 5-minute rule on our
    testimonies anyway. But we don't try to cut you off, and we
    certainly don't try to distract you with all those bells and
    lights, because we want to hear from you. We want your input.
        We have other new members coming on our subcommittee. Jerry
    Lewis used to be on this subcommittee. He is not here yet.
    Martin Sabo is coming to our committee. We are anxious to have
    them back here.
        We have lost one on our side; Mr. Frelinghuysen left and
    went to another subcommittee.
        In any event, our witnesses today are Jim Harmon, Chairman
    and President of the Ex-Im Bank; George Munoz, Chairman and
    Chief Executive Officer of the Overseas Private Investment
    Corporation; and Joseph Grandmaison, Director of the U.S. Trade
    and Development Agency. These three agencies are funded in the
    first title of our bill, the Export and Investment Assistance
    title.
        Although our American economy has remained healthy for a
    record length of time, many of our trading partners are not
    doing as well. Maintaining export markets in Asia, East Asia,
    Brazil, and the former Soviet Union is a major challenge for
    all of these agencies.
        Risk management is particularly the focus of the Ex-Im Bank
    and to a lesser extent for OPIC. I would like both agencies to
    report on any potential claims they are facing and the impact
    of the financial crisis on your profits and reserves, if any.
        All of you are working to expand trade and investment in
    Africa and this committee supports you in that effort. It will
    not be easy. The resumption of fighting between Ethiopia and
    Eritrea and the involvement of so many of its neighboring
    armies in the Congo make your task even more difficult.
        Closer to home, the nations of Latin America and the
    Caribbean have been our major trade and investment partners
    and, in my opinion, still are the greatest potential we have
    for trade and development. We in the last 4 years have been
    somewhat critical of the administration for not placing a
    sufficient emphasis on Central and South America, and we want
    to encourage you all to continue your efforts in that
    direction.
        For years, the administration seemed to have been of the
    opinion that there is only one country in this hemisphere that
    needs help and that is Haiti, and this committee has been to
    Haiti twice. While we recognize the importance of trying to
    assist the people of Haiti, the progress has been almost nil
    with respect to them having some semblance of a democracy and
    providing something for their very needy citizens.
        The Caspian Sea energy development is an administration
    priority. We support that. This committee has also visited that
    region. We spent a lot of time in the Caucasus region. But
    there, too, you have a political and economic situation that is
    rather unstable. Russia seems to be making trouble as it seeks
    to control the export routes for oil and gas in the Caspian
    Sea.
        I would like for TDA, when you come, Mr. Grandmaison, to
    give us some of your thoughts on the opportunities and risks
    there.
        Mr. Lewis, thank you very much for coming. I know you have
    another subcommittee meeting and you are going to have to leave
    in a short time. But I have already welcomed Ms. Kilpatrick and
    Mr. Jackson, the new members of our committee. And to Mr. Sabo
    and to you for coming to our committee, thank you. We are happy
    also to have you here.
        We start very promptly at 10 o'clock, and you are expected
    to be here when I say 10 o'clock.
        Mr. Lewis. I went next door for coffee. I thought the door
    was locked.
        Mr. Callahan. We apologize for the compactness of this
    room. There was a lot of talk about me possibly changing
    committees and other committees were offered to me, but I
    thought with the problems that we have facing us with foreign
    policy and foreign operations that I would stay here, because
    that is probably where I could best serve. But the commitment
    that was given to me when I agreed to stay on this committee is
    that we would be given a permanent, larger hearing facility. I
    am sure it is forthcoming; I think it is that park out there.
        But we are still insisting that we be given a permanent
    hearing room, Jerry. We even tried to confiscate your old
    headquarters next door. But so far we have not gotten that.
        In any event, we welcome the three of you before our
    committee today. At this time, I would like to yield to Ms.
    Pelosi, who is the ranking Democrat on our committee.
        Ms. Pelosi. Thank you very much, Mr. Chairman. Nobody is
    happier than I that you did not change committees. I think we
    have a good working relationship on this committee, and I know
    that our new members will find that soon.
        I want to join you in welcoming Mr. Jackson, in seniority,
    and Ms. Kilpatrick to our committee. They will be wonderful
    additions in joining our fight to have greater recognition for
    the needs of the Southern Hemisphere and what we are doing in
    terms of export finance, bilateral assistance and multilateral
    assistance.
        It seems silly for me to be welcoming Mr. Lewis. He is such
    a distinguished and senior member on the Appropriations
    Committee, but it will be an honor to serve with him on this
    subcommittee.
        We will miss Mr. Frelinghuysen, but I am glad to see most
    of our folks are back. I look forward to working with you. We
    work in a bipartisan way when we can on this committee.
        Mr. Chairman pointed out that I was a few minutes late, and
    I was going to use those minutes to praise him, so I will put
    those remarks in the record.
        Mr. Callahan. I would like to have them in writing anyway.
        Ms. Pelosi. You didn't tell me, Mr. Chairman, that they
    were tearing down this wall. In any event, on our side, we are
    also joined by a very distinguished and more senior member, Mr.
    Sabo, on our committee, and I hope that he enjoys his
    participation and will stay with us for years to come on this
    subcommittee.
        Thank you, Mr. Sabo. I know you had your choice of
    anything. We are very delighted that you chose to come to this
    committee.
        Mr. Sabo. Happy to be here.

                         Ms. Pelosi's Opening Statement

        Ms. Pelosi. Today, I am pleased to welcome Mr. Harmon, Mr.
    Munoz and Mr. Grandmaison to our hearing on export financing
    and related programs. However, again I want to say how
    important it is for us to work together on these issues of
    export finance, and I know that our new members will add a
    great deal to that debate.
        The subcommittee, under Chairman Callahan's leadership, has
    acted in a bipartisan manner and produced foreign aid bills
    which reflect the wide range of views of the subcommittee
    members, and which enable the U.S. to meet vital national
    security needs around the world. Not that I always agree with
    his bills, not that I even always vote for them, but he does
    give us the opportunity to have our say. I look forward to
    working with him and with all of you.
        I am pleased again to welcome the representatives of the
    three export-related agencies funded in our Foreign Operations
    bill to this hearing. These agencies provide direct support to
    the U.S. economy by easing the way for American exports. Their
    importance grows as exports account for a larger and larger
    share of America's jobs growth. As the budget request for these
    agencies grows accordingly, we must ensure that the terms and
    the conditions of our assistance are consistent and responsive
    to the need to preserve the world's environment, the respect
    for human and labor rights, the need to promote small and
    women-owned and minority-owned businesses, access for the
    diverse and expanding array of export-related companies, and
    finally that the credits and loans are extended with an
    appropriate assessment of risk to the U.S. taxpayers.
        Again, I want to say that our committee has emphasized over
    and over again the important focus on the Southern Hemisphere,
    on Africa and Latin America, where we must do much more; and of
    course that will come out in our questions. I won't take any
    more time except to again say what a pleasure it is to serve
    with Mr. Callahan as our chairman.
        I welcome the witnesses and look forward to their
    testimony.
        Thank you, Mr. Chairman.
        Mr. Callahan. Thank you, Ms. Pelosi. It is not normal, but
    since we have four, some returning, some new members to our
    committee, I would like to express to you all that if you have
    anything you would like to say, we will welcome your comments
    at this time. Any of the four of you that might want to
    comment?
        Ms. Kilpatrick. Thank you, Mr. Chairman and Ranking Member
    Pelosi for the opportunity to serve with you. I have been very
    interested in foreign affairs for a long time. That the
    chairman took the personal time to call and welcome me, I think
    that is extra special. I look forward to working with you.
        Thank you.
        Mr. Jackson. Let me just associate myself with everything
    that Congresswoman Kilpatrick said and also thank the chairman
    for his earlier admonishment to be on time.
        Mr. Callahan. I would like to compliment the two of you for
    being on time.
        Jerry.
        Mr. Lewis. Mr. Chairman, as you know, it was my privilege
    to serve on this committee for almost a decade. I only left it
    because there was an opportunity to go to the Defense
    Subcommittee, and I couldn't stay here and do that, too. I must
    say it is a great honor for me to be able to return.
        I feel strongly, Mr. Chairman, that America's role in the
    world is fundamental. It is why we should have a Congress in
    the first place. I really feel that foreign affairs issues
    ought to be nonpartisan. They should end at the water's edge.
    If we work at that, we can have a huge impact on the world. I
    am pleased, under your leadership, to try to make a
    contribution.
        Mr. Callahan. We thank you. We will tell you, all of you--
    of course, you and Martin certainly know, but we haven't had a
    foreign relations authorization bill that has passed in the
    last decade or so.
        A lot of the authorization problems theadministration has
    have come through this committee. For example, OPIC and all of your
    agencies that are testifying today must be reauthorized every 5 years.
    But it becomes a responsibility of this committee to authorize as well
    as to appropriate because the Foreign Relations Committee hasn't been
    real successful in passing legislation. It is not any disrespect to any
    members of the Foreign Relations Committee.
        I thought it was interesting last weekend, Jerry, you and I
    talked about going to Jordan to the King's funeral. Well,
    neither of us could make the connections to get over there
    since we had so little notice to go, but the chairman of the
    Foreign Relations Committee went with the President at the
    President's invitation. Ironically, from Air Force One they
    called back, wanting us to handle legislation to give Jordan
    some money. My thoughts were, why don't you get the Foreign
    Relations Committee to do it?
        In any event, you will learn that.
        Ms. Pelosi. They are the ceremonial committee.
        Mr. Sabo. Mr. Chairman, to all the members as it relates to
    your time for meetings, I advise them to ask you whether it is
    a.m. or p.m. and if anybody is interested, I will tell them the
    story.
        Mr. Callahan. One night we had a conference committee
    meeting, and Martin wasn't on the committee, but they needed
    some additional appropriators to serve out the balance on the
    conference committee and we were in heated session. In any
    event, about 7:30 we decided to break for dinner and go to have
    dinner and then come back at 9 o'clock. I walk out, I run into
    Martin in the parking lot. I say, we have recessed until 9. So
    he got in his car, went home and went to bed.
        Mr. Harmon, good morning to you. We will submit your entire
    statement into the record. We welcome you to the committee this
    morning.

                         Mr. Harmon's Opening Statement

        Mr. Harmon. Thank you very much, Mr. Chairman. I sense the
    cordiality of the committee members and the intimacy of this
    room where we can have even a closer relationship between the
    witnesses and the members of the committee.
        Mr. Chairman, Congresswoman Pelosi and other members of the
    subcommittee, Ex-Im Bank is requesting $839 million for program
    budget and $57 million for the administrative budget.
    Comparable levels of fiscal year 1999 are $765 million and $50
    million, respectively.
        I have presented some charts here. If you look at them, I
    will try to go as quickly as I can. The first chart shows a
    very stable program budget for a period of time. For example,
    over a 5-year period, from 1995 to the year 2000, the increase
    in program budget is less than 10 percent.
        With the fiscal year 2000 budget request, we estimate the
    Bank will be able to facilitate nearly $20 billion in exports,
    which is almost four times what it was 12 years ago as
    illustrated in chart number 2. Chart number 2 shows significant
    growth in Ex-Im Bank support of exports from 1988 all the way
    to the year 2000. This growth was interrupted slightly last
    year because of financing exports to higher risk countries that
    required more funds from our program budget. As a result, we
    could not do all the business the Bank had in-house.
        In any case, for fiscal year 2000, we project that the Bank
    will support the largest amount of exports in any single year
    of its 65-year history.
        Ex-Im Bank's mission is to support American exports and
    thereby sustain U.S. jobs. This mission may be more important
    today than at any time in the past several years. First, the
    global financial crisis has caused a dramatic retrenchment in
    private capital flows, impacting trade, economic well-being and
    jobs in both the developing world and in the United States.
        Second, trade has never been more important to our economy,
    with exports accounting for approximately one-third of American
    job growth in the last 5 years. In this difficult environment,
    Ex-Im Bank last year directly supported more than 2,000 U.S.
    exporters, 80 percent were small businesses, and 20 percent
    were new customers.
        Moreover, Ex-Im Bank indirectly benefited tens of thousands
    of other businesses. Last year, as the private sector banks
    withdrew, we moved decisively to assist U.S. exporters, thereby
    protecting U.S. jobs.
        In considering Ex-Im Bank's program budget, it is important
    to reflect on experience. Based upon my 38 years in the
    investment banking world and living through eight bear markets,
    I am confident there will be a recovery in the developing world
    and these countries will re-emerge as important markets for
    U.S. exports.
        The global financial crisis has resulted in an
    unprecedented credit crunch in the developing world. This is
    the major factor preventing recovery. In 1996, nearly $200
    billion in loans were made to developing countries. Most were
    initiated by private financial institutions. This year, it is
    projected to be about $17 billion. This extraordinary decline
    has made it very difficult for developing countries to purchase
    U.S. goods. While Ex-Im Bank can never replace the private
    sector, we can play a critical role in keeping trade flowing
    and encourage private lenders to remain engaged. Ex-Im Bank was
    able to fill some of this gap.
        If you look at the last chart, chart number 3, for just a
    brief moment, you will see what is a major theme throughout our
    presentation, and that is the private sector credit flows to
    the developing world dropping from $200 billion down to about
    $17 billion. At the same time, our authorizations went from a
    little bit less than $12 billion up to a little bit more than
    $14 billion from 1996 through 1999. As you can see, Ex-Im Bank
    was able to fill some of the gap.
        Much of our success comes from short-term programs for
    small business, export credit insurance and working capital
    guarantees to help produce exports. For fiscal 2000, we
    estimate these two programs will total respectively about $4.7
    billion and $850 million compared to $4.1 billion and $650
    million in fiscal 1999.
        Ex-Im Bank is playing a critical role in Asia and
    throughout the world. It is worth taking a moment to look at
    what we did in Korea last year. In 1997 Korea purchased $33
    billion in goods and services from the United States. Last
    year, purchases declined to approximately $15 billion.
        When Korea's economy started to collapse, Ex-Im Bank
    responded effectively with a short-term insurance program
    thatfacilitated more than 2,400 transactions in an 8-month period
    compared to barely 50 transactions in all the prior year. This support
    also encouraged the private sector to maintain at least a modest
    presence during this difficult period.
        In Brazil, which I visited in November, Ex-Im Bank reopened
    in the public sector; and recently, we offered a $1 billion
    short-term insurance program.
        In Russia and the New Independent States, Ex-Im Bank has
    been a pioneer in helping open markets for U.S. goods. Since
    August we have not approved any new transactions in Russia, but
    despite current economic difficulties, we are cautiously
    hopeful that there will be opportunities for American exporters
    in the future.
        Sub-Saharan Africa is another region that holds
    opportunities. Last year, I was the first Ex-Im Bank chairman
    ever to visit sub-Saharan Africa. With the help of our African
    Advisory Committee, chaired by former Representative Floyd
    Flake, we are determined to increase exports to Africa.
        The global crisis has impacted Ex-Im Bank's portfolio. We
    have approximately $1.1 billion in workouts. Fortunately, there
    is significant collateral and we are very closely monitoring
    these loans to eliminate or minimize losses.
        In order to achieve our program objectives, it is critical
    to increase the Bank's administrative budget to support four
    areas crucial to our mission: one, redeploying staff in key
    countries so that Ex-Im Bank can compete with other nation's
    export credit agencies and help U.S. exporters meet foreign
    competition; two, staff training; three, expanding outreach to
    small and rural enterprises in keeping with our congressional
    mandate; and four, improving technology to automate our short-
    term insurance program to streamline case processing. This
    budget is essential to accomplish what the Congress has asked
    us to do, to keep American exporters competitive.
        To do this, we must be more responsive to our customers. At
    the Bank we often say we not only have to sell the buyers, but
    we also have to sell the sellers. Internationally, we must make
    our programs known to more potential buyers and domestically we
    must make more businesses, banks and other lenders aware of our
    programs. Although the U.S. economy is strong, one of our weak
    links is exports to the developing world.
        Finally, I must acknowledge how well Ex-Im Bank's talented
    staff is responding to challenges in formulating new ways for
    the Bank's programs to sustain U.S. jobs.
        I am pleased to answer any questions. Thank you.
        Mr. Callahan. We thank you, Mr. Harmon. With your
    indulgence we are going to hear from all three of our panelists
    today and then permit questions.
        [The statement of Mr. Harmon follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Callahan. We will next hear from Mr. George Munoz.
        George, if you would take this seat. Mr. Grandmaison, you
    can come on and sit at the table, too.
        This is George Munoz, the President and CEO of OPIC, the
    Overseas Private Investment Corporation. George, we will submit
    your entire statement for the record and ask you to abbreviate
    it if possible.

                         Mr. Munoz's Opening Statement

        Mr. Munoz. I will, Mr. Chairman. Thank you so much,
    Congresswoman Pelosi and members of this subcommittee; I am
    very pleased to be here.
        I am happy to report, Mr. Chairman, that OPIC is working
    very closely with of TDA, with Jim Harmon of Ex-Im and Joe
    Grandmaison TDA. We have a strong working relationship of which
    I am very proud. Because I am interested in addressing any
    issues or questions you may have, I will take only a few
    minutes to highlight the points in my written statement that
    are worthy of special note.
        Mr. Chairman, I set out four priorities for our agency.
    High among them was being prudent with our exercise of the full
    faith and credit of the U.S. Government. Second, we want to
    respond to the needs of the American business community as it
    attempts to bring capital and skills to developing countries
    and emerging economies, primarily when it is in the interest of
    the U.S. Government to bring development and stability to
    strategic regions of the world.
        Thirdly, we want to expand our reach to the U.S. small
    business community. Lastly, we want to remain self-sustaining
    and relevant by being a high-performance organization striving
    to have the best in people, products and our systems.
        Mr. Chairman, I would like to touch upon five points which
    will help this committee continue its support of OPIC. First, I
    can confirm that the agency for the 27th consecutive year
    operated at no net cost to the taxpayer, where our revenues
    were greater than our expenditures, including our setting aside
    of reserves against any potential claims or losses.
        Second, for this year and for the coming year, with your
    help, we will respond to the special areas of needs, including
    those in Africa, Central America, and the Caspian Sea energy
    development, and, throughout all this assistance, we will do it
    in a manner that supports environmentally sensitive
    development.
        Thirdly, Mr. Chairman, this committee and other members of
    the Congress have asked us to demonstrate the positive impact
    of our agency and programs, not only on the developing
    countries but the impact on our own country. The most recent
    review of actual performance verifies OPIC's expectations of
    the positive impact on the U.S. economy.
        To more fully understand how many U.S. businesses are
    indirectly participating in the global economy because of
    OPIC's support, we have been working to help identify for
    public release suppliers from all 50 States to OPIC-supported
    projects. We have identified over 1,000 suppliers in the past
    few months alone that have sold over $1.7 billion in goods and
    services in a single year to 125 OPIC-supported projects.
    Nearly two-thirds of these suppliers were U.S. small
    businesses.
        In the written testimony, I give several examples of the
    multiplier benefit associated with OPIC projects. One of these
    examples is in Baton Rouge, Louisiana, where a company has
    identified more than $83 million in goods and services
    purchased in 1 year to support the agribusiness project in
    Ethiopia. These goods and services came from 264 different
    companies in 32 different States of this country, of America.
        As you know, Mr. Chairman, OPIC does not support any
    project that might harm the U.S. economy or will result in a
    loss of the U.S. jobs. OPIC collects and analyzes, both
    geographically and sectorally, the projected U.S. employment
    and associated economic benefits of the projects it assists.
        We have also received State and local endorsement for OPIC
    programs. Recently we received the endorsement of the
    Agricultural and International Trade Committee of the National
    Conference of State Legislatures and also the National
    Association of Counties and U.S. Conference of Mayors.
        I am pleased to report that we are making progress in our
    reaching out to small business. We have developed a system to
    expedite the processing of small business loans and insurance
    requests and have decreased the fees associated with direct
    loans and insurance retainers. Furthermore, it is estimated
    that approximately two-thirds of identified suppliers of OPIC-
    backed projects around the world are U.S. small businesses
    according to newly collected data.
        Fourth, Mr. Chairman, if there ever was a year in which
    OPIC was put to the test as, I am sure, were Ex-Im and TDA, it
    was 1998. As Treasury Secretary Robert Rubin noted just
    recently, the financial crisis of the last 18 months has often
    been referred to in some ways as the most significant financial
    crisis of the last 50 years. And Federal Reserve Board Chairman
    Alan Greenspan also noted the storm coming our way as a result
    of weaknesses in many foreign economies.
        As I have consistently stated, my highest priority for OPIC
    is to have prudent financial management of our portfolio and
    activities. I am happy to report that despite the turmoil in
    the emerging markets, OPIC has stood solid in this midst.
        First, we have just received a clean audited opinion from
    our outside independent auditors. Second, this year I have
    asked, in consultation with our independent auditors, that we
    increase our general reserves so as to lessen any risk of loss
    beyond our reserves in future years. I did this because we can
    afford to.
        Our revenues are up, and I want to make sure that our
    reserves are also up. Yet, our recovery rates remain high and
    our portfolio is performing well.
        I know you and your staff are interested in OPIC assessment
    and exposure in certain countries of the world including
    Russia, Indonesia and Brazil. My written testimony touches upon
    these countries. Briefly, I can assure this committee that our
    portfolio remains strong in each of these countries. There are
    some potential claims, but there may be ways to limit or
    eliminate them.
        Last, but certainly not least, Mr. Chairman, I would like
    to formally request that Congress authorize OPIC to use $35
    million from its user fees to cover administrative expenses and
    $24 million, also from OPIC's own funds, to finance its credit-
    related programs. OPIC collections in fiscal year 2000 will
    continue to exceed uses and will result in a net budget
    contribution of $204 million.
        I would like to make note, Mr. Chairman, that this is the
    first time we have broken over $200 million in negative budget
    authority and negative budget outlays, which will help this
    committee fund other important programs.
        OPIC's overall budget request is down. For fiscal year
    2000, the $24 million request for credit programs and $35
    million for administrative expenses represents a decrease of
    more than $25 million, or approximately 30 percent, from the
    amount approved just last year. The decrease really is
    attributable to the decrease in credit, funding. Part of this
    reason for this is because we have perfected and fine-tuned our
    credit funding mechanism and we have found some efficiencies
    there.
        Our administrative budget is going up by $2.5 million
    compared to last year. But in reality, when you look at how
    much we received this year with the additional $2.1 million we
    received for Y2K, with the support of this committee and its
    staff, we really are operating this year with approximately
    $34.6 million. So by asking for $35 million, our increase is
    quite small.
        In conclusion, I would like to say that the Overseas
    Private Investment Corporation has fulfilled its statutory
    requirement to operate on a self-sustaining basis despite the
    challenging global financial conditions. We look forward to
    continuing to help American companies compete in the global
    economy while supporting development and economic stability in
    areas of strategic U.S. interest.
        Thank you, Mr. Chairman and members of the subcommittee for
    your support of OPIC. We look forward to answering any of your
    questions.
        Mr. Callahan. Thank you, George.
        [The statement of Mr. Munoz follows:]

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        Mr. Callahan. Mr. Grandmaison, the Director of the U.S.
    Trade and Development Agency.

                      Mr. Grandmaison's Opening Statement

        Mr. Grandmaison. Mr. Chairman, thank you for the
    opportunity to be with you. I would ask that my remarks be
    submitted for the record. I might make just a few points,
    taking your lead, to get to as many questions as possible.
        As you know, TDA's role is to provide early project
    planning assistance money for capital infrastructure projects.
    How are we doing is the question. To answer that question, I
    would like to refer you to the performance goals and
    measurements that our agency has adopted. The most important
    one is the export multiplier, that is, for the amount of money
    that we invest, how many exports do we facilitate?
        In 1993, the ratio was 25 to 1. For every dollar, $25
    facilitated exports. In 1998, I am pleased to report it is now
    32-to-1, a sizable increase. We have now been able to identify,
    since the agency began, $12.3 billion worth of exports we have
    facilitated. A good example, as my colleague George Munoz
    mentioned, is a project that involved a Baton Rouge company. In
    that case, TDA had made an early cost-share investment with
    that company to develop that particular project.
        The hit rate is the second measurement that we use. In
    private industry they say that when they do feasibility
    studies, if they get 1 or 2 successes out of 10 attempts, that
    is considered good. We are pleased to say that we are
    maintaining our 1 in 3 average.
        We also don't invest in projects that will go forward
    irrespective of our involvement. It doesn't make any sense. If
    a project is going to go American, regardless, then we
    shouldn't be putting taxpayers' money into it.
        What we do is, we invest in projects that, by
    participating, by providing that U.S. Government endorsement,
    of a project, brings additionality and makes it more likely
    that that project becomes successful.
        Small business is one of our primary targets; 60 percent of
    the companies we work with are small. One-third of the budget
    that we have allocated to companies goes to small businesses.
    The only way to maintain those averages is by continually doing
    outreach as much as you possibly can.
        You have to keep in mind, we are a 41-person agency. But we
    do everything we possibly can to do what you all challenged us
    to do, and that is, to take the program out of the Beltway and
    bring it to wherever we possibly can, involving more companies
    around the country.
        A good example of that is, the beginning of next month, we
    are doing a Southeast regional outreach seminar in Florida.
    Normally, we have done that here in Washington. We decided that
    did not make sense; so we are trying to do it on a regional
    basis. If that is as successful as it appears it is going to
    be, we hope to continue doing that.
        Targeting sectors. A couple of the points that we have
    learned is that in the feasibility studies that we finance, we
    are trying to aim at the high-tech end of any of the projects
    we are involved in. The reason is that in today's world, as it
    becomes increasingly competitive, i.e., where the products are
    manufactured, if there is a high-tech piece to a project, then
    we know it is going to go American. It is that simple. Whether
    it is the WAAS technology, having to do with satellite-based
    technology, or SCADA systems for an energy project, it doesn't
    make any difference. If you can move it up so it is more high
    tech, then we are going to get exports from it.
        Congressman, you mentioned the Caspian region. We are very
    pleased and proud with what we have been able to do. It all
    began with a major conference last May in Istanbul where we had
    700 attendees. We have invested in five pipelines in the
    region. We continue to work with all of the governments in the
    Caucasus.
        The next step is, our three agencies, for the first time
    have developed a business development team, working out of
    Turkey, aimed especially at the Caucasus region.
        One of the things we are trying to do is not to aim our
    efforts exclusively at the question of pipelines, but on making
    U.S. companies more aware of the opportunities that will come
    about because of the pipelines, whether it be wastewater
    treatment facilities, airports, or highways.
        Now, towards that end, once again our three agencies are
    cooperating on a U.S.-Caspian ambassadors mission to the United
    States. We are going to use our U.S. ambassadors to bring U.S.
    companies together to explain that this is a region that is
    beginning to happen, and they have to get in on the ground
    floor. If they don't, by the time they pay attention to it,
    when they go to the caspian region, people will be speaking
    French and German. So it makes a lot more sense for them to get
    involved now.
        Perhaps the most dynamic change in our program has been the
    change from working on public sector projects almost
    exclusively 10 years ago to private sector projects now. In
    1990, only 10 percent of our projects were private sector
    projects. Because of the changing dynamics around the world, I
    am pleased to say that in 1998, almost 50 percent of the
    projects we invested in were private sector projects. This is a
    major dynamic that has changed, and we are attempting correctly
    to do whatever we can to further facilitate it.
        In terms of regions, Africa has been mentioned several
    times. If you will forgive me, I think TDA has an exceptional
    program in Africa. It is the region of the world that, for us,
    is growing most quickly.
        Once again, our three agencies cooperated in financing a
    country manager from TDA who, for 90 days, went to
    Johannesburg, and worked out of the Department of Commerce's
    office. He conducted business development efforts in the sub-
    Saharan countries, something we had not done before. It was
    cost effective because, rather than going in and just talking
    about TDA, he could also talk about OPIC and Ex-Im.
        As a result, whereas last year the regional allocation for
    Africa, was invested by the end of June, this year by the end
    of March our regional allocation will have been invested. But
    that is good. We are finding good projects, a great deal of
    U.S. interest and we are obviously doing everything we can to
    follow through.
        In conclusion, Mr. Chairman, the recommendation from the
    administration is that we get a modest increase that will bring
    us up to $48 million. We realize there are always a great many
    pressures on the committee in terms of the decisions it has to
    make. We respectfully make the commitment to you, as I have
    each year that I have been here, that whatever the funds are
    that you allocate to TDA, I promise you, with the quality staff
    that we enjoy, we will do everything we can to meet your
    continued confidence.
        I thank you.
        Mr. Callahan. Thank you, Mr. Grandmaison.
        [The statement of Mr. Grandmaison follows:]

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                                REAUTHORIZATION

        Mr. Callahan. One thing I guess we should ask all three of
    you with respect to reauthorization problems. I have forgotten
    what we did last year with respect to--I know we reauthorized a
    2-year period for OPIC. I am told, for TDA, 5 years; and Ex-Im
    Bank, 4 years. I guess we could look at OPIC.
        Mr. Munoz. Mr. Chairman, we are asking for a 4-year
    reauthorization. We are very hopeful that the Congress will see
    that that is a good time frame for us.
        Mr. Callahan. I don't know if we can go 4. I certainly
    would support it. I don't think, however, we can risk the
    International Relations Committee bringing this issue to the
    floor. It has been tried in past years and put us in a very
    difficult position, having to reauthorize against the wishes of
    the House. We don't want to go through that again.
        I don't know if we can go 4, but I will talk to Ben Gilman
    and see.
        I think we ought to at least get you past the election year
    cycle of having to go to the floor and argue all of these
    things about corporate welfare and argue against Ralph Nader,
    and some in the House who are running for President who have
    been so vocal against your agencies. So we want to get
    everybody past the presidential and congressional elections. We
    will take a look at that; four years is, I guess, all right for
    you.
        I am also pleased to hear indications of your efforts of
    trying to utilize some of your resources in smaller ventures.
    Four or 5 years ago we saw an indication that some of your
    agencies thought the only thing you were supposed to do was to
    facilitate the building of dams or facilitate airplanes,
    Boeing, for example.
        I am real happy, especially with your numbers, Joe,
    increasing from 10 percent to 50 percent. That is a great
    direction. I shall continue to encourage all of you to utilize
    some of your resources to assist small businesses to expand
    their opportunities overseas and to help the countries actually
    through the small business thing.
        I know in insurance--most people in small business, George,
    don't even think about trying to do business with another
    country because they are so concerned about--they don't
    understand the falling dollars, they don't understand the
    international monetary system, and they are afraid they are not
    going to get their money.
        Mr. Munoz. That is correct.
        Mr. Callahan. If there is an opportunity for you all to
    really expand, even further, into these small projects,
    assisting small American businesses in overseas opportunities,
    I would like to see continued progress in that respect.
        The third question I have today is, briefly, the Y2K
    problem. Do all your agencies feel comfortable with where you
    are and that you will not be experiencing any major problems
    come 2000?
        Mr. Munoz. Mr. Chairman, there are two areas to look at.
    One is just our own operations, and thanks to the support of
    this committee, yourself personally, for our Y2K funding, we
    can report that we are going to be making the time lines that
    OMB has set out. There are going to be some possible phase
    differentials, but we are pretty much on line there.
        The second way to look at it, of course, is our customers
    in our overseas operations and how much that will be affected;
    that is pretty much outside our control. I think there are some
    good efforts being made by the World Bank, IMF and other
    international bodies, to bring attention to this issue. But we
    are in touch with all of our clients to make sure that that is
    a high priority that they are looking at.
        At this stage they are aware of it. A lot of it is outside
    of people's control.
        Mr. Callahan. Mr. Harmon.
        Mr. Harmon. I think we are in okay shape. But we worry
    about the same thing George has said in terms of the developing
    world getting up to speed. That will be a challenge; it will be
    a challenge for us, too. Everyone who is dealing with it,
    whether its Indonesia, Russia, or Brazil and so forth will run
    some risk.
        Mr. Callahan. But in your own agencies you feel
    comfortable?
        Mr. Harmon. Yes.
        Mr. Callahan. Joe.

                             COMMERCIAL OPPORTUNITY

        Mr. Grandmaison. We are fine. For every challenge overseas,
    the door opens for a commercial opportunity. Hence, in Bangkok
    on March 29, we will be having 50 U.S. companies meeting with
    banking sector project sponsors so that they can help solve
    their problem by buying U.S. equipment.
        I don't want to seem tawdry about identifying the
    commercial side of that, but for every challenge, there is
    obviously a commercial opportunity, and we would like to try to
    maximize it.
        Mr. Callahan. Ms. Pelosi.
        Ms. Pelosi. Thank you, Mr. Chairman. Mr. Chairman, in my
    remarks, saying how much I was looking forward to working with
    everyone today, I neglected my sister Nita. We spend so much
    time working together. But how pleased I am that she has chosen
    to stay on our committee where she had plenty of opportunity as
    well. She is a great leader on all of these issues.
        And how blessed we are to have our three witnesses heading
    up these important agencies. You know so much, you bring so
    much experience and interest, and reputation. I think that
    those of us who are concerned about increasing U.S. exports
    abroad and creating more opportunities have to recognize how
    fortunate we are to have the three of you where you are.
        My first question will be to Mr. Harmon, in friendship. As
    you know, we have an overlay. All of my questions to all of you
    will relate to the others. I will take off on a point that Mr.
    Munoz said.

                                    us jobs

        He said OPIC does not support any project that will result
    in the loss of U.S. jobs. Since this is supposed to be about
    the creation of U.S. jobs, I have serious concerns about some
    work that Ex-Im may be doing that may result in, not
    intentionally, the transfer of technology. You don't have to
    answer that right now, but we have talked about it, and I hope
    that we can get some kind of a report back about--especially in
    aircraft financing, that we were not financing the transfer of
    U.S. technology abroad for cheaper labor.

                      AUTHORIZATION TO FINANCE HELICOPTERS

        My first question isn't about that; it is about Turkey. In
    1990, Congress extended Ex-Im Bank a limited authority for
    credits for the sale of helicopters to Turkey and Greece. My
    question relates to that.
        Do you think that the 10-year implementation period for
    this sale and the use of a multiple export license to implement
    it is consistent with congressional intent?
        More generally, do you think the Ex-Im Bank should be
    involved in the sale of military equipment?
        Mr. Harmon. Well, thank you very much.
        In 1990, Congress enacted very special legislation
    authorizing this specific sale. The legislation provided Ex-Im
    Bank with the authority to approve it. This approval expires in
    July of 2001, so the support is available for almost 11 years.
    Ex-Im Bank authorized slightly over $1.1 billion to support the
    sale of helicopters to Turkey. To date about $350 million of
    those helicopters have now been sold.
        Your question is, did I think that it was the right thing
    to do back in 1990.
        It is hard for me to say since I was not at the Bank when
    this particular decision was made.
        Ms. Pelosi. No, no, no. Do you feel that the ongoing
    implementation of this sale is consistent with Congressional
    intent?
        Mr. Harmon. We were for a time not authorized to finance
    military equipment with only one exception, anti-narcotics
    exports. Some years later, as you know, there was a dual-use
    provision that allowed Ex-Im Bank, with the scrutiny of the
    State Department to finance some equipment that might have
    dual-use capability. Since 1990, however, Ex-Im Bank has not
    financed the sale of military equipment.
        Ms. Pelosi. You are saying now since 1994 Ex-Im has had the
    authority to finance so-called ``dual-use items,'' that is,
    defense articles and services authorized, so long as they are
    nonlethal and primarily used for civilian use.
        Mr. Harmon. That is correct.
        Ms. Pelosi. In 1996, using this authority, Ex-Im authorized
    the sale of helicopters to the Indonesian army for its supposed
    role in helping develop Indonesia's rural areas. No deliveries
    have taken place to date for financial reasons, but it has been
    authorized by Ex-Im.
        Can you tell us how the use of this authority was justified
    in this case and what role the Indonesian army will have in
    rural development? How do you justify that?
        Mr. Harmon. This particular authorization also took place
    prior to when I arrived at the Bank. However, all dual-use
    decisions are reviewed by the State Department. We look to the
    State Department for their consent and comment on financing any
    such items.
        So I think, as we did last year in the vehicles that were
    sold to Turkey, they very carefully reviewed it and came to the
    agreement that the color coding some vehicles they could
    identify the use for civilian purposes as opposed to military
    purposes.
        The helicopters, back in 1996, were obviously reviewed by
    the State Department. It was approved, it was authorized; no
    action has been taken since that time. I would have to go back
    and look at the State Department's comments to us back in 1996
    to give you any further comment on that.
        Ms. Pelosi. Thank you. I am concerned about this high
    concentration on aircraft and perhaps military, albeit dual
    use. If we are increasing funding in those areas, how would we
    be able to increase funding in emerging areas like Latin
    America and Africa, if we are diverting money to these other,
    not original intentions of the Ex-Im Bank's charter?
        Mr. Harmon. I will have to come back to you with a number,
    but I believe that the percentage of funding for these dual-use
    transactions has been very small. I cannot remember more than
    two dual-use cases in the past year and a half that I have been
    there. Maybe I have missed one or so, but I will come back with
    some numbers.
        It is relatively modest in comparison to our overall
    program funding, in fact, less than one percent. As I said,
    these cases are very carefully reviewed by us and by the State
    Department. In fact, when we have questions ourselves, we pass
    it back to the State Department to ask about it.
        [Clerk's note.--See attached for list of all dual-use cases
    authorized since the program's inception.]

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        Ms. Pelosi. I have so many questions, Mr. Chairman, but
    since I have gone down this path, I will just finish because I
    think my time is up.
        How would you describe the utility of State Department
    assessments? Would you describe them as thorough and adequate?
        Mr. Harmon. Yes. I feel the State Department does a very
    satisfactory job in reviewing these matters and responding to
    us. They attend every one of our board meetings; and in
    preparation for these meetings, they review every single matter
    and ask questions whenever necessary. In addition, they are
    constantly following up and reviewing matters with us, and we
    are discussing it with them.
        So we have very close coordination with the State
    Department. I cannot remember a board meeting, and we have them
    every week, where they have missed. In fact, over the year and
    a half that I have been there, I don't believe they have missed
    one.
        Ms. Pelosi. So many questions, so little time. We will have
    another round I hope.
        I do want to say that most of my other questions relate to
    questions we have talked about before. We don't want to lose
    U.S. jobs, we don't want to degrade the environment, we don't
    want to violate people's human rights, we don't want to equip
    countries with so-called dual use or other military equipment
    to develop rural areas that they are actually using to violate
    the human rights of their people, be it Turkey, Indonesia or
    wherever.
        I will submit questions to that effect for the record if we
    don't have another round. Thank you again, Mr. Munoz, Mr.
    Harmon and Mr. Grandmaison.
        Mr. Callahan. Mr. Packard.

                               program evaluation

        Mr. Packard. Thank you. I appreciate your appearing before
    this subcommittee.
        There is a lot of money that flows through agencies like
    yours to a variety of countries. We see too many instances
    where it goes to the wrong people and to the wrong places and
    doesn't get to the projects and the programs it is designed to
    do. They are good programs, we support them, we support what
    you are doing. What have you done or what is your mechanism to
    make certain or to evaluate whether the money is reaching the
    places that you want it to reach and not going into the
    corruption, graft and other problems that we see in some of the
    countries that we are trying to serve?
        Mr. Harmon. Who are you directing the question to, sir?
        Mr. Packard. I would like to hear from the Ex-Im Bank
    particularly, but maybe OPIC as well.
        The Ukraine is a good example. Russia is a good example of
    my concerns. We want to support the programs that you are
    sponsoring, but we want it to get to where it is doing what you
    want and we intend it to do.
        A good example are the tractors in the Ukraine and so
    forth.
        Mr. Harmon. I will start. Firstly, it is important to note,
    that the money never leaves the United States. Most people
    don't realize that. The money never leaves the United States;
    equipment leaves the United States. So what we are doing is
    either guaranteeing a U.S. bank, which in turn makes a loan to
    the foreign buyer. This loan then pays the U.S. exporter that
    advances the equipment. Ex-Im Bank then guarantees to the U.S.
    bank that the foreign buyer will pay. If the foreign buyer
    defaults at any point in time, we would have to make payment to
    the U.S. bank. Ex-Im Bank can also make a loan to a foreign
    buyer, which then pays the U.S. exporter for the product being
    shipped.
        But, I cannot emphasize enough that the money never leaves
    the United States. It is just the product that is ordered and
    financed under our short, medium-, and longer-term programs.
        Now, on Ukraine, there is a problem for us. Clearly, we
    have supported increased use of some financing for agricultural
    equipment for farming. We are well aware that there have been
    some questions. However, prior to approval of this transaction,
    we discussed, with the State Department the proposed use of the
    equipment by, quote, ``government-owned farming.''
        Where we could, we have tried to encourage the people in
    the Ukraine, as well as other countries, to try to get the
    private sector involved. However, in the Ukraine, there is very
    little private-sector activity so access to that equipment by
    the private sector is very limited.
        Secondly, we were able to persuade certain U.S.
    manufacturers in this case to create a distributor network in
    the Ukraine that would be privately owned. As a result, there
    is no so-called ``public ownership'' there.
        Finally, in conjunction with the State Department we are
    constantly pressing these issues of greater privatization, and
    private sector involvement in many areas in the Ukraine,
    including state-owned farming.
        But, there is a problem; and we are trying to do what we
    can to encourage privatization. In the end, however, we have to
    make decisions based on the creditworthiness of the
    transaction, assuming it doesn't violate our environmental
    policy. Because if we don't support the U.S. exporter's sale,
    it will go forward from a foreign competitor in another
    country.
        Mr. Munoz. OPIC has several mechanisms in place to avoid
    even the risk of having money being leaked out from the project
    into the wrong hands or someone OPIC has not already reviewed
    and done some due diligence.
        First, we only deal with the private sector. We team up
    with American companies in order for them to come into these
    countries. Secondly, our financing projects, where we are
    lending money, we do project-finance. That is, we are not
    lending money to parties; we are lending money to a project.
    And we must first see and review and approve the use of funds,
    and all of those funds must in fact be put in the project.
        We also require everyone to sign on to the Foreign Corrupt
    Practices Act, making sure there is no funding of money on the
    corruption side. We make heavy use of the U.S. agencies,
    including our U.S. embassy, CIA, Treasury Department and others
    to help in our due diligence for a specific project.
        Because we deal with the private sector in these project-
    finance deals, there are many safeguards to avoid having money
    go to the wronghands, or for the wrong reasons, that we are not
    aware of.
        Mr. Packard. I think the committee would be just as anxious
    that the private sector company not be bilked in their
    involvement either, and I don't know what you are able to do to
    protect the private sector. We offer our vehicle which brings
    the private sector into this whole process, and then to walk
    away and leave the burden upon them to absorb any corruption
    problems that result is not a good idea either.
        Mr. Munoz. I agree, Congressman. The reason why, and I am
    sure this is true for Ex-Im and TDA, is when we put on our
    stamp of approval and team up with the private sector, we do
    not do so automatically. We do so after doing due diligence and
    assuring ourselves that the project and the sponsor are doing
    the right thing.
        Mr. Packard. 2 or 3 years ago we brought this up and have
    discussed this almost annually. I am not sure it has gotten any
    better, and that is the reason for the question. And I hope you
    are alerted to the fact and are always aware of the fact of
    that scenario where we want the money to do what it is intended
    to do and not get sideways into someplace else.
        Mr. Callahan. Mrs. Lowey.

                             world bank activities

        Mrs. Lowey. Thank you, Mr. Chairman. I too welcome this
    distinguished panel. And I wanted to follow up on Mr. Packard's
    statement.
        We are very concerned about reports in the New York Times
    and elsewhere that the World Bank has really faulted itself on
    its lack of due diligence with regard to cronyism, political
    repression, et cetera, in Indonesia. I appreciate Mr. Munoz's
    comments on the matter, and I won't pursue that question
    further.
        I just want you to know that, from my perspective, this is
    a really key issue. Although I have been a very strong
    supporter of investments in Russia and in developing nations--
    we talk about going back into Russia again, and I am not
    convinced that is the right thing to do now. As much as I
    support strengthening the economy and strengthening the lives
    of the people, I haven't been convinced that we have been able
    to deal with the rampant corruption that is there. So I would
    just like to mention that as a general statement.
        Secondly, there have been some comments on the Caucasus. We
    went to Azerbaijan and Armenia and traveled in the Caucasus,
    and I have been concerned, frankly that even though we talk
    about helping small businesses, and there have been increasing
    activities with small businesses certainly in the Caucasus and
    Azerbaijan, I am not convinced that the large oil companies
    need our help. But they seem to get it all the time.
        I remember my discussion with Conoco when we were in
    Russia--they get our help. And, yes, I know the arguments that
    if we don't do it, someone else will. But I just want to
    emphasize again that the small businesses that come to me in my
    office don't have the foggiest notion of how to get involved
    with most of our export agencies. And this is absolutely
    critical because, frankly, the Texacos and other oil companies
    will do well without us. They are in my district, and I support
    all of their good work and their exports. So I want to
    emphasize again what our chairman has said.
        I want to emphasize to Mr. Harmon, a good friend from New
    York, that I would be interested in following up in
    conversations with you about what you see as the importance of
    going into Indonesia and making sure that market survives.
        But how do you do that and avoid the pitfalls that the
    World Bank has found? Mr. Munoz has commented on that. I think
    this is really so key, because although we are assisting the
    private sector, we need to ensure that this private sector
    doesn't contribute to the repression in East Timor, and the
    corruption. Although our companies may have the transparency we
    require, it is very difficult to ensure that the Indonesian
    government and companies follow suit.
        Perhaps you can comment on that.

                                   indonesia

        Mr. Harmon. Yes, thank you very much. I do follow Indonesia
    very closely. I have just recently returned from Indonesia
    where I visited several of our buyers as well as government
    officials.
        We have also talked to the World Bank as well as met
    several times with IFC and World Bank officials on Indonesia.
    It is a subject of concern. We are monitoring it closely. In
    fact, we are sending a team there next week to look at a number
    of things.
        One of the things we are trying to do is to push very hard
    to get a restructuring or rescheduling of Indonesian debt that
    existed in some of the troubled private sector companies. We
    are seeking a fair and equitable resolution of this debt. So
    far, we have yet to see that progress.
        Debt problems all over the developing world concern me.
    But, I think with the World Bank and IMF efforts, as well as
    our work and the work of the other export credit agencies, we
    have brought to bear in Indonesia that a new program may well
    work better in terms of treating contractors fairly. That is
    the first step in the local recovery program. Once you treat
    contractors fairly in a restructuring or rescheduling, you will
    find that new capital will come back into Indonesia someday.
        We have carefully reviewed the pending Indonesian elections
    with the State Department, and we are cautiously hopeful. In
    fact, we asked the State Department toorganize an interagency
    meeting to review the Indonesia situation. At this meeting, which took
    place 2 or 3 weeks ago and consisted of at least 20 people, they
    reviewed the elections coming up in June, the spin-off of East Timor,
    as well as the whole business sector, and the country's overall
    economic situation.
        Therefore, the Indonesian situation is being very closely
    monitored. It doesn't mean that we have solved all the
    problems. Ex-Im Bank has some significant exposure long term in
    Indonesia, which we follow very closely and are looking at.
        We have not done anything for a year, but I would guess
    that we would gradually start to do new business in Indonesia
    in the months or in the year ahead, because I think they will
    recover in spite of those problems. But, again this situation
    is being very closely monitored, not only interdepartmentally
    in the United States government, but also by the World Bank,
    IMF, and IFC.
        Mrs. Lowey. Thank you. Do I have time for a question on
    OPIC?
        Mr. Callahan. You can have time for anything you want.

                             ENVIRONMENT COMMITMENT

        Mrs. Lowey. I just want to thank you, Mr. Munoz, for your
    commitment to projects that have been very sensitive to the
    environment, and we have noticed the progress on that.
        I have been interested in how you would encourage your
    counterparts in other countries to make the same commitment to
    the environment that you have. And I am also very interested in
    how OPIC monitors compliance with worker rights standards in
    the project it supports.
        Mr. Munoz. Thank you.
        First, because part of OPIC's mission is to make sure that
    we help America compete and bring development to important
    strategic places in the world, we want to make sure that that
    is done in the standard that this Congress sets out as
    appropriate.
        I know that my friend, Jim Harmon here, has espoused
    harmonization as one of the priorities for Ex-Im Bank, and we
    are in line with that. We feel that the rest of the
    multilaterals----
        Mrs. Lowey. Did you say the ``Harmon'ization''?
        Mr. Munoz. Which means it has been Jim ``Harmon'ized''--
    otherwise we would not fulfill our mission to help America
    compete. If we were the only ones looking out for a sensitivity
    to environment and no one else were, then, in fact, Americans
    would be at a disadvantage and we don't want that to occur. We
    believe, and we know that Ex-Im is in line with this, that all
    the agencies, multilateral public agencies, our counterparts in
    Germany, France, are sensitized to the same needs as
    development takes place.
        The bottom line is that the development that needs to be
    taking place in many of these regions of the world, including
    Africa, Central America and the Caucasus, can take place on a
    very environmentally sound basis.
        Mrs. Lowey. I pushed it, so I will wait till the next
    round.
        Mr. Callahan. Mr. Knollenberg.
        Mr. Knollenberg. Mr. Chairman, thank you very much.
        Welcome gentlemen. I appreciate the job that you all are
    doing and the role that is played by each of the groups.
        By the way, let me first of all take a moment just to
    welcome my colleague, Ms. Kilpatrick from Michigan, and then
    also Mr. Jackson from Illinois. Mr. Sabo was on this committee
    before, so he is a returnee. And, anyhow, welcome.

                            CASPIAN SEA DEVELOPMENT

        I want to ask a question about report language that was
    included in last year's bill having to do with Caspian Sea
    development as it applies to pipeline projects. I don't have to
    read that. I am sure you are familiar with the report language.
        But the managers strongly support the efforts of the
    Overseas Private Investment Corporation to encourage
    development of the Caspian oil and gas pipelines as key
    components of an east-west transport corridor, and it goes on.
    What steps has OPIC taken to live up to the language of that
    report at this point, or through the last few months?
        Mr. Munoz. Thank you, Mr. Congressman.
        OPIC has actually joined TDA and Ex-Im in putting together
    a working group and being responsive to the needs of the
    Caspian Sea development. We know that there is discussion of
    not only one pipeline, but multiple pipelines, and OPIC has
    been involved in the working group that the Administration has
    put together to address the needs.
        Just this week, as one example, we had a meeting with
    Ambassador Morningstar, whose job it is to oversee this area.
    Morningstar brought OPIC together with the American contenders
    for building the pipe, and we had discussions at OPIC about
    what possible insurance or financing vehicles that we have in
    place that might be of assistance to them.
        So far we have not enlisted any projects. We are waiting
    until the private sector has thought enough about what their
    needs are, and if there is no other assistance from the private
    sector, but only through our agency, then we would be able to
    be helpful.
        Mr. Knollenberg. Let me jump in there and just express some
    concerns that others have raised about the whole idea of the
    Caspian oil basin being that rich, fertile resource that it was
    early on claimed to be. I know originally it was something like
    200 billion barrels. Now they are talking about maybe 50
    billion barrels. And I am just going torelate some results or
    some information that has come to my attention, and obviously, I am
    sure, to yours.
        Number one, the price of oil. The price of oil obviously is
    not where it was. That may put a little damper on some of the
    enthusiasm. Number two, poor drilling results. This is
    information received from a German newspaper, but this is all
    very recent, too. It says after 9 years of feverish activity,
    the only oil that is being produced onshore and offshore in
    Azerbaijan and Kazakhstan is the oil that has already been
    discovered before the breakup of the Soviet Union. So these
    multiple pipelines might be a great idea, but maybe they are
    out there a way.
        Adding to that you have a leading oil consortium who is
    cutting personnel and deferring development. Pennzoil, I have
    been told, has moved out of the area. I have met with a variety
    of people who have given me the expectancy of what could
    happen, but in light of that, I am wondering do these reports
    coming out as they are, does that change your perspective on
    what kind of involvement that you want to make? You have got
    scarce resources. How far can you go? How far do you want to
    go?
        And, admittedly, we gave you that push last year. But I am
    asking you as a group, and I think, Mr. Munoz, most of this
    goes to your attention, what would you reflect on now after
    looking at some of the more recent information to come out?

                                   PIPELINES

        Mr. Munoz. Congressman, I think those are fair points and
    fair observations. You can be assured that because of the
    reasons you stated, OPIC has made no commitments on insuring or
    financing yet because it cannot. The private sector actually
    has to determine that it will put its money down, that it will
    make the investment, that it will build the pipelines. And once
    the private sector has made that decision on its own, no public
    influence, no money comes into play except the private sector's
    money, then we look at the viability of it, and if it is
    commercially viable, and speaking for all three of us, our
    agency will then be involved. Certainly OPIC has to be self-
    sustaining.
        I can also say that we are not just waiting for the
    pipelines. So far we have not done anything on the pipelines
    other than have very private dialogue with the people involved.
    Based on our broader interests in the region, Azerbaijan,
    Armenia, Georgia, we will address the developmental needs of
    those countries for infrastructure and other projects. We are
    very much involved with that. On that front, I think we are
    making some progress. On the pipeline, for reasons that you
    have stated, no private sector interest has yet stepped up and
    put money on the table.
        Mr. Knollenberg. I think the AOIC, I think that is what it
    is called----
        Mr. Grandmaison. Yes.
        Mr. Knollenberg. I think they have suggested that they
    don't need multiple pipelines; that they could use the one that
    they have got or expand that. That is the one that runs up to
    Russia; is that right?
        Mr. Munoz. Yes, sir.
        Mr. Knollenberg. Would you believe that that is the case?
    Is that a statement that maybe could be challenged?
        Mr. Munoz. I believe everything is still fluid. I believe
    for all the reasons you just stated there are still a lot of
    routes, different economics to it. I think there is still a lot
    depending on more exploration taking place.
        Mr. Knollenberg. I appreciate your response to that,
    because I think that we would say that it should be kind of a
    go-slow approach right now, with conditions being what they
    are.
        There is a Baku-Ceyhan feasibility study. Is that ongoing?
        Mr. Munoz. Yes. Not part of OPIC.
        Mr. Grandmaison. There are actually two studies, neither of
    which TDA was directly involved in.
        Mr. Knollenberg. So TDA has no involvement in that?
        Mr. Grandmaison. In those two studies themselves, we do
    not. What we are doing is working with those countries.
    Interestingly enough, perhaps the most important way we are
    trying to be helpful is to provide them the technical guidance,
    the legal and financial-type advice they need to make some of
    the decisions internally as to how to proceed.
        We are involved in five pipelines in terms of feasibility
    studies. It happens we are not involved in the Baku-Ceyhan
    feasibility studies. There were major differences in the cost
    estimate between those two studies. A great deal of effort has
    been made to bring into accord what was most reasonable. As an
    example, we are working closely with BOTAS, the Turkish entity
    who would be a prime participant in that sort of venture.
        George makes a valid point. We can't cause anything to
    happen, nor should we, in the private sector. It is their
    making profitable business decisions. What we can do and try to
    do is lend assistance and guidance, less so to the oil
    companies, quote-unquote, and far more to the companies who
    have a need to make some very basic investment decisions.
        Mr. Knollenberg. Baku-Ceyhan was just one question, but
    thank you. I think you have answered that in a spirit that
    suggested to me that you are not going to make any commitment
    that goes beyond what you have mentioned, commercial viability.
    Sometimes it goes beyond that. It has to also be politically
    viable, as you well know in that area. But Ithank you all for
    your comments.
        Mr. Harmon. The one thing I would add is that all of us
    believe that there will be some pipelines.
        Mr. Knollenberg. Some?
        Mr. Harmon. There is always a period of time when
    discoveries take place and everybody gets overly enthusiastic.
    As the price declines, it would be natural to get more
    conservative. But as recent as yesterday they announced that
    they awarded two U.S. companies much of the work on a gas
    pipeline.
        Mr. Knollenberg. Gas?
        Mr. Harmon. Gas. This is different. But by being present,
    the work that TDA did in organizing this conference assisted
    the U.S. producers or exporters in a way that they are more
    likely to get the business if it ever takes place. That is
    really what we are there for.
        Mr. Knollenberg. Thank you, gentlemen.
        Mr. Callahan. I have heard the same rumor, Joe, about the
    disappointing initial finding of resources in the Caspian Sea,
    even though they pointed out that the two wells that had the
    most promise turned out dry. I questioned some Azeris on this,
    and they denied that, which naturally they would.
        But we have been hearing about this potential here, and we
    have been hearing the need for this pipeline to transport oil
    out of there, and yet to the best of my knowledge, and, Joe,
    you seem to have confirmed that, there is not any new oil need
    at this point. It is speculation that there is oil there, and
    that the current pipelines through Russia--which we would like
    to see the new pipeline built if there is oil there--that the
    current pipelines are sufficient to handle what oil is there.
        Now, section 907, you all don't have any problem now? We
    have corrected that to the point where you are, all three,
    comfortably operating that?
        Mr. Munoz. That is right.
        Mr. Callahan. Mr. Jackson.
        Mr. Jackson. Let me first begin, Mr. Chairman, by thanking
    you for the very kind words at the beginning of the hearing
    with respect to my service on this committee. I have long
    wanted to serve on this committee and have the opportunity to
    have some impact domestically as well as internationally.
        Let me also take this opportunity to thank the
    representatives from the administration for their testimonies
    today, and I look forward to working with you over the course
    of negotiations to help make your budgets a reality.
        I don't have any prepared questions, Mr. Chairman, but I do
    have a couple of concerns that could lead to questions.

                               Sub-Saharan Africa

        The only new initiative that the President spoke of in his
    State of the Union Address was the possibility for an enhanced
    partnership and trading relationship with Africa, I assume Sub-
    Saharan Africa, since the past Congress passed an African
    Growth and Opportunity Act.
        The greatest barrier to Sub-Saharan African growth and
    opportunity is the enormous external debt that many of the Sub-
    Saharan nations do their very best to make interest payments
    on. I say it is the greatest barrier for Sub-Saharan Africa
    because without their governments' and their ability to make
    investments in their people and in their infrastructure, the
    end result is that they only search for economic and business
    opportunities wherever they can find them. I often argue that
    from my perspective that is the impetus behind the Africa
    Growth and Opportunity Act, which I voted against in the last
    Congress.
        For example, not long from now, the President of Ghana,
    President Rawlings, is coming to the United States on a special
    mission to meet with President Clinton. There is no doubt in my
    mind that over the course of his visit, he will probably seek
    meetings with the three of you to discuss growth and
    opportunity, opportunities for Ghana.
        Ghana, however, is laboring under $7 billion in external
    debt. That is more debt that the private and public sectors
    earn in salaries per year for the entire country. Their entire
    earnings in terms of salary for an entire year doesn't equal
    one interest payment, not one interest payment on that debt.
    And so the President of Ghana comes to the United States in
    that context, seeking opportunities in part to export their way
    out of that dilemma.
        I guess my question is this: If there is going to be
    genuine growth and opportunity for Sub-Saharan Africa,
    obviously the $230 billion debt that many of the poorest
    Nations in the world are laboring under creates an imbalance in
    the negotiations. Some countries where per capita earnings are
    only $500 per year, obviously the burden of that large external
    debt should not fall on some child who cannot find water or
    cannot eat, or whose family lacks basic health care needs as
    well as opportunities to become educated.
        I have a map that I took off of the Internet about a week
    ago. In 1997, it shows enormous growth as a result of our
    government's investment with respect to people, with respect to
    the Internet, and hosting on line. You can see the only
    continent that is not participating in the information age is
    Africa, and mostly Sub-Saharan Africa; 750 million people. And
    if you did a World Wide Web search for Internet sites on
    Africa, particularly those based in Africa, very, very
    difficult to find. It is clear that South Africa is the
    networking capital of the entire continent.
        My concern is this: If Ghana's debt, $7 billion, or
    Mozambique's debt of $10 billion ever ended up on the privateor
    open market and were purchased for pennies on the dollar, it is quite
    possible that, A, a stock owner in New York, a multinational somewhere
    in the world or an institution could end up owning a significant amount
    of a country's debt and therefore most of its vital resources, if it is
    indeed unable to service the debt in the future.
        I am very concerned about what the administration is doing
    to help lift that debt burden off of Sub-Saharan African
    nations and what roles you guys are playing in obviously
    advocating or not advocating the relieving of that debt burden.
        Thank you, Mr. Chairman. Thank you gentlemen.
        Mr. Harmon. I will start on it. Congressman Jackson, this
    is a very good question. It is a concern because you are right
    when you say that with the size of the debt, it is very hard to
    recover.
        In addition, when you have a country like Ghana with its
    debt, the IMF places a restriction on the ability of Ghana to
    borrow additional money to buy U.S. goods and services unless
    it is concessionary, which is a tough restriction on Ghana. In
    spite of that, we have been able to do almost $400 million in
    financing Ghana's purchase of U.S. equipment. As late as
    yesterday, we approved a transaction.
        Ghana is a bit of a bright spot for us in all of Africa
    because of all the business we have been able to do. But, it
    does operate under a tough set of circumstances with the IMF
    agreement as well as with the amount of debt that you referred
    to.
        It is not within Ex-Im Bank's activities to comment on
    this, so to speak. The Treasury Department, and clearly certain
    people at the Treasury Department who work the Paris Club
    restructurings, live with this. We often deal with them
    relative to specific countries and loans that we have made, but
    in terms of recommending what debt forgiveness there may be or
    what reschedulings may take place, it is really the Treasury
    Department that leads the team that goes into those
    negotiations.
        I am somewhat sympathetic personally with the statements
    that you made. As the committee may know, Congress mandated us
    to have an African advisory committee that has worked very
    successfully, in my judgment. It has worked so well that we are
    going to announce an expansion of it from five people to eight
    people.
        This advisory group recommended that the three agencies,
    team together to place someone for a short period of time, 3
    months, specifically over there and he just came back. He is a
    TDA representative who knew both the OPIC's and Ex-Im's
    programs well. It really was a lesson that we, Ex-Im Bank,
    needed to have so that we would put someone in Africa full
    time. This is one of my concerns about our administrative
    budget, because without someone there all the time, we cannot
    do what needs to be done in Africa in terms of the business and
    the support that has to be done.
        So we will find a way to put people there and spend some
    money to help to do more trade with Africa, because of the
    African advisory committee and our internal task force as well
    as our own drive and desire to do it.
        But the big question which you have raised, which is how do
    you arrive at debt forgiveness or even reschedulings, also
    falls within Treasury's area of negotiations. It is a very
    complicated area with a lot of people that have very strong
    feelings on the subject going back a long period of time.
        Mr. Jackson. I accept that, and I have specific provisions
    in my bill that give specific instructions to the Secretary of
    the Treasury to pursue that. My concern is that you provide
    incentives for exports, and you also provide opportunities for
    U.S. corporations to do business in Sub-Saharan Africa.
    Essentially, multinationals are purchasing those countries'
    debt on the open market because they are trying to reduce it
    for pennies on the dollar. Who is then to stand between that
    company and their influence on local politics in any of those
    countries, enforcing labor laws, enforcing environmental
    standards--many of the values that we would like to export as
    well to these nations--in light of the fact that they are
    laboring under this enormous international obligation?
        Mr. Harmon. I don't know myself how much secondary trading
    there is in sovereign debt of these countries, so I am not sure
    how much private sector buying there may be of that debt.
    However, Ex-Im Bank would not be involved in that. All of our
    financing relates to specific exports.
        But, I would add only one thing, and that is we are not
    just in business with the larger entities there. We created a
    very important new effort to try to reach the smaller companies
    there, and I believe we have found one way in South Africa to
    do that, which we will be announcing in a month or so.
        It is not just the larger companies that could be buying
    the debt. I am not aware of how it could be done or how much is
    being done on it, nor am I sure that a lot may be done, but you
    could probably buy some of the debt at discounts. I am not sure
    how much can be purchased, but I am guessing that it is a
    possibility.
        Mr. Munoz. I would just like to comment, Congressman, that
    as the President from Ghana comes over, and as we have heard
    from many of these countries, their number one priority
    interest is to bring about development in their countries, to
    create jobs and opportunities within their own countries. I am
    proud to say that at OPIC approximately $900 million worth of
    investments are taking place and creating jobs, and many of
    these are actually being driven by small business.
        In my written testimony I give an example of how in Uganda
    there is a small farmer producing a natural nontoxic
    insecticide that is working together with a California company
    and a Minnesota company and making profits for all three
    entities, and these are small businesses.
        For the most part, I think some of these countries are
    looking for development and job creation. Our agency only works
    with that aspect of bringing about private sector development.

                                   MOZAMBIQUE

        Mr. Jackson. I respect that, Mr. President, but let me just
    add that, for example, the country of Mozambique spends 20
    percent of its export earnings on debt service, and, therefore,
    the country of Mozambique can't even afford to invest in its
    own health care or its own education system for its people.
    And, therefore, since the per capita earning power of a family
    in Mozambique is $200 a year, when will that family be able to
    buy a United States product? You can't buy a pair of gym shoes
    and a jacket for 200 bucks.
        It is clear that their health care systems and education
    systems are lagging behind, and unless their export earnings
    are also being reinvested in their people, just as our earnings
    are being reinvested in our people--I think the President gave
    a speech a year ago that he wants to put a computer in every
    classroom and computer in every library. I would like to see
    other Presidents of other countries say they want to put
    computers in every classroom and every library, that one day we
    might be able to do business and help facilitate jobs and
    domestic growth here as well as have customers abroad who are
    in a position to buy that.
        And I might add, Mr. Chairman, I am very concerned about
    this, because as I have introduced the Hope for Africa Act,
    which takes on some of these more fundamental problems in Sub-
    Saharan Africa, I have been expecting calls from the White
    House's Congressional Affairs Office with respect to my bill. I
    received none. I have expected calls from a series of agencies.
    I have received none.
        All the calls that I have received are from National
    Security, and they are upset with my bill in part because I am
    beginning to think that once our interests, what these
    gentlemen represent, end up in my Sub-Saharan countries, and
    the families that cannot feed their children or provide their
    family with health care, when they begin to fight against these
    interests or nationalize them, then we have a national security
    problem because the domestic issues were not sufficiently
    resolved, and then we have troop commitment in Sub-Saharan
    Africa.
        That is what the cycle has been historically, and we have
    the opportunity to make a significant change in our approach,
    and I am going to be very sensitive to that in the course of
    our deliberations, and I would like you guys to play some role
    in helping to relieve that debt burden.
        Thank you, Mr. Chairman.
        Mr. Callahan. If I might respond, your map here indicates
    zip codes and IP paths, but if you had a similar chart for
    assistance, and especially for increased assistance to the
    areas of concern you have in Africa, and you specifically
    looked at the Child Survival Fund, you would see this map is
    quite different because we are channeling millions of dollars
    into Africa to eliminate some of the human suffering.

                                DEBT FORGIVENESS

        With respect to debt forgiveness from you guys, I want to
    discourage your involvement in that because we don't want to
    get that started. If Jim Wolfensohn and the World Bank want to
    forgive debt, that is fine, but not in your agencies. Because
    once you start that, you are going to cause the demise of your
    agency. You ought not be advancing money to projects that are
    any risk anyway.
        Mr. Jackson. Absolutely. We are saying the same thing. That
    is not the debt forgiveness that I am talking about.
        Mr. Callahan. And I don't know what the administration may
    approach you on with respect to this year 2000 worldwide debt
    forgiveness, but I think you guys should recognize that your
    agencies are not agencies that should be considering any debt
    relief, because that is not the design. I don't know why some
    of the loans the World Bank and other agencies give to
    countries are even called loans. There is no way they can be
    repaid. They ought to go ahead and call them grants and forget
    about this.
        Ms. Kilpatrick.
        Ms. Kilpatrick. Thank you, Mr. Chairman, for your comments.
    One thing about being the last person is that you have the
    benefit from all that has been said, and I appreciate that.
        I first want to commend OPIC for their negative $204
    million budget authority that makes it possible to do projects
    here. I think that is significant, and I look forward to
    working with you on that.

                            AFRICAN DEVELOPMENT FUND

        Last year OPIC led a proposal for an African development
    fund. What stage is it in? Where are you now, a year later?
        Mr. Munoz. That was done in response to the legislation,
    the bipartisan legislation, that we saw coming out of Congress
    asking that we be more active in Sub-Saharan Africa, in
    particular bringing about some infrastructure development. As a
    result, we initiated a fund using some new procedures that are
    working well.
        We wanted to be very transparent and very straightforward
    as to how we approached it. We advertised with wide media
    distribution that we were taking proposals for anyone who could
    be able to run such a fund or funds for Sub-Saharan Africa;
    that we would commit up to $500 million in the total fund. That
    would notbe all OPIC. We would leverage some amount. We wanted
    the private sector as much as possible to put up that $500 million, and
    less so OPIC, but we would work with the private sector on that.
        I am pleased to say that we received 17 good proposals. We
    set up an internal working committee at OPIC that is primarily
    driven by career employees. They, I know, are concluding their
    work, and I will be receiving the recommendation from that
    committee very shortly. It then goes to our board of directors
    for final approval. So I expect that by this spring we should
    be able to announce the response to that fund for Sub-Saharan
    Africa.
        Ms. Kilpatrick. I have been following it closely from the
    17 proposals down to the 3, and who was in the final search. I
    am very interested in and look forward to working with you on
    that.
        You have an Executive Vice President. I see here Mr. Kirk
    Robertson. I had a chance in December to go on a congressional
    mission, and OPIC was very well represented. I think the
    businesspeople that we took along on that mission under Kirk's
    leadership certainly made your organization fare well, and I
    want you to know that as you send staff out, they represent our
    country. Mr. Robertson did a very fine job for you.
        Mr. Munoz. Thank you.
        Ms. Kilpatrick. And the TDA representative--I don't want to
    mispronounce your name. Say it for me.
        Mr. Grandmaison. Grandmaison.
        Ms. Kilpatrick. I was going to say that. That is just what
    I was going to say.
        Again, I appreciate the work of the TDA as well. I have had
    your people in my office as well, and they represented the
    agency well.
        I am concerned that, as my briefing papers state, your
    budget will meet only one-third of the need, whereas last year
    it met two-thirds. Why that difference today?
        Mr. Grandmaison. Specifically about our Africa region?
        Ms. Kilpatrick. Yes.

