[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
      FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS 
                        APPROPRIATIONS FOR 2002

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS
                              FIRST SESSION
                                ________
   SUBCOMMITTEE ON FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED 
                                PROGRAMS
                      JIM KOLBE, Arizona, Chairman
 SONNY CALLAHAN, Alabama             NITA M. LOWEY, New York
 JOE KNOLLENBERG, Michigan           NANCY PELOSI, California
 JACK KINGSTON, Georgia              JESSE L. JACKSON, Jr., Illinois
 JERRY LEWIS, California             CAROLYN C. KILPATRICK, Michigan
 ROGER F. WICKER, Mississippi        STEVEN R. ROTHMAN, New Jersey  
 HENRY BONILLA, Texas
 JOHN E. SUNUNU, New Hampshire      
                     
 NOTE: Under Committee Rules, Mr. Young, as Chairman of the Full 
Committee, and Mr. Obey, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
    Charles Flickner, John Shank, and Alice Grant, Staff Assistants,
                     Lori Maes, Administrative Aide
                                ________
                                 PART 2
                                                                   Page
 Implementation of Hurricane Mitch Supplemental...................    1
 Export Financing and Related Programs............................   93
 Department of State..............................................  169

                              

                                ________
         Printed for the use of the Committee on Appropriations
                                ________
                     U.S. GOVERNMENT PRINTING OFFICE
 75-037                     WASHINGTON : 2001






                      COMMITTEE ON APPROPRIATIONS

                   C. W. BILL YOUNG, Florida, Chairman

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

                                  (ii)
                                         Wednesday, March 21, 2001.

                   IMPLEMENTATION OF HURRICANE MITCH

                               WITNESSES

JESS T. FORD, DIRECTOR, INTERNATIONAL AFFAIRS AND TRADE, GENERAL 
    ACCOUNTING OFFICE
EVERETT L. MOSLEY, INSPECTOR GENERAL, U.S. AGENCY FOR INTERNATIONAL 
    DEVELOPMENT

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe [presiding]. The Subcommittee on Foreign 
Operations will come to order. Good morning. We welcome the 
panel here. I welcome the members that are with us this 
morning, and the other members of the public that are here.
    This is my first hearing and meeting as chairman of this 
subcommittee. I will try to fill some awfully big shoes, but I 
am not sure I will do very well.
    But nonetheless, Chairman Callahan, I will do my very best 
and will certainly rely on your guidance.
    I also know I have the guidance of an extraordinarily 
talented and gifted ranking member, Ms. Lowey, who is here with 
us.
    We also welcome three new members of this subcommittee, 
though none of them are with us at the moment: Mr. Bonilla, Mr. 
Sununu and Mr. Rothman. The first two may be with us this 
morning; I know Mr. Rothman has had back surgery and is out of 
pocket for a short time. I know I speak for the other 
subcommittee members in saying welcome to them, as well as 
welcoming myself, I guess, to this subcommittee.
    Today we are going to hear from two audit agencies about 
the implementation of the emergency spending package that 
Congress approved in 1999 for the victims of Hurricane Mitch 
and Georges that affected so desperately the people of Central 
America.
    I might just add that a week after the hurricane, I went to 
Central America with the Vice President's wife, Mrs. Tipper 
Gore, and a group from Congress and USAID. Much was made then 
about the promises of what we would do to help in the emergency 
relief but also in the reconstruction. So this hearing, for me, 
is a very timely one and a very important one, because it is a 
kind of coda to the refrain that we heard before, to see 
whether or not we have been successful in meeting the promises 
that were made.
    As we know, in late October and early November of 1998, 
those hurricanes killed thousands of people and caused billions 
of dollars of destruction to countries that were already 
desperately poor. Congress passed a major supplemental for 
reconstruction of those countries in May of 1999, and that was 
almost two years ago now.
    I would like to point out the importance of the testimony 
that we are going to hear today. In that supplemental in 1999, 
this subcommittee provided $1.5 million of comprehensive 
oversight to be provided by the inspector general of USAID and 
another $500,000 for similar oversight to be done by the 
General Accounting Office. Well, we want to review today what 
has been accomplished with the money that we allocated for this 
oversight and review, and what they can tell us about the 
spending of the dollars for Hurricane Mitch relief.
    And I think, from this, we may decide that we would want to 
undertake doing this kind of activity in the future with other 
agencies and for other USAID projects.
    The significance of the results of these audits and the 
oversight activities really cannot be overstated, I think, 
given the predisposition of some of our very poorest neighbors, 
who suffer very disproportionately in these kinds of natural 
disasters.
    How well such a humanitarian aid and reconstruction program 
as Hurricane Mitch can do in its implementation of those 
efforts will have direct implications for the U.S. Congress and 
how we respond to future disasters. Specifically, while the 
testimony today is about Hurricane Mitch funds, we should keep 
in mind the relevance to any reconstruction efforts we will 
fund in El Salvador or India to counter damage from the 
earthquakes in January and February of this year, as well as 
future disasters that, unfortunately, we know are going to 
occur in other places around the world.
    And again, parenthetically, I might just add that tomorrow 
we will be leaving for a trip to Central and South America, and 
we will be in El Salvador to take a look at the needs of that 
country as a result of the tragic earthquake that struck there 
a couple of months ago.
    After the extent of the damage was known from the 
hurricanes in late 1998, there were some who advised against 
providing aid to those countries, given the historic problems 
that we had with corruption in that area. The corruption 
following the 1974 Nicaraguan earthquake became notorious, as 
corrupt officials siphoned off vast levels of international aid 
and, of course, led to the downfall of the then-President 
Somoza.
    We hope we learned from this experience. We are simply 
determined that it is not going to be repeated, and that is 
really why we are here today, and to find out how much we have 
learned from that. I look forward very much to the testimony 
that we are going to have today.
    We have two witnesses that we are going to hear from: Mr. 
Jess Ford, who is director of the International Affairs and 
Trade Division at the General Accounting Office; next we will 
hear from Mr. Everett Mosley, who is the inspector general for 
USAID. We will begin with Mr. Ford.
    And as always, we will be happy to place your full 
statement in the record, and we appreciate it if you would 
summarize it.
    Excuse me.
    Mrs. Lowey. That is quite all right.
    Mr. Kolbe. Prior to that, I want to call on my ranking 
member, Ms. Lowey.
    Mrs. Lowey. But since this is my first hearing----
    Mr. Kolbe. As ranking member, absolutely. My apologies.
    Mrs. Lowey [continuing]. As ranking member, I wanted to 
tell everyone how I am looking forward to working with you.
    Chairman Kolbe and I have had an opportunity to talk about 
the whole range of issues we deal with in this committee, and I 
am very encouraged that we will be working on a bipartisan 
basis.
    And I want to congratulate you again and tell you what a 
delight it will be to work with you.
    And, of course, I am delighted that our former chairman, 
Mr. Callahan, will continue to serve, because it has only been 
an absolute delight to work with you, Mr. Chairman.
    So it is nice to see that you are still here. Once a 
chairman, always a chairman. [Laughter.]
    I do hope that we will have sufficient resources allocated 
to us to enable us to produce a bill that funds a robust 
foreign assistance program.
    I am also pleased to join the chair to welcome our 
witnesses this morning, as we hear testimony on the 
implementation of Hurricane Mitch supplemental funds. Welcome 
to Jess Ford and Everett Mosley, the inspector general of AID.
    Gentlemen, I have reviewed your testimony and look forward 
to your summary statements. I am sure that you will agree that 
the magnitude of this disaster was monumental, and thus the 
response from the United States becomes vital in the recovery 
of these poor nations.
    The storms left thousands dead and many more homeless, with 
damages estimated at $10 billion. My impression of the overall 
work of both of your agencies is that after some initial 
startup problems, the United States disaster recovery and 
reconstruction program is progressing and most activities are 
scheduled for completion by December 31, 2001.
    Almost all the funding has been obligated and approximately 
41 percent has been spent as of December 2000. I gather your 
findings also indicate that AID did not have the mechanisms in 
place to quickly design and implement a large-scale 
infrastructure program with short-range deadlines.
    I do not think anyone could have anticipated a disaster of 
this magnitude, but I also would point out that AID has not 
been given the resources necessary, in my judgment, to have 
such a capacity in place. In fact, our assistance to both 
Nicaragua and Honduras had been declining prior to this 
disaster.
    I also understand that AID is now reviewing options for 
disaster relief preparedness, which involve possible 
recommendations on funding, staff mobilization, contracting and 
the use of special authorities. I hope we can discuss some of 
the options this morning, and I would also hope that the 
outcome of this hearing would be a realization that AID cannot 
be expected to achieve quick results without adequate tools.
    So I am really looking forward to your testimony, looking 
forward to your suggestions. With the understanding that if you 
cannot predict these disasters, how can we be better prepared 
so that we can respond more effectively in a timely way?
    And I thank you, and I thank the chair.
    Mr. Kolbe. I thank the gentlelady, and, again, my 
apologies. I slipped up on my opening.
    Mrs. Lowey. Quite all right.
    Mr. Kolbe. Now, Mr. Ford, please proceed with your 
statement, and we will place the full statement on the record.

                      Mr. Ford's Opening Statement

    Mr. Ford. Thank you, Mr. Chairman, and members of the 
subcommittee.
    I am pleased to be here today to discuss our work on the 
U.S. Government's disaster recovery and reconstruction program 
for hurricane-affected countries.
    In late October and early November 1998, Hurricane 
Mitchstruck Central America, dumping over 6 feet of rain in less than a 
week, mostly over Honduras. The heavy rainfall produced flooding and 
landslides that killed thousands of people and left tens of thousands 
homeless, devastated the infrastructure, the agriculture and local 
economies.
    We have a map over here depicting the path of Hurricane 
Mitch. The thing that is important here is that the hurricane 
stalled off the coast of Honduras and dumped tremendous amounts 
of rain, which led to massive flooding not only in Honduras, 
but also into Nicaragua. So those two countries sustained 
significant amounts of damage. El Salvador and Guatemala were 
also severely affected. It has been characterized as a Category 
5 hurricane, and it has been characterized as the worst 
hurricane to hit Central America this century.
    I might add that, in addition to that hurricane, there was 
also a hurricane in September 1998 called Hurricane Georges, 
which hit the eastern Caribbean islands and Dominican Republic 
and Haiti, and the Congress funded the money for those places 
as well.
    The international donor community pledged over $9 billion 
to assist in the recovery and reconstruction of the Mitch-
affected countries in Central America. In May of 1999, Congress 
passed emergency supplemental legislation, including $621 
million for disaster recovery for the affected countries.
    The U.S. Agency for International Development is the 
primary federal agency responsible for administering the 
program, but there are a number of other federal agencies also 
involved in providing assistance in the area.
    The emergency supplemental legislation requires GAO to 
monitor the assistance that has been provided. And to date, we 
have focused most of our effort on determining what programs 
and projects are being funded by AID and the other agencies, 
the objectives and the purposes of these activities, and how 
AID is ensuring that the funds are expended for the intended 
purposes.
    We have also examined how AID has coordinated with the 
other donors and the other U.S. agencies; what AID has done, as 
directed in the legislation, to help affected countries develop 
institutional capabilities to resist corruption; and what AID 
has done to mitigate these type of problems in the future.
    I should note that the AID inspector general has been 
conducting audits on the disaster program. We have coordinated 
closely with his office. We have met with his staff. Mr. Tim 
Cox is over to my left here, the regional inspector general for 
El Salvador. And we have an excellent working relationship with 
them, and we have coordinated our activities to make sure there 
is no overlap or duplication.
    In my statement today, I am going to talk about three main 
things. First, I want to talk a little bit about the progress 
to date that we have seen with the program. I am going to, 
secondly, talk about the oversight measures that have been put 
in place to ensure that the money has been spent for the 
intended purposes. And then thirdly, I am going to talk a 
little bit about some of our observations on challenges that 
AID faces in implementing future projects, and some of the 
lessons learned that we might get from what we have learned 
from the Mitch experience.
    To address these matters, we have made over 20 field trips 
to the area over the last little over 18 months. We focused 
primarily on Honduras and Nicaragua, the two countries that 
have received most of the aid. During our trips, we have met 
and talked with many people who are the recipients of the 
assistance, in addition to government officials in AID and the 
other federal agencies involved.
    We have also briefed your staff on numerous occasions. We 
usually offered a briefing after every one of our trips, so we 
have met with your staff at least on a quarterly basis since we 
began this project in 1999.
    We plan to issue a final report to the Congress once the 
program is over, and right now it is scheduled to be completed 
by the end of this year. So we are going to issue our final 
report hopefully in the spring or early summer of 2002.
    Okay, let me get into the first issue--the status of the 
program. I think it is fair to say that after some initial 
startup problems, we are now starting to see some real results 
from the program. With some variance by country, AID and the 
other U.S. departments and agencies are using the assistance to 
bring about economic recovery, improve public health and access 
to education, provide permanent housing for displaced families, 
and to improve disaster mitigation in preparedness for future 
type hurricanes.
    To achieve these broad objectives, AID is funding 
infrastructure construction and repair projects, primarily 
roads, bridges, water and sanitation, and housing, and their 
focus is in the rural areas. And that is an important point to 
make because the other donors are funding a lot of their 
projects in the urban areas.
    So when you visit the capital cities, you will see a lot of 
projects that are by other donors. You have to go out into the 
rural areas to see where AID is really making a difference. And 
we have been doing that, and I can tell you that we have seen a 
lot of progress, and I am going to show some pictures in a 
minute of some of the things we have seen.
    As of December 31 of this year, AID had expended 
approximately 41 percent of the money that has been provided by 
the Congress. This is depicted in the chart to the right. The 
red is the amount that has been expended of the amountthat is 
planned. The blue is what is planned.
    And as you can see, in Honduras, about one-third of the 
program money has been expended. Nicaragua is about half. The 
Dominican Republic is about half. And then the rest are 
approximately a half. And that is where they stand as of 
December 31, 2000.
    AID's goal is to complete the program by December 31, 2001. 
So they hope to have it all completed by the end of this year.
    I would like now to turn to some photographs. These are 
just meant to depict some of the progress that we have seen. 
Both of these are pictures on a road project. This is in 
Honduras. It shows a road that was being constructed, I believe 
back in October. I cannot quite read the date on that. And it 
has now been completed, as you can see in the picture down 
below.
    This is a cobblestone road that was built in an area that 
had really been basically wiped out. This is a good project. 
This project has helped the village there connect to the 
marketplace, which is one of the key objectives.
    The second set of photographs here, this is a school that 
was damaged by Hurricane Mitch. The top photograph shows the 
damage from the hurricane, and the bottom is what the completed 
school looks like. We have seen a number of schools that are 
all in various stages of completion and construction, but the 
one at the bottom here shows one that is done.
    It appears to us at the present time AID will, in fact, 
complete most of its program by the end of the year, with one 
exception, and that is their municipal water and sanitation 
program in Honduras. This particular program started a little 
later than some of the others because they had some initial 
design problems, and they needed to bring in the Corps of 
Engineers to improve the engineering of the project. Initially, 
the plan was to do a number of small projects, but AID 
determined that they would do several large projects, so there 
was some delay in that.
    This project is important because it is a component of the 
larger ongoing planned water and sanitation projects that are 
essential to some of the community development that is ongoing 
in Honduras. And I can talk about that in a minute.
    Let me turn quickly to oversight and monitoring. As I 
mentioned earlier, to help ensure that these funds were 
expended for intended purposes, AID spent a lot of time 
ensuring that the right types of mechanisms were put in place 
in-country. They channeled much of their assistance through 
cooperating partners with proven track records. They contracted 
with management and financial services firms to ensure that the 
disbursements were not vulnerable to abuse. And they hired a 
number of contractors to ensure--some of these are engineering 
people--to ensure that they had the right type of monitoring of 
the projects.
    In addition to that, and I do not want to steal Everett's 
thunder, but the IG has also conducted extensive reviews and 
audits down there, so the program has been well-overseen and 
well-monitored. And I feel comfortable in saying that we have 
not seen any examples of any money being ripped off, so we have 
not seen a repeat of the problem that they had in 1972. Maybe 
Everett can jump in on that, when he gets his turn.
    I wanted to identify where they have had some problems that 
were corrected. This is part of the reason you asked us to be 
down there, to monitor on a real-time basis some of the 
problems they might run into and make sure that changes were 
made immediately, not at the end of an audit like we typically 
do.
    A couple of the examples in Honduras: They built a road. 
The road was not constructed properly. We pointed that out. 
They went back and fixed it. Another example in Honduras is 
some problems they had with the agricultural loan program. It 
is a long-standing problem, but AID determined that they needed 
to take some actions. They went to the ministry of finance in 
Honduras, and there is now an agreement to correct some of the 
problems with that program.
    Nicaragua. We are going to show a picture, an example here.
    George, let's jump to that picture so that I can speed this 
up a little bit.
    This is an example of a health clinic that was constructed 
with our money. The top picture, one of our auditors--in fact, 
it happens to be Mr. Taylor down at the end here--visited that 
project. The project had been completed in July. He visited in 
October, and the building was vacant. The physician that was 
supposed to be there was not there. There were no supplies. The 
growth in the area there shows that, in effect, even though we 
had constructed the building, it was not being effectively 
used.
    We reported this to the mission. We went back in January 
2001. The physician was there. The supplies were there. They 
had cleaned up the area.
    So this is kind of a real-time monitoring. It shows you 
that we think we have had some results in getting AID to fix 
things when we found problems, and we just wanted to highlight 
that.
    Let me get to the last area of my statement, and this 
really gets into the issues of some observations that we have 
about the challenges that AID has and that might be applicable 
to future disasters and what they might do.
    I think the bottom line is, at least for this situation, is 
that AID did not have the mechanisms to quickly design 
andimplement a large-scale infrastructure project in a relatively short 
time frame. At the time of Hurricane Mitch, they did not have the 
engineering skills. They did not have enough contractors to quickly 
respond. It took them a while to get there.
    We believe they are there now, but this is a systemic 
issue. It is an issue that they face today. And we can get into 
that perhaps in some of your questions about why that situation 
exists.
    I think it is also important to point out here, one of the 
reasons there were some delays is that this was an atypical 
program for AID. AID, essentially, they do have a capability to 
respond to disaster assistance on an emergency basis. They have 
an office that responds to those kind of crises. It is crisis 
management. They work with DOD. They are good about getting in 
there, getting emergency shelter, doing that type of work.
    Most of their regular programs are based on long-term 
development. What they do not have is the capability to do 
infrastructure projects of sizable amounts, such as the one in 
Honduras, requiring the engineering technical skills. They just 
did not have that capability. They had to go out and hire it. 
They got it, but it took them a while to get there. And I think 
that is an important point. That is probably the number one 
lesson to be learned from this process.
    Secondly, a couple of other things I will get into, there 
are efforts to ensure financial controls and oversight. It took 
them a while to set that up, to put in place the right kind of 
people, to get the right types of engineering staff in there to 
monitor the projects. It is just one of those things; it just 
took them time to get that done. It is in place today, but it 
delayed their ability to respond quickly.
    Another issue that we raised, an observation we have: There 
were 13 other federal agencies involved in implementing 
Hurricane Mitch assistance. Coordinating all of these players 
was a major task. Several of these agencies do not have 
overseas experience and are not used to working in overseas 
environments.
    For AID to help coordinate them and get their programs up 
and running, it took a lot of time and effort. And a lot of 
those projects did not get going right away. In fact, even as 
we speak today, a lot of them are still only about 20 percent 
done.
    Finally, they wanted to ensure that there was competition 
among contractors in the whole procurement process. And 
ensuring that U.S. bidders were allowed to bid took time 
because they have to go through their normal procurement 
process.
    We believe these kind of factors have to be considered in 
any kind of future disaster assistance program. It is going to 
be something that AID has learned. They have a team over there 
now that is studying several of these options. They are aware 
that they need to develop this kind of surge capability to 
respond to future disasters. And it is going to require some 
follow-up. We plan to monitor this activity in our future work.
    Mr. Chairman, that concludes my statement. I would be happy 
to answer any further questions. I have my staff here, if you 
get into any details. I think if I cannot answer, they will do 
it for me.
    [The statement of Mr. Ford follows:]
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    Mr. Kolbe. I think I can assure you there will be plenty of 
questions here.
    We are going to hear first from Mr. Everett Mosley, the 
inspector general. And we welcome your testimony today, Mr. 
Mosley.

                     Mr. Mosley's opening Statement

    Mr. Mosley. Thank you very much.
    Mr. Chairman, other committee members and committee staff, 
I have with me today Mr. Tim Cox, who is our regional inspector 
general from our San Salvador office, and he was responsible 
for managing most of our audit work as it relates to this 
project.
    We are pleased today to offer our testimony on USAID 
programs funded under the Central America and Caribbean 
Emergency Disaster Recovery Program. This is commonly referred 
to as the Hurricane Mitch programs.
    In our testimony, we would like to discuss the overall 
progress of the Hurricane Mitch program, the strategy developed 
by the office of inspector general to provide oversight to the 
program, the results that we have reported to date, and some of 
the tentative conclusions and lessons learned.
    First, concerning the program progress, excluding $34 
million, which was transferred to other federal agencies under 
Section 632 of the Foreign Assistance Act, as of December 31, 
2000, USAID reported that $586 million of the remaining $587 
million for Hurricane Mitch supplemental had been obligated. 
$534 million of this amount was committed, and $240 million was 
spent. That is, about 41 percent of the funds were spent as of 
December 31, 2000.
    The OIG has helped to monitor the program's progress, 
primarily through its internal audit program. To date, we have 
completed field work on five audits that examine whether 
activities were on schedule to achieve the planned output. 
These audits have disclosed a range of conditions, from 
activities that were on schedule to activities that were 
significantly delayed.
    We have focused on larger activities in each country. And 
as you know, some of the largest infrastructure activities have 
run into some fairly significant implementation problems. 
Relative to the oversight of the office of inspector general, 
the purpose of OIG's oversight was to make sure that the 
Hurricane Mitch funds are well-spent.
    We wanted to prevent problems from occurring, where that is 
possible, and to detect problems early on, when they involve a 
relatively small amount of money and when they could be 
corrected fairly easily.
    In developing our strategy and carrying it out, we have 
worked closely with the customers and stakeholders, including 
congressional staff. On a quarterly basis, we have provided 
oversight discussions with GAO, other donors, other offices of 
inspector general where funds have been transferred, USAID's 
Latin America and Caribbean bureau, USAID's missions in the 
region, and contractors and grantees.
    The strategy is innovative in the sense that it is not 
strictly an audit or investigative strategy but includes many 
different types of activities aimed at prevention and 
deterrence that we have brought into our strategy from outside 
the traditional audit and investigative roles.
    An example would be our fraud awareness training program, 
which has been extremely successful. The strategy emphasizes 
participation in the sense that it gives USAID grantees and 
contractors a prominent role in helping to prevent and detect 
fraudulent activities.
    To decide what type of oversight the OIG should provide for 
individual activities funded under the supplemental 
appropriations, we employed a risk-based approach. Based on our 
risk assessments, the OIG decided to perform concurrent 
financial audits of the high-risk activities and annual audits 
of the lower-risk activities.
    In addition to our financial audit program, the OIG also 
has an internal audit program which is focused on assessing how 
well USAID is carrying out its management responsibility for 
the Hurricane Mitch program. Our audit program is complemented 
by a robust investigative program where we monitor the 
Hurricane Mitch program and indications of fraud or abuse.
    At this point, we would like to discuss the results of our 
audit work to date. We regret that we are not able to discuss 
the results of our investigative program in this forum, other 
than to say that we have several investigations under way. As 
these investigations are completed, we will be glad to provide 
briefings to your staff and any member of the committee who 
would like to get a discussion on the results of our 
investigations.
    At this point, I would like to turn to Mr. Cox, who will 
discuss the results that have been achieved.
    Mr. Cox. Mr. Chairman, to date, under our financial audit 
program, the auditors have completed field work on 64 audits, 
which covered $72 million in USAID funds. On 49 of these 
audits, or 77 percent, the auditors expressed unqualified 
opinions. On 13 of these audits, or 20 percent, the auditors 
expressed qualified opinions. On one audit, the auditors issued 
a negative or adverse opinion. And on another audit, the 
auditors issued a disclaimer opinion, and later on, if you 
would like, we could elaborate on the different opinions.
    These audits identified $2.4 million in questioned costs, 
representing 3 percent of the amounts audited. These audits 
also identified 111 reportable internal control conditions,and 
121 instances of material noncompliance with the terms of the grant 
agreement or the contract or applicable laws and regulations.
    We believe that our concurrent audit program has been 
successful in identifying problems early on, when the problems 
were relatively small and when deficiencies were relatively 
easy for us to correct. And our expectation has been that, as 
time goes on and these problems are addressed through our 
recommendation follow-up process, and the grantees and 
contractors gain additional experience in working under USAID's 
rules and regulations, we should begin to see fewer problems.
    This is, in fact, what we have seen. And there are some 
good examples, where our initial concurrent audits identified 
some pretty significant problems, including fairly high 
percentages of questioned costs, but corrective action has been 
taken and subsequent concurrent audits on the same grantees 
disclosed fewer questioned costs and fewer internal control and 
compliance conditions.
    The second point we would like to make about the financial 
audits concerns the nature of the questioned costs that we have 
identified to date. We have not been identifying questioned 
costs because AID funds were embezzled or used for frivolous 
reasons or used for purposes that were totally unrelated to the 
reconstruction effort.
    What we have seen are cases where grantees and contractors 
used incorrect specifications or used AID funds for purposes 
that were not authorized under the terms of their agreement but 
were related to the reconstruction effort.
    We do not want to try to minimize the questioned costs, 
because they really do represent ineligible uses of AID funds, 
and that needs to be corrected. And they reflect underlying 
internal control and compliance deficiencies that also need to 
be corrected, but they do not reflect deliberate diversion of 
AID funds to unauthorized uses.
    In conclusion, then, on the financial audit program, we do 
feel like the program has been successful in limiting 
questioned costs and other types of deficiencies to a 
relatively low level. Certainly, we would say, in our judgment, 
to a much lower level than what we would have seen had we not 
undertaken the concurrent audits and the other types of 
exceptional oversight efforts that we have achieved.
    I think that many people from the administration and the 
Congress, when they began to discuss this very large 
reconstruction program for Central America, anticipated some 
very serious problems with corruption and perhaps with limited 
absorptive capacity in the region. And we are very pleased that 
we have been able to help limit the problems to a relatively 
low level.
    Now, under our internal audit program, the auditors to date 
have completed field work on eight audits. And if you would 
like, we can summarize the results of those audits during the 
question-and-answer period. As the inspector general indicated 
previously, these audits did disclose cases where activities 
were not on schedule, where activities were delayed, but the 
responsible missions have developed or are now developing plans 
for accelerated progress.
    I would like to discuss some tentative conclusions and 
lessons learned. USAID has developed some lessons learned with 
participation from the OIG, which are summarized in our 
statement for the record. We would like to briefly mention the 
lessons learned from oversight efforts, since this is an area 
where the OIG played a key role.
    Perhaps the most important lesson from our oversight 
program is that participation and teamwork are very important. 
We think that coordination with the General Accounting Office 
has helped focus our oversight program and has helped avoid 
duplication of effort.
    USAID mission staff and the staff of USAID's contractors 
and grantees have also played an absolutely critical role in 
our oversight program. As we indicated earlier, the fraud 
awareness training that we did had a big impact. It received a 
very enthusiastic response, and we think it had a tremendous 
deterrent effect.
    Participation and teamwork have also been important in our 
work with audit firms, with supreme audit institutions, or 
SAIs, and with the Defense Contract Audit Agency, or DCAA, to 
carry out financial audits of the Hurricane Mitch program.
    We have also learned a lot about concurrent audits and how 
they can be useful to us in identifying problems early on, 
while they are still small problems and before they can grow. 
We also believe that these concurrent audits, by providing us 
with a highly visible presence within a lot of the 
organizations that were carrying out AID activities, had an 
important deterrent effect on individuals who might have been 
contemplating engaging in some type of fraudulent activities.
    Mr. Mosley. Mr. Chairman, that completes our statement, and 
we would be pleased to answer any questions that you or other 
committee members have.
    Mr. Kolbe. Well, thank you very much, and I appreciate 
this, and I think there will be a number of questions.
    We have also been joined by Ms. Pelosi.
    We are delighted to have you with us.
    Ms. Pelosi. Thank you.

