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

                   OVERSIGHT OF THE INTER-AMERICAN FOUNDATION

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

                                    HEARING

                                   before the

                       SUBCOMMITTEE ON NATIONAL SECURITY,
                      VETERANS AFFAIRS, AND INTERNATIONAL
                                   RELATIONS

                                     of the

                                  COMMITTEE ON
                               GOVERNMENT REFORM

                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED SIXTH CONGRESS

                                 FIRST SESSION

                                   __________

                                OCTOBER 13, 1999

                                   __________

                               Serial No. 106-108

                                   __________

           Printed for the use of the Committee on Government Reform

      Available via the World Wide Web: http://www.gpo.gov/congress/house
                          http://www.house.gov/reform

                                     ______

                          U.S. GOVERNMENT PRINTING OFFICE
    63-746 cc                     WASHINGTON : 2000

                         COMMITTEE ON GOVERNMENT REFORM

                         DAN BURTON, Indiana, Chairman
    BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
    CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
    CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
    ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
    JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
    STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
    JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
    THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
    DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington,
    MARK E. SOUDER, Indiana                  DC
    JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
    STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
    MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
        Carolina                         ROD R. BLAGOJEVICH, Illinois
    BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
    DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
    ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
    LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
    JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
    GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
    DOUG OSE, California                             ------
    PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont
    HELEN CHENOWETH-HAGE, Idaho              (Independent)
    DAVID VITTER, Louisiana

                          Kevin Binger, Staff Director
                     Daniel R. Moll, Deputy Staff Director
               David A. Kass, Deputy Counsel and Parliamentarian
                          Carla J. Martin, Chief Clerk
                     Phil Schiliro, Minority Staff Director
                                     ------

    Subcommittee on National Security, Veterans Affairs, and International
                                   Relations

                    CHRISTOPHER SHAYS, Connecticut, Chairman
    MARK E. SOUDER, Indiana              ROD R. BLAGOJEVICH, Illinois
    ILEANA ROS-LEHTINEN, Florida         TOM LANTOS, California
    JOHN M. McHUGH, New York             ROBERT E. WISE, Jr., West Virginia
    JOHN L. MICA, Florida                JOHN F. TIERNEY, Massachusetts
    DAVID M. McINTOSH, Indiana           THOMAS H. ALLEN, Maine
    MARSHALL ``MARK'' SANFORD, South     EDOLPHUS TOWNS, New York
        Carolina                         BERNARD SANDERS, Vermont
    LEE TERRY, Nebraska                      (Independent)
    JUDY BIGGERT, Illinois               JANICE D. SCHAKOWSKY, Illinois
    HELEN CHENOWETH-HAGE, Idaho

                                   Ex Officio

    DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                Lawrence J. Halloran, Staff Director and Counsel
                    Robert Newman, Professional Staff Member
                      Tom Costa, Professional Staff Member
                               Jason Chung, Clerk
                        David Rapallo, Minority Counsel
                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on October 13, 1999.................................     1
    Statement of:
        Breslin, Patrick, representative for Colombia, Inter-American
          Foundation; Daniel W. Fisk, deputy director, the Kathryn
          and Shelby Cullom Davis International Study Center,
          Heritage Foundation; and Alvaro Rengifo, executive
          director, Inter-American Development Bank..................    35
        Otero, Maria, chair of the Inter-American Foundation,
          executive vice president, ACCION International, accompanied
          by George A. Evans, president, Inter-American Foundation;
          and Adolfo A. Franco, J.D., senior vice president and
          general counsel, Inter-American Foundation.................     3
    Letters, statements, et cetera, submitted for the record by:
        Breslin, Patrick, representative for Colombia, Inter-American
          Foundation, prepared statement of..........................    39
        Fisk, Daniel W., deputy director, the Kathryn and Shelby
          Cullom Davis International Study Center, Heritage
          Foundation, prepared statement of..........................    50
        Otero, Maria, chair of the Inter-American Foundation,
          executive vice president, ACCION International, prepared
          statement of...............................................     8
        Rengifo, Alvaro, executive director, Inter-American
          Development Bank, prepared statement of....................    59

                   OVERSIGHT OF THE INTER-AMERICAN FOUNDATION

                                  ----------

                          WEDNESDAY, OCTOBER 13, 1999

                      House of Representatives,
           Subcommittee on National Security, Veterans
                  Affairs, and International Relations,
                                Committee on Government Reform,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 10:10 a.m., in
    room 2247, Rayburn House Office Building, Hon. Christopher
    Shays (chairman of the subcommittee) presiding.
        Present: Representatives Shays and Sanders.
        Staff present: Lawrence J. Halloran, staff director and
    counsel; Robert Newman and Tom Costa, professional staff
    members; Jason Chung, clerk; David Rapallo, minority counsel;
    and Earley Green, minority staff assistant.
        Mr. Shays. I would like to call this hearing to order.
        Thirty years ago, Congress established the Inter-American
    Foundation [IAF], an independent and experimental Federal
    agency to reach beyond government-to-government aid programs in
    Latin America and the Caribbean working at the grass-roots
    level. Part of the IAF's cold war mission was to provide an
    economic and social alternative to the lure of communism among
    the poor of the region.
        In the intervening three decades, the world has changed
    dramatically. The Inter-American Foundation has not. So
    oversight is long overdue. Last scrutinized in 1984, the IAF
    has been beset by internal strife and management lapses,
    particularly regarding two controversial grants to leftist
    organizations. While many of the Foundation's once innovative
    strategies were being adopted by other aid agencies, the IAF
    seems to have stagnated into a fractious bureaucracy squabbling
    over reduced budgets and a lost sense of purpose.
        The administration recently acknowledged ``the need for
    change to enhance the Foundation's internal oversight
    procedures and project monitoring.'' According to IAF
    officials, the Foundation has begun to make those changes. But
    will they be enough to revitalize the IAF and make it relevant
    in the post-cold war world? Could some or all of the
    Foundation's functions be privatized? Should they?
        These are the questions we asked our witnesses to address
    this morning, and we welcome our witnesses. And at this time I
    would recognize my good friend and colleague Mr. Sanders.
        Mr. Sanders. Thank you, Mr. Chairman.
        The Inter-American Foundation was created 30 years ago to
    build a direct relationship between the people of the United
    States and the poor people of Latin America. The IAF is unique
    among U.S. Government agencies operating abroad. The Foundation
    helps the poor to help themselves by providing small grants for
    innovative community-based projects. It minimizes the
    bureaucratic waste and corruption that often plagues foreign
    aid.
        The IAF has never had more than 70 staff members. It gives
    small grants directly to local organizations rather than
    channeling millions of dollars through government
    bureaucracies. Congress created the IAF as a public corporation
    with an independent board, a structure designed to insulate the
    agency from the short-term whims of U.S. foreign policy.
        In Mexico, the Foundation supported an association of
    Mexican peasants that marketed organic coffee beans for Ben and
    Jerry's Ice Cream, in my State of Vermont, but that is not the
    reason I am here today. IAF grants helped to create one of the
    hemisphere's most successful community-controlled adventure
    travel sites on Tequile Island in Peru's Lake Titicaca, and the
    IAF backed the Colombian Artisans Network that help poor rural
    women to improve their skills and raise the incomes of their
    families.
        Mr. Chairman, I am concerned about the threats to the
    future of the Foundation and its mission. Congressional funding
    is now two-thirds of what it was since 1994, and appears likely
    to be cut to 25 percent from its current levels in the fiscal
    year 2000 budget. The Foundation's crucial political
    independence appears to be threatened.
        Over the years, and I think this is very clear, we have
    spent billions of dollars supplying and training Latin American
    militaries, many of whom have turned out not only to be
    corrupt, but to have been violent and very bad institutions. We
    have spent billions of dollars funding the bureaucracies of
    Latin American governments that were often more interested in
    the well-being of the members of the government than of the
    poor people of the countries. We have spent billions propping
    up economic policies of regimes that are more concerned with
    the needs of foreign corporations than with the peasants or the
    workers of their own countries. It seems to me that we want to
    take a very hard look about the need to continue funding an
    organization which is representing the poor people in that
    country in an independent way.
        I think we should not ignore for one moment that very, very
    serious economic problems remain in existence throughout Latin
    America and the Caribbean, and we should also be aware that
    poor people do not actively participate in many of the
    democracies in those countries.
        So I thank you very much for calling this hearing, and I
    look forward to the discussion.
        Mr. Shays. I thank my colleague, and I would like to say to
    all the witnesses before I swear them in that I just am
    basically an open book on this issue. I do not have any strong
    feelings one way or the other and look forward to what I learn
    today.
        Let me just take care of some business first and ask
    unanimous consent that all members of the subcommittee be
    permitted to place an opening statement in the record, and that
    the record remain open for 3 days for that purpose.
        Without objection, so ordered.
        I ask further unanimous consent that all witnesses be
    permitted to include their written statements in the record,
    and without objection, so ordered.
        And now let me call our witnesses. The first witness will
    be accompanied by two individuals, but there will be one
    statement. We are happy to have you, Ms. Maria Otero, Chair of
    the Inter-American Foundation. And I guess your day job is
    executive vice president, ACCION International, Washington, DC;
    accompanied by George A. Evans, president, Inter-American
    Foundation, and Adolfo A. Franco, senior vice president and
    general counsel, Inter-American Foundation.
        I am assuming that the two individuals accompanying you,
    their day job is with the IAF.
        Mr. Franco. Day and night, Mr. Chairman.
        Mr. Evans. Day and night.
        Mr. Shays. OK. Welcome. We are going to have a clock, I
    think, and we are going to set it for 5 minutes, but we will
    roll it over. We prefer you to be 5, but you have another 5 to
    say what you need to say.
        I'm sorry, I have not sworn you in. I apologize. So if you
    would stand and raise your hands, and if all of you would stand
    because we are going to ask all three of you to respond to
    questions. Is there anyone else who might respond to questions?
        Ms. Otero. This is it.
        Mr. Shays. OK.
        [Witnesses sworn.]
        Mr. Shays. I would note for the record that all three of
    our witnesses have responded in the affirmative, and now the 5
    minutes begins.

         STATEMENT OF MARIA OTERO, CHAIR OF THE INTER-AMERICAN
      FOUNDATION, EXECUTIVE VICE PRESIDENT, ACCION INTERNATIONAL,
       ACCOMPANIED BY GEORGE A. EVANS, PRESIDENT, INTER-AMERICAN
     FOUNDATION; AND ADOLFO A. FRANCO, J.D., SENIOR VICE PRESIDENT
             AND GENERAL COUNSEL, INTER-AMERICAN FOUNDATION