                                     AFRICA

        Mr. Grandmaison. Well, if you are successful in your
    business development efforts, then there should be no surprise
    that you then get more requests for funding. And of all of our
    regions, I would suggest that the African region is growing
    more quickly than any other.
        All three of us were very pleased with Michael Newell's
    work on behalf of the three agencies there. Part of the
    success, I think, is that we actually have a better program
    outside of South Africa than in South Africa, to be honest with
    you.
        Ms. Kilpatrick. And you have been there longer.
        Mr. Grandmaison. Yes, but also to a great extent, the South
    African economy is so sophisticated that they are competitors
    for a lot of the things that we would like to be involved with.
    But when you go out and you market aggressively, whether it be
    here domestically or overseas, the net result is that you get
    more requests. And as it happened this year, that particular
    region, by the end of March, all of its resources for this
    current fiscal year will be reserved and/or obligated.
        Ms. Kilpatrick. So it is not to be looked at as negative.
    It is a helpful position to be in from your agency's
    standpoint?
        Mr. Grandmaison. It is a great position to be in because
    what it allows you to do is be more critical, if you will, as
    to the projects you invest in. We begin with the belief that
    the job we have is not to shovel out money. It is to invest it
    wisely. And when you get more and better projects from a
    region, that is what you get.
        A good example, as Congressman Jackson mentioned, is the
    Internet question. We had a conference in South Africa recently
    where we identified the 40 best telecommunications information
    technology projects in the 18 countries surrounding South
    Africa, including South Africa. We brought those project
    sponsors as our guests to South Africa to meet with American
    companies to begin working with them on projects to increase
    their level of sophistication when it comes to IT and
    telecommunication projects.
        From that conference we have made six investments already.
    So as you point out, it is a good sign that we are getting that
    demand.

                            LARGE/SMALL INVESTMENTS

        Ms. Kilpatrick. Finally, the Chairman mentioned large
    business and small business ventures in your three agencies, in
    his opening remarks. What percent of your budget goes to larger
    as opposed to smaller ventures?
        Mr. Munoz. We have a direct lending program where 100
    percent of the loans are for small businesses, generally
    anything that is $10 million or less.
        Within our portfolio, we took a screening of all of the
    benefactors for OPIC-supported projects, and two-thirds of the
    suppliers to OPIC-supported projects are small business. Of all
    of our 1998 projects that we did directly, 28 percent are small
    business--that includes if we throw in all of the big
    companies.
        Ms. Kilpatrick. And I can use your definition, $10 million
    or under?
        Mr. Munoz. No. The $10 million and under is for the amount
    of the loans. If they were asking for loans, it was less than
    $10 million. One hundred percent of those who have asked for
    that are small business.
        Ms. Kilpatrick. And that is $10 million and under?
        Mr. Munoz. Yes, sir.
        Mr. Harmon. In the case of Ex-Im Bank, I will start with
    the positive and then the negative. The positive is that 80
    percent of all our transactions are with small businesses; 80
    percent. The negative is that it equals only 20 percent of our
    budget. This is because some of the large transactions involve
    major plants and equipment that are obviously done with large
    companies. Therefore, it will be very difficult to bring the
    dollar figure amount comparable to the amount of the larger
    projects that we finance.
        Ms. Kilpatrick. That is understandable because they are
    large versus small ventures.
        Mr. Harmon. We are growing in our small business efforts.
    But, I will be much happier when it goes beyond where we are
    since we have more room to improve.
        Ms. Kilpatrick. Mr. Harmon, he and I did have a chance to
    meet. I have a constituent who has a plant in Namibia taking
    General Motors trucks. I have a lot of those businesses who
    want to do maybe not that large, but other kinds of things
    involved in that kind of production.
        Mr. Harmon. It is a good plant. I visited it, and they did
    a good job. I hope he is going to do something else. As you may
    know, we talked about it, he is a very imaginative entrepreneur
    who, my guess, will be very successful there.
        We are trying to grow the business there, but we haven't
    done as much as we can. That is why we really need to have
    someone on the ground covering those countries every day.
        Ms. Kilpatrick. And that is what the Congressman and I are
    here for. Thank you very much. Appreciate your assistance.

                                HURRICANE MITCH

        Mr. Callahan. I want to ask a couple of questions. We don't
    need long answers. But OPIC, with respect to Honduras and the
    other countries, the victims of Hurricane Mitch, I don't know
    why OMB has not submitted to us a request for additional
    assistance. The First Lady has been down there, and they talk
    about how horrible it is. The other agencies have been down
    there, and OMB has not requested a cent, and I cannot
    understand why not.
        But I do see that OMB, in the absence of a formal request,
    the staff was recently informed that OPIC would require in
    excess of $2 million for the Central American reconstruction. I
    don't quite understand OPIC's guarantee of reconstruction for
    governmental projects. Just briefly tell me.
        Mr. Munoz. Yes, sir, any additional dollars requested would
    be for our administrative budget to carry out more activities
    and outreach. We would do no government financed infrastructure
    projects. We would work with the private sector that would want
    to do things. Take, for example, the banana plantations that
    were wiped out in Honduras and Guatemala. They are American
    companies, and they are talking to us about what can we do to
    help them redo the plantation and do it on an environmentally
    safe basis and upgrade their standards as long as they do that.
        So OPIC's additional dollar request would not be to
    actually make those loans, and, of course, we don't do any
    grants. It would be to make sure we have sufficient staff
    attention to the demand that would be created for those
    countries.
        Mr. Callahan. Well, for the committee's benefit we haven't
    received any request from the administration for any assistance
    to Central America because of Hurricane Mitch, although there
    has been a lot of talk about it, a lot of hyperbole about it. I
    think the President is planning on going back down there, and I
    think the First Lady is going back again after the Mexico visit
    by the President.
        They have given us indication, as I expressed earlier, that
    they are going to request a supplemental advance payment for
    Jordan in deference to the King, although nothing has come
    forward in the form of an official request. I was of the
    impression last weekend that they were going to request it this
    week. Didn't come, as far as I know.
        But I am really disappointed that our efforts in Central
    America are not getting started, and I think the administration
    should come forward and at least request some partial monies,
    which, it is my understanding, they are going to ask for about
    $900 million. But if they know they are going to need $900
    million, why don't they come forward and ask for $250 million
    in an emergency supplemental now and get started on it? I don't
    understand that.
        But I am sure they have their reasons, but they have not
    yet seen fit to contact me. Maybe Mr. Gilman can enlighten us
    on that before it is over with. I just want to warn you that we
    are probably going to have a bill which they have requested
    that the Jordanian aid, in deference to the King, be handled,
    which is fine with me if that is what they want to do. But I
    don't know why they wouldn't send the request for assistance to
    Central America at the same time. Why give us two bills? And we
    are going to have to offset for all of this stuff anyway. To
    let you know that we are probably going to have some bill that
    at least requests aid for Jordan, and that I am insisting to
    our leadership here in the House that if that is the case, that
    we include the assistance for Central America as well.
        I noticed that there was some reprogramming. I had a
    question in here someplace on reprogramming, the extra TDA
    money, $6 million that was reprogrammed to give you $6 million
    additional authority.
        Mr. Grandmaison. The transfer?
        Mr. Callahan. Yes, the transfer.

                               TRANSFER AUTHORITY

        Mr. Grandmaison. The money has come recently from three
    sources. The Freedom Support money has been as high as $17
    million, where this year we anticipate receiving 6 million,
    ``this year'' meaning fiscal year 1999. I don't want to suggest
    that that is a complaint on my part, the fact is that we are a
    market-driven agency. If we need more, we would go to the State
    Department and make our case and explain how we would invest
    it, and they would try to be supportive.
        In addition to that, we have received money from the SEED
    program for the South Balkan Development Initiative. That ends
    in fiscal year 1999, so in the budget year we are talking
    about, we don't anticipate receiving any transfer money in that
    area.
        And the last one is Bosnia, and once again, thatcommitted
    transfer money ends this current fiscal year, so in fiscal year 2000,
    there may be no commitment and no overall discussion whether any
    additional funds will be transferred to us.
        So that the budget that you have, and the recommended level
    is 48----
        Mr. Callahan. We are going to appropriate a designated
    amount of money. We do that with good deliberations. Now, if
    USAID or someone else is going to start transferring additional
    authority or additional monies to your agency, we would feel a
    little violated by that.
        I will get back with you on that, but we received
    notification of it, but I won't interfere with operations of
    the State Department. But at the same time, if USAID or some
    other agency tells us that they need these billions of dollars,
    and we give it to them, and you tell us that we need these
    billions of dollars, and we give it to you, we give it to you
    and then suddenly they say, we don't need this anymore, they
    are the appropriators. And we want to be flexible, we want to
    work with the administration, but we think you ought to operate
    within the jurisdiction of the monies we gave you.
        Mr. Grandmaison. I can't disagree with that, Mr. Chairman,
    and I can assure you that there is nothing as frustrating as
    trying to get any money from the AID.
        Mr. Callahan. I am sure that USAID would say that there is
    nothing as frustrating as getting money from this committee.
        Mrs. Pelosi I am going to try to wind this thing up in
    time. These people have to have a lunch at the appropriate
    hour.
        Ms. Pelosi. I know they don't like to eat before the stock
    market closes. The 1 o'clock lunch is a great thing.
        Mr. Chairman, unless USAID wants something for the Callahan
    Child Survival Fund, then in that case they have a better case.
    I have a number of questions, and I am trying to put them in
    categories because I am heeding the admonition of my Chairman,
    but I also want to make some acknowledgments of what our two
    new colleagues have said today. I am so glad you are here, our
    fresh recruits, because on this issue of Africa, you said that
    is why we are here----
        Ms. Kilpatrick. Not just why we are here.
        Ms. Pelosi. But in relation to one question, your brief is
    the whole world, but we have certain concerns about areas that
    have not received what we think is what the American people
    would like us to do to help alleviate poverty, create markets
    for our products, promote our values, all in the interest of
    international security.
        And so I am delighted that you are here to ask questions
    about how some of these initiatives that many of us have been
    pushing are working, and so it is, as I said, music to my ears
    to hear this focus. The Chairman, one of his special focuses
    has been Latin America, and that is important to our country,
    too. The Southern Hemisphere, in my view, is by and large
    bearing the economic brunt of the boom that is going on in the
    world and not sharing in the benefits. When you talk about
    Hurricane Mitch, we can talk about debt forgiveness, too,
    because in trying to dig out of the debt, there was a
    catastrophe before the natural disaster.
        These are some issues that while, rightfully so, our
    witnesses testified are not their responsibility, however we
    would hope that nothing that we do loses American jobs,
    degrades the environment, harms the human rights and workers'
    rights of people in those countries, or contributes to the
    exploitation of the people in the region by relocation, again,
    not honoring their workers' rights or the air they breathe or
    the water they drink. These things are all connected. Someplace
    in the administration, such as when Secretary Rubin comes in, I
    am sure we will have a fuller discussion about it.

                                      IMF

        I do want to get back to this labor rights point in some
    specific ways. Again, I will throw into that the IMF as well.
    In here we talk about the IMF and multilateral development
    banks and export finance and bilateral assistance, and we would
    hope that there would be some coordination so that at the end
    of the day we are helping to alleviate poverty not only for the
    well-being of those people, but also because it is in our
    national interest.

                                INVESTMENT FUNDS

        In terms of OPIC, for example, over the past several years,
    OPIC has guaranteed 2 billion in 26 privately run investment
    funds. These funds pay fees and a risk premium. Their rules of
    operation and investment are particularly unknown to Congress.
    What assurances can you give us that these private investment
    operations finance projects in a manner that is consistent with
    OPIC's policies on the environment and labor rights?
        Mr. Munoz. Thank you very much, Congresswoman. That gives
    me an opportunity to state for this committee that we put
    procedures in place so that we are very consistent within OPIC
    that whether it is funds or our insurance or project financing
    that is taking place, that, in fact, they comply with all of
    the worker rights requirements, the human rights requirements,
    as well as the statutory requirements on the environment.
        We wanted to make sure that all those are taking place. We
    have established procedures to ensure that. We are working with
    some funds that have contractual arrangements that were done in
    the past that had not specified full compliance with some
    elements of that. But today, because we are working with those
    funds on a day-to-day basis, we are confident that we are able
    to make sure that they do, and certainly any new funds that
    come forward would have those as a requirement.
        Ms. Pelosi. Could you give us any example of a country
    where OPIC shut down a relationship due to labor rights
    violations?
        Mr. Munoz. Yes, in Korea, for example. Now, we are reopened
    in Korea now, but before we did that, we analyzed all of the
    progress that they have made, and so after assuring ourselves
    that the right steps were being done----
        Ms. Pelosi. That was my next question, about Korea, to the
    extent that the government's commitment was being honored.
        And do you have an assessment of labor rights in Indonesia?
        Mr. Munoz. Some of these countries are difficult. Right now
    in Indonesia, in terms of labor rights, we follow the USTR and
    their determinations.
        Ms. Pelosi. That is another off the USTR.
        Mr. Munoz. They have given Indonesia GSP status. If we are
    assisting a private sector project, we make sure that the
    project adheres to the highest international----
        Ms. Pelosi. So I understand what your standard is. We may
    not agree with it, but in other words you are following the
    GSP. Let me just----
        Mr. Callahan. Let me just let Mr. Knollenberg ask his
    question. Then you can have a third run.
        Ms. Pelosi. Okay.
        Mr. Knollenberg. I will be very brief. All I wanted to do
    is to thank the gentlemen again from OPIC, Ex-Im and TDA. If
    anybody can figure all that out, I am not aware of it. But I
    thank you all for your appearance and your responses.
        I do want to submit some questions for the record relating
    primarily to Michigan and some of your successes there. I would
    like your evaluations of that. Thank you, Mr. Chairman.
        Ms. Pelosi. Mr. Knollenberg, if I may just ask you a
    question. You asked about the Caucasus before. Did the point
    come up that----
        Mr. Knollenberg. Am I on the spot here?
        Ms. Pelosi. Did you raise impact of the price of oil on our
    attitudes there? In other words, I had heard the President say
    because the price of oil has gone down, the leverage that we
    may have had to try to bring Armenia and Azerbaijan together,
    has diminished. Did we talk about the price of oil's impact on
    policy here?
        Mr. Callahan. We talked about it.
        Ms. Pelosi. We did. I will just see the record on that.
    Thank you, Mr. Knollenberg.
        Mr. Callahan. Mr. Jackson, any more questions?
        Mr. Jackson. Mr. Chairman, I don't have any more questions
    at this time.
        Mr. Callahan. Ms. Kilpatrick.
        Ms. Kilpatrick. I reserve the right to submit questions.
        Mr. Callahan. Yes. That is welcome at any time to submit
    questions. We will give you a couple of days to submit
    questions, and we would ask for your immediate response there.
        Ms. Pelosi for the third round.
        Ms. Pelosi. We have three witnesses at once in this little
    bit of time.

                                     China

        Following up on my line of questioning before in terms of
    OPIC, human rights and workers rights, I understand that
    Secretary Albright is going to Beijing on March 1 and 2 and
    that China may be interested in getting OPIC restored when Zhu
    Rongji comes to Washington in April. Is the administration
    considering issuing a Presidential waiver to allow OPIC
    assistance in China? Isn't OPIC still constrained from
    operating in China by section 231 of the Foreign Assistance Act
    prohibiting OPIC assistance to countries not respecting
    workers' rights?
        Mr. Munoz. That is correct, Congresswoman, and we have not
    received any indication. We know that China would like to have
    OPIC open and available in China, but we have received no
    indication that that is being promoted by the Administration.
        If I could supplement my last answer when you asked about
    Indonesia, not only do we make sure that they adhere to
    international workers' rights, specific contract language is
    included by OPIC for the project so that the project actually
    goes beyond even the workers rights that may be recognized
    nationally in that country or the like. We would be happy to
    share the kinds of language that we provide in those contracts,
    but we believe that the projects themselves live up to the
    highest standards.
        Ms. Pelosi. Thank you.

                                  Environment

        Mr. Harmon knows the importance I place on the intersection
    of commerce and the environment. We talked a great deal in the
    hearings and in our office about that. I want to commend at
    this time President Munoz for his work in strengthening
    environmental protection and express my belief that OPIC is
    still not going far enough.
        I am concerned that OPIC's board of directors regularly
    approves projects prior to completion of OPIC's environmental
    assessment and prior to the agency receiving comments from
    NGOs. The public may not provide comments at board meetings and
    is not allowed to attend project discussions and meetings and
    to review the minutes of the board discussion of specific
    projects.
        I want to encourage the track that you are on. I know that
    you are making progress. I want to encourage the development of
    the ideas, mechanisms to allow the public access to the board
    of directors meetings on project specific concerns before the
    vote. Would you consider making available to the interested
    public the minutes to board meetings?
        Mr. Munoz. We would take it under advisement, as long as we
    are in compliance with the rights from the business
    confidentiality aspect.

                                    Vietnam

        Ms. Pelosi. Do you know anything about progress in terms of
    respect for basic workers' rights in Vietnam over the past
    year? Do you have plans?
        Mr. Munoz. We have taken an extensive review of the
    workers' rights in Vietnam. We believe that they have taken
    steps forward to comply with the internationally recognized
    worker rights. So we are open in that country.
        Ms. Pelosi. Mr. Grandmaison, I don't want you to feel
    neglected. It is just that I don't have any problems with what
    you are doing. I would, heeding the Chairman's admonition,
    submit most of my other questions for the record.

                                Hurricane Mitch

        Following up, though, on what the Chairman asked about
    Hurricane Mitch, OPIC has initiated a $200 million facility for
    Central America through a U.S. bank.
        Mr. Munoz. Yes, Congresswoman
        Ms. Pelosi. Can you explain why OPIC is required to use a
    financial institution?
        Mr. Munoz. OPIC wanted to do exactly what Chairman Callahan
    said--act right now. We need to hit the ground running.
    Citibank is an organization that has 1,100 personnel serving
    the Caribbean and Central America region. They have been there
    for literally generations. They are more familiar with the
    abilities of the private sector to generate regrowth, so we
    teamed up with them because of their strength in the region,
    their knowledge of the region. But before we did that, we did a
    due diligence review of what kind of projects they would do.
    They agreed to adhere to the same standards that we would
    require for all the projects that are there, and we are
    basically a partnership, we are teamed up with them. We are not
    leaving them alone in the region.
        We think they will hit the ground running. We think that
    will produce the quickest results and leverage the private
    sector money.
        Ms. Pelosi. That is interesting. I happen to think, having
    visited disasters even before I was in Congress, that one of
    the things we have to do is encourage the private sector to
    have market opportunities there. Debt relief, of course, is
    also part of the economic health of those countries, but to the
    extent that, for example, U.S. companies are going back to
    rebuild their own facilities, I would hope that we are applying
    still the same workers' rights.
        I have met with the banana workers in Guatemala, not on a
    visit with you, Mr. Chairman, but on another separate visit. I
    know some of the problems there. I hope in our assistance to
    these countries and their rebuilding, you mentioned
    environmental sensitivity, but that we would have workers'
    rights considered in there, too.
        I am going to say this honestly, my final question, and I
    will submit the rest for the record. Mr. Harmon, in keeping
    with the thrust that I have had on workers' rights and human
    rights and environment, I again wanted to ask about the Dahbol
    project in India. This project raised a number of concerns
    about human rights abuses associated with projects receiving
    U.S. taxpayers' funds. Another region where this is likely to
    be a growing issue is the Caucasus.

                             Trans-Caspian Pipeline

        I have a little different question than was asked before.
    In light of the oil companies' interest in the Trans-Caspian
    pipeline, it is my understanding that in April of last year,
    Ex-Im approved a $96 million credit for the sale of gas
    compression equipment in Turkmenistan. Then in October another
    10 million from Ex-Im, OPIC, TDA and USAID was approved. The
    Government of Turkmenistan is one of the most repressive
    governments in the world. There is no political opposition, no
    freedom of assembly, no opportunity for public debate. How does
    Ex-Im intend to address human rights abuses in Turkmenistan and
    other countries in the region in light of Ambassador
    Morningstar's promise of U.S. financing for what is expected to
    be a $2 billion Trans-Caspian pipeline?
        Mr. Harmon. I always worry about the last question. But
    before I answer that, if I may have the floor for a minute to
    assure the Chairman that we are very concerned about debt
    forgiveness. We do not offer that. It is essential to us that
    we manage our own portfolio, including debt.
        Mr. Callahan. But a lot of times in Washington, strange
    things can begin to happen, and strange things are beginning to
    take place about the year 2000 the debt forgiveness year. I
    just didn't want you all to dragged into something that would
    not set well with this committee.
        Mr. Harmon. I understand. I just wanted to go on record
    having said how strongly I feel about that subject.
        Mr. Callahan. You tell OMB that, and you tell the Treasury
    Department, too.
        Mr. Harmon. I do, often.
        Congresswoman, I have visited Turkmenistan myself. We have
    had numbers of conversations with them. I am familiar with the
    transactions. I believe the transactions are creditworthy.
        As you and I have talked many times before, the whole
    question of human rights is a foreign policy question so we
    turn to the State Department for handling. We have enough
    difficulty trying to determine what is creditworthy and
    environmentally beneficial. We think they do a very good job in
    terms of communicating with us when they think it is necessary
    for us to do it. We do follow it, as you referred to in the
    India Dahbol project but we rely upon the State Department to
    act on such matters. It is neither part of our charter or
    within our mission to evaluate them, but that doesn't mean I am
    not very concerned about it.
        Ms. Pelosi. I understand. You are telling me what the
    process is, and that is the answer to the question. You have
    your charge, and it spells out certain considerations in terms
    of the creditworthiness and the environment, not human rights.
    You depend on the State Department for that, and that is the
    issue.
        I do want to raise this issue, because I think it is one
    that obviously we will have to talk to the State Department
    about, but it relates to what you do.
        Again, I told the Chairman it was the last question, so I
    will resist every temptation that I have and thank you again
    for appearing.
        Mr. Callahan. The purpose of this hearing today was really
    for them to submit their budget request to us and for us to
    respond accordingly, or for you all to give us justification
    for your request, which you did in your statements. I am sorry
    we had to spend so much time talking about other issues of our
    concern rather than the budget requests.
        Your administrative cost increases are going to be
    difficult. We don't yet have the numbers that are going to be
    allocated to us as a subcommittee, so it is a little premature
    for us to be able to tell you what we are going to be able to
    do. But we certainly will look at your submissions, and we will
    do everything we can to comply at least partially with your
    request.
        We thank you for coming. The meeting is adjourned.
        [Questions and answers for the record follow:]

                            Submitted to Ex-Im Bank

                     Questions for the Record by Mr. Porter

           overseas private investment corporation/export-import bank
        Question. We have heard much about the need for ``meaningful
    participation'' by developing countries prior to ratification of the
    climate change treaty. Disturbingly, I note the continuing growth of
    OPIC and Ex-Im's portfolios not only in thermal power plant projects,
    but also in fossil fuel extraction projects such as oil and gas--
    thereby compromising ``meaningful participation'' by developing
    countries in the short and long term in helping solve the climate
    change problem:
        OPIC and Ex-Im Bank have agreed to release annual greenhouse gas
    emission reporting, but only for thermal power plants. Why do you not
    consider greenhouse gas emissions for other projects.
        Answer. The April 2, 1998 revision to Ex-Im Bank's Environmental
    Procedures and Guidelines states that the Bank is committed to
    increasing its support for projects and products that are
    environmentally beneficial, including those which result in the
    reduction of greenhouse gases. In addition, the Bank's Environmental
    Procedures set forth an initiative whereby it will track the estimated
    amount of carbon dioxide emissions from projects it supports in the
    power sector and, to the extent practical, from projects in other
    sectors that may cause significant production of CO2.
        Thermal power plants were targeted because, by their nature, plants
    that convert energy from carbon based fuels to heat and electricity
    represent the sector that constitutes the main contributors, by far, of
    global greenhouse gas emissions within the set of projects that Ex-Im
    Bank would ordinarily be requested to support. In addition to thermal
    plants, however, Ex-Im Bank's Engineering and Environment Division will
    include the reporting of greenhouse gas emissions from certain projects
    in other sectors, such as cement plants or certain oil field projects
    that flare excessive gas, which inherently produce amounts of
    greenhouse gases that may be significant. Projects in many industrial
    sectors supported by Ex-Im Bank inherently produce relatively small
    amounts of CO2, and Ex-Im Bank's Engineering and Environment
    Division determined that at this time, the tracking and reporting of
    the greenhouse gas emissions from these projects would not be practical
    in that the results would not significantly impact the management of
    global greenhouse gas emissions.
        Question. Will there be a commitment to investment in renewable
    energy to help further the goals of meaningful participation in the
    context of the climate treaty?
        Answer. To underscore our commitment to supporting renewable
    energy, Ex-Im Bank offers an incentive to exporters and buyers of
    renewable energy projects under its Environmental Exports Program.
    Under the Bank's Environmental Exports Program, renewable energy
    projects, as well as thermal power projects which produce less than 400
    grams of CO2 per kilowatt hour of energy produced, receive
    extended repayment terms, capitalization of interest and local cost
    support totaling up to 15% of the U.S. contract price. Ex-Im Bank
    believes, moreover, that it remains the only export credit agency to
    have taken an initiative of this nature to encourage exports of
    renewable energy technology and projects.

                     Questions for the Record by Mr. Forbes

        Question. Can you comment on the impact of the Asian financial
    crisis on the volume of activity at each institution? Has this crisis
    increased costs for US businesses and driven up the amount of
    assistance, advisory and financial, delivered to customers by your
    agency?
        Answer. Short-term.
        As a result of the Asia crisis, demand for short term financing
    support for Asia through Ex-Im Bank's export credit insurance program
    reached unprecedented levels. Specifically, Ex-Im Bank's short-term
    insurance support for U.S. exports to Korea increased from
    approximately $30 million during FY'97 to just over $1 billion during
    FY'98. During 1998, Ex-Im Bank received more than 2,400 applications
    for short-term insurance on U.S. exports to Korea, compared to less
    than 100 applications during 1997.
        The number of inquiries from U.S. businesses regarding the
    availability of Ex-Im Bank support for exports to Asia also spiked
    dramatically in the Insurance Division and in Business Development. The
    demand for this type of information increased so much that Ex-Im Bank
    developed specific fact sheets and created an Asia Hotline to handle
    the volume. In addition, the programs created by Ex-Im Bank for
    specific Asian markets were designed to accommodate a high volume of
    demand for Bank financing in an expeditious manner. The cost associated
    with the creation of these tools were absorbed by Ex-Im Bank (mainly in
    the form of additional staff hours) entirely and were not passed on to
    the customers.
                         medium and long-term financing
        The Asian currency crisis and resulting recession in Asia have
    served to increase Ex-Im Bank activity for term financing in certain
    markets while decreasing activity in other primary Ex-Im Bank markets.
    For instance, Ex-Im Bank activity in Korea prior to December 1997 (when
    the Asian currency crisis engulfed the Korean won) had been generally
    limited to the financing of aircraft as commercial lenders were
    generally willing to provide term financing for U.S. exports of other
    big ticket items. Since December 1997, however, Korean buyers have
    generally been unable to attract funding from commercial sources and
    therefore have turned to Ex-Im Bank funding.
        The situation is the reverse for other major Ex-Im Bank markets
    such as Thailand and Indonesia where the economic recession is much
    more severe and signs of recovery have not yet materialized. In these
    cases, businesses are struggling to stay afloat and are refraining from
    embarking on expansion of manufacturing capacity. Businesses therefore
    have less need for exports of U.S. capital equipment. As a result,
    demand for Ex-Im Bank financing in such markets has declined
    considerably and is not expected to recover until the economies
    recover.
        The crisis increased the cost of doing business in Asia for U.S.
    companies because Ex-Im Bank charges an exposure fee or risk premium in
    order to provide risk cover. Moreover, private sector banks probably
    increased their pricing in response to the higher risks involved.
    However, U.S. exporters presumably passed these additional costs on to
    their foreign buyers. Further, the additional costs incurred also were
    considered to be necessary in making the difference to many U.S.
    companies that would not have been able to conclude these sales without
    Ex-Im Bank support.
        Question. What plans does your agencies have for Russia? Have you
    written off any or all activities with Russia due to its insolvency and
    rampant crime? What might your agency do to assist US companies to help
    lift Russia out of its quagmire? Or, should we force Russia to fend for
    itself?
        Answer. Ex-Im Bank has not publicly changed its policy in Russia
    since the August 1998 financial crisis. The Bank's stated cover policy
    is: open for short-, medium- and long-term public sector transactions
    and for short- and medium-term private sector transactions. In the
    aftermath of the financial crisis, however, Ex-Im Bank has not been
    prepared to consider new sovereign risk or other unsecured exposure
    (and has not, so far, approved new transactions of any kind). This
    policy is consistent with that of the other major export credit
    agencies and is unlikely to change until Russia establishes an economic
    program acceptable to the IMF and G-7, and the economic outlook
    improves sufficiently to warrant considering new business on an
    unsecured basis. The Bank continues to honor existing commitments to
    U.S. exporters by permitting disbursements to continue for transactions
    which had already been approved and documented prior to the crisis.
        Ex-Im Bank has $2.4 billion in exposure in Russia: $1.2 billion in
    outstanding (disbursements less repayments), $739 million is yet to be
    disbursed on approved transactions, and $455 million has been
    authorized but not yet made operative. Almost $1.5 billion in exposure
    is secured by oil and diamond export sales, or under asset-based
    aircraft financing. Virtually all exposure is under the medium- and
    long-term guarantee programs.
        Delinquencies and claims paid to date have been limited to the
    commercial banking sector. Two claims totaling $12 million were paid as
    a result of one bank's failure to pay the guaranteed lenders. Efforts
    to collect from the bank are underway and prospects for recovery appear
    encouraging. Another bank made a partial payment on a November 1998
    installment, and is likely to seek rescheduling of the balance
    outstanding. A third bank was late but ultimately paid a December 1999
    installment. The total outstanding debt involving these three banks
    amounts to $24 million. The remaining $12 million in debt owned
    directly by or guaranteed by five other Russian commercial banks is
    current.
        Prospects for Renewing Ex-Im Bank Activity: Once economic
    conditions warrant, Ex-Im Bank could again move forward with sovereign
    risk lending. The prospects with regard to the commercial banking
    sector are less clear and consequently, it will take longer to
    determine which of the surveying banks in Russia represent acceptable
    credit risk. The demand for Ex-Im Bank financing in the energy sector
    could increase in the future, as a number of Russian oil companies have
    inquired concerning financing under the Oil and Gas Framework
    Agreement. The actual timing and need for Ex-Im Bank financing will
    depend on a recovery of the demand for and price of crude oil.
    Inquiries have been received involving other sectors as well, such as
    diamonds, forestry, and agricultural equipment.
        Question. Could you comment on how your activities in Brazil might
    be impacted if the local economy and currency continue to slide
    downward?
        Answer. As a result of the devaluation of Brazil's currency, the
    ``real'', U.S. products are significantly more expensive. A devaluation
    of 40%, approximately the current level, means an increase in the cost
    of U.S. products in Brazil of more than 65% from its pre-devaluation
    level. The direct effect is reduced Brazilian demand for U.S. products,
    with certain industries, such as the automotive industry, being
    affected more than others. However, this does not necessarily mean
    reduced Ex-Im Bank activity in Brazil. An argument can be made that Ex-
    Im Bank, as a ``lender of last resort'', may see its export financing
    actually increase in terms of U.S. dollar volume. Inherent In this
    argument is lack of availability of export financing for Brazil.
    Brazilian banks and the capital markets are currently not an option,
    and foreign financial institutions only finance the largest and best
    Brazilian companies. The result is a liquidity crisis, and among the
    few financing alternatives are the official export credit agencies of
    the industrial world that may be understandably reluctant to take
    Brazilian risk.
        Ex-Im Bank believes that if there was ever a time to be active in
    Brazil, it is now. Abandoning Brazil may have longer term implications
    on the competitiveness of U.S. exporters in the market. On the other
    hand, staying active in providing credit to Brazilian buyers would
    likely result in increasing our market share. Moreover, tightening up
    on our lending practices would adversely affect liquidity with negative
    ramifications for the rest of Latin America, mainly Argentina, Uruguay
    and Paraguay; Brazil's major trading partners. It also does not help
    global emerging markets. Ex-Im Bank believes that in the long run the
    benefits of staying active significantly outweigh the risks, especially
    given the Bank's expertise in analyzing foreign credit and political
    risk. The Bank will support transactions only if reasonable assurance
    of repayment does exist. At the same time, it is clear that
    continuation of the current slide in the value of the real will result
    in an increased number of defaults. In our view, this will be far
    outweighed by the improvement in our exporters' competitive capacity in
    the lucrative Brazilian and Latin American markets, which carries
    positive implications for U.S. employment and global stability. This
    belief is evident in Ex-Im Bank's recent decision to ``open'' for
    public sector financing in Brazil, which could translate into as much
    as $2 billion in additional U.S. exports; and Ex-Im Bank's increase in
    the credit limit for six highly creditworthy Brazilian banks, five of
    them private, to $1 billion.
        Ex-Im Bank would expect to see an increase in demand for medium-
    term cover (1-5 year repayment terms) but the composition of that
    demand would likely change. Specifically, we would expect to see demand
    coming from the stronger Brazilian companies, particularly those with
    foreign currency (dollars in particular) earnings or multinationals,
    and Brazilian banks on behalf of their Brazilian corporate. Indications
    from the private sector suggest that private capacity, in terms of
    lenders and insurers, is quite limited in Brazil and especially for
    medium-term cover. Moreover, financing may be available but a very
    costly interest rates. Thus, Ex-Im Bank will be an available source of
    funding. Conversely, we would expect a downturn in activity involving
    small and medium-sized Brazilian buyers and U.S. exporters which have
    traditionally accounted for a large portion of our medium-term
    business. Demand for short-term cover would depend on whether the
    Brazilian government decides to lift the current restrictions on goods
    sold on terms of 360 days or less. Until such time as these
    restrictions are lifted, we would not expect to see any appreciable
    activity or demand.
        Question. There is a great deal of concern in Congress right now
    that some countries suffering in the financial crisis are dumping cheap
    products in the US to escape their economic problems. What role, if
    any, does your agency have in causing this problem?
        Answer. Ex-Im Bank does not play a role in causing foreign
    countries to dump their products in the U.S. market. Rather, Ex-Im Bank
    explicitly opposes the practice of illegal dumping and unfair
    subsidization by withholding financing from buyers known to have dumped
    or to have unfairly subsidized their products in the U.S. market.
        Question. Will you curtail your export or direct investment
    assistance to halt such dumping of products?
        Answer. Yes Ex-Im Bank policy is to withhold official export credit
    support from buyers that have been sanctioned by the U.S. government
    for dumping their products in the United States. Exceptions to this
    policy are possible, but only if there are dramatic consequences
    created by the lack of Ex-Im Bank financing for a transaction. (For
    example, if the export sale were critical to the financial viability of
    the U.S. exporter, Ex-Im Bank management may consider extending
    financing. Such exceptions are expected to be extremely rare.)
        Question. Is greater financing of your agencies warranted if this
    problem persists?
        Answer. In light of current Ex-Im Bank policy to withhold financing
    from foreign buyers that engage in unfair trade practices such as
    dumping products in the U.S. market, limitations on Ex-Im Bank funding
    would not likely contribute to a reduction in unfair trade practices by
    foreign parties.

                  Questions for the Record by Mr. Knollenberg

        Question. In the past five years, Ex-Im activities have resulted in
    $82.2 million of exports in my District alone. What does that do for
    job creation in MI-11? How does that compare to figures that would
    exist if we did not have an independent agency such as Ex-Im assisting
    American companies to compete against the aggressive financing
    practices of major foreign governments?
        Answer. It is estimated that the $82.2 million of exports supported
    by Ex-Im Bank financing created/sustained approximately 1,069 U.S.
    jobs. The basic premise of Ex-Im Bank financing is that it is a
    supplement to, and not a replacement for, private sector financing.
    These are exports that most likely not would have gone forward because
    of lack of financing. As a result, the companies that received these
    orders would have found it necessary to find other orders for their
    employees to work on or reduce employment.
        Question. Ex-Im is requesting $839 for its FY 2000 program budget--
    an increase of $74 million over last year. To what do you attribute
    this increase? How much financing support will your FY 2000 budget
    request allow?
        Answer. The increase in program budget in FY 2000 will help support
    an expected increase in demand for U.S. in Asia/Africa and Latin
    America. At this time, Ex-Im Bank financing in FY 2000 is projected to
    increase almost 70% over FY 1999. Also, additional program budget is
    needed to help support exports to higher risk markets.
        Question. What amount of exports will it support? How many U.S.
    jobs does that represent?
        Answer. In total, $839 million in program budget is expected to
    provide $16.8 billion in Ex-Im Bank financing, which will support
    approximately $20 billion in exports. This will support an estimated
    320 thousand U.S. jobs.

                Questions for the Record Submitted by Ms. Pelosi

                                  environment
        Question. I am pleased to note that Ex-Im has agreed to the release
    of Environmental Impact Statements, but concerned to find out that you
    are providing no minimum time period for disclosure before you commit
    to a project. Even OPIC has agreed to a 60-day review period, which as
    President Munoz knows I think is insufficient. Will Ex-Im agree to
    implementing a minimum time period for release of environmental impact
    statements before you commit to a project?
        Answer. The April 1998 revision to Ex-Im Bank's Environmental
    Procedures and Guidelines initiated a procedure whereby Environmental
    Assessments of final applications for those projects categorized as
    having potentially significant environmental effects, will be made
    available to interested parties. Ex-Im Bank is the only major export
    credit agency that has published environmental procedures and
    guidelines. The decision to make environmental assessments of certain
    projects available to interested parties was a milestone in that for
    the first time, participants of projects seeking Ex-Im Bank support
    would now have to provide environmental information about the project
    not only to Ex-Im Bank's Engineering and Environment Division, but also
    to interested parties in the public sector, including environmental
    groups and NGOs.
        In its role as an Export Credit Agency, Ex-Im Bank remains
    sensitive to the competitive needs of exporters of U.S. goods and
    services, notwithstanding the Bank's commitment to the environment. In
    light of the fact that competing ECAs do not undertake environmental
    evaluations of applications for projects they are asked to support,
    much less require that an environmental assessment be prepared and then
    made available to interested parties, Ex-Im Bank concluded that at that
    time, any requirement that the Environmental Assessment be made
    available for a fixed period pending final action by the Bank, would be
    unduly detrimental to the competitiveness of U.S. exporters. We note,
    however, that in fact, transactions for which environmental assessments
    are required by Ex-Im Bank generally require a period of at least two
    months to review, since these projects tend to be inherently more
    complex than simple product sale type transactions. Hence, the de facto
    period during which the environmental assessments submitted to Ex-Im
    Bank are made available for comment by interested parties should
    average greater than 60 days.
        Question. Similary, I am disappointed that Ex-Im has not adopted
    categorical prohibitions on environmentally destructive projects, as
    OPIC has. Why has Ex-Im refused to implement categorical prohibitions
    on destructive projects?
        Answer. Ex-Im Bank's Environmental Procedures and Guidelines state
    that commercial logging in primary tropical forests will not be
    supported. Although Ex-Im Bank has not adopted other ``categorical
    prohibitions'' for various types of projects, it will not provide
    financial support for a project that, upon review by the Engineering
    and Environment Division, is determined to be ``environmentally
    destructive.'' For example, while some hydroelectric projects could
    cause irreversible damage to the environment, others, which address
    measures to adequately mitigate any adverse environmental effects are
    viewed by Ex-Im Bank as having a potential beneficial environmental
    effect.
        Question. I have heard reports that Ex-Im may be being pressured to
    loosen its standards applied to the Illisu Dam in Turkey. Is that the
    case? Will Ex-Im agree to standards lower than those in place now? Will
    Ex-Im support the Ilisu Dam if it is found to disrupt natural
    ecosystems or the livelihoods of local inhabitants?
        Answer. Any ``pressure'' from exporters or project participants to
    relax the environmental review standards associated with the Ilisu
    project is being categorically ignored by Ex-Im Bank's Engineering and
    Environment Division. In 1998, the Swiss government realized that the
    issue associated with the proposed resettlement of 12,000 inhabitants
    around the region of the proposed reservoir would be better addressed
    if all participating ECAs agreed to a common approach. Ex-Im Bank
    subsequently seized upon the opportunity to broaden the scope of
    discussion among the ECAs to other elements of the project that raised
    serious environmental concerns. Recognizing the opportunity afforded
    Ex-Im Bank to further its objective of achieving common environmental
    guidelines among all Export Credit Agencies, the Bank, through its
    Engineering and Environment Division, have assumed a leadership role
    among the ECAs in the environmental review of the project.
        Following a review of the environmental information available to
    date on the proposed Ilisu project, Ex-Im Bank, on January 21, 1999,
    issued a preliminary commitment covering U.S. goods and services for
    the project that was heavily conditioned with numerous information
    requirements addressing various environmental aspects of the project,
    in areas ranging from the project's socioeconomic impact (especially
    relating to resettlement), to the quality of the water both downstream
    of the project and within its proposed reservoir. Ex-Im Bank is also
    requiring critical information regarding measures to be taken to
    mitigate the potential adverse environmental effects of the project. To
    date, Ex-Im Bank appears to have convinced other ECAs to join in a
    united front with respect to the resolution of these identified
    environmental concerns. Any recommendation for final approval of
    support for the project will be predicated on the project meeting the
    requirements set forth by Ex-Im Bank, requirements that are
    consistentwith its environmental objectives and guidelines.
    Furthermore, consistent with its revised Environmental Procedures and
    Guidelines, the project's environmental assessment will be made
    available to interested parties for their review and comment when and
    if an applicant for a final commitment, complete with the information
    required as a condition to its Preliminary Commitment, is received by
    Ex-Im Bank. The Engineering and Environment Division has expressed
    assurance that any application for a final commitment will be the
    subject of a complete and thorough environmental evaluation, consistent
    with that undertaken for hydroelectric projects worldwide.
                               ex-im bank--china
        Question. What was the level of funding for Ex-Im Bank activities
    in China in 1998 and how does that compare to 1997? What are your plans
    for China activities in 1999?
        Answer. Ex-Im Bank is open under all its programs in China. In
    fiscal years 1997 and 1998, Ex-Im Bank provided financing support in
    the form of loans and guarantees for approximately $1.5 billion in U.S.
    exports to China. For Fiscal year 1999, it is projected that the Bank's
    financing will support $1.0 to 1.5 billion in U.S. exports to China.
    However, this number may be affected by changing market conditions, as
    Ex-Im Bank is requested to match officially supported competitive
    offers.
        Question. Is Ex-Im reconsidering applications from Caterpillar and
    others for participation in the Three Gorges Dam project? If so, what
    would be the process, given the earlier NSC review that recommended
    against funding the dam?
        Answer: Ex-Im Bank decided in May 1996 not to issue letters of
    interest related to the Three Gorges dam project in China. Since that
    time the Bank periodically has received additional environmental
    information relating to the Three Gorges dam project. To date, this
    additional data has been insufficient in addressing the information
    requested.
        Question. Do you have any plans to visit China this year? If you
    plan to go, will you coordinate your visit with others in the
    Administration so that your meetings with Chinese government officials
    reflect the full range of U.S. government's concerns with China,
    including human rights, good governance, corruption, etc?
        Answer. While specific plans for visiting China this year have not
    been finalized, in recent years there have been one or more business
    trips to China led by various Ex-Im Bank divisions. All trips to China
    are closely coordinated with other departments of the government,
    including the State Department as regards country and cable clearances.
    When appropriate to an Ex-Im Bank delegation and mission, other U.S.
    government concerns can be conveyed to our Chinese counterparts.
                        ex-im bank--enron india project
        Question. Human Rights Watch has just released a comprehensive
    report investigating Enron Corporation's possible complicity in serious
    human rights abuses associated with the Dabhol project in India. Ex-Im
    participated in the financing of this project. At any point, did Ex-Im
    raise the issue of human rights with Enron? Was Ex-Im aware that the
    company was paying the costs of police who subsequently committed human
    rights violation? Was Ex-Im aware that contractors to the company were
    alleged to have attacked, harassed and threatened demonstrators against
    the project? Does Ex-Im have a policy in conjunction with the State
    Department or otherwise to ensure that human rights are monitored
    during the financial package's life span? Are there any steps being
    taken to implement such a policy?
        Answer. In order to address the above-referenced questions,
    background information should be provided regarding certain legislation
    which relates to human rights and other foreign policy consideration
    and its impact upon Ex-Im Bank. Since passage of the 1978 amendments to
    the Export-Import Bank Act of 1945, as amended, Ex-Im Bank can deny its
    financing for human rights reasons only if the President determines
    that such a denial would be in the national interest (this legislation
    is also referred to as the Chafee Amendment). The Chafee Amendment,
    which was amended in 1997, states that Ex-Im Bank should not deny
    applications for non-financial or non-commercial reasons (i.e., for
    policy reasons) unless the President of the United States determines
    that the denial is in the national interest. Interest areas on which a
    particular transaction or a given country may receive a denial include
    international terrorism, nuclear proliferation, environmental
    protection and human rights, including child labor.
        Ex-Im Bank authorized financing for the Dabhol project in September
    1994. Ex-Im Bank followed the standard procedures regarding human
    rights and other foreign policy considerations in processing the
    subject transaction. Such procedures were developed by Ex-Im Bank with
    the State Department, particularly with the Bureau of Human Rights and
    Humanitarian Affairs, to ensure a smooth flow of information to Ex-Im
    Bank regarding human rights. Transactions over $10 million are
    generally subject to specific human rights review by the State
    Department. Such a review by the State Department would determine if a
    transaction may give rise to significant human rights concerns. These
    procedures undertaken by the State Department would examine both the
    general status of human rights and the effect of exports on human
    rights in each country. Such a review is completed by the State
    Department prior to Ex-Im Bank's consideration of the transaction.
    These procedures were followed in the processing of the Dabhol
    transaction.
        As described above, Ex-Im Bank does not conduct the human rights
    review--it is the State Department which undertakes the review due to
    such foreign policy considerations as well as the Department's
    expertise in these matters. Any specific issues related to such an
    examination should be referred to the appropriate official at the State
    Department.
                                dual-use exports
    Background
        Since 1994, Ex-Im Bank has had the authority to finance so called
    dual use items, that is defense articles and services are authorized as
    long as they are nonlethal and primarily used for civilian use. In
    1996, using this authority Ex-Im authorized the sale of helicopters to
    the Indonesian Army for its supposed role in helping to develop
    Indonesia's rural areas.
        No deliveries have taken place to date for financial reasons, yet
    this sale has been authorized by Ex-Im Bank.
        Question. Can you tell us how the use of this authority was
    justified in this case, and what role the Indonesian Army will have in
    rural development?
        Answer. In early 1996, Ex-Im Bank authorized support for the sale
    of 21 refurbished ``Bell--205'' helicopters to the Indonesia's Ministry
    of Defense. The Engineering and Environment Division conducted a
    thorough evaluation of the transaction, focusing on the proposed uses
    of the helicopters, and it determined that, in accordance with P.L.
    103-428, the items qualified as nonlethal defense items, the primary
    use of which would be for civilian purposes.
        In the course of conducting its evaluation, the Engineering and
    Environment Division contacted the U.S. Embassy in Indonesia, which
    reported that the Indonesian Army utilizes helicopters of this type in
    support of ``territorial development'' with activities in this area
    constituting approximately 70% of the usage of these helicopters. Other
    information received indicated that the helicopters would be used for
    activities such as the transport of food, water and emergency medical
    supplies to remote areas, the combating of forest fires, mosquito
    control, the conducting of search and rescue missions, and maritime
    pollution surveillance.
        Based on the information received and gathered by the Engineering
    and Environment Division, including the information about the end user
    of the helicopters from the U.S. Embassy in Indonesia, Ex-Im Bank
    determined that there was clear and convincing evidence that expected
    usage of the proposed helicopters would indeed be primarily civilian in
    nature. Certificates were obtained from the Indonesian Ministry of
    Defense and from the Indonesian Army veryfing that the proposed usage
    of the helicopters would be ``primarily civilian'' in nature. Ex-Im
    Bank's Engineering and Environment Division subsequently determined
    that the transaction was eligible for financial support, in accordance
    with the exceptions to the law prohibiting sales of Defense Articles,
    afforded by P.L. 103-428, otherwise referred to as Ex-Im Bank's ``Dual
    Use'' policy.
                                budget increase
        Question. The request for an additional $74 million in subsidy
    appropriations and an additional $7 million in operating expenses is
    one of the few areas of increase in the entire International Budget
    function. The limited material available to the Committee to date does
    not illustrate how such an increase will be used. What are your
    specific priorities for your program budget increase? How much will go
    to increase financing in the emerging areas of new business such as
    Africa and Latin America.
        Answer. The increase in program budget will be used to finance
    increased financing activity in Asia/Africa and Latin America. Ex-Im
    Bank financing in FY 2000 is projected to increase to almost 70% over
    FY 1999 in these regions. Financing in Asia/Africa is projected to
    increase 65%, from $938 million in FY 1999 to $1.55 billion in FY 2000.
    Financing in Latin America is projected to increase over 70% from $1.2
    billion in FY 1999 to $2.1 billion in FY 2000.
        The $7 million increase in the administrative budget is necessary
    for the training, personnel, and equipment upgrade necessary for the
    Bank to fulfill its mandate of protecting U.S. jobs by financing
    exports to developing countries. Ex-Im Bank needs sufficient funds to
    hire and train personnel to staff divisions which are processing
    complicated transactions, and it needs new funds to update a computer
    system which does not match those used by competing export credit
    agencies. The Bank will need modernization if it is to reduce case
    processing time and reach out to the thousands of small businesses
    which have not availed themselves of the Bank's services and if it is
    to defend U.S. jobs by keeping exporters competitive in a very
    difficult international market.
        In addition, some of the funds will be used to modernize Ex-Im
    Bank's headquarters, which was built in 1940 and is in dire need of
    renovation. GSA currently plans ``life safety upgrades'' to the
    building beginning in FY 1999. These upgrades include installation of
    sprinklers and lights throughout the building followed by upgrades to
    the electrical systems. The upgrade of computer equipment is dependent
    on demolition work done by GSA, which will provide an opportunity for
    the Bank to upgrade the telecommunications system and network cabling
    as well as to improve the security of the building.
        Question. On the administrative side, your request calls for
    deploying additional personnel around the world. The Commerce
    Department does have significant numbers of personnel deployed through
    the Foreign Commercial Service to promote U.S. business interests.
    Explain why Ex-Im Bank needs its own additional personnel.
        Answer. While we are fully aware of the services provided by the
    Department of Commerce through the U.S. Foreign and Commercial Service,
    we have learned through experience that there is just no substitute for
    having a representative of Ex-Im Bank directly involved when the Bank
    is trying to open or expand business in key markets. These
    representatives will be knowledgeable knowledgeable about the Bank's
    programs, many of which are very detailed. They will also be
    knowledgeable about the special circumstances surrounding local
    economies as well as the political considerations which might be
    involved. In volatile yet potentially profitable markets, such as sub-
    Saharan Africa, Turkey, and East Asia, it is vitally important to have
    such a representative present, personnel who know the market and who
    can help the Bank compete against the representatives of competing
    export credit agencies. This is one of the best ways the Bank can level
    the playing field for U.S. exporters and preserve U.S. jobs.
        Question. Justify the $1 million requested for pay raises.
        Answer. For FY 1999, Ex-Im Bank will be operating below its
    approved FTE level of 427 at about 420 FTE. Approximately half of the
    increase in personnel compensation from FY 1999 to FY 2000 is to bring
    the number of Bank personnel up to the 427 FTE approved level. The
    remaining amount is to cover cost of living and locality pay increases.
                           helicopter sales to turkey
    Background
        In 1990, Congress extended to Ex-Im Bank a limited authority to use
    credits for the sale of helicopters to Turkey and Greece. This to my
    knowledge is the one and only time Congress has allowed the use of Ex-
    Im Bank credits for a military sale. Report language in the conference
    bill stated that this authority was granted ``on a one time basis only,
    for a period of one year only''.
        Pursuant to this authority Ex-Im's board chose to authorize the
    sale of 200 UH-60L (Blackhawk) helicopters to Turkey, and to allow the
    implementation of that sale to extend through the year 2001. A contract
    for the sale of 150 helicopters to Turkey was signed in 1992, and, as I
    understand it, only a portion of those helicopters have been delivered
    to date. Efforts are now underway at Ex-Im Bank to use this authority
    to execute the sale of additional Blackhawk helicopters to Turkey.
    Additionally, we have heard that other companies (Boeing/Textron/Bell)
    are pursuing the sale of up to 50 additional attack helicopters to
    Turkey using the same authority.
        Question. Do you feel that the 10-year implementation period for
    this sale, and the use [of] multiple export licenses to implement it,
    is consistent with congressional intent?
        Answer. Title IV of the Foreign Operations, Export Financing, and
    Related Programs Appropriations Act, 1990 (``FY 1990 Appropriations
    Act'') contained the authority for Ex-Im Bank to finance the sale of
    Sikorsky helicopters, spare parts and related equipment. This authority
    allowed Ex-Im Bank to use its loan guarantee program to finance the
    commercial sales of defense articles and services destined for Greece
    and Turkey, ``notwithstanding any other provision of law,'' provided
    such authority is not used for the procurement of defense articles or
    services for use on Cyprus. On September 27, 1990, near the end of FY
    1990, pursuant to this authority, the Board of Directors authorized a
    loan guarantee in the amount of $1,366,279,271 to support the financing
    of 200 helicopters to the Turkish Ministry of National Defense. The
    helicopters were projected to be delivered over the period 1992 to
    2000, and the loan was to be disbursed in related tranches, each
    repayable in 20 semiannual installments.
        Prior to final approval, in accordance with the procedures set
    forth in Section 2(b)(3) of the Export-Import Bank Act of 1945, as
    amended, Ex-Im Bank, on August 16, 1990, notified Congress that Ex-Im
    Bank was prepared to authorize the subject financing. These
    Congressional notifications cited the FY 1990 Appropriations Act as the
    legal authority for Ex-Im Bank support and also indicated that the
    ``200 helicopter kits will be delivered incrementally in a series of
    annual deliveries between 1992 and 2000.'' After expiration of the
    required period for Congressional review, the Board of Directors
    authorized the subject financing.
        At the time of final approval on September 27, 1990, Ex-Im Bank
    charged the entire amount of the commitment, $1,366,279,271, against
    the limitation on guarantee commitments for fiscal year 1990 set forth
    in the FY 1990 Appropriations Act.
        [Note.--Because Ex-Im Bank does not issue export licenses, the
    clause referring to ``use of multiple export licenses'' was not
    addressed.]
        Question. How can this authority be legitimately used for the sale
    of an additional 50 attack helicopters, given that Congress was
    officially notified of the sale of UH-60L (Blackhawk) helicopters in
    August of 1990.
        Answer. The sale of an additional 50 Blackhawk helicopters would
    fall within the scope of the transaction authorized by Ex-Im Bank in
    September 1990. As set forth in Ex-Im Bank's notification to Congress
    in August of 1990, the subject transaction was authorized to support
    the sale of 200 helicopters to be used in utility, reconnaissance,
    medical evacuation and search and rescue roles. The helicopters were
    projected to be delivered between the period 1992 and 2000, with the
    guaranteed loan to be disbursed in related tranches. The fact that the
    subject transaction was approved in 1990 pursuant to FY 1990 authority
    does not affect the duration of the disbursement schedule. Ex-Im Bank
    routinely approves transactions involving disbursement schedules
    spanning several years to cover construction and other delivery
    periods. Since the additional helicopters are within the number
    originally authorized, this authority can be used for the sale of an
    additional 50 Blackhawk helicopters.
        However, this authority has not been, and Ex-Im Bank believes it
    cannot be, used for attack helicopters.
        Question. Do the terms of the so-called Leahy amendment on
    provision of U.S. funded equipment to security units alleged to be
    involved in human rights abuses apply to these sales. If not, why not.
        Answer. The so-called Leahy amendment does not apply to this
    transaction. The amendment, which is contained in section 570 of the
    Foreign Operations, Export Financing, and RelatedPrograms
    Appropriations Act, 1998 (``FY 1998 Appropriations Act'') and Section
    568 of the Foreign Operations, Export Financing, and Related Programs
    Appropriations Act, 1999 (``FY 1999 Appropriations Act'') provides, in
    relevant part:

              None of the funds made available by this Act may be provided
            to any unit of the security forces of a foreign country if the
            Secretary of State has credible evidence that such unit has
            committed gross violations of human rights, unless the
            Secretary determines and reports to the Committees on
            Appropriations that the government of such country is taking
            effective measures to bring the responsible members of the
            security forces unit to justice....
              [Emphasis added]

        The Leahy amendment applies to ``funds made available by [the FY
    1998 Appropriations Act and the FY 1999 Appropriations Act].'' However,
    the entire amount of Ex-Im Bank's support for the financing of the
    subject transaction was charged against the Bank's limitation on
    guarantee commitments for fiscal year 1990 set forth in the FY 1990
    Appropriations Act. None of the funds made available to Ex-Im Bank by
    the FY 1998 or FY 1999 Appropriations Acts have been used or obligated
    for the subject transaction. And, thus, the Leahy amendment does not
    apply to this transaction.
                          status of program in russia
        Question. Ex-Im has not approved any new applications since August
    of 1998 in Russia according to your statement. They are, however, still
    disbursing against transactions previously approved. What is the status
    of claims or potential losses in your Russian transactions?
        Answer. Ex-Im Bank currently has two outstanding private sector
    guarantee claims totaling $11,979,000 against INKOMBANK, a Russian
    borrower. While Ex-Im Bank does have $1,655,000 in commitment fee
    arrears, we expect repayment.
        Question. What are the prospects for renewing new Ex-Im
    transactions in Russia?
        Answer. Ex-Im Bank has not publicly changed its policy in Russia
    since the August 1998 financial crisis. The Bank's stated cover policy
    is: open for short-, medium- and long-term public sector transactions
    and for short- and medium-term private sector transactions. In the
    aftermath of the financial crisis, however, Ex-Im Bank has not been
    prepared to consider new sovereign risk or other unsecured exposure. To
    date, Ex-Im Bank has not approved any new transactions under its
    programs. The Bank continues to honor existing commitments to U.S.
    exporters by permitting disbursements to continue for transactions
    which had already been approved and documented prior to the crisis. (In
    connection with one such prior transaction, secured by hard currency
    oil export earnings held in offshore escrow accounts, Ex-Im Bank did
    approve an increase of $6.3 million for additional U.S. supply.) This
    policy is consistent with that of the other major export credit
    agencies and is unlikely to change until Russia establishes an economic
    program acceptable to the IMF and G-7, and the economic outlook
    improves sufficiently to warrant considering new business on an
    unsecured basis.
        Exposure as of December 31, 1998 and Repayment Experience to Date:
    Ex-Im Bank has $2.4 billion in exposure in Russia, of which $1.2
    billion is outstanding (disbursements less repayments), $739 million is
    yet to be disbursed on approved transactions, and $455 million has been
    authorized but not yet made operative. Almost $1.5 billion in exposure
    is secured by oil and diamond export sales, or under asset-based
    aircraft financing. Virtually all exposure is under the medium-term and
    long-term guarantee programs. Delinquencies and claims paid to date
    have been limited to the commercial banking sector. Ex-Im Bank's
    exposure breaks down as follows:

                              (Dollars in millions)
    ------------------------------------------------------------------------
                                                      Exposure   Outstanding
    ------------------------------------------------------------------------
    Sovereign risk (Vnesheconombank)..............         $922         $610
    Secured by oil exports under the Oil and Gas          1,092          298
     Framework Agreement (OGFA)...................
    Secured by the sale of diamonds Almazy Rossii            62           58
     Sakha (Diamonds of Russia)...................
    Asset-based aircraft (Aeroflot)...............          301          203
    Commercial banking sector (eight banks):
        Short-term insurance......................            0            0
        Medium-term insurance.....................           14           14
        Medium-term guarantees....................           22           22
        Claims paid on bank transactions..........           12          N/A
                                                   -------------------------
            Subtotal commercial banking sector....           48           36
                                                   =========================
                Total.............................        2,425        1,205
    ------------------------------------------------------------------------

        Under Ex-Im Bank's short-term insurance program, transactions
    totaling $28.7 million were approved, and fully utilized. Payments were
    made on time and there is nothing outstanding under the program.
        Two claims totaling $12 million were paid as a result of one bank's
    failure to pay the insured lenders. Efforts to collect from the bank
    are underway and prospects for recovery appear encouraging. Another
    bank made a partial payment on a November 1998 installment, and is
    likely to seek rescheduling of the balance outstanding. A third bank
    was late but ultimately paid a December 1999 installment. The total
    outstanding debt involving these three banks amounts to $24 million.
    The remaining $12 million in debt owned directly by or guaranteed by
    five other Russian commercial banks is current at present.
        Question: What are the prospects for renewing new Ex-Im
    transactions in Russia?
        Answer. Once economic conditions warrant, Ex-Im Bank could again
    move forward with sovereign risk lending. The prospects with regard to
    the commercial banking sector are less clear and consequently, it will
    take longer to determine which of the surviving banks in Russia
    represent acceptable credit risk. The demand for Ex-Im Bank financing
    in the energy sector could increase in the future, as a number of
    Russian oil companies have inquired concerning financing under the Oil
    and Gas Framework Agreement. The actual timing and need for Ex-Im Bank
    financing will depend on a recovery of the demand for and price of
    crude oil. Inquiries have been received involving other sectors as
    well, such as diamonds, forestry, and agricultural equipment.
        Question: What is the status of demand for Ex-Im involvement in the
    energy sector in Russia?
        Answer. Gazprom: No business has been conducted with Gazprom under
    the Memorandum of Understanding which was signed in November 1994.
    However, Gazprom has recently indicated a renewed interest in utilizing
    Ex-Im financing, and the Bank is prepared to consider requests on a
    case-by-case basis. The structure, terms, and conditions of the
    financing would be consistent with the Memorandum of Understanding of
    November 1994, including the dedication of proceeds from long-term
    sales contracts of natural gas or other products as a back-up for
    repayment of the financing. The potential amount of financing would to
    an extent depend, therefore, on the revenues available for allocation
    under such long-term sales contracts.
        Question: To what extent are Ex-Im transactions in Russia tied to
    IMF conditionality or disbursement schedules in Russia?
        Answer. As indicated above, Ex-Im Bank's current policy of not
    considering new sovereign risk or other unsecured exposure, while
    continuing to permit disbursements on existing operative transactions,
    which is consistent with the approach of other major export credit
    agencies, is unlikely to change until Russia establishes an economic
    program acceptable to the IMF and G-7, and the economic outlook
    improves sufficiently to warrant considering new business on an
    unsecured basis. In high-risk situations in general, the presence or
    absence of an IMF program, i.e., a standby arrangement, and a degree of
    compliance with the program, is an important, though certainly not the
    only, factor in establishing Ex-Im Bank's cover policy.
        Obviously, simply having an IMF program does not constitute
    assurance of credit worthiness in and of itself. But, such a program is
    generally regarded as offering greater assurance of an improvement in
    economic conditions, in part because it establishes various targets,
    conditions, and limitations consistent with economic stabilization and
    growth. Furthermore, it offers greater prospects of restoring
    international capital flows, both official multilateral and bilateral
    financing and private credit, and also foreign investment, which is
    also of great importance in contributing to a significant improvement
    in economic conditions.

                    Questions for the Record by Mr. Kingston

        Question: The economic turmoil has continued in Asia now for over a
    year. I think by now you have a better idea of its impact on
    transaction demand. I know that demand spiked early in SE Asia. Will
    you describe that a little more for Fiscal 99 and what its extended
    impacts may be into FY 2000?
        Answer. Below is a breakdown of Ex-Im Bank's insurance and longer
    term financing programs.
                                   insurance
        Demand for Ex-Im Bank short term (up to 180 days and on an
    exceptional basis, up to one year) financing support in Southeast Asia
    jumped dramatically during FY 1998 to record levels. In response to
    this demand, Ex-Im Bank provided over $1 billion in short-term
    insurance support for the sale of raw materials, spare parts, and other
    consumables and materials from U.S. exporters to Korea on letter of
    credit (L/C) payment terms in 1998. Looking ahead, Ex-Im Bank
    anticipates that the demand for cover on short term L/C's issued by
    Korean banks will continue; however, demand should begin to eventually
    taper off, assuming the Korean economy improves and the private market
    can once again assume the short term risks on its own. In addition, we
    would also anticipate an increase in demand for medium term support (1-
    5 year repayment) for Korean corporates. All medium term requests are
    being channeled to Ex-Im Bank's medium-term program for Korea which
    carries the sovereign guarantee of the Korean government.
        Demand for Ex-Im short term support in other Asian markets is
    expected to grow overall (compared to FY 1998 levels). Most of that
    increase will be attributable to usage of the Indonesia letter of
    credit program. While the region is beginning to show signs of
    recovery, economic conditions continue to constrain the availability of
    private sector financing. Therefore, overall demand for Ex-Im Bank
    short term financing is expected to remain strong during FY 1999.
                              long-term financing
        Ex-Im Bank projects higher demand levels for medium and long-term
    financing in certain markets/sectors for Asia in FY 1999 and FY 2000,
    which would counterbalance the decline in term financing for Ex-Im Bank
    public sector/corporate risk activity in such Asian markets as
    Indonesia and Thailand. These estimates are based on pending power
    transactions for Korea totaling approximately $1.2 billion as well as
    power sector project finance transactions in China, Thailand and the
    Philippines totaling $380 million. Also, aircraft financing will
    experience its greatest increase in Asia is FY 1999. Aircraft
    authorizations for Asia could reach $3.5 billion for this fiscal year.
    The latter is due to the adverse effects of the Asian economic scenario
    and the associated capital markets withdrawal from Asian aircraft
    finance, which have caused these airlines that have historically
    obtained financing in the capital markets to pursue Ex-Im Bank support
    for their 1999 aircraft deliveries. Such activity levels in these
    markets/sectors are likely to continue into FY 2000.
        Question: How much of FY 1999 carryover business do you expect to
    bring into FY 2000?
        Answer. We do not expect to carryover any business from FY 1999
    into FY 2000. However, the Bank may have to use up to $35 million of
    tied aid funds for non-tied aid cases. Should this become necessary,
    the Bank will notify Congress through normal notification procedures.
        Question: Please describe your outreach efforts to small business.
    You obviously meet the statutory percentage threshold for assisting
    small business, but how does the Bank go about ``advertising'' its
    services to them to make them aware of assistance they may not even
    know exist?
        Answer. Ex-Im Bank has relied on intermediaries to be the main
    engine of market promotion for its programs. The thinking has been that
    if we can educate distributors such as banks, brokers, states, etc.,
    they will sell the products to the exporters. Given the lack of budget
    resources for a large field force or advertising, Ex-Im Bank has
    historically not been able to directly approach exporters in a
    significant way.
                            history of field offices
        Ex-Im Bank began to market its small business programs and
    innovations, the Working Capital Guarantee (WCGP) and Small Business
    Policies, in 1984 in the Midwest. We quickly realized that providing
    information about the programs did not provide access. Local
    representation and distributors were a must. Because Ex-Im Bank had no
    field offices the traditional distributors had been banks and insurance
    brokers, but something else was needed to help small businesses.
        To obtain a field presence, we attempted to use the field offices
    of the U.S. Department of Commerce and the Small Business
    Administration in four mid-western states. This approach was not
    successful because the responsibilities for Ex-Im Bank outreach were
    never incorporated into the other agencies' job descriptions. For
    selling insurance policies, Ex-Im Bank worked very closely with the
    field offices of the Foreign Credit Insurance Association (FCIA) with
    which we had a reinsurance agreement. In the late 1980's, we also had a
    one-person office in Los Angeles for a short period.
        In late 1992 with the federalization of the FCIA, Ex-Im Bank
    inherited five field offices now located in New York City, Miami,
    Chicago, Houston and Long Beach. At first these offices wee primarily
    marketing the insurance policies, but they developed into full-service
    offices marketing all of Ex-Im Bank's programs. Their new focus is on
    selling directly to small business exporters, and their performance
    will be measured against sales goals. We have alsoestablished our sixth
    regional office, which is the Mid-Atlantic office that services
    Maryland, West Virginia, North Carolina and Washington, D.C.
                         outreach to brokers and banks
        The insurance program has traditionally relied on insurance brokers
    to sell the policies. Much time and effort has been put into
    cultivating this relationship. In order to make the sale of the Small
    Business Policy more attractive to the brokers, we increased our
    commission scale to 40% in 1994. Most brokers, however, still do not
    make a great effort to sell this policy.
        We have periodically done major outreaches to promote the Bank or
    inform customers of programmatic changes. One such outreach, in 1992,
    was undertaken to reach small banks that had typically not used Ex-Im
    Bank. These banks were targeted because they served small businesses.
    In 1994, there was a joint outreach between SBA and Ex-Im Bank for the
    harmonization of the WCGP.
        We have been successful in bringing in regional banks and some
    community banks to distribute the programs. One problem that remains
    with us today in the banking area is the lack of communication between
    the international officers knowledge in Ex-Im Bank and the domestic
    calling officers who seek out small businesses and would benefit from
    having information on Ex-Im Bank. With the recent bank mergers, we are
    now facing the problem of fewer banks willing to do small business and
    small transactions.
                           other outreach activities
        Since 1985, Ex-Im Bank has been conducting various training
    seminars in order to attract banks which had small business customers.
    We are continuing to do these seminars both in Washington and in cities
    around the country.
        In 1988, Ex-Im Bank began the City/State Program as a major tool to
    reach small businesses. The idea of that program was simple: Ex-Im Bank
    had the funding but few local contacts, and the states had the contacts
    without much money. Thus, the Bank married the two and trained local
    government people already in the business of promoting trade from their
    areas in Ex-Im Bank programs. There are currently 35 partners in the
    program.
        At this time, the Bank has a major outreach to trade associations
    through which we hope to increase their membership. In fact, Ex-Im Bank
    has placed a priority on those associations that have many small
    members. Early indications are that many will decide to partner with
    us.
                            more aggressive outreach
        Ex-Im Bank has entered a new aggressive outreach program aimed
    directly at exporters, something that we have not tried in many years.
    Our field offices will be the main engine driving this effort, which
    will be supported with qualified leaders from headquarters.
        Our WCGP and insurance programs have been modified to make them
    more user friendly and attractive to small businesses. We will
    continually review our products to meet the changing needs of the
    market place to make them more user friendly.
        For the first time, a person will be assigned full time to small
    business product development. Ex-Im Bank will also track our outreach
    efforts so that we will have a history of our calling efforts with each
    customer. To do this, the Bank has purchased a contact management
    system.
        We will also continue to look for additional distributors of the
    programs. One exciting area is the asset-based lenders to which Ex-Im
    Bank will be making a market drive to develop their interest in
    utilizing the WCGP. In addition, the Bank will continue our efforts to
    interest more localities in joining the City/State Program. Ex-Im bank
    is also reaching out to minority and woman-owned businesses and to
    companies in rural and economically depressed urban areas. Finally, the
    Bank is looking at the possibility of working with a private company
    that will put on seminars to get more smaller banks interested in
    export finance. Ex-Im Bank's role will be to help market that program
    and supply materials.
        Obviously, Ex-Im Bank hopes these efforts to reach more small
    businesses will increase small business exports. The Bank also sees our
    outreach as a learning experience both in terms of how to sell our
    products and how the products can be improved to meet the needs of the
    market place.
        The success of these efforts will largely depend on the
    availability of resources through our administrative budget.
        Question. Also, while the percentage of small business transactions
    has held steady or increased, the dollar amount has dropped lately. Has
    that continued? Can you provide a chart for the last five to ten years
    showing the trend of small business transactions both as a percentage
    of the whole and in dollars?
        Answer. Over the past five years, the number of small transactions
    has remained fairly constant with two exceptions, 1995 and 1998. In
    1995, Ex-Im Bank dramatically increased its small business
    authorizations. The Bank went from 1,576 authorizations in 1994 to
    1,910 in 1995, a 21% increase. However, the Bank experienced a drop in
    the number of transactions from 1,935 in fiscal year 1997 to 1,864 in
    1998, a 4% decrease. At the same time, the actual authorization amount
    increased from $1,777 million in 1997 to $2,229 million in 1998, a 25%
    increase.
        For your further information, we have attached several charts. One
    chart shows Ex-Im Bank's small business statistics in terms of the
    number and amount of small business transactions from fiscal year 1994
    to 1998. Chart 2 shows small business trends in terms of percentage of
    overall transactions submitted and authorized also from fiscal year
    1994 to 1998. Lastly, Chart 3 shows the percentage of small business
    support under all of Ex-Im Bank's financing programs over the past five
    fiscal years.
        Question. We learned last year that no business was expected from
    Ex-Im's memorandum of understanding with GAZPROM in Russia. Has that
    changed? Are you still conducting dialogue of any kind or business with
    GAZPROM?
        Answer. No business has been conducted with Gazprom under the
    Memorandum of Understanding which was signed in November 1994. However,
    Gazprom has recently indicated a renewed interest in utilizing Ex-Im
    financing, and the Bank is prepared to consider requests on a case-by-
    case basis. The structure, terms, and conditions of the financing would
    be consistent with the Memorandum of Understanding of November 1994,
    including the dedication of proceeds from long-term sales contracts of
    natural gas or other products as a back-up for repayment of the
    financing. The potential amount of financing would to an extent depend,
    therefore, on the revenues available for allocation under such long-
    term sales contracts.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                               Submitted to OPIC

                     Questions for the Record by Mr. Porter

                                 climate change
        Question. We have heard much about the need for ``meaningful
    participation'' by developing countries prior to ratification of the
    climate change treaty. Disturbingly, I note the continuing growth of
    OPIC and Exim's portfolios not only in thermal power plant projects,
    but also in fossil fuel extraction projects such as oil and gas--
    thereby compromising ``meaningful participation'' by developing
    countries in the short and long term in helping solve the climate
    change problem:
              (A) OPIC and Exim have agreed to release annual greenhouse
            gas emissions reporting, but only for thermal power plants. Why
            do you not consider greenhouse gas emissions for other
            projects?
              (B) Will there be a commitment to investment in renewable
            energy to help further the goals of meaningful participation in
            the context of the climate treaty?
        Answer. (A) The vast majority of greenhouse gas emissions occur
    when fuels containing such greenhouse gases are combusted to provide
    power for electricity, transportation, heating or other end-uses.
    Therefore, the exploration and extraction of fossil fuels, such as oil
    and gas, does not in itself result in substantial emissions. Since the
    amount of greenhouse gas emissions is related to the type of end-use,
    and oil and gas can be processed and consumed in a variety of ways,
    there is no way to predict at the extraction stage, how the fuels will
    ultimately be used and the volume of emissions that will subsequently
    occur. For example, natural gas may be used to fuel a power plant, in
    which case all carbon dioxide contained in the gas will be released
    into the atmosphere. Alternatively, if the gas is used as a feedstock
    to produce fertilizer, most of the carbon dioxide will be sequestered
    in the final product and will not contribute to greenhouse gas
    emissions.
        (B) OPIC has and will continue to support investments in renewable
    energy projects. For example, OPIC has recently supported low impact
    hydroelectric projects in Costa Rica, India and the Philippines. OPIC
    is also investigating opportunities to support commercial projects
    using solar and wind energy in cooperation with multilateral financial
    institutions such as the Global Environmental Facility and the United
    Nations Environment Program.