                            Five-Minute Rule

    Mr. Kolbe. Let me just say for my subcommittee members that 
I am a pretty firm believer in the five-minute rule on 
questions, and that includes for myself as chairman, because I 
think it is in fairness to all of the members if they have an 
opportunity to do that.
    I will use this hourglass here, which is, I understand, a 
specially constructed hourglass, a five-minute hourglass.
    Ms. Pelosi. A tradition. I am surprised he did not take it 
to Energy and Water, with him.
    Mr. Kolbe. Yes, I appreciate your leaving it with Foreign 
Operations.
    My rule is, generally, that if you are in the middle of a 
question or the middle of an answer, obviously we do not cut 
you off there, but we will proceed with no more questions after 
the five minutes are up.

                           AID's Capabilities

    So with that, let me just begin by saying, just so I can 
clarify, in your testimony, Mr. Ford, you said that AID has the 
ability to do things in an emergency, to deal with problems in 
an emergency, getting the food, the water and the blankets down 
to a disaster area. And they also have the ability to do long-
term development projects.
    What is missing is, apparently, something here in the 
middle. Could you elaborate on that and explain what it is that 
seems to be missing in AID's capabilities?
    Mr. Ford. I think the point I was trying to make there is 
that AID decided this was going to be an infrastructure 
project. That meant that they were going to go out and build 
roads.
    Mr. Kolbe. Is that not a long-term development project? I 
mean, is that not what AID does normally?
    Mr. Ford. No, not any longer. In the 1960s, in the 1970s, 
AID had a capability to do major infrastructure projects. They 
built dams. They did a lot of things like the Corps of 
Engineers does today.
    AID no longer has that capability today to do that type of 
activity. They have to go out and hire it. They do not have----
    Mr. Kolbe. So they do not have that capability internally? 
AID must go outside the agency and hire that capability?
    Mr. Ford. That is correct.

                        Technical Staff In-House

    Mr. Kolbe. Either of you can answer this: what kind of 
technical staff in-house does AID have today? How does that 
compare to what it was a few years ago?
    Mr. Ford. In terms of engineers, I do not know the answer 
to that. I can get it for you.
    I believe in the contracting area, they have approximately 
115 contract officers as of January 2001. In 1995, they had 
about 170 contractors on staff.
    I might add that AID's overall direct hire staffing has 
gone down significantly in the last 20 years. Around 1980, they 
had about 4,000 direct hire staff. Now, they only have about 
2,000. So that is a 50 percent reduction.
    I mean, you have an overall reduction in staff in general, 
and then you have certain skill areas--and contracting, I know, 
is one of them--where they just do not have enough to go 
around. And that was a major problem in this particular case.
    Mr. Kolbe. They attempted to do it in-house? Is that what 
you are saying? They attempted to do it in-house and did not 
have the capability?

                              Contracting

    Mr. Ford. In the case of contracting, yes.
    Mr. Kolbe. In the contracting part of it?
    Mr. Ford. Yes, that is correct. They have their own 
contracting----
    Mr. Kolbe. Well, is contracting going to be contracted out? 
I mean, are they going to be doing more of this work with 
outside contractors, without having their own people inside?
    It seems to me, the logical thing over the years would have 
been to put more people into the monitoring, doing the 
contracting and the monitoring of this activity. Is that not 
what has happened? I mean, is this a systemic management 
problem?

                            Systemic Problem

    Your testimony refers to startup problems, but it sounds to 
me it is more than a startup problem. It sounds to me like it 
is a systemic problem we have here.
    Mr. Ford. I think it is both. I think in terms of these 
particular projects, they did not have the capability at that 
time. They did not have a surge capability to put these kind of 
people down there to get the projects up and running. And that 
is what caused the delays initially.
    So that was a short-term problem. I think it is a systemic 
problem at AID, in the sense that they do not have enough 
contract officers to go around. And so they have had to move 
them around. When adversity comes around, they have to rob 
Peter to pay Paul, so to speak.
    What they did in this particular case is, the contracting 
officer in Nicaragua was asked to cover Honduras. That program 
grew tenfold. It went from a $20 million program to a $290 
million program.
    So I mean, they just did not have somebody available to 
quickly get in there and start doing the contracting.
    Mr. Kolbe. If you are doing more work out-of-house, 
contracting, then it seems to me you have to have more, since 
the contracting has to be done by the agency, you have to have 
more contracting officers to do that. Instead, you are saying 
that you have fewer contracting officers.
    Mr. Ford. That is what the data shows.
    Mr. Kolbe. That is not a startup problem. That is a 
systemic problem. That is a management problem.
    Mr. Ford. I agree.
    Mr. Kolbe. What is being done to address this? Maybe I 
should first ask, is this recognized by the management of AID 
as a problem?

                        HUMAN CAPITAL MANAGEMENT

    Mr. Mosley. It is recognized by the management. In fact, 
human capital management is a tremendous problem that they are 
trying to deal with now. To be very honest, they have lost a 
lot of people through retirement. As you know, in the foreign 
services, retirement is at an early age, 50 with 20 years of 
service, as opposed to civil service, which is 55 with 30 years 
of service.
    The problem that everybody is facing, in both public and 
private industry, is even more acute in AID.
    I think that the difficulty, in terms of the technical 
staff that has been lost over the years, has been very simply 
with the loss of total staff, cutting in half. They could not 
afford to keep as many technical people, and the decision was 
that that type of activity would be contracted out. Certainly, 
they had to also lose some of the people who were doing the 
contracting work.
    Now, they have people. It is just that you cannot have 
enough people in Latin America when you do not know that you 
are going to have an earthquake. So those people have to be 
flexed around from other parts of the world, including from 
headquarters here in Washington. And that is what they have 
tried to do.
    I do not know that it is possible to get more technical 
staff with the staffing restraints that they have right now.
    Mr. Kolbe. Well, I have not even gotten warmed up yet. 
[Laughter.]
    Mrs. Lowey. Now, I am going to follow up, because I am 
trying to understand this.
    I happen to be one who believes the work of AID is 
critical. And the United States is going to continue to want to 
respond to these disasters and these emergencies around the 
world.
    And yet is it not true, Mr. Chairman, that we have flat-
lined operating expenses?

                         ADEQUATE COORDINATION

    So what I am trying to figure out is not so much how we do 
better audits, because it seems to me that the audits are 
pretty good and you have those in place. And you specifically 
said that most of the problems are related to reconstruction 
efforts, and it does not seem to be outright major corruption, 
which might mean to me, maybe if they had more books instead of 
stethoscopes or something like that, but we can follow up with 
that later on.
    But, number one, if the United States is going to continue 
to respond to these emergencies and we agree that there is an 
important mission at AID, and we flat-line operating expenses, 
my question, what I am trying to understand is, AID is working 
in this situation with 13 other operating agencies, was it 
AID's responsibility to coordinate the whole effort? Could you 
explain more what we can and should be doing with staff 
mobilization? Should we be building in better expertise? Should 
we be hiring more contract officers? Should there be a special 
authority outside and within AID for responding to disasters 
such as this?
    I am trying to understand and, perhaps, you can amplify, 
how do we coordinate better? Should we be increasing the 
dollars? Should we be building in more contract officers with 
better expertise? And again, maybe there should be a special 
authority, under the wings of AID? Could you, perhaps, amplify, 
because I do not quite get it?
    It seems to me the audit work was right on target. We want 
to be sure that we are building in the capability and that 
there is adequate coordination, not that we are playing 
``gotcha'' after the work is done or not done.
    Could you expand upon that? I think we are both trying to 
figure out where we go from here.
    Mr. Ford. Well, I mean, let me start off by saying, we have 
not done a complete workforce analysis of AID, so I have to be 
careful here. I do not want to sound like I know exactly what 
all their workforce problems are.

                           OPERATING EXPENSES

    Mrs. Lowey. No, I understand that. But it is clear to me 
that we flat-lined operating expenses.
    Well, let me not ask the question again. Why don't you 
respond?
    Mr. Ford. Well, for this type of a situation, in my view, 
they need what I will call a surge capability. They need to be 
able to put the right people on the ground as quickly as 
possible.
    And I think that AID recognizes that. We have seen some 
internal studies where they have some proposals to try to put 
the right type of people on the ground. Now, this is after the 
emergency phase I am talking about, because the emergency 
phase, they have an office called the Office of Foreign 
Disaster Assistance. They go immediately, right after the 
disaster occurs. They are the ones that provide the temporary 
shelter, evacuate people from hazardous areas and that type of 
thing. And DOD gets involved in providing supply.
    I am talking about the next phase.
    Mrs. Lowey. Well, DOD, I mean, that is the kind of 
information I am interested in. DOD has a budget of upwardsof 
$300 billion, and you are saying they get involved. Whereas at AID in 
1999, operating expenses were $490 million. In 2000, it was $508 
million. In 2001, it was $520 million. We are not even keeping up with 
inflation at AID.
    Well, can you continue?
    You said DOD gets involved.
    Mr. Ford. They get involved in the emergency phase.
    Mrs. Lowey. Okay.
    Mr. Ford. They basically provide transport, for the most 
part, because you have to get supplies in there right away. It 
is the next phase, when we decide as a government that we are 
going to do a reconstruction program, you have to have the 
right people on the ground for that phase of the work. And I 
think this is the lesson to be learned from the Mitch 
experience, and I think AID recognizes this, is that they need 
to develop a capability to put those people on the ground.
    Now, where they get them from and whether they are going to 
be able to fully staff those type of things, we have not done 
that kind of analysis. But I know they are aware of it. They 
know they need to do it. And I think, from a workforce planning 
point of view, the systemic issue, that is something that they 
are going to have to address.

                           RETIRING WORKFORCE

    AID is facing a major problem. One-third of their total 
workforce is eligible to retire, right now, as I speak. 
According to their own data, by fiscal year 2005, about 57 
percent of their foreign service staff can retire. So they have 
an aging workforce problem. This involves their entire 
organization.
    So they are going to have to deal with that at the same 
time they are addressing your concerns about building 
capability, because they are going to have to bring new people 
in to do that type of thing. And they are going to have to come 
up with a plan to get there. If they do not, it is going to get 
worse, the situation is going to get worse.
    Mrs. Lowey. Let me conclude, because I ran out of time, I 
think.
    Mr. Kolbe. We will come back, of course, for a second 
round.
    Mrs. Lowey. Okay.
    I think what we really need is, what recommendations do you 
have to make Congress more responsive so we can help AID be 
more responsive to international disasters? Because we want to 
help, we want to do it. How can we do it differently, rather 
than just depend on the audits to show us after the fact that 
we are not doing it?
    Thank you, Mr. Chairman.
    Mr. Kolbe. Chairman Callahan.

                              OTHER DONORS

    Mr. Callahan. Thank you, Mr. Chairman.
    A couple of observations and maybe two questions. One, when 
we passed Hurricane Mitch funding we provided you all with the 
resources to oversee it. It appears to me that both your 
organizations have come out in pretty good shape. It appears 
there may be some deficiencies in other areas of USAID, 
contracting officers and what have you. But this is a pretty 
good report, with respect to what the intention of Congress was 
at the time to provide this assistance.
    And the report, which mentions almost minuscule areas of 
fraud or abuse or misuse, I think it is a pretty good report 
for your two groups.
    The two questions, one would be the other donors. You have 
mentioned other donors, and other than the World Bank, have any 
other countries, to your knowledge--and maybe USAID should add 
to this--has anybody else been involved in any extent with 
monies?
    Mr. Mosley. I know you have done some research, Jess, so I 
am going to let you get this.
    Mr. Ford. The answer is, yes. Actually, there are a lot of 
donors, both bilateral donors--I have seen projects built by 
the Swedes. I have seen some bridges built by the Japanese. I 
have seen a lot of housing projects that have been built by 
lots of other donors down there, in addition to AID. The World 
Bank, the IDB, are actively involved in this area in terms of 
providing assistance.
    So there are a lot of other donors. And in fact, AID has 
been working closely with the donors, to make sure they 
coordinate their activities so we are not, you know, building 
two bridges over the river bank, so to speak.
    And what we have seen, at least on the ground, is, we have 
not seen duplication of effort, if you will, between the other 
donors and what AID is trying to accomplish.
    So the answer is, yes. There are other donors down there. 
We have seen projects that they are actively involved in. We 
have seen actual things, like housing, bridges, roads and that 
type of thing, but we have not seen any duplication.
    So from where I sit, anyway, I think it has been 
successful.
    Mr. Callahan. Well, I think it has been, too. I think this 
particular Hurricane Mitch endeavor on the part of the United 
States for foreign assistance to needy countries, you know, 
appears to have worked.
    And I would like to compliment USAID on doing what the 
Congress intended for them to do.

                        MONIES TO OTHER AGENCIES

    The other question I have is the $34 million that you 
mentioned that went to other agencies. What other agencies?
    Mr. Mosley. Defense, Transportation.
    Tim, do you have a listing?
    Mr. Cox. I have.
    Mr. Ford. Is that the same one I have?
    Mr. Cox. Go ahead.
    Mr. Ford. Okay, I will just read them off, and if you have 
a question, I will try to help out.
    We have NOAA, EPA, FEMA, USDA, Department of Agriculture, 
U.S. Geological Survey, the CDC in the health area, Department 
of Transportation, Peace Corps, State Department, HUD, Ex-Im 
Bank, OPIC, and the Corps of Engineers.
    Mr. Callahan. Thank you.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Well, I will indulge, since he has a little bit 
of time left.
    Just so I understand it, and then I will yield to the next 
person, do those funds that we are talking about, the other 
agencies, are they included in that, in terms of what has been 
obligated or not? Or is that just AID?
    Mr. Ford. No, they are included in the bottom bar, where it 
says ``other.''
    Mr. Kolbe. Oh, it is other agencies, not other countries?
    Mr. Ford. Yes, well, actually, it is both. We ran out of 
space. [Laughter.]
    But I can tell you, approximately $96 million is with our 
other agencies, and the rest of it is AID money going to other 
countries and for regional programs.
    So about $96 million is the amount that these agencies that 
I just read off the list identified.
    Mr. Kolbe. The other agencies are doing a little better 
than AID, in terms of getting the money actually spent.
    Mr. Ford. It varies, sir.
    Mr. Kolbe. If you might, could you provide that information 
for the record?
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] T5037A.016
    
                            632(A) TRANSFERS

    Mr. Cox. I was just going to make the point that there is a 
distinction between 632(A) transfers to other agencies, where 
those transfers are transferred with budget authority. They are 
not obligations on USAID books. And by law, USAID does do not 
retain programmatic and financial responsibility for those, 
although we are monitoring them.
    Mr. Kolbe. I understand.
    Mr. Cox. And then the 632(B) agreements are agreements that 
USAID manages pretty much like they would manage any other 
grant. We do monitor what the agencies are doing.
    Mr. Mosley. I should also point out, if I could, that even 
with the 632(A) transfers, that is when I talk about how we met 
with the other office of inspectors general for those 
respective agencies to make sure that they were aware that 
money was coming to their agency and that there was coverage of 
those funds in the activities that were taking place.
    Also, I think we tried in our work to expand the 
accountability over all funds going into this part of theworld, 
through our foreign awareness presentations that we gave where we met 
with about 2,100 contractors, grantees, and AID employees to explain to 
them things that they should be aware of, indicators that could present 
problems for them and to advise them how they could notify us if they 
identify those problems, and then we could go out and perform audits or 
investigations as necessary.
    Mr. Kolbe. Thank you.
    Ms. Pelosi.
    Ms. Pelosi. Thank you very much, Mr. Chairman. 
Congratulations to you and to Congresswoman Lowey for your 
leadership on this very important committee. I think that you 
will find the jurisdiction wonderful and bring your great 
leadership to bear on it. We are looking forward to working 
under you.
    It is no accident that Mr. Callahan and I are here today, 
because he had a tremendous amount of interest when we served 
in your capacities in a response to Hurricane Mitch. And I, 
too, am pleased with the utilization of the funds, to a point.
    But I just want to seek one clarification before I ask my 
other main question, and that is, when you read the list of 
other agencies, I did not hear and perhaps I missed the 
Department of Defense, or is that not part of this bulk number?
    Mr. Ford. That is correct. They are not part of this 
number.
    Ms. Pelosi. Are they not part of this number? Certainly, we 
were very proud of the work of DOD and our young people with 
the immediate emergency relief at the time of the disaster.
    Since my colleagues have addressed some of the oversight 
issues, in terms of USAID and its capability, I want to ask 
about timing.
    Let me start by quoting Oxfam, because they do so much 
great work down there. One of their conclusions is that: ``The 
congressionally imposed two-year limit on the reconstruction 
programs is, perhaps, the single greatest limitation which will 
reduce the sustainability over the medium to long term of gains 
made to date.''
    Other things I would like to point out, in your report, 
quoting your report, ``USAID had to cancel 12 of the remaining 
infrastructure projects due to design problems and the need to 
finish the program by December 2001.''

                         REBUILDING TIME FRAME

    Although it is important that a bridge or road get built 
fast, it is more important that it be built correctly and it 
does not crumble in a year. I am concerned about the time frame 
and what that might have imposed on you.
    In order to find suitable land for housing, property titles 
to dispute, government's lack of resources to sustain 
mitigation efforts, et cetera, were affected by this two-year 
deadline. Can you tell us if you would advise that in the 
future?
    We certainly want the money out there. We want results, but 
is that artificial time line a help or a hindrance to long-term 
recovery?
    Mr. Cox. Well, I would say that it is both, actually.
    It can be viewed as a hindrance, in the sense that maybe 
AID was not able to do all of the things that it would have 
liked to do and all of the things that it probably would have 
done in the absence of that deadline.
    On the other hand, the situation in the aftermath of the 
hurricane was a desperate situation where a very large 
percentage of the population had basic needs that were not 
being met. And so I think that that deadline probably had a 
good effect, in the sense that it did place pressure on AID to 
deliver services quickly.
    Ms. Pelosi. Which they would not have done without that 
deadline?
    Mr. Cox. Oh, I think they certainly would have, but they 
focused on providing a program totalling $621 million, which 
could be completed in two years' time. It had a tremendous 
effect in terms of delivering basic services to people in a 
situation that otherwise, potentially, could have been 
destabilizing.

                              FLEXIBILITY

    Ms. Pelosi. No, I understand. And that would be a 
traditional answer.
    As you know, they have consulted a group donors' meeting in 
Stockholm in May 1999. It was called to organize the 
international response and needs for reconstruction in Central 
America after Mitch.
    The Stockholm declaration advised the commitment to orient 
international aid toward long-term solutions that address the 
fundamental causes of poverty and vulnerability. So we are 
thinking in a bigger way about this.
    Mr. Ford, did you have any observation to make about the 
lack of flexibility that a deadline like that builds into it?
    Mr. Ford. Well, it is two-edged sword. I mean, yes, by 
design, it is not flexible.
    But on the other hand, it requires AID to get things done. 
I mean, a lot of these people that are in temporary shelters, 
you know, if they do not have a deadline to get the new house 
built, they are going to be in the temporary shelter. So, you 
know, you have to recognize that.
    I also think you have to have flexibility. If things happen 
that are outside your control, such as you have an extended 
rainy period and you cannot necessarily get a road done, it 
seems to me that that road is still vital to be completed, and 
you still have the money available. You oughtto have the 
flexibility to go in and get it done.
    I think AID is going to be faced, potentially by the end of 
the year, with some issues they are going to have to resolve 
about some projects that they have on the books today that they 
may not complete by the end of the year. And they are going to 
have to make some decisions about what they are going to do 
about it.
    Are they going to stop the project, or are they going to 
ask for an extension and go forward?
    My view would be that, if you are going to make an 
investment on a road or a sewer system, and you have 60 percent 
of it done, you ought to complete the project. And if it takes 
another few more months to do that, it ought to be done, 
because it is a vital component to the overall goal of creating 
a community that has water and sewer or having a road that you 
can go to use to market your goods.
    So I kind of feel like there is value in having deadlines, 
but I think you ought to have a little bit of flexibility, as 
long as the flexibility is for a good purpose, a good reason.
    Ms. Pelosi. I thank you, Mr. Ford.
    My sand has drained to the bottom, so I thank you, Mr. 
Chairman. [Laughter.]
    Mr. Kolbe. We will certainly have an opportunity for 
another round.
    We welcome Mr. Bonilla, a new member of this subcommittee, 
here.
    Mr. Bonilla.
    Mr. Bonilla. Thank you, Mr. Chairman.
    I am delighted to be the newest member, and I am looking 
forward to working with you.
    Mr. Kolbe. Well, you are no newer than I am. [Laughter.]
    Mr. Bonilla. Well, I guess we start at the same time, then.
    I only have one or two questions. In reviewing the 
testimony here this morning, and looking at the construction 
delays that you are already addressing, if projects are not 
completed on time, does that mean that someone is going to come 
back to us and say, because they will take another year or two 
to complete, like a construction project or a sanitation 
project or a water project, is that going to eventually cost us 
more? Will people come to us and say, ``Hey, the price tag is 
going to be inflated by a certain percentage.''
    Mr. Cox. The majority of the infrastructure work, the 
construction work, is being done under construction contracts 
that were awarded on a fixed-price basis, so I would not 
anticipate that. If there is some spillover after the deadline, 
I would not anticipate that that would lead to cost increases.
    Mr. Ford. And in fact, I think what AID has done over the 
last two-year period is, when they run into situations where 
things are more costly than they originally anticipated, they 
just reduce the scope of the work.
    For example, in the road program, I think, initially, their 
plan was to fix about 2,000 kilometers of road. In the IG's 
report, the actual cost of building those roads turned out to 
be a lot higher than they anticipated, so now they are only 
going to do about 1,250 kilometers of road.
    So it is not going to cost us anything, at least at this 
point, but they have had to scale back some of their original 
plans.
    Mr. Bonilla. Well, just as far as a comment, then, I would 
commend those who are working on these projects down there, 
because if this were a domestic project, they would be coming 
back to us asking for more money because it could not be done 
in the time allotted.
    The only other question I have is about adequate public 
health facilities and the overall health care conditions for 
people in the region. Do you all see that progressing well? Are 
people being taken care of?
    Mr. Cox. I really cannot respond directly to that question, 
except to say that there is a lot of money being spent on water 
and sanitation systems, which, of course, addresses that 
concern. But as far as monitoring the health status of the 
people who are affected by the disaster, I really cannot 
address that.
    Mr. Bonilla. Thank you all very much.
    And again, I look forward to working with the subcommittee.
    Thank you, Mr. Chairman.