        Ms. Otero. Thank you, Mr. Chairman. I am honored to testify
    before this distinguished committee regarding the important
    work of the Inter-American Foundation, and I do thank you for
    the opportunity to do so.
        I am the Chair of the Board of Directors of the Inter-
    American Foundation, an uncompensated position that I have held
    since July 1994, when President Clinton appointed me to this
    post. I am also the executive vice president of ACCION
    International, a nongovernment organization that promotes
    microenterprise development through the Americas. I have
    dedicated my entire professional life to development efforts
    and to the promotion of a philosophy that sound development
    assistance leads to sustainable growth, the replacement of
    welfare dependency and social economic mobility. Today I wish
    to discuss why the Inter-American Foundation, a novel,
    independent agency of the United States, dedicated to the
    principles of development that I have enunciated, is of
    critical importance to this country.
        I know the Inter-American Foundation well, not only because
    I have chaired its board for the last 5 years, but because I
    began my professional career there as an intern nearly 25 years
    ago. The Inter-American Foundation's values of 25 years ago
    today ring true. Simply stated, those values are that the
    enlightened people of the United States have a noble role to
    play in the development of our neighbors by fostering and
    promoting principles of democracy, self-reliance, and free
    enterprise that have shaped our great country.
        I wish to be clear that the Inter-American Foundation does
    not advocate welfare or dependency, but it seeks to invest in
    the creative and sustainable development projects of the poor
    to increase income, create new jobs and expand markets and, in
    the process, strengthen the free enterprise and democracy where
    it matters the most, at the grass-roots level.
        Specifically, the Inter-American Foundation operates in the
    following manner: First, the Foundation effectively channels
    funds to the private sector, not to governments. It channels
    funds to cooperatives, community development organizations, and
    nongovernment organizations. Grants are closely monitored, and
    they are audited, ensuring financial accountability and
    enhanced project quality.
        Second, the Foundation does not assign projects, but,
    rather, it supports the entrepreneurial spirit. The Foundation
    awards grants to private sector organizations that have strong
    leadership, have a proven track record, innovative ideas, and
    which invest their own resources in their work. Historically,
    the Foundation grantees have raised $1.44 in counterpart funds
    for every dollar that the Foundation has invested in them.
        Third, small projects supported by the Foundation help open
    the way for the participation of poor people in the mainstream
    economy and also demonstrates successful approaches to
    development that have been adopted by local organizations and
    by large multilateral and bilateral organizations. These tenets
    are as important and relevant to our foreign policy objectives
    today as they were 25 years ago when I served as an intern.
        The beneficiaries of the Inter-American Foundation are poor
    city dwellers housed in slums or squatter settlements, often
    living in appalling overcrowded settings, lacking access to the
    basic services of health, education and water. Their survival
    tool kit often lacks the education and the skills they need to
    enter the formal economy. Many are women, who play the dual
    role of providing income for their family and caring for their
    children. These people are more greatly exposed than others to
    the threats of contamination and to the threats of bad
    sanitation. When disaster strikes in the form of a flood or a
    hurricane, these are the ones that are most affected.
        In the rural areas, the Inter-American Foundation
    beneficiaries are land-poor, and their land is often
    unproductive and lies outside irrigated areas. Many farm in
    arid zones or on steep hills that are ecologically vulnerable.
    They live in large households, and their children are
    especially susceptible to malnutrition and disease. Most of
    these rural households patch together an income through their
    small crop production, the raising of small livestocks, and
    selling of processed goods. Without assistance, many of them
    depend on their children for work, and they weigh the
    opportunity cost of sending their children to school against
    present and future benefits.
        Mr. Chairman, as part of its program to address grass-roots
    development with the people I have just described, the Inter-
    American Foundation initiated a successful corporate outreach
    initiative that began under my stewardship as Chair. The
    Foundation has established alliances with major American
    corporations, including Levi Strauss, B.P.-Amoco Corp., Dow
    Corning, Green Giant, and JP Morgan to promote in Latin America
    and the Caribbean the principles of democracy and economic
    development advanced by the U.S. Government.
        It is in its agility and private sector focus on community
    development that positions the Inter-American Foundation to
    forge innovative ventures with U.S. corporations and to
    leverage millions of private sector dollars to serve as seed
    capital for the expansion of microenterprises, for the
    enhancement of sustainable agricultural practices in soil
    conservation, and for the expansion of education and health
    care services.
        The Inter-American Foundation is also a repository of
    development knowledge as it documents and gathers data on the
    projects that it has funded to determine if its resources have
    had an impact on the lives of the poor, if access to credit and
    vocational training has helped improve incomes, if agricultural
    training has yielded larger crops or opened new markets, if
    environmental training has helped conserve vulnerable
    ecosystems, if access to improved education has increased
    literacy and mathematical skills among the poor. This results
    documentation enables the Inter-American Foundation not only to
    learn from its projects, but also to share with other
    development organizations the specific approaches that have a
    positive impact on the lives of the poor.
        From an operational perspective, the Inter-American
    Foundation presents a model for the delivery of U.S.
    development assistance. More importantly, it does not provide
    resources through foreign governments, and it does avoid some
    of the bureaucratic inefficiency that plagues other government-
    to-government programs, that I know is of concern to you and
    other Members of Congress. This novel approach distinguishes
    the Inter-American Foundation from government-to-government
    programs and agencies and sets this model agency apart from
    others. It also enables the U.S. Government agency to reach
    small institutions working at the grass-roots level with
    relatively small amounts of support. The average size grant of
    the Foundation is $70,000. No other government agency has the
    capacity to reach this far down.
        I wish to take this opportunity to briefly address matters
    of concern to this committee. As with any organization, whether
    public or private, not every grant will prove a success or be
    without controversy. I am proud to report that the vast
    majority of the over 4,000 grants awarded by the Inter-American
    Foundation have served to promote political stability, free
    enterprise and economic development. However, as in a very few
    instances, the Inter-American Foundation has provided
    assistance to organizations that did not honor their agreement
    or deviated from those principles that the Foundation holds.
    Unfortunately, this was the case with two organizations that
    the Inter-American Foundation funded in Ecuador and in
    Argentina and which have been the subject of considerable
    interest in Congress.
        I wish for you to know that the aberrant activities of
    these organizations were brought to the attention of management
    and the Board of the Inter-American Foundation through the
    Inter-American Foundation's own oversight mechanisms, and the
    decision was made to address these matters in a swift, decisive
    way, consistent with the interest of the United States. The
    Embassy of the United States in Ecuador complimented the
    management of the Inter-American Foundation for the expeditious
    and professional manner in which the inappropriate activities
    of these grantees were addressed.
        I do also believe that additional measures need to be
    undertaken to improve the Foundation's program and operations.
    Accordingly, the Board of Directors has worked with management
    in the Inter-American Foundation to implement a significantly
    enhanced internal grant review and approval process to ensure
    that the Foundation never again supports organizations that
    engage in illegal or inappropriate activities that are
    incompatible with the objectives of the United States.
        To that end, I have directed that prior to the award of any
    grant by the Inter-American Foundation, all grant proposals be
    forwarded for review by the U.S. Embassy personnel in those
    countries in which the Inter-American Foundation operates. I
    believe that a careful and independent review of grant
    proposals by the State Department personnel will enable these
    grants to be appraised by qualified and informed government
    officials who have access to intelligence and economic and
    political information on nongovernmental organizations in Latin
    America.
        Mr. Chairman, it is my view that the Inter-American
    Foundation administers a valuable and necessary program and
    does so efficiently and effectively. However, I also believe
    that improvements can be made, and I pledge to work with you,
    this distinguished committee, and other committees in Congress
    to buildupon the success of the Inter-American Foundation.
        What I do consider regrettable is that, for some, a few
    unfortunate and clearly indefensible mistakes, which the Inter-
    American Foundation courageously, expeditiously, and
    independently corrected, can lead to a condemnation of all of
    the important work this agency has undertaken.
        Mr. Chairman, without the Inter-American Foundation, the
    efforts of the United States to promote and foster democratic
    practices and economic revitalization at the community level
    would be stymied. The Inter-American Foundation is different
    from the U.S. Agency of International Development, USAID. It
    has a critical and unique role to serve in promoting self-help
    development efforts in this hemisphere.
        It is because of its unique role as a people-to-people
    program that I was so honored to volunteer my time and efforts
    when the President of the United States asked me to serve as
    Chair of the Inter-American Foundation. I remain as
    enthusiastic about the continued expansion and importance of
    the Inter-American Foundation as I was 25 years ago.
        Thank you, Mr. Chairman. I would be happy to answer any
    questions that the Members may have.
        Mr. Shays. Thank you very much.
        [The prepared statement of Ms. Otero follows:]
        [GRAPHIC] [TIFF OMITTED] T3746.001