                    Questions for the Record by Mr. Kingston

                        opic outreach to small business
        Question. How have the number and size of OPIC's direct loans to
    small business changed over the last five years? Can you submit that on
    a chart for us? Will you please also describe your outreach program to
    inform small businesses of the opportunities you provide?
        Answer. During fiscal years 1994 through 1998, 100 percent of OPIC
    direct loans, totaling $238 million, went to projects involving U.S.
    small businesses, and 29 percent of the projects receiving OPIC loan
    guaranties ($1.6 billion) involved small businesses. Smaller businesses
    or cooperatives were involved in 13 out of 47, or 28 percent, of all
    OPIC-assisted projects in fiscal 1998.
        The following chart shows the direct loans committed to small
    business over the past five years.

                 FINANCE SMALL BUSINESS DIRECT LOAN COMMITMENTS
                             FY 1994 THROUGH FY 1998
    ------------------------------------------------------------------------
                                                Number of
                                                  small
                   Fiscal year                   business   Amount committed
                                                  loans
    ------------------------------------------------------------------------
    1994.....................................            6       $76,300,000
    1995.....................................            3        31,500,000
    1996.....................................            3        36,400,000
    1997.....................................            2        17,428,000
    1998.....................................            8        76,754,500
                                              ------------------------------
        Total................................           22       238,382,500
    ------------------------------------------------------------------------

        It is often a challenge for small business to find the financial
    and personnel resources to make an overseas investment on their own.
    But many benefit as suppliers to investments by larger U.S. firms
    supported by OPIC. OPIC's survey of its projects found that
    approximately two-thirds of identified suppliers to OPIC-backed
    projects are U.S. small businesses. For example, larger companies often
    turn to small U.S. businesses for products and services to support an
    overseas project. The projects OPIC assisted in fiscal 1998 are
    expected to procure, during their first five years of operations, at
    least $204.8 million from U.S. small businesses located in 37 states
    and the District of Columbia which will support 576 U.S. jobs.
    According to the data collected for fiscal years 1994 through 1998,
    OPIC has identified the specific suppliers for nearly $9 billion in
    expected procurement for OPIC-assisted projects.
        An important component in OPIC's small business outreach program is
    to identify the small business suppliers who are contributing to OPIC-
    assisted projects throughout the world. This outreach provides
    suppliers with an opportunity to learn more about their contribution to
    OPIC's projects and to utilize this opportunity to provide information
    about OPIC's products.
        In addition, OPIC is reaching out to small and medium-size
    businesses that are seeking to invest overseas for the first time but
    need help with political risk insurance or to cross the key financial
    threshold. OPIC's award winning website contains a user-friendly small
    business page. We also have a special streamlined process for small
    business including a shorter, simplified application form.
        OPIC works with the other trade agencies, small business
    organizations, and state and local trade and commerce officials to
    ensure that small businesses are aware of the products, service and
    advice available at OPIC. OPIC sponsors and participates in seminars,
    forums, and conferences throughout the U.S. which are focused on
    increasing awareness of small and medium-sized businesses of the
    opportunities for overseas investment and how OPIC can assist them.
                            opic and small business
        Question. What proposals have been presented by your new small
    business task force, and what changes have come about as a result of
    its recommendations?
        Answer. OPIC has a long-standing commitment to help small and
    medium-sized businesses participate in the opportunities offered by
    overseas investment. This commitment includes extensive outreach to
    small and medium-sized businesses as well as an effort to increase
    small business use of OPIC products. In fiscal year 1998, almost 30
    percent of OPIC assisted projects were small businesses.
        But OPIC is moving forward to enhance these efforts. 1999 is the
    OPIC ``Year of Small Business'' which will help to focus attention on
    building on OPIC's solid record of helping small businesses. Following
    on the efforts of the Small Business Task Force, a Small Business
    Action Team was created to implement a series of action steps to expand
    small business outreach and to serve as advocates within OPIC. OPIC's
    award winning website includes a user friendly small business page.
    OPIC has sponsored or participated in small business meetings and
    seminars in eleven states and launched a California State Small
    Business Pilot Program. OPIC's exporter program is reaching out to
    small businesses who are serving as suppliers to OPIC-assisted
    projects.
        In the finance area, OPIC has implemented new small business loan
    structures. The minimum loan size has been reduced from $2 million to
    $250,000 to address the needs of small business. We have also created a
    streamlined small business finance agreement. In addition, we have
    expedited the credit analysis process for small businesses.
        To encourage small business use of OPIC's political risk insurance,
    we have created a special simplified insurance application for small
    businesses which reduces the paperwork burden. OPIC also offers special
    pricing for insurance for small business and provides limited brokerage
    fees for brokers helping small business.
                         corruption and organized crime
        Question. How does OPIC measure and account for the impact of
    official corruption and organized crime in the New Independent States
    and Eastern Europe? To what extent/how directly to these factors impact
    your assessment of political risk in those regions?
        Answer. OPIC has extensive due diligence procedures in place to
    detect corruption before we agree to support a project, as well as
    standard requirements that our customers certify that they have not and
    are not engaged in corrupt practices. If we discover corrupt practices
    once support has been issued, we have significant remedies, including
    terminating OPIC support, seeking damages, and pursuing criminal
    penalties.
        OPIC takes special care in underwriting projects in the NIS due to
    concerns over corruption and organized crime. In screening projects, in
    addition to the standard questions relating to Foreign Corrupt
    Practices Act compliance in the OPIC application, OPIC may request
    information from the investor regarding the identity of local partners
    and any relationship they may have with the host government. OPIC has
    also relied on information provided by the U.S. Embassy in the host
    country, and has enlisted the assistance of the CIA in making inquiries
    regarding local partners.
                                      asia
        Question. Can you comment on the impact of the Asian financial
    crisis on the volume of activity at each institution? Has this crisis
    increased costs for U.S. businesses and driven up the amount of
    assistance, advisory and financial, delivered to customers by your
    agency?
        Answer. The Asian financial crisis has had two countervailing
    effects on the level of political risk insurance and financing issued
    by OPIC although, overall, the level of activity is down. As a result
    of the crisis, the level of activity by U.S. investors, both direct
    equity investors and lenders, has declined. The combination of
    increased risk and shrinking demand has caused investors to reconsider
    and/or scale down their investment plans. However, to the extent that
    U.S. businesses are still investing, there is an increased interest in
    OPIC programs. Lenders to projects that 18 months ago would have made
    loans without political risk insurance are now requiring it as a
    condition to provide financing. Similarly, project sponsors who in the
    past may have been comfortable assuming host country political risk are
    increasingly seeking coverage.
        The crisis has increased the cost for U.S. businesses operating in
    Asia in a number of ways including the following (in no particular
    order):
              Higher interest rates by lenders to reflect higher risk and
            reduced capacity
              The increased risk has also limited the tenor of debt
            available to project sponsors which has the effect of
            increasing the cost of doing business
              Higher rate of return required by equity investors to reflect
            increased risk
              Additional costs associated with restructuring charges (legal
            and advisory fees)
              Requirements to contribute additional equity and/or debt due
            to shortfalls by local partners affected by the crisis
              Direct and indirect costs associated with renegotiation of
            project agreements and, in particular, tariffs adjustments
            required by government purchasers of services or products (e.g.
            power projects)
              Added cost of political risk insurance where it may not have
            been required before
              Higher premium rates for political risk insurance.
        The current global economic downturn requires OPIC to protect its
    portfolio in a prudent and proactive manner. Additional resources are
    needed for screening, due diligence, monitoring and advocacy. Towards
    this end, the Administration requests that OPIC be authorized to spend
    $35 million from its own earned resources for administrative expenses.
    The need for advocacy, claims-related negotiations, and workout are
    likely to increase if countries in affected parts of the globe fail to
    free themselves from the economic downturn. Full funding of OPIC's
    administrative expenses request will enhance OPIC's ability to manage
    its portfolio in a manner that protects the U.S. government and the
    American taxpayer.
                                     russia
        Question. What plans does your agency have for Russia? have you
    written off any or all activities with Russia due to its insolvency and
    rampant crime? What might your agency do to assist U.S. companies to
    help lift Russia out of its quagmire? Or, should we force Russia to
    fend for itself.
        Answer. OPIC has seen a sharp increase in interest in its programs
    from U.S. companies still interested in Russia after the August crisis.
    OPIC has established a task force to closely monitor its portfolio in
    Russia.
        OPIC staff has traveled to Russia to consult with Russian
    government officials, clients and the business community, and have
    followed up with visits targeted at assisting specific clients with
    problems. OPIC has not suffered any losses due to insolvency or crime.
    Consistent with its prudent approach to its portfolio, this year OPIC
    set aside additional country specific reserves for exposure to Russia,
    Georgia, the Ukraine, Moldova and Kazakhstan. OPIC believes that it has
    an important role to play in assisting U.S. investors with strategic
    projects that support the development of emerging markets such as
    Russia. We continue to be concerned by the economic situation and the
    difficulties that investors face in protecting their legal rights.
    However, we believe that we can proceed prudently with commercially
    strong projects with significant risk mitigants. In particular, OPIC
    will finance only those projects whose sponsors have the financial and
    managerial wherewithal to operate in this difficult climate and whose
    cashflow will be adequate to enable the project to sustain itself and
    repay debt in a timely manner.
        If the economic turmoil in Russia continues, it will become more
    critical for OPIC to protect its portfolio, and the interests of the
    U.S. taxpayer, through increased screening, due diligence, monitoring,
    and advocacy. To support such increased activity, the Administration
    has requested that OPIC be authorized to spend $35 million from its own
    earned resources on administrative expenses in FY 2000.
                                     brazil
        Question. Could you comment on how your activities in Brazil might
    be impacted if the local economy and currency continue to slide
    downward?
        Answer. In the past five years, Brazil has made remarkable progress
    in opening its economy to foreign investors. During this time, U.S.
    investors have found attractive long-term investment opportunities
    through Brazil's multi-sector privatization program and growing
    consumer market possibilities. As a result, OPIC has experienced
    growing demand from U.S. investors in Brazil, particularly with regard
    to insurance coverage for inconvertibility risk. Recently, Brazil has
    experienced economic turmoil due to the effects of the Asian and
    Russian crises, as well as the devaluation of its own currency. While
    these events may have deterred short-term investors, long-term
    investors remain committed to this important emerging market.
        OPIC's largest exposure in Brazil is under the political risk
    insurance program. As mentioned in the testimony, there has been no
    notification of pending insurance claims as a result of Brazil's
    current economic difficulties. Because OPIC Insurance does not cover
    commercial risks or losses due to devaluation, the effect on OPIC
    Insurance of such indirect impacts is likely to be minimal.
        With regard to the potential for future direct impacts of economic
    turmoil on OPIC-supported projects, OPIC is carefully monitoring the
    situation in Brazil. While OPIC support for certain types of risk is
    limited, OPIC continues to insure and finance in Brazil projects that
    meet OPIC eligibility and underwriting criteria. As part of the
    management of its insurance portfolio in Brazil, OPIC rations the
    amount of coverage offered to individual projects, uses underwriting
    tools, such as claims caps and waiting periods, to mitigate risk,
    charges higher premiums based on risk and demand, and promotes
    portfolio diversification across sectors. There is no evidence at this
    time to suggest that the Brazil situation will deteriorate to a point
    that will generate significant losses for OPIC.
        Question. There is a great deal of concern in Congress right now
    that some countries suffering in the financial crisis are dumping cheap
    products in the U.S. to escape their economic problems. What role, if
    any, does your agency have in causing this problem? Will you curtail
    your export or direct investment assistance to halt such dumping of
    products? Is greater financing of your agencies warranted if this
    problem persists?
        Answer. OPIC does not support projects that contribute to the
    dumping of cheap products in the United States. All projects seeking
    OPIC assistance are carefully screened. In accord with its statutory
    mandate, OPIC declines to assist those projects with the potential for
    an adverse effect on the U.S. economy and employment. Furthermore, OPIC
    operates a comprehensive monitoring program to evaluate the actual
    impact of OPIC-assisted projects on the U.S. economy and employment.
        Each project seeking OPIC assistance is carefully screened on a
    case-by-case basis to estimate its U.S. employment impact. OPIC does
    not support any projects that might harm the U.S. economy or that will
    result in a loss of U.S. jobs. OPIC collects and analyzes, both
    geographically and sectorally, the projected U.S. employment and
    associated economic effects of the projects it assists. Even before
    taking into account their positive U.S. employment impacts, none of the
    fiscal 1998 projects are expected to result in any U.S. job loss.
        OPIC's monitoring program has found that no projects have
    negatively affected U.S. employment. This outcome demonstrates the
    effectiveness of the economic evaluation and screening procedures used
    by OPIC in determining the eligibility of project. Monitoring confirms
    that OPIC-assisted projects provide substantial benefits to both the
    U.S. and host country economies by stimulating exports, creating jobs,
    and fostering growth and development. On the contrary, OPIC projects
    have generated 237,000 American jobs and $58 billion in U.S. exports.

                     Questions for the Record by Mr. Lewis

                              opic reauthorization
        Question. Mr. Munoz, your Annual Performance Plan for FY 2000 stats
    that the Administration will seek a four year reauthorization of OPIC
    programs.
        Has the Administration sent legislative language to the Hill yet?
    What type of changes would you like to see in reauthorization bill?
    What do you think the likelihood is that the authorizing committee will
    move a reauthorization bill?
        Answer. The Administration sent to the Congress on February 5,
    1999, a legislative proposal with bill language seeking a four-year
    reauthorization of OPIC. No increase in the current liability ceiling
    is required this time. A copy of the OPIC legislative proposal as
    submitted to the House of Representatives follows.
        Reauthorization of OPIC will help America compete and support
    development and stability in strategic regions, all at no net cost to
    the taxpayer. We are hopeful the Congress will take prompt action to
    enact a reauthorization bill. We have had initial discussions with the
    authorizing committees in the House and Senate and we will continue to
    work with all of the key committees to reauthorize OPIC and ensure
    continued availability of OPIC programs and services.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                 caspian oil and gas pipelines; kyoto protocol
        Question. The FY 1999 House Report expressed strong support for
    OPIC's role in the development of Caspian oil and gas pipelines and
    your own statement even highlights this issue.
        What is the status of this project? When OPIC states its support
    for ``environmentally sensitive development,'' what do you mean? Is
    OPIC involved with the Kyoto protocol?
        Answer. OPIC has not yet received any applications for projects
    involving the construction of oil and gas pipelines in the Caspian
    region, however, we have been involved in discussions with several
    companies and anticipate that we will be asked to support one or more
    such projects in the future.
        OPIC's policy regarding ``Environmentally sensitive development''
    is articulated in OPIC's Environmental Handbook issued in draft form on
    February 25, 1998, in the Federal Register and on OPIC's website. The
    Handbook, which is in the process of being finalized, stipulates the
    environmental policies, criteria and procedures that OPIC will use to
    determine the projects it can support, and the conditions it will apply
    to such support, consistent with its statutory mandates. As applied to
    large-scale oil and gas pipelines, siting must take into account OPIC's
    Categorical Prohibitions as described in Appendix F of the Handbook,
    which references certain internationally protected areas as well as
    practices involving human resettlement.
        All large-scale oil and gas pipeline projects must submit
    Environmental Impact Assessments, which are made public by OPIC subject
    to a 60-day public comment period. The project must meet standards for
    pipelines included in the 1998 World Bank Pollution Prevention and
    Abatement Handbook. In addition, OPIC support of such a project would
    require an independent third-party audit within the first three years
    of project operation.
        OPIC has not been involved in the negotiations of the Kyoto
    protocol, but is aware of the protocol and its provisions. The Kyoto
    protocol was negotiated and signed by the Administration and remains to
    be submitted to the Senate for ratification once certain conditions are
    met. OPIC has taken no actions as a response to Kyoto; it does carry
    out the environmental mandate in its statute.
           impact of economic situation in brazil on opic's projects
        Question. Your written testimony states that the current economic
    situation in Brazil has had no direct impact on OPIC projects. Have
    there been indirect impacts on OPIC's projects in Brazil? Do you
    envision any direct impacts on OPIC's activities in Brazil in the near
    future?
        Answer. By ``direct impact'' we mean that, to date, OPIC has not
    sustained any losses, nor are any anticipated, in the near future.
    There has been no indirect impact, but we are monitoring projects in
    the portfolio that could be adversely impacted if the current economic
    situation were to continue for some time.
                    utilization of y2k supplemental funding
        Question. Would you please describe how you have/or plan to utilize
    the $2.1 million OPIC received in Y2K supplemental funding? Has
    Congressman Horn's Subcommittee on Government Management, Information
    and Technology rated OPIC? If so, do you agree with the grade you
    received?
        Answer. The answer to the second question concerning Congressman
    Horn's subcommittee is no. OPIC, because of its size, has not been
    graded. OPIC provides quarterly Y2K progress reports to the Office of
    Management and Budget (OMB). Organizational Information Requirements
    Analysis (OIRA) and the Office of Management and Budget (OMB) are
    satisfied with the progress that OPIC is making to ensure that OPIC
    will fully function in January 2000.
        Following is an outline of how OPIC plans to utilize the $2.1
    million.
              1. Independent Verification and Validation of the ``Wang''
            systems: The ``Wang'' systems are the core proprietary
            applications supporting our Finance and Insurance business
            units. This request is to conduct an Independent Verification
            and Validation (IV&V) of the remediation effort. OPIC operates
            in the same manner as a lending and insurance institution.
            Contracting for an IV&V of core business processes is in line
            with OMB guidelines, and also with financial industry
            standards.
              2. Hardware & Software Inventory: OPIC does not have an
            automated inventory system. As part of the Y2K effort, a
            complete inventory is required before assessing where the non-
            compliant parts are.
              3. Adjustments to custom software programs: Over the years,
            numerous Access systems have been built as tools for the
            Business Units. In particular are the Finance Portfolio
            Tracking System (tracking the status of all Finance projects),
            the Finance Tracking System (for monitoring the compliance of
            finance projects), and the Insurance Forecasting System
            (forecasting exposure), among others. Most of these are
            affected with the millennium bug for two reasons. The first is
            that most are built in Access 2.0 that is a non-Y2K compliant
            version of Access, the second is the effect of the change in
            Wang data that is downloaded and entered into these systems on
            a nightly basis.
              4. Ancillary affects of changes to corporate systems:
            Changing date fields in the ``Wang'' systems will have
            significant downstream effects. Wang data is loaded not only
            into the Access databases mentioned above, but also feeds into
            a process that manipulates data before feeding it into the
            accounting system. In addition, numerous end-user management
            reports are created using this data download. All of these
            downstream effects need to be addressed before the remediated
            Wang code is implemented into production.
              5. Replacement of non-Compliant Personal Computers: OPIC has
            completed the inventory of desktop hardware.
              6. Backfill of core systems support personnel: OPIC
            reassigned one of its top Computer Specialists, formerly in
            charge of all Wang software and hardware to lead its Y2K
            effort. However, his responsibilities for administration,
            hardware and software support for the Wang production code
            needed to be covered to allow him to concentrate fully on his
            new Y2K responsibilities. In today's market, IRM quickly
            discovered that his broad skill set could not be found in one
            individual and two contractors were required to adequately
            backfill his position.
              7. Architectural Upgrades: At the end of FY 1998 end, OPIC
            had 23 servers in the computer room supporting a wide variety
            of functions. OPIC estimates that 18 of these 23 are not Y2K
            compliant. Instead of renovating each separate server, OPIC is
            taking a strategic approach to solving the problem.
                          potential for opic services
        Question. What regions of the world do you believe that OPIC has
    the greatest potential to positively assist host countries as well as
    U.S. businesses? Are there additional steps that we should be taking to
    help these countries and businesses?
        Answer. Throughout OPIC's history, the agency has helped America
    compete while supporting development and stability in strategic
    regions. All of this has been done at no cost to the U.S. taxpayer.
        The projects assisted by OPIC in fiscal year 1998 will provide
    significant economic and social benefits for developing host countries
    as well as produce thousands of U.S. jobs.
        The FY 1998 projects will generate 12,830 jobs in developing
    countries directly, of which 4,840 will be management and professional
    positions. It is estimated that the annual net effect on the host
    countries' balance of payments will be a positive $47 million. The
    foreign enterprises will generate $788 million annually in taxes and
    duties for the host countries. Once in operation, the projects will
    generate an estimated $1.2 billion in annual export earnings for the
    host countries.
        In the U.S., the 1998 fiscal year portfolio of projects assisted by
    OPIC will result in significant economic benefits to the U.S. economy.
    A substantial portion of the initial procurement for OPIC projects will
    be supplied by American firms, resulting in an estimated $2.3 billion
    in U.S. exports of capital goods and services. In addition, the value
    of American materials and equipment required for ongoing operations is
    estimated at $500 million during the next five years. As a result of
    this level of initial and operational procurement from the United
    States, the projects will generate an estimated 34,459 person-years of
    direct and indirect employment for U.S. workers.
        Looking ahead, we feel that OPIC will continue to play a strong and
    valuable role in mobilizing and facilitating the participation of U.S.
    private capital and skills in the economic and social development of
    less developed countries and areas, and countries in transition from
    nonmarket to market economies, thereby complementing the development
    assistance objectives of the United States.
        We are particularly focused on providing assistance to those
    businesses eager to enter the Central American and African
    marketplaces.
        Working closely with business leaders and Central American
    governments, we are aggressively targeting project opportunities in the
    Hurricane Mitch impacted countries of Central America. Not only is this
    an important economic market for our businesses, it is critically
    important to provide capital to these countries so that they can
    rebuild their lives and economy.
        Another important market is sub-Saharan Africa. Building on the
    leadership of the Congress and the Administration, OPIC has sought to
    open new markets for U.S. business while strengthening markets where we
    historically have been strong.
        Passage of the African Growth and Opportunity Act by Congress would
    send a strong message to African leaders and citizens that Africa is an
    important partner for American business.
        Likewise, quick enactment of the President's Central America
    supplemental will help lay a firm foundation for going forward in that
    troubled region.

                     Questions for the Record by Ms. Pelosi

                                    vietnam
        Question. When OPIC began programs in Vietnam last year, despite
    the serious worker rights problems there which OPIC acknowledged in its
    report of March 1998, you stated that covenants in OPIC insurance
    contracts and loan guarantees would include specific reference to
    issues such as the rights of association and collective bargaining and
    prohibition on forced or compulsory labor, etc. To date, how many
    contracts and guarantees have included these covenants? Does OPIC have
    plans this year to evaluate and monitor how these covenants are being
    enforced by U.S. companies in Vietnam? Do you plan to send OPIC staff
    to Vietnam to undertake these activities? Will you be obtaining input
    from outside agencies and NGOs?
        Answer. OPIC has not yet issued any final contracts for projects in
    Vietnam, but two projects are under active consideration. Should OPIC
    enter into any final contracts, all of them will include covenants to
    ensure that the projects do not contribute to worker rights violations
    in Vietnam, as required by OPIC's statute. OPIC staff will monitor the
    projects when they are operational and will do so in consultation with
    outside agencies and NGOs with expertise in matters involving worker
    rights in Vietnam.
                                investment funds
        Question. How were these funds initiated? Did OPIC respond to
    unsolicited proposals, or was there a competitive bidding process?
        Answer. OPIC's investment funds program was created in 1987, as
    part of a Reagan Administration foreign policy initiative, to respond
    to the need for equity capital in regions or sectors in emerging
    markets and developing countries identified as U.S. foreign policy
    priorities.
        OPIC's recent funds have been created in direct repsonse to
    Congressional mandates regarding Sub-Saharan Africa and the Caucasus
    region. If and when OPIC determines as a policy matter that a new OPIC-
    supported fund should be created, OPIC will select a fund manager in an
    open and competitive process. OPIC has established, and continues to
    refine, an open and transparent competitive selection process for fund
    proposals and fund managers. OPIC publishes a call for proposals for a
    specific kind of fund in a variety of business and trade publications
    and on the Internet. The call asks for proposals for fund management
    and fund strategy to address the priorities identified by OPIC.
    Proposers are required to submit a complete package of information that
    is then examined and considered by an evaluation panel.
        OPIC's goal is to maintain a fair, unbiased process open to all
    qualified applicants that produces quality fund proposals with
    competent, experienced management.
        Question. Does OPIC have a consistent policy on the degree of
    profit sharing each of the funds is required to return to OPIC?
        Answer. OPIC's profit participation is an integral component of the
    fund structure and has evolved as structuring components have evolved.
    As the major components of structure of the funds program have become
    standardized so has the degree of profit participation. Presently the
    degree of profit participation varies between 4% to 6%, depending upon
    the level of OPIC's guarantee of debt used for leverage in the fund.
        Question. During 1998 OPIC invested $60 million in a new private
    investment fund for the Caucasus to support free enterprise in Armenia,
    Georgia, and Azerbaijan. What is the status of investment in each of
    the countries from this fund? Is it aimed at any one sector? How can
    one fund operate in both Armenia and Azerbaijan simultaneously given
    the ongoing conflict there?
        Answer. Originally, the responsibility for organizing an investment
    fund for the Caucasus was given to U.S.A.I.D.
        In FY 1997, U.S.A.I.D. transferred to OPIC the funding resources to
    support this fund and asked OPIC to undertake the creation of such a
    fund. In response to Congressional priorities, OPIC increased the size
    of its commitment to the Caucasus Fund from $30 million to $60 million.
    On December 3, 1998 OPIC executed a finance agreement with the fund.
    The management of the fund has identified key personnel to staff their
    efforts in all three countries. Two offices have been opened in Tblisi,
    Georgia and Baku, Azerbaijan, and the management intends to open an
    office in Armenia shortly after they complete the raising of the equity
    capital and are in a position to begin investing.
        The Caucasus Fund intends to focus on three primary sectors--
    agriculture, transportation, and real estate. The agribusiness sector
    will target projects in food processing and distribution--areas
    expressly encouraged by Congressional Committees. Other sectors of
    interest may include financial services and telecommunications. The
    fund already has several potential investments under consideration in
    the agribusiness and real estate/services sectors.
        The fund has committed to invest a minimum of 20 percent of its
    total capitalization in each country. Each country will have its own
    office and professional staff. Where possible, the fund will seek
    investments with growth potential across industry sectors and
    geographic scope. Although this might be difficult initially, both
    governments have implemented fiscal and monetary reforms, are on record
    as favoring market-oriented economic reforms, and are expected to be
    supportive of private investment. Economicdevelopment and regional
    economic integration can help create common goals and provide
    incentives for cooperation at a political level.
        Question. Where do you anticipate the new fund initiated in 1999
    will be centered? What is the status of private investment funds in
    Africa?
        Answer. The final selection of a fund manager for the new Africa
    infrastructure fund will be made in the next 2-3 months. The fund
    manager will determine where the fund's offices will be located.
        OPIC has three existing private investment funds focused on Africa
    with $295 million in total capital. They are: Africa Growth Fund--$25
    million; New Africa Opportunity Fund--$120 million; Modern Africa
    Growth and Investment Fund--$150 million.
        The Africa Growth Fund has completed its investment phase and is
    now seeking to realize values through normal divestment of the
    portfolio.
        The New Africa Opportunity Fund has made four investments totaling
    approximately $31 million out of its available $125 million of capital.
    New Africa is still in the early phase of the investment cycle.
        The Modern Africa Growth and Investment Fund has committed to one
    project and has several in the due diligence stage. It is in the very
    earliest stage of the investment cycle.
                     new countries--pakistan and azerbaijan
        Question. Update the Committee on the status of new countries of
    operation this year--Pakistan and Azerbaijan.
        Answer. OPIC programs opened in Pakistan in March, 1998, after
    having been closed since 1990 due to nuclear non-proliferation
    sanctions. OPIC closed again following the Pakistani nuclear tests in
    May, 1998, and re-opened again in the fall of 1998, when the President
    exercised new legislative authority to grant a one-year waiver. Since
    re-opening in March 1998, OPIC has not provided any support for
    investment projects in Pakistan.
        OPIC programs became available in Azerbaijan in 1995. The FY 1999
    Foreign Operations Appropriations Bill provides that ``Section 907 of
    the FREEDOM Support Act shall not apply to . . . any insurance,
    reinsurance, guarantee, or other assistance provided by the Overseas
    Private Investment Corporation. . . .'' OPIC in March 1999 approved its
    first project in Azerbaijan, consisting of political risk insurance for
    small business investors in an environment cleanup project in areas
    polluted by oil production.
        Question. Explain how OPIC can enter into multiyear commitments in
    Pakistan given that legislative exemptions from sanctions was granted
    for only one year.
        Answer. The nature of the OPIC programs is that they support long-
    term direct investment by making relatively long-term commitments. OPIC
    insurance contracts, for example, often extend for up to 20 years, and
    OPIC loan agreements often provide for loan disbursements over a period
    of several years, with repayments for up to 15 years thereafter. While
    OPIC has the authority to provide these kinds of commitments for
    Pakistan during the current one-year waiver period, OPIC will not enter
    into such commitments after the waiver period expires unless proper
    authority is in place.
        In addition, OPIC will not enter into any commitments to support
    investment in Pakistan unless the normal worker rights, human rights,
    and environmental criteria are met that apply to every OPIC project.
    OPIC has not actually provided any commitments in support of investment
    in Pakistan in over eight years.
        Question. What is the nature of demand in Azerbaijan? Are American
    oil companies depending on OPIC to finance the pipeline construction,
    or only selected elements?
        Answer. OPIC has 14 projects registered for political risk
    insurance in Azerbaijan and six projects have expressed interest in
    obtaining OPIC financing, in the services, food processing,
    telecommunications and energy sectors. As the pipelines necessary to
    transport oil and gas out of the Caspian region will cost billions of
    dollars, OPIC insurance and financing are a key element in structuring
    financing for these projects, but OPIC will be one among many
    institutions participating in the financing and the provision of
    political risk insurance for these projects. OPIC financing can be used
    for all phases of the pipeline, not just construction.

                     Questions for the Record by Ms. Lowey

                            opic and small business
        Question. I am very interested in what OPIC is doing to help small
    businesses gain access to emerging markets, and I hope that your small
    business initiatives will have demonstrable results. Could you expand
    upon what you are doing to reach out to small businesses and let them
    know how OPIC can help them? I frequently receive calls from the owners
    of small businesses in New York who are looking for assistance in
    breaking into international markets. And too often, when I suggest they
    talk to OPIC, they weren't aware that OPIC was a potential resource.
        Answer. 1999 is the ``Year of Small Business'' at OPIC and a top
    priority is to expand outreach efforts. A Small Business Action Team
    was formed to implement a series of action steps to expand small
    business outreach and to serve as advocates within OPIC.
        OPIC is reaching out to small and medium-size businesses that are
    seeking to invest overseas, but need help with political risk insurance
    or to cross the key-financing threshold. OPIC's award winning website
    contains a user-friendly small business page which is accessible to
    small businesses throughout the country.
        OPIC also works with the other U.S. Government agencies, small
    business organizations, and state and local trade and commerce
    officials to ensure that small businesses are aware of the products,
    service and advice available at OPIC. OPIC sponsors and participates in
    seminars, forums, and conferences throughout the U.S. which are focused
    on increasing awareness of small and medium-sized businesses of the
    opportunities for overseas investment and how OPIC can assist them.
        An important component in OPIC's small business outreach program is
    to identify the small business suppliers who are contributing to OPIC-
    assisted projects throughout the world. This outreach provides
    suppliers with an opportunity to learn more about their contribution to
    OPIC's projects and to utilize this opportunity to provide information
    about OPIC's products.
        OPIC has a long-standing commitment to help small and medium-sized
    businesses participate in the opportunities offered by overseas
    investment. This commitment includes extensive outreach to small and
    medium-sized business as well as an effort to increase small business
    use of OPIC products. In fiscal year 1998, almost 30% of OPIC assisted
    projects were small businesses.
                                   azerbaijan
        Question. Can you update us on OPIC's activities in Azerbaijan? To
    what extent will you ensure that these projects are not supporting
    partners in Azerbaijan that have been obstacles to a resolution of the
    dispute between Azerbaijan, Armenia, and Nagorno-Karabakh?
        Answer. OPIC's Caucasus Fund is in the process of raising capital
    in order to begin investing. On March 9, 1999 the OPIC Board of
    Directors approved a proposal to provide political risk insurance to
    its first project in Azerbaijan. The project is sponsored by a U.S.
    small business which will be engaged in environmental cleanup. OPIC
    supports U.S. private investment in commercially viable projects that
    contribute to the development of the host country and would not support
    a project that actively worked against a resolution of the Nagorno-
    Karabakh dispute.

                                Submitted to TDA

                     Questions for the Record by Mr. Lewis

        Question. Mr. Grandmaison, while I am a strong proponent of
    overseas investment, U.S. business promotion and international trade,
    it appears that the U.S. Trade and Development agency, OPIC and Ex-Im
    Bank all have a very similar mission.
        Am I correct in my assumption that all three agencies work closely
    together? Do the three agencies perform redundant functions? Do you
    believe that the Federal Government needs three separate agencies that
    perform similar functions? Is it feasible to collapse these three
    agencies into one? If not, why?
        Answer. Without question, the three trade finance agencies work
    closely and cooperatively on a variety of initiatives and projects.
    Therefore, it is not inappropriate to examine whether consolidation
    could make them more effective. We have considered this issue several
    times, however, and continue to reach the conclusion that consolidation
    would not be feasible or desirable.
        The primary policy rationale for consolidation is that a single
    entity would be more efficient and effective in providing government
    support to assist U.S. companies investing or exporting overseas. We
    believe that with one agency closely coordinating U.S. trade promotion
    efforts, there is a danger that the agency's mission would evolve into
    providing ``cradle-to-grave'' project support from feasibility study to
    project financing to trade financing to insurance. We believe that this
    would be a step in the wrong direction. Although a ``one-stop financing
    shop'' approach may appeal to some of the U.S. businesses seeking
    assistance, a closer look at the end result of such an approach reveals
    a fundamental philosophical defect. If the government attempted to
    provide such comprehensive assistance to U.S. companies, then companies
    need apply less of their own resources--both time and money--to
    pursuing overseas business. Currently, these programs leverage private
    sector resources; as a consolidated agency they might very well
    displace private sector resources. The overall strength of the programs
    would be reduced and the government would be providing precisely the
    type of ``corporate welfare'' to which both the Administration and the
    Congress are adamantly opposed.
        In the case of TDA, for instance, rather than providing a small
    amount of money to fund a feasibility study that will better position
    an American company on a project to be financed by a multilateral
    development bank or the host country, a consolidated entity might be
    expected to provide not only the feasibility study grant but also the
    project financing, regardless of other available financing sources.
    Unless the budget for trade promotion activities grows dramatically,
    this approach would result in fewer U.S. companies having access to the
    available government assistance. Though the benefits for some would be
    more complete, those benefits would be monopolized by the few. The new
    entity could find itself in the unenviable position of picking
    relatively few overseas projects to support, start to finish, and
    relatively few U.S. firms to undertake these projects. Understandably,
    U.S. companies chosen as recipients of seamless government support from
    the beginning to the end of the project would find this approach more
    attractive--but from a government policy perspective, we do not believe
    this is the direction to go to maximize the impact of public
    expenditures in the export promotion field.
        As the TDA program currently operates, government funds are able to
    leverage private sector resources in winning overseas contracts.
    Assistance is targeted to business opportunities where it can make a
    difference for U.S. firms in beating the competition. In the proposed
    arrangement, the government's ability to leverage additional non-
    government resources would be impaired. The emphasis would shift from
    providing a critical intervention to hand-holding throughout the entire
    process.
        We also seriously doubt that consolidation would in fact create a
    more efficient and cost-effective agency. Among the assumptions that
    have led to consideration of a proposed consolidation are: the three
    agencies have similar mandates, the agencies duplicate functions, the
    same companies work with all three agencies, and that current levels of
    coordination among the agencies do not meet the needs of U.S.
    companies. In fact, the mandates of the agencies differ significantly:
    Ex-Im finances U.S. exports; OPIC helps U.S. investors; and TDA gets
    U.S. companies into infrastructure projects. Also, in practice, few
    companies work with all three agencies as each agency provides a
    specialized service that benefits a distinct constituency. As a result,
    the constituencies, the approach, and the organizational culture of
    these agencies differ. Forcing them to merge together would result only
    in confusion and inefficiencies. Therefore, consolidation would only
    work if the agencies' mandates were drastically changed, and we do not
    believe that is warranted.
        Nor would a proposed consolidation result in significant
    administrative savings by staff reductions or combining certain
    functions. We do not believe that the staff of any of these three
    agencies is currently underutilized or that redundancies in fact exist.
    To the extent that staff in each agency can take on entirely new
    functions and operate more effectively, those positions should be
    eliminated or changed for the sake of good government regardless of
    whether the agencies were consolidated. With respect to TDA in
    particular, we believe that our 41-person staff is already operating
    efficiently and would not achieve any perceived savings by joining the
    other two agencies. In fact, one area inwhich there would be a clear
    cost increase for TDA would be in relocation; any physical move from
    its economical Rosslyn office space would be costly for TDA.
        Finally, pulling TDA under the umbrella of a larger bureaucracy
    would inevitably result in the loss of decision-making flexibility and
    the loss of autonomy and ability to respond quickly (which is what we
    believe gives the program its edge). In practice, getting a feasibility
    study grant could be perceived as the first step to getting a foot in
    the door for further government financing, placing more pressure on TDA
    to approve funding requests from companies which now currently pay for
    their own feasibility studies and diverting funds from projects where
    it could make the difference for U.S. involvement. Ultimately, as a
    grant-making entity within a consolidated operation, TDA's
    effectiveness would be diminished and would become a service bureau for
    the newly created Ex-Im-OPIC hybrid.
        As currently structured, TDA's strength lies in its ability to
    provide foreign project sponsors with U.S. engineering expertise, and
    to leverage often non-U.S. sources of financing (World Bank, regional
    banks, country's own resources) for implementing the project and
    procuring goods and services from U.S. companies. Therefore, we do not
    believe that any real savings would be realized from a consolidation,
    nor do there appear to be any specific policy reasons warranting such
    an action.
        It is important to note, however, that a high level of cooperation
    exists--not only between the three trade finance agencies, but also
    with the Departments of State, Commerce, Energy, and Transportation. We
    believe that the benefits derived from these relationships are the
    result of the fact that our specialized staffs complement each other,
    offering different perspectives and information, rather than redundant
    viewpoints.
        A clear example of the cooperation between the trade finance
    agencies is the new Caspian Finance Office established by the three
    agencies and operated out of our Embassy in Turkey to promote
    development associated with the oil and gas industry in the region.
    Despite our close relationship, however, the agencies found it
    necessary to send staff representing each agency to pursue each
    agency's unique mission.
        In some instances, however, closer collaboration does make sense,
    and the three agencies are open to combining resources and efforts when
    they do. For example, the three agencies developed an outreach program
    in Africa this past year in which a TDA staff member was trained in the
    Ex-Im and OPIC programs so that he could promote all three agencies
    during a three month business development mission in Southern Africa.
    This individual's job was to meet with as many U.S. and African project
    sponsors as possible, present the programs of the three agencies, and
    be available to support agency-specific activities being led from the
    U.S. Each of our agencies generally relies heavily on our Embassies and
    the Foreign Commercial Service for this type of marketing, but in this
    case it was worthwhile to have a more knowledgeable program officer in
    the field. So, while this was an extremely effective marketing tool,
    there was never any consideration given to consolidating all of our
    activities in South Africa because each of our objectives in the
    country--and the process of reaching those objectives--is so different.
        Question. How much of TDA's core budget was augmented through
    transfer of funds from the Freedom Support Act, the Support for East
    European Democracy Act, and other sources in FY 1998? What do you
    project these transfers will total in FY 1999 and what do you expect
    for FY 2000?
        Answer. In FY 1998, TDA received $18,521,000 in transfer funds. In
    FY 1999, we anticipate receiving $17,083,000. With the completion of
    the South Balkan Development Initiative (SBDI) and the originally
    committed funding for the TDA effort in Bosnia, the only possible SEED
    Act transfer in FY 2000 might be up to $2 million to continue
    investments in Bosnia, although there has been no decision on this
    issue. As a result, the only significant transfer we currently
    anticipate for FY 2000 is approximately $6 million in Freedom Support
    Act transfers.
        The transfers are broken down as follows:

    ------------------------------------------------------------------------
                                                   Fiscal year
                                    ----------------------------------------
                                                                    2000
                                         1998         1999     (anticipated)
    ------------------------------------------------------------------------
    Freedom Support Act............    6,000,000    7,800,000     6,000,000
    SEED-SBDI......................    8,000,000    8,000,000             0
    SEED-Bosnia....................    4,000,000    1,000,000             ?
    Other..........................  \1\ 536,000  \2\ 283,000             ?
    ------------------------------------------------------------------------
    \1\ FY98 Other included $521,000 for Egypt Business Outreach and $15,000
      for Europe/NIS Multi-Agency Training Program in Istanbul (OPIC).
    \2\ FY99 Other included $273,000 for Caspian Finance Center and $10,000
      for Europe/NIS Multi-Agency Training Program in Istanbul (Ex-Im Bank).

        Question. Your FY 2000 presentation describes ``Seizing Regional
    Opportunities'' and TDA's ability to help U.S. businesses capture
    market share in Africa, Europe and Asia but does not mention Latin
    America. Why isn't Latin America part of the Seizing Regional
    Opportunities program?
        Answer. The discussion of ``Seizing Regional Opportunities'' was
    included to show that TDA is a nimble and dynamic agency, capable of
    quick responses to changing realities in the global economy. ``Seizing
    Regional Opportunities'' is not a formal program, but rather an overall
    TDA strategy. The descriptions of current activities in Africa, Asia,
    and Europe show how TDA is responding creatively to the varying
    economic challenges presented by these regions.
        Our use of these illustrative examples, therefore, is not
    indicative of major shifts in funding for these regions away from other
    regions, such as Latin America, the Middle East, the Caspian Region or
    the New Independent States. TDA is structured regionally, and the
    efforts of our Latin America team have led to a particularly robust
    program in that region. Because of the rising level of demand for our
    program in Latin America, our budget for the region increased roughly
    $1 million in FY 98, and is expected to increase another $1 million in
    FY 99. In fact, our Latin America program receives more funding from
    our core budget than any other single region.
        Question. I note that in 1998 TDA invested $10 million in Latin
    America and the Caribbean. What do we have to show for this investment?
    What does TDA plan to invest in this region for 1999 and 2000? Does it
    make sense to focus more of our resources in this region?
        Answer. TDA's program is inherently one of long-term investment.
    Because we are involved at the earliest planning stages of a major
    infrastructure project, it frequently takes years to determine whether
    a particular investment is going to pay off in follow-on exports. We
    do, however, have an example of a FY98 investment of $1 million that is
    already paying off handsomely.
        In FY98, TDA invested $1 million in Argentina in support of a
    consortium led by the New York-based Odgen Corporation in a competition
    to become part owner and operator of 33 airports in Argentina'a
    national airport system. The Ogden-led consortium was successful in
    winning this heavily fought battle, and their implementation of this
    project could prove to be one of TDA's most important success stories
    ever: the capital improvements of the airports could represent more
    than $1 billion in potential exports over the next 30 years. In the
    first 30 months of the concession, U.S. exports could reach $200
    million. Without TDA's participation, it is possible that these exports
    would have been won by our foreign competitors.
        Another FY98 investment that we expect will generate new projects
    was a TDA conference in Atlanta focused on Latin American projects. At
    this conference, 600 registered participants from the United States and
    South America discussed the 128 Latin America projects presented. These
    projects represented an export potential of $20 billion. The conference
    culminated in the scheduling of 1,200 one-on-one meetings between the
    U.S. companies and the project sponsors. Overall evaluations by the
    participants indicate that this conference was a resounding success,
    and has led to an untold number of potentially lucrative business
    connections. TDA's evaluation team will continue to track the results
    of this conference to determine the value of exports generated from the
    conference, although, again, most will not be quantifiable at this
    early stage.
        As a demand-driven agency, TDA roughly allocates its budget along
    regional lines, while retaining the flexibility to shift resources to
    and from regions to reflect current demand levels. FY98 saw an increase
    of over $1 million over the FY97 level for Latin America. In FY98, we
    allocated $10 million, whereas the funding level in FY97 was just under
    $9 million. We are currently projecting an increase in FY99 to $11
    million, and expect a roughly consistent allocation for FY 2000.
        Our program in general is results-oriented, with concrete
    measurements to demonstrate our success. The best indicator of our
    success is the export multiplier, the amount of exports facilitated by
    every dollar TDA invests. In 1993, our export multiplier was 25:1, in
    FY98 that number had risen to 32:1. Increases in our investment in the
    Latin American region demonstrate that we believe that the tremendous
    level of infrastructure investment occurring in Latin America has
    provided and will continue to provide excellent opportunities for U.S.
    exporters.

                    Questions for the Record by Mr. Kingston

        Question. Can you comment on the impact of the Asian financial
    crisis on the volume of activity at TDA? Has this crisis increased
    costs for U.S. businesses and driven up the amount of assistance,
    advisory and financial, delivered to customers by your agency?
        Answer. The volume of requests for TDA's assistance has not been
    significantly affected by the Asian financial crisis that began in July
    1997. Our activities in Indonesia, Thailand and Malaysia decreased some
    as these governments put many public sector investments in
    transportation and energy on hold. However, TDA's increased activities
    in the Philippines and Vietnam have offset much of this decline. At the
    same time we witnessed an increase by the governments to transfer the
    rights to develop and finance water and waste water projects to the
    private sector. As a result, we are now investing more in the private
    sector than in years past. We also have been supporting more World Bank
    and Asian Development Bank projects to ensure that U.S. companies win
    their share of export opportunities during this time period.
        We are helping to design several information system projects that
    will lend support to the financial recovery process. In Vietnam, for
    example, we have approved grants to help improve the financial sector.
    We are also seeking to position U.S. companies in helping to modernize
    Asia's banking and financial sector, which currently utilizes badly
    outdated methods for tracking financial transactions. Towards this end,
    we are hosting a regional conference on bank automation in March to
    enable top U.S. information management specialists to meet directly
    with Asian banking and financial officials. American businesses are
    well-positioned to offer both consulting services and information
    management equipment to help Asia address its problems in the banking
    and financial sector with high-tech solutions, thus contributing to the
    recovery of Asia's economy.
        Question. What plans does your agency have for Russia? Have you
    written off any or all activities with Russia due to its insolvency and
    rampant crime? What might your agency do to assist U.S. companies to
    help lift Russia out of its quagmire? Or, should we force Russia to
    fend for itself?
        Answer. Since we initiated our program in Russia in 1991, TDA has
    adhered to the approach of being demand-driven in our support of
    project opportunities. Consistent with this philosophy, we will
    continue to support commercial initiatives in Russia as long as U.S.
    companies are willing to pursue feasible business endeavors. Changes in
    demand in Russia for TDA funding during FY98 provide clues as to how
    the U.S. business community is responding to recent events there, which
    is a good indicator as to the level of support we will commit to
    Russia. While the beginning of FY98 saw a steady increase in demand for
    TDA funding, the deteriorating economic situation in mid-summer led to
    a slowdown in demand. Towards the close of FY98, however, immediate
    concern over the recent economic crisis appeared to have lessened
    somewhat, and TDA witnessed a moderate increase in proposal
    submissions. We have seen a clear trend towards submissions from medium
    and large U.S. companies which have adopted a long-term investment
    strategy and have the determination and resources to weather Russia's
    political and economic fluctuations. Therefore, despite recent events,
    TDA anticipates that it will continue to share the risk with U.S.
    companies as long as there is demand for our assistance in Russia.
        Question. Could you comment on how your activities in Brazil might
    be impacted if the local economy and currency continue to slide
    downward?
        Answer. In FY98, TDA's activities in Brazil represented
    approximately one-third of its investments in Latin America. TDA
    expects to invest a similar amount in Brazil in FY99 in spite of the
    economic downturn. Many Brazilian analysts predict that it will take at
    least six months for the Brazilian currency to stablize as the
    necessary reforms are implemented by the government and the current
    account balance improves. It is difficult to predict at this stage
    whether there will be a significant worsening of the Brazilian economy.
    However, if this were to occur, due to the nature of TDA's program, TDA
    projects would probably primarily be affected by delays, with no
    significant overall decline in TDA activity in Brazil.
        Brazil is the largest market in Latin America and has a tremendous
    demand for investments in new infrastructure, including power,
    transportation, water and sanitation, and telecommunications.
    Infrastructure projects are typically implemented for use over the long
    term (20+ years), and are therefore not affected in the same way as
    product sales of consumable goods. Although some projects may be
    vulnerable to delays or cancellation due to investors' concerns about
    the market, overall viability for most projects will not be permanently
    affected. Given TDA's involvement in the early stage of the project
    cycle, it is expected that there will be a continued demand for TDA
    funding for priority projects, the planning of which must move forward
    in spite of the economic slowdown.
        Question. There is a great deal of concern in Congress right now
    that some countries suffering in the financial crisis are dumping cheap
    products in the U.S. to escape their economic problems. What role, if
    any, does your agency have in causing this problem? Will you curtail
    your export or direct investment to halt such dumping of products? Is
    greater financing of your agencies warranted if this problem persists?
        Answer. The goal of TDA is solely to promote the export of U.S.
    goods and services to major infrastructure projects in the developing
    world, thereby creating jobs in the U.S. Therefore, our program is
    unrelated to the trade practices described. In fact, the recent decline
    in exports and the growing trade imbalance caused, in large part, by
    the global financial crisis provide a clear rationale for increased
    funding for TDA and the other trade finance agencies whose goal it is
    to promote U.S. exports. TDA's success in promoting exports is
    demonstrated by its export multiplier. This statistic shows that since
    TDA's inception, every dollar invested by TDA has spurred $32 worth of
    exports. Therefore, programs such as TDA's are part of the solution,
    not the problem, of the trade imbalance.

                     Questions for the Record by Ms. Pelosi

        Question. TDA has requested an increase of $4 million from $44 to
    $48 million. Can you comment more specifically on which regions of the
    world would benefit from such an increase?
        Answer. TDA is a demand-driven agency. Although we are organized by
    region, and allocate our budget on this basis, funding decisions remain
    fluid so that we can respond to economic events as they unfold.
    Patterns of growth in some regions, countered by financial
    uncertainties in other areas, can give early indications of where extra
    resources might be devoted.
        Africa, for example, is experiencing a period of rapid development.
    Our budget for Africa for FY99 has been entirely reserved or obligated
    only one third the way through the fiscal year, whereas last year's
    budget continued to meet demand two-thirds the way through the fiscal
    year. Though this is not a scientific measure, it does provide a rough
    idea of the level of demand we are trying to meet with a limited
    budget.
        While at first glance one might think that extra resources for
    Africa could be easily shifted from our Asia program due to the Asian
    financial crisis, this does not hold up to closer scrutiny. While there
    was a decrease in demand for our activities in Indonesia, Thailand and
    Malaysia, it was largely offset by increased activities in the
    Philippines and Vietnam. Furthermore, much of the infrastructure
    investment originally contemplated by the public sector in Asia has
    simply shifted instead to the private sector, a trend toward
    privatization that TDA encourages.
        Latin America presents a similar situation. There is tremendous
    demand for new infrastructure projects in the region. Although
    financial uncertainty in Brazil, the largest recipient country in the
    region, may cause investors to take a slower approach, we do not
    predict any significant decline in demand. In fact, because
    infrastructure projects are both long term and necessary components of
    development, they can typically proceed in a financial environment that
    would be more hostile to other types of exports.
        Therefore, because there is increasing demand for our programs in
    the southern hemisphere, particularly, and no lessening of demand for
    our activities in Asia and elsewhere, TDA currently has no choice but
    to turn down viable projects when confronted with budget limitations. A
    funding increase for FY 2000, however, would allow us to meet some of
    this increasing demand, thereby taking early steps to level the playing
    field in these hotly contested emerging markets against our foreign
    competition.
        Question. Describe the level of demand for programs in Africa, and
    how an increase in funding would affect projects in that region.
        Answer. Demand for TDA's programs in Africa has been growing
    rapidly, both in terms of the number of countries where TDA is
    encountering requests for support and in the types of projects for
    which support has been requested. In fact, only one-third the way
    through this fiscal year, TDA had already reserved and obligated 100%
    of its allocated budget for Africa, whereas our budget in FY98 was not
    obligated until June last year.
        Some of the increase in requests for TDA support are certainly due
    to an aggressive marketing campaign in key countries in the region.
    These marketing efforts were highlighted by the temporary assignment of
    a TDA Country Manager to Southern Africa for three months last fall, in
    addition to the Agency's Director and Africa Regional Director both
    traveling to Africa twice in the last year. Largely through these
    efforts, TDA has been successful in expanding our Africa program beyond
    just South Africa--which is some cases is now a competitor for projects
    in the region. In the last few years, TDA has worked with 15 African
    countries in addition to South Africa, and also with the Southern
    Africa Development Community (SADC).
        Apart from TDA's efforts to promote an expanded program in the
    region, the rise in requests for support is also a natural offshoot of
    expanding stability and market-based reforms throughout the region, and
    a growing resolve on the part of African public and private sector
    officials to find a way to move their priority projects forward. The
    American business community has also become more aware of the
    opportunities this market represents, while at the same time the
    financial community is becoming better equipped to evaluate and approve
    investments in infrastructure and industrial projects in Africa.
        This last point is key to the appropriateness of TDA funding for
    the region. While traditional government and multilateral development
    bank projects continue to account of the bulk of Africa's
    infrastructure programs, more and more privately-driven projects are
    being considered. This trend toward private sector projects and away
    from public sector projects is consistent with the significant
    worldwide shift towards the private sector that TDA has been
    encouraging in recent years. As African and U.S. companies and private
    financial institutions consider new ventures, the availability of TDA
    support may play a crucial role in their successful development by U.S.
    firms. Additional TDA resources in Africa would therefore likely be
    absorbed by strong new growth in privately financed projects.
        Question. Does TDA have any role in the rebuilding efforts from the
    devastation of Hurricane Mitch in Honduras and Nicaragua? If not, why
    not?
        Answer. TDA expects to become increasingly involved in evaluating
    infrastructure projects in Central America necessitated by the effects
    of Hurricane Mitch. While we do not have adequate personnel or
    resources to devote to the type of sweeping review that is required at
    this stage of a situation of such massive proportions, we will rely
    heavily on the findings from work performed at this early stage by the
    Department of Commerce, the Agency for International Development, the
    World Bank, the Inter-American Development Bank, and others to help us
    identify projects, particularly ones in which we could facilitate U.S.
    corporate participation. Once leads have been identified, we will work
    expeditiously to ascertain which ones might benefit from TDA and U.S.
    business involvement.

                     Questions for the Record By Mrs. Lowey

        Question. As you know, I strongly believe that projects that bring
    governments and people together in the Middle East are the key to real
    peace in that region. I know that TDA has been involved in several
    Jordanian-Israeli projects. Last year, we spoke about a TDA feasibility
    study for a fiber-optic telecommunications network. I also understand
    that TDA has worked on a cooperative airport project between the
    Jordanians and the Israelis. Could you talk a little bit about Middle
    East regional projects with which TDA has been involved and how these
    projects promote economic cooperation in the region?
        Answer. The examples which you raised, the fiber-optics and airport
    projects, are good examples of regional feasibility study projects
    funded by TDA. Although, TDA-funded grants are typically aimed at
    specific projects in a country, both the fiber optics project and the
    airport project were conducted through grants to Jordan with
    requirements for equal Israeli participation. By assisting in the
    development of a country's infrastructure, TDA helps make the country
    more capable of participating in the regional efforts described in your
    question. The Jordan Civil Aviation Authority, for example, is
    committed to improving air safety, ground efficiency, and security at
    the Aqaba International Airport. Reaching the most recent ICAO-level
    safety standards will allow the airport to receive larger planes, thus
    increasing the influx of foreign tourists and tourism income. As
    designed by the TDA study, the joint use airport will enable the use of
    wide body jets, the deliver business and tourist passengers to both
    countries. The improvements will also demonstrate to the Israelis,
    Jordan's partner in the ``Aqaba-Eilat Peace Airport'' project, Jordan's
    commitment to the safety of Israeli-bound passengers traveling through
    Jordanian airports. The TDA-funded ``Jordan Border Security
    Modernization Feasibility Study'' is another project supporting that
    objective.
        The airport project is an excellent illustration of your view that
    Middle East projects which bring government and people together are the
    key to real peace in the region. As a partner in this project, TDA has
    participated at a number of levels: funding the feasibility study
    conducted by Lockheed-Martin, sponsoring reverse-trade missions to the
    United States and conferences introducing the civil aviation
    authorities to U.S. technology, and, most recently, providing technical
    assistance in the development of a financial and legal joint management
    plan for the implementation of the pilot project. While there have been
    delays, the project has moved forward, and over the past year, the
    Israelis have allowed an increasing number of Israeli bound fights to
    land at Aqaba's airport under the control of Jordanian air traffic
    controllers. This leap of faith on the part of both governments was
    perhaps unimaginable only a few years back. The goal of the ongoing
    financial project, which will establish the guidelines for management
    and revenue-sharing, is to secure permanent status for this pilot
    project. Additionally, the continued involvement of TDA and the U.S.
    State Department (which transferred Peace Process funds to TDA for this
    project) keeps both parties at the table, communicating about the
    relationship. For political and economic reasons, we are still a long
    way from achieving our goal, but every step gets us a little closer.
        TDA is always open to new projects which present opportunities not
    only for U.S. commercial success but also to those which have a
    positive impact on the Middle East Peace Process. The urgent need for
    the development of the water sector (clean water supply for both
    residential and commercial use) is an example of a common thread
    running across all of the countries in the region. While TDA is not a
    policy-making agency, it is clear that assistance in this sector could
    advance the goal of economic cooperation in the region. Recognizing
    this, last year, the U.S. Congress allocated $50 million earmarked for
    water projects in Jordan. Similar funds have flowed from multi-national
    institutions.
        For its part, TDA is pursuing a number of Middle East/North Africa-
    regional water-related projects: We recently, for example, signed a
    grant with the Jordan Phosphate Mining Company for a feasibility study
    for a $15 million project which will help to reduce the Eshidiya mine's
    demand on groundwater resources and limit its impact on the country's
    water system. Conferences are another example of TDA's regional
    efforts, both in the Middle East and elsewhere. TDA will host an Africa
    and Middle East regional water projects conference in Fall, 1999, to
    promote U.S. company involvement in the development of these important
    projects. The heads of the water authorities of most of the Middle
    East/North Africa region countries will be invited to present their
    priority water-sector projects to the U.S. firms which can move their
    projects towards implementation.
                                              Thursday, March 25, 1999.

                      AGENCY FOR INTERNATIONAL DEVELOPMENT

                                    WITNESS

    BRIAN ATWOOD, AID ADMINISTRATOR

                        Mr. Callahan's Opening Statement

        Mr. Callahan. Good morning. Today the committee will hear
    from Mr. Brian Atwood, Administrator of the Agency for
    International Development, about the President's, and I assume
    his, request for fiscal year 2000 for development and
    humanitarian programs.
        Brian, we welcome you once again before this committee. We
    know that you have been nominated by the President to serve as
    the U.S. Ambassador to Brazil. So this in all likelihood, if
    the Senate has any wisdom, which they do, may be your last
    appearance before this committee as AID Administrator. From now
    on you will be lobbying to Chairman Rogers trying to get some
    money to improve your embassy, which he probably will give to
    you.
        Mr. Atwood. Right.
        Mr. Callahan. We have always been very open and direct with
    each other. That is why we can have this frank dialogue this
    year about your budget request. For your programs under the
    jurisdiction of this subcommittee, the President is seeking
    more than an $800 million increase, increasing it to $14.5
    billion. Within this total, AID development programs would
    increase more than $238 million above our fiscal year 1999
    bill.
        It appears that a good deal of this increase is to honor
    commitments made by the President and others during this past
    year's globetrotting. I remind you that this committee's
    responsibility is not to fund every promise made to foreign
    leaders by senior administration officials. It is not
    necessarily what this committee might intend to do.
        I do not understand how the President expects Congress to
    fund this overall budget increase. The Budget Committee last
    week proposed slashing international affairs spending to about
    16.4 billion. I understand that during the past few days they
    have even suggested that we cut it another billion, which is
    going to put it, if that is the case, about $3 billion below
    last year's level.
        As you know, foreign aid is not very popular in Mobile,
    Alabama, or many other places. So it is unlikely there will be
    an outpouring of opposition to the budget caps that exist in
    current law. And since saving Social Security first is a mantra
    being chanted at both ends of Pennsylvania Avenue right now,
    this subcommittee will likely be required to recommend a bill
    that is considerably less than current year levels of spending.
    Therefore, the administration had better let this committee
    know what its true international spending priorities are;
    otherwise it will become our responsibility to pick and choose
    where to make the necessary cuts to meet the appropriation
    allocation which will be given to us by the full committee.
        We don't want to do that. So we are going to ask the
    administration to assist us, which is basically what we are
    doing during the 5 years that I have been Chairman of this
    committee, providing you with as much flexibility as we
    possibly can, yet still having to live within the caps that
    will be allocated to us.
        I note that in reviewing the fiscal year 2000 request, it
    appears the White House has sought to increase just about every
    foreign account, with one rare exception, UNICEF. I am
    astonished that the President has selected this program, which
    has done great things for suffering children worldwide and
    which enjoys broad bipartisan support here on Capitol Hill.
    That is the only program in our jurisdiction that he is
    proposing to cut.
        You and I have worked well together during the past 5
    years. We have cooperated to create a Child Survival Account
    and have dedicated sufficient resources for the needs of
    children worldwide. We have joined the fight against polio and
    other infectious diseases. We have both opposed earmarking in
    the bill, so you have had, as I said, much more flexibility.
    And while I have every confidence in your personal good
    intentions, significant management problems still persist
    within AID.
        According to your inspector general, AID's new management
    system still cannot account for most of the Agency spending.
    This failure has prevented this committee from receiving
    accurate or timely information regarding AID obligations,
    making it nearly impossible for us to track the expenditure of
    billions of dollars in taxpayer funds. Further, AID lags behind
    most other Federal agencies in achieving Y2K compliance. Until
    these problems are resolved, this committee will view with
    skepticism the accounting and budgeting information received
    from USAID.
        I want to touch on one final point before I recognize Ms.
    Pelosi for her opening remarks. Last week Treasury Secretary
    Rubin dedicated much of his testimony before this committee to
    the issue of unserviceable debt incurred by Third World
    governments and the urgent need to write-down these bad loans.
    In essence, the Secretary's remarks call into question the
    entire mechanism of foreign aid lending for the past 40 years.
        I agree that many developing nations, through a combination
    of corrupt practices, incompetence and mismanagement, are
    teetering on bankruptcy. Yet today you will present AID's plan
    to launch a new loan program. It makes no sense to me, while
    the White House and Treasury argue that these poor countries
    must be rescued from the brink of bankruptcy due to decades of
    unsound lending, and meanwhile AID hopes to extend new loans to
    developing companies whose ability to repay is in doubt.
        We have an uphill battle, Brian, as you and I have
    discussed privately, convincing me of the need for USAID to
    become a participant in this type of new activity.
        [The statement of Mr. Callahan follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Callahan. Now I will recognize Mrs. Pelosi.