                           OPERATING EXPENSES

    Mr. Kolbe. Thank you very much, Mr. Bonilla.
    Ms. Lowey made the comment about the cut in the operating 
expenses or, rather, the flat-line. I think we need to note 
that there has been a 10 percent increase over the years. In 
1996, it was $465 million. Fiscal year 2001 is $533 million. So 
that has been an increase in the operating expenses.
    I think it is worth noting that a large part of that, of 
course, went into a failed new management and computer 
accounting system. That was a failure.
    This is a recurring theme that I am familiar with, having 
been chairman of Treasury-Postal and the IRS and the billions 
of dollars we spent on a failed new operating system there.
    Let me return to some of the questions that I did not get 
answered, did not have a chance to ask the last time. I wanted 
to start with one. Mr. Callahan, I think, referred to this, but 
I do not think we got it specifically nailed down.

                      PLEDGES FROM DONOR COUNTRIES

    In the aftermath of both Hurricanes Mitch and Georges, 
there were lots of wonderful pledges that were being made by 
donor countries to help out in this situation. I think the 
total was about $9 billion. I am wondering if you, in your 
oversight, looked at what has happened with these pledges, how 
many of them have been met, how much money has been received 
and used for implementation of reconstruction made by other 
countries other than the United States.
    Mr. Mosley. We do not have that information, sir. We can 
try and get it for you, but we do not have that information at 
this time. We have not been monitoring the work by the other 
countries.
    Tim can react to the fact of what we have seen on site down 
there, in terms of activities taken place, but we do not have 
overall figures at all.
    Mr. Kolbe. Well, that is very interesting, because it seems 
to me, if you are going to coordinate, if you are going to do 
reconstruction activities, somebody has to know what is going 
on with regard to all the different respondents, those who are 
assisting in this process.
    And if the U.S. is going to provide the bulk of assistance, 
it seems to me we need to know something about what Sweden 
might be providing or Germany might be providing and how that 
money is being used. Presumably, Honduras knows, but are you 
telling me that AID does not communicate with other donors?
    Mr. Cox. The concern is absolutely correct. I think on the 
oversight side, our coordination with other donors has been in 
terms of coordinating our respective oversight programs. I 
think that the program people in AID have been coordinating 
with other donors, and we have seen some evidence of that. But 
I just do not have the figures, because, again, we have been 
coordinating with them on oversight.
    Mr. Kolbe. Do you have anything to add to that, Mr. Ford.
    Mr. Ford. Mr. Chairman, we have attempted to get the 
information. We do not have it at the current time. We have 
some inquiries out now. We understand that the mission, at 
least in Honduras, where I just came back from, they have not 
got it back to us. So I do not know whether they have it or 
not. We would be more than willing to try to obtain that 
information for you in terms of the actual expenditures and 
commitments. But we do not have a number at this point.

                               DEADLINES

    Mr. Kolbe. There was some discussion today about deadlines, 
whether or not projects were completed on time.
    As I understand it, though, these were not legal 
contracting deadlines. They were targets, is that not correct?
    Mr. Ford. That is my understanding, yes, sir.
    Mr. Kolbe. Yes. So it was not a question of whether or not 
they were giving an extension on a contract completion date. It 
was a matter of whether targets were being met for these 
projects. Would that be a correct assumption?
    Mr. Cox. We are talking about the December 31, 2001, 
deadline?
    Mr. Kolbe. Yes.
    Mr. Cox. As I understand that, it was a gentlemen's 
agreement between the Congress and the administration, and it 
is not a legal deadline.
    Mr. Kolbe. It is not a legal deadline.
    Mr. Ford. That is my understanding.
    Mr. Kolbe. Is it your view that the failure to meet some of 
these deadlines, however, has added significantly to the cost 
of some of the projects?
    Mr. Ford. Well, you know, they have not failed to meet them 
yet. I mean, you know, they have until the end of this year.
    Mr. Kolbe. Right.
    Mr. Ford. And their goal is to be done by the end of the 
year, for everyone involved there, their entire program.
    Mr. Kolbe. Is that really realistic, looking at what we are 
looking at here? I think you have virtually 100 percent or 99 
percent obligated, but you do not have----
    Mr. Ford. Yes. We have a concern in the area of water and 
sewer in Honduras.
    Mr. Kolbe. Is this the main system in Tegucigalpa you are 
talking about?
    Mr. Ford. It is most of their overall water and sewer 
program for municipalities. About 36 of the planned 80 projects 
have been completed. We have a concern about whether they are 
going to be able to meet that one. I do not know if Tim has a 
different view.
    I think for the other projects, we feel reasonably 
comfortable that they can get there.

                            REPAYMENT RATES

    Mr. Kolbe. There was $5 million, I think, in agricultural 
loans to small- and medium-sized firms; 781 of them is, I 
think, you mentioned in your testimony. The microenterprise 
program has issued 57,000-plus loans. First of all, can anybody 
tell me anything about the repayment rate on these 
microenterprise loans? That is a lot of loans.
    Mr. Cox. On these specific loan programs, no, I cannot.
    Mr. Kolbe. Why not? I mean, is this not one of the things 
you would normally do as part of the monitoring, with the money 
that we gave you to do this monitoring?
    Mr. Cox. No. It is something that we would look at as part 
of our financial audits on the contractors and grantees that 
are carrying out those programs. If there were aproblem with 
repayment rates or any other type of problem affecting management of 
credit programs, we would expect the auditors to raise that as either 
an internal control or a compliance----
    Mr. Kolbe. So you have not done it because there has been 
nothing that demonstrates that there is a serious problem. Is 
that what you are saying? Your auditors have not brought it to 
you as a problem.
    Mr. Cox. That is exactly correct.
    Mr. Ford. I do not have the exact rate of repayment. 
However, the reports we have seen from AID indicate that the 
repayment rates are generally very good. We cited a couple of 
examples of some problem cases in our statement related to a 
cooperative that we supported, where they have had some 
problems in the past.
    But overall, in the microenterprise areas, their repayment 
rates are very good at this point. And, in fact, in some cases, 
they have regenerated the money and that has come back and 
expanded the program.
    Mr. Kolbe. Are you talking specifically about Hurricane 
Mitch or overall?
    Mr. Ford. I was only talking about Hurricane Mitch.
    Mr. Kolbe. Hurricane Mitch. That is what I thought.
    I have some more questions.
    Ms. Lowey, your round.

                     DISASTER IMPLEMENTATION REVIEW

    Mrs. Lowey. Yes. I am trying to figure out what we have 
learned from Hurricane Mitch and how we can apply it to the 
earthquake damage. As I understand it, the President is talking 
about $110 million for reconstruction, $52 million from 
reprogrammed money, and $58 million in the fiscal year 2002 
request.
    So it seems to me, first, the question is where are we 
going to be taking it from, Hurricane Mitch money or from some 
other place where there is a disaster?
    And the fiscal year 2002 money, we are going to have the 
same problem again. Here we have this tremendous disaster. I 
understand the impact is really on the rural areas in San 
Vincente and Usulatan and all the areas where we have worked so 
hard, and where it is so desperately needed.
    So if you look at the facts and you see that for the past 
several years Congress has managed to pass just one 
supplemental appropriations bill, which usually does not become 
law until midsummer, and the fact that Hurricane Mitch hit 
Central America in late October, at the end of the 
congressional calendar, just to review, meant that it would be 
months before the United States would respond.
    And when we did respond, $621 million was provided as a 
one-time infusion of assistance. And if you look at the past, 
this is not dissimilar from what has happened before.
    So what I am trying to figure out is, if you review the 
implementation of these funding packages way back--Clinton 
administration, Bush administration--the funding was always 
slow to start and took years to spend.
    In the meantime, we look at El Salvador, and they have this 
tremendous tragedy. Just to compare, Mitch killed 400 people. 
The earthquake has killed 1,155 people. And we are talking 
about reprogramming funds, and it is not even in the budget, in 
the 2002 budget. We are talking about a huge tax cut.
    I just wonder if you have any recommendations about how 
Congress could be more responsive. And once again, how can we 
help AID become more responsive? Should we be having another 
supplemental? And if so, can we respond more efficiently and 
effectively sooner, so we can really have an impact on these 
people that are suffering tremendous loss? I mean, it just 
seems----
    Mr. Ford. It is not for me to tell the Congress what to do. 
[Laughter.]
    Mrs. Lowey. If you look at the record, we included $1.3 
billion in emergency funding in last year's supplemental for 
Plan Colombia. I do not believe a supplemental is being planned 
for this time around. So what do we do? How do we respond?
    Mr. Ford. Why don't you answer?
    Mr. Cox. I cannot fully address your question. I can 
address some parts of it.
    As far as, perhaps, what Congress can do to help AID be 
more responsive, I think AID itself--and perhaps your staff 
members can shed some light on this as well--but I know that 
AID believes that close contact on the Hurricane Mitch 
disaster, before the supplemental appropriation was passed and 
after, was helpful to the agency and helped them implement that 
program faster.
    We believe that close contact with the congressional staff 
on the oversight was also helpful to us in finding out, from 
the Congress's point of view, what our marching orders were and 
how we could be responsive. And so I think that was helpful.
    The question of whether the program should be funded 
through a supplemental or reprogramming, that is the part of 
your concern that I cannot really address, other than to say I 
suppose that all federal agencies are faced from time to time 
with the task of taking money from less urgent needs and 
reprogramming them for more urgent needs.
    Mrs. Lowey. So essentially, all we really have to respond 
now would be the $52 million from reprogrammed fiscal year 2001 
money at AID, correct? Where is it going to be reprogrammed 
from?
    Mr. Cox. I am not certain that a decision has been made 
yet.
    Mr. Mosley. I do not know the answer.
    Mrs. Lowey. From Hurricane Mitch?
    Mr. Ford. Again, from where I sit, I think the key here is 
whatever way you decide to fund it, if you want a quick 
response, you need to let AID know that, and they need to be 
able to get their people on the ground as quickly as possible, 
and they need to develop the capability as quickly as possible 
to have them there.
    Because regardless of how you fund them, whether you do it 
through a supplemental or a reprogramming, if they do not have 
the right people on the ground, you are going to run into some 
of the startup problems that we talked about on the Mitch 
program.
    Mrs. Lowey. My time is up.
    Then we get back to the issue of capacity-building, and 
what does AID need to build in the capacity at the agency so 
that they can respond in a timely way.
    Mr. Kolbe. I think it is fair to say that these questions 
really are more appropriately addressed to the AID staff, when 
we have that person on board and are able to talk to that 
person.
    Mr. Knollenberg.
    Mr. Knollenberg. Thank you, Mr. Chairman.
    Welcome, gentlemen.
    This is my third hearing this morning. I have a fourth to 
go to in about 20 minutes, so my time will be short here. But I 
appreciate you being here.
    I missed part of the testimony, so I may be covering some 
ground that has been covered. If it has, stop me, and I will do 
it another way. But I do have a question I want to ask, which I 
do not think has been asked.
    Typically, AID gets involved in either addressing short-
term or long-term development assistance. Disaster recovery and 
reconstruction lie somewhere in between, and I know Hurricane 
Mitch has been the topic of conversation this morning. That 
probably was the mother of problems, wouldn't you say, Mr. 
Ford?
    Mr. Ford. Yes.
    Mr. Knollenberg. In terms of the last 10 years, last 20 
years maybe, that has been the big one.
    Mr. Ford. In terms of----
    Mr. Knollenberg. As it applies to, perhaps, you and your 
work.
    Mr. Ford. Yes, in terms of a disaster, there is no doubt 
about it.
    Mr. Knollenberg. There has been some discussion, and--it 
may have been covered here--that we may get involved in the 
India scene. Now, that is out there. I do not know if that 
necessarily is something on your radar screen. But there are 
some lessons we must have learned from our current experience 
in Central America that would hopefully be applied to how we 
tackle the process.
    What areas should USAID examine in its current agency-wide 
review? If this has been talked about already, if you can just 
review them very quickly.
    And what issues deserve special attention? Perhaps you 
could focus on that very briefly.
    Mr. Ford. Yes. Again, I will repeat a little bit what I 
said earlier. I personally believe they need to develop what I 
call a surge capability.
    Mr. Knollenberg. Surge?
    Mr. Ford. I call it a surge, like the military concept. But 
basically, they need to put together the right people, package 
them, and get them down on the ground as quickly as possible, 
so that they can get the program up and running. And that means 
you have to have the right types of staff down there. You have 
to have the contracting officers, engineering expertise if you 
need it, or any other type of technical expertise if they feel 
they need it. They need to know ahead of time where to get it, 
put it together, and get it down there.
    The Office of Foreign Disaster Assistance has these DART 
teams, these disaster assistance teams. They go in right after 
an emergency, and they find shelter, and they have that kind of 
capability.
    And I think what I would urge AID to consider, and I think 
they are considering it, is to develop that capability for 
these kind of situations. That way they can get down there more 
quickly, and they can get the program up and running.

                FOREIGN GOVERNMENTS' OVERSIGHT CAPACITY

    Mr. Knollenberg. Let's talk about foreign governments. What 
are we doing to help foreign governments develop effective 
oversight agencies or groups? Are we doing anything to bring 
them together so that everybody is on the same page? Do the 
foreign governments have any oversight capacity? And if so, are 
they utilizing it effectively and working with you?
    Mr. Ford. Actually, I think the IG is better suited to 
answer this. I will just give you my quick view, and I will let 
him jump in, because these guys actually work with the local 
governments in trying to develop that institutional capability. 
I know, in Honduras, they have got a fairly active program.
    Mr. Knollenberg. So currently there is not a lot of 
oversight capacity that is exercised by the foreign 
governments?
    Mr. Ford. Are you talking about in the audit area? I mean, 
basically, do they have the audit capability?
    Mr. Knollenberg. Well, I think the whole reconstruction 
process, which would involve auditing as well, I am sure. But 
so that they are not just left to wander, that there is some 
monitoring of what they do on a daily, weekly, monthly, basis.
    Mr. Mosley. Each of the foreign countries, or most of the 
foreign countries, have what is called supreme audit 
institutions or ``SAIs'', which is comparable to the General 
Accounting Office in the United States. And they are 
responsible for doing the audit and investigative activity for 
everything that comes into their country.
    We have a project called Expanding Accountability in the 
International Environment within the Office of Inspector 
General of AID where we are working with those groups to help 
them improve their technical ability to do these audits. We 
help them with their strategies. We also work with the Agency 
for International Development. Sometimes the missions are 
working with the same groups to provide the funding for the 
training that they need.
    We have developed memorandums of understanding with about 
17 of these supreme audit institutions around the world, which 
helps them to do the work on the AID funds coming into their 
country. They have to then meet the standards of the U.S. 
government, and then we provide oversight of the work that they 
do. We have numerous training sessions with them.
    Mr. Knollenberg. Is that working pretty well?
    Mr. Mosley. It is working extremely well, at this point.

                               NICARAGUA

    Mr. Knollenberg. Nicaragua. Can you talk about Nicaragua? 
[Laughter.]
    Mr. Ford. I think it is fair to say, there it is working 
less well. [Laughter.]
    Prior to Mitch, AID was providing some institutional 
support for the Nicaraguan comptroller general's office. 
However, after Mitch struck, there were some internal 
differences, political differences, between the comptroller 
general and the president of Nicaragua. This resulted in the 
president creating an oversight board.
    They have a committee or a board which was meant to 
supervise the comptroller general, which in effect diluted the 
independence of that office. And as a consequence of that, AID, 
I believe, has suspended their support for that program. The 
donor community is trying to pressure the Nicaraguan government 
to do away with that committee and to go back and resupport the 
concept of a comptroller general.
    So right now in Nicaragua, the capability for doing 
independent audits, at least through that office, I believe is 
fairly limited, and it is not achieving the kind of goals that 
we would like to see.
    Mr. Knollenberg. Is that a political problem as well?
    Mr. Ford. I think it is.
    Mr. Cox. The conflict between the comptroller general and 
the administration, which has gone on for many, many years. I 
have been in the region since 1998; it has been a problem of 
very long duration.
    Mr. Knollenberg. Well, if there is anything we can do to 
help you foster the development of some kind of oversight by 
those various entities, I think we would be interested in that.
    Mr. Mosley. Actually, independence is a problem with many 
of the SAIs around the world, simply because corruption in some 
of those countries is a way of life. But what we add is, when 
they have difficulty and they do not have independence, they 
come to us and we do have independence and we can still deal 
with the problem.
    Mr. Knollenberg. Mr. Chairman, thank you.
    Mr. Kolbe. Thank you very much, Mr. Knollenberg. And I know 
you have another hearing, and obviously we have a vote going 
on. But we can finish this up here.
    Do you have another question or two that you wanted to ask? 
If so, we will do that, and then I will finish mine and we will 
conclude.
    Mr. Knollenberg. I think, Mr. Chairman, I am pretty close. 
I missed so much of this that I know you probably covered it. 
There is just one question I do not think was asked, but I do 
not know how vital it was. And so I think I am complete.
    Mr. Kolbe. Thank you.
    Mr. Mosley, I just want to follow up on the statement you 
made in response to Mr. Knollenberg's question. You said you 
thought that the audit program with the other countries has 
been successful. But I think your own testimony belies that. It 
suggests that certainly in the Dominican Republic and 
Nicaragua, it has not been successful. So is it an accurate 
statement to say that the super-audit program or the other 
audit agencies of those indigenous countries, local countries, 
has been successful?
    Mr. Mosley. I think that is a fair answer overall. There 
are certain countries----
    Mr. Kolbe. We are talking about Hurricane Mitch.
    Mr. Mosley. If we are only talking about the countries down 
there, there are some countries where we have had some 
difficulty. But I think even in that area, it has still been an 
overall success, in that they are doing more audit activity, 
and they have reported these issues to us, and then we are able 
to pick them up and do something with them.
    We also have been able to give them our hotline numbers,so 
that they are able to get a hold of us. And we can go in and do the 
investigations that are needed.
    I think, overall, I would conclude it as being a success.
    Mr. Kolbe. But your report suggests that in two of the 
countries, at least in the Dominican Republic and Nicaragua, it 
has been a pretty dismal failure.
    Mr. Mosley. That is correct.
    Mr. Kolbe. That is two of the three countries that we are 
working with.

                         SAI'S IN LATIN AMERICA

    Mr. Cox. Sir, if I could add something to that?
    I think what I would like to say is that our program for 
working with SAIs in Latin America has been a long-term program 
which has gone on since at least 1993, when we began working 
with the comptroller general of Honduras. And over time, we 
have expanded that program to actually sign agreements or MOUs 
with a total of five SAIs, which never included the Dominican 
Republic or Nicaragua. We have also worked closely with the SAI 
in Guatemala, where we have not signed an agreement with them.
    For the SAIs where we have not signed agreements, we do 
have contact with them and we provide them some assistance in 
terms of training, invite them to conferences and so on. But we 
wanted the program where we actually sign agreements with them 
and permit them to do audit of AID funds, to be reserved for 
the most qualified SAIs, who we know can do audits in 
accordance with our standards.
    Mr. Kolbe. Okay. The bulk of the aid in Hurricane Mitch has 
gone, of course, to Honduras, and about one-third as much as 
gone to Nicaragua.
    I am wondering, Mr. Ford, whether you could comment on the 
work that you have done and the times when your staff has 
visited there, about the differences between the two countries, 
both with respect to the basic cooperation that USAID has 
received on the implementation of the program, and also on 
Honduras.
    Mr. Ford. Okay. First, let me start with Honduras. I think 
in Honduras, AID is working more closely with the government of 
Honduras. A number of the projects that they have under way 
there are what are called host country contracts, where the 
government itself is contracting with the subcontractors and 
the vendors to get the work done, under our supervision.
    And so there is more of a cooperation and institution-
building phase in Honduras. It is less so in the case of 
Nicaragua.
    I believe there are a few government-supported programs 
that AID is involved in, but it is not the same level it is in 
Honduras. I think in my statement, I cited a case of some 
problems they had with one of those projects.
    So one of the key differences in terms of oversight, I 
think, is that we see more cooperation in the level of 
assistance in Honduras than we do in Nicaragua. And I do not 
know if you have had a different experience, but that is one of 
the key differences I think.
    In Nicaragua, AID is relying heavily on its own partners, 
the CRS and institutions such as that.
    Mr. Kolbe. There is no host country contract?
    Mr. Ford. I believe they only had a small----

                        HOST COUNTRY CONTRACTING

    Mr. Kolbe. Comment, either of you, if you will, in the 
remaining time that we have, on host country contracting. I am 
very interested in knowing whether this is something we want to 
pursue or to do more of in the future.
    How well does it work, would you say? Does it work 
successfully? Is it a good practice to follow to have other 
countries doing the contracting with U.S. dollars?
    Mr. Ford. That one is a tough one. Are you asking me 
overall? Or are you asking me in this particular instance?
    Mr. Kolbe. No, let's limit it.
    Mr. Ford. Because I might give you a different answer. 
[Laughter.]
    Mr. Kolbe. All right. We are focusing today on these 
countries in Hurricane Mitch. Let's limit it to this.
    Mr. Ford. Okay. Well, I think that for----
    Mr. Kolbe. And then I would be interested in knowing why it 
was difficult.
    Mr. Ford. Well, a lot of it has to do with the capability 
of the government, whether the government is prompt. You know, 
these factors have a big influence over whether host country 
contracting makes sense.
    Clearly, in the case of Honduras, the mission, AID has 
taken a number of precautions to ensure that the money that has 
been provided to the government of Honduras is properly 
monitored, properly accounted for, and that there is audit to 
ensure that the money is not ripped off.
    And for those reasons, and I agree with the IG on this, I 
think overall that that deterrent effect has made a difference. 
And I think that much of the money that we have invested in 
Honduras has gone for the intended purposes, for that reason.
    When you do not have those things in place, however, I 
think our work in the past has shown host country contracting 
can be problematic. If you do not have good oversight and 
monitoring or some kind of mechanism in place to ensure that 
the government--whatever government that is--follows the rules, 
the money can get lost or it can get misspent.
    So I think you have to caveat a little bit by making sure 
you have the right kind of oversight mechanisms in place.
    Mr. Kolbe. Mr. Ford, we are doing the host country 
contracting in Honduras, and not--except, as I understand, itin 
a very tiny way--in Nicaragua. You are saying it is working in 
Honduras.
    Mr. Ford. That is right.
    Mr. Kolbe. So why is your answer different than it would be 
overall?
    Mr. Ford. The reason we are not----
    Mr. Kolbe. Aren't you saying that direct pressure is being 
applied on the decision as to whether to do host country 
contracting?
    Mr. Ford. In the case of Honduras, yes. In the case of 
Nicaragua, we are not doing it for the very reasons I just 
said.
    Mr. Kolbe. Right.
    Mr. Ford. That the government----
    Mr. Kolbe. So we are not doing it.
    Mr. Ford. We are not doing it in Nicaragua, to any 
extensive level. And the reason for that is AID made a decision 
up front that they were not going to use host country 
contracting in Nicaragua, because they basically could not 
trust the government to expend the monies properly.
    Mr. Kolbe. It seems the right decision was made.
    Mr. Ford. Yes, I believe so. Yes.
    Mr. Mosley. And much of that decision was based on some of 
the initial work we did when we went down and did risk 
assessments. We did risk assessments. We looked at prior 
contractors, as well as the operations of the host government. 
And we tried to make sure AID was aware there were difficulties 
in the past, and what they should be aware of.
    And we also gave lots of briefings as we went through this 
process.
    Mr. Kolbe. Have you identified problems with host country 
contracting in Honduras? Is it not true that the agency 
responsible has had three administrators during the time of 
Mitch? Is that an accurate statement?
    Has this just been a normal turnover of individuals? Or has 
there been some pressure, perhaps, for one or more of these 
individuals to bend the rules?
    Mr. Mosley. We do have some investigations going on right 
now, Mr. Chairman, that I am not at liberty to talk about. I 
just cannot go into those at this point.
    Mr. Kolbe. I understand that. But you made the statement, 
or both of you seem to have made the statement, that it has 
worked successfully in Honduras, host country contracting.
    Mr. Mosley. I think part of that success is the fact that 
we have been able to determine where there are problems, and we 
are dealing with them. The assessments that we made when we 
were down there early allowed the agency to look at it and 
decide that host country contracting was going to work, and we 
built in mechanisms to identify where there were problems.