        [GRAPHIC] [TIFF OMITTED] T3746.002

        [GRAPHIC] [TIFF OMITTED] T3746.003

        [GRAPHIC] [TIFF OMITTED] T3746.004

        [GRAPHIC] [TIFF OMITTED] T3746.005

        [GRAPHIC] [TIFF OMITTED] T3746.006

        [GRAPHIC] [TIFF OMITTED] T3746.007

        [GRAPHIC] [TIFF OMITTED] T3746.008

        [GRAPHIC] [TIFF OMITTED] T3746.009

        [GRAPHIC] [TIFF OMITTED] T3746.010

        [GRAPHIC] [TIFF OMITTED] T3746.011

        [GRAPHIC] [TIFF OMITTED] T3746.012

        [GRAPHIC] [TIFF OMITTED] T3746.013

        [GRAPHIC] [TIFF OMITTED] T3746.014

        [GRAPHIC] [TIFF OMITTED] T3746.015

        Mr. Shays. Mr. Sanders, and then we can go back and forth.
        Mr. Sanders. Let me start off with a general question, if I
    might. Sometimes we read in the newspapers that everything in
    Latin America is now wonderful, the cold war is over, poor
    people are doing just fine, democratic institutions are very
    strong. So why do we need an agency like yours anymore? Is that
    the case in Latin America? Are there still one or two poor
    people in the continent? What is going on?
        Ms. Otero. I think what is important is to understand the
    context in which the Inter-American Foundation is operating
    today, 25 or 30 years after it was created. We have in Latin
    America countries that are trying to create democratic systems
    and to strengthen these systems. Many of these countries,
    especially in Central America, have come out of civil wars and
    of internal conflicts that have created huge rifts even within
    the country itself. We have efforts right now in Latin America
    on the part of governments to use a market economy as a way of
    operating the economy in these countries. All these things are
    relatively new in the hemisphere and require continued support
    and continued activity of the sort that the Inter-American
    Foundation provides.
        We continue to see that the large majority of people in
    Latin America are poor and remain poor in part because
    governments do not have the distribution channels to be able to
    reach these populations effectively.
        Mr. Sanders. What countries in Central America do you
    function in?
        Ms. Otero. We operate in El Salvador, Honduras, Nicaragua,
    Guatemala, Mexico, and Panama. We do not operate in Costa Rica.
        Mr. Sanders. The city that I am from has a sister city
    relationship with a town in Nicaragua called Puerto Cabezas,
    and I recently met with the mayor of that town. I am told the
    unemployment rate in Nicaragua now is 60 or 70 percent. Is that
    correct?
        Ms. Otero. I would not be surprised by that. I think you
    can find that the unemployment rate in most Latin America
    countries is enormous by the standards the United States is
    used to. In fact, for example, in a city like Lima, which has 6
    million people, about 3 million of those people depend on
    informal sector activities to sustain their families. Probably
    about 50 to 60 percent of the active labor force is employed in
    activities outside of the formal economy.
        This gives you a sense of the difficulties of being able to
    bring these countries toward a functioning market economy.
        Mr. Shays. If the gentleman would yield a second, I do not
    know what you mean by informal.
        Ms. Otero. I mean that people have to employ themselves in
    order to survive. Everyone from a woman that is selling oranges
    in a marketplace to a man that is taking pieces of metal and
    turning them into chairs or into pots and pans, all these
    activities.
        Mr. Sanders. Mr. Chairman, I raise these questions because
    one of the concerns I have long had is, especially with the end
    of the Soviet Union and the decline of communism, suddenly the
    concern that this Nation has had for the poor people of the
    Third World seems to be dissolving because we are not in
    competition with Communists any more.
        And I would point out Nicaragua in particular because I was
    there on several occasions. When the Sandinista government was
    in power, Nicaragua was on the front pages of The New York
    Times every single day, but in the last many years we hear
    nothing about Nicaragua. And I think the assumption on the part
    of many people is there are no problems there. We got rid of
    the terrible Sandinista government, and everything is doing
    well. And, in fact, unemployment is beyond belief there. In the
    region that my city has a sister city relationship, epidemic
    drug problems, horrible drug problems.
        So I would suggest that just because communism is no longer
    a threat to the United States does not mean to suggest that the
    United States should turn back a goal of trying to work with
    and uplift the poor people of the region.
        Did you want to ask a question, Mr. Chairman?
        Mr. Shays. Yes, I have questions, but ask some more. I
    wanted to understand her response to your question.
        Mr. Sanders. So I think what we cannot disagree on is that
    there remain enormous economic problems in the region that are
    not being effectively addressed.
        Let me ask you another question, if I might, and that is my
    understanding is that IAF field workers are now required to
    work with local governments or private corporations. Is that
    always a good idea? Are some local governments not highly
    politicized? Are some corporations not pushing their own
    interests? Should the IAF abandon communities where it cannot
    find government or business partners, even where local people
    have ideas for innovative projects? How does the IAF's new
    approach differ from what the Agency for International
    Development and the World Bank do?
        Ms. Otero. Let me address the first part of your question.
    I think, as you see civil societies evolving in Latin America
    and democracy taking hold, you also see other parts of the
    country, especially the business sector, becoming increasingly
    involved in the development of the country. I see this in my
    own work through ACCION and through the work of the Inter-
    American Foundation. We also see that central governments are
    making an effort to decentralize their power and to strengthen
    local governments to play a larger role in the development of
    the country.
        The work that the Inter-American Foundation is doing is an
    effort to recognize some of these changes that are taking place
    and to enable nongovernment organizations and private sector
    organizations to be able to work alongside of these elements
    that are part of growing democracies. The efforts of the Inter-
    American Foundation to leverage resources from the corporate
    sector in order to channel them toward development is precisely
    one manifestation of the importance of expanding the number of
    players in the development of a country from having it be just
    the government or outside forces.
        So from that perspective, I think the direction that the
    Foundation is taking is one that recognizes that the
    environment it is working in has, in fact, changed and evolved,
    and that its government resources, in order to make a
    difference, have to leverage resources from other sectors,
    especially the private sector.
        I do not know if the President or Mr. Franco would like to
    answer.
        Mr. Evans. I would like to just mention one. Our grants
    still go to the nongovernmental organizations. We do not give
    grants to municipal governments, and we do not give grants to
    the private sector. What we are trying to do is to get the
    nongovernmental organizations, of the type we have been
    supporting for 30 years, to work when possible and as closely
    as possible with municipal governments, most of which are now
    elected. We could not do this 10 or 12 years ago because they
    were not elected. They are now, in most countries, elected or
    appointed by a city council that is elected. So they do have
    constituents.
        And we also feel that like the private business sector
    should be investing in development because they have a lot to
    gain from it, and it will affect their bottom line. They need
    healthy, trained workers. So what we are trying to do is to get
    the nongovernmental organizations to recognize that in order to
    be sustainable over time, they need to get these other sectors
    involved.
        Sometimes the municipal government may donate money or
    office facilities. Sometimes they may just be able to give
    moral support. But we are trying to encourage that model
    because we believe that that model will be more effective, that
    there will be more benefits accruing to the poor, and that it
    will be more sustainable.
        Mr. Franco. Congressman, if I can add one thing that is
    again important from the standpoint of Congress. Starting 3
    fiscal years ago, in fiscal year 1996, the Appropriations
    Committee inserted report language in our appropriations bill,
    in the foreign operations bill, that required the Inter-
    American Foundation, by law, to seek other sources of funding,
    private and public, to support the grassroots development
    efforts of the agency. So there has been a congressional
    mandate, that other sources of funding be provided for those
    efforts supported by the Inter-American Foundation.
        Mr. Sanders. Mr. Chairman, if I could, let me read from an
    article that appeared in the L.A. Times, Wednesday, August 4,
    by Jim Mann. The title of the paragraph is: Support Withdrawn
    for Cooperative, ``in Mexico, for example, the IAF has
    withdrawn support from a small farmers' cooperative in strife-
    ridden Chiapas that marketed its coffee by opening a successful
    chain of cafes in Mexico City. Today, it is teaming up with
    Levi Strauss, JP Morgan Co., Green Giant and 3M to fund
    training programs in areas where U.S. corporations do
    business.''
        Do you want to comment on that?
        Mr. Evans. Well, there is a history to that project. We do
    not provide support forever for these organizations, and we had
    supported that organization for a number of years. When the
    grant expired, the grants expire. So we did not withdraw
    support for that organization, nor did we cut the grant off.
    The grant expired.
        Mr. Sanders. What was the result? What happened to that
    farmers' cooperative in Chiapas; do you know?
        Mr. Evans. I do not have all of the details, but as far as
    I know, the cooperative is still in existence.
        Mr. Sanders. Anybody else know any more?
        Mr. Franco. Yes, I would like to comment on two points.
    Just as the President of the Foundation has noted, the Inter-
    American Foundation provides seed capital. Our program is not
    designed to provide long-term support to these organizations,
    nor has it been advisable from the development standpoint to do
    that. The Inter-American Foundation provides seed capital for
    organizations to get on their feet, to have an initial
    investment, and then be self-sustaining.
        Second, to address your question directly, the goal of the
    Inter-American Foundation is to influence U.S. corporations
    working in the region that have a responsibility, we refer to
    it as social investment and social responsibility, to invest in
    those programs and those projects that the Inter-American
    Foundation seeks to support.
        So, therefore, just to be very clear, the objectives and
    certainly the activities of the Foundation are not to subsidize
    or support the efforts of U.S. corporations. On the contrary,
    it is to seek support from these institutions, and they are
    private businesses, to invest in those projects we have
    historically supported.
        Mr. Sanders. Thank you, Mr. Chairman.
        Mr. Shays. Thank you very much.
        I think I come down on wondering about two issues. One is
    the uniqueness of the program and if the IAF has not succeeded
    in getting USAID to be more like you are, and whether or not
    USAID can do this and whether private groups can.
        And also the whole issue of critical mass. I noticed from
    past budgets that at one point in 1989, it was $6.6 million,
    then it grew to $25 million in 1992 to basically $31 million in
    1993 and 1994 and 1995, and then down to $20 million. And I
    understand that there is only $5 million in the budget that
    passed the House, which I think will be changed again.
        It seems to me it gets to a point where if you do not get
    enough, we should just fold you into USAID. That is kind of
    what I am wondering. So I wanted to share that with you.
        My sense is that you went from about 70 employees to about
    56, but I also wonder why 56 employees? I have an organization
    that is private in New Canaan, CT called AmeriCares, and they
    give out hundreds of millions of dollars of medicine that they
    get from companies, literally hundreds of millions. They have
    given out billions, or a billion in aid, and they do it with so
    few employees, and I am wondering why 56?
        When we looked at your roster, it seemed like you had a
    number of well-paid employees, seemed to be top-heavy. So that
    is when I look at it on the surface, and those are the kinds of
    questions that I will want to address.
        I am also interested just to know how, Ms. Otero, you have
    spent a lot of time on this, but this is your oversight
    responsibility. The agency is run by Mr. Evans and Mr. Franco
    and others. Let me just begin by saying, Mr. Franco, how many
    times have you been overseas? First, how long have you worked
    for the agency?
        Mr. Evans. Are you speaking to me or Mr. Franco?
        Mr. Shays. Mr. Evans.
        Mr. Evans. Well, I have worked for a total of about 18
    years. I was a member of the team that started the agency in
    1971. I worked there for 10 years. I went to the Peace Corps
    after that and served in the Peace Corps in staff positions for
    8\1/2\ years under Director Ruppe and returned to the Inter-
    American Foundation in 1991 as executive vice president.
        Mr. Shays. Mr. Franco, how long have you worked?
        Mr. Franco. Since 1985, Mr. Chairman.
        Mr. Shays. Since 1991, how many trips overseas have you
    had, Mr. Evans?
        Mr. Evans. I would say about seven or eight.
        Mr. Shays. So you average about one a year?
        Mr. Evans. About one a year.
        Mr. Shays. In the last 3 years how often have you been
    overseas?
        Mr. Evans. I think, two or three times.
        Mr. Shays. You would remember. How many times?
        Mr. Evans. In the last 3 years? Twice, to the best of my
    knowledge.
        Mr. Shays. Twice. Where were those trips?
        Mr. Evans. To Chile.
        Mr. Shays. And where else?
        Mr. Evans. And to Argentina.
        Mr. Shays. Mr. Franco, since 1991, how many times have you
    been overseas?
        Mr. Franco. Countless. I can't give you a number, but it
    would probably be 100, 50 or 100, a very large number.
        Mr. Shays. Just the disparity between you being 100 and,
    Mr. Evans, for you not even being overseas, how would you be
    able to really have a handle on your agency if you simply
    stayed home?
        Mr. Evans. Well, obviously, with the number of operations
    we have in the different countries, we have staff members that
    are directly responsible for those countries and those
    projects, and I have to depend on them because I cannot
    possibly cover the number of countries and projects that we
    have.
        So the staff members, you were talking about the number of
    staff members that we have, do have to do a great deal of
    traveling and monitoring of projects, which they do, and they
    then report back to me. So I have to rely on my staff.
        Mr. Shays. It just strikes me that, given the kind of
    agency that you are, that you would need to be out in the field
    on more than just two occasions in the last 3 years.
        Let me deal with the whole issue of uniqueness. My sense
    is--and first I concur with my colleague, there is more poverty
    today than there ever has been in Third World, so-called
    nonwestern countries. And so I concur that there is need to be
    of assistance, tremendous need to be of assistance. But I look
    at the number of employees and wonder how do we justify 56
    employees with an agency that basically is working to give $20
    million out?
        My understanding is that we have gone from 11 percent to
    about 22 percent of cost. So over 20 percent, say, gets gobbled
    up by the agency for administrative cost. Is that an accurate
    number?
        Mr. Franco. May I?
        Mr. Shays. Let me ask Mr. Evans.
        Mr. Evans. I think the program support costs are about 22
    percent for the last fiscal year. So it is in excess of 20
    percent.
        Mr. Shays. Why?
        Mr. Evans. Well, most of that cost is for staff and travel.
    If you look at the way that we operate, you just asked me the
    question about how we keep apprised of what is going on
    overseas on the projects. We have to visit the projects, we
    have to have staff members responsible for what we call Project
    Find in each country.
        Mr. Shays. In other words, you have staff in each of the
    countries?
        Mr. Evans. No, we have no staff stationed in the countries.
    All of our staff are stationed in the office in Arlington, VA,
    but they travel quite a bit, and they have to in order to
    investigate the projects when we get a proposal. Last year we
    got over 1,000 proposals. These proposals have to be reviewed.
    We do not give a grant to an organization unless there is a
    field visit by the Foundation representative responsible for
    that country.
        And once the grant is awarded, then we have to monitor the
    grant; they have to make trips down to the countries to visit
    the organization, onsite periodically, to be able to keep up
    with what is going on. And that is a little bit different than
    operating here in the States.
        We also are a government agency, and we have to comply with
    government regulations. We have to have a personnel department,
    we have to have a financial management department. We are under
    government regulations, and that, of course, adds to our
    overhead. We also have a learning department.
        Part of our mission is to learn from our projects. So we
    have to evaluate the projects. We have to have some people to
    do that.
        Mr. Shays. I have a number of organizations in my greater
    district, outside organizations, like Trickle Up and others,
    that basically try to do a lot of what you do. One of the
    things I will be asking my staff to do is to determine whether
    or not we are getting enough money to the people in need of
    whatever we are appropriating.
        Did you want to say something, Mr. Franco?
        Mr. Franco. Yes, if I could, Mr. Chairman. First, to be
    clear here for the record, in 1996, the administrative
    obligations, or overhead, for the Inter-American Foundation
    reached a record high of 25 percent, and that was a consequence
    of a dramatic reduction in our appropriation. By one-third, by
    Congress.
        So in 1996, our overhead was 25 percent. In 1997, it was 24
    percent, and in fiscal year 1998, it was 21 percent. So it has
    gone from 25, 24, 21. We think it is still too high. We are
    conducting a grade review, in terms of your question about
    being top-heavy in positions, and having them reviewed to make
    sure that positions are not only properly classified, but also
    are needed.
        I will say this: In terms of employees, before the
    congressional reductions beginning in 1995, with contractors,
    which we have eliminated, our staff was, in reality, nearly