                         Ms. Pelosi's Opening Statement

        Ms. Pelosi. Thank you very much, Mr. Chairman. I, too, am
    pleased to welcome Mr. Atwood here today, which we have said--I
    have thought this before, but I think it is real now--may be
    his last appearance before this subcommittee and will probably
    be his last appearance as AID Administrator, in any case.
        I want to compliment Mr. Atwood both for the job that he
    has done at USAID and on his perseverance in staying on the job
    for as long as he has in this time of difficult fiscal
    challenges. I know he has had many opportunities to leave
    before, but I think he recognizes, as do the rest of us, that
    his leadership was necessary at USAID.
        Everyone has benefitted from his service. I am grateful he
    has remained as long as he has, and I know that he will be a
    great Ambassador to Brazil. And we certainly look forward to
    visiting him there, don't we, Mr. Chairman?
        Mr. Callahan. We certainly do.
        Ms. Pelosi. As we all know, AID manages over $7 billion in
    foreign aid funding, which includes everything from ESF to
    Israel and Egypt, to providing medicines to starving children,
    or developing solutions to the global crisis in HIV/AIDS. With
    such a vast mission, it is remarkable that any one agency can
    manage it. It takes great leadership, and Mr. Atwood has
    provided that.
        In our travels, Mr. Chairman, and in my travels in other
    committees, I have seen AID in action in the field. I have to
    say that its employees are extremely dedicated, hard-working,
    and trailblazers in development work throughout the world.
        With the end of the Cold War, AID's challenge expanded
    first into Eastern Europe and then into the former Soviet
    Union. As the demands, Mr. Atwood, on your mission continue to
    expand, in fact become more complex, it is my hope that we can
    preserve AID as the premier development agency in the world.
        Few people realize the fact that AID has paved the way
    throughout the world in developing on-the-ground solutions to
    seemingly intractable problems. Other donors can in some cases
    make the case that they do more financially in relation to
    their populations. They may say the U.S. does not contribute
    its fair share. The fact is that no other country even comes
    close to the U.S. in terms of putting well-trained, dedicated
    people on the ground in developing countries to solve problems
    working hand-in-hand with the people of these countries.
        That is why in my questioning I am going to have some
    questions about cuts in administrative funding for AID, because
    I think that we have to have appropriate and adequate
    administration from here to be able to exploit in positive ways
    the many talents of our people out there.
        As the international financial institutions increase their
    role in financing projects focused on poverty alleviation, they
    are increasingly looking to AID for models and lessons learned.
    In many countries, AID personnel are the only force taking
    pains to coordinate assistance programs among donors.
        I have taken the time to bring this out today, Mr.
    Chairman, because it is often an aspect of our foreign aid
    program that is overlooked. In addition, and more to the point
    of budgets, AID's viability is threatened today by the
    continued downward pressure on foreign aid budgets, and
    specifically more downward pressures on AID's operating budget.
    As I mentioned, it is my hope that we can work this year to
    find a solution to this problem. Without a viable delivery
    capability, all assistance we provide could be wasted.
        Finally, Mr. Chairman, while I am confident the
    Appropriations Committee will make up its own mind on
    allocation for foreign assistance, I fear the budget resolution
    under consideration today, if realized, would devastate foreign
    aid programs. If the numbers contained in the Republicans'
    budget resolution become reality, AID's budget in particular
    would be devastated.
        I will pursue this in detail in my questions today and
    attempt to get a clear illustration of how such a scenario
    would affect how we handle child survival, infectious diseases,
    education and environment programs, and I look forward to
    hearing our witnesses.
        But I want to make a comment following up on something you
    said, Mr. Chairman, when you mentioned the unpopularity, the
    supposed unpopularity, of foreign aid. I know you speak with
    great authority for your own district, and I am sure that that
    is the case, but that being the case there, I think it behooves
    the President to inform the public in a more direct way, and
    not in a time of crisis, about why it is important for us to
    have the financial resources to match our leadership role in
    the world.
        Many of us are very sad, I am sure everyone is, that our
    young people are in harm's way now because of the situation in
    Kosovo. I support the President's decision. I think it was a
    courageous one, because it is not going to be an overwhelmingly
    popular one. But these situations hopefully could be avoided if
    we had a better appreciation, even in our own country, of
    earlier, earlier, earlier interventions into these situations.
        I think that NATO needed to be rescued once again, but in
    any case, the role of the United States is preeminent, and we
    have to face that reality. I am a broken record on this
    subject, but I was there as a student hearing President
    Kennedy's inaugural address when he made his famous statement,
    ``Citizen's of America, ask not what your country can do for
    you, but what you can do for your country.'' Everybody knows
    that statement. But I don't know that everybody knows the very
    next sentence, but I know you do, Mr. Chairman, because I say
    it every time our bill comes to the floor. The very next
    sentence is, ``Citizens of the world, ask not what America can
    do for you, but what we can do, working together, for the
    freedom of man.'' And in my view, that should be as prominent a
    statement as the first.
        They certainly are related, because we reap the benefit in
    our own country of what we do internationally. I am very
    disappointed in the numbers that we are talking about as far as
    the budget is concerned, and I hope that at the end of the day,
    we will have at least enough money to modestly live up to our
    international role.
        But I think it is going to take a great deal of leadership
    on the part of the President to educate the American people
    more fully on why this foreign assistance is so necessary, why
    it is in our national interest, and to put it in some
    perspective, that it is less than 1 percent of our Federal
    budget.
        And with that, I join you, Mr. Chairman, in welcoming Mr.
    Atwood and again thank him for his leadership and welcome his
    testimony. Thanks, Mr. Chairman.
        Mr. Callahan. We thank you.
        [The statement of Ms. Pelosi follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Callahan. You mentioned a possible CODEL to Brazil.
    Mrs. Kilpatrick and I yesterday on the floor discussed this
    CODEL to South America, and especially to Brazil, and she and I
    discussed the possibility that we ought not invite those of you
    who chose to speak against the proposal I had on the floor
    yesterday about callable capital. So Mrs. Kilpatrick is in; you
    and Mr. Sabo are not.
        Ms. Pelosi. I hope you don't go--even if I am not on the
    trip--before Brian is down there.
        Mr. Callahan. I am not going to go before Brian is down
    there.
        Brian.

                         Mr. Atwood's Opening Statement

        Mr. Atwood. Thank you, Mr. Chairman. And I thank you very,
    very much for your kind words and those of Ms. Pelosi. I think
    both of you know that the feelings are mutual. I have been very
    fortunate in the past 6 years. First, the people of USAID
    themselves have been through a lot, but they continued through
    all of the changes that we put them through to produce
    excellent work. They made me a credible witness when I claimed
    that our Agency was absolutely essential to our national
    security.
        I was also very, very lucky here on Capitol Hill. Little
    did I know that a Congressman from Alabama who never voted for
    foreign aid would become such an effective chairman. Your
    colleagues trusted you so much, and they passed your bill a few
    years ago by the largest margin ever. Even more important than
    that, Mr. Chairman, you have listened to my problems privately,
    you have given me good advice, and you have helped me when
    there was no gain for you in doing so. So I thank you very much
    for your support and for your friendship.
        I was always blessed to have the support and friendship of
    Nancy Pelosi. She is an important voice in this Congress, and
    when she speaks out on human rights in China, or HIV/AIDS, or
    the Central American tragedy, as she did yesterday, or women's
    rights, or other issues, people on both side of the aisle
    listen.
        I was also very fortunate as well to have had had the
    leadership of Bob Livingston and Dave Obey. To me they
    represent the best of Congress. They came at politics and at
    issues from the opposite ends of the spectrum, but they came
    together to legislate, and they came together as personal
    friends. Both served as Chair of this subcommittee, and both
    understood why the foreign operations appropriation was so
    important to our country.
        I will personally miss Bob Livingston a great deal, and I
    told him so in a letter when he left the House. He would have
    had made a fine Speaker.
        Mr. Chairman, it seems like ancient history now, but USAID
    was a management nightmare when I started back in 1993. The
    Bush administration appointed a commission, the Ferris
    Commission, that virtually called USAID a basket case and made
    dozens of recommendations for change. I used that report as a
    blueprint, and in the first 2 years we reorganized, reoriented
    the people in the systems of USAID, and made the organization
    focus on results. When we briefed the Ferris Commission on the
    changes a few years later, they were impressed and said so
    publicly.
        I believe then, and I believe now, a badly managed foreign
    aid program gives too many people an excuse to vote against us.
    We haven't entirely eliminated that excuse, I admit, but we are
    no way near as vulnerable today as we were 6 years ago. Six
    years ago we couldn't tell you how many people we had working
    for us. We couldn't produce an annual financial statement. You
    wouldn't have even asked us for this information back then
    because you knew we couldn't give it to you.
        Today we can respond to your requests, but it still takes
    us much too much time, as you indicated in your opening
    statement. We made a good faith effort to create out of whole
    cloth literally a single new management system that would
    enable us to track financial, budget, results and procurement
    data. That system is in use today in Washington. It has
    replaced one of our old, inaccurate legacy systems. It is
    better than what we had, but it is not accurate enough and fast
    enough to spare us the work of having to check what it tells
    us, which is why you have such a hard time getting information
    on a timely basis from us.
        Still it was not a waste of time or money. We would have
    continued to waste taxpayers dollars if we had not tried to
    change the old systems. We are today building on what we have
    learned, and we are on the right course to achieve the system
    we need. My successor will be able to take credit for finally
    fixing the problem that has plagued us for years, so good for
    him.
        Mr. Chairman, when I started this job, I said that if I
    couldn't convince my mother to support foreign aid, I would
    have failed. I am pleased to report to you today that thanks in
    part to you, my mother is now actively defending the foreign
    aid program. Six years ago I am sure I was an embarrassment to
    my mother. She never told me that, but she would tell me about
    her friends' sons and daughters, they were in business, they
    were doctors, they were lawyers, they were teachers. I would
    just imagine how she was describing me: Well, my son gives away
    our tax dollars to foreigners.
        Today, she proudly tells her friends that her son's Agency
    saves millions of children a year with the Child Survival
    Account Congress gives him. She tells them that I am fighting
    against diseases like AIDS and TB and polio.
        My mother lives in Florida in the winter, and she and her
    friends have become very worried about the increase in
    hurricanes and tornadoes and forest fires that Florida has
    experienced. She doesn't really believe there is a
    scientifically proven connection between this bad weather and
    global warming, but she reassures her friends that USAID is
    doing something to help.
        My mother is still a bit skeptical about our population
    work, but she does think that family planning makes sense.
    After all she had only two kids herself, and she still doesn't
    understand why poor people have so many children. And she tells
    her friends that family planning has had a bigger impact in
    reducing abortions in the world than anything else.
        My mother doesn't know a lot about economics, but she
    supports our microenterprise programs. It seems that about 15
    years ago, she watched 60 Minutes and was impressed by a
    segment on the Grameen Bank in Bangladesh. She was really
    impressed when I told her I had actually met Muhammed Yunus.
        She also likes the fact that USAID is helping other
    countries keep the same standards as we have to keep on the
    environment and on labor issues and banking rules and
    protecting patents and copyrights. She has a simple but very
    wise philosophy: If we are going to trade and compete andinvest
    in these countries, it is in our interest to help them improve their
    standards.
        And, of course, my mother gives me full credit for all the
    new democracies in the world.
        So, Mr. Chairman, I have made some progress with my mother,
    and she feels better talking about my job with her friends.
    Every once in a while, though, we have a problem. Last weekend
    I got home, and there was a message from her on my recorder.
    She had to talk to me right away. It seems that my name was in
    the Palm Beach newspaper in connection with a story about
    Haiti. I could just imagine what she was thinking: How am I
    going to explain this to my friends?
        I called her, and she read me parts of the story. The
    essence of it was that the political crisis continues in Haiti,
    and people are still poor; foreign aid hasn't worked. I said,
    here are some of the facts you can use with your friends. USAID
    programs provided health services to 4.7 million Haitians,
    about 56 percent of the population. We have doubled our
    coverage and increased immunizations to 74 percent in the past
    few years.
        USAID agriculture programs reach 166,000 families, or 20
    percent of the farm families in Haiti, and they increased their
    income by 17 percent last year.
        USAID has trained 11,000 teachers, and kids in USAID-
    sponsored schools are passing at a rate of 68 percent.
        We have made loans to 9,200 Haitians under our
    microenterprise programs.
        The government is still in crisis, I said, but the police
    and the judicial system are working better than ever.
        I told her to tell her friends that these programs have had
    an impact on illegal immigration, which was some 40,000 a year
    in the 1991-94 time frame. It is now down to a few hundred a
    year.
        She said, okay, okay, enough already. If you think I am
    going to talk to my friends about Haiti, you are crazy.
        Mr. Chairman, my mother hasn't heard about the budget
    resolution yet and the severe cut in the 150 Account, and when
    she finds out, I am sure she is going to say something like,
    what is that mean John Kasich trying to do to that nice Sonny
    Callahan? Doesn't he know that the kids are going to suffer,
    and all that good work you are doing will be lost? Maybe I
    should call him and give him a piece of my mind.
        Of course, I tell her not to bother, she won't be able to
    find him, he will be in Iowa or New Hampshire or somewhere.
        Seriously, Mr. Chairman, I don't know how our programs
    could survive if we have to take a cut in the 150 Account of
    3.2 billion below last year's appropriated levels. This would
    frankly compromise not only our viability as an agency, it
    would also, I believe, compromise our national security.
        Our budget, as you well know, enables our country to
    respond to natural and man-made disasters. It enables us to
    respond to postconflict situations, where the peace is still
    fragile. And it helps us to prevent crises where the developing
    process works.
        We are today using our military as a last resort against
    Serbia. No one wants to use our military forces in combat, but
    sometimes it is all that can be done. The first line of defense
    is our diplomacy and our development programs. These cuts will
    mean that we will see more crises requiring the expensive use
    of our military in the future.
        I sincerely hope we will be able to revisit these
    allocations by the end of the year and that we will begin to
    look at the budget surplus and maybe an increase in that
    surplus in the context of a broader view with national
    security.
        Mr. Chairman, I have obviously gone on too long. My written
    statement, which is boring, effectively, however, defends the
    President's budget request, and I hope that budget request is
    not a dead letter. I ask that that formal statement be made a
    part of the record.
        Again, Mr. Chairman, and Mrs. Pelosi and other members of
    the committee, I thank you for listening to me this morning and
    for the past 6 years.
        [The statement of Mr. Atwood follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Callahan. Well, thank you, Brian, and I certainly
    enjoyed your testimony. For one thing, it gave me a great deal
    of encouragement, because I finally found out you and I have
    something in common, we both have a mother.
        Mr. Atwood. Is she embarrassed by your job, Mr. Chairman?

                                   POPULATION

        Mr. Callahan. I wanted to tell you that I have not told my
    mother yet what I am doing up here. And if you happen to be
    flying through Mobile, Brian, please don't let the people of
    Mobile know what I am doing either.
        An interesting comparison, though, because you said that
    your mother had two children and believes in family planning.
    My mother had nine children. Guess who is going to win that
    battle with the Chairman? There are good points in having nine
    children. If your mother needs a new car, I am sure she has
    resources of her own that she can buy one, but if the kids had
    to buy it, you would have to come up with half the money. In
    our case I only have to come up with one-ninth of the money.
        So there are advantages to having children. My mother also
    gets a double shot, because I have a brother in the State
    Senate in Alabama, so the poor woman can't even go to the
    grocery store without receiving some degree of criticism about
    her political family.
        But, nevertheless, your mother is a very wise woman to
    recognize the value of the Child Survival Account. I am just
    amazed she didn't teach you that before I had to teach you.
        We are also pleased to have the Deputy Director here,
    Hattie Babbitt, today. Happy to have you with us today. Thank
    you for your testimony.
        Ms. Pelosi.
        Ms. Pelosi. Thank you, Mr. Chairman.
        Mr. Callahan. I am going to have some in a minute.
        Ms. Pelosi. Thank you very much. I was all already to
    applaud at the end of your testimony, and then I remembered we
    were in a hearing, and this was not comedy hour. That was
    really wonderful how you put that all into perspective for us.
    I hope that your mother will get a copy of your statement very
    soon, Brian.

                               OPERATING EXPENSES

        Mr. Chairman, I, too, want to join in welcoming Deputy
    Administrator Hattie Babbitt with us today. I wanted to follow
    up one point I made in my opening statement about USAID's
    request for operating expenses. Can you describe for us, Mr.
    Atwood, what would happen if you do not receive the full
    request?
        Mr. Atwood. Well, thank you, Ms. Pelosi, for asking that
    question, because we have had to ask for an increase this year
    in operating expenses. It is the first time in 3 years we have
    had to ask for this. But the increase will basicallykeep us
    where we are. We are trying to maintain the staff level overseas that
    we had at the end of fiscal 1998. It was about 650 people. Some people
    think we should go up higher, but we are trying to look at our work
    force to try to figure out how we can plan better, perhaps use
    regionally-based missions overseas a little more than we have in the
    past in order to get the work done, which continues to increase.
        In order to do that, and under the budget request that is
    before you, we will still have to cut in Washington in order to
    maintain the fiscal 1998 levels overseas. I am not sure exactly
    what that cut would be. I believe it is only about 4 percent of
    our work force in the fiscal year we are talking about, but
    that is significant. We know we can cover that by attrition,
    although we will use a number of ways in which we can actually
    focus on the work force we actually need, as opposed to
    allowing attrition to do it in an indiscriminate way.
        We do not expect to have to have a RIF, but what I am
    trying to say is that in order to maintain the technical
    competence and the support competence of our Agency, we need
    this operating expense request that we have made. It is about a
    $17 million increase over last year's level, but when you
    consider the pay raise, the 4.4 percent pay raise and other
    increases in expenses, it only represents about a 1 percent
    increase, which doesn't even cover the additional costs of
    doing business overseas and the inflation rate.
        So it is really vital. I think that we have cut much too
    far at USAID. We have a very talented staff, but there isn't a
    single person down there that isn't working around the clock in
    order to get the job done. So I am glad you asked this. This is
    a very important aspect of our work.
        Ms. Pelosi. I have become increasingly concerned about the
    ability of us to hold onto the talent that we have when the
    budgets are being cut the way they are. It does not allow us to
    maintain some certainty in terms of the professional
    relationship of these people who, because they are all
    talented, have other options. They are all providing a great
    service to our country.

                                  BUDGET CUTS

        Speaking along the line of budget cuts, the number in the
    Republican budget resolution going to the floor today cut
    international spending, and we have talked about this earlier,
    from about $21 billion in 1999 to about $16 billion in 2000. It
    is the biggest cut in percentage terms by far to any budget
    function. The resolution being presented to the House contains
    no explanation about how these cuts should be realized and no
    explanation of how such cuts will affect our national security.
        If we assume that the $4 billion spent to run our embassies
    remains intact--and I know that you certainly hope that is the
    case now more than ever--and that aid to the Middle East will
    remain constant at $5 billion, the remaining foreign aid
    programs in that function would have to be cut almost in half;
    $7 billion would remain to fund international programs that
    were funded at $12 billion last year.
        Mr. Atwood, would you explain to us what would happen to
    our aid programs and to AID itself with these kinds of
    reductions?
        Mr. Atwood. Well, to be general at first, instead of
    specific, I would say that we would lose our viability as a
    leader in the development community. We have managed over the
    years through our leadership in various areas to lead other
    donors to contribute; using the same methods that we have used.
    We now only give about 10 percent of all development assistance
    in the world. The rest of the donor community provides the 90
    percent that we don't provide, but they follow our lead.
        They continue to follow our lead, and that is because of
    the technical expertise that we have as an agency, because of
    our ability to tap into the United States, the great
    universities, the PVOs, the think tanks and the like. Such a
    cut really would damage us. I have mentioned before the
    operating expense budget. If we don't have our presence
    overseas, we lose our leadership. I can't imagine how we can
    sustain that if we have these deep cuts.
        You mentioned before the problem that there are a lot of
    parts of this budget that really must be sacred. I can't
    imagine people talking about cutting the Middle East budget at
    a time when we are hoping to implement the Wye agreement;
    although, clearly that is out there as an option.
        I can't imagine seeing this subcommittee, in particular,
    cutting the Child Survival Account, because I think you know
    that it would make all of us vulnerable to the charge that we
    care less about children than obviously we do. That is a
    serious problem.
        I can't imagine how we can live with this $16 billion. The
    Secretary of State has already spoken on this issue. I wonder
    how much attention was given to this when these cuts were made,
    frankly. I am not challenging anyone's motives, but there are a
    lot of things that needed to be balanced when the budget
    resolution was sent out, and I think that, frankly, the 150
    Account became an afterthought. But it can't be an
    afterthought, and we have got the responsibility, I think,
    those of us who know about what is done with this money, to
    provide for our national security, and to provide for people
    around the world, and to maintain American leadership. We have
    got to make a case that this cannot be sustained; that this
    will not hold.
        Of course, it is a little premature before you even marked
    up a bill to suggest that that bill would be vetoed, but I
    think all bills in the 150 Account, if they come in with this
    kind of 25 percent cut, would be veto bait downtown, and it
    looks to me as though we are going to have to revisit these
    issues again.
        I realize the budget resolution is on a fast track, it is
    going to be accepted, but I also understand that the budget
    resolution is a congressional document. It doesn't get sent
    downtown for approval by the President. And so we are going to
    be in the battle, I think, all year round, and what I hope is
    that we don't lose sight of the 150 Account as we talk about a
    lot of other issues that relate to domestic programs and the
    like, because this is going to be a devastating, and I don't
    see how, frankly, this can be sustained.
        Ms. Pelosi. Thank you, Mr. Atwood.
        Thank you, Mr. Chairman.
        Mr. Callahan. Mr. Knollenberg.
        Mr. Knollenberg. Thank you, Mr. Chairman.
        Mr. Atwood, welcome.
        Mr. Atwood. Thank you, Mr. Knollenberg.
        Mr. Knollenberg. Good to see you again. And I, too, join my
    colleagues in extending congratulations in terms of some news
    about your future. And I would certainly support that
    happening.
        Mr. Atwood. Thank you, Mr. Knollenberg.

                          Armenia and Nagorno-Karabakh

        Mr. Knollenberg. First very quickly just a couple of
    questions, and I wanted to thank you for a couple of things.
    One is your availability in a number of cases on a number of
    issues. And, in particular, I want to talk now about Armenia
    and the Nagorno-Karabakh. You know well the initial
    difficulties we had with the distribution of the aid and
    implementing assistance projects in Nagorno-Karabakh. My belief
    is that that is being resolved now satisfactorily, and I think
    that would be a reflection of what you feel and what your staff
    believes as well.
        Could you confirm this, that we have reached a point where
    distribution is on target?
        Mr. Atwood. Yes, it is on target. We are going to be
    submitting a report momentarily to you to explain how we have
    complied. We have managed to disburse $12.5 million of the
    fiscal 1998 resources. We have had some problems inside
    Nagorno-Karabakh. There was an effort by the authorities there
    to try to tax the assistance. We have convinced them to change
    that.
        Mr. Knollenberg. That is right, that has been changed. What
    do you anticipate in expenditures for the balance of fiscal
    year 1999?
        Mr. Atwood. I will have to--I think that we have, according
    to the answer that I have been given here, we will be able to
    exceed the $12.5 million that you called for in the fiscal 1998
    legislation.
        Mr. Knollenberg. What about the focus of that spending?
        Mr. Atwood. Well, the focus is clearly humanitarian, and
    the vast bulk of it will be in Nagorno-Karabakh itself. Some
    will be spent in the immediate vicinity as was permitted by the
    legislation.
        Mr. Knollenberg. Right. And here is a question. What can
    USAID do to ensure that this Nagorno-Karabakh assistance gets
    to those in need, and without violating the existing ban in
    USAID on what they call green villages. You are familiar with
    the green villages, I am sure, or villages in which existing
    homes became available for the IDPs due to this displacement of
    their citizens?
        Mr. Atwood. Well, it is obviously a difficult region to
    work in. We don't have USAID mission there, but we do work
    through private voluntary organizations that do have access and
    do know what they are doing. And I don't believe that that is
    going to be a constraint, because what we are trying to find
    are legitimate humanitarian programs.

                                  North Korea

        Mr. Knollenberg. Thank you for those responses. Let me go
    on to North Korea and the food assistance. There are periodic
    reports that North Korea regularly diverts international food
    aid to feed its military and elements of the Communist
    hierarchy. In the meantime, reports show that malnutrition and
    death due to famine run rampant through the North Korean
    countryside.
        In addition, I understand that the North Korean Government
    is undermining the existing monitoring program by rejecting
    spot inspections, unaccompanied visits and Korean-speaking
    monitors. I have strong concerns about the administration's
    apparent lack of commitment to monitoring this food aid
    program. In fact, it is my understanding that USAID is not even
    involved in the negotiating the Memorandum of Understanding, or
    the MOU, regarding the distribution of U.S. food aid, but
    instead gives that authority or responsibility to an NGO team.
    I don't know what NGO or NGOs those happen to be.
        But what steps can USAID, as a primary distributor of the
    food aid, take to minimize the diversion of vital food
    assistance away from the suffering civilians that need it most?
        Mr. Atwood. Mr. Knollenberg, we are deeply involved in
    monitoring this, the NGO group that is operating under the
    World Food Program, and the World Food Program itself
    negotiates the monitoring requirement. But we send USAID teams,
    including the Deputy Assistant Administrator for the Bureau of
    Humanitarian Relief, who has been in North Korea twice. The
    Assistant Administrator will be going soon in order to check on
    the monitoring system itself and to get firsthand reports from
    the NGOs that are doing the monitoring as well as the
    distribution of the food.
        We believe that the monitoring system is adequate, that
    there is not the kind of diversion that has been reported.
        Mr. Knollenberg. Do these monitors speak Korean?
        Mr. Atwood. That is a crucial issue, and I would only say
    to you that they have access to people who speak Korean. Each
    time that we propose to put a monitor in who speaks Korean, we
    get a rejection by the North Korean Government. I would tell
    you this is an extraordinarily difficult environment within
    which to work.
        The North Korean Government considers itself to be our
    enemy, and we their enemy. We are trying to respond to reports
    that as many as 3 million people may have died because of
    famine last year.
        Mr. Knollenberg. That is my concern, because, frankly, I
    wonder if, as qualified and as thoroughly embracing as these
    monitors might be of making sure that these things are done in
    the way that they were intended, there is no language connect.
    Without it, there might be a real problem in truly being able
    to evaluate and monitor where that food goes. We have had
    reports, as you know, that much of it doesn't get to those
    folks in the field.
        And some of it we have found comes back to us in the form
    of being on board ships allegedly belonging to the North Korean
    Navy, that is the U.S. food aid and, of course, the other
    countries that contribute as well.
        So I do think that language issue is a very large problem.
    And I don't know what you can suggest doing about that.
        Mr. Atwood. Let me just say that we have had absolutely no
    reports about food that has gone on ships. In fiscal 1998, the
    North Koreans agreed to allow the World Food Program to double
    its staff. It now consists of 46 international staff and over
    20 monitors. U.S. PVOs are currently monitoring food-for-work
    distribution as part of an agreement signed with the
    government, and we believe that the monitoring still is
    adequate.
        Yes, it would be nice if we could speak Korean, but what we
    have asked them to do is follow the food and make sure they
    know that it is getting to the children and the people that are
    sick that need it. And our belief is that this is an adequate
    system. Because of the skepticism about this government, I
    think we are always going to have rumors and reports and the
    like, and we will be just as concerned as you are about those
    reports, and we will follow up each and every one of them, I
    can assure you.
        Mr. Knollenberg. We will continue to do oversight on it,
    and I thank you.
        Mr. Callahan. Ms. Kilpatrick. I am sorry, Mr. Jackson, I
    didn't know you had come in.

                                  Budget Cuts

        Mr. Jackson. Thank you, Mr. Chairman.
        I want to start by welcoming Administrator Atwood and thank
    him for his testimony. I also want to associate myself with the
    comments of Ms. Pelosi regarding Administrator Atwood and I
    wish him well in his future endeavors.
        Administrator Atwood, at this moment the House is debating
    which budget resolution to adopt, and according to the
    Republicans' budget resolution, international affairs
    discretionary spending would be $16.4 billion in budget
    authority, and $18.1 billion in outlays for fiscal year 2000.
        Compared to fiscal year 1999, the measure calls for 23
    million, that is 58 percent less than budget authority, and 600
    million, 3 percent less in outlays. Granted the fiscal year
    1999 levels include emergency funding as well as 17.9 billion
    of funding for the IMF.
        If this emergency appropriation for the IMF is removed from
    last year's appropriation, the calculation for this year's
    budget resolution is about 5.1 billion, or 24 percent less than
    the fiscal year 1999 level.
        Administrator, what would a cut like 24 percent of the
    function 150 budget do for USAID programs?
        Mr. Atwood. Well, it would be devastating, Mr. Jackson.As I
    have indicated before, I think it would reduce our leadership capacity,
    but I think it happens at a time when we have some really serious
    international issues and problems. The Asian financial crisis has now
    spread to Russia, and then to Brazil. We are trying to manage these
    problems. What the financial crisis has done is to thrust more people
    into poverty.
        There are people, some with political visibility, who are
    raising questions about whether this globalization is really a
    good thing. They are raising questions about whether it is a
    good thing to have democracy and open markets. They are raising
    questions about whether or not they should even participate in
    the international system. I think that is a national security
    issue. And our Agency, as well as the Treasury Department and
    the international financial institutions, are in place to try
    to manage the international system and to try to maintain
    stability, because it protects us, it protects our economy, it
    protects our dollar, it protects our financial status in the
    world.
        I can't think of a worse time to cut the 150 Account by
    this extent. And I really believe that when people start to
    reflect on this, that there will be a change in attitude as
    time goes on.

                          DEVELOPMENT FUND FOR AFRICA

        Mr. Jackson. Thank you for your answer.
        Mr. Administrator, I am pleased to see your budget once
    again includes the Development Fund for Africa. As you know,
    Africa has incredible potential, yet it suffers from armed
    conflict and HIV and the AIDS epidemic. Can you tell me why DFA
    was not appropriated last year, and what specifically would a
    24 percent cut in your budget do to your programs in Africa?
        Mr. Atwood. This year's budget not only includes the
    Development Fund for Africa, Mr. Jackson, but it also includes
    the President's commitment, when he went to Africa, to raise
    the development funds for Africa to their historic highs. This
    budget request not only includes the 500 or so million dollars
    for the DFA, it includes the amount that would go from the
    Child Survival Fund to Africa, as well as additional resources
    in the Economic Support Fund account. So the overall amount is
    going to be somewhere in the $810 million range, which is the
    historic high for Africa.
        Of course, the President's commitment was only to request
    this of Congress. As the Chairman indicated, this Congress
    isn't obliged to honor that request, but we think it is
    extremely important not only to follow up on the President's
    budget, but on the recent African U.S. ministerial meeting that
    was held in Washington last week.
        There is tremendous opportunity here in Africa. These
    countries are not directly affected by the financial crisis,
    and their currencies and financial systems are intact. They
    need obviously to be reformed, many of them, but they are not
    able to sell commodities to the extent they were, so the
    projected growth rates of these societies is going down.
        When you consider the battle that they are in to protect
    their societies against AIDS, to protect their societies
    against all of the elements of poverty, they can't afford to
    see their growth rates go from 4 percent to 2 percent. I mean,
    that means a lot of people out of work. It means a lot of
    people who are going to need food, aid or whatever.
        So we consider this request to be extremely important and
    certainly is something that has been welcomed not only by
    Africans, but by people all over the world.

                                  DEBT RELIEF

        Mr. Jackson. And some sub-Saharan African countries' export
    earning potential, as much as 20 percent of it is going to
    servicing foreign debt. Do you have an opinion about that, Mr.
    Administrator?
        Mr. Atwood. Yes. I think it is horrendous that that is the
    case. Many of these countries are paying less for education and
    health care, the kinds of things that develop human capacity,
    that will enable them to compete in the global economy. They
    are paying less for that than they are in servicing debt. The
    President, at the U.S.-African ministerial, put forth the most
    far-reaching proposal for debt reduction and debt relief that
    any leader has thus far put forward.
        Now the President is going to go to the G-7 meeting in
    Cologne in, I believe, May and attempt to convince his fellow
    leaders to follow his line on debt reduction and debt relief.
    We are tying that debt reduction proposal to economic reform.
    We do that not because we want to condition it and sort of keep
    a hammer over the head of governments in countries, but to
    continue to push those governments in the direction that they
    are already heading. Many of them are already undertaking
    reforms and seeing the benefits of making those reforms. So it
    is important to keep this in mind.
        As Secretary Rubin said when he testified, I believe before
    this committee, it doesn't do any good to relieve debt to some
    countries that are already viable economically, because it
    simply raises the question as whether or not their own credit
    rating in the world system should be reduced. If a country
    needs total debt relief, then a country is usually a basket
    case. And many of the countries that are indeed basket cases,
    the most needy do need total debt relief, but not countries
    that are beginning to make it. What they need is to be able to
    attract investment. And investors are not going to go into
    countries that need debt relief.
        So we need a program much like the one the President
    proposed, which is a combination of debt relief for the
    neediest countries; debt reduction for other countries; making
    people more eligible more quickly for the HIPC program, the
    Highly Indebted Poorest Countries program; relieving bilateral
    assistance up to 90 percent; encouraging other countries to
    provide assistance on a grant basis, not a loan basis.
        We provide our assistance on a grant basis. Japan, France
    and other countries provide much of their aid on the basis of a
    loan. That doesn't help these countries at all.
        So I think the President's program is a good one, and I
    hope it will receive support in the international community.
        Mr. Jackson. Let me once again thank you for your service.
        And, Mr. Chairman, let me thank you for your indulgence.
        Mr. Callahan. Thank you, Mr. Jackson. Let me follow up on
    some of your comments.

                                  SOUTH AFRICA

        In 1994, when we entered into our agreement to provide
    assistance to South Africa, we, as I recall, were going to try
    to wean South Africa by the year 2005. Since that time, we have
    provided more than $700 million in assistance to South Africa,
    a country which has great wealth of its own.
        And as Mr. Jackson indicated, our allocations this year are
    going to be severely hampered. It is going to hamper our
    ability to provide more money. Assuming that we have the same
    amount of money that we had last year, shouldn't our emphasis
    be with that money that is going to be available for Africa as
    a continent? Shouldn't that money be concentrated in sub-
    Saharan Africa instead of continuing the programs in South
    Africa, a country whose wealth now and whose progress has, I
    think, graduated them to independency?
        Mr. Atwood. Mr. Chairman, the wealth of South Africa is in
    the hands of about 20 percent of the people who live there. It
    is really two countries. It is an underdeveloped country in one
    sense and a highly developed country in another sense. We have
    asked, I believe, in this budget for slightly less for South
    Africa, because progress is being made under the Mandela
    government, but we believe that the apartheid experience has
    really left South Africa with problems that are very, very
    difficult to surmount.
        We are trying to help introduce more people into the
    private sector. We are trying to help that country and that
    government privatize its economy, train more people so that
    they can participate in the wealthier side of the equation in
    South Africa. We are trying to provide health care to people
    that have not received it under apartheid. We believe it is
    important to keep our hand in in South Africa.
        Mr. Callahan. Brian, we are not questioning whether or not
    apartheid was right or wrong. We all know it was wrong. That
    was not the question. The question is, you are going to have a
    limited amount of money for the continent of Africa. Sub-
    Saharan Africa has tremendous needs, and yet you are announcing
    an extension of the program in South Africa.
        I am sure there are some people who are still suffering
    from segregation here in this country, but you have to someday
    get past that, and I think as far as this country is concerned,
    we have made our contributions. But for us to continue to spend
    money regardless that the great wealth of the United States is
    in the hand of 20 percent of the people in this country--that
    is not uncommon--the fact is sub-Sahara has a great need for
    the type of assistance your Agency provides.
        We are providing you resources, as you mentioned,
    especially in child survival, but still you are advancing a
    program in a section of the country that has graduated, and I
    think we ought to recognize there should be higher priorities
    in Africa, and that higher priorities should be sub-Saharan
    Africa, rather than South Africa, rather than to announce an
    extension of a program that has been successful.
        That is just a thought I had, because many Members of
    Congress are insisting. And we want to assist them, and we want
    to assist the people in sub-Saharan Africa, but if the
    administration is going to say they are not that important, we
    have got to protect them or affluent people of South Africa
    first, it is just not, in my opinion, the right direction.
        Mr. Atwood. I always respect your opinion, Mr. Chairman.
    And clearly decisions have to be made if we have to live with
    budget cuts. But all I can say is that we made the announcement
    about the extension of the program because it was the opinion
    of both the Government of South Africa and ours that the
    development goals that we set for ourselves would not be met in
    the time frame that was earlier established.
        Mr. Callahan. Not too many Members of Congress come to me
    and say, give more assistance to South Africa, but a great many
    Members of Congress say, give more assistance to sub-Saharan
    Africa. So I try to give you and the administration
    flexibility. I say, here is the money; you spend it, you
    prioritize it, and yet you force us into saying that you are
    going to spend a greater percentage of your money in sub-
    Saharan Africa.
        We know that there is going to be a pot of money for the
    continent of Africa, period. So do you want us to tell you to
    stop these programs, or do you want to do it yourself? That is,
    I guess, the question.
        Mr. Atwood. Mr. Chairman, as has been true every year since
    I started in this job, we would like you to give us a blank
    check is my answer.
        Mr. Callahan. You are making it very difficult.
        Mr. Forbes.
        Mr. Forbes. Thank you, Mr. Chairman.
        Thank you, Mr. Atwood. And I would like to align myself
    with the comments of my colleagues who appreciate your
    leadership at the Agency and wish you well in all future
    endeavors.

                 Nations Graduating from Development Assistance

        I would like to just follow up on the Chairman's question
    in perhaps a little bit of a different way. Mr. Atwood, do you
    foresee some of the nations who are now the beneficiaries of
    our generosity and development assistance, do you see some
    nations graduating from development assistance any time soon,
    and if you do, could you name those nations?
        Mr. Atwood. It is a good question, Mr. Forbes, and many
    countries have graduated and have actually become donor nations
    themselves. There are about a half dozen countries now that are
    becoming active donors and are applying for membership in the
    OECD and the like.
        In the first 2 years of my tenure at USAID, we reduced our
    program by 21 nations, and since then we have increased that to
    28 nations. About half of those are countries that have
    graduated, or we thought had graduated.
        We had set dates for some, like Indonesia, which was doing
    so extraordinarily well economically that we thought it could
    graduate, I think, by the year 2002. It has now obviously been
    thrust into crisis as part of the financial crisis, and we have
    to rethink that date, and we evaluate these issues all of time.
    But Korea and Thailand and Taiwan were all countries or
    entities, Taiwan not being a country by our standards, I guess,
    that have done extraordinarily well under the USAID programs
    and are now actually donor countries.
        So, yes, there is a change in the amount of wealth in the
    world measured in real dollars since 1940--right after the war.
    In 1945 it was about $4.4 trillion; it is now something like
    $47 trillion. That wealth is a result not just of development
    assistance: it is a result of the world's economy growing, and
    many countries have become donor counties. We were the only one
    offering development aid 50 years ago.

                             New Management System

        Mr. Forbes. I note in your statement that you talked about
    a delay in the new management system, the NMS being fully
    implemented, citing obviously limited resources in the Agency's
    ability to get that NMS up and running to full mode. I think
    you mentioned in your statement that you didn't envision that
    we would have that system in place abroad till at least fiscal
    year 2002.
        Mr. Atwood. Right.
        Mr. Forbes. Could you speak a little bit about the
    perennial concern, on the Hill about fiscal oversight at the
    Agency, and our hope that more and more of these actual dollars
    get into the hands of the recipients, and fewer of those
    dollars falling to third party or intermediaries in what I will
    say is a goodwill effort to try to make these programs work?
        Mr. Atwood. Right. I am glad you asked that question,
    because when people hear about or talk about problems that we
    have with our NMS system, they make the leap that we,
    therefore, can't track the money. The fact is we can track the
    money very, very precisely. There are systems, there are
    regulatory systems and manual systems in many cases, that help
    us prevent the kind of fraud that affected this Agency 20 years
    ago.
        We had major problems back then. We had a lot more money
    then as well, and there is less now to track. The problem we
    have today is that we have new government requirements that we
    need to be providing in an annual financial statement, and we
    need to have systems that will allow us on a timely basis to
    find out exactly how much money is in that pipeline for that
    particular program in that particular country. And we can get
    that information, but it takes us sometimes a couple of weeks.
    We should be making decisions a lot faster than that. That is
    what the new system is intended to do.
        We tried to create a system using existing contractors that
    were on board when we got there. They clearly in retrospect
    were not capable of creating the software systemto do what we
    wanted it to do, and we have a system now that operates with an error
    rate that is much too high. So we have to go back in and check
    everything that comes out of the system.
        It takes too much time, but we inherited back in 1993 a
    lot, 50 or so, different systems people using ``cuff notes''
    and everything else. That was unacceptable as well, and the IG
    in those days used to say this Agency can't audit what it is
    doing. It can't produce an auditable account of what it is
    doing on the financial side. We can do that today, but we can't
    do it easily, and we are working toward the creation of a new
    system.
        The Computer Sciences Corporation is a prime contractor,
    one of the best in the country. And we are working with them on
    the basis of a very specific timetable. I meet every month with
    our people to look at this. And we have confidence now, because
    there are now commercially available products that weren't
    available 4 years ago when we started this NMS system, that we
    can get a system in place and then deploy it internationally by
    the year 2002.

                                  child labor

        Mr. Forbes. One final question. The administration, of
    course, has talked about a globalwide campaign against abusive
    child labor, and you have requested new money, $10 million to
    implement, I guess, the first part of that campaign. Could you
    speak about what the Agency believes it will be doing with the
    $10 million if they are fortunate enough to get that for the
    program?
        Mr. Atwood. Right. For the most part, we want to use the
    $10 million to encourage children to go to school. There are
    many inhibitions against families sending kids to school in
    these very poor countries. Either they are working on the farm,
    or they are working in a factory and bringing money into the
    family. If we can provide such things as an incentive to go to
    school, if we can take care of the costs of, in some cases,
    buying a uniform or buying the books for the kid, or we can
    provide a meal when the child doesn't get a meal, a meal at the
    school, I mean, we can, I think, bring a lot of children that
    are now working that shouldn't be working into school.
        That I think is the role for USAID. There are others that
    have other roles. The ILO, the International Labor
    Organization, is involved in a major campaign to try to stop
    child labor. And there are other ways we can do this through
    rhetoric and sanctions and the like to stop products from
    coming into our country that are produced by child labor.
        Mr. Forbes. If I may, I really would like to understand
    this. So the Agency, if it were fortunate enough to get this
    money, would set up a program where you would actually buy
    children's uniforms, buy them books, buy them meals? I mean,
    does USAID really have the ability to really micromanage that
    effort in that way?
        Mr. Atwood. What we would do would be to analyze the
    problem in each country and figure out exactly what
    intervention would help us to cut down on the number of kids
    that are going into child labor and the number of kids that are
    going to school. We think we can make an impact--I will be
    happy to discuss this with you more privately and give you our
    strategy paper for the child's labor----
        Mr. Forbes. I would appreciate that. And I would just note
    that I think where we see a lot of this abusive child labor,
    certainly it exists in a lot of friendly nations as well as
    those that are best described as totalitarian, but how does the
    United States of America, presume to be able to get in to
    totalitarian regimes there and do something about abusive child
    labor? I think it is going to be a yeoman's task. And I would
    just suggest that $10 million wouldn't even open the door.
        Mr. Atwood. No.
        Mr. Forbes. But I would really like to hear more about it,
    because I do think it is a very big concern, and I am sure many
    Members of Congress share my concern for abusive child labor
    around the world. So thank you.
        Mr. Atwood. Like everything we do, the $10 million, I
    think, can become models for what other donors can also do. It
    is a way of our leading the rest of the donor community to try
    and address this problem.
        Mr. Forbes. Thank you.
        Mr. Callahan. Ms. Kilpatrick.
        Ms. Kilpatrick. Thank you, Mr. Chairman. And let me, too,
    Mr. Atwood, offer you my congratulations as you move to Brazil.
    As the Chairman said, we shall see you soon. And I look forward
    to that.
        Mr. Atwood. Thank you.

                                   aid budget

        Ms. Kilpatrick. Of the $21 billion budget that is in
    international relations, your Agency receives about one-third
    of it. You mentioned in your testimony earlier that some years
    ago it was quite a bit more when it was mismanaged and so
    forth. How high did the USAID budget get?
        Mr. Atwood. In 1985, it was approximately 40 percent higher
    than it is today.
        Ms. Kilpatrick. Seven million or 14--10, 12 million?
        Mr. Atwood. Eleven billion at the time.
        Ms. Kilpatrick. Billion. And in your good management style,
    6 years later we see you at $7 billion, just as effective and
    doing more than what was done in those earlier years. Is that
    right?
        Mr. Atwood. I don't know about that. We can use moremoney,
    but I don't want to compare. What I think is really significant to say
    about that, though, is that we had Cold War considerations. I am not
    saying that this is bad. It was supported by a bipartisan group up here
    that we had to give money to certain countries, because they were on
    our side in the Cold War.
        Many of those countries were not good partners of the
    United States in terms of development. They were simply wasting
    money.
        Ms. Kilpatrick. Still today?
        Mr. Atwood. Pardon me?
        Ms. Kilpatrick. And still today?

                                     reform

        Mr. Atwood. There are still countries like that. We believe
    that that is the most significant change we made in the foreign
    aid program. We don't work with those countries any longer. We
    work with countries that are committed to reform, committed to
    democracy and allowing their people to participate in the
    development programs themselves.
        Ms. Kilpatrick. The bells are ringing, so I want to get
    through this. Thank you, sir, for that.
        You mentioned the proposed funding cut quite extensively,
    and we are very concerned about them. You have also gone over
    how the cut would devastate certain programs that you
    administer. I will be going overseas on Saturday. South Africa
    will be one of the countries I am visiting. I am very concerned
    about the Child Survival and Disease Program, particularly
    regarding those three countries that we talked about before the
    meeting. If you will provide me with that information, I
    certainly would appreciate it. It would be very helpful.
        Mr. Atwood. Absolutely.

                             new independent states

        Ms. Kilpatrick. I did notice, too, in the Independent
    States line item that they are receiving an increase as so many
    other programs are being decreased. Why is that?
        Mr. Atwood. Most of the money for the increase for the NIS
    goes into a program that is designed to reduce stockpiles of
    weapons of mass destruction and take nuclear scientists and
    retrain them and put them in some other more helpful line of
    work. Obviously, this continues to be a danger for our country.
    This is more of a national security issue than it is an USAID
    issue or a development issue.
        We are not going to be managing that program, so the
    increase that is reflected is mostly for that program. I
    believe it is about $184 million that the Administration
    requested for that important program.
        Ms. Kilpatrick. And more for security in that part of the
    world that we are strategically concerned with. We will see the
    increase not in the specific interest of development, but more
    in the interest of security. Is that what I heard?
        Mr. Atwood. That is, I think, both a development issue and
    a security issue. It is more of a security issue because of the
    nuclear aspects of it. And we, of course, realize that we have
    a very tense relationship today with Russia because of Serbia.
        Ms. Kilpatrick. Today, of course.
        Mr. Atwood. And at any given time that relationship can
    change, and, of course, they still have nuclear warheads and a
    capability to produce a lot of very dangerous weapons of mass
    destruction.
        Ms. Kilpatrick. I should be asking you about what we did on
    the floor yesterday, then, as it relates to plutonium and some
    of the other things that were discussed. Are you prepared to
    comment on that?
        Mr. Atwood. I am only peripherally aware of that, but I
    understand that you took some money out of that particular
    program for offset. I probably shouldn't try to get into those
    kinds of issues here. I think that there is enough of a debate
    that was probably a good one that was on the floor.
        Ms. Kilpatrick. It was a good debate.
        On the one hand you talk about maintaining security. I
    believe that we must. On the other hand, the politics many
    times get into some of our decisions. We must make sure the
    world is secure, and certainly America is really our first
    thought here.
        Mr. Atwood. That is right.
        Ms. Kilpatrick. Let me go on. Earlier you mentioned the
    administrative costs. As I looked at the briefing papers last
    night, I see that as everything is being cut, not including the
    Newly Independent States, your administrative costs are
    continuing to escalate. You did speak a little on that this
    morning.
        Mr. Atwood. Right.
        Ms. Kilpatrick. Tell me again why are they escalating as we
    cut the programming?

                              additional expenses

        Mr. Atwood. There is a combination of additional expenses
    and a reduction. Our operating expenses are mostly appropriated
    by you on an annual basis, but also they come out of trust
    funds that have been created from prior year counterpart funds
    that were created in countries.
        Those trust funds are going down, because our program has
    been going down so significantly in many of those countries. So
    that is on the down side of the ledger. The other side is the
    expense side. We have a 4.4 percent pay raise for Federal
    employees, which we are all happy about, but it still is an
    expense for the Agency. We have other expenses, including
    expenses relating to where we operate in foreign countries
    which are difficult. So the overall impact is that we have had
    to ask for an increase in order to basically maintain the
    status quo. Even with this increase, we will still have to
    reduce our staff some in Washington in order to maintain our
    overseas presence.
        Ms. Kilpatrick. Thank you, Mr. Chairman. In the interest of
    time, I would like to submit further questions in writing, if I
    might.
        Mr. Callahan. All Members shall be permitted to submit
    questions.
        Ms. Kilpatrick. Thank you, Mr. Chairman.
        Mr. Callahan. I guess, Brian, we better recess here and go
    vote. We have two votes. So we will be 15, 20 minutes getting
    back, at which time we will then recognize Chairman Porter.
    Though, John, if you get back before I do, I will just give you
    the authority to open the meeting. You are a cardinal in your
    own right, and you know how to run them. So we will just recess
    until either some of the Members get back or Mr. Porter gets
    back.
        [Recess.]
        Mr. Porter [presiding]. The subcommittee will come to
    order.
        I understand, Mr. Atwood, that this is your last appearance
    as USAID Director, that you are about to embark on a further
    career as Ambassador to Brazil; is that correct?
        Mr. Atwood. If the Senate approves, that is right, Mr.
    Porter.
        Mr. Porter. That shouldn't be any problem, I wouldn't
    think. Well, we think you have done a wonderful job, and we
    want to wish you well in that position.
        I want to ask, because I wasn't able to be here for the
    beginning of this hearing, I want to ask you a kind of a
    macroquestion before I ask some microquestions. With the end of
    the Cold War 10 years ago, there was great hope that the values
    that the United States holds most dear, democracy, human rights
    and free enterprise economics that provides an opportunity for
    a better life for everyone, would wash across the world, and
    obviously a lot of that has actually occurred, but a lot of it
    hasn't.
        Do you think the United States has provided the kind of
    leadership and outreach to the rest of the world that we should
    to make that happen, or have we really not done nearly enough
    to bring about true change across the globe? What is your
    assessment of what has happened since the end of the Cold War
    in our leadership?

                                market economies

        Mr. Atwood. Well, I think the United States is largely
    responsible for the increase in the number of democracies in
    market economies. We have promoted it actively both
    diplomatically and rhetorically and through our programs. I
    think one of the best ways perhaps that we were able to promote
    it was that we were seen as the winners of the Cold War. I
    mean, our systems did prevail over the Communist system.
        I think that we have not always put our money where our
    mouth was, and when we go out and really promote, encourage
    countries to abandon old authoritarian or totalitarian systems,
    tell them that they should become democracies and free markets,
    we haven't often followed up with the kind of assistance they
    need in order to do that.
        You can't just give them Adam Smith's book on free markets
    and give them the Federalist Papers on democracy. There are a
    lot of nuts and bolt involved. And I think that some of the
    problems that we are seeing now from the world's financial
    crisis are the result of not getting it right, of not having
    banking systems that are well managed, not having free-market
    systems, financial systems that are open and transparent and
    accountable, not having governmental systems that operate very
    efficiently, nor are they understanding the concepts of checks
    and balances and the like that we accept as part of our
    democracy.
        That is a lot of hard work, and we, it seems to me, should
    be doing more to enhance their capacity to move in the
    direction that they now want to move in. And I think a lot of
    countries are disappointed that we haven't come forward a
    little more effectively on the aid side of that equation. But
    having said that, I don't think there is any country that is
    more responsible for the change in the world than we are right
    now. We have got this real questioning going on about
    globalization because people are suffering, and they are
    saying, you know, you wrote the rules, you are doing well, you
    in the United States, you are doing well in Europe, you are
    doing well in Japan, but we are still struggling. We are still
    operating under your rules, and we are suffering; are you going
    to help us so that we can meet the standards that will allow us
    to join the World Trade Organization and the like?
        All of those things, I think, are major factors in people's
    attitude, and what I fear is that if we, for example, cut this
    budget even more and don't help encourage the other donors to
    help, you are going to see people moving in the other
    direction. And I think that is wrong for their own interests.
    They shouldn't do it, but they will be more susceptible to
    demagogues and people who have extreme philosophies. That may
    be particularly the case in Russia, where it seems to me that
    the story of what is happening in Russia is not really well
    known by the American people at all, or what isn't happening,
    and the dangers of not so much a move away from democracy per
    se, but a desperation borne of a society that simply isn't
    working for its people, and that, I think, is a great worry for
    all of us.

                                    outreach

        Mr. Porter. Would a lot more money do this? In other words,
    we are in a period of huge economic expansion, coming to grips
    with our own deficits and bringing them under control, and yet
    we are spending less and less on outreach to people we want to
    bring to our values and make allies, and trying to do it on
    less and less money; are we not?
        Mr. Atwood. We are, and I think at great cost over the long
    run. We are facing the kinds of problems that could really give
    people in future generations in our own country a major
    challenge, and they will look back on this era and say have we
    invested in the right way to protect their interests. We are
    now, for example, questioning the issue of universality.
        What that means in terms of our presence overseas is should
    we have an embassy in every country around the world. Obviously
    this security threat bears on that issue greatly. But if we are
    not present, and, you know, I am hopefully going to a country
    which is a very large country, Brazil, we now have three
    consulates in Brazil, we used to have five, we used to have
    representation up north and in Fortaleza as well. If you are
    not there, you don't know what you are missing. If you are not
    there, you don't know what Americans you can't help or what
    information you are not receiving about a very large country
    that is as large as the continental United States.
        That is true generally all over the world. If we have to
    cut back our diplomatic missions, then we just don't know what
    we are missing. And all of a sudden our leaders are going to be
    confronted with major surprises in the future, and we will be
    relegated to using the last resort, which is our military,
    which is well financed, and should continue to be well
    financed, and I don't think that is what the American people
    want.
        Mr. Porter. Well, it is not the jurisdiction of the
    subcommittee, but I think you are exactly right that we need to
    make our presence overseas much greater rather, not much less.
    We need to build the kind of diplomatic missions that reflect
    our country and its beliefs and do more outreach. And it seems
    to me, we are underfunding all of that.

                           family planning in turkey

        Let me ask you about family planning in Turkey. You are
    cutting in half family planning assistance to Turkey for this
    fiscal year and apparently zeroing it out for the following
    fiscal year. Why is that? Why are you doing that? Isn't this a
    place where money would be well spent?
        Mr. Atwood. Mr. Porter, it is the result of a success of
    the program. This is not as poor a country as many programs and
    many countries in which we work. This program has been in place
    since, I believe, 1977. The program has worked extraordinarily
    well. The coverage is extensive within Turkey. The economy of
    Turkey is not weak.
        You recall a few years ago when we tried to convert the
    Turkish cash grant program into a project-oriented program, and
    the Turkish Government said, we don't need that kind of help. I
    understand their reaction was as much political as it was based
    on a real assessment of need, but the fact is that we believe
    we can now successfully phase out this program and not have the
    negative impact on family planning programs, because it will be
    carried on, it is a sustainable program.

                               victims of torture

        Mr. Porter. The Congress and the President passed and
    signed into law the Torture Victims Relief Act, which called
    for an authorized level of $7.5 million for USAID to support
    the centers for treatment of victims of torture. What funding
    level will USAID propose for this purpose for the next year,
    and what plans does USAID have to implement the act? Will it be
    incorporated into the program of the Center for Democracy in
    Governance?
        Mr. Atwood. Mr. Porter, we have sent a report to the
    subcommittee earlier this week which indicates that our
    treatment and prevention programs and related activities are
    estimated in fiscal 1999 to be in the $5 million range. In
    fiscal 2000, we will continue to do more, the same types of
    activities dealing with victims of war and human rights abuses.
        In addition, the administration has requested a million
    dollars, which will be specifically targeted at victims of
    torture, and we are currently considering the most cost-
    effective and efficient way of programming those funds.
        Mr. Callahan [presiding]. We need to recognize Mr. Sabo,
    and we will certainly come back to you.
        Mr. Porter. Thank you, Mr. Chairman.
        Thank you, Mr. Atwood.
        Mr. Callahan. Mr. Sabo.
        Mr. Sabo. Thank you, Mr. Chairman.
        Mr. Atwood, welcome. I am new to this committee, and so it
    is good to hear from you, and you made a most impressive
    presentation to us this morning. I am sorry you are leaving. I
    wish you well.
        Mr. Atwood. Mr. Sabo, I welcome you to the committee. I
    sometimes wish that you were chairing the Budget Committee, but
    thank you.
        Mr. Sabo. I am not sure I would in the current
    circumstance. But let me say, Mr. Atwood, let me share my
    concern over the victims of torture funding that Mr. Porter
    raised. And we appreciate the help your agency has provided,
    and I look forward to working with you. But let me just say in
    terms of where we are at, we are voting on a series of budget
    resolutions today. And I call it sort of a make-believe day. We
    are so totally removed from reality in what we are talking
    about in terms of what we are going to do with funding and
    discretionary programs, not only yours, but a whole series of
    others that impact day-to-day lives in this country.
        I think you are right. I think the recommendations for your
    function represent a totally distorted view of the future for
    this country and for the future of national security of this
    country. We are going to have significant increases in defense
    at the same time we are cutting your budget and everything else
    that relates to international relations. And clearly both in
    the short term and long term, it just simply doesn't make
    sense.
        So keep making the case, and maybe before this year is
    over, in some form, we will deal with reality. But we are
    acting like we are practically a developing country rather than
    a country in the midst of probably the greatest prosperity it
    has ever had, and somehow we have a view of ourselves as being
    poor, when, in fact, we are the richest country in the world.
    And I am not sure how we change that sensibility of how we deal
    with programs. There are always going to be tough choices to be
    made, but we aren't beginning to deal with real ones in the
    resolutions we are considering.

                            computer system problems

        Let me ask one other question that relates to your day-to-
    day operations. I listened. I don't know what your
    administrative size is particularly, but you are having trouble
    dealing with computer systems, and for the life of me I don't
    understand what is going on with these systems. Every agency I
    deal with is having computer system problems. You know, I am on
    the Appropriations Transportation Subcommittee, and day in and
    day out we are having computer program problems at the FAA.
        But every agency of the Federal Government has this common
    problem. We can't figure out how to develop a computer system,
    large or simple. One understands the problem, you know, when it
    is large, it is new software, new things, why it should be
    complicated, but it is just systemic to our whole system, and
    my observation is I am not sure how we should handle it, but we
    expect operational agencies to handle major procurement, and it
    seems no agency can figure out how to do it.
        I keep wondering if the Office of Management and Budget
    should provide greater assistance. Most tell me from the
    experience they have of dealing with budgets with OMB, that we
    would be in big trouble if you get them involved in trying to
    figure out how to buy something. I am not sure whether it
    should be the General Service Administration. Boy, I think
    every administrator, should write someone, I don't know who, in
    the President's office. You just focus on this problem of how
    we handle procurement in the planning process for buying
    computer systems, because from large agencies to small ones,
    from complicated to uncomplicated, every agency has a problem
    doing it and having it come out right.
        Mr. Atwood. Should I comment?
        Mr. Sabo. Yes.
        Mr. Atwood. Obviously it has been the bane of my existence.
    We haven't enjoyed the problems we faced, but we have different
    requirements than private corporations. Private corporations
    seem to be able to buy packaged, commercial off-the-shelf
    products. There have now become some available for government,
    but when we purchase one, which we will by the end of this
    fiscal year, we may have to modify it because of all the needs
    we have here.
        I mean, we were just talking to the staff here earlier
    about all their needs for information about how we are spending
    the money. Those sort of bottom-line needs are not necessarily
    the same needs that a stockholder in a company would want, but
    it is complicated to accomplish. We compound the problem with
    this year's Y2K issue. We have five critical systems we are
    modifying Y2K. We went through and modified four of the systems
    and put them into testing.
        And there are interfaces between one system and another
    that we thought were passive interfaces. In fact, when the
    testing took place, we realized that there was computer
    processing going on and that there were dates in those
    interfaces, so we had to go all the way back and fix those. And
    we fixed them, and now we are testing those and we will have
    them done by May.
        But, you know, I was beating myself up a bit, being
    defensive about this on the Senate side last year. And Senator
    Bennett, who knows something about this stuff and is the author
    of the Y2K report on the Senate side, said, Mr. Atwood, stop
    beating yourself up; everyone is going through the same
    problems. I believe that one of the problems of government is
    that we can't compete with private industry and with what we
    can pay for experts in this area; we have a very thin staff.
        We have got really good people at USAID working on this,
    but if one of them is sick one day, we are going to be set back
    perhaps for 30 days in getting this work done. So it really is
    a problem. We have to go out and contract for it, but we can't
    pay top dollar, the way private sector companies can, and so as
    was the case in the early days, we had contractors that weren't
    up to the job.
        We think we have a contractor that is up to the job now,
    but I think those kinds of issues are important to acknowledge.
    Government is different, and we need perhaps the kind of
    support you are suggesting that we should get. I must say one
    thing for OMB, they have been very helpful to us on this. John
    Koskinen, who used to be with OMB and is now the Y2K czar,
    comes to our office every month for a meeting to get updated on
    the Y2K issue. He has been very helpful.
        So it is a struggle, but I think we need to realize that
    government is different from the private sector in trying to
    handle these issues.
        Mr. Sabo. I am just curious. You started the whole
    development process. Was there any centralized place you could
    go to say, How do we draft proposals? I know how to turn on the
    computer and that is about it.
        Mr. Atwood. The GSA has a facility they created for
    providing tests in the early days. We did not believe that even
    their testing facility could test an integrated system such as
    the type that we had. I think in retrospect we should have
    forced them to come up with a testing platform that would have
    worked with our system. We should have tested our system better
    before we actually deployed it.
        But we felt and made a judgment, and I think it was a
    correct one at the time, that the only way to work the bugs out
    was to deploy it. That, of course, raised the profile of what
    we were doing to such an extent that we had a hard time,
    frankly, coming up here every year and justifying getting more
    money for it. So you kind of work yourself into dynamics in
    this business.
        Mr. Sabo. Thank you.
        Mr. Callahan. Mr. Sabo, I agree with you. I am computer
    illiterate myself, and this might be some type of conspiracy
    that the computer industry has plagued us with. This problem
    might be solved for $10 instead of the trillion dollars that it
    is going to cost us. But on the other hand, with respect to our
    jurisdiction, the world is not going to come apart if the
    computer system of USAID doesn't work.
        There is going to be some discomfort. The world very likely
    could come apart, on the other hand, with the FAA if airplanes
    start falling out of the sky.
        Mr. Sabo. Mr. Chairman, what strikes me is that every
    agency I hear has just the same type of problem.
        Mr. Callahan. I know that.
        Mr. Sabo. And I gather it is not simply for dealing with
    the Y2K problem, it is for developing a system that can handle
    the day-to-day operations; and sometimes they are complicated
    and sometimes they aren't. You know, IRS, and just name it,
    every agency is going to have the same type of problem, and it
    just seems that it is governmentwide.
        Mr. Callahan. My wife has a company in Alabama and, you
    know, the computer experts and her employees are coming in and
    telling her, unless she spends a lot, thousands of dollars, the
    company will go to pot. And I am saying to my wife, Before
    computers, we did it by hand. All I need is the last month's
    statement and I can correct all of our problems by hand.
        And yet they are going to have to spend maybe in our case
    $100,000 to develop some kind of a system that will get our
    invoices out on time. So I am telling my wife, if worse comes
    to worst, we will go back to hand. All you need is the last
    year-end, monthly statement and the archives that are available
    and you can go in and correct it by hand.
        But all of these billions of dollars that are being spent
    and all of these indications of doomsday, the power is going to
    be off, and there is not going to be any Social Security checks
    or USAID can't operate. FAA, as computerized as they are, that
    is a serious problem. And our problem is serious, but hopefully
    the professionals will probably wake up in the year 2005, and
    we will find out all of this was a hoax that has been played
    upon us by the computer industry; that there was a simple chip
    that you could have inserted that would have eliminated all of
    this problem. I hope I am right.
        Ms. Pelosi. Mr. Chairman, if I may on that subject, as a
    person whose area is rich in intellectual resources in this
    regard, I must say that hopefully technology and the increases
    in literacy among even our children will supply us with enough
    people who are capable of doing this, so we will have many more
    talented people to choose from and not have to compete with
    them in the private sector. But with the advances of technology
    and the spread of literacy in it, I think that we should be
    hopeful about it.
        Mr. Callahan. I don't know if any of our customers would
    really complain if our invoices said 1901 instead of 2001. I am
    going to get my----
        Ms. Pelosi. We don't want to live this century over again,
    this is the worst.
        Mr. Callahan. I guarantee you my wife is going to get her
    invoices out. And they are going to be out in a timely fashion
    on the 1st of the month as they always have been, regardless of
    whether we spend the thousands of dollars they are talking
    about or not.
        Did Mr. Kingston leave? Mr. Knollenberg, do you have a
    second round of questions?

                                budget concerns

        Mr. Knollenberg. Mr. Chairman, thank you. I heard several
    members comment and obviously, Mr. Atwood, you have, too, about
    the budget, about the 150 account, and I share your concern
    about that. And I am going to work along with this committee
    and the Chairman to see that there is something righted about
    that. I want to talk at the same time, even though it lowers
    our budget, it doesn't mean that we don't have to spend all of
    our dollars efficiently. And I am sure you recognize this, too.

                               energy efficiency

        I wanted to just talk a little bit about climate change and
    energy efficiency. USAID has long been active in promoting
    cleaner and more efficient energy generation in the developing
    countries. These programs recognize that increased power
    generation is needed for economic growth. They have helped
    American producers of power generation equipment and have
    substantially reduced air pollution and promoted better health.
        Now, USAID's congressional presentation makes global
    climate change the focus of USAID's energy program. It almost
    ignores USAID's traditional strength in clean and efficient
    energy. I would like for you, if you could, to tell me how
    USAID's relatively small amount of money will materially affect
    global climate change and the amount of greenhouse gases,
    particularly, when you look at places where USAID has few or no
    programs, such as China and India?
        Mr. Atwood. No, we don't have any programs in China. And,
    obviously, China is a country that is the source of a lot of
    the problems in terms of greenhouse gas. And they are growing.
    We do have a program in India, and it is the same traditional
    program you are referring to. It is an energy efficiency
    program that is helping them save millions of dollars by
    introducing technology that we use here in the United States.
        In fact, we have the Utilities Partnership Program, which
    we are employing all over the world. American utilities partner
    with a power plant or a utility in places like India, but other
    places around the world as well. All we pay for, really, is the
    initial travel expenses and get this thing started. They have
    their own interest in having these kinds of relationships, and
    they share a lot of really good information.
        So I think that what we are talking about here is
    introducing energy efficiency techniques. We are talking about
    win-win propositions where you are basically lowering pollution
    rates in urban areas. In Cairo, for example, we have helped
    introduce compressed natural gas engines. It doesn't take a lot
    to convert a regular engine and we have really reduced the
    pollution in the city of Cairo significantly since that has
    happened.
        And they have a lot of access to natural gas. Now, there
    are a whole lot of reasons for doing this that don't really
    relate to climate change; but, on the other hand, they all
    potentially relate to climate change.
        Mr. Knollenberg. Let me kind of zero in on something that
    took place in the last week or so. A witness at our Treasury
    hearing responded to a question about the World Bank and the
    greenhouse gases, that successful energy policy doesn't reduce
    the amount of greenhouse gases below current levels; rather, a
    successful policy helps to ensure that needed increases of
    power generation produce the minimal amount of pollution in
    greenhouse gases.
        And the question, Mr. Atwood, is, do you agree that
    continued emphasis on clean and efficient energy is a top USAID
    priority and is one that holds down the increase in greenhouse
    gases but cannot reduce the overall level? There are two parts
    there.
        Mr. Atwood. The assumption on the latter part of what you
    said is that the economies of these countries are going to
    continue to grow and they are going to have even more need for
    energy. And so if you can introduce the technology that will
    keep the energy clean, it is going to keep the levels at where
    they are. I think it is even possible if you had sufficient
    assistance and the technology were transferred in a sufficient
    way, to actually lower greenhouse gas emissions while
    experiencing these same levels of economic growth. But that
    would require the use of a lot of renewable energy technology
    that is frankly at this stage just being developed. But it is
    available and we believe we can make a contribution.
        Mr. Knollenberg. I mean, the country that obviously you
    hope you will become the ambassador to, is a country that I was
    just reading goes through some difficulties in this arena.
    Brazil is an essential global climate change country. It says
    here that it produces--I really didn't know this, maybe you can
    describe it as it should be if it isn't right--it produces
    approximately 10 percent of the world's carbon dioxide, 10
    percent; is that right?
        And that is year in and year out, because--I know Brazil is
    a contributor in a great way to the carbon dioxide, but then
    you have other countries and the programs that you are focusing
    on here. It just seems to me--I know it is not a lot of money,
    but it seems the greater focus is on that issue of controlling
    the amount of greenhouse gases, and it would seem to me that
    that focus, whether it is done by USAID or whomever, ought to
    be utilizing those energy-producing sources that don't pollute,
    that don't cause carbon dioxide. I just wonder, this question
    which says, Don't you agree that the emphasis should be on
    efficient energy that is clean?
        Mr. Atwood. Absolutely. And I think that is what our
    emphasis is on. A country like Brazil has a lot of
    hydroelectric power. And so the figure that you use may be
    correct, I am not sure. But, obviously, what they do contribute
    comes from automobile exhausts more than anything else. But the
    challenge in a place like Brazil is also trying to help them
    maintain the forest cover that they have, the Amazon, which
    absorbs a lot of CO2 back into the----
        Mr. Knollenberg. It does say here it is 10 percent, but
    that primarily it comes from deforestation, habitat conversion
    and burning. Burning is the guide that gets----
        Mr. Atwood. There are some serious problems with that in
    Brazil.
        Mr. Knollenberg. Is 10 percent an accurate figure, though?
    You are going to determine that, or can you do that for the
    record?
        Mr. Atwood. I would do that for the record.
        [The information follows:]

        We are not able to identify an exact figure for Brazil's
    contribution to global carbon dioxide emissions. According to
    the Energy Information Administration, energy-related emissions
    in Brazil in 1996 were 71.2 million metric tons, which is 1.18
    percent of the world's carbon emissions. This does not include
    carbon emissions caused by clearing of forests for non-energy
    uses, which is the largest source of carbon emissions in
    Brazil. In order to answer your question, Brazil needs to
    document, sector by sector, greenhouse gas emissions, as called
    for under the United Nations Framework Convention on Climate
    Change (FCCC).
        To comply with the FCCC requirement, Brazil is expected to
    complete its national greenhouse gas emissions inventory that
    will report on its levels in late 1999. The study, supported
    with funding from the U.S. Country Studies Program, will report
    on emissions levels in the agriculture, forest, energy, and
    urban sanitation sectors. I hope we will be able to answer your
    question by this time next year.

        Mr. Knollenberg. It just seems to me that it is very high.
    If that is the case, my God, China, India, have got to be in
    there somewhere. There are a few more countries. First of all,
    I question the accuracy of that statement. If you can verify
    that.
        Mr. Atwood. I don't know if that is right, Mr. Knollenberg.
        Mr. Knollenberg. Thank you.

                             child survival account

        Mr. Callahan. Brian, the separate use of the Child Survival
    Account, we have been trying to find out exactly how the money
    is being spent. This account has universal support. Your
    mother, for example, likes this program. But if I were to run
    into your mother and tell her we are not really sure if it is
    being spent that way or not, we have been asking your son's
    agency to give us an explanation of these changes, and
    yesterday they finally came up with an explanation of them,
    which would appear like a bunch of gobbledegook, we couldn't
    tell anything from that report.
        Why is it so difficult for you all to account for this
    program? We want the money spent on child survival. We know
    what child survival is, and we don't want to spell it out. Why
    can't you give us an accurate description of the monies that
    have been spent?
        Mr. Atwood. Mr. Chairman, we can and we will. It is just a
    question of taking the time to put this together. But I mean
    just in asking the question, it is so obvious that we should
    have--our records should have been structured in a way to
    produce this kind of thing for you. Part of it is the NMS
    system not functioning properly and having to check everything,
    and part of it is having to go all the way down to the country
    level to find out the accurate information.
        Charlie was showing me some of the charts that we sent you
    over yesterday, and I couldn't interpret them. I think we need,
    obviously, people down here to work with you to interpret them.
    We have the information, it is just a question of getting it
    into a way that my mother would understand.
        Mr. Callahan. And me too, Brian. We need to justify it. I
    keep increasing this account every year. We keep getting awards
    from organizations and nice letters from people all over the
    world telling us what a wonderful program it is. Now the
    President of the United States and First Lady talk about the
    Child Survival Account. You put it in your budget.
        And, yet, from a fiscal responsibility point of view, here
    I am saying, What happened to the $600 million, and there is no
    real justification. We are not looking for how much of it was
    spent on planning, we are saying how was the money spent and in
    what areas, and was this money spent in family planning or how
    was the money spent? That is not a very difficult request. And
    yet we still have much difficulty in getting it.