                           AID'S CAPABILITIES

    Mr. Kolbe. Let me end, perhaps, with a final kind of 
overall question here. It comes back to what I talked about in 
my first line of questions. I think the bottom line, speaking 
for me in all of this, is your statement that USAID did not 
have the mechanisms to quickly design and implement a large-
scale infrastructure program with relatively short-range 
deadlines. To me, that comes to the heart of what we are 
looking at in terms of the problem here.
    But I would like you to just be a little bit more specific, 
Mr. Ford, about what mechanisms were deficient. I think we have 
identified at least one, the lack of technical expertise. What 
other, if there are any others? Is this problem going to affect 
us when it comes time to doing emergency relief assistance 
programs in future disasters?
    Mr. Ford. Okay. Well, again, with regard to the specifics I 
have mentioned earlier, we did not have a contract officer down 
there at the time. And it took them a while to get somebody 
there on a permanent basis. They had some technical staff that 
they needed to have down there, and it took them a while to get 
those people down there.
    They had to go out and hire personal service contractors to 
go out and perform some of these functions, and it took them 
six months or more to bring these people on board for a whole 
bunch of variety of reasons. They had to get security 
clearances. They had to get country clearances and things of 
that nature, a lot of the bureaucratic process.
    In my view, and I mentioned this earlier, if AID is going 
to develop a capability to do these type of projects in the 
future, they have got to find ways to overcome those kind of 
obstacles, if they want to get things up and running quickly. 
If they are willing to trade off time for gained experience, 
then they can do it the way they have done it in this 
particular instance. But you lose the time if you do it that 
way.
    So my view is they should examine ways to identify what 
kind of skill needs they are going to have to have in these 
kind of situations. They ought to have predetermined lists of 
people who they could possibly go out and hire. They have got 
to find some way to get around the internal bureaucracy of 
clearances and that type of thing, so they can have these 
people maybe come down there quicker.
    And they have got to have a better overall capability to do 
contracting. Right now, even though I have not done an in-depth 
analysis, I think they are deficient systemically in that area. 
They have to have more of those kind of people if they are 
going to have these kind of situations and they want to manage 
them in the future.
    Mr. Kolbe. Well, I appreciate that very much.
    Mr. Mosley, did you want to add anything to that answer?
    Mr. Cox? Very quickly, in the remaining minutes.
    Mr. Cox. I think Mr. Ford has mentioned a number of valid 
concerns. I would just say that many of these are concerns that 
I have myself. But these concerns were identified by USAID 
through its exercise, to identify lessons learned from the 
disaster, and also the work that they are doing on human 
capital issues. And an awful lot of the issues are human 
capital issues.
    The other thing I would say, just to put the problems in 
perspective, is--and I do not want to be in the position of 
predicting how the program is ultimately going to turn out. The 
program is still being implemented.
    But I think an awful lot of people connected with the 
program believe that certainly the great majority of the 
program will be completed by December 31, 2001. That is $621 
million worth of infrastructure and other types of work. I 
would just say that that is faster than I think an awful lot of 
people would have predicted.
    Mr. Kolbe. I want to thank you all very much for being here 
today. I think you have helped a great deal in identifying some 
of the problems that we face with this agency in terms of 
management.
    I have identified publicly, when asked by media, about some 
of my priorities and one of them is management within USAID. I 
think it is an ongoing problem that deserves the attention of 
this subcommittee and this Congress. I think today's hearing at 
least has helped us to begin to identify some of the issues and 
the problems, and perhaps point us toward some of the 
solutions.
    I am very grateful to all three of you--Mr. Ford, Mr. 
Mosley and Mr. Cox--for being here today.
    We may have some additional questions that we will want to 
submit for the record, and the record will remain open for two 
weeks for any additional response that you want to give. We 
have asked for some additional information, so we will keep 
that record open.
    We thank you very much, and the subcommittee is adjourned.
    [The statement of Mr. Mosley follows:]
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                                          Wednesday, June 13, 2001.

                        U.S. EXPORT-IMPORT BANK

                                WITNESS

JOHN E. ROBSON, PRESIDENT AND CHAIRMAN

                OVERSEAS PRIVATE INVESTMENT CORPORATION

                                WITNESS

PETER S. WATSON, PRESIDENT AND CEO

                   U.S. TRADE AND DEVELOPMENT AGENCY

                                WITNESS

THELMA J. ASKEY, DIRECTOR

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe [presiding]. The Subcommittee on Foreign 
Operations and Export Financing will come to order.
    We are here this morning for our final hearing on the 
president's fiscal year 2002 budget request, and we are going 
to hear from three agencies; the Export Assistance and Trade 
Promotion agencies that come under the jurisdiction of the 
subcommittee.
    Ranging across from me here, the Overseas Private 
Investment Corporation; the Export-Import Bank; the Trade and 
Development Agency.
    This hearing, is important for a number of reasons, but 
primarily because of all the programs funded by the 
subcommittee, the biggest decrease in the president's proposed 
2002 budget is the funding levels for the Export-Import Bank, 
which is headed by Mr. Robson. The president requested a 25 
percent cut, or $229 million less than our 2001 level of $927 
million for Export-Import. All of this decrease is assumed 
within Export-Import's subsidy account. These are funds that 
are intended to cover the risks assumed by the Bank when 
financing or guaranteeing loans overseas.
    In addition to the proposed cut, there are other issues 
relevant to the Eximbank budget and a concern of the 
subcommittee that I hope we can address with some questions to 
the witnesses later this morning, of which a request for 2002 
also has an interesting story: the president requests $38.5 
million only for OPIC's administrative expenses and no amounts 
for the subsidy account, and last year we funded that subsidy 
account at $24 million. It is my understanding that OPIC 
believes it can continue its current level of direct and 
guaranteed loans, which is approximately this year $1.2 
billion, through the availability of $24 million in carryover 
funds from previous years.
    And finally, TDA in 2001 was funded at the level of $50 
million. This is the same level that the president is 
requesting this year. TDA helps U.S. companies pursue overseas 
business opportunities by funding feasibility studies and 
technical assistance for businesses.
    So I would like to begin by welcoming Mr. John Robson, the 
president and chairman of the Export-Import Bank for the United 
States. Prior to his nomination, Mr. Robson was an investment 
banker with the San Francisco based firm of Robinson, Stevens. 
He has also completed tours of duty in academia and in 
government service. Specifically, he served as the dean and a 
professor at Emory University Business School and was the 
deputy assistant secretary of the Treasury Department.
    After that, we will hear from Mr. Peter Watson, president 
of OPIC. He has been with the firm of Pillsbury Winthrop,and I 
have known him for a number of years as the chairman of the U.S. 
International Trade Commission, as director of Asian affairs at the 
National Security Council and special adviser to the president of OPIC.
    And finally, Thelma Askey is well-known to many of us 
around here. You used to sit on the other side of this table, 
but joining us today as the new director of TDA. She, of 
course, has been a commissioner at the International Trade 
Commission, and for years I worked with her on the House 
Committee on Ways and Means, Subcommittee on Trade, where she 
was the chief of staff.
    All of our witnesses were confirmed by the Senate just 
prior to the Memorial Day recess, and we are happy to have all 
of you here today. Before we begin, let me begin by asking Mrs. 
Lowey if she has some opening remarks that she would like to 
make.
    Mrs. Lowey. I thank you, Mr. Chairman, and good morning.
    I, too, want to welcome our witnesses this morning and 
congratulate them on their new positions. I had the pleasure of 
talking with several of you and I know that we will be able to 
continue to have a very strong relationship.
    A welcome to Mr. John Robson, who is the chairman of the 
Export-Import Bank; Mr. Peter Watson, the president of the 
Overseas Private Investment Corporation; and Thelma Askey, the 
director of the Trade and Development Agency.
    I strongly believe that there is a growing bipartisan 
consensus in the Congress today in support of what export 
assistance agencies do to help United States companies expand 
their overseas business. This has not always been the case, and 
just a few years ago when the OPIC authorization was 
considered, there was strong opposition in some quarters--as 
you probably know. Now, there is broad recognition not only of 
the useful role played by your agencies, but also that the 
trade practices of other countries make your work more 
essential within the United States business community.
    I, therefore, would like to spend my time this morning 
asking specific questions about aspects of your agencies' 
operations. With a 25 percent cut, for example, in the budget 
request of the Export-Import Bank and the anticipated 
allocations of the foreign operations bill at the budget 
request level, any increases recommended will have to come from 
other accounts in the foreign operations bill. This makes your 
testimony, Mr. Robson, all the more important this morning, and 
I look forward to hearing from all of you.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you very much.
    We have a limited time this morning because we have a mark-
up in the full committee starting at 10 o'clock. Your full 
statement, of course, will be placed in the record. If you can 
keep your statements short, that will give time for members of 
the subcommittee to ask questions.
    I suppose you might say, ``Well, we do not want questions; 
we will just talk a long time here.'' Hopefully, that will not 
be the case.
    We will begin with Mr. Robson.

                     Mr. Robson's Opening Statement

    Mr. Robson. Thank you, Mr. Chairman, Mrs. Lowey, Members of 
the Subcommittee.
    I am very pleased to be before you to represent the Export-
Import Bank of the United States and the testimony on our 
fiscal year 2002 appropriations.
    With your indulgence, I would ask your consent to submit 
for the record my entire, somewhat lengthy statement and read 
excerpts from it, which I regard as the guts of our 
presentation.
    Mr. Kolbe. Your full statement will be placed in the 
record.
    Mr. Robson. Thank you.
    I ask that you turn to page 3 of our statement.
    Mr. Chairman, in my confirmation hearing and in numerous 
individual conversations with Members of Congress, I was 
specifically asked my opinion of the Administration's budget 
proposal for Ex-Im Bank.
    Since I have no participation whatever in the budget 
preparation, I was not sufficiently informed to have a useful 
opinion. So I made a commitment that when I testified on the 
Bank's appropriation, I would provide my honest appraisal of 
the effect of the Administration's budget request on the Ex-Im 
Bank's ability to execute its mission. I am here today to 
fulfill that commitment.
    What is most relevant in accessing the Administration's 
fiscal year 2002 program budget request of $633 million and, 
most importantly, the execution of the Bank's mission is an 
analysis of what dollar amount of export transactions will the 
Bank be able to authorize based on those and other program 
budget resources which may be available to us in fiscal year 
2002. In other words, how much export bang for our available 
program budget bucks can the Bank get?
    To make an honest appraisal of the real-world impact of the 
level of the Bank's fiscal year 2002 program budget resources, 
we should compare the level of export credit authorizations 
that those resources will support against the expected level of 
demand for export credit for the same period.
    Before getting back to the numbers, I should address one 
critical point in budget methodology required under the Federal 
Credit Reform Act of 1990, and I refer to the calculation by 
the Office of Management and Budget of the so-called risk 
premium cost that Ex-Im Bank must apply using its program 
budget resources.
    The OMB calculation is reasonable, extremely complicatedand 
the Ex-Im Bank does not challenge it. The risk premia, which are 
essentially a calculation of the level of credit risk of a particular 
country, region and/or type of transaction change from period to 
period.
    When they rise, it means that Ex-Im Bank has to set aside a 
larger reserve for its export transactions and thus spend more 
of its program budget funds to support a smaller level of 
transactions than when the risk premia are lower. The contrary 
is the effect, that is, a bigger bang for our buck--when the 
risk premia decrease.
    With that fact out, let me return to the fiscal year 2002 
program budget numbers. With an appropriation of $633 million 
that the Administration has proposed, plus $90 million 
additional program budget funds that we estimate will be 
available due to cancellation of prior year commitments, Ex-Im 
Bank would have a total of $723 million in program budget funds 
available for fiscal year 2002.
    While the $633 million appropriation request is a nominal 
25 percent reduction from the $863 million appropriation for 
fiscal year 2001, the actual effect on the level of export 
credits the Bank can authorize is less because the OMB 
calculated risk premium for fiscal year 2002 have substantially 
decreased.
    The Bank estimates that total fiscal year 2002 program 
budget resources of $723 million can support about $11.4 
billion in export credit authorizations. We made this ``Bang-
for-the-Buck'' calculation based on an historic average of 
about $15 in export credits authorized for $1 of program budget 
use.
    We have also suggested the level of demand for export 
credit transactions for fiscal year 2002. Let me concede that 
the projection of future transactions demand is, to some 
degree, more of an art than a science, but the Bank's staff has 
reviewed the transaction pipeline carefully and identified 
specific projects and transactions which make up the estimate.
    While some of these might not be consummated and could be 
delayed, I am reasonably satisfied, with the range of demand 
levels we are projecting.
    Because of the uncertainty, rather than projecting a single 
export credit demand dollar amount, we have calculated a range. 
The low end of the demand range is $11.9 billion in 
authorizations, which is the past 4-year average. The midrange 
is $12.5 billion. And the high end is $14.5 billion. While, 
again, this is not a certainty, we would look at the $11.9 
billion to $12.5 as the most reasonable range.
    We said above that the $723 million in fiscal year 2002 
program budget resources can support $11.4 billion in export 
credit authorizations. If the actual export credit demand 
exceeds that level, then the Bank's available resources would 
not be adequate to support the higher increment of export 
credit demands.
    The president's budget suggests the possibility of making 
up the gap between export or credit demand and program budget 
resources by instituting changes in the way the Bank does 
business. It would have the effect of reducing the cost in 
terms of program budget usage for export transactions. An 
example of these changes would be to raise fees and/or lower 
the percentage of Ex-Im Bank's export credit coverage of a 
transaction from its current 85 percent.
    Against the backdrop of Congress' mandate to administer our 
programs so that American exporters are competitive with their 
foreign export credit agency assisted competitors, and in the 
absence of any reliable data as to the competitive impacts and 
other possible consequences of such program changes, I would 
only consider an orderly and cautious approach to any program 
changes in order to determine their impact.
    An orderly and cautious exploration of the potential impact 
of such changes on the Bank's resource usage and U.S. exporter 
competitiveness could possibly illuminate ways in which the 
Bank could increase the firepower of its resources without 
adverse competitive consequences to our exports and U.S. 
exports.
    To that end, and with no opinion on what the data might 
show for specific architecture for the experiments in mind, I 
will consider conducting some very limited and carefully 
designed clinical trials for the purpose of gathering real-
world data on these issues. It would be my plan to work with 
the exporting community and Congress in designing these limited 
experiments, to make what data was revealed available to 
Congress and to other interested parties. It could be a 
responsible means to generate some potentially constructive 
data for future policy deliberations.
    Turning to my administrative budget, Mr. Chairman, Mrs. 
Lowey, our administrative budget is essential to our mission, 
and I urge that our request be fully funded.
    For fiscal year 2002, we are requesting $65 million for our 
administrative budget, an increase of $3 million or 5 percent 
over the fiscal year 2001 level of $62 million. The bulk of the 
budget, 85 percent, is accounted for by staff salaries, rent 
and supplies. The increase represents our continuing effort to 
improve our case processing and upgrade our information 
technology systems.
    We want to improve our overall efficiency, decrease our 
case processing time, and expand our customer base by reaching 
greater numbers of small and medium-sized businesses. This 
committee has previously been supportive of these objectives, 
which are funded by the Bank's administrative budget. We are 
grateful for this past support and hope that you willcontinue 
it.
    For every $1 of our administrative budget, Ex-Im Bank 
supports more than $300 in exports. We believe there are 
opportunities for improvements, if we are able to employ 
technology for faster, more accurate exchange of information 
within the Bank and with its customers, the exporters.
    These are the changes that our competitors in Canada, 
Europe and Japan have already implemented. And if funded and 
implemented here, they will allow us to compete better with 
them.
    Turning for a moment to the administrative budget in small 
business, these changes are very important in our efforts to 
expand our small business support. In recent years, 86 percent 
of the total number of transactions have directly benefited 
small business, mostly involving our insurance and working 
capital programs.
    In fiscal 2000, we supported $1.8 billion in insurance for 
small business. One of the processes we are developing is the 
Insurance Automation Project, which will help us address 
problems in distribution, productivity and risk management. The 
project is expected to use available technological solutions to 
address Ex-Im Bank's staffing and productivity constraints for 
expanding support to a targeted market of small businesses.
    Thank you, Mr. Chairman, Members of the Subcommittee. That 
concludes my oral presentation.
    [The information follows:]
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    Mr. Kolbe. We will take questions as soon as we get the 
testimony from the other two individuals.
    Again, I would urge you to be just as brief as possible, so 
that we can allow as much time for the questions, and your full 
statement will be put on the record.
    Mr. Watson.

                     Mr. Watson's Opening Statement

    Mr. Watson. Thank you. I will attempt just to hit the 
highlights.
    Mr. Chairman and members of the committee, it is a pleasure 
to be here with you today, and also with my colleagues of Ex-Im 
Bank and TDA. We three have had the opportunity of meeting 
previously, and I think we will see a very enhanced degree of 
cooperation as we develop synergy with our programs.
    It is clear, Mr. Chairman, from the language of the 
President's fiscal year 2002 budget submission that the 
administration concurs on OPIC's central development role, 
stating that OPIC's activity should focus more closely on 
countries that cannot access private financing or insurance. I 
intend to do all that I can to see that the President's 
guidance is brought to fruition.
    Clearly, the underlying purpose of the budget request is to 
carry out OPIC's important responsibilities of supporting 
development and stability in strategic regions around the 
world. As the members of this committee are very well aware, to 
accomplishthis mission, OPIC provides a range of critical risk 
insurance financing to mitigate the risk of U.S. investors in emerging 
markets.
    All of OPIC's supported projects must be financially sound, 
promise significant benefits to the socioeconomic development 
in the host country and cause no harm to U.S. economy. Projects 
must also address major unreasonable environment, health and 
safety impacts, and comply with OPIC's statutory requirements 
with respect to international worker rights.
    Mr. Chairman, the OPIC budget request for 2002 is 
straightforward and sensible. For 2002, OPIC expects to operate 
on a self-sustaining basis and generate a positive contribution 
of $251 million to the function 150 account. OPIC requests the 
authority to spend $38.6 million of its own revenues for 
administrative expenses, and OPIC will provide this from its 
revolving fund, not from taxpayer dollars. I urge that the 
committee support OPIC's full request.
    For credit funding, OPIC is indeed in a unique position. No 
additional credit funding is requested for fiscal year 2002 
because of the availability of carryover funding from fiscal 
2001. I believe this is a sensible approach for fiscal year 
2002, and it will not interfere with OPIC's ability to support 
new finance commitments in the 2002 fiscal year. The 
administration will review OPIC's credit requirements for 
fiscal year 2003, as part of its regular budget process.
    I would like to highlight specific points for you, Mr. 
Chairman. In terms of future business, sub-Saharan Africa will 
be a high priority for OPIC consistent with the Africa Growth 
and Opportunity Act passed by Congress. Latin America, and the 
former Soviet Union will continue to be priorities. As a 
sophisticated financial institution, OPIC must have the people 
and resources to implement a strong information technology 
strategy. This will include strong management, and provide more 
effective client service.
    Finally, we must ensure an enhancement of managerial and 
technical capabilities and greater program oversight, 
particularly in relation to the investment funds program where 
a number of Members of Congress and staff have raised concerns 
with me, as I went through the confirmation process.
    In closing, Mr. Chairman, the budget request, of OPIC for 
fiscal year 2002 is straightforward and sensible. I look 
forward to working with you, members of the subcommittee and 
your staff as you consider the administration's request. I 
believe that working together we can develop OPIC as a foreign 
policy program that will make an important difference to people 
in developing countries and in America.
    Mr. Chairman, I will be happy to answer any questions.
    [The statement of Mr. Watson follows:]
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                     Ms. Askey's Opening Statement