    100. All those contractors or consultants----
        Mr. Shays. What did you say?
        Mr. Franco. It was nearly 100 with contractors. Those
    positions were eliminated beginning in fiscal year 1996. So
    we're looking at franchising some of our functions. And we are
    conducting a review of what activities, since this has become
    the norm in government, of having some administrative functions
    being carried out by other agencies, and we can do so less
    expensively to bring our overhead lower.
        We don't disagree our overhead is high. It is a concern.
    And, also, to be candid with you, you have referred to our
    budget and our size and our impact, there is a point where if
    the budget is too small, considering the requirements of
    running an institution, that the overhead will necessarily be
    higher than we like, but it is an issue that we are addressing.
        Mr. Shays. The bottom line is at a certain point, if
    Congress doesn't and the White House doesn't fund you at a
    certain level, it does become a question as to--and I am not
    saying it becomes your fault, I am just saying there is a point
    where integrity would demand that we just simply say, given
    what Congress is funding, we need to just take this money and
    give it to another organization. I am not saying we should
    reduce it, because I do not know. I am just saying there is
    this point, and I would be interested to know where it is.
        What would happen if we gave all the $20 million to USAID
    and required that they give all that money out with no overhead
    at all, using their existing infrastructure? What wouldn't
    happen that we want to happen?
        Ms. Otero. Let me try to answer that.
        Mr. Shays. I am going to ask the two employees here first.
        Ms. Otero. That is fine, and then I will give you mine.
        Mr. Shays. Because, frankly, one of the criticisms we have
    had of the organization is that there is a lot of problems with
    the running of the organization.
        Mr. Evans.
        Mr. Evans. Your question, Mr. Chairman, is that what would
    happen if you just gave the money to AID and let them give it
    out?
        Mr. Shays. With the same mandate; that it go to grass-root
    organizations, a trickle-up kind of attitude, not for big
    projects, which they are starting to do. They have copied a lot
    of what you all did. They really have.
        So I guess what I am trying to understand is why couldn't
    they do it and use their overhead?
        Mr. Evans. Well, one thing, they are not in every country
    in Latin America. That is one thing that they do not.
        Mr. Shays. You are not either, in the sense that you don't
    have people there.
        Mr. Evans. We don't and never had any people in all of
    these countries.
        Mr. Shays. So they could just go to these countries as
    well.
        Mr. Evans. That is a possibility.
        Mr. Shays. But your point is that they do not have
    expertise in some of these countries?
        Mr. Evans. That is one point that I would make. If they
    administered the program the way that we do, which is what I
    was just talking about in terms of the staffing that we have,
    that they would have to have someone that would go and visit
    the projects, look at the proposals, do the assessments in
    order to make sure that the organization was capable of
    carrying out the project, and they would also have to have
    someone to monitor the project. We audit the projects. They
    would have to have somebody to audit the projects.
        So I am not sure that they would be able to do it without
    any overhead whatsoever. As a matter of fact, I think they
    would have to expend some funds on overhead or program support,
    the kind of activities I just mentioned, unless they just gave
    the money out blindly and didn't do a thorough analysis and
    didn't followup or monitor the project, which I think would be
    a mistake.
        Mr. Shays. Mr. Franco.
        Mr. Franco. Mr. Chairman, I think that the mandate of the
    Agency for International Development is wholly different than
    that of the Inter-American Foundation, and, therefore, an
    earmark of $20 million to reach the same populations and the
    same groups would not be possible simply because the agency is
    designed, and properly so, to work government-to-government
    programs. It works very closely, although it works with the
    nongovernmental associations----
        Mr. Shays. You are saying USAID?
        Mr. Franco. Yes. Although it works with the nongovernmental
    organizations in Latin America, it does so in tandem with our
    State Department and host governments. And there is nothing
    wrong with that, it is just a different mission. So to simply
    state that $20 million could be earmarked for smaller projects,
    I think, would change the character of the types of
    organizations that would ultimately be funded, meaning by that,
    I do not think the groups we reach and work with today would be
    reached.
        And I believe AID would attest to that, or the assistant
    administrator for Latin America would. Therefore, I think a $20
    million earmark to AID would really represent, ultimately, $20
    million to very similar programs AID works with today, which
    are of a different character.
        Second, I do agree with Mr. Evans, and that is that any
    program that would be established, there would be a
    minibureaucracy established with it even at AID.
        Mr. Shays. Well, some of the administrative costs wouldn't,
    but I hear what you are saying.
        Ms. Otero.
        Ms. Otero. I have had opportunity to work with AID at the
    mission level quite a bit through my own work, and I would say
    that the capacity of AID to do this kind of work is really not
    in place. AID, if it has taken on some of the learning that the
    Foundation has provided, it has been to apply it to providing
    grants, relatively large grants, to some of the best known
    nongovernment organizations in the country.
        But primarily its work has been and continues to be
    government-to-government. In fact, AID in Latin America right
    now is working very closely with governments to help them
    strengthen the capacity of local governments. That in itself is
    complementary to what the Inter-American Foundation is doing.
        I think what would happen, Mr. Chairman, is that AID would
    not really be able to deploy grants as small as $7,000 or
    $25,000 to organizations that are quite far away from the
    capital and that really do not have the capacity to interact
    with an organization like AID. AID would not have the staff to
    be able to visit those places. I am talking about places where
    you travel by land in jeeps and that you don't find easily.
        From that perspective, what you would find, Mr. Chairman,
    is on the one hand the elimination of the presence of a U.S.
    Government agency at the grass-roots level, and I think that
    this is an essential component of the interests of the United
    States in the hemisphere. Second, you would do away with a very
    important repository of learning and of expertise that the
    staff of the Inter-American Foundation has developed over the
    years. They may seem to be 56 people who are deploying only $20
    million, but in addition to that they are bringing important
    knowledge and disseminating important learning into
    development. And some of that learning is being accepted and
    implemented even by the World Bank or by AID or other agencies.
        So I think you need to look at the Inter-American
    Foundation and its uniqueness not only in terms of the funds
    that it is providing to these institutions, but also to the
    learning that it is able to amass and then to disseminate to
    other institutions. And for that purpose it really needs to be
    able to operate in the independent way that it has in the past.
        Mr. Shays. I think this will be my last question, unless
    your answers generate another question. I want each of you,
    start with you, Mr. Evans, and then you, Mr. Franco, to tell me
    the best project in the last year and the worst project.
        Mr. Evans. I would say one of the best projects that we
    have supported in the past year is a project in Brazil in which
    they are using sisal. It is a cooperative. It is a business.
    They are manufacturing carpets which they are selling for a
    profit. The proceeds from this business is being used not only
    to increase the income of the workers, but also to support
    community projects that improve the health and education of the
    community.
        Mr. Shays. How much was that grant for?
        Mr. Evans. I think that that project--I don't recall
    exactly, but I think the project is about--it was about
    $250,000 over 3 years. But I do not have that exact figure. I
    can certainly get it for you.
        Mr. Shays. Tell me the worst project.
        Mr. Evans. Let's see, I'd have to think about----
        Mr. Shays. I'm not saying you shouldn't have funded it, I
    am just saying----
        Mr. Evans. I'm not trying to avoid----
        Mr. Shays [continuing]. In the last 2 to 3 years.
    Obviously, I can't say the last year.
        Mr. Evans. Well, the worst project, as far as I'm
    concerned, is the one in Ecuador, in which the grantee deviated
    from what they were supposed to be doing and got involved in
    detaining two Americans and threatening----
        Mr. Shays. What was that project?
        Mr. Evans. That was the COICA.
        Mr. Shays. What was it funding?
        Mr. Evans. It was an indigenous group in Ecuador, and the
    grant was supposed to go for educational purposes to improve
    the education of these indigenous people, who are very poor
    and, in many, many cases, illiterate.
        Mr. Shays. So your mandate isn't just economic?
        Mr. Evans. Pardon?
        Mr. Shays. Your mandate isn't just economic?
        Mr. Evans. No, no.
        Mr. Shays. How much was the grant for?
        Mr. Evans. The grant in that particular case, do you
    remember----
        Mr. Shays. No, I want to ask you, Mr. Evans.
        Mr. Evans. I think that that grant was about $190,000, I
    think, again, for 3 years. I'm sorry, we have hundreds of
    grants.
        Mr. Shays. No, no, no, the good grants and the bad grants
    should stand out to the person running this agency. You
    shouldn't have to ask anyone for assistance on that.
        Mr. Franco, the worst.
        Mr. Franco. I would say, Mr. Chairman, based on kind of a
    prejudice for the grants I have visited, because there might be
    very good grants, we make 240 a year, so we can't see them all,
    but there is a grant that sticks out in my mind. It is in
    Brazil, and it is in Porto Alegre, and the name is Portosol,
    and I like it for a couple of reasons.
        It is a revolving fund that we have established where it
    generally works--a lot of these revolving loan funds encounter
    difficulties because we are dealing with poor people. But this
    is a very good fund that doesn't just provide capital, but also
    provides technical assistance in conjunction with it. The
    administrators are very committed people, but they are also
    business-minded people. They are not just people that have a
    good charitable instinct, but have a business acumen. And they
    are businesspeople that have come together, with local leaders
    in Brazil and Porto Alegre, to provide seed capital in the
    marginal neighborhoods of the city and also the technical
    assistance to make the revolving fund actually work
    effectively.
        I think the project has a lot of potential, not because I
    say so, but because it is being replicated in other places in
    Brazil. People have come from Rio and Sao Paulo, which have
    huge problems, and are replicating this approach.
        Mr. Shays. How much is that grant for?
        Mr. Franco. $197,000 for a 2-year period. So it is
    illustrative of not only a successful grant, but one that shows
    the impact of the program and how it can be replicated at a
    national level well beyond its $197,000.
        Mr. Shays. Worst grant.
        Mr. Franco. The worst grant, I would say--well, we don't
    have any worst grants, but if I have to tell you one that has a
    problem----
        Mr. Shays. I said the worst grant. You mean you have a few
    bad grants?
        Mr. Franco. Well, we have grants that do not meet our
    expectations.
        Mr. Shays. Let me say something to you. If you didn't, I
    would be amazed.
        Mr. Franco. No, no, we do. We have an audit committee, and
    we look at grants.
        Mr. Shays. Give me one.
        Mr. Franco. Let me give you one that has been a problematic
    grant. The name of it is CANDELA. It is in Peru. I became
    involved with the problem, and it was an ambitious grant to
    harvest Brazil nuts in a remote area of Peru. Actually, there
    is a processing plant in Lima itself in the south, and they are
    nut gatherers and so forth.
        Now, this grant had our good intentions of bringing the
    business community in direct contact with poor people with the
    goal of doing two things. First of all, the businesspeople had
    an interest in harvesting these Brazil nuts. Unfortunately,
    based on our review and monitoring reports of this project,
    there was not the kind of social commitment the IAF expects of
    grantee organizations. We provided funding for a school, a
    daycare center, and generally improved conditions for project
    beneficiaries. Our investment, as we have described it before,
    was designed to be seed capital so this organization, CANDELA,
    would continue to do these activities, and not just use the
    funds for its business purposes. This organization didn't live
    up to our expectations and didn't follow through.
        Why it is troublesome to me is because it left a sour taste
    in my mouth. There is a difference between something that
    didn't work; people have tried their best and it just didn't
    work out and----
        Mr. Shays. How much of an investment was this one?
        Mr. Franco. This was a total of about $188,000.
        Mr. Shays. For how long?
        Mr. Franco. For 3 years. And we did extend it once, I
    believe, for 6 months.
        Mr. Shays. Let me just conclude, Ms. Otero. There are good
    grants and bad grants. There has to be. If everything is an
    average, then you are not taking risks and so on. So I accept
    there are going to be good and bad. What I want to know is the
    confidence to know that you all have a system to identify the
    good and the bad, and duplicate the good and eliminate the bad.
        Tell me what you have learned since you have worked there
    on how to eliminate bad funding.
        Ms. Otero. I think several things are important in any
    process of reviewing proposals that come to you from the
    outside which have been designed by people on the outside.
        I think the review internally has to be done by a group of
    people rather than by one or two people. It has to be done by
    people who have some level of expertise and knowledge about the
    country, the context in which the project is taking place, and
    what the results the grantee organization it is planning to
    undertake are.
        So in the process of reviewing the grant before you approve
    it, you do need to have a serious and systematic process. And I
    think the Foundation, certainly since I have been Chair, has
    improved that process dramatically.
        The second part is the monitoring of the grant. And this is
    really where a lot of the administrative costs go, is to keep
    track of whether the activities are going on according to the
    goals that they have established and if the resources are being
    spent accordingly. And I think the Foundation not only is doing
    that effectively, but it is also gathering impact data to find
    out if, in fact, this deployment of a grant is increasing
    incomes, is changing the capacity of people to work, and is
    enabling them to really improve their lives. And in gathering
    that information, I think the Foundation is also determining
    what makes a good project and what does not.
        So I personally think the Foundation has a great deal to
    offer on that perspective.
        Mr. Shays. OK, thank you.
        Do you have any other questions?
        Mr. Sanders. Only this, Mr. Chairman. I don't claim to be
    the expert on the function of the IAF, and I share some
    concerns on the issues you raise. We want to make sure that the
    money we appropriate goes to the people who need it and does
    not go, for example, to a bureaucracy.
        But the concern I have, whether it is the IAF or any other
    agency, is that we in the United States, and certainly in the
    U.S. Government, do not believe that it is appropriate with the
    end of communism simply to withdraw our concern for the poor
    people in the world. It would be the height of hypocrisy to say
    that we were there because Fidel Castro might take advantage of
    the poverty, and now that communism is weak, we don't have to
    pay attention to that.
        You indicated, and I think you are right, that in many ways
    in Latin America and Central America for the poorest people the
    economic situation is worse than it used to be. I do know
    Nicaragua is an absolute disaster. And it is an outrage to my
    mind that when we were worried about Daniel Ortega, everybody
    was concerned about Nicaragua, and now when we have 17 percent
    unemployment, nobody is concerned.
        Now, whether these guys are doing the job that needs to be
    done, I cannot say, but I do think just because Jesse Helms has
    a concern is not a reason for all of us to suggest that we
    should be cutting back on our programs that help the poorest
    people in the world.
        Mr. Shays. Let me say this. I do think there has to be
    critical mass, otherwise then it doesn't make sense. But I
    always make an assumption when we have these hearings that we
    give you the opportunity to present your case. And, who knows,
    we could argue that funding should be increased, not decreased.
    So, obviously, that changes, too. So I don't pass judgment one
    way or the other on that issue.
        I thank you all. I would welcome any of you to make a
    closing comment before we get to the next panel. If you have
    any comments you would like to make?
        Ms. Otero. No.
        Mr. Shays. All set? OK, then, thank you very much.
        Ms. Otero. Thank you, Mr. Chairman.
        Mr. Shays. We will call our next panel, which is Patrick
    Breslin, representative for Colombia Inter-American Foundation;
    Daniel W. Fisk, Deputy Director, the Kathryn and Shelby Cullom
    Davis International Study Center, Heritage Foundation, DC; and
    Alvaro Rengifo, executive director, Inter-American Development
    Bank.
        That's it. I'm having to remember that an ``I'' in Spanish
    is an ``E.'' Is that correct; an ``I'' in Spanish is an ``E?''
        Mr. Regnifo. Yes. Double E for you.
        Mr. Shays. I'm taking Spanish lessons.
        Mr. Sanders. And you are going to conduct the rest of the
    hearing in Spanish; right?
        Mr. Shays. No hablo ingles, senor. Hablo en espanol, por
    favor. That's about it.
        We have to give you the oath. So I would ask all of you. Is
    there anyone else who will be responding? All three of you have
    testimony. If you will raise your right hands, please.
        [Witnesses sworn.]
        Mr. Shays. All three have responded in the affirmative. We
    will do it as I called you, and we would like you to keep
    within the 5 minutes, and if you need to go over a minute or
    two, that's fine, and then we will ask questions.
        Mr. Breslin.