                              tuberculosis program

        Last year, you and I talked about the tuberculosis problem
    in Mexico. I think we were of the impression that you were
    impressed with the Texas program and then we finally get
    notification from you all that you are going to spend a million
    dollars, but there is no mention of that Texas program. Is that
    million dollars to be spent on the Texas TB program or what?
        Mr. Atwood. It is going to be. That is right, that is
    right. It will be spent in the border area, and we have----
        Mr. Callahan. I know that. But is that cooperating--Texas
    already had a program.
        Mr. Atwood. Right.
        Mr. Callahan. And they were looking for assistance. Is that
    going to be----
        Mr. Atwood. Well, we obviously can use our foreign aid
    funds to work on the Mexico side of the border. HHS can work
    with Texas on the Texas side of the border. What we want to do
    is make sure that this program works to benefit the United
    States----
        Mr. Callahan. I mean Texas----
        Mr. Atwood [continuing]. As well as Mexico.
        Mr. Callahan [continuing]. Texas put their money up for the
    Texas side.
        Mr. Atwood. Right.
        Mr. Callahan. They need a million dollars for the Mexican
    side. That is what it is all about.
        Mr. Atwood. We met with U.S. State health officials, Texas
    health officials, and Mexico State and Federal health
    officials, and NGOs that are active on this TB issue, and
    believe that we have a good program. A team of internationally
    recognized experts went down there to develop the program over
    a multiyear period for tuberculosis control, and the team
    includes representatives of not only USAID, but the Centers for
    Disease Control and the Gorgas Memorial Institute.
        And they are working indeed in collaboration with the
    Government of Mexico's Health Secretariat and with the Texas
    officials as well. I would be happy to give you more
    information.
        Mr. Callahan. They are cooperating with the Texas officials
    with respect to the implementation of the program that they
    essentially had developed and they feel will work.
        Mr. Atwood. That is right.

                          development fund for africa

        Mr. Callahan. The Development Fund for Africa. Now, I have
    not been one to earmark monies, and you know my philosophy on
    that. And we have done everything, yet you are coming up and
    proposing this year that we earmark a Development Fund for
    Africa. Why would you want new earmarks? If we give you
    discretion, you can do it. And if you do want it earmarked for
    Africa--you know my feelings about Central and South America--
    why wouldn't you have a similar program for something in this
    hemisphere?
        Mr. Atwood. Well, Mr. Chairman, the Development Fund for
    Africa was originally a congressional initiative, and it
    continues to be on the books in terms of the authorization side
    of this. So it is obviously that we want to focus on Africa,
    given the President's trip to Africa and given the importance
    that we continue to believe Africa has in terms of development.
    I think the reason is as much, frankly, political as anything.
    It sends a message to Africa that we are focusing on their
    interests, it sends a message to people who care deeply about
    Africa here, the same reason that you want to focus attention
    on the people who care about children.
        Mr. Callahan. I understand that. But we earmark for that a
    children's account, but we don't tell you to spend it on
    Africa. You do spend most of it in Africa, and I don't object
    to that, I don't really care. But I don't know why--I have been
    fighting to unearmark. I am not doing this for my benefit, I am
    doing it for the benefit of the administration. And then the
    administration comes back and tells me they want earmarking.
    You have got to make your mind up. Do you want flexibility or
    not?
        You just can't pick and choose. Now if you didn't request
    the earmark, and I give you flexibility, you can do it anyway.
    And I realize the political aspect of it, but this is a
    political body, too, and I am a politician. And I am real
    concerned about that.
        Mr. Atwood. Mr. Chairman, all I can say is that in any
    given year when I have to defend the President's budget, I am
    totally consistent in defending that budget each year.
        Mr. Callahan. I think that answers it. I think I know what
    you mean.
        Mr. Atwood. That is why you shouldn't stay in a job like
    this too long.
        Mr. Callahan. We run into the same problem with the Coast
    Guard and with the Navy and everyone else who comes up here and
    quietly comes behind the doors and tells us what they want to
    do. And then, being good soldiers, they stand up and tell us
    just the opposite. So I appreciate your position. But once
    again we believe, or I believe, that we ought to give the
    administration as much flexibility as we possibly can to make
    these vital decisions that are necessary for our contribution
    to the elimination of suffering worldwide.
        I don't think we ought to come up and be telling the
    administration where they are going to spend this, then. Ithink
    you are too professional to have this type of oversight coming from the
    Congress. But maybe I am wrong and maybe I will revisit that theory.
        Mr. Atwood. I hope you won't, Mr. Chairman.
        Mr. Callahan. Ms. Pelosi.
        Ms. Pelosi. Thank you very much, Mr. Chairman, I have a few
    questions, but first I wanted to say again how impressive the
    administrator's opening statement was, to use your expression
    from yesterday, with his eloquent and humorous presentation and
    explaining it to his mother. This is no reflection on anyone's
    mother; you were bringing the hay down to where the goats can
    get it. That was your expression on the floor yesterday. For
    the benefit of those who were not there, that is the Chairman's
    introduction to putting it into terms that normal people can
    understand .
        Mr. Atwood. My mother might take offense to that.
        Ms. Pelosi. Fair enough. I think in Alabama that is a
    compliment, but I am not absolutely sure. In any event, I
    didn't dare follow your good humor and the Chairman's, as
    always, humorous response, because you are in another league in
    the humor department. And I didn't say what I wanted to say at
    the time, because we were all in good spirits. But today is my
    mother's birthday, unfortunately I don't have her. So in that
    case, I am jealous of both of you. Usually it is just
    admiration that I have for you. Now, I have envy as well; you
    are so lucky.
        Mr. Atwell. That is right.

                                     brazil

        Ms. Pelosi. Our colleagues have talked about Brazil and the
    environment. And I had a question about Brazil maintaining
    spending from its own budget for environmental mitigation,
    given the financial crisis there. You can probably give this
    for the record, since you were going to get some other
    information for the record about Brazil; unless you want to
    make some observations about the challenge you face when you go
    there as to what the U.S. can do to help with the environmental
    mitigation program for Brazil.
        Mr. Atwood. It is a serious issue and a problem, and I
    think I probably shouldn't make statements about Brazil until
    my confirmation hearing.
        Ms. Pelosi. I don't have much time.
        Mr. Atwood. We would be happy as an agency to give you
    information.
        [The information follows:]

        The Government of Brazil (GOB) must make tough choices as
    it attempts to undertake budgetary belt tightening.
    Nonetheless, the Minister of Environment recently stated to
    USAID that GOB counterpart funding for the large international
    environmental program (PPG-7) will be available. USAID's
    commitment to the PPG-7 program (approximately $2.0 million
    annually) as well as its bilateral environmental activities in
    Brazil, supports implementation of environmental programs,
    largely through U.S. and local NGOs, thereby reducing the
    direct effects of possible fluctuations in GOB funding to this
    sector. Also, through USAID encouragement, the Minister of
    Environment will be recommending to the Minister of Finance
    that the GOB request debt relief from the U.S. Treasury under
    the FY 1999 Tropical Forest Conservation Act (TFCA). This will
    facilitate the achievement of the common objectives of
    decreasing deforestation and reducing green house gas emissions
    while generating local currency for the GOB's commitments to
    environmental actions.

                                    hiv/aids

        Ms. Pelosi. I just wanted you to know it is an interest
    here. I wanted to talk a little bit about HIV/AIDS. You had
    talked about the President bringing the concerns of Africa and
    debt relief, et cetera, to the G-7 in Cologne. I hope as you
    consider the economic situation of Africa, especially Africa
    south of the Sahara, that you talk about the AIDS issue.
    Hopefully we can get the AIDS issue on the G-7 agenda in a very
    central way; because it does have a giant impact, not only from
    a humanitarian standpoint, but also on the economies of these
    developing countries as they are faced with this increased
    spread of the virus.
        Last year the number of HIV/AIDS cases around the world
    increased over 15 percent. With all that we know about
    prevention and the devastation of AIDS, it still increased by
    15 percent. The administration's fiscal year 2000 $127 million
    request for addressing the awareness represents less than a 2
    percent increase from last year's level. I was disappointed
    that it did not include a continuation of the $10 million
    included in the emergency supplemental to address children and
    HIV/AIDS. I recognize that was an emergency, but I know that
    you participated with great pride with the President and the
    Secretary of State in making that announcement. But now it is
    not here.
        Given the devastating impact of AIDS on the economies of
    Africa, isn't it possible for the administration to propose to
    do more?
        Mr. Atwood. Well, we are proposing to do more. The request
    is 2 million more than the request we made last year
    recognizing, of course, that there was a supplemental that gave
    us additional resources which we were very pleased about. But
    we do more than any other nation in the world, and I believe
    that the leverage we have as a result not only of the
    resources, but of the expertise, really is helping us try to
    get a handle on this.
        I wanted to mention that I was talking to Ms. Kilpatrick
    earlier. She is going to Africa.
        Ms. Pelosi. So is Carolyn. They are going Saturday.
        Mr. Atwood. Carolyn is as well, with Sandy Thurman the
    coordinator for AIDS programs out of the White House. I think
    that is very important. It has been only recently, for example,
    in South Africa that the government has really taken this issue
    on. A lot of governments prefer to keep their head in the sand
    on this kind of issue, but it is a major, major problem in that
    part of Africa.
        Ms. Pelosi. I have asked you in the past, as I have asked
    at Labor-HHS, Mr. Porter's subcommittee, when the CDC and the
    NIH come there, that I hope we will have as much collaboration
    as possible between our domestic agencies and USAID, because
    our interests intersect. I think it is obvious for humanitarian
    reasons, but the argument can be made strictly on self-interest
    reasons as well, especially for infectious diseases. By that, I
    am not just talking about AIDS, but the issue that the Chairman
    brought up of tuberculosis. It is in our self-interest to help
    stop the spread of TB before it crosses our borders any
    further.
        The Chairman has admonished that our hearing is about to
    end, so I will submit what other questions I have that have not
    been addressed for the record. I still think that we are
    thinking too incrementally about the infectious diseases.
        Ms. Pelosi. One question I will leave with, I want you to
    discuss, is, last time you spoke of USAID's inability to accept
    vaccine donations from the U.S. private sector for developing
    countries because of the need for strong health infrastructure
    in those countries. And I will submit a question to that
    effect. But I think we have got to stop thinking so
    incrementally about it and think in a greater way about the
    challenge that is there, and the tremendous resources that we
    do have from a standpoint of research, prevention, care, et
    cetera, in our country, but we have got to reach beyond our
    borders earlier and to intervene in all of those areas.
        I think that is why it would be appropriate to be a major
    topic of discussion. Again, I want to thank you for your
    leadership, for your service. And I wish you well. And I hope
    whatever it is that you are hoping for happens soon.
        Mr. Atwood. Thank you very, very much.
        Mr. Callahan. And I, too, want to thank you. I was
    especially impressed that Nancy mentioned on the floor
    yesterday, in explaining callable capital to the Congress, I
    referred to George Wallace. When he was Governor he used to
    say, We need to bring the hay down where the goats can get to
    it. What he meant by that was that he tried to explain the
    complicated or issue of the time in a manner that the people
    could understand.
        Your statement this morning was something that this
    Congress needs more of, a down-to-earth explanation of the
    needs and direction of your agency, in a statement without
    acronyms and a statement without all of the various things that
    we take so for granted on Capitol Hill here. You mentioned and
    I mentioned, too, the differences between my mom and your mom.
    And I got to thinking that your mom's view on family planning
    and mine might be different. But on the other hand, I may have
    told you this earlier, my mother tried to abort me; the
    difference is I was 14 at the time when she thought that might
    be a good idea.
        But I thank you, Brian, and any way we can be of any help
    to you in your new endeavor, we want to do that. But in the
    interim you still have a huge responsibility of the
    transferring of this gavel to someone else. So the best of
    everything to you, and thank you for your testimony.
        Mr. Atwood. Thank you very, very much, Mr. Chairman, and
    Ms. Pelosi.
        [Questions and answers for the record follow:]

            Questions for the Record Submitted by Chairman Callahan

                        evaluation of democracy programs
        Question. For 2000, the USAID budget calls for $150 million for
    Democracy and Governance programs worldwide. This is basically the same
    amount as USAID spent in 1999.
        One of the problems USAID has faced in recent years is attempting
    to evaluate the success or failure of its democracy programs under its
    new ``Results Based Budgeting'' and the Government Performance and
    Results Act.
        Let me cite a single example:
        USAID proposes to spend $15 million this year in South Africa on
    its democracy program. One of USAID's key performance measures with
    this spending is to seek a reduction of politically related deaths in a
    region of South Africa from 2,087 in 1994 to 700 in 2000. Perhaps this
    is success, but not if you are one of the 700 people that still gets
    killed.
        According to USAID, what constitutes ``success'' in a democracy
    program?
        Answer. Broadly speaking, USAID's democracy and governance
    activities seek to promote the rule of law, genuine and competitive
    political processes, an active civil society, and improved governance.
    Success can be defined through progress resulting in these areas. The
    extent of progress depends on political progress in individual
    countries as well as the quality of specific programs. Furthermore, our
    programs operate in the context of other donors, host country dynamics
    in both government and civil society, and constraints of funding and
    USAID staffing among other elements.
        Given the range and diversity of USAID's democracy/governance
    portfolio, the following represent some specific illustrative examples.
    Success in rule of law activities may include increased protection of
    human rights through legislation and/or effective advocacy efforts and
    expanded equal access to judicial protection through increased
    availability of legal services and legal information. More competitive
    political processes can be reflected by the development of impartial
    and credible elections administration mechanisms, more pluralism and
    more competitive political parties which reflect democratic political
    values. Success in the civil society area might include increased
    citizen participation and flow of information, and an improved legal
    framework for and institutional viability of NGOs (especially advocacy
    NGOs) or a freer more independent media. More effective governance can
    be reflected through more transparent, accountable and less corrupt
    governance. The specific targets achievable over the short-term, for
    annual reporting requirements, are at times difficult to establish and
    are being refined as we learn more about what can reasonably be
    achieved in fluid environments. Furthermore, democracy is multi-
    dimensional and achieving progress on any of these indicators may be
    necessary but not sufficient for bringing about democratic change.
        In South Africa, one of the problems facing the country is
    political violence in KwaZulu Natal. One way to help address the
    problem is to support South Africa NGO conflict resolution programs
    that seek ultimately to reduce the level of political violence. We
    would like to see meaningful change as a result of the conflict
    resolution programs and a reduction in the number of political deaths
    is one measure of such change. Seven hundred politically-related deaths
    is 700 too many, which is why the reduction in such deaths from 2,087
    to 700 is progress but not total success. Total success would be having
    no politically-related deaths. Our job is to assist in the development
    of a rule of law that seeks to deter crimes and safeguard human rights
    and personal security.
             evaluation of democracy programs (prospective changes)
        Question. What changes are USAID making to its evaluation
    procedures to better determine the success or failure of its democracy
    programs?
        Answer. USAID is grappling with ways to evaluate programs to
    determine what is more successful, what is less so. Through the Center
    for Democracy and Governance, USAID is working to document and
    disseminate lessons learned, best practices and technical leadership to
    better inform democracy programming in the field. Democratization is a
    relatively new development field and the body of knowledge of
    operations to promote democracy has increased greatly over the last few
    years. USAID is tracking programs to make determinations about
    judgements made about programming directions and disseminating lessons
    learned to other practitioners in the field. For example, we have
    learned that election monitoring on election day may not capture the
    full picture in terms of free and fair elections. The period leading to
    elections may require more critical attention for monitoring of
    interference with meetings by opposition groups, biased reporting via
    control of the media by the government, etc.
        In addition, USAID has placed heightened emphasis on training its
    staff working in the democracy/governance field and implementing
    organization personnel on improved methods of measuring performance.
    Training has been provided thus far in three regions and twice in
    Washington. The Agency has also developed and last autumn widely
    disseminated a publication entitled ``Handbook of Democracy and
    Governance Program Indicators.'' Improved data on DG activity
    performance is increasingly becoming available, which is enabling the
    Agency to strengthen its capacity to assess the impact of related
    activities. Emphasis is also being placed on the development of
    mechanisms such as performance indices to better capture qualitative as
    well as quantitative results. USAID is also engaged in a dialogue with
    implementing organizations, end-users and other stakeholders on ways to
    further develop means to effectively gauge the impact of its activities
    in this area. Indeed, several implementing organizations attended the
    two Washington training programs.
                       security at ronald reagan building
        Question. Mr. Atwood, you no doubt saw the article in the
    Washington Post on March 8, 1999, regarding the lack of security at the
    Reagan Building. It concerns me very much that after all we have gone
    through regarding USAID's move to the Reagan building, there was
    apparently little consideration given by USAID and the General Services
    Administration to the building's overall security.
        Prior to agreeing to move into the Reagan Building in 1997, what
    assurances did USAID receive from the General Services Administration
    (GSA), that adequate security would be provided in the building?
        Answer. As USAID prepared for the move into the Reagan Building in
    1997, we worked closely with GSA to identify our security requirements.
    In addition, GSA provided USAID with a Pre-occupancy Survey Report that
    outlined all the security systems and procedures they planned to
    implement in the building. We are working closely with GSA to assist
    them in closing the remaining gaps between the planned security systems
    and procedures and what is the current reality.
        Question. As part of its FY 2000 budget, is USAID requesting any
    funding for security upgrades to the Reagan Building? How much and for
    what purpose?
        Answer. Mr. Chairman, we have made provisions in the FY 2000 budget
    for security upgrades to the Reagan Building. I respectfully request a
    session in camera to discuss the specific upgrades being requested.
        Question. What additional steps is the GSA making to ensure that
    the building is safe? How much will GSA spend in FY 2000 for additional
    security at the Reagan Building?
        Answer. GSA continues to work toward completion of the security
    systems originally designed for the Reagan Building. We have worked
    with GSA to develop an answer to this question Mr. Chairman, but I
    respectfully request an executive session to discuss the specific
    security plans GSA has for the Reagan Building.
                            usaid overseas security
        Question. Last year, in response to the tragic events in Kenya and
    Tanzania, Congress approved a $1.4 billion supplemental for security at
    U.S. embassies and other facilities overseas. Yet only a small portion
    of these funds will be used for USAID security.
        I understand that after the bombing, you ordered a team of USAID
    security specialists to review USAID security worldwide. The team
    concluded, I am told, that a significant number of USAID Missions lack
    adequate security.
        How much funding in the FY 99 security supplemental is allocated
    for USAID overseas security?
        Answer. Two and one half million dollars in Economic Support Funds
    were directly appropriated to USAID in the security supplemental. All
    of these funds will be used for critical overseas security
    enhancements. Twenty five million dollars were appropriated to the
    Department of State for allocation to USAID for security in the
    supplemental. When these funds are allocated, they will be applied
    exclusively toward overseas security.
        Question. It is my understanding that USAID's request for Fiscal
    Year 2000 contains no additional funds to pay for security upgrades at
    its missions overseas. Is that correct? Which USAID facilities overseas
    are in need of substantial security upgrades and what are the costs
    associated with these upgrades?
        Answer. USAID's FY 2000 OE budget request contains only funding for
    normal operational activities of the Office of Security.
        Nine overseas USAID facilities are in need of substantial security
    upgrades. The costs are estimated by the USAID Office of Security at
    approximately $2.4 million dollars. Replacement of all USAID overseas
    facilities with inadequate setback or other inability to achieve fully
    acceptable security would cost well in excess of $200 million.
        Mr. Chairman, for Security reasons I would prefer to respond to any
    request from the Committee for details about specific posts or specific
    vulnerabilities in a separate classified venue.
                                  co-location
        Question. State Department guidelines regarding the co-location of
    U.S. government facilities overseas, which states:
        ``All U.S. Government offices and activities, subject to the
    authority of the chief of mission, are required to be co-located in
    chancery office buildings or on a chancery/consulate compound.''
        What is USAID's official agency-wide policy regarding co-location?
        Answer. It is the Administration's policy to co-locate all U.S.
    Government agencies overseas. Only where there are persuasive
    operational or security reasons for veering from that policy would a
    request of a co-location exception be sought or approved. Where new
    embassy facilities are being constructed and where USAID has a
    presence, plans should include office space for USAID personnel. The
    Department of State and USAID are working together to determine
    appropriate procedures to identify incremental costs occasioned by co-
    location.
        Question. What is USAID's policy regarding co-location of its
    missions in Kenya and Tanzania?
        Answer. USAID has agreed and is committed to co-locate with the
    Department of State in the New Office Buildings (NOB) planned for both
    Nairobi and Dar es Salaam. USAID is working closely with A/FBO on the
    design phase through their respective NOB project teams. USAID is also
    committed to NOB co-location projects in Phnom Penh, Kampala, and
    Zagreb and is also represented on these project teams.
        Question. What is the total cost anticipated with the co-location
    in Kenya and Tanzania?
        Answer. A/FBO is currently estimating USAID's participation will
    cost approximately $25 million for Nairobi and $16 million for Dar es
    Salaam. A/FBO's efforts to develop the final cost figures for all NOBs
    are still ongoing. Cost figures are based on the construction of USAID
    buildings on land owned by the Department of State.
        Separate Interim Office Buildings (IOB) are planned for USAID and
    the Department of State in Nairobi until such time as the NOB can be
    completed. USAID costs for the IOB are included in the FY 1999 security
    supplemental.
                                    ``y2k''
        Question. I guess it depends upon who we listen to when considering
    just how bad USAID's problems are in meeting OMB's requirements that
    Federal Agency computer systems be Y2K compliant by March 31.
        OMB paints a fairly bleak picture. At one point, OMB had certified
    that 5 of USAID's 7 computer systems were Y2K compliant. But in its
    March 18 report, it claims that USAID has actually backtracked and that
    today only 4 of 7 systems are compliant.
        Our colleague on the Government Reform Committee, Mr. Horn, gives
    USAID even worse marks. According to Mr. Horn's analysis, USAID is the
    only major federal agency to receive a failing grade on every Y2K
    report card in the past year.
        When can we realistically expect all of USAID's ``mission
    critical'' systems to be fully functioning?
        Answer. USAID has held itself to the highest possible standards on
    Y2K compliance, because of the significance of sustaining support for
    our program operations. On this basis we will only claim successful
    implementation of our mission critical systems when the Y2K compliant
    versions are fully installed at our overseas locations and ``end to
    end'' testing on all related components has been accomplished. The
    Agency has multiple teams verifying each aspect of our Agency systems
    is Y2K ready in its parts and working together.
        The Agency has a total of seven mission critical systems, two of
    which are being replaced. Of that number, five mission critical systems
    are being repaired for Y2K compliance including: personnel, time and
    attendance, payroll, field accounting and the New Management System
    (NMS). The largest, and most complicated of these mission critical
    applications is NMS, which supports headquarters financial management,
    acquisition & assistance, budget and operations.
        USAID plans to complete Y2K testing and implementation of NMS, its
    last mission critical system, at the end of July 1999.
        Question. Given that USAID operates in more than 80 countries, what
    happens if the host country is not prepared for Y2K--will that affect
    your overseas missions' ability to operate in the new year?
        Answer. USAID has sent technical teams to 50 countries to examine
    this question and better understand what the impact of Y2K will be on
    the work of the Agency abroad through its missions. The state of
    readiness differs for each country and sector we have studied.
    Unfortunately our studies and analyses of others cannot quantify how
    long and how widespread expected Y2K disruptions will be.
        The foreign affairs community has placed emphasis on dealing with
    the consequences of Y2K given the uncertainty about this problem and
    the fact that many of the potential causes of Y2K disruption affecting
    USAID program activities are beyond our control.
        Internal Agency Y2K business continuity planning for its mission
    critical systems focuses on three critical functions including
    payments, obligations and funds control which are important to sustain
    operations.
        USAID is also a member of Embassy Y2K Committees in each host
    nation where Agency missions are located. As the Secretary of State
    directed, our Agency officers are also joining with other federal
    managers to analyze the impact of Y2K readiness in countries where the
    U.S. government is present and to prepare contingency plans where
    appropriate.
        Question. Please explain USAID's 5 percent Y2K ``surcharge'' on
    USAID program activity. Which bureaus and programs are affected?
        Answer. USAID has set aside 5% of its development assistance funds
    in FY 1999 to ensure we deal with the Y2K-related issues within our
    development portfolio. Funds will be released when there is assurance
    that Y2K problems affecting critical development programs are being
    addressed in a prudent manner. Once we obtain assurances from the
    responsible Agency executives that all Y2K issues are being prudently
    addressed, the remaining Y2K set aside funds will be released. We are
    still conducting field assessments of the magnitude of potential Y2K
    problems and thus do not yet know how much of the Development
    Assistance Y2K resources that have been set aside will be needed for
    Y2K upgrades and contingency planning. We believe that in at least some
    cases the amount required will be substantially less than the amount
    set aside.
        Bureaus affected by the Y2K set aside include the Bureau for
    Africa, the Asia and the Near East Bureau, the Latin America and the
    Caribbean Bureau, the Global Bureau and the Bureau for Humanitarian
    Response.
                               operating expenses
        Question. USAID has requested $507,739,000 for its Operating
    Expenses for FY 00. In addition, USAID intends to have available more
    than $56 million from other sources, including $350,000 from so called
    ``program funds used for OE'' (According to page 165 of USAID's CPD).
        For FY 99 USAID estimates more than $35 million, and for FY 00,
    USAID estimates more than $33 million. What does USAID estimate are the
    recurring amounts available in future years from local currency trust
    funds?
        Answer. It is anticipated that the availability of local currency
    trust funds will continue to decline by about $2 to $3 million per year
    during the next 3 to 4 years. Programs funded from Economic Support
    Funds (ESF) generate most of our local currency trust funds. As ESF
    funds for non Camp David countries continue to decline, local currency
    trust funds decline as well.
        Question. USAID is requesting $168,960,000 for ``compensation--
    full-time permanent'' staff for FY 00. Will this amount avert the need
    for any reduction in force in FY 00?
        Answer. The costs referred to are just one element of the cost of
    maintaining the Agency's workforce. In addition to these costs there is
    the cost of part-time and temporary personnel, benefit costs such as
    retirement, rental of office and residential space, and other critical
    support costs. I can assure you that if our request, of which the $168
    million is a part, is approved, we will not have a reduction in force
    (RIF), even though we will continue to reduce staff.
                                staff reductions
        Question. Brian, in your testimony, you state that for a variety of
    reasons, it will be ``. . . necessary for us to reduce U.S. direct hire
    workforce levels'' this year. I note that your Operating Expense
    funding level is a 2 percent increase above the current level, which is
    not a great amount, but an increase nonetheless.
        Can you tell us exactly what this means? Do you intend to initiate
    a Reduction-in-Force (``RIF'') to meet your staff reduction targets?
        Answer. Out of this 2 percent increase we will have to fund the FY
    2000 impact of the 3.68 percent FY 1999 Federal pay raise and an
    anticipated 4.4 percent FY 2000 Federal pay raise. In addition, we will
    have to cover cost increases worldwide caused by inflation--which is
    much higher in the countries in which we operate than it is in the U.S.
    Because of the need to cover these types of cost increases, all of
    which are rising at higher than 2 percent annually, we will have to
    further reduce our staffing levels, even with a 2 percent increase in
    funding. Our plans do not include a reduction-in-force. We intend to
    handle necessary workforce reductions through managed attrition and
    staff reconfigurations.
        Question. Why didn't USAID request the Operating budget necessary
    to meet its anticipated needs?
        Answer. This request reflects the need to continue to keep the
    overall Federal budget under control and meet various Administration
    priorities in other areas. We are examining methods of operating which
    will enable us to provide essential oversight of Agency activities with
    the reduced workforce levels necessitated under this request.
        Question. What other options are available to you to meet your
    budget shortfall?
        Answer. The only other means of obtaining funding to meet Operating
    Expense requirements would be the use of appropriation transfer
    authority. However, this would be considered only if overall funding
    available to cover our operating costs were to be so low that the only
    alternative would be a RIF.
                          usaid new management system
        Question. Brian, we need not revisit the entire tortured history of
    your New Management System, except to say that you have spent $100
    million on the project and the system still does not work properly. In
    fact, USAID is not expected to be able to produce an unqualified audit
    of its books until 2003. Not surprisingly, there is not a lot of
    confidence on Capitol Hill in USAID's bookkeeping.
        Can you tell me when USAID will have an accounting and financial
    computer system functioning so that we can all be confident that our
    foreign aid program is not subject to widespread waste, fraud, or
    abuse?
        Answer. We have a clear vision of an integrated management
    information system that will meet our needs into the 21st
    century and improve compliance with financial management and other
    system requirements. The Chief Financial Officer is taking the lead in
    ensuring the successful planning, acquisition, and implementation of
    financial system investments, and is working closely with the Chief
    Information Officer to ensure that the new system meets information
    requirements and user needs. Our information technology resources for
    this year and next are largely focused on completing and maintaining
    current systems to support Agency operations until new systems are in
    place. We have a three-pronged strategy to correct the deficiencies. We
    are purchasing an off-the-shelf core accounting system, using services
    from other government agencies, and contracting some functions out to
    the private sector. We completed a business process improvement
    analysis, which is helping to define functional requirements for the
    accounting system. We expect to acquire the new system this fiscal
    year, and will implement it in Washington and in field missions during
    fiscal years 2000 through 2002. Also, an information technology
    architecture or blueprint will be completed in sufficient detail to
    ensure that the new accounting system will support the Agency's
    business needs and work properly with other components and systems that
    will be improved or replaced as necessary.
        Question. What will be the total cost to make this system
    operational?
        Answer. Estimated total cost of implementing the new financial
    system is $22.6 million exclusive of recurring maintenance costs. Of
    this estimated total, $2.9 million is required for analysis and
    planning, $3.5 million for acquisition, $10 million for USAID
    Washington implementation, and $6.2 million for overseas deployment.
        Question. What is the total amount USAID has spent so far on the
    NMS?
        Answer. Cumulative obligations for NMS stand at $104.7 million
    spanning seven fiscal years which comprises $75.8 million in
    development costs and $28.9 million in maintenance and operations
    costs. This includes $12.9 million in FY 1999 obligations to date for
    Y2K repairs, maintenance and operations.
                           child survival/child labor
        Question. Mr. Atwood, I am interested in the Administration's new
    campaign to fight child labor, which you call the ``No Sweat''
    initiative. I applaud the goal, but I also remind you that this
    Committee last year directed USAID to undertake up to $5 million in
    anti-child labor programs within the Child Survival account. What
    programs is USAID implementing with FY 1999 Child Survival funds in
    this area?
        Answer. The term ``No Sweat'' has not generally been used to
    describe USAID's activities. Rather, it refers to the Department of
    Labor's domestic campaign to inform Americans about sweatshop issues in
    the United States, with such topics as employment of illegal immigrants
    and child labor.
        In FY 1999, in conjunction with the $98 million investment in Basic
    Education, USAID is also supporting programs totaling a projected $6
    million, to deal with child labor issues in five countries: Brazil, El
    Salvador, the Philippines, Bangladesh, and Nepal. USAID support in
    these five activities is through locally based Non-Governmental
    Organizations, supported by American Private Voluntary Organizations.
    These programs provide educational opportunities for out-of-school
    children.
        Details on these and other programs under consideration may be
    found in the ``Basic Education and Child Labor Report'' (see attached),
    a USAID Briefing Paper provided April 1, 1999 to the Senate
    Appropriations Committee, Foreign Operations Subcommittee.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 child survival
        Question. How will the Administration's ``No Sweat'' initiative
    compliment the anti-child labor programs this Committee has already
    instructed USAID to undertake?
        Answer. The Department of Labor's ``No Sweat'' initiative is
    primarily a domestic campaign using a netsite to inform Americans about
    sweatshop issues in the United States, with such topics as employment
    of illegal immigrants and child labor. USAID's ``School Works!'' will
    focus on basic education as one strategy to battle abusive child labor
    in the developing world. USAID intends to review the ``No Sweat''
    initiative to find out to what extent we might take advantage of their
    website to inform the American public on our complimentary work
    overseas.
                                maternal health
        Question. The fiscal year 1999 Senate Foreign Operations Committee
    report contained language recommending that not less than $50 million
    be spent on a maternal health initiative.
        How does USAID intend to respond to the Committee's direction for
    FY 99?
        Can USAID provide a geographic breakdown (by country and region) of
    how these funds are expected to be spent in FY99?
        What amount does USAID intend to spend on maternal health in FY00?
        Answer. In FY 1998, USAID spent approximately $50 million on
    activities funded through the Child Survival and Diseases Account that
    improve maternal health for child survival. Additionally, USAID spent
    approximately $7 million, through the same account, on activities that
    improve maternal survival. Also in 1998, USAID revised its strategy for
    reducing maternal and newborn mortality. USAID now focuses more
    attention on interventions that improve the survival of the mother-
    infant pair, specifically the treatment of complications of pregnancy,
    safe delivery, postpartum and newborn care, maternal/newborn nutrition
    and birth preparedness. USAID expects to spend approximately the same
    overall amount in FY 1999, through the Child Survival and Disease
    Account, to improve the survival of mothers and newborns.
        In FY 1998, of the overall total ($57 million) spent for maternal/
    newborn health and survival through the Child Survival and Disease
    Account, 39 percent was through the Africa Region (AFR), 47 percent was
    through the Asia and Near East Region (ANE), 9 percent was through the
    Latin America and Caribbean Region (LAC), and 5 percent was through the
    Global Bureau (G). In FY 1998, countries with major thrusts to reduce
    maternal mortality included: AFR--Zambia, Uganda, Mozambique; ANE--
    Morocco, Egypt, Cambodia, India, Nepal, Indonesia; LAC--Nicaragua,
    Bolivia, Guatemala, El Salvador; plus regional activities in Latin
    America and Africa. In FY99, approximately the same geographic
    breakdowns for funding are anticipated.
        At this time, funding for maternal/newborn health and survival is
    anticipated at approximately the same levels for FY 2000.
                                  biodiversity
        Question. Within its Development Assistance budget, USAID has
    reduced funding for biodiversity from $105 million in 1995 to about $55
    million in 1998. What has been the effect of this decline in spending
    on biodiversity and on USAID's ability to meet its strategic goal of
    ``protecting the environment for long-term sustainability''?
        Answer. Biodiversity, like many other USAID development sectors,
    has suffered the consequences of the Agency's significantly reduced
    discretionary budget. The Agency maintains an important leadership role
    in biodiversity and continues to provide the intellectual direction
    that catalyzes other donors to adopt successful USAID conservation
    strategies and methodologies. However, the cumulative effects of
    budgetary declines will impact the Agency's ability to address threats
    to biological diversity. For example:
              From 1995 to 1997, the number of missions pursuing
            biodiversity strategic objectives fell from 29 to 24 and
            existing programs in biologically important countries and
            regions have been scaled back due to declining budgets.
              Targets under a new global program designed to introduce
            innovative techniques to conserve a representative array to the
            world's ecosystems fell from 15 globally significant sites
            scheduled to be placed under improved management to seven sites
            following budget reductions.
        Question. How much does USAID plan to dedicate to biodiversity
    programs in fiscal year 1999? What is USAID's budget request for
    biodiversity for fiscal year 2000?
        Answer. In FY 1999, USAID has budgeted approximately $68.0 million
    in the Development Assistance account for biodiversity including
    funding for related directives such as neotropical birds, Parks in
    Peril, and the new McConnell Fund. The level for biodiversity in the
    other program appropriations will be available as soon as the Agency's
    emphasis area coding is complete.
        USAID's FY 2000 request did not establish a specific funding level
    for biodiversity--but we consider it an important component of our
    environment program, for which we have requested a level equal to our
    FY 1999 request of $290 million.
                      status of usaid's new coding system
        Question. What is the status of USAID's new coding system that is
    designed to better track exact spending levels within various sectors?
    Is USAID now able to code biodiversity spending? What is the Agency's
    definition of ``biodiversity'' for the purpose of coding?
        Answer. The new streamlined, PC-based, and much more user friendly
    coding system has been launched. Revised codes, definitions and
    software were provided to USAID missions and Washington offices at the
    end of January 1999. Missions and Washington offices are coding FY 1998
    obligations, FY 1999 allocations, and FY 2000 planned obligations into
    the system.
        Biodiversity is included as part of the codes. The definition that
    is being used is as follows: ``Activities designed to support the
    conservation and sustainable use of biological diversity (biomasses,
    ecosystems, species, or genetic diversity) by identifying needs; by
    designing, implementing and monitoring conservation and management
    actions; through research and training; or through institutional
    strengthening, policy interventions and program development.''
        biodiversity (reduced funding for environment/natural resources)
        Question. Why did USAID reduce funding for its Office of
    Environment and Natural Resources, within the Global Bureau, from more
    than $10 million to less than $7 million in FY 99?
        Answer. The Agency maintains a strong commitment to environment
    programs overall, including biodiversity programs. In FY 1999, we
    intend to commit a total of $248 million for environment programs. In
    FY 2000, our request includes $290 million for the environment.
        We agree that USAID central offices, such as the Office of
    Environment and Natural Resources, play a key role by designing and
    leveraging funds for projects and programs that USAID missions often
    adopt and help fund. Because of their past good work, this year we saw
    a major increase in bilateral programs in Africa and Latin America and
    the Caribbean funded by USAID missions. As part of a shift in
    programming priority from USAID headquarters to the missions, the
    Energy Office budget was reduced by 10% and both the Natural Resources
    and Urban Programs offices were reduced by approximately 30%.
        For FY 2000, $9 million has been requested for the Office of
    Environment and Natural Resources.
        Question. For FY 99, does USAID intend to reduce funding for
    environmental programs in Nepal below its FY 98 level? How much funding
    is USAID requesting for FY 00 for Nepal environmental programs?
        Answer. USAID requested $3 million for the environmental programs
    in Nepal in FY 99, $0.7 million above the FY 98 level. Since ANE's
    overall amount of FY 99 discretionary funding was limited and there
    were significant demands for these funds for Indonesia and the response
    to the Asian Financial Crisis, ANE was able to allocate only $1.2
    million for environmental programs in Nepal, a reduction from FY 98
    levels. Although ANE expects the availability of discretionary funds to
    be even more constrained in FY 00, USAID is requesting $1.5 million in
    environmental funding for FY 00 for the Nepal program.
                           centrally funded programs
        Question. The following Centrally Funded programs justified in
    USAID's fiscal year 2000 congressional presentation document appear
    more directed toward to the activities within USAID, rather than those
    designed to assist people in developing countries. These projects'
    goals include: Project 936-SS03 ($775,000 DA): Number of [USAID] field
    missions using improved management software; Number of [USAID] mission
    strategic objective teams applying technical assistance in training
    ``best practices''.
        Why does USAID use more than $13 million of its program budget
    resources for projects that are designed primarily to benefit USAID as
    an organization rather than to assist directly those in need?
        What direct benefits do these projects provide to the people in
    developing countries?
        Answer. The Global Bureau activities cited in Project 936-SS03
    ($775,000 of the $13 million under question) are designed to make
    highly decentralized training activities more effective. Training host
    country professionals is the key to sustaining the impact of USAID's
    fieldwork, and is undertaken in every field mission in almost every
    project. Training activities require some level of central monitoring
    and management for two reasons: (1) to provide accurate aggregate
    reporting on training to the U.S. Congress and to USAID's Executive
    Branch partner agencies via the Interagency Working Group on U.S.
    Government-sponsored International Exchanges and Training (IAWG); and
    (2) to assure the uniform application of optimum training practices in
    the interest of Agency-wide cost efficiency.
        Direct benefits to people in developing countries from the two
    cited activities of training management software (TraiNert) and
    technical assistance to field missions in training best practices
    include: (1) improving consistently the skills and knowledge of host
    country professionals sponsored by USAID for training, and (2) ensuring
    that trainees' performance back at the work-site is improved as
    planned.
        Question. The following Centrally Funded programs justified in
    USAID's fiscal year 2000 congressional presentation document appear
    more directed toward the activities within AID, rather than those
    designed to assist people in developing countries. These projects'
    goals include:
        Project 930-SS01 ($2,440,000 DA)
              ``Number of USAID operating units that address gender-based
            constraints in economic growth strategies.''
        Project 930-SS04 ($2,700,000 for FY 00)
              ``Greater reflection of gender considerations in the Agencies
            Work.''
              ``Improved Agency policies and organizational capacity to
            address gender issues.''
              ``Improved incorporation of gender considerations in the
            design and implementation of Washington-based programs.''
              ``Improved coordination of gender considerations in the
            design and implementation of field programs.''
              `Improved coordination with international community.''
        1. Why does USAID use more than $13 million of its program budget
    resources for projects that are designed primarily to benefit USAID as
    an organization rather than to assist directly those in need?
        2. What direct benefits do these projects provide to people in
    developing countries?
        Answer. Two of the Centrally-funded programs in question (Project
    930-SS01 and 930-SS04) cover the work of USAID's Office of Women in
    Development (G/WID) and reflect the mandate of that Office to help
    integrate gender throughout USAID programs, rather than directly fund
    small women-focused projects. It is through mainstreaming of gender
    concerns in all our activities that we see direct and substantive
    impacts on women.
        USAID is making excellent progress in achieving such integration of
    gender concerns. In virtually all USAID field Missions there is a
    notable increase in the extent to which a main consideration in
    programming is whether and how programs will affect women. In each
    region of the world, we have seen positive impacts on the status of
    women. In Africa, for example, gender is well integrated into our
    economic growth and agricultural development programs and women
    comprise a substantial proportion of program beneficiaries. In Asia and
    the Near East, USAID basic education programs have helped reduce the
    difference between boys' and girls' enrollment rates. In Europe and the
    New Independent States, we are working in close collaboration with the
    Department of State to address the severe and widespread problem of
    domestic violence, and the growing phenomenon of trafficking in women.
    In Latin America, women constitute the majority of the beneficiaries of
    our judicial services centers.
        These are just a few examples of the many ways in which we are
    addressing gender throughout USAID programs. Moreover, we continue to
    move ahead in the implementation of our Gender Plan of Action. In the
    next several weeks, the USAID Office of Procurement will issue a
    contract information bulletin (CIB) to guide all contract officers as
    they work with technical officers in the implementation of the
    procurement related items in the Gender Plan. Through this and other
    actions, we are sending a strong message that our collaborators and
    contractors must improve their gender expertise in order to be
    responsive to USAID policy and programming procedures. Our success with
    the Gender Plan--and, more generally, our programming to improve the
    lives of women--is documented in a report that we recently submitted to
    the Congress. I would be pleased to make a copy available to you.
        Question. Why does USAID use more than $13 million of its program
    budget resources for projects that are designed primarily to benefit
    USAID as an organization rather than to assist directly those in need?
    What direct benefits do these projects provide to people in developing
    countries?
        Project 930-SS02 ``Managing for Results courses held to train
    Agency staff.''
        Answer. These courses were listed as an indicator of the success of
    our efforts to institutionalize managing for results systems in USAID.
    USAID does not use program funds to actually carry out the training.
    The courses are currently implemented with USDH trainers whose travel
    and other expenses are paid through the Agency's operating expense
    budget. PPC does use program funds to develop a coherent and effective
    Agency system for planning, measuring, evaluating and reporting
    results, which in turn assures better, stronger programs. To date,
    there have been six Managing for Results courses that have provided
    USAID staff the tools, skills, and knowledge to more effectively carry
    out programs that benefit the poor in developing countries.
        Question. Why does USAID use more than $13 million of its program
    budget resources for projects that are designed primarily to benefit
    USAID as an organization rather than to assist directly those in need?
    What direct benefits do these projects provide to people in developing
    countries?
        Project 930-SS02 Country impact evaluations completed
        Answer. Country impact evaluations are designed to directly improve
    the effectiveness of USAID programs in developing countries. They
    analyze program efficiency and effectiveness to identify which
    strategies, programs and activities work well and which don't. They are
    based on a broad retrospective of USAID's experience, rather than
    results from a single program or country. Impact evaluations directly
    improve the effectiveness of USAID programs in developing countries in
    the following three ways: (1) First, they inform and influence major
    Agency policy and programming decisions by drawing lessons from
    experience; (2) Second, they assist in shaping operational decisions at
    the individual activity level by assessing activity performance and
    effectiveness; (3) Finally, evaluations support the accountability of
    Agency management by documenting impact. Ultimately, they improve the
    quality and effectiveness of USAID programs in the field.
                          development credit authority
        Question. In its FY 2000 budget, USAID is requesting $15 million
    for its Development Credit Authority. This is in addition to the $7.5
    million Congress made available two years ago for this purpose. I am
    aware that prior to conducting any program, USAID must be certified by
    the Office of Management and Budget that it has met a number of
    accounting requirements.
        Now, I am skeptical of this entire scheme. I worry that while on
    one hand, the Administration is requesting funds to reduce or cancel
    debt owed to us by various foreign aid recipients, and on the other
    hand, USAID wants to begin new loan programs in countries like the
    Dominican Republic, Ethiopia, the Philippines and others.
        Can you give the Committee an update on the Office of Management
    and Budget's (OMB's) approval of the Development Credit Authority? Has
    OMB signed-off on USAID moving forward with this plan?
        Answer. On April 30, OMB notified USAID and Congress that the
    Agency had sufficiently addressed all outstanding issues related to its
    ability to issue and manage credit programs.
        During this process, USAID took a number of steps to ensure proper
    risk analysis and credit management. For example, USAID outsourced its
    loan servicing functions to Riggs Bank. Riggs, working with USAID
    staff, developed a loan servicing and tracking system, which OMB found
    more than satisfactory. USAID also created a DCA Team comprised of
    Agency experts in credit analysis and loan management. The Agency will
    bolster that team with new hires who have specific background in credit
    risk analysis and loan management. The DCA Team assists missions in
    their DCA-funded project development activities.
        One of the most important guiding principles on the use of DCA is
    that USAID will no longer assume most of the financial risk for credit
    activities. DCA requires sharing risk with other financial institutions
    that meet rigorous risk analysis criteria.
                    development credit authority (new loans)
        Question. How does USAID justify extending new loans to certain
    developing countries, while the Administration is also seeking to
    forgive existing debt owed by other developing countries?
        Answer. DCA is intended for non-sovereign lending. Under the
    regulatory reforms that govern DCA, only a handful of USAID-assisted
    countries would be sufficiently creditworthy to qualify for sovereign
    risk credit assistance. Instead, DCA credit assistance is intended for
    credit enhancement purposes in cases where the borrowers are non-
    sovereign entities and the lenders, with whom we partner, take more
    than 50% of the risk. Because they will not be 100% guarantees, USAID
    will not have any new assets to forgive.
        USAID is and will remain essentially a grant agency. However, we
    have found that credit enhancement can be a powerful and effective
    development tool. Our need for credit authority is driven solely by our
    successes in promoting private sector-led development principles and
    our need for a financial tool to encourage local credit markets and
    local lenders to participate in the development process.
        development credit authority (loans to countries receiving debt
                                  forgiveness)
        Question. Is USAID going to consider making loans to any country
    that has received debt forgiveness or reduction in the past 5 years?
        Answer. USAID does not intend to offer credit assistance to any
    country that has received USG debt forgiveness or reduction in the past
    five years.
        Question. How is the new loan program consistent with the plan just
    announced by the President to provide further debt reduction for poor
    countries?
        Answer. There is no relationship between our Development Credit
    Authority (DCA) request and the President's debt reduction initiative
    for the poorest countries. The risk assessment models that USAID now
    uses to determine the subsidy cost of each credit activity will tend to
    preclude the use of DCA credit assistance in the poorest countries even
    where the borrowers and lenders are wholly private sector entities.
    This is due to the heavy weight given to the overall credit worthiness
    of a country in our risk assessment models. Most DCA credit assistance
    will be in the form of partial loan guarantees (less than 50% risk
    sharing) of local currency loans made by private banks at market rates
    to private sector borrowers. DCA credit assistance will be directly in
    support of the strategic objectives of our country missions and are
    intended to support and reinforce specific grant-financed policy and
    institutional reforms.
             development credit authority (administrative expenses)
        Question. How will the proposed $2 million is administrative
    expenses be utilized?
        Answer. In order to comply with the Credit Reform Act we have
    requested this $2 million to be used for DCA administration related
    expenses. This includes, among other things, conducting credit risk
    analyses, financial monitoring, and providing expert credit staff
    assistance in the development of DCA funded projects to our overseas
    missions. In addition, these funds will be used to develop and conduct
    staff training programs on the prudent use of credit, and the
    contracting of industry and sector specific specialists to assist us in
    determining the financial viability of proposed projects.
                          development fund for africa
        Question. Since I became Chairman of this Subcommittee, I have
    consistently fought against the practice of ``earmarking'' funds. We
    even succeeded last year in eliminating from the House bill the
    decades-old earmarks for Israel and Egypt. I believe, Mr. Atwood, you
    too have generally been opposed to earmarks. After all, they reduce the
    Executive Branch's flexibility.
        That is why I am puzzled that USAID is this year proposing the re-
    creation of its ``Development Fund for Africa'' to be funded at $512
    million.
             Given the severe funding restraints this year's bill will
            likely face, why do you propose earmarking funds for Africa at
            the expense of other regions of the world?
             Doesn't a regional account like DFA reduce your flexibility?
             Why are you not proposing a ``Development Fund for Latin
            America'' to protect funding to this region?
        Answer. The Administration has asked for funding for the
    Development Fund for Africa in its FY 2000 request to signal the
    Administration's commitment to returning our funding for assistance to
    Africa to historic levels, as announced during the President's trip to
    Africa last year. The DFA symbolizes the importance of sub-Saharan
    Africa to U.S. National Interests. It builds on our past success in
    helping Africans to integrate into the global economy. In addition, it
    acknowledges the transnational threats emanating from countries that
    are wrestling with pandemics such as HIV/Aids, and other destabilizing
    forces. The DFA emerged from a strong consensus in the last decade that
    our relationship to Africa was changing as new leadership and new
    opportunities were manifested. The need is even more pressing today, as
    ethnic strife, global financial crises, and the burden of debt
    service--challenges throughout the developing and newly industrialized
    world--simply can't be ignored in Africa without long term risk to U.S.
    National Interests.
        USAID does not propose using a special fund to signal the
    Administration's commitment to Latin America. That has already been
    achieved through the Summit and post-Summit processes that have kept
    Latin America high on this Administration's agenda. The recent joint
    congressional and Administration effort to appropriate $621 million for
    disaster reconstruction further confirmed our strong support for the
    region. Finally, our partnership with Congress has ensured that during
    difficult budget times, Latin America received the necessary funding to
    continue our critical programs in the region.
                                  south africa
        Question. When USAID began its programs in South Africa in 1994,
    the plan was to ``graduate'' South Africa from foreign aid by 2005.
    Since that time, USAID has provided more than $700 million in aid to
    South Africa. And since the overall Africa budget has not increased,
    many other less developed African countries have seen USAID funding
    reduced to pay for programs in South Africa.
        I understand that USAID has extended its programs in South Africa
    for several more years.
        What is USAID's justification for extending the program?
        Answer: During the first year of the Mandela administration, the
    Government of South Africa was deeply occupied by dismantling the
    apparatus of the apartheid regime, writing a new Constitution which
    emphasized the protection of individual rights and developing new
    departments and policies to assure non-discrimination and equal access
    to public services. A great deal was required, too, in assuring
    establishment of a viable, pluralistic democracy, in reducing political
    violence and in reconciliation of South Africa's multi-racial
    population.
        Since 1994, much has been accomplished. South Africa has introduced
    appropriate policies and legal frameworks and restructured the basic
    institutions of government. There has also been progress in making
    basic services available to people, but there is still a long way to
    go. And, South Africa's extraordinary development problems persist:
              75% of South Africans, the disadvantaged poor, do not have
            access to adequate housing, basic services and economic
            activity;
              Economic activity is insufficient to keep from losing ground;
            growth slowed from 3.3% in 1994 to less than 1% in 1998:
            500,000 jobs have been lost; unemployment is 23-24% (60-70%
            among youth in townships);
              Education of South Africans for employment and opportunity is
            slowed by the manpower constraints in education; and
              The rate of spread of HIV/AIDS may be the fastest in the
            world (1500 new cases daily).
        South Africa's capacity to redress these problems has been
    overestimated.
        Ensuring successful transition to a pluralistic, market oriented,
    sustainable democracy in South Africa is in the U.S. interest--both to
    sustain the expansion of democracy in the region and because the region
    is so intimately linked with South Africa's economy. South Africa plays
    a unique role in fostering political and economic stability in Africa.
    The success or failure of its political transition and economic
    policies has a multiplier effect throughout the region. While
    continuing our support to South Africa means in the short-term there
    will be fewer resources for the rest of Africa, by targeting limited
    resources for the broadest impact, we are maximizing the benefits of
    U.S. dollars to the entire region.
        Question. Who in the Administration made this decision?
        Answer. The USAID program and continued presence in South Africa is
    strongly supported by both the Department of State and USAID. In
    January, 1999, U.S. Ambassador to South Africa James Joseph and USAID
    Assistant Administrator for Africa, Vivian Lowery-Derryck met with
    Deputy President Thabo Mbeki to discuss the future of the USAID program
    in South Africa. At that meeting there was a clear articulation of the
    need for USAID presence to continue beyond the end date of FY 2005. The
    Deputy President specifically mentioned priorities of state
    administration/governance, job creation, housing, education and rural
    development as needs to be addressed. It was further agreed that the
    program details of the extension would stem from joint consultative
    process between USAID and the Government of South Africa following
    consultation by USAID with other agencies of the Executive Branch and
    the Congress.
        Question. Given that USAID was planning to close out its program in
    2005, what is the new estimated date on which USAID [will cease] its
    program in South Africa?
        Answer. An extension of three to five years beyond the FY 2005 end
    date is contemplated, with a further evaluation to occur in FY 2005.
        Question. What impact will extending the South Africa program have
    on other USAID programs elsewhere in Africa?
        Answer. The potential impact of a stable and economically robust
    South Africa is enormous as is the negative impact that would result
    from a stagnant or failed economy and political instability. While
    South Africa is economically ahead of its neighbors, it still faces
    significant challenges. Because of protected industries and missed
    opportunities in the past, it has yet to be integrated into the global
    economy and is currently experiencing an economic recession. USAID
    assistance is building a cadre of capable economists and financial
    managers able to address these challenges. As a key partner, the U.S.
    has already invested heavily in the post transition era, and it is
    critical that we remain engaged in supporting South Africans to forge a
    model of economic growth, political participation and social well-being
    that will influence their neighbors in the region.
                              agriculture funding
        Question. This Subcommittee has been a long-standing proponent of
    agriculture development. We know how effective it is in helping the
    people of the developing world, as well as our farmers and
    agribusinessmen here in the United States. For the past two years, this
    Committee has included strong report language in support of increased
    funding for agriculture development. The Subcommittee is pleased to see
    agriculture development as one of USAID's primary goals in its work in
    developing countries.
        That being said, the Subcommittee is concerned that Agency has not
    specifically announced its proposed funding levels for agricultural
    development for FY 00. We understand that despite assurances otherwise
    from you, Mr. Atwood, the funding level this year will likely be lower
    than the $305 provided last year.
        What is USAID's specific budget request for agriculture development
    in FY 00?
        Answer. USAID's FY 99 Development Assistance budget for agriculture
    is expected to be $134,500,000. There are some accounts, such as
    Economic Support Funds (ESF), the Support for Eastern European
    Democracy Act (SEED) and support for the New Independent States (NIS),
    which are jointly managed with the Department of State. When these
    amounts are included, USAID, FY 99 budget for agricultural activities
    is estimated to be $339,400,000. This is greater than the $305 million,
    which we obligated in FY 98.
        USAID's Development Assistance request for agriculture development
    in FY 00 is $147.9 million. This reflects a $13.4 million increase over
    the FY 1999 level. Our FY 00 request level from all accounts for
    agriculture is $306,000,000. As Missions develop their programs, this
    amount is likely to be modified somewhat.
        Question. How does USAID intend to continue to provide funding to
    agriculture development programs that have traditionally received it?
        Answer. USAID will strive to maintain support to its traditional
    partners, e.g., the U.S. university community, the International
    Agricultural Research Centers, and the NGOs that emphasize the linkage
    between agriculture, economic growth and food security. USAID will
    continue to work closely with various U.S. private agricultural
    interests to develop stronger public-private partnerships that can
    increase the development impact of investment for both sides, and also
    gain access to markets for U.S. business. Our agricultural partners are
    also giving increased attention to the alleviation of malnutrition, the
    number one cause of early childhood mortality. Several innovative
    programs emphasizing sustainable food-based approaches to improved
    nutrition offer considerable potential to improve child survival.
                              oti funding increase
        Question. How do you justify this increase in OTI's portion of the
    Disaster Assistance Account?
        Answer. The proposed FY 2000 funding level for OTI is the same as
    the actual program appropriated by Congress in FY 1999. However, the FY
    1999 level was divided between International Disaster Assistance ($40
    million) and Development Assistance ($15 million). The same $55 million
    total is proposed for funding for FY 2000, entirely from the Disaster
    Assistance account. The Administration believes Disaster Assistance is
    the appropriate account for OTI.
        During this decade, there has been a seeming by steady growth in
    the number and humanitarian impact of man-made disasters. Somalia,
    Sudan, Congo, Rwanda, Bosnia, Sierra Leone, Liberia, Haiti,
    Afghanistan, Angola, North Korea, Indonesia, Ethiopia, Eritrea, and now
    Kosovo are examples. Some of the man-made disasters have been sparked
    by a natural disaster such as a drought or flood, but in all cases,
    some form of political or ethnic crisis has intensified the
    humanitarian impact of the disaster. Providing effective relief and
    assistance, which can help ensure a successful transition to sustained
    recovery in these complex disasters, often requires interventions
    different from traditional disaster relief. For example, demobilization
    of soldiers; demining of critical areas; assuring effective community
    participation in small-scale reconstruction projects; assistance to
    independent media and to civil society organizations to support
    peaceful, democratic transitions; and training of local officials and
    leaders in ethnic reconciliation are all examples of interventions
    which can be critical to successful disaster relief. Even in natural
    disasters such as Hurricane Mitch, there can be concerns, such as the
    potential for corruption, which can have a critical impact on the
    effectiveness of U.S. disaster response.
        There are many explanations for why there are now so many complex
    disasters. Some believe the end of the Cold War removed the discipline
    of super-power competition, freeing the eruption of ethnic and civil
    conflict. Some believe the competition for resources in a world of
    rapid population growth is the cause. Whatever the explanation, there
    does seem to be a growing number of these complex disasters. The Office
    of Transition Initiatives (OTI) was established to develop expertise in
    response to such disasters. OTI has been successful in many
    interventions, from Rwanda to Indonesia to Bosnia to Guatemala. As a
    result, the prospects of successful recovery in these complex disasters
    have improved greatly.
        The Administration believes the apparent need to deal effectively
    with complex disasters and the success of OTI's activities justify
    continuing activities at the $55 million level. At the same time, it is
    important to note that priority in use of funds from the International
    Disaster Assistance account will continue to go to life-saving disaster
    response. It is also important to note that this proposal does not
    reduce funding available for the Office of Foreign Disaster Assistance,
    which administraters more traditional disaster relief programs.
        Question. Given that some of OTI's projects are designed to
    continue for several years, they are increasingly inconsistent with
    traditional disaster assistance programs (which generally are to assist
    in urgent humanitarian or man-made disasters). Would USAID object to
    this committee separating out OTI from the regulatory international
    disaster assistance account?
        Answer. It is the opinion of USAID that OTI funding should continue
    to come from the International Disaster Assistance account. This will
    facilitate continued collaboration between the Office of Foreign
    Disaster Assistance (OFDA) and OTI; allow for better strategic
    planning; increase options for U.S. Government response to man-made
    disasters; improve efforts to link relief to development; and ensure
    that U.S. Government responses to man-made disasters are fast,
    flexible, and relevant.
        For example, after the Quatemalan peach accords were signed in
    December 1996, the U.S. Government was one of the first donors to
    support the demobilization and reintegration back into civilian society
    of rebel and military ex-combatants. OFDA initially assisted OTI to
    establish camps for the demobilization process of almost 3,000 rebel
    ex-combatants. OTI focused on literacy and civic education programs,
    vocational training, scholarships, and other integration-related
    activities for the ex-combatants. Without OTI's assistance, the
    demobilization process would have been delayed; missing the tight
    timeframes set by the peace accords.
        OTI has a defined, short-term target intervention timeframe. Both
    OTI and OFDA were created to respond quickly to urgent disasters, but
    at different phases in the evolution of the disasters and with
    different types of responses.
        Through the special authorities of the Disaster Assistance account,
    OTI can respond quickly, flexibly, and appropriately to man-made
    disasters. Because OTI's mandate is to focus on advancing peaceful
    democratic change, it usually become involved in a man-made disaster as
    OFDA begins to phase out its relief efforts in a country or an area.
    This phasing of International Disaster Assistance allows the U.S.
    Government to transition assistance to disaster assistance and then
    (where possible) utlimatelty from development assistance. In a number
    of cases (e.g.) Angola, Bosnia, Liberia, and Rwanda--OTI and OFDA have
    worked in countries where conflict has led to ``man-made'' disasters
    requiring years of humanitarian assistance. OTI can be instrumental in
    helping countries move away from dependence on traditional disaster
    assistance. OTI does not design projects to continue for several years.
    Rather, activities are planned with a definite exit strategy in mind,
    normally two years or less.
                             oti funding by country
        Question. Please provide the committee with a country-by-country
    breakdown of proposed OTI programs for fiscal years 1999 and 2000.
        Answer. As discussed, OTI's mandate is to engage countries for a
    relatively short period of time to address traditional opportunities
    and challenges. (USAID Mission strategies tend to be more long-term in
    focus.) As a result, OTI does not establish fixed budgets for its
    country activities. Instead, OTI operates with constantly changing
    budget ranges for a given country. This gives the Office maximum
    flexibility to shift resources to where they are needed most. OTI works
    in some of the toughest, most dynamic environments in the world and
    must downsize or close out activities quickly if a given situation
    deteriorates (e.g., Democratic Republic of the Congo) or if more
    promising opportunities emerge.
        OTI's budget for FY 1999 includes an additional allocation of $40
    million from the International Disaster Assistance account, a $15
    million Development Assistance earmark for Indonesia, and $1.2 million
    Disaster Assistance carryover from the previous year. Enclosed is OTI's
    most recent FY 1999 projection by country. Please note that there
    budget numbers continue to shift depending on changing worldwide
    conditions. For example, OTI's budget levels in Kosovo and Macedonia
    are uncertain this fiscal year, though the Office is intensely engaged
    in assisting the Office of Foreign Disaster Assistance with the
    humanitarian crisis and in helping the U.S. Government plan for crisis
    and post-crisis response.
        OTI's FY 2000 request for $55 million in IDA funding would
    essentially ``straightline'' its FY 1999 budget, and would not result
    in expansion of overall activity. Given current international
    conditions, OTI estimates it would operate in 12 to 15 countries with a
    $55 million budget. OTI anticipates that three or four of the highest
    priority countries would take up most of the FY 2000 budget, with
    approximately $8-$12 million in activities per country. Indonesia,
    Kosovo/Montenegro, and Nigeria could well be in that range next fiscal
    year.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                Questions for the Record Submitted by Mr. Porter

                         armenia vs. azerbaijan funding
        Question. The Administration has requested a decrease in aid to
    Armenia, despite that country's acceptance of the current OSCE
    compromise peace proposal regarding the Nagorno Karabagh conflict. This
    decrease is unacceptable--this country has been working for stability
    and peace and a reduction in the assistance will send the wrong signal
    and be devastating to Armenia as it continues its long struggle toward
    stable, independent democracy.
        At the same time, the administration requested an increase in aid
    to Azerbaijan, which summarily rejected the current OSCE compromise
    peace proposal and at this time, is unwilling to even come to the
    table.
        Are we rewarding this behavior? Our whole strategy for this region
    has been to get the opposing sides to the table. Are we abandoning this
    strategy? With the current funding proposals, it appears the
    Administration is doing just this. I hope you can provide me with a
    little insight on this new approach and what the goals are now.
        Answer. There has been no change in U.S. Government strategy
    regarding Nagorno-Karabakh: we continue to focus on getting all parties
    to the conflict to the negotiating table.
        Regarding relative Armenia and Azerbaijan levels in the
    Administration's request for FY 2000 funding, Armenia and Azerbaijan
    are important foreign policy priorities for the U.S., both geo-
    politically and in light of their potential roles in the Caspian energy
    equation. Maintaining adequate assistance support to both countries is
    an important factor in ensuring that U.S. priorities are met.
        FREEDOM Support Act funding for Armenia over each of the past
    several years has been over $20 on a per-capita basis, or five times
    the per-capita levels (just over $4) provided to Azerbaijan. Even with
    the proposed FY 2000 funding levels, this relationship is not going to
    change significantly, maintaining assistance to Armenia at almost five
    times the per-capita level provided to Azerbaijan.
                             mongolia: fy 1999 oyb
        Question. Throughout this current fiscal year, I have heard about
    many important programs that have been proposed for implementation in
    Mongolia. However, I am dismayed to learn that USAID may now only
    obligate $6 million for Mongolian assistance for FY99 and not the $12
    million supported by Congress. Why this reduction?
        Answer. In the allocation process, USAID and State sought to meet
    the request level supported by Congress, but due to many competing
    demands for FY 1999 ESF funds, only $6 million in NIS (FREEDOM Support
    Act) funds have been identified to date.
        USAID has a continuing commitment to promoting sustainable
    development in Mongolia, as demonstrated by our approval on October 30,
    1998, of a new, five-year Country Strategic Plan for Mongolia.
        The $6 million allocated thus far in FY 1999 will allow USAID
    Mongolia to initiate its new strategy but at a slower pace than at the
    $12 million level. At the $6 million level, USAID would have to scale
    back its planned assistance to the Government of Mongolia's economic
    reform efforts and its privatization program. At the lower level of
    support, we will run out of funds for these important programs by
    November 1999.
        We understand State, through its internal allocation process,
    continues to seek additional funds for Mongolia for this year. We will
    learn of the outcome of their efforts in a few weeks.
        In FY 2000, we anticipate that we will be able to provide a $12
    million funding level for the Mongolia program and we have requested
    that amount under the Economic Support Fund for FY 2000.
                                  tuberculosis
        Question. I commend USAID in beginning the collaborative effort
    with other agencies, such as WHO, CDC and NIH in trying to prevent the
    spread of TB. I hope that USAID will be able to continue with this
    investment in FY2000 and work to limit the anti-microbial resistant
    strains of TB that are now developing, especially in the Russian prison
    system. Considering all that the U.S. has put forward in combating, at
    both the domestic and international levels, we must now make the most
    effective treatments global. At what level is USAID planning on funding
    the infectious disease program in FY 2000 and will this funding
    continue to be used in collaboration with CDC and NIH?
        Answer. In FY 1998, USAID received $50 million for infectious
    diseases as part of the Child Survival and Disease Fund. This funding
    enabled USAID to support awards to both CDC and NIH to assist in the
    implementation of activities in infectious diseases.
        The CDC component included an $8 million agreement between USAID
    and CDC to support work on malaria, surveillance, anti-microbial
    resistance, HIV-AIDS, and TB. The agreement included a $1 million award
    to provide worldwide technical assistance to identify national
    priorities, assess control efforts, and develop recommendations for
    effective and efficient use of resources to combat TB. This assistance
    will help tailor the use of the Directly Observed Treatment, Short-
    course (DOTS) strategy to the needs of individual countries.
        The NIH component has resulted in a collaborative initiative
    between USAID and the Fogarty International Center at NIH. The
    initiative, funded at $375,000 per year, is designed to improve
    tuberculosis control through training, clinical and operational
    research, and innovative intervention studies in high incidence areas.
    The major priority of this initiative is to develop local strategies to
    improve TB control, which can be adapted in other high incidence areas.
        USAID intends to continue its collaborative relationship with both
    CDC and NIH, as well as with other governmental and non-governmental
    domestic and international organizations over the next several years.
    Funds for FY 1999 will be allocated similarly to those of FY 1998, and
    if USAID's FY 2000 request is granted, allocations will be continued
    through FY 2000.
        In addition to the Child Survival and Disease Funds, several
    million dollars from the NIS account in FY 1999 and 2000 will target
    infectious diseases, including the tuberculosis program in Russia.
    USAID/Russia is working closely with CDC to implement two DOTS pilot
    projects and an additional pilot project specifically targeting multi-
    drug resistant TB (MDR-TB) in Russia. These pilot projects will be
    monitored to ensure the effectiveness of the DOTS methodology in the
    Russian context prior to replication in other parts of the country.
    While USAID does not work within the Russian prison system, our efforts
    in Russia are coordinated with those of our partners who focus on this
    area.
                   tuberculosis--stop tuberculosis initiative
        Question. Yesterday was World TB Day. WHO proclaimed its commitment
    to the Stop TB Initiative. What is the role of USAID in the Stop TB
    Initiative?
        Answer. USAID was instrumental in the development of the STOP TB
    Initiative, coordinated by WHO both programmatically and financially.
    The Agency continues to be the largest financial contributor to the
    Initiative and works closely with the coordinating committee members in
    the strategic planning of future activities. The Initiative has four
    components: Global Charter, Global Action Plan, Global Drug Supply
    Facility and Global Research Agenda. Although USAID intends to
    participate in all four components of the Initiative, efforts will
    focus most heavily on support of (1) the Global Action Plan to analyze
    political and technical constraints to action, identify roles of
    different partners, and guide investors in TB control toward rational
    solutions, and (2) the Global Drug Supply Facility which will provide
    universal availability of TB drugs in improved forms. USAID is also
    working with other international partners to increase support for the
    Initiative so that it may be a truly global program involving both
    developed and developing countries in its design and implementation.
                     biodiversity (reduction for programs)
        Question. In late 1998, USAID proposed a 67% reduction in funding
    for biodiversity programs. However, after Congress and senior
    administration officials questioned this decision, the cut was reduced
    to 31%. In maintaining USAID's commitment to biodiversity conservation,
    the Office of Environment and Natural Resources plays a key role by
    designing and leveraging funds for projects and programs that the USAID
    missions often adopt and help fund.
        Why was the FY99 budget for Office for Environment and Natural
    Resources (in the Agency's Bureau for Global Programs, Field Support
    and Research) cut from $10.3 million to $6.9 million (a 31% cut)? What
    is the proposal for FY 2000?
        Answer. The Agency maintains a strong commitment to environment
    programs overall, including biodiversity programs. In FY 1999, we
    intend to commit a total of $248 million for environment programs. In
    FY 2000, our request includes $290 million for the environment.
        We agree that USAID central offices, such as the Office of
    Environment and Natural Resources, play a key role by designing and
    leveraging funds for projects and programs that USAID missions often
    adopt and help fund. Because of their past good work, this year we saw
    a major increase in bilateral programs in Africa and Latin America and
    the Caribbean funded by USAID missions. As part of a shift in
    programming priority from USAID headquarters to the missions, the
    Energy Office budget was reduced by 10% and both the Natural Resources
    and Urban Programs offices were reduced by approximately 30%.
        For FY 2000, $9 million has been requested for the Office of
    Environment and Natural Resources.
                           biodiversity (definitions)
        Question. How does the Agency define/delineate biodiversity
    programs as opposed to other environmental programs it undertakes? What
    is the status of the Agency's new coding system that will reportedly
    track what portion of environmentally funds are spent on biodiversity
    and resource management?
        Answer. The Agency recognizes that biodiversity activities and
    other types of environmental programs must often work together through
    an integrated approach to achieve their stated objectives. For the
    purpose of program management, though, the Agency defines biodiversity
    programs as those activities designed primarily to support the
    conservation and sustainable use of biological diversity, including
    biomass, ecosystems, species, and genetic resources.
        Other environmental programs are classified under sustainable
    natural resource management and have as their principal objectives
    activities that support: (i) the sustainable use of tree products and/
    or non-timber forest products; (ii) management of ground and surface
    water resources, including watersheds; (iii) the productive capacity of
    natural resources of specific agro-ecosystems; and (iv) the management
    or protection of the coastal and marine environment.
        The Agency is currently collecting data for the coding system. The
    information is expected to be complete by the end of June, 1999.
                         biodiversity (funds declining)
        Question. In the Development Assistance budget, funding for
    biodiversity has declined steadily from $105.89 million in 1995, to
    $57.3 million in 1998. What has been the effect on USAID's biodiversity
    programs?
        Answer. Biodiversity, like many other USAID development sectors,
    has suffered the consequences of the Agency's significantly reduced
    discretionary budget. The Agency maintains an important leadership role
    in biodiversity and continues to provide the intellectual direction
    that catalyzes other donors to adopt successful USAID conservation
    strategies and methodologies. However, the cumulative effects of
    budgetary declines will impact the Agency's ability to address threats
    to biological diversity. For example:
              From 1995 to 1997, the number of missions pursuing
            biodiversity strategic objectives fell from 29 to 24 and
            existing programs in biologically important countries and
            regions have been scaled back due to declining budgets.
              Targets under a new global program designed to introduce
            innovative techniques to conserve a representative array of the
            world's ecosystems fell from 15 globally significant sites
            scheduled to be placed under improved management to seven sites
            following budget reductions.
                              indonesian elections
        Question. Indonesia is scheduled to have historic parliamentary
    elections on June 7th, and it is my understanding that USAID has been
    providing assistance--through both Indonesian and U.S.-based non-
    governmental organizations--to support preparations for these
    elections. Statements by Secretary of State Albright and other
    Administration officials indicate that the U.S. is planning to spend
    approximately $30,000,000 in support of the June elections, and
    organizations such as the International Republican Institute, the
    National Democratic Institute, Internews, the Asia Foundation and the
    Solidarity Center have been provided USAID funding to help Indonesians
    prepare for the upcoming vote. Recently, Dr. Amien Rais--a leading
    Indonesian opposition figure--visited the United States and commented
    on the need for the United States to send stronger messages in support
    of the democratic development process in Indonesia. He specifically
    mentioned international observers as an important message-sending
    device.
        Is USAID planning to fund U.S. observers for the Indonesian
    elections? If so, what type of observer mission does USAID foresee? If
    not, what is USAID's rationale for not utilizing this valuable means of
    expressing our support for and concern about the democratic development
    of Indonesia?
        Answer. Indonesia's national elections scheduled for June 7, 1999
    will be the country's first competitive elections in more than 40
    years. The challenges for the Indonesian Government and election
    administrators are daunting. USAID is pleased to be funding U.S.
    observers for this historic election. We believe that free and fair
    elections are of great significance for the political stability and
    economic recovery of Indonesia. USAID will be providing funding for the
    National Democratic Institute (NDI) to deploy about 80 U.S. observers.
    The International Republican Institute (IRI) has decided to fully
    engage their own internal staff on election day, as well as conduct
    pre-election assessments. Former President Carter will lead NDI's
    delegation.
                              women in development
        Question. In addition to the funds provided to the Women in
    Development Office, please detail any additional funds going to other
    parts of the Agency that are contributing to women's improvement. How
    do they fit into USAID's overall WID strategy?
        Answer. USAID's overall Women in Development (WID) strategy is to
    mainstream gender concerns into all of our programming to ensure the
    greatest impact on women. This means that the vast majority of funds
    directed to improving the status of women are programmed through USAID
    field Missions and central bureaus, not just through the Office of
    Women in Development.
        From FY 95 to FY 98, for example, we spent over $740 million per
    year, on average, in improving women's status through programs in
    health, nutrition, family planning, economic growth, education,
    democracy and governance, and the environment. This reflects the extent
    to which a main consideration in USAID programming is whether and how
    programs will affect women, and in each region of the world we have
    seen positive impacts on the status of women. I'm please to note that
    we have documented this significant Progress in a recent report to the
    Congress.