    Mr. Kolbe. Thank you very much, Mr. Watson. Like you, Ms. 
Askey is an old timer now, just a few days on the job.
    So we will be happy to take your testimony at this point.
    Ms. Askey. Thank you, Mr. Chairman and Mrs. Lowey, and 
members of the committee for this opportunity to be here today. 
To begin, let me first say that I am pleased that President 
Bush has given me this opportunity to apply my long experience 
in the trade policy field to the United States Trade and 
Development Agency. It is an independent agency that is engaged 
in the practical application of such policies for U.S. business 
interests in emerging open markets.
    As you know, TDA works to foster the presence of U.S. firms 
in developing countries. TDA does so with an eye on U.S. 
foreign policy, trade policy and the development objectives in 
these important countries. The agency accomplishes its mission 
by evaluating projects in developing countries, analyzing their 
viability, providing technical assistance and advice, and 
arranging for feasibility studies that will facilitate U.S. 
assistance and participation, both initially and as the project 
progresses.
    Feasibility studies are the primary means by which TDA is 
able to foster exports of U.S. goods and services. This agency 
becomes the initial partner, available to help share some of 
the risk as U.S. firms engage foreign competitors in the most 
volatile of markets.
    It is important to note that the majority of companies with 
which TDA works are small businesses. Absent TDA involvement, 
many of these firms would not have the opportunity to become 
involved in international development projects.
    As I have been getting to know the agency, the fact that 
has struck me most is that the agency does so much with 
relatively little. TDA's fiscal year 2001 budget was $50 
million, a low number compared to the vast majority of other 
U.S. agencies, but it is certainly lower than the competing 
agencies in countries such as Japan, Canada, France, et cetera 
from whom our businesses face competition abroad.
    The large majority of that budget, $43 million, is program 
money, most of which TDA spends on feasibility studies. TDA 
facilitates more than $35 in exports for each dollar invested 
since the agency's inception 20 years ago, for a grand total of 
nearly $17 billion in exports in this short time span. I am 
sure that all of us would like to find an opportunity to invest 
our own money with a rate of return like that.
    We believe that this success rate is related to TDA's size 
and flexibility. It is a small, nimble agency, with a compact, 
seasoned and highly skilled staff, and it can respond quickly 
to opportunities as they appear, and can respond to rapidly 
changing market conditions. And as you know, the market 
conditions in some of these countries is pretty volatile.
    So to continue the work that TDA does so well, we are 
requesting the same budget level: $50 million for 2002. After 
years of steady budget levels, we received a generous budget 
increase last year, from $44 million to $50 million, and this 
has allowed us to respond to an ever-increasing demand for TDA 
activities in developing countries, particularly in regions 
that reflect earlier foreign policy-based development efforts 
such as in Africa and Southeastern Europe.
    Given the rapid pace of change and development throughout 
the world, we need to be vigilant for new opportunities for TDA 
to promote and advance U.S. trade and foreign policy objectives 
wherever they arise. And this straight-line budget level I 
think will allow us to do that.
    We will continue our focus on particular sectors such as 
the environment, energy and high technology and information 
technology. We have learned that when industries decide to 
upgrade their infrastructure using cutting edge technology, 
that decision is usually tantamount to going with American 
technology.
    As part of our high tech initiative, we have focused on two 
areas in particular: emergency management systems and banking 
and financial information technology systems. Both of these 
represent sectors in which U.S. companies have a competitive 
edge in terms of technology and experience.
    Additionally, we will be able to maintain our strong 
presence in projects and regions that represent strong 
interagency cooperation. For example, we are working with many 
other agencies, including the two others represented here, as 
part of the Caspian energy development strategy. And we are 
working closely with the State Department and the Department of 
Transportation in the ongoing Safe Skies for Africa program. 
Again, our requested budget level will allow us to continue 
this valuable work.
    Finally, I would like to note that TDA can find new 
opportunities. For example, TDA is now authorized to do 
business in China again, after a hiatus of more than 10 years. 
Prior to that time, TDA was extremely active in China, and it 
is important that TDA have the resources to act on potential 
opportunities for U.S. businesses. Of course, TDA will continue 
to take policy guidance from and maintain a high degree of 
consultation with Congress and with the State Department as TDA 
moves forward in this highly sensitive region.
    Additionally, development of environmental and energy 
sectors worldwide present ongoing and increasing opportunities.
    In closing, let me again say that I am delighted to have 
this opportunity to share the TDA story with you today. I am 
excited about the possibilities inherent in such a dynamic 
agency, with its dual trade and development mission. I look 
forward to taking on this agency's immediate challenges as well 
as to pressing forward and seeking new opportunities in these 
rapidly changing areas of the world.
    Thank you again for allowing me to appear before you today. 
And I look forward to working with all of you and your staff as 
we move forward on this budget request.
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    Mr. Kolbe. Thank you very much.
    We have a lot of members here. We have three people to 
answer questions and a lot of territory to cover. We have a 
limited time so I need to keep as tight as I can with the five 
minute rule and apply it to myself as well. Mrs. Lowey, you can 
watch this clock here.
    Mrs. Lowey. I would not expect anything else.
    Mr. Kolbe. Let me begin with Mr. Robson here. He is the 
old-timer on the job at this point, and his budget is the 
largest.
    In talking about the 25 percent cut in the Ex-Im Bank 
budget, you said that it is really only about a 14 percent cut 
because of the change in the risk factors. Is that correct?
    Mr. Robson. Yes, that is correct.
    Mr. Kolbe. So, if that is true, according to the figures 
that you give in your statement, you assume an annual 
appropriation, and then you also assume the availability of $90 
million in additional program funds that become due to 
cancellations of prior commitments.
    Mr. Robson. That is kind of an annual event, Mr. Chairman.
    Mr. Kolbe. Are you always in that range?
    Mr. Robson. For forecasting purposes, $90 million is the 
plug number that we use to estimate our program budget.
    Mr. Kolbe. Okay, and that, you say, will allow you to 
support about $11.4 billion in export credit authorizations.
    Mr. Robson. That is our calculation.
    Mr. Kolbe. What is the additional amount that you would 
require in order to support the level of credit authorizations 
you had in the last year?
    Mr. Robson. Well, we have $863 million with a different 
risk.
    Mr. Kolbe. This year. I am sorry, for this year.
    Mr. Robson. Well, if our projections of demand are 
accurate, and you pick, for example, mid point of that range, 
$12.5 billion, you would need about $135 million more in 
program budget authorization in order to be able to meet that 
demand.
    Mr. Kolbe. To meet the demand?
    Mr. Robson. Of $12.5 billion.
    Mr. Kolbe. And that is what you had this year?
    Mr. Robson. We have enough to authorize about $11.4 
billion.
    Mr. Kolbe. No, not for the coming, not for 2002.
    Mr. Robson. Oh, this year.
    Mr. Kolbe. What I am asking is, how much more would you 
require in order to meet the same levels of loan authorization 
that you are doing in the current year that you are?
    Mr. Robson. We will end up with a slightly lower number of 
authorizations this year because the risk premia are 
considerably higher.
    Mr. Kolbe. They are higher this year, and they are going 
down next year?
    Mr. Robson. Well, we are going to do $10.3 in 
authorizations this year based on the current risk premia, 
which are considerably higher.
    I am not answering your question and we are missing the 
point so let me try to walk through it again.
    Based on this year, that is 2001, for this premia cost, we 
have resources available to us of over $900 million.
    That is only going to buy us $10.4 billion in 
authorizations because the risk premia this year are 
considerably higher.
    Mr. Kolbe. In 2002?
    Mr. Robson. In 2002, if we have the $723 million, we 
estimate that we would be able to authorize about $11.4 
billion; and we estimate that our demand ranges somewhere 
between $11.9 to $12.5 billion.
    Mr. Kolbe. Let me see if I understand. You are actually 
saying that the budget that you are getting or you are 
requesting would actually support, with the lower risk premium, 
that would support a higher level of authorization than is 
current.
    Mr. Robson. That is correct.
    Mr. Kolbe. I notice you say the range is somewhere between, 
the low end is $11.9, the mid-range is $12.5 and the high end 
is $14.5. Then you say if we actually take a range, you said, 
the most reasonable range is $11.9 to $12.5. Why is the more 
reasonable range the low end, the lower half?
    Mr. Robson. Well, we went through our pipeline 
transactions. This is an imperfect art. But we figure that the 
most likely case is probably going to be about $12.5 billion in 
demand.
    Mr. Kolbe. Okay, so it most likely is the middle, not the 
lower.
    Mr. Robson. That is correct.
    Mr. Kolbe. So with the amount that you are requesting in 
2002, if you have anticipated the mid-range of demand, you 
would not be able to meet all of the demand.
    Mr. Robson. That is correct.
    Mr. Kolbe. I have very, very little time. Let me see 
quickly if I can get a question on Mr. Watson on his budget.
    Basically, why is there such a high level of carryover 
funds this year?
    Mr. Watson. Mr. Chairman, what we have seen is that the 
carryover has actually been reduced, we as the agency has, 
reduced the amount of the financing credit support needed. For 
2002, what we are going to see is an estimated $24 million 
carryover, which will allow us to finance or issue commitments 
of approximately $1.2 billion. We believe this amount will be 
able to satisfy our needs for the 2002 year.
    Mr. Kolbe. Well, I will try to come back and ask a couple 
of follow-up questions.
    Mrs. Lowey's turn. Mrs. Lowey.
    Mrs. Lowey. Thank you very much.
    I would like to follow up the chairman's line of 
questioning. Because looking at the President's budget request, 
it is justified by a combination of higher visa fees, risk 
sharing with the private sector, and using more stringent 
value-added tests. The clear implication is that if Ex-Im 
accomplishes these things, there would be no reduction in 
assistance to U.S. exporters in 2002. Now, the chairman dealt 
with the first part.
    Do you have any intention of increasing the fees U.S. 
exporters pay, for example, have you requested legislation from 
Congress? How do you plan to accomplish this?
    What is meant by more stringent, value-added tests? Does it 
translate into doing less business in so-called risky 
countries, such as Russia, and in the African continent?
    And since we are in a zero-sum game, with respect to the 
foreign operations bill in the House, can you explain how 
increases to your budget request would help exporters in 
particular sectors and in particular regions of the world?
    Mr. Robson. Well, let me go back to the first part, where 
the question of whether it is our intention to adopt a broad 
program change of either raising fees or reducing coverage. And 
my response to that is I would not be prepared to do that, Mrs. 
Lowey.
    But I would be prepared, as I said in my testimony, to 
consider some, what I call ``clinical trials.'' As a former 
pharmaceutical executive, that is sort of the way I think, to 
examine those issues and see if we could develop some data that 
would have a sense of what the competitive impact of those 
changes might be.
    Quite honestly, I do not think that today there exists much 
data on what the impact of those kinds of changes could be. And 
it would be my purpose in working with both the export 
community and Congress to develop some experiments to take a 
look at it. Come back here and tell you what I thought.
    But at this point, the implementation of broad program 
changes like raising fees and lowering coverage would not be 
something I would be prepared to do. And using it as is 
suggested in the budget documentation, as kind of a budget 
correction, I do not think that is the way I would be prepared 
to go at this point.
    Mrs. Lowey. So, therefore, following up with the chairman, 
in the sense that the budget request from the administration 
specifically justifies the 25 percent cut because of the 
combination of high user fees and increased risk sharing with 
the private sector, and using more stringent value-added tests, 
then if you are not going to do that, you would have to reduce 
services.
    Mr. Robson. Well, you have a choice of either reducing your 
services or finding more resources, but that is correct.
    Mrs. Lowey. Just wanted to clarify that because the 
administration justifies the reduction in services by putting 
on these additional requirements.
    Mr. Robson. While they suggest this is a way to mitigate 
the effect of the cut in the budget. I would be prepared to 
take a look at that on an experimental basis. But across the 
board I do not think that is the responsible thing to do.
    And the reason is we have projected the demand level for 
2002 so was to give you a sense of what the gap might be 
between what we could do without the resources that we have and 
what we might expect in demand, and that gap, as I mentioned 
before is something over a $1 billion in additional resources.
    Mrs. Lowey. The last question, I wonder if you could 
comment on that. If we did increase the dollar amount, can you 
give us some understanding of the impact in what particular 
sectors, looking over the request, and what regions of the 
world?
    Mr. Robson. As we look at our demand for 2002, the one 
sector that we see increasing activity is in Latin America, in 
terms of industry, energy and power and projects. These two 
areas are very apparent, as we look at the pipeline.
    I would have to get back to you with a list of seeing what 
our pipeline looked like, in terms of geographic area. But as 
you and I talked about in our earlier conversation, my own hope 
is not to be geography specific in terms of trying to allocate 
resources one place or another, but to try to stimulate as much 
activity in the whole globe as we have been doing in places 
where heretofore we have not had much activity.
    Mrs. Lowey. Thank you.
    To be continued.
    Mr. Kolbe. Mr. Knollenberg.
    Mr. Knollenberg. Thank you, Mr. Chairman.
    I want to thank you very much, and welcome.
    I want to turn first to a question relative to what Mr. 
Kolbe was talking about. I am a little disappointed that the 
budget is at the level that it is in terms of its submission.
    Ex-Im is very important, I believe, to trade in various 
parts of this country, in my state in particular. I think 
Michigan has delivered overall, about $580 some-odd million of 
that $12 billion. And the small businesses that are using this 
assistance are succeeding. It is an open door for them. They do 
not have the opportunities that some larger companies have.
    In my district alone, there was $76 million generated. So 
that is one district out of 435.
    So I greet that reduction with some caution, and I think he 
said, Mr. Robson, in a dialogue with the chairman that the 
insurance premium has been or will be reduced. Is that right? 
The risk premium, we will call it.
    Mr. Robson. Well, the risk premium will be reduced in 2002.
    Mr. Knollenberg. Well, here is my point. I understand that 
even if it is reduced, the risk premia, you still will come 
only about half way toward your goal of meeting last year's 
number. Is that right?
    Mr. Robson. Well, no. We would have the equivalency of 
about $830 million, I think. If you take the risk premia into 
account, it will be about $830 million if you did a kind of 
passive dollar estimate.
    Mr. Knollenberg. That is a little shy of the $900-plus 
million that was the budget last year.
    Mr. Robson. That is correct.
    Mr. Knollenberg. So what concerns me, and I just want to 
make it clear that with less money, and I know that you are 
cutting the risk premium, it seems to me like you are 
scheduling a year that will draw in less opportunities rather 
than more.
    Mr. Robson. Well, as I said, our pipeline, if it comes out 
at the mid point, would leave us about $1.1 billion short of 
supporting any excess demand. Therefore, it would take about 
$135 million in additional resources.
    Mr. Knollenberg. And I understand why you want to be 
supportive, obviously, of the administration, but some of us 
feel that that is a little lean, and we might be looking at 
something beyond that. I, for one, will.
    But I am certainly interested in whatever ways you can move 
to save money and leverage. If you reduce the risk premium, you 
obviously would have some wiggle room there that you did not 
have before.
    Mr. Robson. But as I go back to what I said, we would end 
up with the ability to fund authorizations of a $11.4 billion 
based on the $723 million in program budget authorization that 
we have.
    Mr. Knollenberg. Again, I understand that and I just think 
that you might be looking at a number that is in excess of the 
$12, that may be in excess of $13.
    Mr. Robson. That is our expectation. That is our strategy.
    Mr. Knollenberg. Well, you are going to have some funds for 
that purpose.
    Let me go to a question--thank you, Mr. Watson--to Ms. 
Askey.
    By the way, congratulations to all of you. You probably 
have not had much sleep since you have been appointed. We 
appreciate your coming so quickly after just having been 
confirmed.
    TDA--there was an Armenian conference in New York on the 
10th and 11th. I do not know if you have had an opportunity to 
look back at that and make some judgment about the success of 
it. I have been told that it was a very successful event. I do 
not know what that means in terms of the future. I do know that 
Jim Wolfensohn was there, of course. Bob Dole was there. The 
president of Armenia, President Kocharyian was there. What I 
would like from you in a moment or two is what kind of 
investment opportunities were talked about. What appears to be 
something that you can sink your teeth into that would advance 
not just Armenia but the Caucasus, but in particular Armenia 
because, that is what the conference was all about. So can you 
just give me an idea about the success of the conference? What 
is the follow-up going to be? What can Congress do, if 
anything, to create some momentum here in regard to the 
situation there?
    Ms. Askey. Thank you, Mr. Knollenberg.
    Indeed, I have looked back. I was in my confirmation 
process when that conference was going on. It was a very, very 
successful conference. It is, I think, typical of what this 
agency can do and does do very successfully. It brings a lot of 
companies together with a host of project managers, either 
government managers or private sector managers. About half of 
what TDA does is private sector finance-type projects.
    The fact that you mentioned Mr. Wolfensohn also 
demonstrates that TDA has a lot of flexibility that enhances 
our responsiveness because we do have cooperative arrangements 
and working histories with a number of funding agencies outside 
of the two that are sitting here today with us, and the World 
Bank is, of course, one of those.
    Mr. Knollenberg. Let me just ask you as to the diaspora--we 
are winding down, I know.
    Mr. Kolbe. It is long passed.
    Mr. Knollenberg. Long gone. All right. Well, we need to 
move on that. Thank you.
    Mr. Kolbe. Did you want to finish your----
    Ms. Askey. No, I was just going to say that your staff was 
very helpful and the diaspora was very helpful. They 
participated aggressively and meaningfully. And we certainly 
intend to follow up and we are actually close to some positive 
results.
    Mr. Knollenberg. I would be very interested in that 
conclusion.
    Thank you.
    Mr. Kolbe. We will come back on a second round.
    Ms. Kilpatrick.
    Ms. Kilpatrick. Let me yield to Ms. Pelosi, who has to be 
in our meeting. We have a 9 o'clock caucus.
    Mr. Kolbe. We all do.
    Ms. Pelosi. That is okay. You can go.
    Ms. Kilpatrick. Okay.
    Thank you, Mr. Chairman, and to my former ranking member 
for the courtesy, really.
    I am troubled by what I hear and as I read the president's 
request--and I think the chairman and I, as well as Mr. 
Knollenberg, got into it a little bit for Ex-Im Bank--are 
concerned about its mission and whether or not it will be able 
to continue its mission as well as to assist the general fund 
in your efforts.
    As Mr. Knollenberg mentioned, over $530 million comes from 
the state of Michigan, of which $74,950 comes from my district, 
which has been helpful to Ex-Im.
    I have been concerned that with the 25 percent cuts, that 
it will not be able to assist the small businesses, which 
really are the engine of America and have consistently been 
those that employ most of our constituents.
    Are you fairly confident, with the appropriation that you 
have received, are you confident that we will reach those goals 
that we have reached in the past with the numbers that you have 
been given?
    Mr. Robson. Well, let me guess, if I may, the answer to 
your question. Even with a shrinkage in resources the primary 
area that small business use is insurance and the working 
capital programs. Those two programs consume a comparatively 
small portion of our resources so I do not foresee a diminution 
of our ability to support small business.
    Ms. Kilpatrick. So those numbers will stay at least what 
they were in the 2001 budget?
    Mr. Robson. That would certainly be my expectation. And as 
you are well aware, we are obliged to set aside 10 percent of 
our authorization for small business.
    Ms. Kilpatrick. All right. So on those lines, you can 
assure the committee that those lines, with your 25 percent 
reduction, will not be less than what they are in 2001.
    Mr. Robson. I do not expect that to be the case.
    Ms. Kilpatrick. Okay.
    And the second part of the same question, I guess, you say 
you are not going to raise fees, which is what part of the 25 
percent reduction is, and that you are not going to lower the 
85 percent credit coverage. Then how then are you going to 
produce at level or better than 2001?
    Mr. Robson. Well, again, it goes back to this somewhat 
arcane risk premium calculation, which essentially gives us 
more bang for our buck in 2002 than we had in 2001. Because 
when we do a deal, it will not consume as much of our 
appropriation since the risk level is lower.
    Again, it is an arcane process, but the effect of it is to 
give us a slightly bigger bang for our buck in 2002 than we 
have had in 2001.
    Ms. Kilpatrick. And can you come back to this committee in 
three months to the new fiscal year, maybe January 1, and let 
us know if, in fact, that is the case? Because we hear it now. 
And if you are placing that much on the risk premium, then 
would you be able to measure it in the three months?
    Mr. Robson. It would be the case because during the course 
of the year, once the risk premia are set, we do not alter 
them.
    Ms. Kilpatrick. Okay. Then finally--I cannot see the 
sands----
    [Laughter.]
    Mr. Watson. That is a subsidy, Mr. Chairman. [Laughter.]
    Mr. Kolbe. You have a time subsidy. [Laughter.]
    Ms. Kilpatrick. I want to just end up on HIV-AIDS issue and 
the commitment that Ex-Im has made in the past for example the 
$1 billion effort in 2000, as you might have mentioned. Ex-Im 
had partnerships in the pharmaceutical area, and I am happy 
that you are here, happy that you are your bringing expertise.
    Is the program still in effect and how has it progressed? 
Are you familiar with this issue?
    Mr. Robson. Well, I am not intimately familiar with it. I 
know that since the program was initiated a year and a half, 
they have entered into a couple of memoranda of understanding, 
I think one with the Ghana ministry of health, one with the 
Nigerian ministry of health, and with a private sector party. 
Basically, they cover pharmaceuticals, other kinds of medical 
supplies that are relevant to HIV and AIDS, and some kinds of 
services.
    These are not huge contracts, and the program has been, I 
think, complicated in getting underway. In truth, as a grizzled 
veteran of about nine days on the job, I have not been able to 
get into it. I would be happy to come back to you and give you 
or the committee an update.
    Ms. Kilpatrick. I would like to work with you on that.
    Again, congratulations on all three of your appointments. 
The learning curve: I understand your intelligence is high and 
will be short with the great staff that you have.
    But that HIV pharmaceutical program is a major one. The 
commitment that has been made I hope can live up to whatever 
problems that we are having as we put into evidence a new 
program. I would like to work with you on it, make that one of 
my efforts and I can spend my staff and your staff times on to 
try to assist in the countries with the top levels of them.
    And I do not want to omit the NGOs. Many times, NGOs are 
just as or more effective than the governments themselves. And 
I hope that you will be able to work with them in your office 
and your staff to see that this is a good program that makes a 
difference and that our dollars are well spent.
    Mr. Robson. Well, let me commit to begin by giving you an 
update on where we are today, which I cannot do sitting here.
    Ms. Kilpatrick. But you will follow up with me?
    Thank you, Mr. Chairman. I yield back. I can see you 
holding my time.
    Mr. Kolbe. Thank you very much, Mrs. Kilpatrick.
    Ms. Pelosi.
    Ms. Pelosi. Thank you very much, Mr. Chairman.
    I join you in welcoming our witnesses today. As you well 
know, a pillar of our foreign policy is to grow our economy by 
promoting exports, and this important part of our brief in this 
committee is one we are very proud of. And so I wish all of you 
luck. President Robson, congratulations on your swearing in 
yesterday. And President Watson, Director Askey--good luck and 
congratulations.
    I want to reiterate some themes. Of course, we are 
interested in how you are going to do as much with less 
funding. You have been clear about the challenge that this 
presents, and that we may need more money at some point to keep 
pace. In any event, I hope that the important priorities of 
this committee--small business, women-and minority-owned 
business--and those businesses to have the opportunities to 
have their products promoted, sold, financed, and insured 
abroad continue.
    Our committee reports have contained language in the past 
concerning the environment, both for OPIC and for Ex-Im Bank; 
human rights, when human rights can be measured; disruption in 
society increasing the risk that is important to OPIC. Because 
I am late in the questioning, I have the luxury of going into 
some other areas and associating myself with some of the themes 
that my colleagues have presented before.
    I will be brief, Mr. Chairman. I have three quick 
questions.
    Mr. Watson, as you know, the Foreign Assistance Act 
prohibits OPIC from operating in any country that has not taken 
steps to adopt and implement laws that extend internationally 
recognized worker rights. China has recently announced that it 
would not abide by a provision that would guarantee workers the 
right to strike and form unions. The only labor union now 
permitted in China is controlled by the Chinese Communist 
Party.
    Is the Bush administration considering any waiver of the 
existing post-Tiananmen sanctions on OPIC? Is this under review 
before President Bush goes to Shanghai?
    Mr. Watson. I apologize. Having been on-board only a day 
and a half, I am not yet aware of what the administration may 
or may not be doing. However, I would be pleased to determine 
that, Ms. Pelosi.
    But let me just say this, however. In my statement on my 
confirmation hearing, I made it very clear that I support with 
great firmness the provision of law that you referred to. 
Indeed, section 231(A)(a)(1) of our statute is very specific as 
to the type of rights and protections of workers.
    I think we would be very concerned to ensure that the 
predicates are in place that would provide for the type of 
protections the statute mandates before any country is opened, 
without reference to China. But I am particularly mindful of 
the conditions that you refer to.
    Ms. Pelosi. I appreciate that, Mr. Watson.
    President Robson--you may not know, Mr. Chairman, but 
although reared in Chicago, I consider Mr. Robson my 
constituent because he works in my district and enjoys a fine 
reputation business-wise and otherwise, so it is a special 
treat to join in welcoming him today. I know he is going to do 
a great job and forgive me for paying special attention to him, 
but he is a friend.
    President Robson--I enjoy calling you that--have you 
discussed with the State Department's new assistant secretary 
of state for democracy, human rights and labor the role of 
State in assessing human rights concerns where the bank is 
providing support? I will be a little more specific. Mr. 
Harmon, the former bank president, said in a letter last 
December that, ``Country ratings could be negatively affected 
to the extent that human rights abuses could contribute to 
potential unrest.''
    Have you established--and you do not have to answer me 
today--what specific criteria are being used in making the 
political risk assessments?
    Mr. Robson. I have not addressed that and I have not had a 
conversation with whoever is responsible at the State 
Department on that issue, but I will be glad to get back to you 
on it and continue the dialogue.
    Ms. Pelosi. Probably in the same manner of communication, I 
would like to talk to you about environmental impact on 
potential projects of OPIC and Ex-Im as well. We have concerns 
about human rights contributing to risk assessment, but I would 
think that Ex-Im and OPIC would have it for the capacity to 
evaluate environmental issues. I worked closely with Mr. Harman 
and his predecessors on the subject.
    Mr. Robson. And actually, we do. Even in the very brief 
time I have been on the job, that is one issue I have had to 
stick my head into because in the last week they had 
negotiations at the OECD on what environmental standards would 
apply to all OECD export credit agencies like Ex-Im. Bank. As 
you know, we have had environmental standards at Ex-Im for the 
past five years or so that apply to our exporter.
    Ms. Pelosi. We worked with them.
    Mr. Robson. Congresswoman, you certainly had a hand in 
that. And it has been our objective to see that environmental 
standards are applied to exporters from other countries who 
rely on assistance from their own export credit agencies. And 
we would like to end up with an agreement that does that and 
levels the playing field in export credit.
    Ms. Pelosi. Thank you for that leadership.
    Mr. Chairman, I know my time is up. I may submit some 
questions for the record. Thank you all.
    Mr. Kolbe. Please submit them for the record. Thank you 
very much.
    Mr. Rothman.
    Mr. Rothman. Thank you, Mr. Chairman.
    Congratulations, Mr. Robson, Mr. Watson and Ms. Askey. And 
I wish you the best of good luck.
    I do have some questions for Mr. Robson. Did last year's 
$10.4 billion of loans meet last year's demand?
    Mr. Robson. It did not.
    Mr. Rothman. To what extent did it not?
    Mr. Robson. About $1.1 billion.
    Mr. Rothman. $1.1 billion short.
    Mr. Robson. Correct.
    Mr. Rothman. The projection for this year would be $11.4 
billion. Given your estimate that demand could be up to $14.5 
billion that would make it $3.1 billion short this year.
    Mr. Robson. That arithmetic is correct.
    Mr. Rothman. Right. Is it a good thing to fall so far short 
of the demand that you expect this year?
    Mr. Robson. I do not think so. If you believe in the 
fundamental virtue of exports and the Ex-Im Bank's role in 
fostering those exports, then our hope is, obviously, to meet 
exporter demand for transactions, rather than fall shy of it.
    Mr. Rothman. Is it fair to say--and I am probably asking 
the right person--that every dollar invested by the Export-
Import Bank produces net positive results for the American 
economy, the American workforce and American businesses?
    Mr. Robson. Yes, we think we create jobs and we have a very 
good bang-for-our-buck ratio of about $18 of exports supported 
per $1 of the taxpayers' money that is used.
    Mr. Rothman. Right. I am particularly distressed that in 
your best projections the bank will then be $3.1 billion short 
of meeting the high end of the demand projection.
    Mr. Robson. That would be a correct calculation.
    Mr. Rothman. And that, to me, is unacceptable and 
inconsistent with what I understand to be the purpose of the 
government.
    With regard to the risk premium reduction, in claiming 
this, that means the loans will not be as risky. Correct?
    Mr. Robson. Yes. The overall calculation would be that the 
risk level is in the aggregate is lower, and the countries may 
be better off than they were a year or two ago.
    Mr. Rothman. The loans will not be as risky.
    Mr. Robson. That is a fair way of putting it.
    Mr. Rothman. Yes. And is there some loss of purpose, loss 
of opportunity that potential American exporters will feel 
because of this move to less risky loans?
    Mr. Robson. It is a calculation that is external, Mr. 
Rothman. That is, a loan that we made to country X a year ago 
might require us to spend $10 of our appropriation, but a loan 
to that same country now might only require us to spend $6.
    Mr. Rothman. Right. But last year, we were presumably 
willing to make a risky loan of $10, if you will, to accomplish 
a certain objective, to open a new market in a somewhat riskier 
place. This year, we are not willing to be as aggressive in 
opening the new market.
    Mr. Robson. No, that would not affect our operation in 
markets where the commercial lending institutions will not 
play. It really is an external assessment that the country that 
was at risk level X two years ago may be at a lower risk level 
now. But it will not change the fact that we are going to be 
making loans all around the globe in countries that meet our 
standard of a reasonable assurance of repayment mandate.
    Mr. Rothman. Forgive me. I see my time is running out. I do 
not mean to step on your answer too much, but have the risk 
factors in every country in the world been reduced?
    Mr. Robson. No.
    Mr. Rothman. So then, it would seem of necessity--I do not 
want to make an argument, but I want to posit this for your 
response--then of necessity some opportunities to opening 
markets will not be there if on the average you say there is 
this net reduction in risk premium.
    Mr. Robson. No, but each transaction is done on a country-