      STATEMENTS OF PATRICK BRESLIN, REPRESENTATIVE FOR COLOMBIA,
    INTER-AMERICAN FOUNDATION; DANIEL W. FISK, DEPUTY DIRECTOR, THE
      KATHRYN AND SHELBY CULLOM DAVIS INTERNATIONAL STUDY CENTER,
     HERITAGE FOUNDATION; AND ALVARO RENGIFO, EXECUTIVE DIRECTOR,
                    INTER-AMERICAN DEVELOPMENT BANK

        Mr. Breslin. Thank you, Mr. Chairman. My name is Patrick
    Breslin. I have been involved in issues of development in Latin
    America since I was a Peace Corps volunteer in 1963 in
    Colombia. I have been associated with the Inter-American
    Foundation since the early 1980's, first as a freelance writer,
    later commissioned to write a book about the Foundation's first
    15 years.
        Mr. Shays. We are not picking you up well. Can you bring
    that mic a little closer and just a little lower.
        Mr. Breslin. Is that better?
        Mr. Shays. I think you probably just need to speak a little
    louder.
        I heard Peace Corps, and that obviously warms my heart, but
    other than that I didn't hear anything else you said.
        Mr. Breslin. OK. Since Peace Corps and Colombia, I have
    studied Latin America, I have lived in Latin America, I have
    been with the Inter-American Foundation in one capacity or
    another since the early 1980's, first as a freelance writer,
    visiting projects, writing about them, later writing a book
    called Development and Dignity, which recounts the first 15
    years of the Inter-American Foundation, and, most recently, as
    the Foundation representative for Colombia.
        Mr. Shays. Does that mean, basically, that that's your desk
    job? In other words, you have the Colombia desk?
        Mr. Breslin. I have the Colombia portfolio. I am the single
    representative in the Foundation responsible for the Colombia
    portfolio. That means I travel to Colombia frequently, I look
    for projects, I analyze projects, I present projects for
    funding within the Foundation, and then I continue to visit
    projects.
        Mr. Shays. If you will indulge me just a second to
    understand. About how much goes through your desk? And then we
    will get on.
        Mr. Breslin. Something on the order of $800,000 to $1
    million a year currently. That is down because the overall
    budget is down.
        Mr. Shays. Sorry to interrupt you. We will let you get on
    with your statement.
        Mr. Breslin. I wanted to start off by saying that I am very
    excited about this oversight hearing. I am excited about some
    of the issues you are raising. I think they are very healthy
    for the Foundation. And I think it is particularly healthy that
    these questions come from Congress, because uniquely in the
    U.S. Government, the Inter-American Foundation is a creature of
    the Congress.
        In the course of the discussion, I wanted to take issue
    with your opening statement about the Inter-American Foundation
    being a cold war institution. I think that really, uniquely in
    the field of foreign assistance from the U.S. Government, the
    Inter-American Foundation was most specifically not a cold war
    institution. I think it, in many ways, anticipated the end of
    the cold war in the way that it began to work and has worked
    for almost 30 years now in Latin America.
        And I think that this identification of the Foundation with
    the Congress, particularly in the early years, was extremely
    important to the success of the Foundation. In the late 1960's,
    the 1970's, Latin America was incredibly conflictive:
    ideological battles, political upheavals, and along with that a
    very deep-rooted suspicion of the United States among many
    sectors of Latin America society. The basic hurdle that the
    Inter-American Foundation had to overcome when it began to work
    was to convince Latin Americans that it was not a front for the
    CIA. That was the common suspicion of any initiative coming out
    of the United States at that point.
        The fact that Latin Americans saw the Foundation as being a
    creature of the Congress, a creation of the Congress, made a
    major difference. It was something that helped the
    representatives make contacts, get access to people, and learn
    about what was going on, because people in Latin America tended
    to see a distinction between the administration policies that
    they might have been suspicious of and the Congress, which they
    thought was representing much more directly the people of the
    United States. And I think that identification really eased the
    path for the Inter-American Foundation, particularly in the
    early years.
        There is another whole set of very relevant questions that
    should be asked about the Inter-American Foundation, and you
    touched on many of these already. They have to do with the
    impact of the projects that we have funded. That is, in my
    experience, a difficult thing to measure. There are several
    basic things regarding the Inter-American Foundation, and one
    of them is we do not plan projects. We have no project design
    capability within the Foundation. That is not the way we go
    about the work. What we have always tried to do is to be
    responsive to the ideas that are coming out of Latin America.
    We fund ideas that people bring to us. We don't go with
    preconceived ideas about what they need.
        There is another characteristic of the Inter-American
    Foundation philosophy which, I think, is also unique. AID, the
    World Bank, Inter-American Development Bank, everyone is
    working with NGO's now. I think that there is still a major
    difference in terms of the way the Foundation works. We start
    with the idea that poor people in Latin America know what they
    need.
        The first book the Foundation ever published was titled,
    ``They Know How,'' and it tried to make that argument. Our
    approach to poor people, to the problem of poverty in Latin
    America, is not to view poor people as a kind of
    undifferentiated mass for whom projects have to be planned to
    bring them into the mainstream. We start with the idea that
    they need to come up with their own ideas, to form their own
    organizations, and to go about improving their lives on their
    own. And if what they are doing makes sense to us, if they can
    sell us their idea, then we put in the resources. But the
    initiative is theirs; the responsibility for the project is
    theirs.
        And that is the basic reason why, and you asked about staff
    overseas, there was a conscious decision not to place staff
    overseas, to maintain that distance between the Inter-American
    Foundation and the projects it was funding. We did not want to
    have project managers in the field. We didn't want to have
    local people ask us well, what do you think we should do? Our
    whole point is you need to know what you want to do. And if you
    can convince us that what you are doing makes sense, we will
    back you up.
        Is the Foundation still relevant? As I suggested, because I
    don't think the Foundation really had anything to do with the
    cold war, I would argue that, yes, it is, and actually more
    relevant than many other institutions that I think really did
    pursue cold war aims more than we did. The basic idea about the
    Foundation was to work directly with poor people and their
    organizations and not to go through their governments, because
    for many years U.S. assistance was used as leverage. It was a
    stick to beat people with. It was a leverage to get something
    we wanted.
        There are many cases in the history of AID and Latin
    America where funding for projects was cutoff because the
    government was not supporting us in the U.N. or because the
    government had taken a position we opposed. The whole point of
    the Inter-American Foundation was to have a continuity of
    contact with poor people and their organizations and not to be
    affected by short-term U.S. foreign policy. That was built into
    the legislation.
        The other point I would like to make, and I think I am
    running out of time, is that when Congress created the
    Foundation, it created a very complicated institution. Congress
    was really looking for a lot of different things. The board of
    directors is a structure that Congress decided on. It was meant
    to buffer us from the government. It was meant to make us a
    semi-independent agency. It was meant to give us the
    flexibility that is more characteristic of the private sector,
    but, at the same time, the identification of the Foundation as
    a government agency was to be clear and enduring. We are an
    agency of the U.S. Government. We represent the U.S.
    Government. When I am in Colombia, in a small town someplace,
    I'm the U.S. Government. I'm representing it.
        But because Congress was looking for a lot from this
    agency, I think the way it is structured has built-in tensions.
    And I think that the real test for board and management of the
    Foundation has always been how well do they deal with the
    built-in tensions of the Foundation. How do they balance the
    need to follow government regulations with the need to be
    innovative, to take risks, to take chances, and to bet on
    people.
        Because, ultimately, what we do as a Foundation is we bet.
    We are venture capitalists in that sense; we bet on people's
    ideas, and we try to talk with them, and we try to analyze what
    they are talking about. But we are really making a bet that
    they know what they are doing and that they have the
    commitment. We stay with them, we talk to them, we engage in a
    conversation with them over the life of the project, but that
    involves an element of risk and uncertainty, and a lot of
    people are uncomfortable with uncertainty. For me, the
    challenge to the Board of the Inter-American Foundation, to the
    management of the Inter-American Foundation, has always been
    how well do they deal with the challenges of uncertainty?
        I think because I have used a lot of time, I could just
    leave it there.
        Mr. Shays. Thank you.
        [The prepared statement of Mr. Breslin follows:]
        [GRAPHIC] [TIFF OMITTED] T3746.016

        [GRAPHIC] [TIFF OMITTED] T3746.017

        [GRAPHIC] [TIFF OMITTED] T3746.018

        [GRAPHIC] [TIFF OMITTED] T3746.019

        [GRAPHIC] [TIFF OMITTED] T3746.020

        [GRAPHIC] [TIFF OMITTED] T3746.021

        [GRAPHIC] [TIFF OMITTED] T3746.022

        [GRAPHIC] [TIFF OMITTED] T3746.023

        [GRAPHIC] [TIFF OMITTED] T3746.024

        Mr. Shays. Mr. Fisk.
        Mr. Fisk. Thank you very much, both on behalf of the
    Heritage Foundation, my new institutional affiliation, and as
    someone who has personally followed Latin America for roughly
    the last 15 years, either in terms of a policy job here in
    Washington or in the last 2 years from an academic viewpoint.
    For 5 of the years in government I had staff responsibility for
    oversight of both USAID and IAF on both the House and the
    Senate side.
        In preparation for this, I thought it was useful to go
    through the congressional presentation documents for both USAID
    and the IAF, as well as review some of the sample congressional
    notifications, so my conclusions and comments are based on both
    professional experience and then this most recent review.
        It is clear from my reading of the legislative history that
    the Inter-American Foundation was created to remedy a gap in
    programs implemented by USAID, namely the Alliance for
    Progress, which was part of the cold war architecture of the
    United States and Latin America. At the time of the
    Foundation's establishment, economic development was primarily
    defined in government-to-government terms with the focus on
    large infrastructure projects. The Inter-American Foundation's
    focus was to be people-to-people, working with and through
    nongovernmental organizations, a tradition the IAF has
    continued.
        However, over the last decade, I would say that the gap in
    philosophies on how to approach development has dramatically
    closed, reflecting dramatic changes in the hemisphere. The
    increasing focus of U.S. bilateral aid programs, specifically
    those implemented by USAID, is assistance to nongovernmental
    organizations, with a growing emphasis on local and municipal
    programs. There is no doubt that AID continues to give money to
    governments. They do, and they will probably continue to do
    that. But there is no doubt, as well, that the increasing focus
    is nongovernmental organizations.
        I conclude that it is difficult to distinguish how NGO
    development projects supported by the Inter-American Foundation
    are different from those----
        Mr. Shays. Could you just suspend one moment?
        Mr. Fisk. Yes.
        Mr. Shays. I'm sorry.
        Mr. Fisk. I can work however you want to.
        Mr. Shays. No, no, you just keep going. We have time. What
    we will do is we will just keep it rolling. Since there is only
    one vote, we will just keep it rolling. If there were a few, we
    would have to adjourn, but let us keep going.
        Mr. Fisk. Thank you, sir.
        As I was saying, it is difficult to distinguish how NGO
    development projects supported by the Inter-American Foundation
    are different from those supported by USAID. In some cases you
    have situations in which, at least in the recent past, IAF and
    USAID have supported the same NGO; maybe not the exact same
    program within the NGO, but the same nongovernmental
    organization. There is duplication of effort, and I would argue
    that this is neither necessary nor efficient.
        Now, there is one area where the Foundation's agenda is
    different from that of USAID, and that is the Foundation's
    pursuit of partnerships with U.S. corporations. These
    partnerships, understandably, raise the comfort level of U.S.
    corporations investing in Latin America and, frankly, are smart
    corporate activity, as the IAF in its own annual report
    acknowledges, ``Where corporations gain better-informed
    business decisions, loyalty, enhanced corporate and brand
    reputation through their social investments.''
        Now, for the Foundation, the partnerships are an innovative
    means of maximizing resources. There is no doubt that compared
    to what USAID does, these partnerships are out of the norm. In
    fact, AID does not do these kind of things. The Foundation does
    offer a unique group of experts and expertise and an on-the-
    ground perspective that, frankly, is not replicated within the
    U.S. Government. The question, though, is whether the
    Foundation is supplying a service to U.S. corporations for
    which the Foundation should be funded or compensated by the
    corporations and not the American taxpayer.
        Given the large duplication of effort by the IAF and the
    USAID at this point in time, and the presence of a clear
    corporate interest in local development, I think it is fair to
    ask what are the options, given the 30-year mark for the
    Foundation. I would argue there are basically three: One is
    clearly the status quo. But it seems that everyone is in
    agreement that the status quo is unacceptable, including the
    Foundation.
        The second is some sort of merger, either the traditional
    development activities of the Foundation into USAID, or what I
    think is more unrealistic just given the politics of the issue,
    is the AID, Latin America bureau, being merged into the
    Foundation. The traditional development programs of both, are
    the same.
        The last option is privatization. I would suggest that the
    Foundation's partnership with U.S. corporations shows that
    there is a need that should be addressed, and that the
    Foundation has expertise and can play a role in this. I would
    argue, however, that corporations should be willing to
    compensate the IAF for its expertise. This should not be a
    taxpayer-funded entity or program. The IAF, I believe, should
    be privatized and, frankly, let the market decide its ultimate
    focus and fate.
        Thank you very much.
        Mr. Shays. Thank you very much.
        [The prepared statement of Mr. Fisk follows:]
        [GRAPHIC] [TIFF OMITTED] T3746.025