                 Questions for the Record Submitted by Mr. Wolf

                              indonesian elections
        Question. Indonesia is scheduled to have historic parliamentary
    elections on June 7th, and it is my understanding that USAID has been
    providing assistance--through both Indonesian and U.S.-based non-
    governmental organizations--to support preparations for these
    elections. Statements by Secretary of State Albright and other
    Administration officials indicate that the U.S. is planning to spend
    approximately $30,000,000 in support of the June elections, and
    organizations such as the International Republican Institute, the
    National Democratic Institute, Internews, the Asia Foundation and the
    Solidarity Center have been provided USAID funding to help Indonesians
    prepare for the upcoming vote. Recently, Dr. Amien Rais--a leading
    Indonesian opposition figure--visited the United States and commented
    on the need for the United States to send stronger messages in support
    of the democratic development process in Indonesia. He specifically
    mentioned international observers as an important message-sending
    device.
        Is USAID planning to fund U.S. observers for the Indonesian
    elections? If so, what type of observer mission does USAID foresee? If
    not, what is USAID's rationale for not utilizing this valuable means of
    expressing our support for and concern about the democratic development
    of Indonesia?
        Answer. Indonesia's national elections scheduled for June 7, 1999
    will be the country's first competitive elections in more than 40
    years. The challenges for the Indonesian Government and election
    administrators are daunting. USAID is pleased to be funding U.S.
    observers for this historic election. We believe that free and fair
    elections are of great significance for the political stability and
    economic recovery of Indonesia. USAID will be providing funding for the
    National Democratic Institute (NDI) to deploy about 80 U.S. observers.
    The International Republican Institute (IRI) has decided to fully
    engage their own internal staff on election day, as well as conduct
    pre-election assessments. Former President Carter will lead NDI's
    delegation.
                            operation lifeline sudan
        Question. As you know, many of us have been concerned for a number
    of years about the limitations imposed on Operation Lifeline Sudan by
    the Government of the Sudan. The GOS routinely and arbitrarily bans
    relief flights into Southern Sudan, thereby depriving some of the
    neediest people of critical life-saving aid. OLS has been able to
    overcome these obstacles somewhat, but it is not totally reliable. In
    the past, some of my colleagues and I have urged USAID to develop
    alternative mechanisms for delivering USAID to areas underserved by OLS
    and give greater priority to funding NGOs that operate outside the OLS
    framework. What progress has USAID made in this area?
        Answer. USAID has adopted a strategy of increased support to
    organizations that operate outside OLS. In fact, support to non-OLS,
    non-governmental organizations NGOs for disaster assistance and food
    USAID has more than doubled between FY 1998 and to date this fiscal
    year. In recognition of the constraints faced by OLS last year during
    the flight ban imposed by the GOS, USAID is prioritizing the increased
    movement of relief assistance overland. USAID is supporting road
    rehabilitation activities so that more relief can be moved overland. In
    1999, USAID is providing 36,000 metric tons of commodities to NGOs and
    the World Food Program that will be transported by road into Bahr el
    Ghazal.
                     sudan relief and rehabilitation agency
        Question. Would it not be useful for USAID to consider providing
    USAID directly to the Southern Sudan Relief and Rehabilitation Agency,
    an indigenous, community-based mechanism for delivering assistance and
    strengthening local capacity?
        Answer. USAID agrees that it is important and useful to involve
    community-based organizations in the delivery of relief assistance, and
    that there is value in strengthening the capacity of such local
    organizations. To this end, USAID supports several indigenous
    organizations that are directly implementing relief and rehabilitation
    activities. These include: SuprAid, Sudan Medical Care, Rainbow, and
    the Association of Napata volunteers. USAID continues to develop
    additional methods to fund local groups through its various NGO
    partners.
        USAID does not believe that the role of the Sudan Relief and
    Rehabilitation Agency (SRRA), which is the humanitarian arm of the
    SPLM/A, is to directly manage the delivery of assistance. The SRRA's
    role is to coordinate assistance and act as a link between communities
    and international relief organizations, implement SPLM/A policies
    regarding humanitarian assistance, collect data to identify needs and
    target assistance, and monitor and evaluate projects. USAID has
    supported in the past, and continues to support, capacity-building
    efforts designed to strengthen the SRRA in these key areas.

             Questions for the Record Submitted by Mr. Knollenberg

                  american educational institutions in lebanon
        Question. The American educational institutions in Lebanon are
    considered by most Lebanese and Lebanese Americans as one of the most
    important components of the American assistance program in that
    country. They have produced the national, political and economic
    leadership for Lebanon and other countries in the region. In the past
    these institutions are supported using both the American Schools and
    Hospitals Abroad program (ASHA) and a portion of the ESF provided to
    Lebanon, primarily to provide scholarships for less fortunate Lebanese
    to attend these schools. How much of the FY 99 assistance package for
    Lebanon do you foresee going toward these valuable institutions? How
    much of the FY 2000 funds do you plan to use?
        Answer. USAID recognizes the important contributions that have been
    made by educational institutions in Lebanon. Since 1977, the ASHA
    program has provided a combined total of $191,262,000 to the American
    University of Beirut, the Lebanese American University and the
    International College of Beirut. ASHA grants are based on the results
    of an annual competitive process. The FY 1999 grant application review
    process has been completed and ASHA plans to make awards in the amount
    of $1,800,000 for the American University of Beirut (AUB); $200,000 for
    the Lebanese American University (LAU); and $300,000 for the
    International College of Beirut.
        The ASHA competitive process for FY 2000 begins on June 30, 1999
    with the submission of new grantapplications. Decisions regarding
    proposed awards cannot be made until the completion of that competitive
    review process.
        USAID agrees that the universities are among our important partners
    in working toward Lebanon's recovery from the war and future
    development. ESF funds were used briefly in he early 1990s for
    scholarships only at the Lebanese American University. In 1994, and
    again in 1997, USAID and the universities agreed to a partnership under
    which ESF funds would be provided in response to the universities'
    grant proposals for activities and equipment that enabled the
    universities to contribute to Lebanon's development in such areas as
    environment and economic development. USAID believes that this
    partnership has been very successful. Under this understanding, the two
    American universities have priority consideration of proposals, without
    the competition required of other grantees, so long as those proposals
    fit within the 1997-2000 strategy that was jointly prepared by USAID
    and the Lebanon partners, including the universities.
        USAID has granted almost $3.4 million of ESF to AUB since 1997, and
    almost $1 million to LAU. AUB currently manages three major activities
    that it designed and USAID funded. USAID is now exploring several new
    areas with the universities. AUB currently has a pipeline of over $1
    million, and the LAU has advised USAID that the LAU economic reform
    program does not require funding until early in FY 2000. USAID's
    programming for FY 1999 and FY 2000, as in other years, is based upon
    the needs of activities and proposals that support the program's
    strategic objectives. No specific funds are earmarked for any recipient
    in advance.

                Questions for the Record Submitted by Mr. Forbes

                         the future of u.s. foreign aid
        Question. Mr. Atwood, in the long run do you foresee the ability of
    the United States to gradually reduce the amount of development
    assistance that it provides around the world? If so, to what do you
    attribute this? If not, will there be an increased need for U.S. aid or
    will it stay the same? How might this impact future USAID budget
    requests? Should the international development banks assume a greater
    role in the development process? Might this harm America's diplomatic
    influence around the world?
        Answer. You have posed a number of interesting and challenging
    questions. In response. let me lay out the following key points.
        U.S. aid for development has diminished steadily over the past
    forty years in both nominal and real terms. It has diminished sharply
    relative to the U.S. budget, to less than \1/2\ per cent. (By
    comparison, the Marshall Plan, aimed mainly at reconstruction, consumed
    almost 10% of 1949-52 federal expenditures. ODA in 1960-61 amounted to
    about 3.1% of federal outlays). It has declined relative to U.S.
    national income (now around 0.1%, compared with 0.55% in the early
    1960's), and relative to aid provided by other countries. In the 1950's
    and early 1960's the U.S. provided around half of total Official
    Development Assistance. In 1996, the U.S. share of the total was 17%.
        To some extent these declines are justified both by greatly
    increased aid efforts by other donors, and by ``graduation'' of
    advanced developing countries from reliance on developmental foreign
    aid. Indeed, of some twenty-five development graduates, nine have
    become donors of foreign aid. These are welcome trends, and speak to
    the success of the international aid effort under U.S. leadership. We
    expect the ranks of development aid graduates to continue to increase,
    and we expect a substantial number of other developing countries to
    continue making significant progress.
        At the same time, the world is becoming increasingly interdependent
    at an accelerating pace. The U.S. has a clear stake and national
    interest in whether and how needy countries surmount problems such as
    transition from Communism, crisis prevention, and a host of global
    issues (environment, population, infectious diseases, peace, migration,
    narcotics) and other specific foreign policy concerns. Foreign
    assistance has played an important role in addressing these issues.They
    have created additional substantial demands on foreign aid beyond those
    of ``traditional'' third-world development.
        Our declining ODA levels are causing us to lose our world
    leadership role among donors, even as we are still clearly the richest
    country and a generous people. For instance, this year the U.S. lost
    chairmanship of the DAC and UNDP.
        Trends in U.S. foreign aid overall will depend on trends in these
    and other possible claims on foreign aid: and on continued U.S.
    willingness to play a lead role in the international community in
    responding to the sorts of problems mentioned above and protecting U.S.
    interests. Overall, requirements for U.S. foreign aid have clearly been
    increasing rather than subsiding. Diminishing resources for U.S.
    foreign aid is not supportive of U.S. global leadership.
        The international development banks are very important and we
    support their essential role. However, they are not a substitute for
    bilateral assistance, both because they are less flexible (e.g. in
    working with private and civil society organizations in addition to
    governments, and in quick responses to crisis situations) and because
    they are not as directly linked to U.S. foreign policy interests as is
    the bilateral aid program.
                                fiscal oversight
        Question. Mr. Atwood, there are many in Congress who wonder about
    USAID's ability to maintain adequate fiscal oversight over its many
    projects around the world. Can you comment on the status of fiscal
    management within USAID and offer a prognosis for future developments
    with respect to this topic? Is there some action that can be taken by
    Congress to ensure that more of our assistance dollars reach the
    intended recipients rather than Washington contractors? Does the rise
    of micro-enterprise projects bode well for the cause of financial
    oversight or could it cause more potential problems?
        Answer. With regard to fiscal management, we are taking every
    precaution to ensure that all funds for which we are responsible are
    properly used and accounted for. We determined that our current
    accounting system does not comply fully with federal accounting
    standards and, for that reason, we are replacing the system with a new
    off-the shelf system. In addition, we have made provision for cross-
    servicing of financial record-keeping by other agencies where it is
    cost-effective to do so and for outsourcing to the private sector of
    certain other accounting functions. With these improvements, I believe
    we will be able to continue our prudent fiscal management and also
    achieve compliance with federal accounting standards.
        Benefits purchased with assistance dollars are provided to intended
    recipients of assistance. The contractors and private voluntary
    organizations paid with these funds are held responsible for producing
    demonstrable improvements for their intended recipients in accordance
    with strategic plans that are carefully thought out with the
    participation of the recipients.
        USAID-supported micro-enterprise projects have provided the first
    private sector opportunities for many thousands of individuals in all
    geographic regions. In FY 97, such programs had 1.4 million active
    borrowers and 2.1 million savers through hundreds of institutions. Such
    programs will become too great a management burden if cuts in technical
    staff continue. Decisions to increase these programs should therefore
    be left to individual Missions.

               Questions for the Record Submitted by Mr. Kingston

                      expanded threat reduction initiative
        Question. I would like to hear more abut the $241 million request
    for the Expanded Threat Reduction Assistance Initiative. If I
    understand them correctly, I am supportive of the goals of this
    initiative, but please clarify how USAID's portion of this general
    effort, which is now split among at least three cabinet departments is
    coordinated with Department of Defense and Department of Energy
    initiatives. Is there some kind of central administrative clearinghouse
    for all this? I hope we are able to avoid wasteful duplication of basic
    administrative functions that could result from splitting this
    responsibility among so many government entities.
        Answer. The State Department Office of the Coordinator for U.S.
    Assistance to the New Independent States (S/NISC) acts as a
    ``clearinghouse'' for the multi-agency Expanded Threat Reduction (ETR)
    activities. S/NISC develops the final assistance budget for the region
    in coordination with the various USG entities. During the budget
    development process, S/NISC makes every effort to ensure that there is
    coordination, not duplication. USAID does not directly administer ETR
    funds. Where USAID activities can further the goals of ETR, these
    activities are coordinated with and complement other agencies' ETR
    efforts.
        The multi-agency ETR Initiative encompasses a number of U.S.
    assistance programs proposed for the Departments of State, Energy, and
    Defense. There is no duplication of functions, but a carefully
    targeted, coordinated, and complementary set of programs, run by
    different agencies, which are in U.S. national security interests.
        The economic crisis that affected Russia and the NIS region over
    the past year increased the risks of proliferation of weapons of mass
    destruction and weapons expertise.
        Building on existing programs sponsored and funded by the
    Departments of State, Defense, and Energy, the Administration is
    seeking $4.5 billion over the next five years for high priority
    security, arms control, and nonproliferation assistance funds to help
    Russia and the other NIS countries address the security implications of
    the economic crisis. We will also encourage other nations to provide
    complementary assistance.
        Each agency has separately included elements of the ETRI in its
    respective budget requests and would continue to implement programs
    separately, but in coordination with other related activities. In FY
    2000, the Department of State is requesting to administer $250 million
    in ETR funds. Of this amount, $241 million are from the FREEDOM Support
    Act account and $9.5 million are from the Nonproliferation,
    Antiterrorism, Demining, and Related Activities (NADR) account. The
    remainder of the FY 2000 FREEDOM Support Act account, at a request
    level of $782 million, will fund continuing programs of USAID and other
    agencies in support of the economic and democratic transitions in the
    NIS through exchanges, partnership, regional activities, support for
    non-governmental organizations, and small business development.
        The FY 2000 request of $241 million is for programs that address
    the security implications of the economic crisis that spread to the
    region last year. This includes funding for export control programs
    (also supported in the NADR account), the Science Centers, Civilian
    Research and Development Foundation and other science collaboration and
    military relocation related assistance. Although the State Department-
    administered security efforts have been increased from $51 million in
    FY 1999 to $241 in FY 2000, this has not been at the expense of the
    economic and technical assistance programs, which will be funded at
    $791 million, about the same level as last year.
        While resources are always limited, we need to provide increased
    economic, technical, and security related assistance to Russia at this
    critical time and to provide substantial assistance to the other
    countries in the NIS. These programs are complementary and their
    prospects for success are interrelated.
                             asian financial crisis
        Question. You have requested $26.5 million in development
    assistance to mitigate the Asian financial crisis. How will DA be
    targeted and spent to alleviate the financial crisis? What will this
    money be spent on?
        Answer. USAID will use the funds to address four key constraints in
    Indonesia and the Philippines: help restart business and bank
    activities; strengthen both financial and capital markets governance;
    strengthen the governance of selected public sector operations; and
    finally, bridge a few critical gaps in funding to improve the
    targeting, coverage and availability of social programs to vulnerable
    populations. For example, in restarting bank and business activity,
    USAID will provide technical assistance and training to: help
    corporations restructure debt and work out problem loans; and
    facilitate debtor/creditor agreements.
        To improve financial and capital markets governance, USAID will
    provide technical assistance and training to: improve accounting
    practices and encourage the adoption of internationally accepted
    accounting standards; strengthen Central Bank supervision of member
    banks; improve bankers' skills in risk assessment and credit analysis;
    strengthen disclosure requirements enforcement by the stock exchange.
        To improve the governance of selected public sector operations,
    USAID will provide technical assistance and training to: develop more
    transparent and accountable public sector procurement practices;
    establish a national counter-corruption reform agenda; support the
    development of coalitions of business, media, and watchdog groups that
    analyze, identify, advocate for, and monitor, legislative and policy
    reforms.
        Finally, to improve the targeting, coverage and availability of
    social programs to vulnerable populations, USAID will fund activities
    to: expand micronutrient supplementation programs for children; expand
    multivitamin programs to reduce maternal micronutrient deficiencies;
    expand training programs for health care workers, and provide technical
    assistance to strength epidemic or nutritional surveillance systems and
    improved targeting of social safety net programs.
                        africa food security initiative
        Question. $45 million of the $512.6 million requested for African
    development is for the Food Security Initiative that President Clinton
    promised in his visit to Africa last year. I presume this is geared
    toward agricultural technical assistance, because a food USAID request
    would have gone through Agriculture. Can you elaborate a little on this
    particular portion? Is USAID attempting to develop bilateral private
    partnerships (that will have the side future benefit of providing a
    market for US agriculture inputs) as part of this initiative as it does
    in other regions?
        Answer. The Africa Food Security Initiative (AFSI) is part of a
    broad collaboration among African governments, the United States, and
    other donors to promote agriculture as a means to improve childhood
    nutrition, generate incomes for rural families, and combat hunger. The
    Initiative supports expanding existing USAID bilateral and regional
    programs, building on recent successes in forming public-private
    partnerships and creating positive policy environments. Three
    approaches are taken: increasing agriculture production, improving food
    market, efficiency and access, and increasing agriculture trade and
    investment.
        AFSI, implemented at a pilot level of $30 million in 1998 and $31
    million in 1999, is already producing results. A successful farmer
    demonstration activity in Uganda, one of five AFSI countries (Ethiopia,
    Malawi, Mali, Mozambique, and Uganda), was expanded in 1998 from 8 to
    16 districts. This program tripled the sales of improved maize and bean
    seed varieties over 1997 levels to these farmers, and will result in
    increased food security for many farm households.
        Through AFSI and other initiatives, USAID is promoting close
    partnerships with U.S. agribusinesses that work to the mutual benefit
    of the U.S. businesses and Africa's farmers as solutions to constraints
    to improved food and agriculture productivity are found. The cost of
    not acting in Africa is high as food USAID costs could soar to $900
    million annually by 2005 if current trends are not changed. On the
    other hand, there is good reason to believe that investments today are
    a win-win situation for both Africa and the U.S. economy. USAID is
    committed to achieving the objectives of AFSI, in a manner which is
    consistent with Congressional support and intent as recently passed in
    the Africa Seeds of Hope Act, Public Law 105-385.
                    assistance to the new independent states
        Question. USAID has been in the process of shifting the weight of
    assistance from central governments to NGO's and the private sector for
    several years now. Please provide a chart for the subcommittee which
    shows the transition of proportions of aid going to each of these
    sectors over the years since Freedom Support was enacted.
        Answer. USAID has not tracked funding provided for assistance to
    central governments compared to local governments or to non-
    governmental programs and we are therefore unfortunately not able to
    provide an exact historical chart that meets the Committee's request.
    However, we can give examples where precise data is available, namely
    for Russia and Ukraine.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        In these two countries, we have moved away from activities with the
    central government as initial policy and institution-building efforts
    have ended or, in some sectors, as less-hospitable environments for
    reform have developed. In Russia, assistance to the central government
    has declined from 18 percent to 5 percent between 1997 and 1999,
    reflecting completing of some reform programs such as privatization,
    and declining opportunity to have significant policy impact in other
    areas, such as agriculture. In Ukraine, we have similarly made a
    conscious, though less dramatic, shift away from support to the central
    government, as the opportunities for centrally led reforms are not as
    evident in all sectors as in the past.
        Across the NIS, we are increasingly mindful of the need to work
    with grassroots organizations to broaden support for reform and ensure
    that the benefits of our programs impact people directly. Consequently,
    there is a greater emphasis on non-governmental work across the region.
    In Armenia and Georgia, we have recently moved from predominantly
    humanitarian assistance programs (primarily implemented through the
    governments) to technical assistance programs which necessarily also
    involves work with the governments in fundamental legal and
    institutional reform, such as energy sector reform. In Central Asia,
    there also continues to be a need to work with central governments to
    implement basic reform measures in energy, environmental reform, and
    privatization. Nevertheless, USAID is also consciously balancing its
    legal, policy, and institutional reform work with support to grassroots
    organizations in the Caucasus and Central Asia, as we are mindful of
    the need to support systemic reform from the bottom up.
                     strengthening civil society in ecuador
        Question. Will you please update your answer to my question last
    year dealing with USAID's Strengthening Civil Society Strategic
    Objective in Ecuador (SO-3). At this time last year you informed me
    that a USAID-funded local NGO had successfully engineered passage of a
    new ``amparo'' law which gives prisoners a legal remedy when their
    constitutional rights are violated. I am very interested in knowing how
    effectively this law has been implemented over the last year,
    particularly in light of Ecuador's newly-ratified constitution.
        What exactly is the new legal remedy? Does it really just amount to
    an appeal process which is just as backed up in their judicial system
    as are the original judgments (prisoners are waiting on average 2-7
    years for trails)?
        Answer. The ``amparo'' is a recourse to a judge to protect a
    constitutionally or legally guaranteed right which either has been or
    is in danger of being violated. Any citizen can request this
    protection, not just prisoners. It differs from the appeal process
    which is a request to correct some defect in a judicial proceeding. The
    ``amparo'' (protection) can be requested before any judicial proceeding
    or indeed any activity at all which may affect constitutional rights is
    initiated.
        The amparo recourse was first introduced in the Constitution of
    1996. It was not used because the Constitution did not specify which
    type of judge could receive and act on the request, nor was there any
    norm regulating the application of this recourse.
        The new Constitution of August 1998 rectified this situation by
    clarifying that any judge at all could receive the request for amparo.
    Also, the new constitution makes plain that no additional law or
    regulation is necessary for a request to be made and for a judge to act
    on the request. The constitutional article is applicable immediately,
    in and of itself, without the need of any additional norm.
        As a result of these clarifications, the recourse to amparo is
    being widely used in a variety of contexts by actors of all social
    strata. Indigenous groups have brought amparo against certain
    activities of oil companies thought to be harmful to the environment;
    middle class consumers have used amparo against cellular telephone
    companies who were rounding off time expenses; and private companies
    and banks have used amparo against the government concerning the
    freezing of bank accounts. Judges dislike the measure because it is
    adding to their work load (probably a sign of its success).
        Question. Also, what is the status if the proposed new law
    developed with USAID assistance you mentioned last year to give accused
    prisoners an opportunity to cross examine their accusers? I can tell
    you from experience of one of my constituents that if this is indeed
    law now, it is not being implemented.
        Answer. This question refers to the new Criminal Procedures Code
    being presently debated in Congress. The new Code is expected to be
    passed by August of this year. USAID is providing assistnace to the
    drafters of the Code through an NGO (Corporacion Latinoamericana de
    Desarrollo--CLD) to work with the Congressional Committee and other
    members of Congress to complete the second and final debate on the
    floor.
        Question. If it has not been enacted, what technical assistance is
    USAID providing now to get at this problem and what are the chances of
    enactment?
        Answer. Not applicable as it is expected to be passed. See above.
                                  tuberculosis
        Question. Over the last two years, USAID has received approximately
    $12 million for TB through the Infectious Disease Initiative of the
    Child Survival account. What is your request for TB for FY 2000
        What percentage of the $12 million is actually getting to patients?
        Answer. In FY 2000, USAID's request for infectious diseases within
    the Child Survival and Disease Program Fund totals $50 million. We
    expect that roughly $12 million of that will be devoted to
    tuberculosis. The balance of the $50 million for infectious diseases
    supports our efforts to reduce malaria and the spread of antimicrobial
    resistance, and to strengthen capacity for surveillance and response.
    All of USAID's funds directly or indirectly benefit patients. Funds
    allocated to specific countries (e.g., India, Russia, Kazakhstan)
    directly benefit TB patients through the establishment and
    implementation of prevention and control efforts, specifically DOTS
    (Directly Observed Treatment, Short-course) programs. These programs,
    endorsed by international health experts and agencies, encompass a
    strategy of enhanced clinical and laboratory diagnostic and treatment
    practices, improved notification services, effective case management,
    health education, and monitoring and analysis of data, and result in
    improved cure rates. Other programs funded by USAID include evaluation
    of alternative treatment regimens, training of laboratory and clinical
    providers through the development of standardized guidelines, teaching
    materials, and courses, and support for the development of new
    diagnostic techniques appropriate for use in developing countries.
    Surveillance activities funded by USAID also benefit patients by
    indicating areas of highest disease prevalence and pockets of multi-
    drug resistant disease, so that diagnostic and treatment activities can
    be tailored to local needs of communities and patients.
                            biotechnology assistance
        Question. It appears that there is a growing perception
    internationally that biotechnology and commercial products making use
    of biotechnology are solely benefiting the United States and are not
    beneficial to the developing world. Technological developments coming
    out of biotechnology research could provide more bountiful,
    environmentally sensitive food production in the 21st Century in the
    developing as well as the developed world. I assume USAID supports
    reaching out to the developing world through partnerships with U.S.
    universities and companies to bring the benefits of biotechnology to
    developing countries? Is that correct?
        Answer. Yes, that is correct. USAID has been supporting these kinds
    of partnerships, with total funding amounting to roughly $10 million
    over the past few years. In September 1991, USAID awarded a cooperative
    agreement to the Institute of International Agriculture at Michigan
    State University as the lead in a consortium of institutions to
    implement a new phase in its support of agricultural biotechnology. The
    Agricultural Biotechnology Support Project (ABSP) has taken an
    integrated approach, combining applied research, product development,
    and policy development--primarily biosafety and intellectual property
    rights (IPR)--to help developing countries use and manage
    biotechnology. This program was recently renewed through September
    2001.
        ABSP operates on the premise that, if developing countries are
    provided the tools, biotechnology offers new opportunity to realize the
    benefits from their diverse genetic resources. Those genetic resources
    serve as bargaining power in bringing in private sector investment and
    technology transfer.
        This is illustrated by the experience of the ABSP Project in Egypt
    where Pioneer Hi-Bred has a collaborative agreement with an Egyptian
    institution, exchanging training and technology transfer for the
    opportunity to license potentially important pest control genes from
    Egypt. Along similar lines, the INBIO-Merck Pharmaceutical agreement in
    Costa Rica and the International Consortium of Biodiversity Groups, a
    joint program of the NIH and NSF, have a struck deals between
    developing countries and the pharmaceutical industry to exchange
    technology transfer and biodiversity conservation funds for access to
    potentially profitable genetic resources.
        The ABSP project has research and product development
    collaborations with Costa Rica, Egypt, Morocco, Indonesia and Kenya
    focusing on the application of plant biotechnology to production
    constraints in food crops such as banana, maize, pineapple, potato,
    sweet potato, and tomato. Private sector partnerships are with DNA
    Plant Technology, Garst Seed Co., Pioneer Hi-Bred, Asgrow Seed Co.,
    Monsanto Co., and the Biotechnology Industry Organization in the U.S.,
    with Fitotek Unggul in Indonesia and with Agribiotecnologia de Costa
    Rica in Costa Rica. Collaboration and the flow of information is not
    unidirectional or confined to one sector.
        In addition to applied research and development, the ASBP project
    allocated significant resources to addressing policy issues which
    affect the adoption of biotechnology, particularly in the areas of
    biosafety and intellectual property.
          biotechnology assistance (working with u.s., based research
                                  competition)
        Question. Non-profit groups like the Consortium for Plant
    Biotechnology Research (CPBR) have had great success in bringing
    together university scientists, companies, and governmental agencies
    here in the U.S. to produce high quality, peer-reviewed, commercially-
    relevant biotechnology research. CPBR has also been successful in
    achieving substantial private matching funds from companies for its
    U.S.-based research competitions. What is the Agency's view on the
    concept of working with the CPBR to undertake an international
    biotechnology research competition that would bring together academic,
    biotechnology companies from the U.S. and around the world, and
    governmental agencies from the U.S. and developing countries to work on
    pressing agricultural and related issues through biotechnology.
        Answer. USAID is supportive of competitive research and bringing
    the technical and financial resources of the U.S. private sector to
    bear in partnership with U.S. and developing country research
    institutions. USAID currently funds work in biotechnology research and
    development activities that engage U.S. universities, government
    agencies, and biotechnology companies in a research and policy
    development agenda. While USAID in principle welcomes the opportunity
    to expand partnerships and leverage the resources and expertise of such
    groups as the Consortium for Plant Biotechnology Research (CPBR), we
    would need to explore in more concrete detail with the group where
    there specific interests and expertise might be most usefully employed.

                Questions for the Record Submitted by Ms. Pelosi

                                    hiv/aids
        Question. Last year the number of HIV/AIDS cases around the world
    increased by over 15%. The Administration's FY 2000 $127 million
    request for addressing this global crisis represents less than a 2%
    increase from last year's levels and does not include a continuation of
    the $10 million included in the emergency supplemental to address
    children and HIV/AIDS. Given the devastating impact of AIDS on the
    economies of Africa, why is the Administration not proposing to do
    more?
        Answer. USAID continues to be the major donor for the international
    response to the global AIDS pandemic. In fact, USG contributes nearly
    four times as much to HIV/AIDS in the developing world as the next
    bilateral donor (Netherlands). The USG cannot, should not, bear the
    entire burden for the response to the global pandemic. Currently, there
    are a number of initiatives underway to bring together other bilateral
    and multilateral donors, the World Bank, the private sector,
    foundations and most important, host country governments to increase
    the available resources. In fact, on April 23 there was a meeting of
    all of the major HIV/AIDS bilateral donors to address this critical
    issue of resources.
        It is also important to note that there is a myriad of demands on
    the limited development assistance budget. We must continue to assess
    these many competing issues to ensure that we have balanced programs in
    individual countries.
                           cross border tuberculosis
        Question. We understand that a USAID assessment team is conducting
    a study of Tuberculosis in Mexico this week at the request of this
    Committee. Based on preliminary information, do you see ways that
    domestic health agencies could contribute more directly to protecting
    American health from risks posed by cross border TB?
        Answer. Preliminary findings of the USAID assessment of Mexico's TB
    program indicate a number of areas in which domestic governmental and
    non-governmental agencies might collaborate on tuberculosis control
    activities which would help protect the American public. The primary
    focus of the newly developed strategy is to enhance tuberculosis
    prevention and control activities in Mexico to mitigate the disease
    within the country and thereby decrease the potential for cross border
    transmission. Agencies that have been identified which could contribute
    to this effort include the Centers for Disease Control and Prevention
    (CDC), The Gorgas Institute, Ten Against TB, Migrant Clinicians
    Network, and non-governmental organizations (NGOs) such as Project HOPE
    and Project Concern International.
        CDC currently supports border TB projects on the U.S. side through
    cooperative agreement funds awarded to Texas and California. These
    projects greatly assist efforts to implement effective diagnostic and
    treatment policies in these areas and also facilitate the transfer of
    patient data between countries to help ensure complete and timely
    follow up.
        Plans are already underway for the Gorgas Memorial Institute, with
    USAID support, to help strengthen Mexico's national TB control program
    performance through operational research on Directly Observed
    Treatment, Short-course (DOTS) and the prevention of drug resistance.
    This will include establishment of a center of excellence for
    operational research and training.
        Several NGOs (including Project HOPE and Project Concern
    International) are currently engaged in border projects, to assist TB
    prevention and control efforts by augmenting and expanding DOTS
    activities in Mexico.
        Ten Against TB is an organization comprised of TB representatives
    from each of the four American and six Mexican states on the border.
    This organization has the potential to play a key role in facilitating
    and coordinating activities, fostering communication, and identifying
    areas for future collaboration.
                                 health systems
        Question. In your testimony, earlier this month before the House
    International Relations Committee, you spoke of USAID's inability to
    accept vaccine DONATIONS from the U.S. private sector for developing
    countries because of the need for a strong health infrastructure in
    these countries to be able to deliver the treatments. (I believe you
    cited tuberculosis as an example.) Please explain how proposed cuts in
    the FY 2000 budget to the ``other health'' line item reconciles with
    the need to strengthen the health infrastructure of our donor
    countries? What all is included in this budget line?
        Answer. Under the budget category for ``Other Health,'' (now called
    Health Promotion) funds are directed to the Agency's sustainability
    objective of assuring the long-term availability, efficiency, quality,
    and accessibility of health and nutrition programs and for some aspects
    of maternal health. Under the FY 2000 budget, ``Health Promotion'' was
    reduced from $36 million to $32 million to deal with the greater
    pressure and need for HIV/AIDS funding ($2 million) and Basic Education
    funding ($2 million).
        With limited overall resources, these allocations were made to
    cover high priority and urgent needs in the field. While having less
    money available in the Health Promotion category does reduce USAID's
    ability to support the health system strengthening activities which are
    so critical to sustaining programs like tuberculosis control, USAID is
    trying to balance competing needs within the overall Child Health
    Survival (CHS) account.
                          brazil environmental funding
        Question. A recent article in the Washington Post detailed the
    problems Brazil is having maintaining spending from its own budget for
    environmental mitigation given the financial crisis there. You will
    soon be faced directly with the challenge of helping Brazil meet many
    challenges. My question is what can the US do to help in the
    environmental mitigation programs.
        Answer. While it is true that the Government of Brazil (GOB) must
    make tough choices as it attempts to undertake budgetary belt
    tightening, in recent conversations with USAID, the Minister of
    Environment stated that the GOB counterpart support to the large
    international environmental program (PPG-7) will continue to be
    available. In anticipation of possible GOB budgetary constraints,
    USAID's commitment to the PPG-7 program (approximately $2.0 million
    annually, up to a total of $10.0 million), as well as its other
    environmental activities in Brazil, support U.S. and local NGO
    implementation of environmental programs, thereby reducing the direct
    effects of possible fluctuations in public sector funding to this
    sector. Also, through USAID encouragement, the Minister of Environment
    will be recommending to the Minister of Finance that the GOB request
    debt relief from the US Treasury under the FY1999 Tropical Forest
    Conservation Act (TFCA). This will assist in achieving common
    objectives on decreasing deforestation and reducing green house gases,
    with the added benefit of generating local currency to finance GOB's
    commitments to environmental actions.
                             child labor initiative
        Question. USAID is requesting $10 million as part of a three-year
    program to support several pilot projects in addressing the problem of
    child labor throughout the world. Can you detail the plans for this
    initiative and tell us where these pilot projects will take place.
        Answer. The proposed initiative named ``School Works!'' will
    provide an additional $10 million for a focused and coordinated effort
    to combat abusive child labor. USAID intends to maximize the impact of
    this effort by working with the Department of Labor (DOL) and the
    International Labor Organization's (ILO's) International Program for
    the Elimination of Child Labor (IPEC), as well as other donors such as
    UNESCO and the United Nations Children's Fund (UNICEF).
        School Works! is the first time that the U.S. Government has made
    the reduction of child labor through improved access to basic education
    a specific focus of U.S. development assistance. USAID already invests
    $100 million yearly in basic education activities that target
    underserved and poor children in the developing world--those most at
    risk of becoming involved in abusive and exploitative working
    situations.
        The initiative will complement current work of the DOL and IPEC.
    The USAID program will build on their work by focusing on enrolling and
    retaining high-risk children in effective basic education programs.
        ``School Works'' will work with IPEC to identify target locations,
    and to design and implement basic education demonstration projects
    appropriate to targeted situations. Programs might include incentives
    and basic education services to convince parents to enroll and keep
    children in school, and support for activities to implement policies
    for the welfare and protection of children. This program will also help
    to create a toolkit of effective educational innovations that reduce
    abusive child labor, and to widely share information and results among
    nations and agencies.
                                 climate change
        Question. There has been and continues to be a considerable amount
    of misinformation about the President's Climate Change Initiative and
    its relationship (or lack thereof) to the Kyoto Protocol. Explain how
    the $290 million USAID will spend on environmental programs will help
    nations achieve economic growth while reducing greenhouse gases and
    cleaning up urban pollution.
        Answer. Of the $290 million of development assistance (DA) funds
    USAID will spend on environment programs in FY 2000, $112 million is
    attributed to activities that address climate change issues. An
    additional $38 million is anticipated from Economic Support Funds
    (ESF), and Support for East European Democracy (SEED) funds for
    climate-related activities. The total target for activities that
    address climate change is $150 million for FY 2000, as promised in
    President Clinton's commitment to developing countries through USAID's
    Climate Change Initiative.
        USAID has been working to combat the threat of climate change since
    1990. The Agency's strategy has targeted interventions in the
    agriculture, biodiversity, energy, forestry, and urban sectors, to
    decrease net emissions of greenhouse gases while meeting USAID's
    sustainable development objective. In addition, natural resource
    efforts, economic growth programs, and activities in the health sector
    have been implemented in developing countries to reduce vulnerability
    and increase the capacity to adapt to climate-induced change.
        USAID's climate change strategy, drafted in 1994 in response to
    Congressional request, and revised in 1997 to target twelve key
    countries and regions, implements a ``win-win'' approach to climate-
    related intervention. The Agency's climate change activities are those
    that provide climate change benefits in addition to their primary
    objectives of increased energy efficiency, cleaner energy production,
    more effective natural resource management and reduced urban pollution.
    By working through existing land-use, energy and urban activities,
    USAID leverages existing resources to address climate change and
    assures a greater level of sustainability by addressing climate change
    in conjunction with economic development and sector-specific goals.
    There has been no reduction of other programs in order to fund climate
    change activities.
                             climate change (kyoto)
        Question. Explain how USAID's programs in this area support the
    goals of KYOTO, but have no direct relationship to the Protocol.
        Answer. The Kyoto Protocol to the United Nations Framework
    Convention on Climate Change (UNFCCC) proposed specific binding
    commitments to reduce greenhouse gas (GHG) emissions by developed
    countries as well as several market-based mechanisms to reduce GHG
    emissions and respond to the threat of climate change. The market-based
    mechanisms include emissions trading and joint implementation of
    emissions-reducing activities (JI) between countries that have agreed
    to emissions reduction commitments (Annex 1 countries), and engagement
    on emissions-reduction activities between Annex 1 countries and
    developing countries through a Clean Development Mechanism (CDM). It is
    not possible to implement the Kyoto protocol at this time because it
    has not been ratified and none of the mechanisms are operational. The
    CDM may be approved for implementation as early as 2000, but the first
    compliance period for meeting targets agreed to in Kyoto doesn't begin
    until 2008.
        USAID's climate change strategy was formulated before Kyoto and has
    not changed substantially since. The Agency remains committed to ``no
    regrets'' activities that provide climate benefits through energy,
    natural resource and urban activities that promote sustainable
    development. As part of that strategy, we are continuing to provide
    technical assistance and training to developing countries seeking to
    understand the scientific, environmental, and economic consequences of
    participation in the UNFCCC, which the U.S. has signed and ratified.
                climate change (international resource program)
        Question. Explain the International Resource program between U.S.
    cities and cities in developing and transitional countries.
        Answer. USAID's Resource Cities Partnership program, implemented in
    conjunction with the International City/County Management Association
    (ICMA), facilitates technical partnerships between U.S. cities and
    cities in developing and transitional countries to support improved
    urban management. Resource Cities facilitates the exchange of teams of
    local government officials--city managers, mayors, and department
    heads--who contribute their time pro bono between U.S. and overseas
    cities over a period of 18-24 months. The technical focus of each
    partnership is driven by the demands and needs of the target overseas
    cities, and in the past has addressed areas such as solid waste
    management, organizational development, revenue generation, budgeting,
    historic preservation, downtown revitalization, and water and
    wastewater treatment.
        Since the commencement of the program in May 1997, 31 partnerships
    have been formed to deliver ongoing technical assistance in a wide
    range of sectors. The program is expected to double in the next two
    years.
        The next round of Resource Cities partnerships, which will commence
    in July 1999, is expected to include partnerships that provide targeted
    assistance to support cities' efforts to achieve global climate change
    (GCC) objectives. Activities are likely to focus on ways in which
    cities can reduce urban pollution, improve air quality, and reduce
    greenhouse gas emissions.
        Past partnerships have led to significant changes in urban
    management overseas, such as the implementation of a new financial
    system in cities in Swaziland, the development of a walking tour for
    economic development in an historic port town in India, and the
    implementation of a long-term plan for integrated solid waste
    management in a city in Guatemala.
                    office of transition initiatives funding
        Question. $55 million has been requested for the Office of
    Transition Initiatives, which is funded within the Disaster Assistance
    account. OTI focuses on special case recovery from disasters from
    political conflicts, and has been instrumental in transition programs
    in Guatemala, Bosnia and Rwanda.
        Explain why these funds are requested in the Disaster Assistance
    Account (which has the broad authorities necessary) for what could be
    termed non-traditional disaster assistance.
        Answer. The proposed FY 2000 funding level for OTI is the same as
    the actual program appropriated by Congress in FY 1999. However, the FY
    1999 level was divided between International Disaster Assistance ($40
    million) and Development Assistance ($15 million). The same $55 million
    total is proposed for funding for FY 2000, entirely from the Disaster
    Assistance account. The Administration believes Disaster Assistance is
    the appropriate account for funding OTI actitives.
        During this decade, there has been a seeming by steady growth in
    the number and humanitarian impact of man-made disasters. Some of the
    man-made disasters have been sparked by a natural disaster such as a
    drought or flood, but in all cases some form of political or ethnic
    crisis has intensified the humanitarian impact of the disaster.
    Providing effective relief and assistance which can help ensure a
    successful transition to sustained recovery in these complex disasters
    often requires interventions different from traditional disaster
    relief. For example demobilization of soldiers; demining of critical
    areas; assuring effective community participation in small-scale
    reconstruction projects; assistance to independent media and to civil
    society organizations to support peaceful, democratic transitions; and
    training of local officials and leaders in ethnic reconcilitation are
    all interventions which can be critical to successful disaster relief.
    Even in natural disasters such as Hurricane Mitch, there can be
    concerns, such as the potential for corruption, which can have a
    critical impact on the effectiveness of U.S. disaster response.
        There are many explanations for why there are now so many complex
    disasters. Some believe the end of the Cold War removed the discipline
    of super-power competition, freeing the eruption of ethnic and civil
    conflict. Some believe the competition for resources in a world of
    rapid population growth is the cause. Whatever the explanation, there
    does seem to be a growing number of these complex disasters. The Office
    of Transition Initiatives (OTI) was established to develop expertise in
    response to such disasters. OTI has been successful in many
    interventions, from Rwanda to Indonesia to Bosnia to Guatemala. As a
    result, the prospects of successful recovery in these complex disasters
    have improved greatly.
        The Administration believes the apparent need to deal effectively
    with complex disasters and the success of OTI's activities justify
    continuing activities at the $55 million level. At the same time, it is
    important to note that priority in use of funds from the International
    Disaster Assistance (IDA) account will continue to go to life-saving
    disaster response. It is also important to note that this proposal does
    not reduce funding available for the Office of Foreign Disaster
    Assistance, which administers more traditional disaster relief
    programs.
                 transition from oti to regular usaid programs
        Question. Explain how programs in places such as Rwanda and Bosnia
    transition from OTI funded programs to regular USAID programs?
        Answer. In most countries, OTI usually defines an exit strategy at
    the start of its programs, but that strategy can evolve as the
    situation changes. When appropriate, OTI aggressively pursues hands-off
    plans, whereby critical elements of a program are picked up by other
    parts of the U.S. Government or are supported by other donors.
        OTI has learned that by focusing on coordination and partnerships
    with other donors and within USAID at the initial stages of a pilot
    program, the transition to regular USAID development programs is
    facilitated. Coordination has included occasions where OTI includes
    other partners on initial assessments of transition opportunities in
    countries; integrated strategic planning; co-funding of projects;
    sequencing of funding; and agreements to pick up the funding of
    successful and possibly sustainable transition activities.
        Examples of such coordination and partnership include the
    following: In Rwanda, OTI's pilot efforts with women's associations
    proved to be so successful that the USAID Mission co-funded some
    activities. As these activities continued to demonstrate significant
    impact in the lives of women and their families, the Mission has agreed
    to continue funding aspects of this project after OTI's funding ends.
    Also in Rwanda, the World Bank, United Nations Development Program and
    the USAID Mission will all support various elements of the local
    governance activity initiated by OTI.
        In Bosnia, OTI supports civil society organizations in their
    efforts to promote democratic change. Examples of such activities have
    included: organizing public forums, debates and peaceful
    demonstrations; and publishing and distributing pamphlets and other
    written materials. OTI has awarded grants to over 150 civil society
    groups within the former Yugoslavia. Some of OTI's civil society
    activities will be continued through the USAID Mission's democracy and
    governance portfolio.
        In Angola, USAID's Africa Bureau has agreed to pick up the OTI-
    funded Voice of America (VOA) program. Because media can play a
    critical role in helping a culture of peace take root, OTI supported
    VOA radio programming. This has provided Angolans with objective news
    and programs focused on conflict resolution, local governance issues,
    and human rights information. A recent survey showed a listenorship of
    59%--making this one of the most listened to VOA programs in the world.
        And in Indonesia, OTI's media strategy has been adopted by the
    USAID Mission as part of the sustainable development programming. Thus,
    OTI has been able to provide initial critical support to local media
    outlets, in order to multiply the impact of reform messages and advance
    national debate on the transition process.
                               operating expenses
        Question. USAID's budget request for Operating Expenses of $507
    million is a slight increase of FY 1999, but does not begin to address
    the increasing costs it faces. The increased costs combined with static
    budgets have brought about the need for staff reductions. These will
    come on top of the 35% staff reductions that have occurred since 1992.
    Mr. Atwood can you discuss the staff and cost cutting measures you are
    contemplating and give us some idea of their effect.
        Answer. USAID can afford further staff reductions only where there
    is a reduction in the Agency's management burden, such as will occur
    from the closing of the bilateral program in Hungary this year and the
    programs in Lithuania, Poland, and Slovakia next year. We are also
    looking for ways to further increase management efficiencies in
    Washington and will examine the possibility of centralizing some
    program and administrative support functions into regional hubs. With
    these efforts, we believe a reduction in U.S. direct hire staff of
    about 70 should be possible without serious impacts on program delivery
    and oversight. We cannot, however, absorb additional unanticipated
    management demands without additional OE resources.
                              usaid security costs
        Question. Comment on your security costs and how this request
    addresses your needs. My impression is that State has not been
    cooperative or sensitive to your needs having received a huge
    supplemental last year to address security problems.
        Answer. It is true that USAID currently does not have the funding
    resources available to support all of the security needs envisioned
    worldwide, including USAID's full participation in the Nairobi and Dar
    es Salaam projects. New office building construction for USAID will be
    several hundred million dollars over the next five years. USAID is
    working with FBO and the State Department's Assistant Secretary for
    Administration's Office regarding inclusion of USAID in the 3 billion
    dollar (over 5 years) supplemental under discussion at the present
    time. It is USAID'S hope that this, or any future allocation of
    supplemental funds through FBO, will specifically identify USAID's
    requirements.

                 Questions for the Record Submitted by Mr. Obey

                           dairy development programs
        Question. Please advise the committee on the status of the dairy
    development programs included in last year's Foreign Operations
    appropriations. Last year, this committee provided a directive for $8
    million in funding for dairy development in FY 1999. How has USAID
    implemented the directive, and what results are anticipated from the
    projects funded under this program?
        Answer. Funds for dairy development activities are awarded on a
    competitive basis following a review of proposals by an intra-agency
    committee including technical livestock and agribusiness specialists.
    Some of the criteria on which the committee evaluates the proposals
    include expected impact, integration with the Mission's strategic and
    policy objectives, experience of the proposer in dairy development
    overseas, the extent to which the activity meets the purpose of the
    directive, and the ability to leverage other funding.
        The process to allocate FY 1999 funds for the dairy directive has
    been initiated, but we are not yet at the point of reviewing proposals.
    In general, however, the activities are expected to meet the purpose of
    the directive while contributing to the Agency's agricultural strategy.
                  cross border programs in europe and the nis
        Question. Congress also directed USAID to focus more of its
    training and technical assistance resources in the NIS and Eastern
    European countries on cross border programs in order to share
    successful development efforts. Would you please enumerate what cross
    border activities USAID is carrying out?
        Answer. USAID is placing increased emphasis on partnerships and
    ``East-East'' linkages to promote the continued economic and democratic
    transformation of the region. USAID's assistance vision for 2000 and
    beyond views sustainable linkages--between the countries of Europe and
    the New Independent States (ENI) and the United States as well as
    between individual countries in the region--as a cost-effective means
    of sharing talents, responsibilities, costs, risks, and rewards in the
    reform of ENI societies.
        Our long-term efforts target the institutionalization of formal
    structures and processes to exchange knowledge and experience and to
    deliver assistance. A country-to-country example of this kind of
    mechanism is the Polish-American-Ukrainian Cooperation Initiative
    (PAUCI). This program was put into place to strengthen the emerging
    cooperative relationship between Ukraine and Poland and enable Ukraine
    to take advantage of lessons learned in Poland.
        An example of sector-based programs is the newly launched Local
    Government Information Network (LOGIN), which is a regional network
    that promotes the effectiveness of local governments through education
    and the exchange of information and experiences about successful and
    replicable local government practices.
        Short-term cross-border programs include consultancies, study
    tours, workshops, seminars, or conferences, such as the recent USAID-
    sponsored regional Small and Medium Enterprise and local economic
    development ``summits'' held, respectively, in Sofia and Bucharest.
    These kinds of short-term activities create relationships between
    participants and lead to the increased flow of information and ideas
    between countries that persist long after the USAID-sponsored activity
    has ended. Under separate cover, USAID is submitting a detailed report
    on cross-border linkages in Europe and the NIS to Congress in response
    to House Report 105-719.
              utilization of partnerships in graduating countries
        Question. This year, the U.S. plans to graduate three countries
    from its foreign assistance program. In preparation for this, the
    Committee directed the Office of Private and Voluntary Cooperation to
    help USAID missions in the preparation of exit strategies for
    graduating countries to fully utilize the partnerships developed by its
    programs to assure sustainable and lasting impacts. Please advise us on
    how this effort is proceeding.
        Answer. The Office of Private and Voluntary Cooperation has been
    working on the issue of exit strategies through the Non-Presence
    Countries Subcommittee of the Advisory Committee on Voluntary Foreign
    USAID (ACVFA). this ACVFA Subcommittee has worked with PVC, USAID's
    regional bureaus, and the Bureau for Policy and Program Coordination to
    develop a set of recommendations pertaining to country graduation and
    exit strategies. The recommendations are based on subcommittee members'
    practical experience, extensive discussions with USAID staff, and a
    review of a recent study by the Center for Development Information and
    Evaluation that documents the lessons learned from the Agency's
    previous experience with country graduation.
        USAID is committed to ensuring that the Agency's policy framework
    for country graduation include the ACVFA Subcommittee's
    recommendations, which are, in brief:
              Graduation planning should be rooted in a positive approach
            to protecting and extending the legacy of prior development
            relationships and initiatives.
              USAID's partners should participate in planning for and
            carrying out programs, whether USAID-supported or not, that
            will maintain USAID's legacy after graduation.
              Whenever possible, adequate lead-time (two to three years)
            should be allowed to plan for USAID's departure.
    The Agency plans to work with the ACVFA on a test-case graduating
    country to develop an exit strategy model that will guide USAID
    Missions in using the partnerships they have already built to ensure
    lasting impacts of their programs.
                                          Wednesday, February 24, 1999.

           FY 1999 EMERGENCY SUPPLEMENTAL REQUEST FOR CENTRAL AMERICA

                                   WITNESSES

    J. BRIAN ATWOOD, ADMINISTRATOR, AGENCY FOR INTERNATIONAL DEVELOPMENT
    PETER F. ROMERO, ACTING ASSISTANT SECRETARY OF STATE FOR INTER-AMERICAN
        AFFAIRS

                     Chairman Callahan's Opening Statement

        Mr. Callahan. Good morning. Generally we always start on
    time, but we are five minutes late this morning, so we will
    just try to make it up somehow or another.
        We have to abandon this room by noon today in order for the
    Armed Services to hold a hearing, and therefore, we are going
    to be somewhat limited with time. So we want to go ahead and
    get started.
        Today we are holding a hearing on the President's
    supplemental budget request of 955.5 million dollars for
    emergency disaster and reconstruction assistance needed as a
    result of recent hurricanes in Central America and the
    Caribbean and the earthquake in Colombia. Of this amount, 687
    million dollars are for activities under the jurisdiction of
    this subcommittee. We will focus on these programs at this
    hearing.
        The request includes $621 million for economic support for
    reconstruction assistance; $41 million for debt relief and
    restructuring through the Treasury Department; and $25 million
    for the disaster relief account.
        On a bipartisan basis, this subcommittee has strongly
    supported increased assistance for Central America and the
    Caribbean for the past 4 years. Unfortunately, we have been
    unable to convince the administration of how important we think
    this area of the world is. But I think all of you here today
    who have attended hearings in this regard understand how
    important we feel protecting countries and assisting countries
    in this hemisphere is, and we are sorry that this disaster
    assistance is necessary. But, nevertheless, I think it follows
    the pattern and the philosophy of this committee in recognizing
    the importance and need of supporting our neighbors in this
    hemisphere.
        The State Department, USAID and the Defense Department are
    to be commended for the assistance they have already provided
    to the region in the wake of the natural disasters. In
    addition, the pending supplemental request is a thoughtful and
    comprehensive approach to reconstruction, particularly in
    Central America. I want to be helpful to the administration in
    this effort.
        Even more, I want to be helpful to the people of Latin
    America who have suffered so terribly in the past 6 months.
    This is a constructive request, and I believe it can be and it
    should be considered expeditiously by the Congress. I want to
    point out, however, that we still do not have much detail on
    how the funds will be used. We will need additional and
    detailed information in order to justify to our members on the
    Appropriations Committee and to the Congress of the almost $1
    billion in supplemental funds.
        We may consider this request in full committee as early as
    next Thursday. Due to time constraints, we do not intend to
    have a subcommittee markup. I will be making a recommendation
    based upon what I hear today and in consultation with Ms.
    Pelosi and Mr. Obey. Therefore, we must have questions for the
    record answered in the next 5 days so we can have a hearing
    record for floor consideration.
        I would ask that if members have questions for the record,
    they submit them to the subcommittee staff by the close of
    business today.
        We are pleased to have two distinguished members of the
    administration with us here today to explain the $687 million
    request. We have Brian Atwood, the Administrator for the Agency
    for International Development, and Peter Romero, the Acting
    Assistant Secretary for Inter-American Affairs. We welcome both
    of you.
        When you present your statements, we will accept your
    entire written statement for the record and we ask that you
    abbreviate your opening statements as best you can.
        Ms. Pelosi.

                         Ms. Pelosi's Opening Statement

        Ms. Pelosi. Thank you very much, Mr. Chairman. I want to
    join you in welcoming our distinguished witnesses here this
    morning. I am pleased to be able to work with you as you so
    positively suggested that you wanted to be helpful to the
    administration and as you said, more importantly, to the people
    of Central America who are suffering through this.
        I look forward today to hearing the testimony on the
    administration's request for 875 million, most of which comes
    from our subcommittee, for appropriations for emergency
    disaster and reconstruction assistance for Central America, the
    Caribbean and Colombia.
        As we have all heard, Mr. Chairman, Hurricane Mitch was the
    worst natural disaster to hit the Western Hemisphere in
    recorded history, causing an estimated $10 billion in damage,
    and thousands of people died and many more were left homeless.
    This event, along with the earlier Hurricane Georges in the
    Caribbean and the more recent earthquake in Colombia, have
    brought this request for emergency assistance before us.
        So we must act expeditiously, and we must act
    cooperatively. I am blessed in my district, Mr. Chairman, with
    many people from Central America, and the outpouring of support
    for them and from the population generally in our area and
    throughout the country, demonstrates very clearly that the vast
    majority of the American people support well directed
    humanitarian assistance.
        The American people's response to this disaster was truly
    heartening and indicative not only of the widespread sympathy
    and the support for the needs of our southern neighbors, but
    again, as I say, in a more general way for well-directed
    humanitarian assistance. In our area, we had such a tremendous
    outpouring of goods and money and resources for Central America
    that it presented some challenges in getting the donations
    there.
        I hope in the course of our hearing today, Mr. Atwood, we
    can talk about how we can send a signal to the American people
    that when disaster strikes, and God willing we won't have to
    deal with many more in the future, that there is a better way
    to help and that is sending money first, because it costs money
    to send something that came out of your closet, as generous as
    an offer as that might be.
        I understand that the President will be going in March to
    Central America, and I know he will bring the good wishes and
    hopefully the resources that we talk about today, to the people
    there. I hope that he will, when he visits Guatemala, also
    express the concern of many of us here about the unresolved
    mystery of the assassination of Bishop Gerardi, who died
    shortly after releasing the commission report on human rights
    in Guatemala.
        As the chairman indicated, the request includes not only
    needed funds for reconstruction in the countries in Central
    America, but also includes funds to expand debt relief
    packages, which I think is a very important element of this
    package, and to restore defense expenditures made to provide
    immediate assistance to the region in the wake of the disaster.
        I would hope that the funds of the recovery would recognize
    the important role that women will make in this recovery and
    make in the economy of these countries. As you know, Mr.
    Chairman, when we visited there, we did see many examples of
    successful microlending projects there. And I hope that the
    assistance will reinforce the role of women in this recovery
    and also that this assistance will help in the economic
    development of the region.
        Another reason why it is not necessary to send so many
    goods there is if it displaces the market opportunity in these
    areas. Sometimes our compassion is not as well directed as it
    should be.
        I join you, Mr. Chairman, in welcoming our witnesses today,
    Brian Atwood, the Administrator for USAID. I understand he is
    moving on to other things. I hope that we will have more
    occasions to recognize him and thank him for his great
    leadership, his effectiveness, and indeed his compassion. And I
    want to join you in welcoming Secretary Romero as well.
        We will move expeditiously on this request so the critical
    reconstruction efforts can begin before the onset again of the
    rainy season. Although Hurricane Mitch was a horrible disaster,
    it has brought about the return of consensus on the Hill to
    provide significant resources for the region. Our chairman has
    been a champion in that regard and in many other regards as
    well, Mr. Chairman, for Honduras and Nicaragua in particular.
        It is my hope that the provision of this assistance becomes
    the springboard for economic and social development which lifts
    these countries out of the grinding poverty they have suffered
    under for far too long.
        With that I look forward to your testimony, gentlemen.
    Thank you, Mr. Chairman.
        Mr. Callahan. That is Ms. Pelosi.
        Mr. Atwood.

                         Mr. Atwood's Opening Statement

        Mr. Atwood. Thank you very much, Mr. Chairman, and thank
    you, Congresswoman Pelosi, for your comments as well.
        Mr. Chairman, I know that you are very strongly supported
    by the people of your district, but it is indeed intimidating
    to see who is supporting you behind you today, you have the
    entire U.S. military. It is normally intimidating for an
    administration witness.
        But I am pleased to be here today with Ambassador Romero to
    discuss the President's request for an emergency supplemental
    for Central America to respond to the hurricane that did so
    much destruction in that region and in the Caribbean. Much has
    already been said and written about these hurricanes. Many of
    the grim details are covered in my formal written testimony,
    which I have submitted for the record.
        Our government and the American people have responded to
    the suffering in Central America with the largest relief
    operation we have ever directed at any natural disaster, an
    unprecedented response in which every American can take pride.
    Here in Washington we have seen a powerful and truly bipartisan
    response. Many Members of Congress from, both parties have gone
    to Central America for a firsthand look at the devastation and
    the relief program.
        The First Lady and Mrs. Gore have led bipartisan
    delegations, and the President, as you indicated, will soon
    visit the region. Mr. Chairman, you and Congresswoman Pelosi
    have always paid special attention to this region. You and I
    traveled together to Nicaragua. We visited the countryside
    outside Managua and we saw the great progress that country was
    making in developing its agricultural sector and its economy.
        I know that you appreciate the importance of this region to
    the United States and that you are aware of the terrible damage
    this hurricane has done. All the reports have indicated that
    these countries are in crisis and will remain in crisis for the
    foreseeable future. This situation remains an emergency and our
    request is for an emergency response. There have been more than
    9,000 reported deaths and another 9,000 men, women and children
    are missing in the four countries hit by Hurricane Mitch.
        At least 3 million people were either forced out of their
    homes or saw their homes destroyed. Total damages, direct and
    indirect, have been estimated at between $7.5 billion and $8.5
    billion. In some areas, entire crops were lost. In Nicaragua,
    losses in rice, corn, beans and coffee and vegetables range
    from one-third to one-half of the total crop and even higher.
        The region's social infrastructure suffered extensive
    damage, over one-third of Honduras' 10,000 schools were damaged
    or destroyed, hospitals and health clinics were hard hit, and
    due in large part to our interventions, we have not seen the
    epidemics we feared. The danger still exists, but thus far we
    have stopped what could have been a follow-on disaster in its
    tracks.
        In the aftermath of the tragedy, the United States launched
    a relief effort that has lived up to our highest standards of
    compassion and world leadership. At one point, we had over
    5,000 U.S. personnel, civilian and military on the ground in
    Central America providing relief, short-term rehabilitation and
    medical assistance. Even as the relief operation was getting
    started, we were working to involve the U.S. private sector in
    the reconstruction campaign.
        At a December conference hosted by USAID and the White
    House, seven members of the President's cabinet met with
    leaders of more than 400 U.S. companies to discuss ways our
    government, private companies and American citizens can work
    together in the relief effort. We are matching donations of
    goods and services from U.S. firms, more than 50 so far,
    with$8.5 billion. In some areas, entire crops were lost. In Nicaragua,
    losses in rice, corn, beans and coffee and vegetables range from one-
    third to one-half of the total crop and even higher.
        The region's social infrastructure suffered extensive
    damage, over one-third of Honduras, 10,000 schools were damaged
    or destroyed, hospitals and health clinics were hard hit, and
    due, in large part to our interventions, we have not seen the
    epidemics we feared. The danger still exists, but thus far we
    have stopped what could have been a follow-on disaster in its
    tracks.
        In the aftermath of the tragedy, the United States launched
    a relief effort that has lived up to our highest standards of
    compassion and world leadership. At one point, we have over
    5,000 U.S. personnel, civilian and military on the ground in
    Central America providing relief, short-term rehabilitation and
    medical assistance. Even as the relief operation was getting
    started, we were working to involve the U.S. private sector in
    the reconstruction campaign.
        At a December conference hosted by USAID and the White
    House, seven members of the President's cabinet met with
    leaders of more than 400 U.S. companies to discuss ways our
    government, private companies and American citizens can work
    together in the relief effort. We are matching donations of
    goods and services from U.S. firms, more than 50 so far, with
    the needs in Central America.
        Moreover, we estimate that more than 11 million pounds of
    food, clothing and medical supplies valued at more than $28
    million have thus far been donated by individuals, schools,
    churches, civic organizations, as well as businesses and
    corporations. As Ms. Pelosi knows, we attempted, as best we
    could, to transport much of these goods to Central America
    under the Denton program, a special provision of law that
    allows military training flights and ships to transport donated
    goods to the region.
        There was at one point an expectation that everything that
    was donated would be transported. We couldn't obviously do
    that. Under the Denton program, we stretched the law to the
    limits to get this much to Central America, but did run into
    problems, with full warehouses where there was no inventory of
    the goods.