by-country basis. We are not going to change our basic program, 
which is, A, to lend where commercial institutions will not; 
and second, to make transaction credit available in 
circumstances where there is a reasonable assurance of 
repayment. And we always have had those standards.
    The only point I try to make with risk premia is that it 
will not cost us so much in some countries now as it did 
previously. But we will not have a change, a backing away from 
countries that are risky simply because the risk premia have 
changed, because it is a country-by-country analysis.
    Mr. Rothman. But on the whole, you do not feel that the 
world has become less risky?
    Mr. Robson. Well, OMB overall feels it has.
    Mr. Rothman. That is has become less risky or more risky?
    Mr. Robson. Less risky.
    Mr. Rothman. Thank you, Mr. Chairman.
    Mr. Kolbe. We will have a second round. We begin the second 
round at this point.
    Mr. Watson, let me try to follow up on the question. I do 
not think I quite understood all the answers to the question 
that you gave me there. We did not have much time to get into 
it.
    But the subsidy account has been decreased each year for 
several years for OPIC, from a high, I think, of 77. And this 
year, you are suggesting none of it, even though your loan 
commitments have been steadily rising. Something seems askew 
here.
    I guess the base question I want to ask you, do you think 
this is a one-time request for no appropriation in the subsidy 
account, or do you expect carryover of funds every year to be 
able to make this possible?
    Mr. Watson. My original answer was compressed, due to your 
time, Mr. Chairman. Let me just very quickly look to a couple 
of the elements.
    In fact, our finance commitments actually have been reduced 
significantly since 1994 to 1996; in fact, about half. And 
therefore, our 2001 finance commitments will only be 
approximately $991 million. In fiscal year 1996, in fact, they 
were $2 billion.
    So our expenditures or our commitments, in fact, have been 
lower, which is meaning, frankly, that it is a little like the 
available amount of money, Mr. Chairman, is like the sand you 
have in that top part there. And the burn rate is a function of 
what the spigot is, if you want. The burn rate is a function of 
both the credit risk and what your loan volume is. And we have 
actually seen some very prudent management by OPIC.
    The average subsidy cost that we have minimized is now down 
to 2 percent and half of the projects in 2000 had a zero 
subsidy. So, in fact, there is being, sort of, a smaller, 
shorter amount of both commitments and also a credit risk 
reduction, which has meant that we have had a large amount that 
is being left over this year. The burn rate is a function of 
credit risk and spending, and they have been both minimized.
    Mr. Kolbe. I think I am following what you are saying 
there.
    Let me switch, if I might, to Ms. Askey, because I did not 
have a chance to ask you a question. In addition to the $50 
million you have appropriated in this year's budget, as I 
understand it, you are going to get about a $13 million 
transfer from State Department and AID to promote business 
activity in Southeastern Europe, the Balkans, Caspian region. 
Is this a departure, do you think, from your traditional role 
as U.S. export promoter?
    Ms. Askey. No, I do not think so, because we have always 
had an element of foreign policy goals in our mix. Generally 
the State Department does not interject itself very often into 
our activities. But we are, of course, happy to seize those 
opportunities and move forward with them in areas that are 
particularly risky and where we have particular foreign policy 
objectives; the Caspian region is one, Jordan is another, 
certain areas in Africa, sub-Saharan Africa particularly, are 
others.
    And what they want us to do is bring our traditional 
evaluation of market principles--are these projects feasible 
and viable?--and interject U.S. business into those projects.
    And so, I do not think it is a shift. I think it is TDA's 
ability and flexibility to help in the very early stages of 
U.S. business involvement and to support foreign policy 
objectives in those key regions. So we see it as a viable part 
of our mission, not a primary part, but certainly a viable 
part.
    Mr. Kolbe. But looking at Southeast European, specifically 
the Balkans, I am talking about, most of the funding is coming 
from the Stability Pact that issupported by the European Union 
in amounts of over $2 billion, and it is tied to those countries' 
domestic suppliers. I am wondering if, with that in mind, how can we 
really play much of a role for U.S. companies that do not have access 
to much of the funds that are invested there?
    Ms. Askey. Well, that is what TDA is there for, because 
they have a harder time. The EU and others are more likely to 
tie their aid and to establish a long list of criteria that 
favors their firms, and this puts U.S. firms at a disadvantage.
    So TDA tries to bring in the U.S. name and U.S. sources of 
other funding. We can direct them to other sources, World Bank 
sources, European Bank for Reconstruction and Development and 
others, where we want to give the U.S. firms a bit of an edge 
where they have none, because they are not able to compete in 
certain sources of funding.
    So we like to give them an edge in those sources of funding 
where they can compete and allow them to establish a presence. 
Because early presence often means exports will follow, with 
contract and sub-contract following from the U.S.
    So it is difficult----
    Mr. Kolbe. So unless you overcome the disadvantages----
    Ms. Askey. Right. It is difficult, but it is why TDA is 
there.
    Mr. Kolbe. All right. I still have some more questions. I 
am going to try to get one more round in for myself if you can 
later.
    But Mr. Knollenberg.
    Mr. Knollenberg. Mr. Chairman, thank you.
    I am going to just come back quickly, Ms. Askey, to a 
follow-up question on the Armenian conference. I would like to 
monitor the success of that event. And if anything has any 
connection at all with that conference that develops into 
something material, I would like to know.
    We would like to think that there is a way of making sure 
that things are working and the conference did spur or trigger 
some of those opportunities.
    Ms. Askey. Absolutely, Mr. Knollenberg. And your staff was 
very helpful in setting it up.
    My parents actually come from Burbank, so I am very 
familiar with the Armenian diaspora.
    Mr. Knollenberg. From where?
    Ms. Askey. Burbank, California. And there is a quite a 
large contingent of Armenian diaspora there as well.
    Mr. Knollenberg. Yes, and in Michigan, too.
    Ms. Askey. They are very, very active in promoting exports 
from the U.S., and I think we have had a lot of success as a 
result of that.
    Mr. Knollenberg. We are going to be meeting, I know, in----
    Ms. Askey. We will follow up with that, too.
    Mr. Knollenberg. I want to ask you about China. I 
understand that we just relaxed the restrictions on TDA; they 
can now move into China. When was that done?
    Ms. Askey. I do not really know that exact date. I think it 
was just last year.
    Mr. Knollenberg. Was it last year?
    Ms. Askey. End of December.
    Mr. Knollenberg. End of December?
    Ms. Askey. End of December.
    Mr. Knollenberg. All right. So, the prior----
    Ms. Askey. Commerce has had very little activity. In fact, 
they look to TDA for some assistance and guidance in re-
establishing markets there.
    Mr. Knollenberg. I was just reading here that, prior to 
Tiananmen Square, we did have a relationship, and, in fact, 
they were doing quite well. There was an export multiplier, 
something like 60 to 1. Every dollar that was spent by TDA, 60 
materialized in terms of export product. Obviously that is 
good.
    And one of my concerns about trade is that, in the last 10 
years, we have actually negotiated two--two trade agreements: 
NAFTA and Israel. Jordan is coming. In the meantime, the EU has 
negotiated 20, and they are covering us up. And if we do not 
have something like Ex-Im and TDA and some other programs, I 
think in the near term we lose, I really do. So I guess I am 
telling you I am a free-trader, and I think many at this table 
probably are.
    But WTO is concerned, of course, with China. We have NTR; 
we have to get into that again this year. I just wondered if, 
because restrictions were relaxed, it is an indication that we 
are moving toward reopening the door despite what took place 
with the spy activity and all.
    What read do you put on that?
    Ms. Askey. Well, I think it certainly is a foreign policy 
objective of ours to establish U.S. presence, particularly in 
market-oriented types of activities, in order to help the 
Chinese get themselves into a position to successfully meet 
their obligations with the WTO and also to establish the 
benefits of the U.S. presence otherwise, i.e., in the human 
rights area and in the environmental area.
    One thing TDA does is a lot of environmental projects--air 
and water pollution-type projects. This both establishes the 
U.S. presence for future contracts in this area, but also it 
provides the Chinese with some guidance as to how to achieve 
good results in these areas and, therefore, meet their 
obligations in the way the U.S. would like for them to meet 
their obligations, and provides a U.S. entre.
    Sometimes in the telecom area, for example, and in 
information technology, establishing specifications at early 
stages are critical in the long term as to who gets those 
contracts over the next 10 or 20 years.
    So we have a lot to gain by being there early, by being 
there flexibly, by beating the competition that the Europeans 
and Japanese and others provide. Now, Latin America provides a 
good bit of competition for us in those regions. And they have 
a lot of money they are pouring into it.
    Mr. Knollenberg. ``They'' meaning?
    Ms. Askey. The governments of those countries.
    So we can do a lot with a little, and I think TDA's record 
demonstrates that, particularly in China, where, as you say, 
the multiplier is so high and can be again, we are moving 
forward.
    Mr. Knollenberg. It would seem to me that that would be a 
good sign, and that, combined with the possibility of getting 
NTR renewed and WTO status, obviously, would be another step. 
But I think those are important steps, so thank you.
    Ms. Askey. Thank you.
    Mr. Kolbe. You are welcome.
    Ms. Kilpatrick.
    Ms. Kilpatrick. Thank you, Mr. Chairman.
    Ms. Askey, TDA did a series of roundabouts over the last 
couple of years, and seminars that they had in various 
districts. One was in my district. My district borders Canada 
and the Detroit River, so we have an international port right 
there.
    We had an excellent TDA seminar where several businesses 
came in and, I believe, I am confident that some business 
opportunities came out of that.
    I mentioned earlier that about $75 million in export value 
was added to Ex-Im's bottom line as we did our part from my 
district; a total of $500 million from our state.
    I would like to see TDA do more of that, because I think 
that is how you help.
    What is the most important role that TDA can play in 
promoting efforts for open and free trade?
    Ms. Askey. Well, we believe we have a lot to bring to the 
table with a small amount of money, because we are there so 
early. And the business community looks on TDA very favorably 
because we can be responsive. Our job is to bring those firms, 
particularly small firms who cannot do it all themselves, into 
one forum, as we did in your district and in Mr. Knollenberg's 
district, particularly if there is a domestic business group 
that is also helping to move that forward. And you can bring a 
lot of projects to those who want to participate in projects, 
both in the private sector and the public sector, together in 
one location and follow that through.
    So the fact that we are active early in the process and we 
do extensive studies for these firms about the viability of the 
projects that are generated--pipeline projects, electrical 
generation projects, information technology projects and so 
on--by governments or by private sector firms, assists the U.S. 
firms to participate. And an effective way to help them 
participate is letting them know what they are getting into 
early, facilitating their ability to bid on those contracts, 
and following through with some direction on financing if they 
need it, either through Ex-Im, or OPIC or the World Bank or the 
European Bank for Reconstruction and Development, any of the 
banks we work with.
    Ms. Kilpatrick. That is good. I would like to work with you 
on that.
    There are several priority areas in the world, one being 
sub-Saharan Africa. What countries in Africa and--in my mind, 
it is infrastructure needs, and that is the companies I work 
with to take the--improving electricity, housing, water. What 
countries are you in?
    Ms. Askey. Nigeria and Algeria, of course, are ones we have 
been recently in; and South Africa, where we have a lot of 
activity. But one of the projects we are doing with the 
Transportation Department, of course, is Safe Skies for Africa, 
where we are trying to establish improved airport and air 
traffic control safety measures. But as you say, water delivery 
systems, electrical delivery systems are also where a lot of 
our funds are going in those areas.
    We can help establish for those firms, and for the 
governments that are trying to do these projects, the viability 
and feasibility of these projects and direct them in a way that 
will help their eventual success and eventual long-term 
participation by U.S. firms.
    The U.S. has quite an edge in technology on water projects, 
for example. I think the Israelis are perhaps our strongest 
competitors. Interestingly enough, the Brazilians are very 
strong competitors in water projects.
    But we do do a lot in those areas, and we want to do more 
in Africa. It is sometimes difficult with the economies and the 
political stability being what it is in a number of countries.
    Ms. Kilpatrick. Certainly you have to be very selective 
about where you go.
    Ms. Askey. Absolutely.
    Ms. Kilpatrick. Last question. Some members in our Chamber 
of Commerce are wanting to do a trade mission to sub-Saharan 
Africa. Some have already done that. I told him I would assist 
them and I would like to ask the three agents at the table if 
you will assist me in assisting them to, A, identify the proper 
companies, and then offer me assistance that I might be able to 
pass on to them. Are you able?
    Mr. Robson. You bet.
    Ms. Kilpatrick. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you very much, Ms. Kilpatrick.
    Ms. Pelosi.
    Before Ms. Pelosi begins, let me just say that I have been 
advised we expect a journal vote here at 10, so the full 
committee will not start until after that, so that will give us 
a few minutes more to go forward.
    Ms. Pelosi.
    Ms. Pelosi. Mr. Chairman, I thought we were going to full 
committee at 10.
    Mr. Kolbe. There is going to be a journal vote at 10.
    Ms. Pelosi. First, and then----
    Mr. Kolbe. And then subcommittee will not start until after 
10, so we will have, while the journal vote is going on, we 
will have five or 10 minutes more.
    Ms. Pelosi. Oh, okay. I see. Because I was just going to 
yield to you.
    I just wanted to invite our three witnesses to the San 
Francisco Bay Area. As you know, Mr. Robson, our area and our 
state is built on trade and exports. And so hopefully we will 
have the opportunity, when you are coming out there some time, 
to have you meet some of the people who are involved in some of 
the, shall we say, smaller and more minority-oriented 
businesses that will be part of increasing our balance of 
payments successfully.
    Mr. Robson. I accept. [Laughter.]
    Ms. Pelosi. And I did have some questions about the 
Indonesia and East Timor for you, President Watson.
    How does the unrest in Indonesia affect OPIC's long-term 
prospects in Indonesia? Is OPIC giving political risk insurance 
to companies making requests of projects there? How do you 
figure in what is happening in the human rights situation?
    And, as you know, the East Timor Transition Independence 
Act, has a provision that allows OPIC to begin negotiations for 
startup programs in East Timor. Have you made any contingency 
plans for this?
    Mr. Watson. I am unable to speak specifically to East 
Timor, Ms. Pelosi, but I will be very pleased to respond to 
that particular initiative for the record.
    As to Indonesia more generally, we are, like many others in 
government, very concerned to ensure that the current unstable 
environment works itself out relatively quickly. We do, in 
fact, have OPIC exposure presently. We have recently had the 
preliminary conclusion of a settlement on a claim that we have 
tried to conclude with the government of Indonesia. We are 
hopeful that it will be documented, according to its terms in 
due course.
    Ms. Pelosi. Can you quantify that for us?
    Mr. Watson. Well, I can in dollars terms. We have got a 
$290 million claim in compensation that we have had to absorb. 
We have concluded an agreement with the government of Indonesia 
on the terms of the final settlement having to do with that. We 
are currently working with them to document the terms.
    Ms. Pelosi. Is that the full extent of our exposure in 
Indonesia?
    Mr. Watson. No, we have other projects and commitments 
there as well. We are very concerned that the conditions 
stabilize there.
    Ms. Pelosi. Would you like to tell us what our full 
exposure is?
    Mr. Watson. I am sorry. I do not have it immediately here, 
but I will be pleased to give it to you.
    Ms. Pelosi. And then as far as East Timor----
    Mr. Watson. Yes, of course.
    Ms. Pelosi. Thank you.
    Mr. Chairman, in the interest of the fact that we have a 
new member who has not had a chance to answer, I will yield 
back the balance of my time.
    Mr. Kolbe. Thank you very much, Ms. Pelosi.
    We will give Mr. Kingston a first round, and then I will go 
to Mr. Rothman.
    Mr. Kingston.
    Mr. Kingston. Thank you, Mr. Chairman.
    I wanted to ask Mr. Robson questions about the Ex-Im Bank. 
And I regret that I was late. I got here as fast as I could; I 
had airline problems.
    But the question I have is, did you discuss this leftover 
revolving fund that you have? Is that in your testimony?
    Mr. Robson. No, I did not. We do not have a leftover or 
carryover resources that we expect to bring from this fiscal 
year into next year.
    Mr. Kingston. But you are not allowed to bring it over by 
your charter. But there is an amount that you have that goes to 
the general treasury, right?
    Mr. Robson. We have a four-year ability to carryover 
appropriations that we made in one year forward if they are not 
consumed.
    This year we do not expect to have any leftover to carry 
over into next fiscal year.
    Mr. Kingston. Okay.
    And now, I am calling this the wrong name, but right now 
your budget that the White House has called for has scaled you 
back, correct?
    Mr. Robson. That is correct.
    Mr. Kingston. And it is going to hurt your ability to make 
more loans and do the underwriting necessary for the demand. 
But your original charter goes back to what year? There is a 
law that you operate under, that goes back to what year, that 
in order to allow you keep some of this money you could change 
that?
    Mr. Robson. I am not sure.
    Mr. Kingston. I am groping around. But I am going to get 
there. [Laughter.]
    You have----
    Mr. Robson. The Federal Credit Reform Act that----
    Mr. Kingston. Yes.
    Mr. Robson [continuing]. Was passed a decade or more ago.
    Mr. Kingston. Yes. And doesn't it say something that there 
is money that when you make it has to go to the general 
treasury and you cannot use it for more loans?
    Mr. Robson. That is, I think, applicable to every agency 
that----
    Mr. Kingston. That is correct.
    But if that was changed for you all, you could get the 
resources you need to continue expanding. Is that not the case?
    Mr. Robson. Well, it would give you some additional 
resources. My guess is that that would be an issue that would 
be looked on as quite inimical to the basic concept of the 
Federal Credit Reform Act of 1990, and it would be--you were 
not here, I guess, for the discussion we had about resource 
availability versus demand.
    And would it be helpful for me to clarify that point for 
the record, Mr. Chairman?
    Mr. Kingston. No, the chairman will get mad at me. 
[Laughter.]
    Anyway, the point that I wanted to make here is that I 
know, if we could change that credit act that you have to 
operate under, you would be able to expand some of your loans. 
And this committee, while it cannot really authorize on this 
bill, we would never authorize on an appropriation bill, if 
that could happen, then that money is not charged against the 
committee in terms of availability.
    Is that correct, Mr. Chairman?
    Mr. Kolbe. Well, if the gentleman would yield, if I 
understand what you were talking about, I think you are talking 
about the money that is set aside for tied aid, for predatory 
trade practices. Is that not correct, what you were talking 
about? There is a reserve fund of $324 million, that is the 
balance in there now. It has not been used, I believe, for 
several years.
    But it is reserved for this, and they can notify us, and 
they can use it if there was a surge in demand. They can use it 
for other things if they notify us.
    But that $324 million is a carryover. It is no-year money. 
That is, it carries from one year to the next, it has no end to 
it.
    Mr. Robson. The Tied Aid War Chest.
    Mr. Kolbe. Right. The tied aid war chest, it is called. 
$324 million. I think that is what you are referring to.
    Mr. Kingston. I think there is some other money out there.
    Mr. Kolbe. There is lots of money out there. [Laughter.]
    Mr. Kingston. This is what I will do, for you and for this 
committee, is I am going to go get the nomenclatures right and 
figure out what pot we are looking at. But it was something 
that I was interested in to see if we could help you out with.
    Then just a minor footnote here. Was in Russia about a week 
or two ago. Met with the American Chamber of Commerce. And the 
businesses that were there were pretty favorable of the Ex-Im 
Bank, and glad to hear that. Although, I will say, they never 
tell us that domestically, or at least none of the ones I deal 
with ever come by and say anything. But they were very gung ho 
about it when we were there. And I chastised them for not 
speaking up about it while they are stateside and coming by 
congressional offices.
    Mr. Robson. Thank you.
    Mr. Kolbe. Thank you.
    Mr. Rothman.
    Mr. Rothman. Thank you, Chairman Kolbe.
    Just wanted to follow up with Mr. Robson, and then I wanted 
to yield the balance of my time back to the Chair.
    By the way, I am a supporter of all three agencies. I think 
you are embarked on a very noble mission, each of you; very 
challenging, very creative. And I truly think you are doing 
important work. So I wish you well.
    My purpose, as you may have gathered, is to try to get 
evidence that will be persuasive to those here in the Congress 
to increase the support for your respective agencies, and in 
particular Ex-Im Bank, which has taken the biggest cut.
    If I understood, Mr. Robson, your earlier testimony, you 
would need $135 million more in order to meet the $12.5 billion 
loan median?
    Mr. Robson. That is correct.
    Mr. Rothman. $135 million. Do you have a figure available 
for the amount of money you would need to meet the high end of 
your demand projection?
    Mr. Robson. Well, my arithmetic suggested it would be 
around $400 million, Mr. Rothman. No, excuse me, $313 million.
    Mr. Rothman. $313 million more, to add $1.5 billion worth 
of loan capacity.
    Mr. Robson. You are talking about the $14.5 billion high 
end of the range.
    Mr. Rothman. Right. I thought I recall your testimony that 
you would need $135 million more to be able to loan out $12.5 
billion.
    Mr. Robson. To support $12.5 billion; that is correct.
    Mr. Rothman. So to add $2 billion more, would you need to 
more than double the amount? I do not think so. It would 
probably be closer to $200 million?
    Mr. Robson. Our calculation is that it would take $313 
million in program funds to make $14.5 billion in 
authorizations.
    Mr. Rothman. May I, with respect, Mr. Chairman, maybe on 
reflection those numbers might be changed a little bit.
    But can I get from you, Mr. Robson, with the Chair's 
consent, something in writing----
    Mr. Robson. Of course.
    Mr. Rothman [continuing]. When you have had a chance to 
really work out the additional budget appropriation you would 
need to----
    Mr. Kolbe. The Chair would ask Mr. Robson to submit a table 
that we can include that would show the various amounts of 
funding that would be required to meet the various levels of 
anticipated program--low, middle, median, and how much----
    Mr. Robson. We would be happy.
    Mr. Rothman. Mr. Chairman, one last question. And perhaps a 
written explanation would best serve me, because I did not 
really follow it earlier, and I did want to give the Chair as 
much of my time as I can. That, again, is on the notion of the 
riskiness of the world and why--in other words, if there is a 
belief that the world is getting less risky, then I guess your 
statement that nothing will change, about criteria for loans 
and places to loan money.
    I am just not sure that that is the case with the world, 
that it is getting less risky, to justify the two statements. 
One, that the risk premia is going down. And two, that that 
will not have a negative impact on our ability to open new 
markets consistent with past precedent of the same level of 
aggressiveness in opening new markets in risky places in all 
the previous years when the risk premia was higher. It would 
seem if the risk premia is lower, then we are reducing our 
aggressiveness in opening new markets in somewhat riskier 
places.
    Mr. Robson. The answer is, I would be delighted to come up 
and talk about it. And as I said, it is an arcane process, but 
you have my promise to come up and talk about it.
    Mr. Rothman. But in addition, with the consent of yourself 
and the Chair, could I impose upon you to put it in writing so 
that I can dwell on it?
    Mr. Robson. Sure.
    Mr. Kolbe. We will ask you to submit that question, and we 
will make sure we have a written answer that we can put in the 
record then.
    Mr. Rothman. Thank you, Mr. Chairman. And I will yield back 
to you.
    Mr. Kolbe. Thank you very much.
    I am going to try to get in one or two questions. Ms. 
Pelosi, you had something. It does not appear that we have a 
journal vote after all, which means that we are imposing on our 
committee's time.
    Ms. Pelosi, you had something you wanted to say very 
quickly.
    Ms. Pelosi. Heeding the chairman's admonition to be brief, 
I will just say something, and this is to the Ex-Im Bank. It is 
my understanding that in order for U.S. products to be sold 
abroad they have to have no more than 15 percent content that 
is not domestic. There have been some attempts to make that 100 
percent free of domestic content. That would not go over very 
well with the American people. There is a great deal of support 
for the Ex-Im Bank for its organized purpose, which is to 
promote U.S. products abroad. So I just wanted to make that 
point.
    Thank you, Mr. Chairman. Yield back.
    Mr. Kolbe. Mr. Robson, I will ask a question. I know you 
wanted to clarify something. So let me ask a question and you 
can use that also to do the clarification there.
    You kept referring to the figure of $135 million which 
would be needed to support the mid-range of exports. And yet 
you keep giving a range of exports. So would it not be more 
appropriate to give a range of what funds would be needed in 
order to support that? And I think it would be somewhere, 
instead of $135 million, would be at the high end, and you are 
looking at something around $86 million is the range, between 
$86 million and $135 million, is what would you think is the 
most logical, most likely range of demand. Is that not correct?
    Mr. Robson. That is correct. If we picked the middle of the 
range, the $12.5 billion, we would need $135 million in 
additional resources to authorize at that level. And I think 
that was the range I gave Mr. Rothman.
    Mr. Kolbe. Did you want to follow up with something?
    Mr. Robson. No, I think I simply wanted to make sure that 
my explanation was on the record because we have had a somewhat 
meandering conversation that is probably my fault, But I think 
the table will address the problems you raise. So in the effort 
not tostep in any more potholes, I will probably desist.
    But I want to just make it clear that the syllogism is, we 
have got $723 million of program budget resources that we 
expect to have for 2002, those come from $633 million in 
appropriations, plus $90 million in cancellations. We expect 
that will support $11.4 billion in authorizations. We expect 
our demand level to be somewhere between $11.9 billion and 
$14.5 billion, and in order to satisfy that excess demand we 
would need varying levels of additional resources, the precise 
numbers of which we will give you in the table you have 
requested.
    Mr. Kolbe. Okay. Thank you. Appreciate that.
    Let me ask this question of both Mr. Robson and Mr. Watson 
here. I just came back from India a week ago, filled with lots 
of discussion over there and information in the press about the 
investments by Enron in what is called the Dabhol project in 
western India. Huge, huge project, which, as you know, now the 
state power authority has now walked away from the contract, 
endangering the whole billion-dollar project.
    It was my understanding that there is pretty significant 
exposure here on this project by both OPIC and Ex-Im. Would you 
tell me about that exposure and whether or not you think that 
any claims are going to materialize during the fiscal year 
2002?
    Mr. Robson. That is an issue which I cannot address sitting 
here. May I submit an answer for the record?
    Mr. Kolbe. You may submit an answer.
    Mr. Watson, do you have anything?
    Mr. Watson. Yes, sir. In the Dabhol project in India we 
have both finance exposure and insurance exposure. If, in fact, 
we had to have total payment under both, the finance exposure 
would be $142,608,696.
    Mr. Kolbe. And how many cents? [Laughter.]
    Mr. Watson. And the insurance exposure, Mr. Chairman, would 
be $223,582,500.
    Mr. Kolbe. That is a huge hit if that actually materialized 
in its full amount, would it not be?
    Mr. Watson. In dollar terms, it is significant. We do our 
best on an ongoing basis, to balance portfolios.
    Let me just say, Mr. Chairman, that we are very concerned 
about this, and are watching it carefully. We want to work with 
Enron and others to try and ensure that the obligations are 
met. The government of India is a responsible government, and 
we trust that they, consistent with their place in the world, 
would honor their international obligations.
    Mr. Kolbe. Well, I can assure you that the government of 
India says it is not their obligation, it is the state power 
authority's, Maharashtra power authority.
    Mr. Watson. I believe we have a partial commitment from 
them.
    Mr. Kolbe. From the central government of India?
    Mr. Watson. Yes. They are a partial guarantor.
    Mr. Kolbe. Well, it is very complicated, I know that, and I 
think there is some dispute about that. But in any event, when 
we were there they were hoping to work out a deal that would 
make this thing come through. But I would be very interested in 
continuing to follow that, would ask you to keep us informed 
about that and your exposure on that.
    I have a couple of other questions that I wanted to ask. 
But because I think we are impinging on our full committee--in 
fact, I know we are, if they are waiting over there to get 
started here.
    Let me just see if there is a final comment or question.
    Mr. Kingston.
    Mr. Kingston. Mr. Robson, I wanted to get back, just some 
rough notes I had on my question on the Ex-Im. As I understand, 
that out of about $900 million in investment that there was a 
return of something like $1.7 billion; does that sound correct?
    Mr. Robson. I am not sure----
    Mr. Kingston. Does that----
    Mr. Robson. Can we submit----
    Mr. Kingston. Yes.
    The total cost of it was, like, $1.4 billion and the 
revenues of, say, $1.7 billion, which would mean $300 million.
    Mr. Robson. Could we get back to you on that, and we will 
work with your staff.
    Mr. Kingston. Yes.
    Mr. Robson. I have been on the job, you know, a roaring 
eight days.
    Mr. Kingston. No, I understand.
    Mr. Robson. But we will get back to you.
    Mr. Kingston. Okay.
    Anyway, this is what generally, something like $1.4 billion 
in costs brought in about $1.7 billion revenue. And then that 
$300 million, according to the 1990 Credit Act has to go to the 
U.S. Treasury, where as OPIC gets to reinvest their money 
within their agency. And so, that is what I am asking, in terms 
of Ex-Im, they seem to be operating a little bit differently 
than OPIC in terms of revenues that flow in.
    And rather than trying to go out and find the $135 million, 
it is in your interest for us to change the 1990 Credit Act, 
which would give you the money you need. And as respects this 
committee, that would keep this committee from having to go out 
and offset $135 million elsewhere.
    Mr. Robson. I understand.
    Mr. Kingston. And I know I had some notes on it somewhere, 
so I had to go back two or three months.
    Mr. Robson. We will work with your staff on getting the 
answer back to you that hopefully will address your question.
    Mr. Kingston. That would be great.
    Mr. Kolbe. Ms. Pelosi, do you have anything else?
    Ms. Pelosi. Just one thing, Mr. Chairman, since you brought 
up the project in India, the Dabhol power plant, I just wanted 
President Robson to know of considerable member interest in the 
Ex-Im Bank. As recently as May 24, one of our colleagues 
received a letter from Jim Harmon talking about accusations of 
human rights violations in the construction of the plant. Two 
years ago, many of us were in India around the time that a 
Human Rights Watch report was issued on the project. We brought 
up the issue. We had a big session with Enron, with all of the 
parties to it.
    I just wanted you to be aware that it is an ongoing issue, 
in addition to this newer development. It was not going to stop 
the project, but it just wanted to raise the fact that this 
human rights report came out.
    Mr. Robson. I am not entirely sure. Mr. Watson, I do have a 
data point back for you on Indonesia.
    Following payment of the recent claim, we have remaining 
exposure in Indonesia of $444,004,005--which represents about 3 
percent of our worldwide exposure.
    Ms. Pelosi. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Kolbe. I have a couple of other questions, but I will 
submit them for the record.
    And I want to thank my colleagues for their participation, 
properly sticking with the time rights here.
    And I want to thank our two new presidents and director 
here for coming up so quickly after your confirmation. And I 
realize it is very tough when you are just trying to get up to 
speed. And I think you all did an exceptionally job good and we 
appreciate your being good sports in fielding the questions 
that you got here this morning.
    The subcommittee will stand adjourned.
    [Questions and answers for the record follow:]