        [GRAPHIC] [TIFF OMITTED] T3746.026

        [GRAPHIC] [TIFF OMITTED] T3746.027

        [GRAPHIC] [TIFF OMITTED] T3746.028

        [GRAPHIC] [TIFF OMITTED] T3746.029

        [GRAPHIC] [TIFF OMITTED] T3746.030

        Mr. Shays. Mr. Rengifo.
        Mr. Rengifo. My name is Alvaro Rengifo.
        Mr. Shays. So I didn't say your name correctly.
        Mr. Rengifo. No, you said it very well. I explained to your
    assistants that it was difficult to pronounce my R.
        Mr. Shays. Can you lower the mic and speak a little louder?
        Mr. Rengifo. OK, thank you.
        The reason why I am here today is, as we heard before by
    the people that have worked with the IAF, and I worked with IAF
    about 11 years ago, about 6 months, during my internship--I was
    at that moment with a Fulbright grant from your government, and
    I was doing a special program at the Johns Hopkins University,
    and then I entered, during my stay here 1 year in Washington,
    in four organizations. One was the IAF, which I stayed for 6
    months, and at the same time I was working with the World Bank
    in Bolivia, at the Hispanic Catholic Center, helping people
    from Central America to learn and to read Spanish. And I also
    was working for 2 months or a little more, I don't recall, with
    the USAID, working with two of my professors that needed some
    help in the rural sector.
        So the reason why I am here today, trying to, I would say,
    help maintain this organization, this institution, is because I
    do believe that you have, the U.S. parliament, the U.S.
    Congress, has a very nice, very interesting organization that I
    think is worthwhile.
        I have been reading and hearing tonight--or this morning,
    excuse me--many of the reasons why you are making this kind of
    examination of the interest of your country to devote to
    taxpayers' money to it. I do believe there are many, many
    reasons. I cannot agree with my predecessor in the word with
    the duplication or the private sector driven--being able to do
    the job this institution does.
        I have been working for the last 10 years in development.
    When I left United States, I went to Ivory Coast of Africa,
    western Africa, 4 years, and then I stayed in North Africa and
    Morocco for another 2 years, and when I came back to Spanish
    Cabinet again, I ran into problems of aid, of assistance aid to
    many parts of countries of the world, especially to Latin
    America. And for the last 3 years under the new government of
    Mr. Aznar, I have been Assistant Secretary of Commerce dealing
    with financial aid in the Spanish system that we have.
        I do believe and I think that you have an institution which
    is very interesting and very unique. We in Spain have tried to
    do things very--I would say trying to tell our Parliament to do
    something in the same way, but we have not been as successful.
    I think you are a good example that we have to follow.
        But let me just say what I think is very different. First,
    they are not an active actor in the sense that you respond to
    people's ideas, which is something we have little time to do in
    governments. What we do in the system is we try to tell them
    and try to teach people what to do. The philosophy which is
    behind IAF, which I think is very interesting not only here,
    but also in their brother institution, the Inter-African
    Development Foundation, IADF, or however you say the name, is
    to hear people and see what they have to say and then try to
    help them to do that, giving some guidance. So one idea is that
    no other institution, no other assistance agency in the world
    likes to hear and just be passive.
        I recall when I was there 11 years ago, I was impressed to
    see how many letters at that time the Inter-American Foundation
    was receiving every day proposing new projects. And one of my
    jobs was to try to go and scrutinize and decide which was more
    interesting or not. That is something in my 10 years working
    with development in Spain is very unusual. Normally you go to
    the government or somebody else, but you try to push them, and
    you are the one who makes the design. I think that is a very
    interesting point.
        Second, you work, or the IAF works, with leaders; trying to
    look for people who are capable in that country, in that part
    of the country to be a leader of that project. Otherwise you
    would never have a sustainable project. When we talk about
    development, I think it is like driving a car with a rear
    mirror. You will get the information of what you have done, 10
    years later, when you get the development evaluation and see
    what has happened. So you are always with a kind of black
    mirror in front of you, which is difficult to drive. That is
    why this kind of grass-roots approach, having leaders and
    responding to the needs, is the only way you can be more sure
    that you are doing a good job and a sustainable job.
        The third idea is that most of the projects, that I have
    followed very little in the last years, but that you also need
    to put money from the people there, so you are just a partner
    in the project. You are not the only funder. The leader or the
    organization or the community or whatever who has on the other
    side giving this idea will also put in his money.
        So these three ideas are very interesting, and I think no
    other institution have them.
        Mr. Shays. Excuse me, Mr. Rengifo, let me interrupt you. I
    am going to go vote. I will just have you continue to make your
    last point. I will have Mr. Sanders reconvene us. So we are
    going to be at ease for a few minutes. He will be back, and he
    will start us off, and then we will come back.
        Sorry to interrupt you.
        Mr. Sanders [presiding]. The chairman will be back, but he
    suggested that we continue, and, Mr. Rengifo, I gather you were
    in the middle of your testimony.
        Mr. Rengifo. Yes, yes, I was just trying to explain why I
    was here and why I have some positive words. I am trying to say
    that is needed to help you sustain and maintain this
    institution, which I think is a very interesting, unique, and
    good institution.
        I thought it was good for its three main ways of working,
    which is responsive to all good ideas, not designing them;
    looking for leadership, to be sure that this project will be
    sustainable in the future, which is one of our main concerns,
    people who, like me, work on development issues; and, third,
    that you always ask for a counterpart to be financed. That
    means you are not the only funder of the idea, but you go with
    a partner in this kind of project.
        You do it through grants, which I think is the only way you
    should do that. They have done evaluations--I mean, the last
    years I have been not participating, but in the late 1980's and
    1990's, I still received papers from the IAF, and there was
    always a permanent monitoring, which is not so very uncommon.
    And, finally, there is this very interesting job of publishing
    books and publishing these kinds of letters, which I think are
    very insightful and enlightening for those of us who work in
    this field.
        Just to end, which I think I have run out of time, I would
    say you have a very unique institution with innovative ideas
    which has helped all of us to know about grass-roots
    development and working through NGO's and local NGO's, not only
    NGO's in our western countries, but NGO's in the local
    countries. It is a small agency. It is very flexible and have
    given a lot of lessons and good practices to do. And I do
    believe, and this is something that is very personal, but I am
    very sure it has given a very good image of your country
    abroad, in Latin America and good prestige.
        I do also believe that when you talk about the size of
    projects, that you need more money. That would be my first
    idea, not less money, but more money for this institution. But,
    second, you are doing projects which average about $100,000 to
    $200,000. I know of no institution in the world in the western
    countries on the rich continent that is able to do that. We not
    only work for the IDB, Inter-American Development Bank,
    representing Spain and all the countries like France, Austria,
    and the Nordics, we in the IDB, in Latin America, we are unable
    to do projects below normally $5 to $10 million. Normally. We
    can do some lesser ones, but I don't think USAID is able to go
    far below, $2, $3, $4, $5 million.
        So this kind of institution which goes to $100,000 I think
    is a very interesting institution. And I do not know how, but I
    would say to you that I think it is a good idea to have it.
    Thank you.
        Mr. Sanders. Thank you very much.
        [The prepared statement of Mr. Rengifo follows:]
        [GRAPHIC] [TIFF OMITTED] T3746.031