                           inter-american development

        At the Bank's Consultative Group meeting in December, the
    donor nations pledged $6.3 billion in emergency relief and
    reconstruction. We will meet again in Stockholm in May to
    solidify these commitments for the international effort in
    Central America. Today, thanks to this great international
    effort, most people in the affected areas have food, shelter
    and running water. And in Honduras, for example, an estimated 1
    million people were displaced in the immediate aftermath of the
    hurricane, but today all but 20,000 of them have housing, and
    those are now living in schools or shelters.
        With the region's life-threatening needs largely met by the
    initial relief effort, we have entered a second phase of
    recovery which we call rehabilitation. This is a transitional
    phase during which we want to help people return to normal
    lives with regard to such needs as education, transportation
    and public health.
        Looking ahead, our goal is a reconstruction that does more
    than replace what was blown or washed away. We want to see the
    countries of this region achieve even stronger, more prosperous
    and more sustainable democratic development. Less than a decade
    ago, as you well know, most of these countries were engaged in
    civil wars that lasted for years, even decades, but now peace
    has been achieved, and with it, democracy, free elections and
    open markets. It is upon this foundation we seek to restore and
    to build upon.
        Last week, the President submitted to Congress this
    proposal for $956 million for an emergency supplemental
    appropriation, with the funding to be used for the following
    specific purposes: $283 million to restart local economies by
    repairing more than 700 kilometers of rural roads, by providing
    70,000 microenterprise loans, by providing seeds, tools and
    fertilizer for almost 5 million farmers and by helping 65,000
    hillside farmers adopt sustainable production techniques;
        $136 million for public health programs to reconstruct or
    rehabilitate more than 750 health posts and clinics, to benefit
    at least 4 million people, to provide water and sanitation
    services for nearly 4 million people, and to provide disease
    controls, surveillance and prevention for more than 17 million
    people;
        $64 million to provide technical assistance for
    environmental management and disaster mitigation, including
    land use planning, resource management, protection of ecosytems
    and replacement of destroyed harbor navigation aids in
    Honduras, Nicaragua and El Salvador;
        $55 million to repair and reequip more than 1,700 schools,
    to establish more than 6,000 open air schools, to build more
    than 6,000 new housing units, and to provide school supplies to
    more than 200,000 children;
        $42 million for reconstruction assistance in the Dominican
    Republic and other Caribbean nations hit by Hurricane Georges
    to focus on health, housing and economic revitalization;
        $12 million to help local governments manage reconstruction
    assistance, including anticorruption training, designed to
    avoid diversion or scandal in the reconstruction program; also
    $10 million for law enforcement to develop anticorruption
    programs, including internal audit-oversight mechanisms and
    automated immigration records for border crossing points;
        $3 million to continue to work with the private sector in
    the United States by targeting additional U.S. private sector
    donors, by helping coordinate delivery of donations and by
    helping monitor distribution of donations in Central America;
        $10 million to help Colombia recover from its recent
    earthquake, focusing on health, housing and schools.
        The President's proposal also includes $41 million for debt
    restructuring and relief, including $16 million for the budget
    cost of reducing Honduras' bilateral debt with the United
    States and a $25 million contribution to a Central American
    Emergency Trust Fund to help cover the cost of debt service
    owed by these nations to the World Bank and other international
    financial institutions.
        The proposal additionally includes $25 million for USAID
    for international disaster assistance of which $20 million will
    partially replenish immediate disaster relief expenditures in
    the aftermath of Hurricane Mitch. The proposal includes $188.5
    million for the Department of Defense, $132.5 million to
    replenish accounts that were used during the U.S. military's
    superb response to this emergency and $56 million to fund
    expanded U.S. National Guard and Reserve ``New Horizons''
    exercises in the four Central American nations and in the
    Dominican Republic.
        Finally $80 million will go to the Department of Justice's
    Immigration and Nationalization Service to deal with the
    increased number of illegal immigrants coming from Central
    America as a result of Hurricane Mitch.
        These are the major elements of the President's proposal,
    and I note that the total proposed U.S. assistance to Central
    America, although substantial, represents only an estimated 10
    to 12 percent of the total needs created by the disaster. The
    total, if this $956 million request were to be approved, would
    be $1.2 billion, if you add the $305 million that we have put
    into emergency relief.
        We truly are part of an unprecedented worldwide relief
    effort. Clearly since this is very much our neighborhood, we
    are in the lead. The President's upcoming visit to Central
    America will dramatize his personal commitment to the
    reconstruction. He shares my gratitude for the bipartisan
    support this effort has received, and he has instructed all
    elements of his administration to pursue a comprehensive
    approach that addresses such related issues as trade, debt
    relief, immigration and reconstruction assistance.
        If we are to help this region move from crisis to recovery,
    we need to use the mechanisms of open markets that foster
    expanded trade. The administration has long been committed to
    the Caribbean Basin Initiative Enhancement legislation, and the
    administration will soon send a proposal to enhance economic
    growth in the region by expanding the trade benefits of the
    Caribbean Basin Economic Recovery Act.
        This extraordinary disaster is also an extraordinary
    opportunity to assist our neighbor nations in Central America.
    Our goals should not be simply to replace what existed before,
    but to build back better. Such an ambitious undertaking imposes
    solemn obligations, both on us and on the nations we seek to
    assist.
        Mr. Chairman, we need to move quickly into the third phase,
    the reconstruction phase. We want to help provide people with
    hope for the future and help them stay in their homes. A recent
    New York Times article interviewed some of the refugees who are
    trying to make their way north to the United States. The
    article made clear that most of those people don't want to come
    here, but they are desperate to find work and to provide for
    their families.
        Our goal is to help those people stay in their native lands
    and return to the productive lives they led before the
    hurricane blew their world apart.
        Thank you very much, Mr. Chairman.
        [The statement of Mr. Atwood follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Callahan. Thank you, Mr. Atwood. I might just comment
    about your comment about the full faith of the military behind
    me. As you know, we will be having committee hearings here in
    just a few weeks on your request for the next fiscal year. And
    we may take this same room, except we are going to turn you
    around and let you look at the painting on the back wall----
        Mr. Atwood. I have seen it, Mr. Chairman.
        Mr. Callahan [continuing]. Which might give you the
    indication of what might happen if you do not obey the
    suggestions in our committee report.
        Mr. Atwood. Is there a weapon aimed at my back? I assume
    so.
        Mr. Callahan. Mr. Secretary.

                         Mr. Romero's Opening Statement

        Mr. Romero. Thank you. I will keep that in mind, Mr.
    Chairman, and also in terms of the brevity of my comments, I
    would hope that we would all use smart weapons in the future
    though.
        Thank you very much, Mr. Chairman, for the opportunity to
    appear before you. I think Brian Atwood, Administrator Atwood,
    has done a magnificent job of essentially focusing in on the
    reconstruction component, in particular. And what I would like
    to do is frame the policy parameters and some of the things
    that perhaps were not included in his excellent presentation.
        To say that Central America underwent or experienced a
    tragedy would be to understate the case.
        But what compounds this tragedy is that it came when the
    societies were emerging from the darkness of political
    divisiveness, internal struggle and Civil War. They were
    engaged in a process of profound transformation, a process in
    which the United States Government with congressional support
    has invested heavily. The countries of Central America and the
    United States are bound together geographically, politically,
    economically and socially.
        Americans in Congress, the executive branch and private
    citizens with NGOs all played very important roles in
    encouraging and supporting various peace processes in Central
    America. Through our political support, economic assistance and
    technical expertise we have worked together with our friends in
    Central America to end the conflicts, to bring political
    stability and democracy and to jump start economic regeneration
    in a once troubled region.
        But let us make no mistake about it, stability and growth
    in Central America don't only benefit the citizens of those
    countries. Our extensive training investment directly benefits
    U.S. companies which hold the lion's share of these fast-
    growing markets. In fact, Central America's 30 million people
    buy more U.S. exports than the 1 billion people of India.
        It is clear that we should help Central America build
    because it is the right thing to do, but helping them helps the
    United States as well. Throughout the '80s many in Central
    America fled north in an attempt to find peace, security and
    economic opportunity, and to enable their families to rebuild
    shattered lives. But illegal immigration stretches the
    resources of the USG, while threatening the lives of the very
    people who attempt it.
        The potential for increased flows of Central Americans to
    the U.S. is great, and INS currently does not have adequate
    resources to properly detain and process large numbers of
    newly-arriving illegal immigrants. Only reconstruction and
    economic opportunity can provide the impetus to lessen the
    push-pull factors that cause central Americans to go to the
    U.S. The fight against the transnational crimes of drug and
    migrant trafficking is also a very high priority with this
    request, Mr. Chairman.
        The Department of State would like to significantly
    increase embassy budgets to effectively fight these crimes
    brought about by the increased vulnerabilities resulting from
    widespread damage and desperation.
        It is important to note that included in the supplemental
    is $80 million for INS towards additional detention space for
    illegal aliens.
        We have also included in the supplemental a request for
    hurricane recovery efforts in Haiti, the Dominican Republic,
    and the eastern Caribbean which were struck by HurricaneGeorges
    earlier last year. The economies of these countries particularly
    vulnerable to economic forces were dealt a body blow by Georges,
    leaving them more open to instability, narcotrafficking, international
    crime and the inevitable pressures to seek the avenue of illegal
    immigration to the United States.
        Also, included, Mr. Chairman, in the supplemental is a
    request for $10 million for Colombia for disaster relief for
    the recent earthquake that killed almost a thousand people and
    caused up to $1.5 billion in damage. There is an important need
    to address Colombia's most immediate relief needs, particularly
    in housing and in the medical areas.
        Returning to Central America, we have also proposed debt
    relief for Honduras and Nicaragua to permit them to harness
    their own resources in the recovery effort. Our package
    includes deferral by the U.S. of all bilateral debt obligations
    from these countries for the next 2 years, forgiveness of 90
    percent of Nicaraguan bilateral debt and two-thirds of Honduras
    debt.
        As all members of this committee are aware, encouraging
    prosperity through increasing foreign trade and investment is
    the cornerstone of U.S. policy.
        For Central American recovery, it will be necessary to
    attract capital investment to generate employment. We are
    Central America's main trading partner. In fact, U.S. exports
    to Central American regions exceed our support to all countries
    of the former Soviet Union and Eastern Europe combined. CBI has
    direct benefits to the U.S. private sector. For example,
    approximately 80 to 85 percent of apparel exported into the
    United States from Central America uses high-quality U.S.
    fabric and thread.
        We are convinced that CBI enhancement is a vital component
    to the recovery effort and one of the most effective means of
    promoting growth. The administration is working on a proposal
    to submit to you, Mr. Chairman, to enhance the Caribbean Basin
    Initiative that will provide significant benefits for the
    region. We greatly appreciate the efforts being made in
    Congress in support of CBI enhancement. And we take your point,
    Mr. Chairman, about the need for haste in working with you to
    secure early enactment of generous CBI enhancement legislation.
        Finally, we have and will continue to reach out to the
    private sector, to engage it in the reconstruction efforts. The
    Overseas Private Investment Corporation, or OPIC, has recently
    signed a partnership with Citicorp to make available over $200
    million in new financing to small- and medium-sized projects in
    the region. USAID sponsored an extremely successful conference
    last December involving seven cabinet members and hundreds of
    major U.S. corporations aimed at encouraging private aid and
    investment to the region.
        On migration we have responded to Central America concerned
    by granting temporary protected status to Hondurans and
    Nicaraguans, while providing more limited relief to Guatemala
    and El Salvador. Furthermore, the administration is committed
    to addressing disparities among different nationalities
    resulting from the Nicaraguan Adjustment and Central American
    Relief Act, also known as NACARA.
        Before closing, I would like to also reference the
    magnificent job that the U.S. Armed Forces has done in the
    region over the last couple of months. There were a total of
    about 5,000 U.S. military personnel in the region repairing
    roads, building critical infrastructure, meeting health needs,
    sanitation needs. The U.S. military delivered 9 million pounds
    of privately donated goods with an estimated $28 million in
    value.
        The U.S. Reserve and National Guard units, have begun a
    humanitarian and civil action program which will involve more
    than 20,000 U.S. servicemen over the next several months to
    build health clinics, schools, repair roads, bridges, drill
    water wells and conduct medical readiness training exercises.
        Mr. Chairman, we intend to work together with members of
    your committee and Members of Congress to help our Central
    American friends to ensure that they can continue their journey
    out of the turmoil and misery caused by this disaster.
        Thank you very much.
        [The statement of Mr. Romero follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 accountability

        Mr. Callahan. Thank you, Mr. Secretary. I sense a great
    degree of compassion on the part on my colleagues and the
    Congress on both sides of the aisle to facilitate the
    suggestions of the administration with respect to assistance to
    this area of the world.
        At the same time, we have a tremendous responsibility here,
    because we are responsible to the American people for the
    monies that are spent in any area of the world. First of all, I
    think the American people agree with the Congress, that any
    time an American person sees someone suffering, with or without
    a disaster, they are very compassionate. And they don't object
    to the Congress providing food or medical services or
    educational opportunities to needy people.
        They do not like, however, to see the government or the
    Congress giving governments the authorization to forgive debt
    that has nothing to do with the national disaster. They do not
    like, to the best of my observation, seeing us give money to
    governments that can be taken and deposited in foreign banks.
        So as long as we are convinced, Mr. Secretary, and, Mr.
    Administrator, that this money is going to provide relief for
    the people suffering in Central America, you are not going to
    have any problem. But you are going to have some questions
    about debt forgiveness. I don't know how that is going to
    relieve suffering of these people. I don't know why if we want
    to go into some type of debt relief or forgiveness of debt that
    can't be handled in the regular appropriation process.
        That is not an emergency supplemental need or a justifiable
    need. So, I question that. Also we still do not have a full
    accountability of how this money is going to be spent. Say we
    are going to spend a couple of hundred millions in Honduras,
    that is good, and there is no question if you need a couple of
    hundred million dollars. I am certain this committee and the
    full committee will provide you those monies. But we have to
    have a little bit more than just a request to give you $200
    million, because that is what you think you need.
        So we are going to have to have a more detailed explanation
    and have to have it quickly before we are able to take this
    thing to the full committee or to the floor because someone has
    to justify it. It is going to be up to me and Ms. Pelosi to
    explain what the money is for. We just can't go say that
    Secretary Romero and Administrator Atwood said it was a good
    idea, we can't use that.

                                debt forgiveness

        We have to have more detailed explanation of the
    justification for such things as debt forgiveness. I for one am
    not going to agree to any type of an ability to give any of
    these countries monies to pay off other country's debts that
    they owe. If they owe money to Japan, let Japan forgive debt.
    We are not going to give monies to these countries, or at least
    I am not going to agree to give money to these countries to pay
    off debts to other countries, other than maybe the forgiveness
    of debt to the United States.
        I realize that there is very little possibility that we are
    going to collect the money that they owe us, which is not that
    much, and maybe we can look at that. But we must be absolutely
    certain that this money is not going to be used by the leaders
    of these two countries, especially Honduras and Nicaragua, to
    be placed in bank accounts or to pay off some debts to foreign
    countries. We are going to have to have a more detailed
    explanation with that regard.
        I have not been to Central America since the hurricane. I
    think that it probably would be in the best interests of this
    subcommittee to plan a CODEL between now and the conference. It
    gives us a very small amount of time.
        I know the President is planning on going. I know the First
    Lady has already been there. They don't seem to know that we
    are in existence when these trips come about, they might--they
    always go to the International Relations Committee and tell
    them to go look at the need. So maybe when they get back, they
    can get the International Relations Committee to appropriate
    them some money. But I have not been down there.
        But we need information from you to tell us what you need
    the money for in a detailed manner, so we can go down there and
    look at what you are talking about. So we can arrange a meeting
    to visit Honduras one day, maybe a Saturday and then Nicaragua
    maybe on a Sunday, during this process, but we need some more
    detailed explanation, other than just the total amounts that
    you have expressed here.

                               corps of engineers

        Mr. Atwood, over the last several years, the committee has
    included, and I know you have been cooperative with respect to
    negotiations with the U.S. Corps of Engineers about the
    utilization of the U.S. government engineering facility that we
    have, which is the Corps of Engineers. They have facilities
    there, and I hope that you certainly will take advantage of
    this asset and consider the utilization of the U.S. Corps of
    Engineers and engineering needs for reconstruction in this
    region.
        Mr. Atwood. Mr. Chairman, the answer to your question is we
    have been using the Corps of Engineers. They have done a
    complete assessment of the infrastructure damage in the region.
    I mentioned it in my open remarks. They have been vital to us
    in our work in assessing the damage, and they I think will
    support the request that is before us. We will continue to work
    with them. We will continue to transfer resources to them,
    because again their professional qualifications are superb for
    working with us on the particular types of challenges we face.
        I wanted to say one--just one brief word realizing, of
    course, that you are going to ask us a lot of questions for the
    written record. I very much appreciate the schedule that you
    indicated you were going to follow here in trying to get this
    before the full committee by next Thursday. I believe you said
    it is absolutely vital that we move quickly.
        While I mentioned that the United States will only be
    providing a small percentage of the resources needed for this
    reconstruction effort, the fact of the matter is, we can move
    faster than any other nation or any other international
    financial institution, and we need to show the people of this
    region that there is hope, that they are going to get their
    jobs back, that they are going to see their homes
    reconstructed. So it is really vital for us to move quickly.

                                  debt relief

        The questions relating to debt relief, I couldn't agree
    more with you, that if there is a debt to Japan, Japan ought to
    forgive the debt. What we are asking for in this particular
    proposal is for an appropriation to cover the U.S. debt. We are
    also asking for a contribution to a trust fund so that they can
    help alleviate the pain of having to service debt to the
    international financial institutions--a contribution of only
    $25 million. Many other nations are also contributing to
    thattrust fund.
        We are also going to suspend debt payments for 2 years, and
    I want to try to illustrate why we are asking for these
    resources or to help them forgive their debt. They are going to
    have huge fiscal deficits. We know what those are. We haven't
    forgotten what those are in this country. But these are the
    results of this tragedy. These governments have been reforming
    their economies very, very well. But this has hit them very,
    very hard. In Honduras alone there is a $110 million deficit
    one year and a $109 million deficit the next year.
        If they have to continue to pay their debt servicing, that
    will even add to the deficit, so what we have proposed is this
    trust fund. We have also proposed in one case, in the case of
    Honduras, a very unique thing that I know you don't generally
    like, but I hope you will consider the special circumstances,
    which is a balance of payments relief. We would be putting
    money into a bank account which we will control. They will
    agree to produce local currency for projects to help in the
    reconstruction. So there is a double benefit for us. We help
    them with their fiscal deficit and their debt problem, and we
    also are able to produce local currency for actual
    reconstruction costs.
        I recognize we have had discussions about this, and I know
    where you stand generally on this kind of thing. But I hope you
    will look at this again. This is a unique situation.
        Thank you, Mr. Chairman.
        Mr. Callahan. It is unique, Brian, but at the same time it
    is not an emergency supplemental need. It is something that
    philosophically if you want to enter into in the future that
    could be addressed in your regular appropriation process. I
    don't think that this is of such a dire emergency that it would
    fall under the need of an emergency appropriation.
        I know it is part of a long-range solution to the problems
    of Nicaragua and Honduras, but at the same time, we are here
    discussing the need for an emergency supplemental bill, a bill
    that is going to count against the surplus we have created over
    the past few years. It is not going to be offset by reducing
    monies that we have already appropriated to other entities or
    agencies. It is an emergency supplemental request to provide
    relief to the people of Central America who are suffering.
        They are not suffering because of the debt they owe to some
    bank or to some other country. They are suffering because they
    need the humanitarian efforts that your agency is providing and
    will provide. And if we need to go into some long-range
    correction of the financial problems that will be facing them
    in the future, then maybe we ought to address that when we have
    time and in full committee.
        I am not saying absolutely no. I am saying let us not take
    advantage of the feeling and the compassion of this Congress
    with respect to wanting to help the suffering people of Central
    America.
        Mr. Romero. Mr. Chairman, if I might just add a little bit
    of background on the other creditors to both Honduras and
    Nicaragua. We have already been in touch with the Paris Club
    creditors, the major creditors for both of those countries.
    Essentially we have agreed to work together so all of the major
    creditors would reduce or forgive debt. It wouldn't be that we
    would forgive our bilateral debt so they could pay Japan, we
    would all bring it down together.
        Mr. Callahan. We would hope that would be the case. My five
    minutes is up. And we want to make certain that everyone has an
    opportunity to submit questions.
        So, Ms. Pelosi, your 5 minutes begins now.
        Ms. Pelosi. Is my 5 minutes equal to the chairman's 5
    minutes? No. Thank you very much, Mr. Chairman, I appreciate
    the direction that your line of questioning was going.
        Although we are not in complete agreement, I would say to
    our witnesses that I know of no chairman who has been more
    supportive of the discretion of the administration to make a
    plan in the interests of our national security and providing
    the assistance any place in the world, in this case, emergency
    assistance in Central America.
        I differ with him on the perspective on debt relief,
    however. In fact, I think the package should have more debt
    relief in it, because I see debt relief as central to the
    alleviation of poverty, which has been exacerbated by the
    hurricane and the other natural disasters. Both Honduras and
    Nicaragua were in the midst of debt relief negotiations when
    the hurricane struck.
        I believe there is consensus to provide these countries
    with significant additional debt relief beyond what was
    contemplated prior to the disaster and, indeed, the
    administration's request reflects that. You have explained a
    little bit what your intentions were in regard to the $41
    million specifically requested for debt relief. If you could
    quantify the benefits to both countries, in terms of changes in
    anticipated debt payment schedules, I would appreciate that.

                                 honduras debt

        Let me just also add that I was interested in your
    explanation of the $30 million to Honduras, because I think
    that that did raise questions. That was going to be one of my
    questions to you, are these funds to be used to forgive debt of
    Honduras that they owe to other countries? My conclusion from
    your responses was that it would not be used for those
    purposes. Is that correct, forgiving the debts of other
    countries?
        Mr. Atwood. No, that is right. It would be used to deal
    with the international financial institution debt that Honduras
    faces.
        Ms. Pelosi. Or bilateral?
        Mr. Atwood. Multilateral, the World Bank and the IDB and
    other debts.
        Ms. Pelosi. I understand the multilateral side. All the
    debt forgiveness contained in this package is not only the 30,
    but all of it is either for bilateral forgiveness of U.S.
    debt----
        Mr. Atwood. That is right.
        Ms. Pelosi [continuing]. Or multilateral to the IFIs but
    not to assist a country in forgiving debt of another country?
        Mr. Atwood. That is right, Ms. Pelosi. And in the case of
    the $30 million, it would produce counterpart funds, local
    currency, that would be used for reconstruction.
        Ms. Pelosi. I understand.
        Mr. Atwood. That is what is the vital aspect of it, that is
    what I think makes it part of the emergency supplemental.
        Ms. Pelosi. But then because the chairman's leadership and
    support is essential to the success of this package, could you
    quantify the benefits to both countries, Honduras and
    Nicaragua, in terms of the changes in anticipatednear term debt
    payment schedules?
        Mr. Atwood. Forgiveness through the Paris Club of
    additional reductions beyond those already committed to by the
    United States of $19 million of Nicaragua's eligible bilateral
    debt for a total reduction of debt of $75 million, or 90
    percent of Nicaragua's debt, and $26 million of Honduras'
    bilateral debt for a total reduction of $103 million, or 66
    percent of that debt. The total previous bilateral debt to the
    United States for Nicaragua was $84 million and for Honduras
    $154.2 million.
        Ms. Pelosi. How will you monitor the $30 million that you
    are converting into local currency for development purposes in
    Honduras?
        Mr. Atwood. It is placed in a U.S. bank, and we control the
    use of the money. Then they agree to produce local currency to
    that level in Honduras, which is used for reconstruction. So it
    is kind of a double benefit. We help them with their fiscal
    crisis, and we also are able to do reconstruction aid.

                                      opic

        Ms. Pelosi. I have a couple more questions on debt, maybe I
    will have another round. But I did want to get to another
    subject. Secretary Romero mentioned OPIC, and I understand that
    OPIC may be considering guarantees to at least one banana
    company for their investment in Honduras.
        I hope that your efforts will ensure enforcement of workers
    rights provisions of OPIC and that those discussions include
    frank discussions with the Honduran banana workers. Will the
    U.S. be providing any assistance to support--I asked that
    question directly--the rehabilitation of the so-called
    independent plantations that supply, in this case Chiquita,
    Dole and DelMonte and, if so, what steps are being taken to
    ensure that these plantations are meeting acceptable standards
    with respect to environmental concerns and treatment of
    workers?
        Mr. Atwood. Those companies obviously can access the OPIC
    $200 million equity fund that is being put out there. But for
    the most part, they have also taken steps to replenish that
    land themselves. If they need loans or if they need the OPIC
    fund, they can access it. We are mostly using our
    reconstruction aid to help to reconstruct access roads so they
    can get those crops to markets.
        But I take it your point, and as chairman of the OPIC
    board, I will make sure that all of those fair labor provisions
    are respected, that OPIC is obliged to honor in any case.
        Ms. Pelosi. Thank you. Thank you very much, gentlemen.
    Thank you, Mr. Chairman.
        Mr. Callahan. Before we go to the chairman of our full
    committee, let me just ask a question. You said you are going
    to take $19 million and pay off a $75 million debt?
        Mr. Atwood. I'm sorry, I was referring to the amount that
    we would need to have appropriated in order to excuse that
    debt, the debt is discounted based on a formula that is used.
        Mr. Callahan. So Honduras owes $75 million and you are
    going to give them 19 million, and they are going to call it
    even? I would just like to know the name of the bank.
        Mr. Atwood. No. Pete Romero has reminded me we have a
    Treasury Department official here, if you would like to get
    into the detail of how debt is calculated.
        Mr. Callahan. Here we are going to give them $19 million to
    pay off a $75 million debt, because they are discounting.
        Mr. Atwood. We need to appropriate a certain amount. I
    understand your point.
        Mr. Callahan. Why don't we get it discounted down to $2
    million is what I am saying, while we are negotiating. In any
    event, Mr. Chairman, we are happy to have you with us today for
    your first subcommittee meeting, I think, with this
    subcommittee since you assumed the chairmanship. We welcome
    you, and the floor is yours.
        Mr. Young. Mr. Chairman, thank you very much. I appreciate
    the opportunity to have a few minutes this morning. Thank you
    very much.

                         supplemental account structure

        I am concerned about how we will structure this account for
    the supplemental for the reconstruction and rehabilitation
    activities. There is a request for $621 million from you as a
    supplemental appropriation to the Economic Support Fund. My
    understanding is that means they will be merged with other
    funds; am I correct in that understanding?
        Mr. Atwood. It will be handled separately, Mr. Young. It
    will not be merged. In other words, it won't be eligible for
    use in other parts of the world. It will be very much handled
    separately. Most of it will be transferred to USAID, and then
    if other government agencies are involved, we would then
    transfer support to them.
        Mr. Young. Because of the importance of responding to this
    great tragedy and the strong desire of this committee to keep
    track of all of these funds, how would you react to the
    creation of a special appropriations account for the
    reconstruction and rehabilitation account?
        Mr. Atwood. I think if we can use it for the purposes that
    the request indicates, then I am not sure. I think that is a
    matter for budgeters to discuss. I am not sure I understand the
    implications, Mr. Chairman. But I certainly would like to take
    that back to OMB, who are the experts on this at our end of
    town.
        [The information follows:]

          Special Appropriations Account For Hurricane Reconstruction

        The Administration would prefer using the existing account
    structure, augmented by additional reporting requirements rather than
    creating a new account structure. However, we are not strongly opposed
    to a new structure and will work with the House and Senate Committees
    on a structure that will allow us to move forward with this important
    funding.

        Mr. Young. Do that if you don't mind. We would be glad to
    hear from you on that. We are concerned about being able to
    provide the proper oversight and keep track of the money that
    we are appropriating.
        And then, Mr. Chairman, I would like to ask one general
    question that you may have already touched on, with regard to
    the commitments that are made and the offers that are made to
    help our friends and our neighbors in times of crisis that we
    are dealing with now. I don't know of anyone that objects to
    our coming forward to help.
        When a dollar amount is determined and a dollar amount is
    announced, someone says we are going to give you X number of
    dollars, how accurate is that estimate? Is it based on a
    specific documentation of damages inflicted or is it a guess?
    Realistically, where are we there?
        Mr. Atwood. Mr. Chairman, it is based on the best
    assessments we can come up with. I mentioned the Corps of
    Engineers earlier. They helped us make assessments. We have
    other assessments that we have used. The IDB has done
    assessments and other bilateral donors and the governments
    themselves. So, we know we have a good fix on what we have been
    asked to do and then we look at our comparative advantage. What
    should the United States be doing? What can we do to help these
    economies recover faster, so that the cost of this storm isn't
    even multiplied by lack of economic growth over the years?
        We know we can move faster than other countries to get some
    of these things repaired. So we look at our comparative
    advantage, and that is what makes up this particular request
    that is before you, Mr. Chairman.
        Mr. Young. Mr. Chairman, thank you very much.

                              full accountability

        Mr. Callahan. Thank you, Mr. Chairman. For your
    information, we did touch on your subject matter. And we have
    requested that the Administration provide us before next
    Thursday's markup out of full committee a full accountability
    of what they are going to use the money for, and also give the
    subcommittee between the markup, the floor and the conference
    report, an opportunity for maybe a two-day CODEL to go down
    there and actually look at some of the sites they are talking
    about. So we have requested that they submit this information
    in writing before next Thursday.
        [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Wolf?

                                   nicaragua

        Mr. Wolf. I thank you, Mr. Chairman. Welcome. A couple of
    issues. One, I think it is important that the committee do this
    and that the country do this, because there were a number of us
    who back in the '80s felt very strongly that we should defeat
    the Sandinistas. I was one who even voted to mine the harbors
    of Nicaragua. So we were helpful with regard to defeating
    Communism down there, the people in Nicaragua were very helpful
    allowing the Contras camps to operate, which I think was very
    important.

                              habitat for humanity

        So for those reasons and I had a daughter that was in a
    mission project down there for 2 years, up at the last year,
    and the poverty before this was so great. Two questions, one,
    the Habitat for Humanity people have come by. I think they made
    a very good presentation with regard to permanent housing that
    will last forever, and if a man or a woman owns their own home
    they are likely to stay there.
        And does this amount cover the Habitat for Humanity
    request? $50 million, 10 million a year for over 5 years
    homeownership?
        Mr. Atwood. We have been approached, as you have, by
    Habitat. They have made a very large request of $50 million for
    5 years. We want to work with Habitat. We have the same
    feelings towards them that you do. We want to use their
    expertise. We have a lot of private donations that are also
    coming in to build housing of various types. We also have to
    build houses fast. We are now in a transitional phase where we
    are trying to get people out of schools.
        We are using some Office of Foreign Disaster Assistance
    resources to make temporary shelter for those people so that we
    can reopen the schools. But then we are going to build under
    this proposal 6800 homes, and those will be permanent homes.
    Now, we are looking at Habitat's proposal. We are looking at
    other proposals by other nongovernmental organizations. And we
    are looking at private donations to try to do that. We want to
    do it as quickly as possible and for as little cost as
    possible, so all I can say to you right now is that Habitat has
    a wonderful reputation. And we are looking at that proposal and
    seeing how it fits with other proposals that we are receiving.
        Mr. Wolf. Good. I hope they will be included. They will
    leverage much more. They are also planning to bring a large
    number of American teams down there for a period of time. sweat
    equity.
        Mr. Atwood. Right.

                            mine detention dog teams

        Mr. Wolf. I am glad to hear that. Secondly, there was a
    request for 1.2 million for mine detention dog teams. The
    floods came and the water came and many of the mines have
    shifted and moved. And if you were in El Salvador during the
    '80s, you would see many young kids with arms off and legs off
    going down to the rivers and all. Is that part of this inquiry?
    Are you going to put that money in for mine detection dog
    teams?
        Mr. Atwood. We have done some of this work with the U.S.
    military that is on the ground. We don't have a specific item
    in this request for 1.2 million for mine removal, but we have
    this request for the New Horizons project where U.S. military
    will continue to work with us, mostly on infrastructure. But
    they will be in the region for some time to come and they have
    the best facilities I think for finding this.
        Mr. Wolf. You are going to be sending them to Kosovo and
    Macedonia, and I mean I think our military are so stretched
    that I really think the more we--if you would take a look at
    the requests with regard to the dog teams----
        Mr. Atwood. Right.

                             religious freedom act

        Mr. Wolf [continuing]. I think it would be helpful. Lastly,
    if you could take back or Secretary Romero, Mr. Secretary, this
    is a little off the subject, but I would like you to take this
    back, and give me an answer, if you can. Last year a group of
    us, the Congress, passed the religious freedom bill. There is
    persecution of people of faith in China, Tibet, and Sudan and
    many other places. The administration did everything they could
    to fight the bill. They fought it tooth and nail. They were up
    here lobbying against it. It passed. And the President made a
    statement about it and at the National Prayer Breakfast. He got
    up and said how wonderful it was that this bill had passed.
    There was no money in the budget request, the FY 2000
    appropriations request by the administration.
        Can you tell me why the administration did not request the
    money when the President got up before 3,500 people saying how
    wonderful this bill was, and it passed in October. November has
    gone by, December has gone by, January has gone by, February
    and no request?
        Mr. Romero. Mr. Wolf, I would like to be able to respond to
    that question, but I can't. I know about the bill and I know
    about the legislation. We have restructured ourselves to
    address the concerns of Members of Congress on religious
    persecution and religious freedom. But I can't tell you where
    we are.
        Mr. Wolf. Can you get--the President claimed credit for it
    and said how wonderful it was and announced that Bob Seiple had
    been hired to be there and then has put no money in the budget.
    It is sort of big hat, no cattle. You can't talk about
    something, one, oppose it, then take credit for it and now not
    put the money in.
        Could you get back and have somebody from the Department
    get back to me. We write letters, then I get letters from
    Barbara Larkin and different people, but never from the people
    I write to on this issue. So somebody get back and tell us when
    you will put the money in and come up and support it. Do you
    support it in the supplemental, because Christians are being
    persecuted today in China, Catholic priests are in jail, in
    Sudan we see what is going on. It should be part of the
    supplemental.
        So we want to get a letter from the Secretary saying, we
    want this in the supplemental. If you could do that, I would
    appreciate it.
        Mr. Romero. Okay.
        Mr. Wolf. Thank you very much.
        Mr. Callahan. Thank you.
        Mr. Jackson.

                          nicaragua and honduras debt

        Mr. Jackson. Thank you, Mr. Chairman. Let me thank you
    also, gentlemen, for your testimony. A number of countries have
    canceled their outstanding debts with Nicaragua and Honduras
    because these countries' economies have been devastated and
    their ability to pay is even less than before. In addition to
    granting a 3-year moratorium on debt service payments for
    Nicaragua and Honduras, the administration is requesting 16
    million in order to increase from 50 percent to 67 percent the
    amount of bilateral debt cancellation for Honduras.
        The U.S. has also announced, in accordance with the Paris
    Club Accords, that we are prepared to provide a 90 percent
    reduction of Nicaragua's bilateral debt. This is laudable. Yet
    according to Oxfam America, it would take approximately 25
    million to cancel the remaining debt owed to the U.S. by these
    countries.
        Religious and nongovernmental organizations have argued
    that cancelation of the remaining debt will not only free up
    resources for development, but would enable the U.S. to
    encourage similar action by creditors with far larger
    outstanding debts.
        Can you give us an explanation why the administration has
    not requested the additional funds to fully cancel the debt
    Honduras and Nicaragua owed to the U.S. and whether or not you
    see this as a worthy goal?
        Mr. Atwood. Mr. Jackson, we try on debt-related questions
    to work with the international community to which that debt is
    owed. I personally sympathize with the thrust of your question.
    We have, however, gained agreement within the international
    community to put in effect a program called the Highly Indebted
    Poor Countries initiative, wherein we would be able to forgive
    a great deal of debt in exchange for countries reforming their
    economies.
        We believe that a great deal of progress has been made in
    Nicaragua and Honduras and we, therefore, support review of
    their eligibility for this Highly Indebted Poor Countries
    initiative. But we try to do things in a coordinated fashion so
    we are not out there alone forgiving debt.
        We have tried to convince the international community to do
    as much as possible to reward economic reform, and that is our
    position. It is reflected in the requests that you have before
    you as well.

                                 ACCOUNTABILITY

        Mr. Jackson. I have just another question, Mr. Chairman. On
    the issue of accountability, many people in the region are
    concerned that international assistance will either be misused
    for personal gain or the certain affected areas will not
    receive aid because they were affiliated with opposition
    parties.
        I wonder how these problems have been dealt with since the
    emergency and what mechanisms are in place or will USAID ensure
    that U.S. assistance is used in a transparent manner that
    reaches the populations in need regardless of their political
    alliances? Would you consider the information or the formation
    of a special multilateral commission including recipient and
    donor governments and members of national and international
    civil society groups that would monitor the distribution of
    resources and implementation of these reconstruction plans?
        Mr. Atwood. I would obviously have to study such a
    proposal. We would not like to see a lot of these resources
    deflected, but we agree with you, that the aid should not be
    politicized at all. And we have proposed to not only work with
    the comptroller generals of these countries, but with other
    nongovernmental organizations. In the case of Nicaragua, the
    President of Nicaragua, recognizing that there had been
    politicization of reconstruction aid in the past, has asked the
    Catholic Church to play a major role, and we will work with
    them as well.
        We also plan to put some resources into programs to create
    Inspectors General in these countries so that they can audit
    the resources that are going in. It is a serious problem and
    the worst thing that could happen would be for any of this aid
    to be diverted from the people who need it the most. I think
    the governments recognize that. But we are going to take extra
    steps to make sure that we can audit and monitor all of the aid
    that is going on.

                                 small farmers

        Mr. Jackson. I have one final question, Mr. Chairman, I
    understand we have another round. But Hurricane Mitch
    disproportionately affected the most impoverished sectors of
    Central America and within that disproportionately affected
    small farmers. I am interested in what plans are in place to
    prioritize rural development and increase small farmers' access
    to land and to credit in light of the unfortunate events that
    have occurred there?
        Mr. Atwood. It's an absolutely crucial part of this. These
    are agricultural countries. Rural development is a crucial part
    of our proposal. We are going to create the capacity for
    providing for 70,000 microenterprise loans. A lot of that will
    go to agricultural people who need the resources to start their
    crops to begin, Mr. Jackson.
        Mr. Jackson. Thank you. Thank you, Mr. Chairman.
        Mr. Callahan. Mr. Packard.

                            army corps of engineers

        Mr. Packard. Thank you, Mr. Chairman. Let me ask a specific
    question, and then I will get into some general things that I
    would really like to have your response to. It is my
    understanding that AID has designated the Army Corps of
    Engineers to assist the Central American countries. What will
    be the role of the Corps in that calling?
        Mr. Atwood. They will continue to play a crucial advisory
    role in helping us assess the proposals that are made for
    infrastructure repair in the region, Mr. Packard.
        Mr. Packard. Are there private sector companies that are
    also sought for that kind of role?
        Mr. Atwood. Yes, right.
        Mr. Packard. How will the Corps interface with the private
    sector or are we asking government agencies to preclude the
    ability for private sector companies to be involved?
        Mr. Atwood. No. In fact, while we are asking for special
    authorities to move more quickly, what we have tried to do and
    what the Corps has helped us to do is to prequalify contractors
    that can work with us, people that have already done this type
    of work. We can move a lot more quickly if we do it that way.
    But we very much want not only to engage private contractors in
    this work, but also to receive their donations of free time and
    in-kind contributions to do this work as well.
        Mr. Packard. We hope that government doesn't look for ways
    to take what normally would be a private sector role.
        Mr. Atwood. In fact, we have $3 million in this request so
    that we can further exploit the private sector in terms of
    their willingness to give donations but also to participate
    with us generally in our projects and contracts.

                                     loans

        Mr. Packard. Do you have any idea, Mr. Atwood, what the
    total amount of the package, $956 million, I believe is the
    total package, close to a billion dollars, how much of that are
    loans, or categorized as loans, any of it?
        Mr. Atwood. No, all of the reconstruction assistance within
    it is grant assistance.
        Mr. Packard. Grant assistance.
        Mr. Atwood. That is right.
        Mr. Packard. None of that amount is planned for loans. How
    have the loans of the past, some of those which you wish to
    forgive, how have they been scored? Are they scored at the time
    the loans are made? How are they scored in reference to when
    they are made and when they are forgiven?
        Mr. Atwood. Well, this is a question that relates to the
    appropriations that we are asking for to provide for the debt
    relief. They are scored now as a result of the best assessment
    by the Treasury Department of what the repayment likelihood is.
    And we have a representative here if you would like to know
    more about the details. But for the most part, they are based
    on the economic situation of the country at the time when we
    want to provide the debt relief.
        They are scored on the basis of what the appropriations
    impact would be to forgive a certain level of debt. That is
    what the chairman and I were talking about when he said $19
    million to forgive $75 million of debt. That is our current
    calculation. Obviously, you have access to CBO's calculations
    as well. That is OMB's calculation and Treasury working with
    them on the debt question.
        Mr. Packard. How were they scored when the loans were made,
    say when the $75 million loan was made, how was that scored at
    the time it was made? Is it scored against that particular
    year's budget?
        Mr. Atwood. It was indeed at that time, yes.
        Mr. Packard. And is there any portion of that amount that
    is scored again when it is forgiven, except the $19 million of
    additional cost apparently used to process the forgiveness?
        Mr. Atwood. To offset the forgiveness, that is right.

                                   corruption

        Mr. Packard. I am not thoroughly clear on just how it is
    done. But I will review it further with my own staff. The last
    item I would like to bring up, Mr. Chairman, is the corruption
    issue, and that has been an issue that I have been concerned
    about, not just in Central America, but around the world.
        You have significant funds in this proposal for corruption
    and crime activities and programs and training and the
    educational programs--it is anti-corruption activities. How
    much--has anyone ever done any estimates of how much of our aid
    packages over the past have been sucked up into corruption
    activities?
        Mr. Atwood. This is going to sound like a self-serving
    answer, but I think we do a better job because we have GAO and
    we have our own Inspectors General and the like following our
    money. The problem we have had in the past working in countries
    like Zaire is that they take our money, they spend it on what
    we want them to spend it for, health or education or whatever,
    and then it is fungible. And so what they then do is to take
    the receipts they got, for example, from the copper mines in
    Zaire, send that to the Swiss bank account of Mr. Mobutu.
        So if you are working in a country that has that kind of a
    cancer of corruption, while we can track our money pretty well,
    the fact of the matter is, you are not helping development,
    because the policies and the rule of law are not established
    and there is so much corruption that there is cynicism and an
    absence of development. That has been the problem.
        Mr. Packard. So, as we carefully monitored our particular
    aid money and actually can make fairly decent accountability,
    it does not prevent the corruption from taking place--from a
    more complex point of view?
        Mr. Atwood. That is right. And especially since the end of
    the Cold War, we try not to work with corrupt governments, and
    where there is corruption--and there always is some degree of
    corruption--we are trying to help strengthen institutions like
    the $400,000 agreement with the Comptroller General in Honduras
    to enable them to contract with an international accounting
    firm to enhance oversight and working to try to create
    Inspectors General and the like in these governments.
        Mr. Packard. You may be aware that 2 years ago this
    committee fenced a portion of the money with the aid that went
    to Russia and to the Ukraine----
        Mr. Atwood. Yes.
        Mr. Packard [continuing]. Until they certified by our
    Secretary of State that there was progress made in corruption
    and anti-corruption activities. I am aware that this is
    humanitarian--much more of a humanitarian effort. What kind of
    a problem would it create if we required from these Central
    American countries that progress be made on corruption before
    they would get all of the funds? Would that create serious
    problems?
        Mr. Atwood. Well, I have personally talked to each of the
    presidents in the four countries in Central America about this
    problem. They are fully aware that their future is going to
    depend on whether or not these funds are spent well and for the
    people. They have created comptroller generals offices. We are
    doing everything we can now to strengthen those capacities of
    those countries.
        I think the higher priority right now is making sure that
    the people of those countries have enough hope to stay home and
    work to reconstruct their countries. If we don't move fast on
    this, we are going to see a lot of them going to other places.
    I have heard of one story about several people, 40 young men
    from one village going across the border to Costa Rica because
    they were looking for work. Obviously a lot of them may be
    heading to this country.
        We have got an urgent problem we need to address. I do
    think that we are taking all of the steps necessary. I would
    think that what you are proposing would be something we might
    consider for the fiscal year 2000 regular appropriation. I hope
    we can move as quickly as possible with this emergency
    supplement.
        Mr. Packard. Our heart does go out to the people. It is the
    leaders that participate in corruption activities that siphon
    away these monies in many instances.
        Mr. Atwood. That is right.
        Mr. Packard. And, I would hope that your agencies would
    look for ways, appropriate ways, to put the pressure on the
    leaders, those that actually participate in the corrupt
    activities and thereby not allow these funds in total to filter
    through to where the need is the greatest.
        I will not let up on the corruption issue because I think
    it is such a widespread matter and for the American taxpayers
    to end up supporting corrupt activities in any country through
    our aid programs I think is an absolute tragedy. But hopefully
    you will be consistently aware of it. Thank you very much.
        Mr. Atwood. It is a cancer that affects development,
    negative development----
        Mr. Callahan. With his remark, it is my understanding
    Congressman Packard that only $30 million of these monies can
    be considered for cash grants anyway; is that correct?
        Mr. Atwood. That is right.
        Mr. Callahan. So only $30 million of this package can be
    utilized for cash grants to governments, which we want to
    protect the 30 million also. But there is a check and balance
    there, because the 30 million cannot be spent unless Brian
    Atwood signs a check, even by the Honduran government. And I
    see Mark Snider back there and----
        Mr. Atwood. That is right.
        Mr. Callahan [continuing]. We can't reform all of Central
    America in this package, but their judicial system leaves a lot
    to be desired, especially in Honduras. And they are very
    fortunate, incidentally, that Mr. Valle is out of jail down
    there or they would be having some problems with me. So it is
    very fortunate that--the fact the hurricane blew the jail down,
    maybe that had something to do with it.
        Ms. Kilpatrick.
        Ms. Kilpatrick. Thank you, Mr. Chairman. I first want to
    associate my remarks with your comments earlier in terms of
    detail. I asked my staff to give me detail or ask for it and
    there is none. It is quite a large sum of money here, even the
    30 million that you just mentioned, that is a lot of money. And
    there is very little detail and I hope we get more of that as
    we move through this process.
        I too am concerned, as Mr. Packard is, about the
    corruption. It bothers me that after an hour and a half talking
    about Central America that Mr. Atwood would go to Zaire and
    talk about its corruption, and it is corrupt with Mobutu and
    others and they are trying to correct that themselves. But we
    have major corruption in the countries where we are dealing
    this morning. Colombia, a major drug trafficker.
        I served on Banking last session and heard horrendous
    testimony from Colombian citizens, themselves in this country
    under protection. It bothers me that they are going to get 10
    million of our U.S. dollars, as devastated as the country is
    and as terrible as the tragedy was. They flood our streets of
    America with drugs, some 650 tons in 1996,Colombia, Mexico,
    Peru, Bolivia and a couple other countries. That we are now turning
    around and giving them our U.S. tax dollars when in fact they have
    money in their own coffers, much of it from the U.S. illegally, bothers
    me.
        Corruption, as Mr. Packard spoke of, bothers me. The
    natural devastation that these countries faced in Central
    America was a tragedy, and as you mentioned, there were
    approximately 9,000 lives lost and people missing. It is quite
    a tragedy.
        Mr. Packard. Would the gentle lady yield for just a
    moment----
        Ms. Kilpatrick. Certainly I will.

                                   cash basis

        Mr. Packard [continuing]. As a follow-up. Do we deal with
    these projects, these assistance programs and projects in any
    country on a cash basis? Do we just give them the money and/or
    do we pay for the work after it is done?
        Mr. Atwood. Over 70 percent of all the work that we do at
    USAID is done through American contractors and nongovernmental
    organizations. So, no, we are doing this work with our
    contractors for the most part.
        Mr. Packard. Are they reliable? Does corruption stem from
    our own contractors?
        Mr. Atwood. We have got some ways to get at them if they
    are not reliable.
        Mr. Packard. Thank you. Thank you, ma'am, for yielding.
        Ms. Kilpatrick. You are welcome. Reclaiming my time, quite
    certainly I know that is elementary. I know that we deal with
    general contractors and others who are certified and citizens
    and all of that. That wasn't where I was going. I was going
    with the 3, 4 steps removed where that sometimes is turned
    around and gets into illegal market. But notwithstanding the 10
    million, the direct appropriation, which is a small amount in
    the total package that we are dealing with this morning, I am
    confident, Mr. Atwood, that your staff as well as the Secretary
    will see that these U.S. dollars are put to good use and
    rebuilding does actually go on. I just want to register my
    concern about what I see happening from Central American
    countries and others as it relates to our own U.S. economy.
        I want to talk just a little bit about the women. One-third
    of the households in the countries are headed by women, some of
    them in business with microloans and I am happy to hear that
    OPIC is going to be stimulating the economy and doing more of
    that.

                           women and microenterprise

        What exactly can you tell me that you have done that would
    address the needs of the women who many are heads of households
    raising children, who many times their businesses are on the
    back end of the farming process or planting season. They
    actually market after the crops are grown, I might add.
        What kind of special steps are being taken to address some
    of the problems that women in those countries are facing this
    tragedy occurred?
        Mr. Atwood. I agree with your analysis exactly. It is
    important that we are able to help, in particular, the women
    who are head of households. But they also are the backbone of
    these countries. The microenterprise loan program will provide
    some 70,000 loans. That is in this request. About 80 percent of
    those loans will be going to women. This will help people start
    up small businesses again.
        So we know that the women are playing a central role as
    community leaders. I have seen it with my own eyes as relief
    workers, as head of small and micro businesses and often
    obviously as the heads of families. We recognize that
    leadership role and want to see it continue in this
    reconstruction process. So it is very, very important. 80 to 90
    percent of our microenterprise loans will go to women.
        Mr. Romero. Let me also add, if I might----
        Ms. Kilpatrick. Yes, please.
        Mr. Romero [continuing]. The CBI enhancements, when that
    comes out, will directly benefit women, because you find that
    most of the employees in textile industries down in Central
    America are women and it does help.
        Ms. Kilpatrick. I was going to lead right into the CBI
    initiative that you mentioned without being specific about it.
    Are you able to share with us this morning some additional CBI
    initiatives that we will see come forward?
        Mr. Romero. I wish I could. Unfortunately, we are still
    engaged in looking at all the ramifications, including budget
    ramifications. I am just not in a position to be able to give
    you much more than that.
        Ms. Kilpatrick. How soon might we see some?
        Mr. Romero. I am told shortly, I am hoping within the next
    week.
        Ms. Kilpatrick. In government that is anywhere from 5 years
    to 10.
        Mr. Romero. We are talking a matter of days and weeks
    perhaps.
        Ms. Kilpatrick. Thank you. And then, finally, we mentioned
    Honduras, Nicaragua, Guatemala, El Salvador, the Dominican
    Republic and other Caribbean countries. What countries other
    than Haiti is in that Caribbean loop that would be considered
    for the assistance?
        Mr. Atwood. Haiti for sure and some of the eastern
    Caribbean nations. Do you have the list of those? I better not
    guess.
        Ms. Kilpatrick. If he can find that.
        Mr. Atwood. Saint Kitts and Nevis would be one.
        Ms. Kilpatrick. Saint Kitts.

                                separate account

        Ms. Kilpatrick. Finally, Mr. Chairman, as I was reading
    much of this last evening you mentioned about the appropriation
    that would go into one account and then money would be drawn
    down from it as needed. Tell us how would that operate. How
    does that accounting work? I like Mr. Young's suggestion about
    the separate account, and I heard you say you are going to look
    into that. I understand it has been done in the past. How does
    the money flow once it is appropriated?
        Mr. Atwood. This is the $30 million balance of payments
    support for Honduras. It would be placed in a bank account, and
    we would obviously be able to monitor the fact that it would
    only be used for payment against their debt with the
    international financial institutions. At the same time, they
    would agree to create an equal amount of local currency, $30
    million worth of local currency, which is quite a bit to do
    reconstruction projects in Honduras.
        Ms. Kilpatrick. That is on the 30 million that you
    mentioned. But of the 620-some million, a portion of it comes
    back to our Federal agencies, I understand that.
        Mr. Atwood. Yes.
        Ms. Kilpatrick. What is left, is it also put in an account
    as you mentioned?
        Mr. Atwood. No, the bulk of it would be managed by USAID.
    We will do competitions for projects, infrastructure projects,
    health, education or whatever. American NGOs will participate
    in this as well. We would manage theresources. If another
    government agency had a capacity that we didn't have to do this work,
    for example, HUD, to do some work in the housing area, we would
    transfer money to them under the provision of section 632 of the
    Foreign Assistance Act.
        Ms. Kilpatrick. I was thinking more of replenishing DOD,
    for example, who are already saying they didn't get enough.
        Mr. Atwood. There are resources that are being requested to
    replenish what DOD has expended under other accounts to help us
    in this crisis.
        Ms. Kilpatrick. DOD means the money we have appropriated or
    in this supplemental being appropriated to them is not enough
    they have spent more, but this is what we are asking for them;
    is that right?
        Mr. Atwood. They have drawn down on other accounts that
    weren't initially appropriated for the specific purpose of
    helping in an emergency in Central America, and we are asking
    for resources to replenish those accounts.
        Ms. Kilpatrick. Thank you. Thank you, Mr. Chairman.
        Mr. Callahan. Thank you.
        Mr. Knollenberg. Thank you, Mr. Chairman.
        Thank you, Mr. Atwood, and, Mr. Romero, for your testimony
    this morning. By the way let me just compliment the comments
    you made, Mr. Romero, regarding the administration's dedication
    to the enhanced CBI legislation.

                             microenterprise loans

        You mentioned CBI's impact on Women. I think that is
    significant. I also think that it can be beneficial for
    American workers and businesses as it opens up those new
    markets for American goods. I am glad to hear that.
        Let me direct my attention to the comments on the
    microcredit issue. I know, Mr. Atwood, in your testimony, you
    mentioned that there are some 70,000 microenterprise loans in
    your request. Half of all Microcredit money should be directed,
    as we indicated in the omnibus appropriations bill, to the
    poorest, particularly to women, and with loans under $300.
        When I look at the numbers in your statement, am I to
    presume that 70,000 microenterprise loans, if we average them
    out at around $300 a piece, and when I start doing the math on
    that, it looks like if it were as much as $300 per loan, it
    would still be about 21 million total.
        There is 283 million dedicated to roads, to infrastructure,
    to building the bricks and mortars, et cetera. And obviously,
    my understanding is that the economy down there has been
    devastated and that women, which has already been mentioned,
    suffer greatly, with over one-third of them as the head of the
    household. It seems to me that some attention ought to be
    riveted on getting the money into their hands.
        What can you tell me about rebuilding the marketplace? You
    have mentioned the bricks and mortar in depth, but I think you
    touched just briefly on the marketplace side of it. That must
    be rebuilt as well to bring it back to what it was and, as you
    want to do, build it and make it even better.
        Could you give us just a little breakdown of how much of
    that money will end up in the hands of those who nee it such as
    the women that traditionally have gotten loans of under $300 in
    the Microcredit program, what amount of money will really be
    dedicated to them?
        Mr. Atwood. Mr. Knollenberg, I will be very happy to
    provide for the written record a lot more detail, but let me
    just comment briefly on your question. A lot of small
    businesses were damaged or ruined and a lot of people are going
    around to banks in Honduras and Nicaragua and elsewhere that
    are experiencing major liquidity problems and would have even
    if this disaster hadn't occurred.
        So we are basically going to be working through those banks
    to try to help provide credit to these small businesses. That
    is one aspect of it. The other are the basically
    microbusinesses that where most of the women are participating
    in these businesses.
        They obviously need to get back on their feet and have
    credit so that they can begin their lives again. But the
    infrastructure is equally important, because they can't get
    their products to market in the agriculture sectors unless they
    can repair the bridges and the roads to get them to the ports.
    So all of this works together.
        Now, we are not doing this alone. We are trying to take
    advantage of our comparative advantage. We do microenterprise
    lending programs better than any other country, in my belief.
    There are a lot of others that are going to be participating.
    And we have already put $5 million in the microenterprise and
    encouraged the IDB to put up $12 million for a total of $17
    million so we could start this already. This is in addition to
    what we have already started.
        Mr. Knollenberg. Mr. Atwood, can you tell me, or provide
    for me in writing, how much of this money is going to be
    dedicated to the women? If we are talking about $70 million
    microenterprise loans, what number does that come to when you
    factor in the dollar amounts of those loans?
        Mr. Atwood. I will have to give you that for the record,
    Mr. Knollenberg.
        [The information follows:]

                       Microenterprise Funding for Women

        In all geographic regions of the world, women have comprised more
    than fifty percent of the clients receiving financial services from
    microfinance institutions. In Latin America two thirds of the clients
    receiving microfinance credit have been women; in individual
    microfinance institutions in Central America this percentage is often
    much higher. Moreover, women have traditionally comprised the majority
    of the people living under very poor conditions, who due to the
    precarious situation they were living under suffered the most loss due
    to Hurricane Mitch. Therefore, we anticipate that a similar proportion
    of the microentreprenuers receiving loans under $300 will be women.

        Mr. Knollenberg. I think it is important that we continue
    to stress that this money must go to women, through the
    microcredit program, which I think has been very effective. You
    certainly must dedicate resources to rebuild the bridges and
    the roads and the infrastructure. But you also have to
    literally rebuild the marketplace.
        Mr. Atwood. Absolutely.
        Mr. Knollenberg. And that is done by helping the people,
    and particularly the women. I would expect then to hear from
    you as to how much money will be targeted to that particular
    program.
        Mr. Atwood. Absolutely, Mr. Knollenberg.
        Mr. Romero. If I might just add, I have been chief
    administrator in El Salvador and I have seen how
    microenterprise in village banking works at the microlevel to
    really turn around the countryside and engage towns and rural
    development that just didn't exist before. But one of the
    target groups that probably is most at risk with respect to the
    likelihood of illegal immigration to the United States are
    young males and infrastructure projects that Brian was talking
    about beyond the ability to be able to move about to get
    emergency health care, to do the normal kinds of things that
    you need to do with respect to transportation, and the
    transportation network does provide income for that most at-
    risk target group.
        Mr. Knollenberg. Thank you. Mr. Chairman, thank you.

                                      debt

        Mr. Callahan. Thank you, Mr. Knollenberg. I am still having
    difficulty with this $30 million. I know when we are talking in
    terms of almost a billion dollars, it doesn't sound like much.
    I just wonder, Brian, do you know or, Mr. Romero, any precedent
    to this? Do you ever recall any type of precedent whereby we
    have given this authority to anyone to pay debt owed by other
    countries to multilateral development banks or to the World
    Bank or to the IDB--has this ever been done, to your knowledge,
    in the past or are we establishing a precedent?
        Mr. Atwood. We did this right after the peace agreement was
    signed with Guatemala. They had some very serious fiscal
    problems. They satisfied serious commitments to use their own
    tax revenues in future years for paying to implement the peace
    accords. We managed to protect the money so that it was spent
    for what we intended it to be spent for. And it was a
    successful example, I think.
        Mr. Callahan. There is just something about it that doesn't
    pass the smell test. You know, I understand where you are
    coming from and I understand what your mission is. But we just
    forgave about 50 percent of Nicaragua's debt, I think a few
    months before the storm. So we are--we are forgiving debt. Is
    there going to be any moratorium placed upon the government to
    stop them from borrowing more money?
        I mean are they going to take a new financial statement to
    these same banks and say, now, our financial situation is so
    improved that we don't owe any money, will you give us some
    more money. Is there any moratorium placed on these governments
    to stop them from falling right back into the same economic
    situation?

                                  eligibility

        Mr. Atwood. The Heavily Indebted Poorer Countries
    initiative issue that I raised before, neither of these
    countries has yet been declared eligible, though we strongly
    support them in their quest for eligibility and believe that
    there will be action taken soon on that question. That would
    get them into a situation where they have to, continue to show
    over the years that they are reforming their economies and
    making them more transparent and accountable so they wouldn't
    fall once again back into debt. That is crucial.
        I mean there is an emotional tug with a lot of people,
    including myself, that says why should these new democratic
    governments have to suffer through paying off the debt that the
    Sandinistas incurred, for example. And we all feel that. On the
    other hand, the international community has to have standards
    about these things. And we don't want to just forgive debt and
    then 10 years later have a big debt burden once again that has
    to be forgiven. So we are conditioning it on the basis of
    economic reform.

                                   nicaragua

        Mr. Callahan. Well, our limited research into this matter,
    you know, this just came up with respect to this new request.
    But with respect to Nicaragua, it was the Sandinistas who
    borrowed this money, they cannot account for what they did with
    the money, they borrowed the money and it went to something, we
    don't know what, nor does the current government of Nicaragua
    know where it went.
        So we have to assume that there had to be some corruption
    involved there. So they took the money and they left or they
    put it in another bank. Now, we are going to come along and we
    are going to forgive this debt. And I know I am oversimplifying
    this, but we are going to forgive them their debt, give them a
    balance sheet that now says they are a solvent country, which
    permits them to go back and borrow more money.
        We are not giving them direct grants, but by paying off
    their debt, we are giving them the ability to go and borrow
    more money for which they would not have to be accountable to
    anybody but the people of their own country. They have not paid
    much attention to that type of accountability in previous
    years.
        I just want to tell you that the $30 million is still very
    much in question, that I am not totally sold on that. I know
    where you are coming from, and I certainly appreciate your
    motives. But I am just concerned about this precedent that we
    are beginning to establish by creating an ability of a nation
    that we are getting out of debt to go right back into debt.
        The assistance for Central America, Brian, we have talked
    about this and talked about this, we have harped on it, but put
    restrictions on you, we said you couldn't spend more than a
    certain percentage of your money in Haiti. I understand some of
    this money is going to Haiti, I hope there is an explanation of
    that in your explanation of the request.
        But I noticed for the fiscal year 2000, a reduction of $12
    million had been requested for Central America. And are we
    saying that this money that is going to be spent, which is
    going to be spent in the next 18 months, and I think it should,
    but why would the administration come along and say that this
    is all of the money we are ever going to need in Central
    America?
        Why wouldn't you recognize that if we are going to rebuild
    this area of the world, if we are going to build new roads,
    build the new schools, build the new homes, provide medical
    facilities, that we are not going to provide future assistance
    to help this country? Is it all of their woes are going to be
    over with in 18 months? Especially if you are going to South
    America, why is there a $12 million reduction in the assistance
    to Central America if, indeed, we have finally recognized how
    important this area of the world is.
        Mr. Atwood. Mr. Chairman, we would hope that we can
    disburse all of this money prior to the end of the fiscal 2000.
    That will be an awful lot of activity in this region. Then we
    would hope that we could continue the regular projects and
    programs that we have in place in the countries.
        Mr. Callahan. There was a reduction in the requests for the
    regular programs. That is my point, Brian.
        Mr. Atwood. I can't give you the details about Central
    America. But the overall request for Latin America is larger
    than it was in fiscal 1999. You did assure that there were more
    monies available for Latin America.
        Mr. Callahan. I can assure that there is going to be more--
    --
        Mr. Atwood. It depends on what you are comparing it to.
        Mr. Callahan [continuing]. There will be more money.
        Mr. Atwood. Maybe perhaps you could consider Brazil as
    well, Mr. Chairman.
        Mr. Callahan. Yes, I understand that. I would have to go
    down there and look the place over before I give them any more.
    If you had an embassy down there as nice as the one in
    Argentina, I might spend a lot of time down there.
        Mr. Atwood. There is not such an embassy.
        Ms. Pelosi. Maybe it is finished.

                              Segregation of funds

        Mr. Callahan. Chairman Young expressed an interest in sort
    of segregating this fund, and while I have not put a lot of
    thought into it I like the idea. And I wish you would look at
    the possibility of that, of segregating these funds, because we
    want to make certain that the monies we appropriated last year
    for Central America were spent out of your regular
    appropriation.
        We want to make sure all of this money, and I certainly
    know that is your intent and the administration's intent, to
    spend it all out of this and there will be no reprogramming.
    And the more I think about the segregating of this account, the
    more I like it, and the more it will help the administration if
    we ever have to face this again, because it will prove that we
    took the entire money and we spent it for these good causes.
        So I know time is limited there, but I think we ought to
    look very closely at the segregation of this fund.
        Mr. Atwood. Mr. Chairman, it is our intent to have it
    segregated and if you can devise a way that would give you more
    reassurance, I think people downtown would be very sympathetic,
    but we would like to see what you want.
        Mr. Callahan. We do not want to make it cumbersome upon you
    all that this money has to be deposited in this bank and the
    check. We want to cooperate with you, but at the same time I
    think it would be great if we had total accountability of how
    this disaster money was being spent. It could be, Brian--and I
    doubt seriously--that maybe we have overestimated, maybe you
    have overestimated the needs and there could be a surplus. I am
    sure we could find ways to spend it.
        But I think it would be a good idea if you could give us
    some suggestions as to how we could put this into a disaster
    account and still give USAID total control. We are not trying
    to take any of that away from you, but just for accountability,
    bookkeeping reasons it will show.

                             Notwithstanding Clause

        Finally, let me on this request for the notwithstanding
    clause on the contract. I know where you are coming from there,
    and I know the need to expedite these contracts. But this
    waiver, I just wonder if we went along, would you object to a
    reporting requirement on the use of this authority? We need to
    keep track of this. And if you are not even going to be there
    probably through most of this contractual awarding, I think the
    Congress needs some indication of what you are doing.
        We don't want to just give carte blanche authority to
    anyone that--I know that the President wouldn't submit someone
    who might not take the same concerns with government monies as
    you do, they are going to have a very difficult time finding
    someone as qualified as you. But still I think that the
    Congress should have some voice or notification of these
    contracts especially when you are going to waive these things.
    So we need to look very closely at those two things along with
    the $30 million fund for debt restructuring or debt payment.
        Mr. Atwood. Mr. Chairman, we have no problem with reporting
    on what we are doing. Our main purpose in getting the
    notwithstanding clause is so that we can identify prequalified
    contractors rather than going through the whole nine yards of
    competition, opening it up to everybody in the country. We know
    who the people are.
        Mr. Callahan. I will let you know that we should give you
    that possibility.
        Mr. Atwood. Yes.
        Mr. Callahan. But at the same time, there should come
    accountability with that.
        Mr. Atwood. Absolutely.
        Mr. Callahan. We don't want one individual having the
    authority to waive all of these without some oversight, and I
    think the Congress should do the oversight.
        Mr. Atwood. We would be happy to do that.
        Ms. Pelosi. Thank you very much, Mr. Chairman. I have a
    number of questions so I am just going to sort of rattle them
    off quickly.
        Mr. Callahan. You can have them all now.

                              Women in Development

        Ms. Pelosi. Rattle them off quickly and submit some for the
    record. I want to return to my opening statement and commend my
    colleague for emphasizing, and Mr. Knollenberg, the issue of
    women in development and how important that emphasis is. The
    administration's proposal for humanitarian assistance for
    Hurricane Mitch, Hurricane Georges and the earthquake in
    Colombia is commendable, and I think in order for us to sell it
    to our colleagues it might be helpful if you could provide for
    the committee a list for the record of anticipated transfers of
    the 621 million requested for disaster relief actually in the
    full package. Because if we are not going to mark up in
    subcommittee, we will be addressing this as members of the full
    committee, so that would be from Commerce-Justice-State as well
    or any other----
        Mr. Atwood. Anticipated transfers of resources to other
    government agencies?
        Ms. Pelosi. Right. In other words, so when we are talking
    to our colleagues we know how much money is going to Latin
    America, in terms of how much of the assistance has already
    been provided or will be provided by Federal agencies. So what
    is at risk, because we all sharethe concern about corruption.
        And may I also say that I am pleased that Mr. Packard
    mentioned that corruption is not only an issue in Central
    America, and you pointed out, someone pointed out Zaire, but it
    is a worldwide deterrent to economic growth. We all share that
    concern, but in any event, so that members can see what money
    is at risk and what is really money that is being spent by the
    Federal government.
        As far as the CBI is concerned, Secretary Romero, you keep
    referring to it and what additional assistance it could provide
    in terms of economic growth, and I would just say to the
    administration you have a long way to go to get a majority of
    votes for CBI in the Congress. We put it up under suspension
    which was almost pathetic, ludicrous, because the groundwork
    was not laid for the CBI. I don't know whether they thought it
    would just slide by. But we do watch our votes.
        And I did happen to vote for it. So I am not saying this as
    one who opposed it, reluctantly, but nonetheless I think that
    that initiative needs work, and when it is ready, I will be
    very eager to see if the improvements are made that many of us
    had hoped would be there, but just tried to give you the chance
    to move forward with it in the past. To discuss that as part of
    this package when it isn't in reality enjoying a majority of
    support in the Congress yet I think you should take heed of.
        Notwithstanding your response, Mr. Atwood, to Mr. Jackson's
    question about the $25 million, I have suggested to the
    chairman earlier this morning, before we met in this public
    hearing, that I was contemplating an amendment to the bill for
    the $25 million and I hope that the administration would be
    receptive to that and not oppose that in terms of additional
    debt relief. I just want to give you heads up on that.

                                    Colombia

        Regarding the $10 million for Colombia. Now, this is a
    question. There has been $10 million requested for earthquake
    assistance for Colombia. It is my understanding that there is
    little or no AID presence in that affected area and the needs
    there are vast. Our committee staff visited recently. Most of
    the housing and much of the infrastructure were destroyed and
    several towns also in the area have suffered a period of
    lawlessness in the immediate period after the quake.
        Given these challenges how do you intend to spend the $10
    million? And you can just give me a brief answer now and submit
    the rest for the record if you would like. Does that include a
    housing guarantee program to address the acute housing needs?
        Mr. Atwood. The $5 million--I am sorry, that is the regular
    program for Colombia. Let me see if I can answer.
        Mr. Romero. Let me, if I might, the earthquake hit an area
    that was probably one of the few tranquil areas left in
    Colombia where there was real economic activity going on with
    respect to coffee cultivation. And the President expressed his
    real concern to me that unless something was done that
    lawlessness----
        Ms. Pelosi. We are talking about President Pastrana.
        Mr. Romero. The President of Colombia, Pastrana.
        Unless something was done immediately to provide temporary
    housing and also medical care, that the situation could get out
    of hand. You saw on CNN the result of immediately afterward the
    looting and that sort of thing, the lawlessness. He is very
    concerned trying to keep this within the fabric of those areas
    of the country that are still peaceful.
        Ms. Pelosi. I share the frustration of my colleague about
    the experience with Colombia, but I am hopeful that President
    Pastrana's new administration is taking a different course of
    action.
        Mr. Atwood. Ms. Pelosi, I have the answer, and it is very
    brief. The $10 million in the supplemental will be used for the
    reconstruction of homes for the poorest groups affected, 1,150
    houses to be built and then, second, the reconstruction of six
    schools and eight health posts in this Armenia region.

                                  El Salvador

        Ms. Pelosi. Very quickly in terms of El Salvador, in a
    forum on December 15th hosted by AID, which brought together
    the private sector to talk about Mitch reconstruction, the
    President of IDB said this reconstruction represents an
    opportunity to reduce the dependence on agriculture and shift
    to the maquila. Do you share this view for the long-term
    development for the region? What steps can be taken to increase
    food security in Central America and strengthen local
    production of basic grains? As you all know, I have a large El
    Salvadoran-American population in my area. I had the privilege
    of traveling with the administrator to El Salvador at the time
    of the elections at the end of Cristiani's term, and Mark
    Schneider and I visited a sister city relationship as we were
    observing the elections. And since it came up in the course of
    Hurricane Mitch, that forum, I thought maybe it would be
    appropriate to ask that question today.