        [GRAPHIC] [TIFF OMITTED] T3746.032

        [GRAPHIC] [TIFF OMITTED] T3746.033

        [GRAPHIC] [TIFF OMITTED] T3746.034

        [GRAPHIC] [TIFF OMITTED] T3746.035

        [GRAPHIC] [TIFF OMITTED] T3746.036

        Mr. Sanders. I guess I will begin with questioning. I think
    that will be appropriate.
        Mr. Fisk, I apologize for not having heard your testimony.
    Let me just start off by asking you a question. Your point of
    view is that the IAF was developed as part of the cold war?
        Mr. Fisk. That is my reading of the legislative history
    and, clearly, the late Dante Fascell's focus.
        Mr. Sanders. The cold war is largely over, communism is
    largely dead. What do you think; no longer need the agency? Is
    that your point of view?
        Mr. Fisk. My point of view is that, in the traditional
    development area, its programs are the same that USAID is
    implementing. So there is a simple question of duplication. Are
    we, the American taxpayers, getting something different with
    IAF funds than we are getting from USAID funds?
        Just to give you an example, funding levels, the Ecuador
    IAF program was referred to as a 3-year program at $190,000,
    roughly $62,000 a year. The fact is that AID does this same
    thing. It will fund cooperatives or a credit union cooperative
    in Nicaragua, for example, $250,000, but it will do it over 3
    to 5 years. So it is the same funding approach. AID can and
    does fund such programs. I have given grants as low as $16,000
    to NGO's for activities. So one issue is duplication.
        I would have a larger philosophical question which goes to
    the issue of what is the best means of economic development; is
    it bilateral assistance? Clearly there is societal consensus on
    humanitarian aid. For instance, the response by the United
    States to Hurricane Mitch, I think, was entirely appropriate.
    But one can look at the same set of countries, El Salvador and
    Nicaragua, with which I know you are familiar. We have put $3
    billion into Nicaragua since 1989, and we are still looking at
    a horrendous economic situation.
        So I think one has to ask what is the better means of
    economic development. I have a question that goes to the entire
    philosophy of bilateral aid which goes beyond the IAF.
        Mr. Sanders. In other words, your basic point is that they
    are duplicating what the other agencies are doing, and they
    should be merged?
        Mr. Fisk. Yes, sir.
        Mr. Sanders. Mr. Rengifo, would you want to respond to
    that? Is that true?
        Mr. Rengifo. Well, I am happy to hear that. The USAID, when
    I was there 11 years ago, was unable to do that. But, still, I
    am very sure that it is unable to go with this kind of
    philosophy where you respond to the ideas of others.
        At that time, where I was working in rural development,
    they were most of the time designing projects. I think these
    ideas--it will be difficult to merge this kind of philosophy of
    being responsive, looking after leaders and trying to search
    for counterparts, and being a little inflexible. I think that
    is impossible in an organization like USAID.
        I would not agree with Mr. Fisk, although I respect very
    much his idea, because I think he has an interesting point
    about what is development. That is the main issue most of us
    have been dealing with that in the last--since I started
    studying. And I know it is very difficult.
        Maybe it is better not to do any kind of bilateral aid.
    That would be another question. But the point today, is about
    the IAF role, I think it has a role, and I do believe that
    there is not duplication. There is a lot of complementary, and
    maybe sometimes I think it is even good news to see they have
    funded projects together or with the same organizations. I
    think that would be helping to introduce to some of these
    organizations a new role in which you can see how this
    leadership and this sustainability, which are the projects of
    the IAF, is even larger and better than others. So I would not
    agree with the idea of merging them.
        Mr. Sanders. Mr. Breslin, would you want to comment?
        Mr. Breslin. I would love to. I worked for 1 year at USAID.
    Actually, I promised to work for a year at AID, and I worked
    for 11 months. I burned out after 11 months.
        I think that you have to go to the field. On paper all
    development agencies basically sound the same. The rhetoric is
    very similar, everybody is doing good stuff. I think to see the
    difference you really have to go ouit in the field.
        I have been the representative of the Inter-American
    Foundation in Honduras for about 3 years, and I have been the
    representative for Colombia for a good part of the last year.
    When I go out to the field, I don't see AID people in the
    field. I see AID people in a mission, because on every trip I
    usually stop by the Embassy and touch base with the Embassy and
    with AID.
        There is a major difference. The people in the AID mission
    are working at the governmental level. They are designing
    something for, say, the health sector in a given country. They
    are talking about millions of dollars. They are talking about
    health posts, and different levels of assistance, and bringing
    in equipment, and bringing in largely U.S. consultants. Most of
    AID money is spent in this country for consultants who then go
    to the country and presumably impart their expertise.
        The fundamental difference about the Foundation is what my
    colleague mentioned a few minutes ago. We are out there
    listening. Our meat and potatoes is what people tell us. It is
    their ideas. We have funded a lot of health projects around the
    hemisphere. They tend to be community-level projects where
    people have come up with their own ideas, something as simple
    as just getting resources to get a simple little health post to
    put in somebody's house. We fund at that level.
        But the difference is not really in the size of the grants
    we are making, it is that we are funding the local ideas, and,
    when we fund health projects for example, we don't think just
    about health. We want to know, and this is a question we ask on
    every single project, what is this project going to do for your
    organization? Does it strengthen your local organization? Do
    you gain experience in this? Does this allow you to move on to
    something else?
        Our focus is on people, and their ability to solve problems
    through their organizations, and the specific project, in many
    cases, is not the key thing, it is how people are handling it,
    what they will learn from it, what kind of contact this will
    give them with other people, other groups in their societies.
    So I think that we really are doing something fundamentally
    different from what AID is doing.
        Mr. Sanders. My last question is to Mr. Rengifo, and
    others. Can you comment on the fact that in recent years the
    IAF has changed its orientation a bit and now works more
    closely with corporations than was the case before? Do you want
    to comment on the wisdom of that?
        Mr. Rengifo. That would be--from my perspective, I do
    believe that it has been a strange thing that I have read
    yesterday and today. I think there should be things with the
    private sector, but I do believe that there are very, very
    different views.
        In Spain, we have this very separate two bodies, one is the
    Minister of Foreign Affairs, what is here called State
    Secretary, and the Ministry of Finance, which is called here
    Treasury, where we have two kinds of philosophy to the approach
    of development. Foreign Affairs is more with grants and NGO's
    and whatever, and my job was more with the private sector and
    trying to do some kind of aid related to tied aid, which was
    not that nice, but it was what I was told to do by my
    Parliament.
        I think that dealing with the private sector will always
    change a lot of the design of any project. It would be very
    difficult if you privatize this kind of institution to have the
    same results. You would have a very different institution, or
    foundation in this case, excuse me, a very different foundation
    and a very different code.
        It is very difficult to meet and to try to eradicate
    poverty and help self-improvement projects and self-done
    projects to do it through a private-driven idea. It would be
    very difficult, and I think it would be absolutely impossible.
    Very contrary goals. I do not know how the IAF has done this
    kind of corporate strategy, whether just the Foundation or
    other foundations helping them, or because they have merged
    some interest in the private and public sector.
        But I do believe that is a difficult task, and maybe you
    can do some kind of good merging and stay with your ideas and
    you being the one who drives it. But I don't think they will be
    able to do that if the private sector is the one who is solely
    funding you. In the end, I don't think you will maintain the
    same kind of foundation with the same goals. I don't think so.
        Mr. Sanders. Mr. Breslin, Mr. Fisk, would you want to
    comment?
        Mr. Fisk. Go ahead.
        Mr. Breslin. Yes. This is new for the Foundation, only in
    the last few years. And, frankly, for me, it is not an
    ideological question. I am dubious about this policy in some
    ways.
        Mr. Shays [presiding]. This policy being?
        Mr. Breslin. Of looking for more working relationships with
    corporations to leverage more resources for the kind of
    projects that we fund.
        We do it in two different ways. We do it in Latin America,
    and we do it with U.S. corporations in the United States. I
    think that the real question is does it distort the kind of
    things that we think we need to do in Latin America? Does it
    really get resources to people? Does it really increase the
    amount of resources going to projects? And does it increase the
    education level of people in U.S. corporations about problems
    overseas? And, fundamentally, does it change the relationship
    on the ground?
        My concern about working with corporations is that I think
    there is a tendency for it to bring us into a more top-down
    approach, the approach I was talking about before, an approach
    in which we will figure out what these people need, and we will
    do a project and give it to them.
        So I look at this kind of relationship with corporations--
    and I do it a lot in Colombia because Colombia has a very long
    tradition of philanthropy going back to early in the century,
    and Colombia has some of the largest family foundations in the
    hemisphere, spun off from family businesses that spun off with
    significant resources, foundations that are working on social
    problems. I work directly with those people, and, in most
    cases, I am incredibly impressed with their commitment to the
    idea that their help should not to overwhelm people with
    charity. Many of these people come out of a background of
    charity and have grown out of that and are looking for ways
    that they can channel resources to people in ways that let
    people manage their own projects.
        So my personal experience is I find a lot of exciting
    possibilities in this link with corporations, but I think that,
    as a foundation, given our mandate, it behooves us to approach
    this critically. When we fund a group that comes to us for any
    kind of project, we subject that group to a great deal of
    analysis and constant questions. And I think that our approach
    to working with corporations should be to require at least the
    same level of analysis and of critical questioning before we go
    into a relationship.
        Mr. Fisk. Mr. Sanders, quickly, I approach your question a
    little differently in terms of philosophy. I think ultimately
    the way people are going to get out of poverty is economic
    freedom and private investment.
        I think one of the things that has plagued Latin America in
    particular has been basically repressive regimes, both
    politically and economically. Right-wing military regimes were
    just a corporate entity that benefited the military ruling
    junta. So there the masses did not have economic opportunity.
    Hopefully, Latin America now is at a point that is far
    different, even if issues of poverty and health remain out
    there.
        Whether this corporate partnership with the IAF is
    troubling or intriguing, or just raises a question, is the
    Foundation effectively becoming a mini Department of Commerce?
    Basically, these corporate partnerships are of benefit to the
    corporation. The IAF material makes that clear. I am not
    necessarily opposed to that, but I just have a question about
    whether that is the role of the Foundation; should it be in
    effect, an on-the-ground Department of Commerce, saying here is
    a local community to invest in, and if you pursue it with us,
    you are going to get more brand loyalty, you will increase
    people wanting to buy, whether it is Cheerios or Dove soap.
        So, to me, that is the question: is this the role we intend
    the Foundation to play?
        Mr. Sanders. Are you suggesting this is perhaps a bit of
    corporate welfare?
        Mr. Fisk. I would suggest that, yes.
        Mr. Sanders. If I could, Mr. Chairman.
        Mr. Shays. Sure.
        Mr. Sanders. Mr. Fisk, and maybe others would comment, what
    is your assessment of the poverty situation in Latin America
    today? Is the situation better or worse than it was 20 years
    ago?
        Mr. Fisk. The answer to whether it is better or worse, in
    some ways, is that it is not much different. The majority of
    the population is still outside what Ms. Otero referred to
    earlier as the formal economy; they are engaged in the informal
    economy. That simply means they have to survive outside the
    normal mechanisms. A lot of it is barter and subsistence.
        My experience has been mostly in Central America, in El
    Salvador and Nicaragua, including some pretty remote parts
    where no Nicaraguan Government official had been.
        Part of the problem is an infrastructure problem; part of
    it is an education problem. It is a situation in which I think
    opportunities exist that didn't exist 20 years ago for economic
    improvement, where some fundamental questions of economic
    security remain.
        Nicaragua is a classic case.
        Mr. Sanders. Am I correct in assuming that Nicaragua
    unemployment is 60 or 70 percent?
        Mr. Fisk. I have not seen recent figures. I would say
    between unemployment and underemployment, that is probably a
    fair assessment. If you get outside Managua, Leon and Esteli--I
    have been to Puerto Cabezas, I know what the situation is
    like--you see poverty, and you see an increasing drug problem.
    Your comment earlier is accurate in that regard drug
    trafficking becomes a means of employment. The drug traffickers
    bring in the drugs. They just need people to do various manual
    labor tasks.
        I would have to say, based on, my experience that the most
    effective instrument for development in that part of the world
    has been the sister cities projects and religious
    organizations. I have seen the Catholic Church do some
    phenomenal things. I have seen the Moravian Church on the
    Atlantic Coast do some fantastic things without any U.S.
    Government money. Maybe people here are getting a tax
    deduction, but they are the ones who seem to have the presence.
    In fairness to both the Inter-American Foundation and USAID,
    they have been deficient in a number of areas in terms of
    actually bringing genuine long-term development to these areas.
    I have seen American religious organizations do much more.
        Mr. Breslin. I think the major difference in poverty, the
    conditions of poverty, in Latin America, from my experience, is
    that Latin Americans are much more organized than they were. In
    actual numbers, there are more poor people now than there were
    20 years ago or 30 years ago, just because of population growth
    and the lack of really sustained economic growth in most of
    these countries. So the poverty is there.
        This goes to one of the issues that was touched on earlier
    about how many countries does the Inter-American Foundation
    work in; are we getting out of countries? We have gotten out of
    countries which are considered economically much better off:
    Chile, Uruguay, Costa Rica. I have traveled in those countries.
    There is as much poverty, if not more, than in the past. The
    GNP figures look good, but poverty is still there. So that has
    not changed.
        What is different to me is that what you find in every
    place I have been to in Latin America in the last 10 or 15
    years are organizations. People are doing something about
    poverty. When I was a Peace Corps volunteer, my job was to
    encourage local groups to form. And in the town I lived in for
    2 years, there were no local groups. And when I left, there was
    one, because I kept nagging people to do it. But I don't think
    that really had any sort of lasting influence.
        What you find throughout Latin America now is this
    incredible alphabet soup of groups. You can't walk down the
    street without tripping over four community organizations and
    six NGO's. They are just all over the place. So what you get
    coming out of that is really an incredible creativity about
    dealing with economic problems.
        Somebody mentioned the informal economy, which basically is
    market women, it's people trying to make a living on the
    fringes of what we think of as the normal economy. But to me,
    again, the striking thing about that is if you go into those
    marketplaces and start talking to people, they are all
    organized. You don't have individuals out there just trying to
    make it on their own. They're members of groups. They have
    credit programs. They vouch for each other's repayment of
    loans. There are networks like this all over the hemisphere.
        Mr. Rengifo. Yes, thank you. I just wanted to draw you a
    quick picture of the is poverty situation in Latin America. I
    think that we have had a very good decade until 1997, in which
    growth was spread around and things were becoming better and
    better, not only on the democratic side, but mostly on the
    economic side.
        Unhappily, the last 2 years have been very tough. One of
    the big issues is not only that growth is not there, but you
    can have some growth in Mexico, you have some in Dominican
    Republic, Uruguay, two or three more, but you have very huge
    strikes for many countries, like Brazil, and for some populace
    in Central America. You have lots of problems in Venezuela. And
    maybe today the oil is going up, so that's a variable. What
    about Colombia, Ecuador? Chile is having a lot of problems. The
    financial crisis and the Asian crisis has hit very hard a place
    in the world which they have done their job in doing many
    macroeconomic and very sound changes. And thanks to that, they
    are better off than they would have been 10 years ago, but,
    still, that is one question.
        Things are tough today in 1999 in the region, and it is
    very uneven in how it works. But the big question is that
    unhappily, even with growth, we have been--and when I say we, I
    am talking about all of us, all Latin America region countries
    have been able to serve with these multilateral organizations
    like the World Bank or the IDB to see how we can get this
    growth down to the poor people, and that has been a very
    difficult task.
        And one of the regions where we have less succeeded is in
    Latin America. We have seen in Southeast Asia where this has
    been able to get down in absolute and relative terms the
    poverty; whereas in Latin America, relative poverty in those
    terms have been very disadvantaged. We have not been able to
    cope with that. That is one issue.
        And the second issue, which is even more important,
    inequality has grown. Which is something that has happened all
    around the world, even in this country, I think.
        So those are two huge issues. And I think organizations,
    coming to what we are discussing this morning, like the IAF, is
    making big changes in those things. A little one, because it
    has not much money, but it is helping to disseminate the
    richness.
        So I do believe the situation is bad and that this kind of
    grass-roots approach and responsive approach is the only way
    you can give sustainable hope to these kinds of communities in
    the region.
        Mr. Shays. I am wondering about the general concept of
    being a venture capitalist without charging any obligation to
    the recipient of the money. I like the thought that you are a
    venture capitalist. I think you made a case, Mr. Breslin, for
    the fact that you are kind of getting underneath this system,
    and you are seeking out the private kind of investment, but you
    provide a grant rather than a loan. I am just wondering if
    maybe we should not see the IAF move in that direction and end
    up being a private organization eventually.
        I happen to buy the argument that poverty was bad 20 years
    ago, and it is bad today. So, I mean, there is more than enough
    to do. So I take the argument, Mr. Fisk, that whatever is done
    on the private side, we need more of it, because we just really
    are not denting it enough.
        But, that said, why shouldn't we charge some kind of
    obligation to the people that you are funding?
        Mr. Breslin. That goes to the nature of the Foundation. We
    are basically the face of the U.S. Government in poor
    communities around Latin America. We are the ones who get out
    there and listen to people and express our interest in what
    they are doing and, eventually, if they are convincing to us,
    our support for what they are doing.
        What we require of them, I think, was mentioned before.
    Eventually we ask them to present us a budget, and the budget
    contains line items for which they need to expend money in the
    project. And in all projects we ask them for their counterpart.
    It is a requirement. We do not do projects without counterpart
    funds from the grantee.
        We have historically been fairly flexible about what
    counterpart is, and in many cases it is their labor. It is 100
    days of hard labor on a project, or 1,000 days, depending on
    what the project is. It is providing rooms for meeting spaces.
    It is somebody contributing their house to store seeds in
    before the planting season. And we try to put a value on this,
    and we ask them to put a value on it. So we really try to stay
    away from the idea that we are just going to drop money on you
    out of charity. We think about these projects as partnerships
    that we are going into with them on.
        Most of the projects also have counterpart from other local
    organizations. Very typically we will fund a group of small
    farmers someplace, and there will be at least one other
    organization which provides technical assistance, or an
    organization that is an expert in sustainable agriculture,
    ecologically sustainable agriculture, organizations that
    specialize in providing all these techniques, and we ask them,
    give us a dollar figure for your contribution as well.
        Mr. Shays. So your bottom line point is that you are asking
    for there to be a commitment; that you try to leverage other
    activities with the money you give?
        Mr. Breslin. Yes.
        Mr. Shays. Mr. Fisk, does the Heritage Foundation basically
    oppose foreign aid?
        Mr. Fisk. The philosophical position is one of skepticism.
    If it is an adjunct or component of a broader foreign policy
    agenda, the Foundation has supported it. But just simply to
    presume or assume that foreign aid it is the best means of
    economic development, the Heritage Foundation disagrees with
    that conclusion.
        Mr. Shays. I am almost thinking that if I were Heritage
    Foundation, I might actually have come to the conclusion that
    you would ask the IAF to become larger in our budget and USAID
    to become smaller. In other words, this would seem to me to be
    an almost more compatible way from the Heritage standpoint.
        Mr. Fisk. From the Heritage Foundation standpoint it is a
    case where other Heritage officials have testified against AID.
    My purpose here is not necessarily to say that AID offers the
    best alternative. I think I have acknowledged in my prepared
    statement that there are deficiencies in that program.
        Mr. Shays. But how do you react to my point that, even if
    consistent with your view, and I didn't expect to be saying
    this, but that you would actually--if I gave you a choice
    between IAF or USAID, wouldn't you lean closer to this type of
    funding than USAID?
        Mr. Fisk. Given my newness with the Foundation, I would say
    that that is a fair assumption and a fair statement. I would
    say the one attraction of some of what IAF does is that it is
    more hands-on, and its development programs are, or can be at
    times, less bureaucratic.
        Mr. Shays. At least they are getting out into kind of the
    private marketplace in a way.
        Mr. Fisk. Ultimately, the philosophy would be, as I said to
    Mr. Sanders, economic freedom and private investment. Private
    investment doesn't necessarily mean foreign private investment.
    It could be indigenous investment. To just pick up on Mr.
    Breslin's comment that a lot of the grantees for either AID or
    the Foundation are engaged in an economic activity, economic
    activity is going to generate some sort of revenue.
        Mr. Shays. Right. But I was thinking, in a sense, and, Mr.
    Rengifo, first, I want to place your comments in some context.
    Are you--you are a Spanish national?
        Mr. Rengifo. Yes, yes, absolutely.
        Mr. Shays. Tell me very briefly about your bank.
        Mr. Rengifo. Where I am working now today?
        Mr. Shays. Yes.
        Mr. Rengifo. OK. The bank, the Inter-American Development
    Bank, is a regional development bank.
        Mr. Shays. With assets of how much?
        Mr. Rengifo. It is $100 billion.
        Mr. Shays. $100 billion. And your position in the bank is
    the executive director?
        Mr. Rengifo. Of the board, representing France, Austria,
    Finland, Denmark, Norway, Sweden, and Spain.
        Mr. Shays. But you are the executive director of the whole
    bank or of that part?
        Mr. Rengifo. No, no, it is a board of 14 members, and each
    member represents some countries.
        Mr. Shays. I have you down as executive director of the
    Inter-American Development Bank. Are you the executive
    director?
        Mr. Rengifo. I am one of the 14 executive directors of the
    bank.
        Mr. Shays. There are 14.
        Mr. Rengifo. We all represent our shareholders and the
    shareholders are the governments.
        Mr. Shays. Now, have you funded projects that IAF has
    provided the seed money for?
        Mr. Rengifo. Mr. Chairman, I do not know exactly what the
    IDB has done with the IAF. I know they have had cooperation.
    When I talked yesterday to here, it was that I could not talk
    on behalf of the IDB.
        Mr. Shays. I understand.
        Mr. Rengifo. I just came on a personal matter, because it
    was a foundation that mattered to me and helped me understand
    many things 11 years ago.
        Mr. Shays. But I am making an assumption that since those
    11 years you have seen IAF in operation, and so all I was
    trying to do is to assess if IAF has a relationship with your
    bank.
        In other words, one of the things----
        Mr. Rengifo. Yes, it does.
        Mr. Shays. The answer is?
        Mr. Rengifo. They do have a big relation. I do not know if
    an institutional relation. I am not quite sure of that. I tried
    to know that yesterday, but I was unable to catch up with my
    people in the bank to know if there was any kind of mixed
    cofinancing or something. But they were doing the same job in
    the region.
        Mr. Shays. That you are doing?
        Mr. Rengifo. That we are doing, yes.
        Mr. Shays. Except you are giving loans; they are giving
    grants.
        Mr. Rengifo. We have three branches in the bank. One is the
    IDB, which gives only loans of about 7 to $8 billion a year. We
    are the major loan bank in the region for a development bank,
    even more than the World Bank today. We have then an ITC
    branch, which is private-sector-driven, with small and medium
    enterprises, which are loans and venture capital, or capital
    risk. I think venture capital you call it. And then there is a
    little branch, which is a kind of a foundation made by the
    United States, Japan and Spain in the bank, which is called the
    MIF, Multilateral Investment Fund, which is for little
    projects, for grants for little projects, which is a little bit
    more than we are doing with the IAF.
        Mr. Shays. That is helpful.
        I want to kind of wrap up, but, Mr. Breslin, you wanted to
    add something?
        Mr. Breslin. Just to add a couple of items on your
    question. Historically, over the years, we have had
    relationships with the Inter-American Development Bank. We work
    with them on the Social Progress Trust Fund. But in the field
    there are several instances where the Inter-American Foundation
    funded groups to the point at which they were large enough and
    successful enough to be able to deal with a loan from the IDB.
    That happened in Uruguay.
        There is another way we worked, in a sense, with the bank:
    There is a project in Bolivia, chocolate production, poor
    farmers in a rural area of Bolivia. We had funded them for
    years. They got to the point where they were qualified, really,
    for an IDB loan. But the bureaucracy was taking so long that
    the loan fund was clearly going to collapse, while they waited
    for the IDB loan money to arrive. We came in with a bridge
    grant of $50,000 to get them over that period. That is the kind
    of flexible funding we have been able to do in the past.
        Mr. Shays. I should have asked the first panel about the
    Social Progress Trust Fund. Tell me a little bit about that.
    And I am not looking for a long explanation.
        Mr. Breslin. The Social Progress Trust Fund is basically
    local currency, repayment of loans made to----
        Mr. Shays. Who is funding that? I am going to interrupt
    you, because I want to just get to my questions. Who has funded
    that, just the United States?
        Mr. Breslin. No, this is a fund into which repayments go.
    The repayments are for development loans made to the Latin
    America countries.
        Mr. Shays. Let me do this. Do you mind if I just get the
    first panelist here?
        Ms. Otero, can you come here? Not that you cannot answer,
    but I really should have asked the first panel. Maybe just pull
    up a chair real quick.
        Ms. Otero. Yes, Mr. Chairman.
        Mr. Shays. Just explain to me the fund. I should have
    asked.
        Ms. Otero. The Social Progress Trust Fund is a fund that
    actually is constituted of moneys that are being paid back in
    local currency by Latin America countries to the IDB for loans
    that the IDB made to those governments.
        Mr. Shays. The Inter-American Development Bank?
        Ms. Otero. Yes, the Inter-American Development Bank.
        Mr. Shays. Your bank?
        Mr. Rengifo. My bank.
        Mr. Shays. OK. So you can respond to this question as well.
        Mr. Rengifo. I have been here for only 2 months, but I will
    respond as best I can.
        Mr. Shays. Good. I just did not want to follow protocol
    here.
        I'm sorry, I should have asked this before.
        Ms. Otero. These are loans that are made through the Inter-
    American Development Bank by the U.S. Government and are paid
    back to the U.S. Government and set up in a trust fund, which
    is the Social Progress Trust Fund.
        Some of those funds are then allocated to the Inter-
    American Foundation for the Inter-American Foundation to use
    those moneys in making grants available to those countries. So
    those moneys are earmarked by countries.
        Mr. Shays. Why is the Fund running out; do you know?
        I don't mind your having assistance here, rather than
    having one coming in one ear and out the other.
        Ms. Otero. These are funds that are being paid back by
    governments, and the repayments are coming to an end, and that
    is why the trust funds are running out.
        Mr. Shays. Well, then, there is money in the Fund to loan
    out again. That is what I am not understanding. So I am missing
    some basic fact here. Let me make an assumption here: We have a
    fund. People borrow from it. They pay back.
        Ms. Otero. No, no, no.
        Mr. Franco. Just very quickly, Mr. Chairman. These are
    loans that were made out of the Alliance for Progress in the
    1960's by our government. When the repayments were due, our
    government, by act of Congress in 1975, decided that instead of
    having those go back to general receipts to the Treasury, a
    fund would be established at the bank of which the U.S.
    Government would be the trustee. Those funds would not be
    repaid as loans, but would be directed as grants.
        Mr. Shays. As grants.
        Mr. Franco. Exactly. It is called the Fund for Special
    Operations. And part of those repayments that come in are made
    available, by law, to the Inter-American Foundation.
        Mr. Shays. OK. I understand now.
        Ms. Otero. To be used for grants.
        Mr. Shays. I'm thinking of it like the Offshore Drilling
    Trust Fund that we put a fund in and then we spend the money
    out of.
        Mr. Rengifo. Correct.
        Mr. Shays. Bottom line, that is running out.
        Ms. Otero. Yes.
        Mr. Shays. I am pretty much set in the questions that I
    wanted to ask. I will just share with you my observation of
    this hearing. I didn't expect that I would be saying that, but
    my observation is that I am told by various sources that we
    have some management problems at the IAF, and we have some
    question of whether we are too top-heavy. Those are not
    questions that are going to be answered for me in a hearing
    like this.
        So I will share with you that I may have problems with what
    is happening. I, obviously, recognize that when you go from $30
    million down to $20, and you still have the bureaucracy for
    $30, that you have problems that you have to iron out. I also
    know that Congress can be erratic in terms of whether it wants
    to fund or not; i.e., we have $5 million, which is basically
    almost saying let us get rid of the organization.
        But if I wanted people in the field looking for the smaller
    kinds of grants, I would conceptually--and clearly in my Peace
    Corps experience I want to see it happen more this way--I would
    rather have it trickle up than kind of trickle down. So I am
    more comfortable with that. And I ultimately love to think of
    ways that we can privatize and continue to seed other
    activities.
        So my questions, I think, will end up being more on the
    management of it, not as much on the mission of the program. So
    I look forward to working with you. I am summarizing my
    feelings. I don't usually do that, but I thought I would.
        Do you have any comment you want to make?
        Mr. Sanders. I don't.
        Mr. Shays. Any closing comments any of the four of you want
    to make?
        Mr. Breslin.
        Mr. Rengifo. May I?
        Mr. Shays. Well, I just thought of one thing as I was
    calling on Mr. Breslin.
        Mr. Breslin, how many people work under your oversight?
        Mr. Breslin. Just me, sir.
        Mr. Shays. So if I look at you, and I am thinking of why we
    have so many employees, we have one person who handles each
    country, give or take, which leaves me wondering why we get to
    56.
        Mr. Breslin. We currently have 13 program representatives,
    who work in the field.
        Mr. Shays. I consider you the people out in the field, you
    are the most essential part, I would think, with all due
    respect to the others.
        Mr. Breslin. Right. With the representatives, we have
    support staff, we have people who help do the paperwork of
    processing the projects that are eventually presented for
    approval.
        Mr. Shays. I hear you. You have to have the back-up.
        Real quick, any summations?
        Ms. Otero. Mr. Chairman, just one final comment is that I
    think the Foundation has suffered in the last 5 years by the
    cuts that have come its way and by the uncertainty of its level
    of funding. And I think those are reflected in some of the
    management issues and some of the other issues that are now
    problematic.
        I think we have communicated in this hearing that the
    installed capacity, if you will, of the Inter-American
    Foundation is considerable and perhaps being underutilized
    right now to address the issues of poverty that we have in
    Latin America, and I would like you to take that into account
    as you consider these things.
        Mr. Shays. I accept that.
        Sorry to interrupt you, but you get the last word, Mr.
    Rengifo.
        Mr. Rengifo. I do have something to add.
        Mr. Shays. Well, you got them.
        Mr. Rengifo. Thank you. It wasn't my idea to do that. I
    just wanted to tell you that when I entered IAF, it was to try
    to copy this institution in Spain. I have not been able to do
    that, so I hope to do it in the future.
        The one thing I can give you is that I think you need more
    hearings like this one, because only 15 years ago was the last
    one you had. I think you need much more if you want to be
    coping with this. And I do believe there is a lot of sense to
    this institution.
        Mr. Shays. OK. Thank you very much. Appreciate all you
    being here, and we will adjourn this hearing.
        [Whereupon, at 12:25 p.m., the subcommittee was adjourned.]

                                       -