                                      Jobs

        Mr. Atwood. I will answer and perhaps Ambassador Romero,
    who has been ambassador to that country, would also want to
    respond. But I think right now this emergency supplemental is
    to deal with the devastation and the loss of jobs and crops.
    These are highly agricultural countries. And we need to deal
    with that reality today. But leaving the word maquila out of
    this because it has other implications. I do think that these
    countries need to take the path that Costa Rica has taken,
    which is to develop industries and exports that find a real
    place for high-paying jobs in the global economy.
        We are talking about software and technological links and
    things and the like. As long as they abide by the WTO
    requirements on intellectual property rights, we think that is
    the right way to go developmentally. They will always have an
    agriculture sector but it perhaps should not be as dominant as
    it is today. I don't know if you agree with that.
        Mr. Romero. I agree. I think the key to Salvadoran
    development is diversification, and it was something that was
    begun before the civil conflict broke out in the late '70s to
    which the country is moving back towards now, and I think it
    holds the key.

                                 Bishop Gerardi

        Ms. Pelosi. That is very interesting, I appreciate it. As I
    mentioned, again referring to my opening statement, I was
    hoping that the President will bring up the investigation of
    the murder of Bishop Gerardi. It remains stalled, as you know,
    with serious questions about the handling of the investigation.
        Do you know, Secretary Romero, how the President intends to
    signal U.S. recognition of the importance of resolving this
    case?
        Mr. Romero. The President has expressed his view onseveral
    occasions that justice be done in the case of Bishop Gerardi. Certainly
    we have aided or supported the investigation by the dispatching of FBI
    agents down to Guatemala and the assistance that we gave with respect
    to crime scene investigation and laboratory work and that sort of thing
    done by the FBI. And, unfortunately, it seems that the government of
    Guatemala several months later is no further along regarding who might
    have done this and what the motive might have been, but we will
    continue to press.

                                   Guatemala

        Ms. Pelosi. Well, I visited Guatemala, separate from my
    trip with the CODEL, but for this specific purpose, and that
    was what, 7, 8 months ago in July, and the administration's
    contribution to this investigation was the same as you just
    suggested now, the FBI and the crime scene information. But the
    information we have been asking for for 8 months from the FBI
    to assist in has been withheld. So I hope that there would be
    more cooperation on our part to help them solve that crime.
        Many of us as Members of Congress have conveyed to
    President Arzu our serious concern about the message that this
    sends, that the chairman of the Guatemalan report on human
    rights abuses would be killed within 48 hours, of the release
    of that report and that this investigation would still be
    stalled all these many months later. So I would hope that the
    President would not miss the opportunity to do that.
        I have one more question, Mr. Chairman.
        Mr. Callahan. I will ask Ms. Kilpatrick if she has any more
    questions. We are running out of time.

                                  Debt Relief

        Ms. Kilpatrick. Just briefly, on debt relief I think the
    chairman spoke to that earlier, debt relief and what is before
    us relieves U.S. debt only; is that right? Yes, or no.
        Mr. Atwood. I missed the question.
        Mr. Romero. There is a plan to work with the Paris Club and
    to get debt reduction across the board at the Paris Club. Both
    countries need to pass the test, and for Nicaragua it would be
    this highly indebted country test which comes with a lot of
    strictures in terms of money that they can borrow and balancing
    the budget in the future, and people particularly in Washington
    watch very closely as to what they do.
        So it is not a license to borrow more money freely.
    Honduras has to have an IMF agreement in order to qualify for
    Paris Club debt relief.
        Ms. Kilpatrick. But my point is, we are not--or can we
    actually mandate that any other countries relieve their debt
    with those countries, is this a U.S.-only and Honduras, U.S.-
    only and Nicaragua, U.S.-only and the other countries; is that
    right? Is there anywhere in our structure where you may have
    cooperative agreements with other countries to relieve debt? Is
    there such a thing that exists?
        Mr. Atwood. It doesn't exist that we would mandate. But
    there is a tremendous amount of cooperation on this issue.
    There was a December meeting hosted by the IDB with other
    countries. There will be a Stockholm meeting in May and there
    will be a lot of pressure, just peer pressure, to forgive debt.
        Ms. Kilpatrick. Peer pressure to relieve the debt----
        Mr. Atwood. Bilateral debt.
        Ms. Kilpatrick. From the U.S.
        Mr. Atwood. Yes, absolutely, we are pushing for these
    countries to be eligible for the HIPC, the highly indebted.
        Ms. Kilpatrick. Yes. Highly indebted. Finally since it is
    on the fast track, once the legislation is to the President's
    desk for signature, how soon after that will it be in the
    Central American countries? How soon will they have access to
    it?
        Mr. Atwood. Well, we have already put in place a number of
    the mechanisms we need to get started. So we plan to move right
    away. It depends on what aspect of this program. There are some
    aspects we can move even more quickly than others. But still we
    are planning to have this activity started within days after
    the President signs this.
        Ms. Kilpatrick. I understand on Saint Kitts the only
    hospital has been leveled and I was happy to hear you say that
    Saint Kitts is one of the Caribbean countries that you are
    looking at. Thank you very much. Thank you, Mr. Chairman.
        Mr. Callahan. Ms. Pelosi.
        Ms. Pelosi. Mr. Packard.
        Mr. Packard. I had to come back. I had an 11:30 appointment
    and it was canceled. I wanted to come back and ask one more
    question. I didn't want to let them off the hook totally. Does
    the money flow that we send to the individual families that
    have had their homes destroyed and the properties, and
    businesses destroyed? Is that the intent?

                            Microenterprise Credits

        Mr. Atwood. It depends on the aspect of the program you are
    talking about. If it is the microenterprise credits that we
    provide, it goes directly. We set up an institution, whether it
    is a bank or a village banking system, and we provide the loan
    and then we help them to implement a business plan and the like
    and create a network.
        Mr. Packard. Is the money loaned to the victims or is it a
    grant to the victims?
        Mr. Atwood. Again, it depends.
        Mr. Packard. Ultimately it goes through the process from
    our place to the local distribution of the money.
        Mr. Atwood. We are talking about in this supplemental
    reconstruction aid and, of course, we work directly, if it is a
    question of building a house, we work directly with the family
    to make sure that they understand what all of the implications
    are and the like.

                                    Housing

        Mr. Packard. I guess what I am getting at is are we using
    American taxpayer money to grant aid monies directly, that
    ultimately goes to rebuilding a person's home down there or a
    person's business that has been destroyed at no costs to that
    person? If that is what ultimately happens, then we treat
    foreign victims of disasters better than we treat American
    victims of disaster.
        Mr. Atwood. I see your point.
        Mr. Packard. We do not do that here in America. FEMA may
    make low interest loans to an individual who is affected by an
    earthquake, flood or hurricane, but we do not give them the
    money. They don't get to build and rebuild their home at no
    cost at the taxpayers' expense.
        Mr. Atwood. It is done the same way. There is, Mr. Wolf
    referred to the phrase ``sweat equity.'' Every one of the
    housing projects has a self-help aspect to it. So we are not
    just giving them the money and building the house for them.
    They have to participate in this and provide resources as well.
    We set up programs to make sure it is a self-help. We find
    frankly that is the only way that people will respect the
    property that they are given under these programs.
        Mr. Packard. I would hope that that would be your benchmark
    in all of these kinds of programs, is that we do not treat
    foreigners, even though they are victims of tragedy, that we do
    not treat them better than we do our own citizens that are also
    victims of tragedy with taxpayer money.
        Mr. Atwood. In fact, I think the people generally want to
    be treated with that kind of respect. The same way people here
    don't like to be on welfare necessarily. They want the self
    respect that comes from a self-help program.
        Mr. Packard. Thank you. Thank you, Mr. Chairman.
        Mr. Callahan. Mr. Secretary, Mr. Administrator, Mr. Future
    Ambassador, I thank you for your testimony this morning. Please
    get back to us as quickly as you can with these questions we
    posed to you, because we must move rapidly, and the quicker you
    get them back, the faster we will be able to move.
        Mr. Atwood. Thank you, Mr. Chairman.
        Mr. Callahan. Thank you.
        [Questions and answers for the record follow:]

               Submitted to Agency for International Development

            Questions for the Record Submitted by Chairman Callahan

        Question. According to USAID, the country-by-country breakdown
    includes $27 million for regional programs. What will these regional
    funds be used for? Will any of these funds be used for USAID operating
    expenses or salaries and overhead?
        Answer. The in-country reconstruction effort for Central America
    will be complemented by regional initiatives which address common
    problems in public health, trade enhancement, disaster mitigation,
    cross-border environmental management, and private sector outreach. In
    addition, operating expenses for USAID management of Hurricane Mitch
    activities is included in the regional funding category.
        The types of regional programs to be funded include the following:
             Establishing standardized surveillance systems which will be
            crucial to effective management and control of disease
            outbreaks.
             Assistance to small commercial producers which will have to
            consider alternative crops. USAID will assist commercial
            growers on a regional basis to explore alternative export
            markets and identify regulatory requirements and the best way
            of meeting them. Assistance will include technical assistance
            on seasonality of demand, special shipping and handling,
            particular sanitary and phytosanitary requirements, etc.
             Mitigation of a number of environmental and disaster issues
            that can only effectively be addressed on a regional basis.
            Examples includes the management of shared watersheds and reef
            systems, in which Central America has past experience. In fact,
            Central America has some of the strongest regional programs of
            any group of countries in the world. While a lion's share of
            funding for reconstruction will be provided by the multilateral
            development banks, these banks have limited grant funds
            available for the technical assistance required to develop
            programs. By programming funds for use at the regional level,
            USAID will ensure flexibility for increasing coordination among
            the banks and our programs, and for making bank programs and
            the reconstruction effort overall more successful. Regional
            funds will be managed at both the LAC Bureau in Washington, and
            by our regional mission, G-CAP, in the field.
        The budget for regional programs is as follows:

                                                                    Millions
    Public Health.....................................................  $2.0
    Economic Reactivation.............................................   9.6
    Housing...........................................................   1.7
    Disaster Mitigation...............................................   5.0
    U.S. Private Sector Outreach......................................   3.0
    Overhead Costs...................................................\1\ 5.5
                        --------------------------------------------------------------
                        ____________________________________________________

        Total.........................................................  26.8

    \1\ Does not include $0.5 million for Hurricane Georges overhead costs.

        Question. The President's request includes $3 million ``to reach
    out to the private sector in the United States * * *'' What is the
    purpose of this funding? To whom will these funds be provided? Will any
    of these funds be allocated for salaries and expenses of non-
    governmental organizations or for USAID operating expenses?
        Answer. Given the outpouring of interest from the U.S. private
    sector to assist in the reconstruction of Central America, USAID is
    working to facilitate the targeting and channeling of donated goods and
    services from private donors, coordinate the delivery of donations, and
    help monitor their distribution in Central America.
        USAID is currently working with a U.S. contractor to track the
    universe of donations and serve as a clearinghouse/facilitator among
    donors, USAID field missions, NGOs and needs in the field. The $3
    million will be used to ship these donations from the U.S. to Central
    America. USAID has already received one unsolicited proposal from a
    U.S. NGO to undertake such an endeavor. Any grant provided to an NGO
    would be performance-based contract that would partially cover overhead
    costs, although no funds will be used for USAID operating expenses.
        Question. The President's request would provide the USAID
    administrator a broad waiver of existing contracting authority.
    Further, the supplemental request includes $1 million to employ
    personal service contractors to manage the program. Please justify the
    need for this broad waiver authority. Please provide a list of laws
    that USAID anticipates waiving with this authority.
        Answer. The Administration is requesting special authorities to
    expedite the procurement process in order to ensure that our assistance
    is provided as quickly as possible. Given the emergency nature of this
    supplemental, time is of the essence in helping the stricken areas.
    That is why the proposed supplemental establishes a September 30, 2000
    limit for obligation of these.
        Under the circumstances, we cannot afford to wait the normal 6
    month period for full and open competition. By prequalifying eligible
    bidders of goods and services, we expect that assistance can be
    provided in some cases in less than half the normal time, saving
    between 6 weeks and 3 months, depending on the complexity of the
    procurement. The major time savings would result from not adhering to
    the wide range of advertising provisions in the Federal Acquisition
    Regulations and not evaluating large numbers of firms which could
    respond to our procurement bulletins. It is not contemplated that
    implementation of the reconstruction program will require, nor do the
    special authorities provide for, a waiver of the Buy-America Act.
        The December 15 Call to Action Conference, hosted by USAID and the
    White House, included over 400 companies which gathered to discuss ways
    our government, the private sector, and American citizens can work
    together to assist generously with relief and reconstruction. Follow-up
    activities have served to identify the capabilities of these and other
    firms which have expressed interest in the reconstruction process. We
    intend to factor this information into the prequalification phase of
    the procurement process.
        As has been suggested by the Subcommittee, USAID is perfectly
    willing to advise Congress whenever these special authorities are
    invoked to expedite the procurement process.
        Question. Please describe previous occasions in which the Congress
    has provided USAID or the Department of State this type of waiver of
    existing contracting laws?
        Answer. USAID's Office of Foreign Disaster Assistance (OFDA) and
    Transitions Initiatives (OTI) operate under broad notwithstanding
    language on a regular basis. These authorities are not limited to
    procurement procedures as is the case for the proposed emergency
    supplemental for hurricane reconstruction. In addition, in every other
    supplemental appropriation enacted for disaster relief, rehabilitation
    and reconstruction this broad notwithstanding authority has been
    included. In addition, the Agency has had special authorities under the
    SEED Act for implementation of its programs in Eastern Europe and the
    New Independent States.
        Question. According to USAID, up to $30 million would be made
    available for balance of payments support to the Government of
    Honduras. These funds would be used by the Hondurans to pay bilateral
    and multilateral debt. How much does the government of Honduras owe to
    multilateral and bilateral creditors?
        Please list to whom these debts are owed and in what amount.
        Answer. As of the end of 1998, the Government of Honduras owed
    multilateral and bilateral official creditors a total of $3,518
    million, distributed as follows:

    Multilateral:                                                 In million
        IMF...........................................................   $46
        World Bank....................................................   774
        IDB...........................................................   990
        Central American Bank for Economic Integration (CABEI)........   409
                        --------------------------------------------------------------
                        ____________________________________________________

            Total..................................................... 2,219
                        ==============================================================
                        ____________________________________________________
    Bilateral:
        U.S. Government...............................................   154
        Other Paris Club..............................................   920
        Other bilateral...............................................   225
                        --------------------------------------------------------------
                        ____________________________________________________

            Total..................................................... 1,299

        Question. As requested in the supplemental, can any of the balance
    of payments support funds be used to pay debts owed to multilateral
    institutions or to other nations?
        Answer. In the administration's original request up to $30 million
    in balance of payments support to Honduras would be used to meet
    Hondurans debt payment commitments to multilateral institutions. This
    would provide Honduras needed external account relief and generated
    local currencies which would be jointly programmed for reconstruction
    activities. If Balance of Payment Support is not available, USAID will
    directly finance planned reconstruction activities which would have
    been funded by local currency generations.
        Question. To date, what is the total AID operating expense costs
    relating to Hurricane Mitch?
        Answer. To date, AID has incurred the additive cost of
    approximately $460,000 in operating expense costs related to Hurricane
    Mitch. The bulk of these expenses ($343,000) were incurred in Honduras
    for such items as for additional personnel costs to manage the
    reconstruction effort ($180,000), travel ($46,000), replace vehicles
    ($67,000), overtime ($19,000), and other ($31,000). This is beyond the
    operational expenses incurred by the Missions which have, since
    October, been almost exclusively focused on responding to Hurricane
    Mitch.
        Question. How much of this funding will be made available to the
    AID Inspector General for performance and financial audits?
        Answer. The Inspector General estimates that $2 million is needed
    over the next four years for audit and investigations related to
    hurricane reconstruction activities. We have included an initial
    allocation of $400,000 for these purposes in our request, and will
    support the Inspector General's request for the balance of the funding
    as it is required.
        Question. According to President's official transmittal letter to
    Congress, of the $621 million in Economic Support Funds requested, in
    addition to AID, ``a number of other agencies will also play a role in
    the implementation of reconstruction and disaster mitigation
    activities.'' According to Administration documents, approximately $110
    million will be made available to these other federal agencies
    (excluding the Department of Defense).
        Please provide an illustrative list of other U.S. federal agencies
    (excluding the Department of Defense) and the types of programs that
    may be implemented with these funds.
        Answer. We understand that Office of Management and Budget provided
    this information to the Subcommittee on February 26, 1999. A copy is
    attached.
        Question. Please provide the Committee with a list of which federal
    agencies will implement programs and whether they will be through
    632(a) or 632(b) agreements with AID.
        Answer. The inter-agency working group on reconstruction, chaired
    by USAID, involves more than a dozen federal agencies. While we intend
    to use the Section 632 mechanism, at this time, no final decisions have
    been made concerning any individual agreements. As implementation
    planning progresses, we intend to keep the committee fully apprised of
    our work with other agencies and will provide the requested information
    as it becomes available.

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        Question. According to AID, the average size of micro-enterprise
    loans made available by this supplemental will be $300. What are the
    largest micro-enterprise loans AID anticipates making?
        Answer. In Latin America microenterprise loans tend to range from
    $100 to $1,000 generally. While we have not defined an upper and lower
    limit for the loans that will be funded with emergency supplemental
    funds, we expect to target at the very poor. The people that suffered
    the most from the devastation caused by Hurricane Mitch were very poor
    and lived under the most precarious conditions. They desperately need
    to get back on their feet, will tend to request loans in the lower end
    and under $300 to shore up their microenterprises.
        Question. According to the testimony of Acting Assistant Secretary
    Romero before the Committee, the administration package includes, ``* *
    * deferral by the USG of all bilateral obligations from these countries
    for the next two years.'' How much money will be freed up during this
    two-year period for Honduras and Nicaragua as a result of this debt
    repayment moratorium?
        Answer. In the wake of Hurricane Mitch, the major bilateral
    creditors of Honduras and Nicaragua, in the Paris Club, agreed to
    provide, as nearly as possible, 100 percent flow relief on service of
    official, bilateral debt during the recovery period. In the case of
    Nicaragua, there were no bilateral debt payments to the United States
    coming due to this period, due to earlier debt arrangements.
        For Honduras, a total of $205 million would have come due during
    the two-year period on loans from Paris Club countries. Of this, U.S.
    share is 41 million, $20 million in 1999 and $21 million in 2000.
        Question. The reconstruction and rehabilitation request of $621
    million is proposed as a supplemental appropriation to the Economic
    Support Fund. That means they will be merged with the other funds in
    the account. Given the importance of this funding, and Congressional
    desire to both track the use of these funds and account for their use,
    would you object to the creation of a special appropriations account
    for these funds? For reporting and accounting purposes, it would make
    it simpler for the Committee.
        Answer. The Administration would prefer using the existing account
    structure, augmented by additional reporting requirements rather than
    creating a new account structure. However, we are not strongly opposed
    to a new structure and will work with the House and Senate Committees
    on a structure that will allow us to move forward with this important
    funding.
        Question. For the last several years the Committee has included
    report language asking that USAID take advantage of the expertise and
    experience of the U.S. Army Corps of Engineers in Latin America. The
    Corps has a number of offices throughout the region, and is anxious to
    assist in the implementation of USAID programs. What plans do you have
    for using the Corps of Engineers to manage or implement portions of the
    supplemental funding for Central America and the Caribbean?
        Answer. We completely agree that the U.S. Army Corps of Engineers
    has special expertise which can be of tremendous value to the Central
    American Countries as they reconstruct after Hurricane Mitch. In fact,
    the Corps has been involved from the early days of the relief and
    recovery effort. They produced an assessment for the transportation,
    public utilities, social infrastructure and housing sectors which
    estimated $8.5 billion in damages. We have shared this assessment with
    numerous other countries and donors and it has been invaluable in
    assisting with planning for reconstruction activities. The Corps has
    also been assisting other U.S. government agencies in their proposed
    involvement in reconstruction. We expect that the Corps' unique
    capability in the areas of floodplain and landslide analysis, risk
    management and construction supervision will be particularly useful to
    the Central American Countries and that the Corps will, therefore, have
    a significant role in the reconstruction for which the supplemental
    funding is being sought.
        Question. The supplemental request focuses primarily on activities
    and programs that can be completed in the next 18 months. That is as it
    should be. However, it may be years before Central America is fully
    recovered from the effects of Hurricane Mitch. The fiscal year 2000
    budget request of USAID for development assistance in the Latin America
    region is $309 million, a reduction of $12 million from the 1999
    allocation of $320 million. That means the ongoing development
    activities in the region are declining. Can you explain why this is the
    case?
        Answer. The total DA request for the LAC region in the FY 1999 CP
    was 297.4 million. Thus the FY 2000 CP request level of $309 million
    actually represents an increase of approximately $12 million over the
    FY 99 request.
        The actual FY 1999 appropriation of $320 million reflects an
    increase of approximately $22 million over the CP request level. This
    is due primarily to the combination of $30 million in Emergency Child
    Survival Supplemental resources allocated to the countries affected by
    Hurricanes Mitch and Georges and a cut of $8 million in the proposed
    Presidential summit Initiative for Central American trade.
        Question. As part of the regular fiscal year 1999 appropriations
    act, the Congress provided an emergency supplemental of $50 million for
    the Child Survival and Disease Programs Fund. You already have those
    funds available for activities in Central America and the Caribbean.
    How are they being used? Are they being allocated for disaster relief
    and humanitarian assistance in the region right now?
        Answer. USAID is using $30 million of the $50 million of the
    Emergency Child Survival funds to address immediate and critical child
    survival and public health needs resulting from Hurricanes Mitch and
    Georges in Central America and the Caribbean. Of this amount, $24
    million is being used for Hurricane Mitch recovery in Central America
    and $6 million for Hurricane Georges reconstruction in the Dominican
    Republic. Funds will support vector control and disease surveillance to
    prevent outbreaks of infectious diseases, including cholera, dengue,
    malaria and leptospirosis; resupplying medicines and medical supplies;
    and rebuilding vaccination cold chains; intensive public health
    campaigns and community efforts to improve health conditions; public
    education efforts on good health and hygiene practices in shelters and
    other temporary facilities, and restoration/rebuilding of small-scale
    water distribution and; sewage systems to control the spread of water-
    borne diseases. A country-by-country breakdown is attached.

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        Question. Approximately $40 million of the supplemental request is
    intended to deal with the effects of Hurricane Georges in the eastern
    Caribbean. How will these funds be used, and how much of the funds will
    be committed for Haiti?
        Answer. Dominican Republic: $29 million will be used to finance
    recovery and reconstruction in: health (immunization programs, primary
    health care, water/sanitation systems); shelter (building materials,
    housing credit); economic reactivation (microenterprise credit,
    rehabilitation assistance for small farmers, improvement of marketing
    systems, policy reform, soil erosion prevention); and disaster
    preparedness/mitigation.
        Haiti: $9.8 million will be used for: public health (rehabilitation
    of damaged health, water and sanitation infrastructure); economic
    reactivation (emergency seed crop program, reconstruction of small
    irrigation and drainage systems, construction of feeder roads);
    disaster mitigation/planning (identification of best management
    practices, including soil conservation techniques); and community self-
    help programs (to enable local communities and governments to implement
    small projects designed to rehabilitate damaged infrastructure).
        Eastern Caribbean: $3 million will be used for: housing and school
    rehabilitation; disaster mitigation planning/implementation; and
    agricultural reactivation.
        Question. According to the information provided to the Committee,
    $291 million of the supplemental funds will be allocated for programs
    in Honduras and $94 million will be available for Nicaragua. Other
    countries would receive lesser amounts. How did you develop country
    allocations? Do these numbers represent all funds that might be
    provided for Honduras and Nicaragua?
        Answer. The funding allocations represent levels proposed by LAC
    field Missions, based upon each Mission's assessment of the damage in
    each country and the sectoral areas in which USAID has a comparative
    advantage or program in place that could easily be refocused to provide
    reconstruction support. Missions also assessed what other donors and
    host governments were proposing to do to ensure that USAID's work is
    complementary to and not duplicative of others.
        USAID proposes the following levels of hurricane reconstruction
    support per country:
    Hurricane Mitch:                                             In millions
    Honduras 1.............................................   291
    Nicaragua 1............................................    94
    El Salvador 1..........................................    21
    Guatemala 1............................................    25
    Regional 1.............................................    27
    Hurricane Georges:
    Dominican Republic 1...................................    29
    Haiti 1................................................   9.8
    Eastern Caribbean 1....................................   3.0
    Colombia Earthquake...............................................    10
    New Horizons......................................................    56
        Central America...............................................    48
        Dominican Republic............................................     8
                        --------------------------------------------------------------
                        ____________________________________________________

            Total assistance                                             677

    1 (The above numbers do not include the $111 million in funds
    for programs to be implemented by agencies other than USAID. These
    agencies will make appropriate allocations as programs are further
    developed.)

        Question: Could you provide the Committee with a chart that
    displays the proposed allocation of all the funds in the supplemental
    request by country and by program area, including allocations that were
    provided out of existing funds?
        Answer. Please see the attached chart.

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        Question. One of the biggest issues of concerns for our members is
    the possibility of corruption in the use of our foreign assistance
    dollars. In that regard, we must be particularly careful that
    humanitarian and disaster assistance does not end up in the pockets of
    those for whom it is not intended. The supplemental request includes up
    to $10 million to design implement anti-corruption programs. In
    addition, $12 million is planned to help local governments manage
    reconstruction assistance, including anti-corruption training to avoid
    diversion of assistance. Training is fine; but just because someone is
    trained to be honest doesn't mean they will be honest.
        Can you explain the details of these requests?
        Answer. The transparent and effective use of funds is a top
    priority for USAID, other international donors, and the countries
    involved. We have created an inter-agency working group to coordinate
    donor efforts to guard against corruption and develop common solutions.
    The countries themselves have shown their commitment to these efforts
    to create strong accountability mechanisms. We are focusing on
    solutions that ensure both the proper use of funds and the quality of
    the reconstruction work itself.
        In Nicaragua, the IDB is funding an oversight committee to create a
    credible mechanism that will work both with the national ministries
    charged with the reconstruction process and will report directly to
    donors. In Honduras, the GOH has asked USAID to support an independent
    Inspector General to monitor the use of funds and conduct monitoring
    and oversight reviews of on-going reconstruction efforts. Currently,
    OTI has pledged $.5 million to this endeavor but it remains flexible if
    the need turns out to be greater. In addition, we recently signed a
    $400,000 agreement with the Comptroller General in Honduras to enable
    the GOH to contract an international accounting firm to enhance its
    auditing capabilities.
        The $12 million allocated to local governments will bolster their
    capacity to carry out public services pushed to the limit by the
    emergency circumstances. Ensuring the capacity of local governments to
    meet the needs of their citizens is a high USAID priority. We plan a
    multilevel approach to ensure the proper use of these funds. The first
    is training of local public officials in correct and effective
    financial and administrative management, including the introduction of
    financial systems that enhance transparency. The second tier of this
    anti-corruption approach is the function of the independent Inspector
    General (detailed above) that will monitor reconstruction efforts at
    the local level. Finally, we want to support civil society in its role
    as a watchdog and to encourage local citizens and businesses to fully
    participate in the reconstruction process, recognizing their stake in
    the proper and most efficient use of funds.
        In addition to the $12 million initiative described above, the
    Department of State will support law enforcement by designing and
    implementing anti-corruption programs, including the development of
    internal audit/oversight mechanisms and automated immigration records
    to facilitate information sharing at all border-crossing points.
        Question. Describe funding that will be provided to the USAID
    Inspector General to monitor and audit the use of taxpayer's funds?
        Specifically, how much will be provided to the Inspector General?
        Answer. The Inspector General estimates that $2 million is needed
    over the next four years for audit and investigations related to
    hurricane reconstruction activities. We intend to make an initial
    allocation of $400,000 from supplemental appropriation funds for these
    purposes. We intend to request an additional $1.6 million as part of
    the regular appropriation for the Inspector General in the third and
    fourth years following enactment of the supplemental in recognition of
    the fact that these audits cannot be conducted until these activities
    are actually carried out.

            Questions for the Record Submitted by Congressman Forbes

        Question. Could you please tell the subcommittee why efforts to
    help the survivors of Hurricane Mitch by the World Bank and the IMF are
    insufficient? What efforts are being made by the Europeans? Can't your
    existing programs cover this problem or be converted through a
    reprogramming to cover the costs you would like to pay?
        Answer: The estimated total reconstruction costs associated with
    Hurricanes Mitch and Georges approach $10 billion. To help address the
    approximately $8 billion of damage caused by Hurricane Mitch alone, the
    IDB has made the single largest pledge for reconstruction assistance to
    date; approximately $2.2 billion. The World Bank has pledged $1.2
    billion to address Hurricane Mitch reconstruction and the European
    Commission $285 million. All donor support for Hurricane Mitch to date
    totals approximately $6.3 billion.
        Although donor support has been significant, it is important to
    consider that of the $6.3 billion in pledges, approximately $4.4
    billion is for reconstruction support.
        The rest represents funds already approved for emergency and
    humanitarian relief, immediate rehabilitation activities, and debt
    relief. Moreover, of the IDB and World Bank pledges, a relatively small
    amount is available for concessional lending to Honduras and Nicaragua
    due to monetary limits on development bank concessional lending. The
    bulk of development bank support will be available for El Salvador and
    Guatemala because these countries are able to borrow on non-
    concessional terms. Additionally, a significant level of IDB and World
    bank pledges represent reprogramming of planned and future loans rather
    than new lending.
        USAID has reprogrammed over $120 million of existing resources for
    Hurricane Mitch, which is allowing the Agency to address some immediate
    construction needs. Nonetheless, this level is woefully inadequate to
    provide the level of support required. Moreover, because economic
    losses in the countries of Central America and the Caribbean may
    increase without prompt action to reactivate these damaged economies,
    economic losses may be higher than originally anticipated. For these
    reasons, we believe that an emergency supplemental appropriation is
    necessary to allow the U.S. Government to contribute adequate and
    flexible grants for hurricane reconstruction in Central America and the
    Caribbean.
        Question. There is substantial evidence to suggest that the impact
    of the hurricane would have been much less if local farmers had
    employed different farming methods. USAID and other agencies and NGO's
    have been active in the region for decades, presumably teaching more
    beneficial farming methods, yet today it appears that these efforts
    failed. What assurances do we have that this money will prevent any
    future such occurrences?
        Question. USAID's programs show evidence that additional investment
    is required to reduce farmer's vulnerability to hurricanes of Mitch's
    magnitude. Many of Honduras' small farmers who carried out the improved
    watershed management programs funded by USAID, the German development
    organization and the UN's Food and Agriculture Organization weathered
    the storm extremely well.
        However, these programs have a limited reach throughout Honduras.
    Therefore, watershed degradation is outstripping the focus of these
    programs. This has the potential of increasing the intensity of
    flooding during the hurricanes.
        Once small farmers install improved watershed management
    techniques, they maintain them. However, it is difficult to get low-
    income farmers who are outside of the project areas to acquire these
    improved practices because of funding limitations that restrict our
    ability to reach the majority of small farmers.
        These Supplemental resources are urgently needed to expand programs
    to improve watershed management and to protect the environment from the
    kind of damage that future hurricanes could cause.
        Question. Has your office registered a significant increase in the
    number of Central Americans trying to enter the U.S. legally or
    illegally? What are you doing to encourage these people to stay and
    rebuild their countries?
        Answer. We have checked with the U.S. Department of State and they
    inform us of the following:
        While a feared mass migration of refugees from the devastation of
    Hurricane Mitch has not materialized, there is a sustained and
    significant flow of ``Mitch'' migrants headed for the United States.
    The majority of the increase appears to be from Honduras, the country
    most devastated by the hurricane.
        The American Embassy in Teguciagalpa reports a 30 percent increase
    in applications for non-immigrant visas from November 1998 to January
    1999 (The refusal rate has increased from 25 to 46 percent during the
    same period.) The Honduran Passport Office reported an increase in
    passport issuance from 200 per day before the hurricane to 600 per day
    after the hurricane, attributing the increase to applicant's fears of
    job losses and economic breakdown.
        At one Honduran-Guatemalan border crossing, Honduran officials
    report the number of Hondurans travelling north has increased from 80
    to 300 per day since the hurricane. U.S. officials visiting this
    checkpoint report evidence of an additional steady flow of illegal
    crossings in the adjacent area.
        In spite of these indications of increased migration, the United
    States Border Patrol reports that, to date, the influx of ``Mitch''
    migrants has been manageable. Hondurans have replaced Salvadorans as
    the highest other than Mexican group apprehended at the McAllen, Texas
    sector, for instance, but a total of only 287 Hondurans were
    apprehended in this sector in November. Although the percentage
    increase of ``other-than-Mexicans'' entering the country illegally may
    sound alarming, to date the absolute numbers do not support early fears
    of a wave of immigrants. For instance in Laredo, Texas, the number of
    detainees increased from 123 immigrants in December 1997 to 583 in
    December 1998. In Del Rio, Texas, the number of detainees increased
    from 45 to 221 in the same period.
        To discourage illegal migration, we have a strong public affairs
    strategy: (1) highlighting the perils, both natural and man-made of,
    illegal immigration; (2) clarifying that Immigration and
    Naturalizations Service's stay of removals for Guatemalans and
    Salvadorans and Temporary protected status for Hondurans and
    Nicaraguans only applies to those already in the United States as of
    December 31, 1998; and (3) ensuring good media coverage of U.S.
    reconstruction efforts in order to give those most affected by the
    hurricane hope that their lives might soon return to normal.

           Questions for the Record Submitted by Congresswoman Pelosi

        Question. Both Honduras and Nicaragua were in the midst of
    negotiations when the Hurricanes struck. I believe there is a consensus
    to provide both these countries with significant debt relief beyond
    what was contemplated prior to the disaster, and indeed the
    Administration's request reflects that. Explain your intentions with
    regard to the $41 million specifically for debt relief. Quantify the
    benefits to both countries in terms of changes in anticipated near term
    debt payment schedules.
        Answer. All of the $41 million in debt relief is for Honduras. In
    the wake of Hurricane Mitch, the major bilateral creditors of Honduras
    and Nicaragua, in the Paris Club, agreed to provide, as nearly as
    possible, 100 percent flow relief on service of official, bilateral
    debt during the recovery period (see attached table). In the case of
    Nicaragua, total Paris Club interest and amortization payments of $105
    million were to come due in this period, $51 million in 1999 and $54
    million in 2000. All of this has been postponed or forgiven. For the
    USG, however, there were no bilateral debt payments coming due in this
    period, due to earlier debt arrangements.
        For Honduras, a total of $205 million would have come due during
    the two year period on loans from Paris Club countries, $100 million in
    1999 and $105 million in 2000. Of this, the U.S. share is $41 million,
    $20 million in 1999 and $21 million in 2000.

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        Question. In addition to the $41 million requested for debt relief
    USAID plans to provide Honduras with another $30 million over two years
    to directly reduce debt payments owed to other countries and
    institutions. How will the provision of $30 million over two years to
    Honduras for the repayment of both bilateral and multilateral debt
    affect total payment streams during that period? What portion of their
    expected payments does $30 million represent?
        Answer. According to the most recent estimates of the IMF, Honduras
    faces an unfinanced foreign exchange requirement of $110 million in
    1999 and $109 million in 2000 even taking into account debt
    rescheduling and forgiveness and expected other donor disbursements. In
    addition, the Fund projects an unfinanced GOH fiscal gap of 1,271.5
    million Lempiras for FY 1999 (equivalent to US$91 million) as a result
    of reduced tax revenues and increased current and capital requirements
    (primarily the latter).
        A significant portion of this unfinanced balance of payments gap
    represents debt service payments to the World Bank and IDB which cannot
    be rescheduled and which will not be covered by the Central America
    Trust. Total debt service to the two institutions from Honduras amounts
    to $405 million, $207 million for 1999 and $198 million for 2000. To
    date, expected pledges to the trust fund for Honduras are estimated at
    $62 million. Thus the proposed $30 million is less than 10 percent of
    Honduras's remaining unfinanced debt service requirement to the two
    multilateral institutions.
        Question. On your intention to convert the $30 million into local
    currency for development purposes in Honduras, how do you intend to
    monitor the use of these funds, given the potential for misuse?
        Answer. Funds for this purpose would be disbursed by AID directly
    into a separate sub account of the Central Bank of Honduras in the
    Federal Reserve Bank of New York established for this purpose and could
    be disbursed only to the World Bank and IDB. A local currency deposit,
    equivalent to the dollars, would be created by the Central Bank of
    Honduras and would be jointly programmed by the two governments for
    high priority reconstruction purposes.
        The local currency account would be subject to audit by USAID and
    would, in fact, be audited on a regular basis. This mechanism has
    worked very well in the past in Honduras in preventing fraud and
    misuse. In addition, USAID is working closely with the Government of
    Honduras, at the latter's request, to establish mechanisms for
    concurrent audit of all relief and reconstruction operations to assure
    that funds are used efficiently, effectively, and for their intended
    purposes.
        Question. To what extent are other countries providing direct
    budget support for debt relief?
        Answer. To date, only the USG has proposed direct budget support
    for debt relief.
        Question. On the $25 million intended for the Central American
    Emergency Trust Fund, how will this be implemented? Are other countries
    contributing? To what extent are multilateral institutions deferring or
    forgiving the cost of debt service on outstanding loans in conjunction
    with this Trust Fund?
        Answer. Other countries-primarily European donors, without a
    presence in Managua and Tegucigalpa--have pledged contributions to the
    World Bank-managed Central American Trust Fund. This fund will disburse
    to the World Bank and the Inter-American Development Bank to cover
    debts coming due.
        It is our understanding that the World Bank and the Inter-American
    Development Bank are not themselves deferring or forgiving debt service
    obligations.
        Question. Reports of the environmental damages from Hurricane Mitch
    are frightening, in particular in Honduras which was suffering prior to
    the Hurricane from severe deforestation, and rapid uncontrolled urban
    growth. Your plans include funding for various assessments and for the
    significant involvement of the U.S. Geological Survey. How will assure
    that as we seek to restore the urban infrastructure and to rebuild the
    banana industry, the mistakes of the past will not be repeated?
        Answer. One of the guiding principles of the reconstruction effort
    has been to ensure environmental security and sustainability of what we
    intend to reconstruct. The work of the U.S. Geological Survey has been
    extremely helpful in identifying critical factors for application
    across several sectors, including agriculture, transportation, housing
    and disaster mitigation.
        In Honduras, the USGS and the Army Corps of Engineers have
    investigated a major landslide in Tegucigalpa that effectively dammed
    the river and created a pool of standing and stagnant water that became
    a public health issue. They provided recommendations on how to open up
    the channel to drain the stagnant water and recommended a program of
    dredging, levees, and dikes to control the river and prevent major
    flooding in future rainy seasons. At the same time, their hydrologic
    studies are providing the data needed by engineers to create the design
    specification for rebuilding major bridges over the river in
    Tegucigalpa.
        We will also be working through environmental NGOs to focus more
    attention and resources on watershed management, including forest
    management and possible reforestation, to prevent the kinds of
    landslides and erosion that contributed to damage and siltation
    downstream.
        In Nicaragua, the U.S. Geological Survey has been extremely helpful
    in identifying the immediate cause of the disastrous mudslide at
    Posoltega--and in assessing the likelihood of future slides. The USGS
    has also provided expert assistance to INETER, their Nicaraguan
    counterpart agency, in identifying areas at high risk of future slides.
        This information will be invaluable as one of the bases for the
    development of a coherent land-use policy, with application across
    several sectors, including agriculture, transportation, housing and
    disaster mitigation. For example, new settlements will not be
    established without certification that the proposed location is not in
    an area of high risk. Training materials and programs will be developed
    for existing towns and cities in areas of high risk.
        In addition, the U.S. Department of Agriculture is coordinating an
    Emergency Watershed Protection Program with USAID's Office of Disaster
    Assistance and the Nicaraguan Ministry of Agriculture and Forestry.
    This program will stabilize rivers and streambeds that were damaged
    during Mitch, and protect critical infrastructure that has already been
    re-built. This emergency program will serve as a building block for
    medium-term strategy to guide development in an environmentally sound
    manner, such as reduction of deforestation rates and implementing
    sustainable agricultural methods.
        Question. Your plan calls for the building of 6,400 new houses. How
    will this be accomplished, directly or through a loan guarantee
    program?
        Answer. Based on the limited availability of damage assessment
    information in early November, our initial estimate of beneficiaries of
    housing assistance was on the order of 6,400 units or families. USAID
    has subsequently conducted on-the-ground assessments in the Dominican
    Republic, Nicaragua and Honduras. After review of this work, it is now
    estimated that the target population for housing assistance in the
    Dominican Republic and Honduras will be on the order of 11,000 families
    or more. Reaching this target will depend not just on needs but also on
    the availability of resources, including the contribution of other
    donors and national governments (which is still uncertain).
        Implementaion is expected to be carried out by a combination of
    NGOs (both local and international), private developers, and national
    public housing and infrastructure institutions. The mix of implementing
    entities depends on country-specific conditions and the geographic
    location of targeted families. Given the indebtedness of the countries
    in question, it is not anticipated that loan guarantee resources will
    be used in the immediate reconstruction phase. USAID housing assistance
    is not expected to be primarily in the form of grants, but could
    possibly involve the use of small home improvement loans to facilitate
    progressive development of permanent housing units.
        Question. While the countries of Central America have made
    significant progress towards democratization on a national level, they
    still have not addressed the critical need to strengthen municipal
    governments. In most cases, municipalities in both Honduras and
    Nicaragua have no source of independent revenue, and are wholly
    dependent on national governments for resources. How does the package
    address this generic problem?
        Answer. In general, we believe municipalities have a critical role
    in the reconstruction process in determining local priorities, meeting
    the basic needs of local residents, and assuring that their
    constituents participate in the decisions that affect their lives. In
    Honduras, reconstruction and repair of local water and sanitation
    facilities will continue in partnership with the municipalities where
    involvement and employment of the local populace is critical to their
    physical reconstruction and ongoing maintenance. Similarly, Honduran
    municipalities have been charged with addressing the housing issue for
    those families displaced by the hurricane. USAID is already working
    directly with the municipalities and local NGOs to identify permanent
    housing solutions for those people now in temporary shelters. Finally,
    USAID will draw upon the experience of its ongoing municipal
    development program to provide direct technical assistance and training
    to municipal officials and staff in areas such as financial management
    and accountability, land use planning and disaster mitigation.
        In Nicaragua, where we already had relationships with local
    governments, USAID increased assistance to seven municipalities that
    were heavily affected by the Hurricane. USAID is strengthening local
    governments' capacity to handle the demands of reconstruction including
    developing multi-year investment programs, increasing citizen
    participation and improving basic services, particularly in the sectors
    of basic infrastructure, health and education. USAID is providing
    technical assistance to the association of Nicaraguan Municipalities to
    help assure that municipal priorities are reflected in the
    reconstruction agenda.
        Question. Will resources be provided directly to municipalities as
    they were during the reconstruction effort in El Salvador?
        Answer. Yes. USAID is making a deliberate effort to channel
    reconstruction assistance and the resources of its regular development
    program through local organizations and municipalities, and to regional
    units of government ministries. Municipalities will play an important
    role in setting priorities for reconstruction efforts, reviewing
    proposals, and overseeing the work by other national, NGO, or private
    sector entities who will handle the process of contracting with
    Honduran firms to undertake construction or rehabilitation tasks.
        Other donors have voiced their decision to similarly encourage a
    decentralized approach to reconstruction.
        Question. How will you force the national level governments to
    provide more resources directly to municipalities?
        Answer. We share the concern that municipalities need access to
    more resources and we recognize that the municipalities took on a huge
    financial burden during the emergency itself and now during the
    reconstruction phase, with very little outside assistance. Honduran
    municipalities have made significant progress in developing sources of
    financing outside of central government transfers, in part because the
    central government has provided only a small percentage of the
    resources they are required by law to transfer to municipalities. USAID
    has been actively assisting municipalities in their efforts to mobilize
    local resources, through collection of local taxes and fees, to cover
    their recurrent costs and to finance investments in services and
    infrastructure. USAID will also be looking at possible development of
    other municipal financing options to improve the ability of
    municipalities to access resources and respond to citizen needs. USAID
    is also supporting the Association of Honduran Municipalities (AMHON)
    which represents the interests of municipal governments in Honduras.
    This association of mayors and municipal officials has successfully
    lobbied for direct election of mayors and for other municipal
    interests. AMHON has also pressed the government to provide them with
    the full transfer of resources required by law (currently they receive
    1.5% of the national budget, when a 5% transfer is required).
        Similarly, in Nicaragua USAID's Municipal Autonomy and Development
    Program is working at the national level providing assistance to the
    Nicaraguan Association of Municipalities (AMUNIC) to increase the power
    of the local governments to influence central government policies and
    to their capacity to propose legislative reforms supportive of
    decentralization. USAID has provided technical assistance in the
    drafting of legislation to give more autonomy and resources to the
    municipalities. Addition USAID assistance will be aimed at passage of a
    national municipal transfer in order to implement the 3% national
    budget transfer to the municipalities.
        Question. In Nicaragua, the issue of land ownership and housing is
    particularly volatile due to the civil war and its aftermath. How will
    U.S. funds be used in Nicaragua, and how do the Nicaraguans themselves
    intend to address the ownership issues so that reconstruction can take
    place?
        Answer. USAID plans to fund construction of temporary shelters for
    4,000 families around the country, targeting the hard hit departments
    of Leon and Chinandega. The International Federal of REd Cross will
    implement this $1.5 million program to build temporary shelters on or
    near sites wit clear land titles selected for and guaranteed to receive
    permanent housing. Other donors and international institutions,
    including the Organization of American States, Taiwan, France, Germany,
    the International REd Cross, and the World Bank, are all working to
    assist Nicaragua to reconstruct homes damaged by Mitch and to build new
    permanent housing for families who lost their homes.
        The Government of Nicaragua clearly recognizes the importance of
    settling all land ownership issues before new housing is constructed.
    The Nicaraguan Social Action Secretariat has $1.2 million available to
    buy land for municipalities to do housing. In addition, some
    municipalities have received direct donations to purchase land for
    resettlement.

         Questions for the Record Submitted by Congresswoman Kilpatrick

        Question. What oversight will occur within each country receiving
    assistance and for the various assistance programs that USAID will
    administer to ensure that the likelihood of corruption will be severely
    reduced?
        Answer. All USAID assistance is subject to procedures already in
    place to ensure accountability of all U.S. funds. These measures
    include: Standard Agency audit procedures as set forth in the Inspector
    General's Audit Guidelines. Each Mission Controller is responsible for
    establishing specific internal controls within each project activity.
    Prior to disbursement of any U.S. funds, the Controller will review
    each implementing entity's accounting procedures and internal
    management controls to ensure their acceptability. At the end of every
    grant or contract, a certified audit by an independent public
    accounting firm is required.
        In Honduras and Nicaragua, we are also addressing the issue of
    other funds provided to those governments by strengthening the capacity
    of their Comptrollers-General to audit the activities of line
    ministries in delivery of reconstruction assistance. In Honduras, for
    example, we have provided funds for the Controller General to contract
    an international firm to assist them in carrying out their audit
    function. In Nicaragua, USAID and the World Bank have taken the lead in
    assisting the government to install an integrated financial management
    system. The system will standardize procedures in all government
    ministries, ensure transparency and strengthen the Comptroller-
    General's capacity to review financial transactions government-wide,
    including uses of reconstruction assistance.
        In addition, we have joined the IDB, the World Bank and other
    bilateral donors in discussions with the Governments of Honduras over
    the creation of independent oversight mechanisms that would report to
    the donors and to the host governments on particular areas of
    vulnerability, such as contracting and procurement. Similar discussions
    have taken place in Nicaragua. President Aleman wrote to President
    Clinton in December 1998 to request assistance in developing such a
    mechanism. In the meantime, he has named a government Oversight
    Committee, composed of three prominent Nicaraguans with extensive
    experience in dealing with international financial institutions to
    develop a strategy in this area. We will keep the committee fully
    informed of these efforts and how we plan to support their development
    and operation.
        Question. In your testimony, you mentioned Honduras, Nicaragua,
    Guatemala and EL Salvador in Central America. You also mentioned the
    Dominican Republic and the Caribbean as areas that were affected by
    Hurricane Georges and as areas that will receive assistance from the
    U.S. Can you identify which areas or territories will receive U.S.
    assistance. How much assistance will each of these Caribbean areas
    receive?
        Answer. Countries receiving supplemental assistance for
    reconstruction from Hurriance Georges:

                                                                 In millions
    Dominican Republic................................................   $29
    Haiti.............................................................   9.8
    Eastern Caribbean \1\.............................................     3
    \1\ Includes St. Kitts, Nevis, Antigua and Barbuda.

                                                                      ______
        Total.........................................................  41.8

        Question. We know that in most societies women and men play very
    different roles. Some anecdotal evidence from Honduras and Nicaragua
    shows some gender differences that should be taken into account when
    developing and delivering programs. Will there be assurance that the
    funds in this bill will be equitably distributed to the women of the
    region?
        Answer. In the reconstruction planning process, one of our guiding
    principles is the necessity of reaching out to historically
    marginalized actors: the poor, indigenous groups and women. We believe
    that the reconstruction planning and implementation process must take
    gender concerns into account. During the relief effort, we saw that
    women played a central role as community leaders, as relief workers, as
    the head of small and micro-businesses and often as the head of
    families. We recognize that leadership role and want to strengthen and
    support it in the reconstruction process.
        We also know that women play a critical role in implementing
    importing public health practices that prevent the spread of infectious
    diseases. USAID has long emphasized the importance of girls education
    and will work to assure that the disruptions caused by Hurricane Mitch
    do not disproportionately affect the ability of girls to have access to
    basic education.
        In the area of microenterprise, we know from our long track record
    in this area that 80% to 90% of the loans go to women. In Nicaragua,
    USPVO ProMujer is a key USAID partner delivering credit to women
    microentrepreneurs in Leon and Chinandega, two departments hard hit by
    Mitch. Before Mitch, USAID relied on partners like ProMujer as sources
    of information on our customers' real needs. Even more so after Mitch,
    ProMujer not only gave voice to the business needs of its members, but
    also helped define the broader needs of the community in distress.
        USAID will have expert advice on gender factors related to
    reconstruction from our Global Bureau's Women in Development (WID)
    office as we design activities in environmental management, community
    infrastructure rehabilitation, food-for-work and cash-for-work,
    agricultural recovery, microfinance, public health and education. In
    the aftermath of a disaster, the opening for women's participation
    enlarges simply because women's participation is essential for full
    recovery. USAID will take advantage of these special circumstances to
    increase women's participation across our programs.
        Question. Will the U.S. monies within the supplemental that are
    allocated for debt relief be used to assist in reducing the debt that
    Honduras and Nicaragua currently owe to other nations? Will the $25
    million in funds that are allocated for a contribution to a Central
    America Emergency Trust Fund to cover the cost of debt service owed by
    the affected Central American countries to the World Bank and
    International Financial Institutions be used to pay or service these
    debts these countries owe to other nations?
        Answer. No, monies within the supplemental that are allocated for
    debt relief will not be used to reduce the debt that Honduras and
    Nicaragua currently owe to other nations. Funds from the World Bank's
    Central America Trust Fund can only be used to pay debt obligations to
    the World Bank itself and the Inter-American Development Bank. In
    addition, the creditor countries of the Paris Club have agreed to
    provide as nearly as possible one hundred percent flow relief to
    Honduras and Nicaragua on debt service these two countries owe them.
    This means that each country has agreed to forgive or reschedule debts
    owed to it by whatever mechanism it uses in such circumstances. Other,
    non-Paris Club creditors are expected to provide similar treatment.

                        Submitted to Department of State

            Questions for the Record Submitted by Chairman Callahan

        Question. Is there a precedent of a United States contribution to a
    fund to pay debt owed by other countries to multilateral development
    banks, such as the World Bank and the Inter-American Development Bank?
        Answer. There is no direct precedent for such a contribution.
    However, the Administration has also requested funds from Congress for
    a U.S. contribution to the HIPC initiative, which would pay
    multilateral development bank debt for highly-indebted, poor countries
    that have implemented the appropriate policies to restore macroeconomic
    stability and investor confidence.
        Question. Haven't we helped create the enormous debt burden many of
    these countries face, by offering loans through development banks at
    deeply subsidized rates with delayed payments? Who could resist
    accepting such loans?
        Answer. Development bank loans are offered on concessional terms
    subject to a conditionality that requires the borrowing country to meet
    certain criteria intended to set it on the path to economic recovery
    and a sustainable macroeconomic policy framework. Project loans are
    intended to assist the borrowing country in developing needed
    infrastructure, which in turn should contribute to economic growth and
    enable it to repay the loans. In some cases, unforeseen circumstances
    have occurred that have limited the level of economic growth in
    borrower countries, making their debt burdens unsustainable.
        Question. Why are we being asked to cover the costs of payments to
    multilateral development banks? These banks carry reserves; they also
    retain earning as a result of repayments from borrowers who do pay
    their bills. Why shouldn't the banks assume the costs of debtors who
    are not current?
        Answer. The multilateral development banks have a limited ability
    to absorb the loss of income from loans that are not being serviced.
    Their funds are needed in order to preserve their preferred creditor
    status, which allows them to borrow at lower rates in the capital
    markets. In addition, repayments provide funds for future lending. Debt
    relief would cut the funds available for this purpose.
        Question. Will there be a debt moratorium on new lending to these
    nations? Are we forgiving debt only to allow these nations to pile it
    up again?
        Answer. To help recipients of Naples and HIPC debt relief avoid
    returning to unsustainable debt levels, the Administration favors
    shifting assistance from loans to grant aid to the extent possible.
    However, there are no legal or policy requirements preventing agencies
    from engaging in new lending to Nicaragua and Honduras solely because
    they have received debt reduction through the Paris Club. Anticipated
    debt reduction, together with deferral following Hurricane Mitch of
    debt service payments Nicaragua and Honduras would have made in the
    1999-2001 period, should help ensure that those countries' debt burden
    will be sustainable in the future.

            Questions for the Record Submitted by Congressman Forbes

        Question. Could you please tell the subcommittee why efforts to
    help the survivors of Hurricane Mitch by the World Bank and the IMF are
    insufficient? What efforts are being made by the Europeans? Can't your
    existing programs cover this problem or be converted through a
    reprogramming to cover the costs that you would like to pay?
        Answer. The estimated total reconstruction costs associated with
    Hurricanes Mitch and Georges approach $10 billion. To help address the
    approximately $8 billion of damage caused by Hurricane Mitch alone, the
    IDB has made the single largest pledge for reconstruction assistance to
    date: approximately $2.2 billion. The World Bank has pledged $1.2
    billion to address Hurricane Mitch reconstruction and the European
    Commission $285 million. All donor support for Hurricane Mitch to date
    totals approximately $6.3 billion.
        Although donor support has been significant, it is important to
    consider that of $6.3 billion in pledges, approximately $4.4 billion is
    for reconstruction support. The rest represents funds already approved
    for emergency and humanitarian relief, immediate rehabilitation
    activities, and debt relief. Moreover, of the IDB and World Bank
    pledges, a relatively small amount is available for concessional
    lending to Honduras and Nicaragua due tomonetary limits on development
    bank concessional lending. The bulk of development bank support will be
    available for El Salvador and Guatemala because these countries are
    able to borrow on non-concessional terms. Additionally, a significant
    level of IDB and World Bank pledges represent reprogramming of planned
    and future loans rather than new lending.
        USAID has reprogrammed over $161 million of existing resources,
    which is allowing the Agency to address some immediate reconstruction
    needs. Nonetheless, this level is woefully inadequate to provide the
    level of support required. moreover, because economic losses in the
    countries of Central America and the Caribbean may increase without
    prompt action to reactivate these damaged economies, economic losses
    may be higher than originally anticipated. For these reasons, we
    believe that an emergency supplemental appropriation is necessary to
    allow the U.S. Government to contribute adequate and flexible grants
    for hurricane reconstruction in Central America and the Caribbean.
        Question. There is substantial evidence to suggest that the impact
    of the hurricane would have been much less if local farmers had
    employed different farming methods. AID and other agencies and NGO's
    have been active in the region for decades, presumably teaching more
    beneficial farming methods, yet today it appears that these efforts
    failed. What assurances do we have that this money will prevent any
    future such occurrences?
        Answer. AID's programs show evidence that additional investment is
    required to reduce farmers' vulnerability to hurricanes of Mitch's
    magnitude. Many of Honduras' small farmers who carried out the improved
    watershed management programs funded by AID, the German development
    organization and the UN's Food and Agriculture Organization weathered
    the storm extremely well.
        However, these programs have a limited reach throughout Honduras.
    Therefore, watershed degradation is outstripping the focus of these
    programs. This has the potential of increasing the intensity of
    flooding during the hurricanes.
        Once small farmers install improved watershed management
    techniques, they maintain them. However, it is difficult to get low-
    income farmers who are outside of the project areas to acquire these
    improved practices because they have competing needs for their scarce
    cash resources. During periods of non-agricultural labor needs, small
    farmers go off-site to earn additional income. Therefore, they do not
    start improved watershed programs on their own. In order to reduce the
    vulnerability to future hurricanes, the magnitude of these improved
    watershed management programs has to be increased. A part of the
    Supplemental's economic reactivation funds will be used for this
    purpose.
        Question. Has your office registered a significant increase in the
    number of Central Americans trying to enter the U.S. legally or
    illegally? What are you doing to encourage people to stay and rebuild
    their countries?
        Answer. While a feared sudden mass migration of refugees from the
    devastation of Hurricane Mitch has not materialized, there is a
    sustained and significant flow of ``Mitch'' migrants headed for the
    United States. The majority of the increase appears to be from
    Honduras, the country most devastated by the hurricane.
        The American Embassy in Tegucigalpa reports a 30 percent increase
    in applications for non-immigrant visas from November 1998 to January
    1999. (The refusal rate has increased from 25 to 46 percent during the
    same period.) The Honduran Passport Office reported an increase in
    passport issuances from 200 per day before the hurricane to 600 per day
    after the hurricane, attributing the increase to applicants' fears of
    job losses and economic breakdown.
        At one Honduran-Guatemalan border crossing, Honduran officials
    report that the number of Hondurans travelling north has increased from
    80 to 300 per day since the hurricane. U.S. officials visiting this
    checkpoint report evidence of an additional steady flow of illegal
    crossings in the adjacent area.
        In spite of these indications of increased migration, the United
    States Border patrol reports that, to date, the influx of ``Mitch''
    migrants has been manageable. Hondurans have replaced Salvadorans as
    the highest other-than-Mexican group apprehended in the McAllen, Texas
    sector, for instance, but a total of only 287 Hondurans were
    apprehended in this sector in November. Although the percentage
    increase of ``other-than-Mexicans'' entering the country illegally may
    sound alarming, to date, the absolute numbers do not support early
    fears of a wave of immigrants. For instance, in Laredo, Texas, the
    number of detainees increased from 123 immigrants in December 1997 to
    583 in December 1998. In Del Rio, Texas, the number of detainees
    increased from 45 to 221 in the same period.
        To discourage illegal migration, we have a strong public affairs
    strategy: (1) highlighting the perils, both natural and man-made, of
    illegal immigration; (2) clarifying that Immigration and Naturalization
    Service's stay of removals for Guatemalans and Salavadorans and
    Temporary Protected Status for Hondurans and Nicaraguans only applies
    to those already in the United States as of December 31, 1998; and (3)
    ensuring good media coverage of U.S. reconstruction efforts in order to
    give those most affected by the hurricane hope that their lives might
    soon return to normal.

         Questions for the Record Submitted by Congresswoman Kilpatrick

        Question. What are our (U.S.) long-term plans to develop the
    infrastructure of the affected region?
        Answer. According to the Preliminary Damage Assessment Report
    prepared by the U.S. Army Corps of Engineers on November 23, 1998, the
    four countries most deeply affected by last year's hurricanes (El
    Salvador, Guatemala, Honduras and Nicaragua) sustained total
    infrastructure damages of $8.5 billion. This total includes damage of
    $5.2 billion to public utilities (water systems, power and
    telecommunications); $1.5 billion to housing stock; $1.2 billion to
    transportation infrastructure (roads, bridges, railways, seaports and
    airports), and $585 million to social infrastructure (hospitals, public
    buildings and schools).
        The global assumptions used by the U.S. Army Corps of Engineers are
    that the infrastructure will be replaced or repaired to the same
    quality as existed prior to the damage, but that pre-existing
    facilities which did not meet minimum acceptable international
    standards (such as for wastewater treatment) would be upgraded to
    international standards. It is important to mention that the definition
    of `minimum acceptable international standards' will be the product of
    discussions between the donor countries, host countries, and
    implementing organizations.
        The United States government is working closely with the host
    governments and the donor community to ensure that each country's
    comprehensive reconstruction plan:
              (a) ensures participation by end users in setting priorities;
              (b) incorporates disaster mitigation and preparedness;
              (c) is compatible with sound environmental practice;
              (d) is attentive to equity concerns;
              (e) incorporates local governments as key implementing
            mechanisms, and
              (f) includes measures to ensure accountability and
            transparency in the use of assistance funds.
        Question. What have the Central American nations contributed to
    their own infrastructure development?
        Answer. Since Hurricane Mitch, the Central American governments
    have devoted substantial resources to emergency infrastructure repair.
    Honduras and Nicaragua restored critical transportation and
    communication lines, repaired water and sewage lines, and organized
    volunteers to clean up after the disaster.
        Governments have also developed and are continuing to refine
    comprehensive long-run reconstruction and development plans. With
    regard to large infrastructure projects, it is expected that the Inter-
    American Development Bank and the World Bank will provide a significant
    portion of their financing. Smaller reconstruction projects, which
    account for the majority of the needs, are primarily the responsibility
    of Central American governments and the private sector, with some
    assistance from international donors. This is especially the case for
    housing and numerous smaller transportation projects, local schools and
    local clinics.
        The Central American governments are also contributing to their
    reconstruction by reviewing and revising their laws and procedures to
    attract more private investment, such as new investment and
    privatization laws recently passed by Honduras.
        The U.S. Agency for International Development is assisting national
    and local entities develop community action plans, with strong
    participation of local governments and citizens, in order to help host
    governments develop local initiatives which will contribute to
    infrastructure repair and development.
        Question. Is there a role for the private sector in the
    reconstruction of Central America? Is there a role for the Overseas
    Private Investment Corporation (OPIC), the U.S. Trade Development
    Agency (TDA) or the Export-Import (Ex-Im) Bank?
        Answer. Well-focussed governmental efforts are a critical part of
    reconstruction but are expected to be dwarfed by the efforts and
    financing coming from the private sector, both local and foreign. The
    conference on Central American and Caribbean Reconstruction which was
    sponsored by the Administration in Washington on December 15, 1998,
    focussed not only on the contributions which the private sector could
    make to the region, but also on the opportunities for trade and
    investment which reconstruction offers to the private sector.
        Some of the initiatives taken or to be launched by the
    Administration in support of the private sector include: enhancement of
    the Caribbean Basin Initiative legislation to expand trade with the
    region, submission of Bilateral Investment Treaties (BITs) for Honduras
    and Nicaragua for Senate approval, and planned signature of a BIT with
    El Salvador, expansion of OPIC activities through a $200 million credit
    line in cooperation with US private banks for investment in the region,
    expansion of Export-Import Bank activities (including a $50 million
    Memorandum of Understanding signed on February 24 with the Banco
    Centralamericano de integracion Economica) to enable private businesses
    and government agencies to obtain critically needed financing for U.S.
    raw materials, spare parts, capital equipment, etc. TDA is ready to
    move quickly to assist potential U.S. investors in infrastructure
    projects as specific opportunities are identified.

                               W I T N E S S E S

                                  ----------
                                                                       Page
    Atwood, Brain..................................................115, 217
    Grandmaison, J.J.................................................     1
    Harmon, J.A......................................................     1
    Munoz, George....................................................     1
    Romero, P.F......................................................   217

                                   I N D E X

                                  ----------

                        Export and Investment Assistance
             (James A. Harman, President and Chairman, Ex-Im Bank)
          (George Munoz, President and Chief Executive Officer, OPIC)
                     (J. Joseph Grandmaison, Director, TDA)

                                                                       Page
    African Development Fund.........................................    67
    Asia.............................................................    95
    Authorization to Finance Helicopters.............................    52
    Azerbaijan.....................................................106, 107
    Brazil..........................................................96, 103
    Budget Increase..................................................    83
    Caspian Oil and Gas Pipelines....................................   103
    Caspian Sea Development..........................................    59
    Chairman Callahan's Opening Statement............................     1
    China............................................................    73
    Climate Change...................................................    93
    Commerical Opportunity...........................................    51
    Corruption and Organized Crime...................................    94
    Debt Forgiveness.................................................    66
    Dual-Use Exports.................................................    82
    Environment..................................................59, 74, 80
    Ex-Im Bank--China............................................77, 81, 82
    Helicopter Sales to Turkey.......................................    84
    History of Field Offices.........................................    88
    Hurricane Mitch..................................................69, 75
    IMF..............................................................    72
    Indonesia........................................................    58
    Insurance........................................................    87
    Investment Funds................................................72, 105
    Large/Small Investments..........................................    68
    Long-term Financing..............................................    87
    Medium and Long Term Financing...................................    78
    More Aggressive Outreach.........................................    89
    Mozambique.......................................................    65
    Mr. Grandmaison's Opening Statement..............................    40
    Mr. Harmon's Opening Statement...................................     5
    Mr. Munoz's Opening Statement....................................    21
    Ms. Pelosi's Opening Statement...................................     3
    OPIC....................................................77, 93, 97, 107
    Outreach to Brokers and Banks....................................    88
    Pakistan.........................................................   106
    Pipelines........................................................    60
    Potential for OPIC Services......................................   104
    Reauthorization..................................................    50
    Russia...........................................................    95
    Status of Program in Russia......................................    85
    Sub-Saharan Africa...............................................    63
    Trans-Caspian Pipeline...........................................    75
    Transfer Authority...............................................    70
    Utilization of Y2K Supplemental Funding..........................   103
    Vietnam.........................................................74, 105
    World Bank Activities............................................    57

                      Agency for International Development
                       (Brian Atwood, AID Administrator)

    Additional Expenses..............................................   158
    Africa Food Security Initiative..................................   204
    Agriculture Funding..............................................   193
    AID Budget.......................................................   156
    AID Security Costs...............................................   214
    American Educational Institutions in Lebanon.....................   201
    Armenia........................................................148, 197
    Asian Financial Crisis...........................................   204
    Azerbaijan.......................................................   197
    Biodiversity.........................................187, 188, 198, 199
    Biotechnology Assistance.........................................   208
    Brazil.........................................................170, 210
    Budget Concerns..................................................   165
    Budget Cuts....................................................146, 150
    Centrally Funded Programs........................................   188
    Child Labor....................................................155, 210
    Child Survival.................................................168, 187
    Child Survival/Child Labor.......................................   178
    Climate Change.................................................211, 212
    Co-location......................................................   175
    Computer System Problems.........................................   162
    Cross Bordor Programs in Europe and the NIS......................   214
    Dairy Development Programs.......................................   214
    Debt Relief......................................................   151
    Development Credit Authority...................................190, 191
    Development Fund for Africa...............................150, 169, 191
    Ecuador..........................................................   207
    Energy Efficiency................................................   165
    Evaluation of Democracy Programs.................................   173
    Expanded Threat Reduction Initiative.............................   203
    Family Planning in Turkey........................................   161
    Fiscal Oversight.................................................   202
    Future of US foreign Aid.........................................   202
    Health Systems...................................................   210
    HIV/AIDS.......................................................171, 209
    Indonesian Elections...........................................199, 200
    Market Economies.................................................   159
    Maternal Health..................................................   187
    Mongolia.........................................................   197
    Mr. Atwood's Opening Statement...................................   126
    Mr. Callahan's Opening Statement.................................   115
    Ms. Pelosi's Opening Statement...................................   120
    Nations Graduating from Developing Assistance....................   154
    New Independent States.........................................157, 205
    New Management System............................................   154
    North Korea......................................................   148
    Office of Transition Initiatives Funding.........................   212
    Operating Expenses........................................145, 176, 213
    Operation Lifeline Sudan.........................................   200
    OTI Funding Increase.............................................   193
    Outreach.........................................................   160
    Population.......................................................   145
    Reform...........................................................   157
    Security at Ronald Reagan Building...............................   174
    South Africa...................................................152, 192
    Staff Reductions.................................................   177
    Status of USAID's New Coding System..............................   188
    Sudan Relief.....................................................   201
    Transition from OTI to Regular USAID Programs....................   213
    Tuberculosis....................................168, 197, 198, 208, 209
    USAID New Management System......................................   177
    USAID Overseas Security..........................................   174
    Utilization of Partnerships in Graduating Countries..............   215
    Victims of Torture...............................................   161
    Women in Development.............................................   200
    Y2K..............................................................   175

           FY 1999 Emergency Supplemental Request for Central America
                     (J. Brian Atwood, Administrator, AID)
        (Peter F. Romero, Acting Assistant Secretary of State for Inter-
                               American Affairs)

    Accountabiity..................................................255, 265
    Army Corps of Engineers..........................................   266
    Bishop Gerardi...................................................   280
    Cash Basis.......................................................   270
    Chairman Callahan's Opening Statement............................   217
    Colombia.........................................................   279
    Corps of Engineers...............................................   256
    Corruption.......................................................   267
    Debt.................................................255, 257, 274, 281
    El Salvador......................................................   280
    Eligibility......................................................   275
    Full Accountability..............................................   261
    Guatemala........................................................   281
    Habitat for Humanity.............................................   263
    Honduras Debt....................................................   258
    Housing..........................................................   281
    Hurricane Reconstruction.........................................   261
    Inter-American Development.......................................   221
    Jobs.............................................................   280
    Loans............................................................   267
    Microenterprise Loans................................263, 273, 274, 281
    Mine Detention Dog Teams.........................................   263
    Mr. Atwood's Opening Statement...................................   220
    Mr. Romero's Opening Statement...................................   240
    Ms. Pelosi's Opening Statement...................................   218
    Nicaragua.................................................263, 265, 275
    Notwithstanding Clause...........................................   277
    OPIC.............................................................   259
    Religious Freedom Act............................................   264
    Segregation of Funds.............................................   277
    Separate Account.................................................   272
    Small Farmers....................................................   266
    Supplemental Account Structure...................................   260
    Women and Microenterprise........................................   271
    Women in Development.............................................   278