                 Questions for the Record to Ex-Im Bank

Chairman Jim Kolbe:
Ex-Im and HIPC Countries
    Background. An agreement on ``unproductive expenditures'' is under 
negotiation in the OECD with the aim of preventing a recurrence of 
unsustainable debt burdens in HIPC countries.
    The current OECD draft proposal has two parts: (1) a mandatory 
reporting of export credits provided to HIPC countries, and (2) a 
commitment that members will not support ``unproductive transactions'' 
or those defined as inconsistent with debt sustainability and poverty 
reduction goals of the HIPC initiative. I understand this proposal 
would apply to a very small percentage of Ex-Im financing, most of 
which should qualify as ``productive.''
    Question. Mr. Robson, have you as the new Chairman taken a position 
on the OECD agreement?
    Answer. Ex-Im Bank supports the U.S. position of accepting the 
transparency exercise and statement of principles. This acceptance by 
the U.S. government includes an interpretive statement that more 
clearly delineates the scope of the statement of principles. The 
interpretive statement is as follows:
    ``Given the very general nature of the statement of principles, as 
well as the underlying goal of preventing a re-emergence of 
unsustainable sovereign debt burdens, we would also like to clarify 
that we interpret the principles to apply to transactions that would 
normally be treated by the Paris Club. Given the exemption from the 
transparency exercise of short-term credits, we would also exempt 
short-term credits (of a term one year or less) from the statement of 
principles.''
Market Windows and the OECD
    Background. Mr. Robson, I have become aware of an issue of concern 
to U.S. exporters referred to as ``Market windows.'' Market windows is 
the operation of export credits through government-backed entities 
where interest rates are not made public, and where U.S. firms cannot 
compete because of non-transparency of the terms of the financing. In 
effect, ``market windows'' are a type of export financing outside the 
OECD rules. Germany's export finance agency, KfW, is the largest user 
of market windows in developing countries.
    Question. Mr. Robson, what do you believe is the best way to 
discourage our G-7 allies from the use of market windows?
    Answer. We do not believe that adequate data exist to assess this 
problem. We have asked the Trade Promotion Coordinating Committee to 
gather the necessary information. In fact, rushing in to create such 
U.S. financing capacity in advance of this information would signal to 
others that the United States is creating its own market window, and 
could thereby exacerbate the problem rather than contribute to a 
solution. Such a signal would likely encourage the proliferation of 
market windows as others would create such institutions to protect 
themselves. Once market windows proliferate, a negotiated solution to 
discipline their activities (if deemed necessary) will be much harder 
to achieve.
Ex-Im Bank, Enron and India
    Background. One of the biggest overseas independent power 
production investments by an American Company is Enron's Dabhol Project 
in Western India. I heard a lot about the problems encountered by this 
billion dollar project when I visited India recently.
    I understand that both Ex-Im Bank and OPIC have significant 
exposure in the Enron India project.
    Question. Could you explain your agency's current exposure with 
Dahbol.
    Answer. Ex-Im Bank's board of directors approved $298 million in 
financial support for Phase I of the Dabhol Power Plant Project in 
September 1994. It was amended in 1996 to reflect a changed 
availability date and first repayment date due to project delays. 
Outstanding exposure on the transaction is $221.6 million. We are 
current on all repayments under the transaction, and we do not 
anticipate any repayment problems because we are guaranteed by five 
Indian banks. While Dahbol has filed for international arbitration of 
the general conflict with the State of Maharashtra over the Dahbol 2 
contract, Ex-Im Bank is not involved in the second phase of the 
project.
Merger of the Ex-Im Bank, OPIC, and TDA
    Question. What are your views on the past proposals to merge the 
Ex-Im Bank, OPIC, and TDA?
    Answer. In the federal government, just like in the corporate 
world, mergers only make sense if the long-term benefits of closer ties 
outweigh the short-term productivity costs arising from bringing two 
disparate cultures together, or more specifically agencies with 
different mandates.
    At this time, two efforts are underway that will bring about closer 
cooperation among the three agencies without the corresponding 
productivity costs. The first is the establishment of a close working 
relationship from the top down among the three agencies. Each of the 
agency heads is committed to establishing a close, cooperative working 
relationship with the other agencies. The second is a reinvigoration of 
the Trade Promotion Coordinating Committee, which has commenced efforts 
to bring about closer cooperation among all the trade agencies.
                                   ____
                                 
Representative Nita Lowey:
Public/Private Risk Sharing
    Background. Last year the Bank attempted to get clearance on a 
proposal that would have established a new public/private credit line 
to promote exports. It would have expanded our capacity to help U.S. 
exporters with favorable financing and would have brought about risk 
sharing with the private sector. This proposal was shot down by the 
Treasury Department.
    Question. What is your view of this proposal. Do you intend to 
renew such a proposal this year.
    Answer. On the specific proposal, I have not had sufficient 
opportunity to study it to form an opinion. In general, I see it as 
positive when the private sector is willing to take meaningful risk on 
transactions supported by the Bank so long as it is cost effective to 
the Federal government.
Africa
    Background. As we witness the devastation that HIV/AIDS is causing 
to the countries in Africa, we continue to look for ways to increase 
our assistance. Unfortunately to date, those efforts have not resulted 
in significant increases in economic assistance for the continent.
    Question. I would ask each of you to comment on what efforts you 
are currently making in Africa. Each of you has programs of different 
degrees and in different countries. Outline your plans for Africa. Will 
you be increasing the resources devoted to the continent. Will you be 
expanding the number of countries in which you operate. What will you 
do with American companies to promote business awareness and 
opportunity in Africa.
    Answer. Ex-Im Bank is strongly committed to supporting transactions 
in sub-Saharan Africa as well as the rest of Africa. In 1998 the Bank 
was open for business in 21 countries in sub-Saharan Africa and over 
the last two years open in 32.
    In our effort to increase business in this market, the Bank has 
undertaken a business development program designed to (1) educate U.S. 
companies as to how our programs can help them find new customers in 
Africa, and (2) educate African governments and companies as to how we 
can help them acquire the U.S. products they need to grow and develop. 
Furthermore, we have developed financing products specifically for the 
African market. These include a special short-term insurance pilot 
program for very high-risk countries, and an HIV/AIDS initiative which 
allows for more favorable financing terms for medicines and related 
medical equipment. The Bank, however, continues to explore more 
innovative financing structures and risk-sharing mechanisms with other 
banks to increase business in this market.
    The Bank will continue to educate both African buyers and U.S. 
exporters as to the opportunities that lie within this vast continent. 
In addition, the Bank will continue to draw staff from many departments 
to participate in training seminars here in the U.S. as well as in 
Africa, media outreach, trade shows, creating marketing plans, 
identification of new business opportunities, and simply taking the 
time to speak with parties interested in African markets. The Bank will 
also coordinate staff travel, invite representatives of African 
embassies to periodic training sessions, increase our focus on sub-
Saharan Africa media strategy, work with trade associations as well as 
participate in trade missions. For example, the Corporate Council on 
Africa (CCA), a non-profit membership organization of companies with 
business interests in Africa led a USAID-funded West Africa 
International Business Linkages Program series of trade missions in 
West Africa. Ex-Im Bank participated in two of these events--one in 
Nigeria in December 2000 and the other in Senegal in May 2001. The Bank 
will continue to look for ways to work with other organizations in 
broadening its outreach.
    Another form of domestic and Africa outreach is the Bank's monthly 
E-Mail Africa, which provides nearly 2,500 readers both in Africa and 
the U.S. with an update of news from the Bank, success stories, 
announcements of upcoming events and educational material on different 
programs. Ex-Im Bank also has an Africa page on its website, which 
reflects Africa-specific initiatives and upcoming training events, and 
links have been added to direct users to Africa-focused pages of other 
governmental agency websites.
    In terms of our budget, the Bank does not allocate specific funding 
by program since our budget is based on demand. Moreover, any 
additional administrative expenses needs are built into our fiscal 
year's budget request.
Environment
    Background. Your predecessor worked hard to improve environmental 
standards within the Bank, and to bring other countries standards in 
their Ex-Im Bank related institutions up to our standards. In most 
cases, our European allies and Japan do not require nearly the level of 
safeguards as we do.
    Question. What do you plan to do with respect to continuing to 
improve environmental standards within the Bank and those of our rival 
countries.
    Answer. Ex-Im Bank has spent significant time on environmental 
matters, particularly in the last few weeks. Ex-Im Bank will continue 
to push for a strong U.S. government negotiating strategy on 
environmental standards for ECAs that result in clear and meaningful 
commitments from our rival countries to use World Bank standards and to 
disclose project information to the public. Ex-Im Bank's objective is 
not only to level the playing field for U.S. exporters on environmental 
issues--but to level up, not down--before considering ways to refine 
Ex-Im Bank's current Environmental Procedures and Guidelines.
                                 ______
                                 
Representative Nancy Pelosi:
    Question. Have you discussed with the State Department's new 
Assistant Secretary of State for Democracy, Human Rights and Labor, 
Lorne Craner, the role of the State Department in assessing human 
rights concerns where the Bank is providing support?
    Answer. No, I have not had an opportunity to discuss with Mr. Lorne 
Craner, State Department's new Assistant Secretary of State for 
Democracy, Human Rights and Labor, the role of State Department in 
assessing human rights concerns where the bank is providing support. 
However, I intend to establish a good working relationship with Mr. 
Craner and his office on this issue.
    Question. Mr. Harmon, the former Bank president, said in a letter 
last December that ``country ratings could be negatively affected to 
the extent that human rights abuses could contribute to potential 
unrest . . .'' What specific criteria are used in making this political 
risk assessments?
    Answer. One of several factors determining the sovereign risk 
rating is ``political/social stability.'' While there is no specific 
element within this factor called ``human rights'', the rating on this 
factor could be affected by a country's human rights situation. For 
example, if abuses in the human rights area were judged likely to 
result in widespread violence that would disrupt economic and political 
stability and undermine a government's ability to function, this factor 
would score poorly and could drag down the entire sovereign risk 
rating.
    Question. How many staff currently work at Ex-Im Bank to assess the 
environmental impact of potential projects? Do you believe that human 
rights concerns should receive the same level of attention by the Bank? 
Shouldn't Ex-Im Bank have at least the same capacity to evaluate human 
rights in house as it does the environment?
    Answer. Ex-Im Bank has two environmental specialists who undertake 
environmental evaluations of applications for projects. These 
specialists also draw technical support from the Bank's seven 
engineers, who are experienced in various industrial sectors.
    With respect to the broader issue of human rights abuses in a 
country, Ex-Im Bank believes that we should continue to rely on the 
expertise and judgment of the State Department, which possesses an 
array of resources as well as the global network to address these types 
of issues. Ex-Im Bank is not equipped to make these judgments within a 
country; however, we will continue to pay close attention to the 
potential environmental and social impact of projects seeking our 
support.
    Question. Two days ago, President Bush stated that one of the 
reasons he backed out of the Kyoto Protocol on global climate change 
was because it didn't require developing countries like China and India 
to reduce their greenhouse gas emissions. At the same time, the Export-
Import Bank is not only maintaining reliance but increasing reliance on 
fossil fuels to 28 percent of its overall portfolio. What is the Bank 
doing to decrease reliance on fossil fuels?
    Answer. Since 1988 Ex-Im Bank has supported approximately $750 
million in U.S. exports for renewable energy projects. In 1994 the Bank 
adopted an Environmental Exports Promotion Program designed to provide 
financial incentives for environmentally beneficial exports, which 
include exports for renewable and clean energy projects. The Bank also 
continues to conduct an aggressive marketing program to promote U.S. 
exports for these projects. In 1998 Ex-Im Bank introduced a financing 
incentive provision for fossil fuel plants that produce fewer than 400 
grams of CO2 per kilowatt-hour of electricity, an incentive 
designed to promote the export of technology that minimizes greenhouse 
gas production. Consequently, even though our portfolio of fossil fuel 
projects has increased, due in part to the relatively inexpensive 
worldwide price of fossil fuel during the late 1990's, the projects we 
support today are cleaner and produce less CO2 than in the 
past.
                                 ______
                                 
Representative Carolyn Kilpatrick:
Budgets Impact on Ex-Im support of Small Business
    Question. Given the proposed 25% budget cut to Ex-Im Bank's lending 
program, and given that 86% of the transactions you supported in FY'00 
were for small business. Do you intend to raise fees for small 
businesses using Ex-Im Bank's services.
    Answer. No, small business transactions will not receive an 
increase in fees.
Default Rate
    Question. What is your default rate?
    Answer. Since the Bank's inception some 67 years ago, losses have 
run at 1.4% of disbursements. In the past ten years, these losses have 
increased to 3.4% of disbursements because of the Asian financial 
crisis.
    Question. How does that compare to the private sector?
    Answer. Ex-Im Bank loss rate compares favorably to the private 
sector.
    Question. If it is low, why do you think it is so low?
    Answer. The basic reasons why Ex-Im Bank has a loan loss rate is we 
have a very good credit analysis at the front end of a proposed 
transaction, and we take vigorous collection actions when defaults 
occur by our Asset Management Division. Furthermore, foreign 
governments pay Ex-Im Bank debts first in order to remain eligible for 
more financing.
Africa and HIV/AIDS
    Background. On July 19, 2000, the Export-Import Bank of the United 
States (Ex-Im Bank) announced that it would provide $1 billion a year 
in five-year term financing to support sub-Saharan Africa's purchase of 
U.S. HIV/AIDS medications and related equipment and services. The Ex-Im 
Bank initiative is aimed at combating a plague that so far has left 
more than 13 million children of the region without mothers or both 
parents and, under current conditions, will kill more than one-third of 
all young adults in hard-hit countries. Ex-Im Bank indicated that it 
would cooperate with several U.S. pharmaceutical manufacturers--those 
include Merck & Co., Glaxo Wellcome, Boehringer Ingelheim, Bristol-
Myers Squibb, and F. Hoffman-La Roche--which have announced initiatives 
to help countries in need obtain more of the medicines at lower prices. 
Conversations with representatives of sub-Saharan Africa governments 
indicate a strong need for this kind of financing and an interest in 
using the Ex-Im Bank program.
    Question. Is this Program still in effect? If so, how has this 
program progressed?
    Answer. Yes, this pilot is still in effect. Ex-Im Bank has signed 
two memoranda of understanding under the HIV/AIDS pilot initiative. The 
first is with the Nigerian Ministry of Health and Adam & Associates 
International Inc., a Boston health-care consulting firm. The second is 
with the Ministry of Health in Ghana and Phyto-Riker Pharmaceuticals, a 
pharmaceutical distributor working in Ghana. The Bank has 17 letters of 
interest in-house, 15 of which involve Nigerian transactions.
    Question. Have countries chosen to participate in this program?
    Answer. Yes, Ex-Im Bank is so far working with the governments of 
Ghana, Nigeria, Senegal and Uganda in this effort to identify and 
execute appropriate transactions.
    Question. What have you found to be the strengths and weaknesses of 
the program?
    Answer. The strength of the program is the availability of capital 
going to the private sector, and the weakness is that as a small single 
agency Ex-Im Bank does not have sufficient impact on organizing 
governmental priorities in African countries. Furthermore, the Bank can 
only help address the HIV/AIDS crisis to the extent we can support 
export transactions with credit worthy borrowers.
Private Sector Financing
    Question. I understand that you are not allowed to finance a 
transaction if the private sector can already do so competitively. How 
do you know that the private sector cannot already finance the 
transaction?
    Answer. Our credit officers regularly communicate with private 
sector financiers and have very good information about the types and 
terms of financial products available in various markets. Based on this 
information, credit officers can make a determination of the cost of 
comparable financing from private sources and an estimate of whether 
transactions would go forward in the private sector without Ex-Im 
Bank's financing.
    Further, most of Ex-Im Bank's longer term financing is done in the 
form of guarantees that are issued by commercial banks. Since there are 
costs associated with Ex-Im Bank's participation in a transaction, 
there is little natural incentive for commercial banks to participate 
with the Bank on transactions that they would otherwise be willing to 
finance. Moreover, since the Asian financial crisis, lenders 
willingness to bear emerging market risk can be very volatile.Therefor, 
Ex-Im Bank guarantees enable lenders to provide longer terms and higher 
dollar amounts than they would otherwise be willing to offer.
    In short-term insurance area, Ex-Im Bank has maintained an ongoing 
dialogue with private credit insurance participants. Based upon these 
relationships, Ex-Im Bank designed the short-term insurance program to 
ensure that the Bank does not compete with private insurers. 
Specifically, we have explicitly set our short-term exposure fees at 
levels above private insurers. In addition, we have set the threshold 
to be eligible for small business enhancements at $5 million in export 
credit sales because this amount represents the minimum amount 
acceptable to private credit insurance participants.
Small and Disadvantaged Businesses
    Question. It seems that, particularly with new or small businesses, 
outreach would be a challenge. How are you ensuring that companies know 
about you?
    Answer. Ex-Im Bank takes its small business mandate seriously. 
Small businesses truly are the engine of this economy and we intend to 
continue and increase where appropriate our level of support to this 
key market. Unfortunately, many small businesses--like the public at 
large--lack clean lines of communication to their government. I believe 
the solution is taking Ex-Im Bank to our customer in a way that 
effectively leverages our limited resources with private and public 
sector partnerships. We do this in the following ways:
    --Through eight branch offices spread over the U.S. Our 
professionals, mostly-co-located in U.S. Export Assistance Centers 
(USEACs) meet with their potential customers--your constituents--
everyday on the shop floors, break rooms and board rooms across America 
and demonstrate how Ex-Im Bank or comparable private sector financing 
can increase their export sales.
    --Through training and informational seminars and workshops. This 
year, for example, our staff, often times in cooperation with our 
colleagues from the SBA and Department of Commerce supported over 60 
seminars for exporters and lenders. These seminars were held in non-
traditional cities such as Springdale, Arkansas, Memphis, Tennessee, 
and Jacksonville, Florida, and allowed us to reach exporters in need of 
government financing and export assistance.
    --Through dynamic partnerships with trade associations such as the 
National Association of Manufacturers and state and local government 
agencies known as City/State Partners. These partnerships allow Ex-Im 
Bank to market itself through channels with minimal impact on our 
limited resources.
    --Through a targeted direct mail and e-mail campaign. In our first 
year, we sent out nearly 200,000 pieces of direct mail featuring Ex-Im 
Bank's financing solutions. Many of the recipients of these letters are 
now benefitting from Ex-Im Bank or private sector products and 
increasing their export sales.
    --Redcently, we partnered with the Department of Commerce and the 
Census Bureau to do a joint direct mail.
    --A first class website that is presently under redesign. Our 
website allows Ex-Im Bank to be everywhere, 24 hours a day, 7 days a 
week.
    --Finally, through the use of lenders and insurance brokers. In the 
case of lenders, many who have authority--within prescribed 
parameters--to commit Ex-Im Bank financing. These skilled professionals 
serve as information resources, trouble-shooters and arrangers and 
complement our staff of business development and credit professionals.
    Question. Are you doing anything in particular to help women and 
minority-owned businesses?
    Answer. Since Ex-Im Bank's 1997 reauthorization, we have dedicated 
a business development officer to focus on outreach to women and 
minority-owned business. To reach these businesses, we are interacting 
with women and minority trade associations such as the National 
Minority Suppliers Development Council, the Hispanic Chamber of 
Commerce, and the Women Business Enterprise. We are also conducting 
seminars and workshops directed to minority and women-owned businesses. 
Finally, we support direct mail ``awareness building'' campaigns to 
these two constituencies.
    As a result of these efforts, last year our support for women-owned 
businesses increased by 18% and the number of transactions supporting 
minority businesses increased from 60 to 71 over the previous year. The 
Bank also hosted a minority bankers conference which attracted 
approximately 50 lenders from throughout the United States. Because of 
this even and our focused efforts with the National Bankers 
Association, Ex-Im Bank has attracted five new minority-owned banks to 
use our programs. These banks will serve as important outreach partners 
as well as lenders to qualifying exporters. While Ex-Im Bank can do 
more in this area, we are pleased with our initial efforts and plan to 
continue to increase our efforts.
Export Demand
    Question. Do you think the Administration's requested budget will 
be sufficient to meet exporter's demand?
    Answer. We expect the requested $633 million in program budget will 
be tight, but we believe we can meet the needs of U.S. exporters.
    Question. What do you expect demand to be for FY 2002? Is it 
realistic to think that the Administration's budget cap supports an 
equal if not greater value of exports?
    Answer. The budget request will support about $11.4 billion of 
authorizations which is in line with average demand over the past few 
years. This being said, the ultimate program level will of course be 
highly sensitive to the mix of risk and level of demand.
    Per the request of Congresswoman Lowey, the following is the Bank's 
pipeline summarized by geographic region, as of 8/22/01 the Bank has 
the following pipeline of transactions it expects to authorize before 
the end of FY 2001:

------------------------------------------------------------------------
                                                   Auth.       Subsidy
------------------------------------------------------------------------
Pending Congressional Review:
    Asia......................................        902.2        117.9
    Latin America.............................        608.0         52.4
    Europe/NIS................................           --           --
    Africa....................................        191.1         14.9
                                               -------------------------
      Subtotal................................      1,701.3        185.2
Board Cases (8/23/01):
    Asia......................................        210.2         15.1
    Latin America.............................          2.7          0.5
    Europe/NIS................................        172.2         29.5
    Africa....................................           --           --
                                               -------------------------
      Subtotal................................        385.1         45.1
Remaining Pipeline (non-tied aid):
    Asia......................................        244.2         33.0
    Latin America.............................        547.9         77.2
    Europe/NIS................................        264.2         58.2
    Africa....................................         72.3          8.0
                                               -------------------------
      Subtotal................................      1,128.6        176.4
Totals (non-tied aid):
    Asia......................................      1,356.6        166.6
    Latin America.............................      1,158.6        130.1
    Europe/NIS................................        436.4         87.7
    Africa....................................        263.4         22.9
                                               -------------------------
      Total (non-tied aid)....................      3,215.0        406.7
Tied aid pipeline (1 deal-Asia)...............         58.0         39.0
------------------------------------------------------------------------

                               __________

                    Questions for the Record to TDA

Chairman Jim Kolbe:
TDA and Feasibility Studies
    As you have explained in your testimony, TDA's feasibility studies 
act to promote U.S. businesses in a number of export markets, and I 
have heard you mention that for every $1 invested in TDA produces $35 
in exports.
    Question 1. Ms. Askey, my question is more basic. How many 
feasibility studies did TDA conduct last year and of those conducted, 
how many successfully resulted in the U.S. company winning the 
procurement or other export contract?
    Answer. As you know, TDA's feasibility studies are undertaken very 
early in the project development process and the timeline for most of 
the projects in question are often very long, frequently spanning 3-5 
years, or even longer. After TDA completes a feasibility study, many 
more steps are involved, including project approvals, contractor 
selection, and so on. Thus, feasibility studies completed in one year 
often do not show results in the following year.
    That said, TDA completed approximately 100 feasibility studies last 
year. In other words, these are TDA-sponsored feasibility studies that 
were started earlier but were completed in 2000. Because of the long 
time-line of these projects, we cannot yet point to a substantial 
number of exports from these particular projects. Nevertheless, our hit 
rate suggests that over one-third of TDA activities result in exports. 
So, of the 100 feasibility studies we completed last year, we could 
reasonably expect that 33 would result in exports, probably within the 
next 5-10 years.
    It is also important to note that our overall multiplier is based 
on the results of all of TDA's efforts, not just its feasibility 
studies. These other efforts includetraining grants, conferences and 
orientation visits in the United States for foreign project sponsors. 
The results of all of these activities, including feasibility studies, 
results in the multiplier number. This is why we use a 10 year rolling 
average to report on the results of all of our efforts. Such an average 
allows us to capture our results properly, since projects can take up 
to 10 years to complete.
    Follow-up. Often, U.S. companies and the U.S. dollar are welcome in 
countries around the world where the U.S. government and its influences 
are not.
    Question 2. In the case of a country like Algeria, how does a 
government agency like TDA balance between a country's hunger for U.S. 
investment and technology but abhorrence of foreigners?
    Answer. For situations where there is a perception that a country 
is resistant to foreigners, it is important to distinguish between that 
perception and what the political and economic leaders of the country 
are actually doing to further economic development. TDA follows the 
activities of the economic leaders, who are initiating development 
projects with which we can become involved.
    With respect to Algeria, TDA has not experienced a strong anti-
American sentiment in that country. Rather, we have seen what we 
believe is a genuine and very strong interest among Algerian decision 
makers from the Government and the lead government-backed companies in 
attracting more commercial relationships with the United States.
    Specifically, Algeria has encouraged TDA and U.S. policy makers to 
increase U.S. involvement in Algeria's business development, going 
beyond our very sizable and growing investment in Algeria's hydrocarbon 
sector. In the past three years, Algeria has welcomed TDA support for 
new projects in electric power, mining, ports, telecommunications, 
solid waste management, and water and wastewater management. Algeria 
was TDA's second largest portfolio in our Africa and Middle East region 
in FY 2000, after Nigeria. Moreover, last month, many U.S. companies 
attended the annual Algiers International Trade Fair, where USA Day is 
one of the leading events of the fair. In fact, TDA signed two new 
feasibility study agreements at the fair; one for power interconnection 
reinforcement and another for wastewater treatment.
    Thus, even where there may be public perceptions of hostility to 
Americans or other foreigners in any given country, TDA works hard to 
identify projects that represent development opportunities for the 
country and export opportunities for U.S. businesses.
Merger of the Ex-Im Bank, OPIC, and TDA
    Question. What are views on the past proposals to merge the Ex-Im 
Bank, OPIC, and TDA?
    Answer. While there is a superficial attractiveness to 
consolidation, we do not believe that consolidation would result in a 
net benefit to the U.S. businesses that the three agencies serve. We 
believe that the proposal fails to take into account the substantial 
differences in focus and service between the agencies, as well as the 
relative costs and benefits of such an exercise. Given that Ex-Im 
targets exports, OPIC targets investment, and TDA funds feasibility 
studies for a variety of types of projects as part of U.S. foreign 
assistance, separate operation allows each agency to focus on its area 
of expertise.
    Consolidation could also narrow the range of financing options for 
which TDA helps position U.S. firms. For instance, rather than 
identifying opportunities that are likely to be financed by 
international institutions such as the World Bank, EIB, EBRD, ADB and 
other banks that are not solely U.S. taxpayer-funded institutions, TDA 
could become simply a feeder agency for Ex-Im and OPIC. While we 
believe that our strong cooperation with Ex-Im--they currently finance 
one-third of the exports facilitated by TDA--and OPIC is beneficial and 
should be improved upon, we also believe that there are many viable 
projects for which U.S. firms can be competitive that can be financed 
through other entities.
    Moreover, given TDA's small size, it is able to react quickly to 
changing market conditions and to respond rapidly to the needs of U.S. 
businesses. To wrap all three agencies into one super-agency would 
eliminate such benefits, and would likely not result in the 
efficiencies contemplated by those favoring consolidation. 
Consolidation proponents usually assume that the three agencies have 
similar mandates, the agencies duplicate functions, the same companies 
work with all three agencies, current levels of coordination among the 
agencies do not meet the needs of U.S. companies, and that there are 
administrative efficiencies within the agencies that could be 
eliminated. However, the reality is that the three agencies have 
different mandates and do not duplicate functions, U.S. companies often 
need the services of only one of the three agencies, and, while 
improvement is certainly possible, coordination between the agencies 
does exist. Further, TDA is well known for its efficiency and 
responsiveness, and there is no evidence that its administrative 
functions could be carried out with fewer staff.
    A better approach is to continue on the path that has already been 
started, namely for the three agencies to work together more 
cooperatively. An excellent example is the fine work being done in 
joint service centers in Zagreb and Ankara. Moreover, President Peter 
Wilson, Chairman John Robson and I have already met to discuss how to 
further enhance the working relationship between the three agencies.
                                 ______
                                 
Representative Nita Lowey:
Africa
    As we witness the devastation that HIV/AIDS is causing to the 
countries in Africa we continue to look for ways to increase our 
assistance. Unfortunately to date those efforts have not resulted in 
significant increases in economic assistance for the continent.
    Question. I would ask each of you to comment on what efforts you 
are currently making in Africa. Each of you has programs of different 
degrees and in different countries. Outline your plans for Africa. Will 
you be increasing the resources devoted to the continent. Will you be 
expanding the number of countries in which you operate. What will you 
do with American companies to promote business awareness and 
opportunity in Africa.
    Answer. With its Africa program, TDA attempts to accomplish two 
goals: (1) to respond to the needs and demands of U.S. exporters 
pursuing business opportunities in these risky, competitive markets; 
and (2) to target the use of our funds for the specific development 
priorities of the African countries in which we operate. In the past 20 
years, TDA has invested $63 million in project planning activities on 
behalf of African/Middle Eastern project sponsors. We have built a 
diversified portfolio, providing support for projects in a variety of 
sectors, with a primary concentration on power, communications, 
transportation, manufacturing, and water/environmental projects. We are 
very pleased that our investment has translated into $1.7 billion in 
specific export sales for U.S. firms.
    Because demand has risen from both U.S. companies and African 
project sponsors, TDA intends to increase the resources it devotes to 
the continent. TDA will attempt to expand its already vibrant programs 
in Algeria, Angola, Cameroon, Egypt, Ghana, Mauritius, Morocco, 
Namibia, Nigeria, South Africa, Tunisia, and Uganda. TDA also hopes to 
increase investment in the following countries, if the local economic 
and political situations improve and as U.S. companies begin chasing 
opportunities: Benin, Botswana, Gabon, Guinea, Kenya, Mali, Mozambique, 
Senegal, Tanzania, and Zambia. TDA is reviewing projects in an 
additional 10-12 sub-Saharan African countries, where we will consider 
strong proposals for assistance (e.g., Djibouti), but where economic or 
political conditions often prevent TDA investment.
    As we have been doing for a number of years, TDA will continue to 
reach out to the U.S. private sector. We will inform American companies 
of our efforts and interests in Africa and encourage them to make use 
of our assistance programs. TDA's small business outreach sessions, 
regional sector-specific conferences, and reverse trade missions 
(bringing African project sponsors to the United States to meet with 
potential equipment suppliers and partners) will remain our primary 
outreach tools. We plan to increase the number of reverse trade 
missions we organize for Africa, to match U.S. company interest in 
these developing markets.
                                 ______
                                 
Representative Carolyn C. Kilpatrick:
Policy Objectives
    The Trade and Development Agency is tasked with four overall 
objectives, including fighting foreign export competition, supporting 
U.S. foreign policy initiatives, increasing host country access to U.S. 
expertise, and informing U.S. firms of major foreign project 
opportunities.
    Question 1. Of TDA's four policy objectives, which does it 
currently view as its most important objective? Do you agree with this 
assessment?
    Answer. While all four of the objectives are priorities, the basic 
reality that makes TDA's existence so important is the large and well-
funded export assistance agencies in competitor countries such as 
Germany, France, Japan and the United Kingdom. The presence of foreign 
government subsidization is the very reason that TDA was formed more 
than 20 years ago; it was designed in response to U.S. company requests 
for a mechanism to counteract the substantial assistance that foreign 
governments often provide their own firms.
    Thus, while TDA is quite confident in the ability of U.S. 
businesses to compete with foreign exporters where the playing field is 
level, too often it is not. Accordingly, TDA is active to provide an 
extra bit of assistance to U.S. companies as they compete against 
foreign exporters who are receiving substantial assistance from their 
countries' governments in various forms. These efforts to combat 
foreign subsidized competition remain a cornerstone of TDA's 
activities. Nevertheless, TDA also takes a more proactive role in 
supporting U.S. exports as well.
    TDA works in partnership with the private sector, working together 
to lay a foundation for U.S. participation in developing markets by 
exposing project sponsors to American technology and expertise. By 
supporting the efforts of leading edge U.S. companies that strive to 
expand their businesses overseas, and by working to make sure that 
foreign technical standards do not exclude U.S. products and services, 
TDA ensures that developing countries remain fertile ground for U.S. 
exports. TDA's proactive efforts strive to ensure that not only are 
U.S. firms not disadvantaged by foreign competition, but that they find 
open business climates, including favorable technical standards, where 
U.S. products, services and technology are welcome.
    Question 2. How does TDA set priorities among its various policy 
objectives?
    Answer. TDA sets priorities among its policy objectives in terms of 
the market and political realities of each of its regions. 
Additionally, TDA takes into account specific foreign policy direction 
that it receives. Fortunately, as discussed more fully below, TDA's 
policy objectives are largely complementary, both in theory and in 
practice, so TDA has not found itself having to emphasize one or 
another objective at the expense of others.
    Question 3. If there are conflicts among its four basic policy 
objectives, how does TDA determine which objective should receive 
priority treatment?
    Answer. To date, TDA has not experienced substantial conflict 
between those four objectives. While any of the four may be more of a 
priority in any given situation or in a particular region, an emphasis 
on one need not result in a conflict with another. TDA's activities are 
geared to pairing U.S. companies with project sponsors where there is a 
high degree of foreign competition. Those three objectives dovetail 
neatly. Further, U.S. foreign policy objectives have largely coincided 
with those objectives as well; the difference in some cases has merely 
been that a specific region is of particular importance to larger U.S. 
foreign policy interests, such as fostering regional economic 
development and political stability.
    For example, in the normal course of its business, TDA has been 
active in Central and Eastern Europe since 1989, working hard to ensure 
that U.S. companies are able to compete for and obtain contracts to 
participate in development projects in that region. The region is a 
priority for the Department of State as well, particularly in the 
Balkans, as it seeks to enhance the U.S. presence in the region and to 
encourage political stability and economic development. Accordingly, 
TDA activities in that region are closely tied to foreign policy goals 
and activities. However, this connection has in fact increased TDA's 
effectiveness in achieving its other objectives because the State 
Department has helped make Southeast Europe Development Act (SEED) 
program funds available to TDA to bolster its efforts in the region. 
Thus the State Department's involvement has actually substantially 
increased TDA's effectiveness in pursuing the other three objectives: 
TDA continues to fight foreign export competition, increase host 
country access to U.S. expertise, and inform U.S. firms of major 
foreign project opportunities. Thus, shifts in emphasis in a region 
need not, and do not, necessarily entail any lessening of attention to 
any of TDA's policy goals.
    Question 4. Should TDA be considered as an economic development 
agency, an agent of foreign policy, or as a promoter of U.S. commercial 
interests?
    Answer. One of the tremendous strengths inherent in this agency is 
that it has the resources and flexibility to function effectively in 
each of those three roles. Thethree roles that you identify are 
complementary, and have not historically resulted in substantial policy 
conflicts between them. In different regions of the world and at 
different times, one or more of the three may be more prominent than 
the others, but such prominence does not diminish the importance of the 
others or impede their achievement.
    For example, TDA's involvement in any given country is primarily 
market driven. TDA becomes involved in a project that is being planned 
in the host country. TDA pursues projects that are a development 
priority of the host country, are likely to obtain financing, represent 
an opportunity for substantial exports of U.S. goods and services, and 
involve U.S. businesses facing strong competition from foreign 
companies that receive subsidies and other support from their 
governments. This approach serves both to promote U.S. commercial 
interests and to support economic development in the host country. 
Moreover, both of these represent U.S. foreign policy goals. 
Furthermore, TDA can target its efforts to respond to more specific 
foreign policy goals--and because TDA is a small, business-like agency, 
it has the capacity to respond quickly.
    A specific example is TDA's involvement in the Safe Skies for 
Africa program, which fosters improvement of air traffic control and 
other safety systems in Sub-Saharan countries. This program has been 
and continues to be a priority for both the Departments of State and 
Transportation, and TDA has been able to participate by focusing its 
efforts on projects that support the program, such as air traffic 
control systems in Cameroon and Mali. Thus, TDA is accomplishing its 
fundamental roles of enhancing U.S. exports and stimulating development 
in developing countries, while at the same time accomplishing further 
foreign policy goals, in tandem with other U.S. government agencies.
    In sum, the three roles identified in the question are, in the 
context of TDA's programs and missions, complementary. Accordingly, it 
is appropriate to view TDA in all three roles: as an economic 
development agency, an agent of foreign policy, and as a promoter of 
U.S. commercial interests.
    Question 5. Should anything else be added to TDA's policy 
objectives, or are the objectives as presently stated sufficient for 
TDA to accomplish its goals?
    Answer. As discussed in the responses above, TDA's policy 
objectives are broad and flexible, as are its resources. This allows 
TDA to respond to different conditions and needs in the various regions 
of the world. TDA can, therefore, tailor its efforts in particular 
regions and countries, such as Africa and in China, which are 
particular development priorities at this time.
    Thus, TDA's objectives encompass current activities and leave room 
for additional activities. For example, we are at this time examining 
the potential for expanding some current activities, such as the 
provision of technical assistance to foreign governments in certain 
sectors and policy areas. We look forward to working with you and other 
Members of Congress in exploring such possibilities.
    Question 6. What is the most important role TDA can play in 
promoting international efforts for open and free trade?
    Answer. As a market-oriented agency that provides assistance to 
U.S. companies that are struggling against unfair, subsidized 
competition throughout the world, TDA plays an important role in 
ensuring that foreign project sponsors have access to U.S. goods and 
services. While TDA itself is not a policy-making agency and does not 
play a direct role in eliminating unfair competition as does USTR, for 
example, TDA nevertheless can support agencies such as USTR in their 
direct efforts.
    United States firms often face competition from other nations whose 
governments provide substantial assistance. While TDA will not match 
the market-distorting assistance that so many other governments are 
willing to provide, TDA's role is to step in and to add a relatively 
small but highly effective boost to U.S. companies. This can be 
accomplished by providing funding for project feasibility studies, 
providing technical assistance to the host country project sponsor, or, 
simply, ``wrapping the flag'' around the project, by TDA's 
participation, to show the host country that the U.S. government is 
interested in the project.
    In sum, TDA promotes international efforts for open and free trade 
by representing a more market-oriented approach to development projects 
than our foreign competitors.
TDA Program Challenges
    TDA provides various services to U.S. businesses to help them 
promote exports. These services include definitional missions, 
technical assistance, feasibility studies, and reciprocal trade 
missions, where foreign specialists visit U.S. firms. These services 
attempt to help U.S. firms match their expertise with the technical 
requirements of projects aboard.
    Question 1. If TDA had a larger budget, where would it expand its 
services?
    Answer. TDA believes that its 2002 appropriation request represents 
an appropriate level of funding for the agency. We are confident that 
this level will allow us to continue to operate with the effectiveness, 
responsiveness and flexibility that we are known for. TDA is always 
looking for ways to operate more efficiently and to make ever better 
use of its funds to achieve the best possible results for its programs.
    Question 2. What is the greatest challenge TDA faces in helping 
U.S. firms export abroad?
    Answer. The greatest challenge TDA faces in helping U.S. firms 
export abroad is competing with foreign export assistance. At the end 
of the day, whether TDA will be successful in helping a U.S. company 
win a contract for a major project often comes down to a bottom-line 
calculation. Although TDA tries to work harder and smarter than its 
competition, the simple fact remains that many foreign governments 
spend significantly more money in this area than does the United 
States. Many countries use their foreign aid resources to influence 
major projects, and frequently this aid is tied to procurement from 
their country. Therefore, it is extremely difficult to know exactly how 
much is being spent by competitor nations to influence these projects, 
and any estimates we make are likely to be understated. Nonetheless, a 
comparison with our major competitors' programs we have identified as 
being comparable to TDA clearly illustrates the financial challenges we 
face. In 1998, TDA spending represented $0.005 per thousand dollars of 
GDP. In comparison, Germany spent $0.17 per thousand dollars of GDP and 
France spent $0.16 per thousand dollars of GDP.
    Nevertheless, we believe that our successes show that a small 
amount of money, appropriately used, can make an enormous difference in 
meeting the competition. Because of its size, TDA moves quickly and can 
offer project sponsors advantages in terms of responsiveness, which 
often our large, bureaucratic competitor agencies cannot.
    Question 3. What role is TDA playing, or does it foresee playing, 
in the proposed Free Trade Area of the Americas (FTAA)?
    Answer. TDA has been and continues to be very active in Latin 
America and the Caribbean and strongly supports the idea of the Free 
Trade Area of the Americas. Removing barriers to trade will obviously 
expand the opportunities for U.S. businesses to increase their presence 
in the region. The removal of such barriers will make TDA's efforts 
even more effective in Latin America by improving the access of U.S. 
goods and services to the projects that TDA identifies. While TDA is 
not a policy making agency, it stands ready to support the policy 
objectives of other agencies. For example, it has responded to requests 
for support from the White House, State Department, Transportation 
Department, Energy Department and Commerce Department in the region. 
Additionally, TDA has participated in Trade Missions to Latin America 
headed by the Secretary of Commerce and Deputy U.S. Trade 
Representatives.
    For years, TDA has been involved in projects that cut across 
national borders in the region. This has led to increased ties between 
the various countries through integrated infrastructure and cooperative 
projects. These projects fit well with the FTAA concept and we 
anticipate completion of the FTAA would lead to even more such cross-
border projects. For example, TDA co-sponsored with the Energy 
Department and State Department a regional energy conference in 
Montevideo to promote regional electricity and natural gas distribution 
policies within South America. TDA has also funded studies for multiple 
border crossings across the Andes Mountain range between Chile and 
Argentina, power projects in Uruguay (which plays a privotal role with 
Argentina and Brazil's energy markets), multi-country gas pipelines, 
gas pipelines, intelligent transportation systems, multi-country 
customs and immigration modernization systems.
    Accordingly, TDA will continue its activities in the region and its 
cooperation with the various other federal agencies that are active 
throughout the Americas.
    Question 4. What role does TDA play in helping small businesses 
export abroad? What is the biggest obstacle small businesses face in 
exporting abroad?
    Answer. The majority of companies with which TDA works are small 
businesses. A small business is typically defined as having less than 
500 employees, revenues of less than $5 million and not being dominant 
in its business area. More than one-third of TDA-funded feasibility 
studies are conducted by small companies and overall, 60% of the firms 
with which TDA works are small. Absent TDA involvement, many of these 
firms would not have the opportunity to become involved in 
international development projects.
    The small businesses that produce one in three TDA's feasibility 
studies gain valuable experience in analyzing foreign projects, as well 
as then having a foot in the door to obtaining even more of the work 
associated with those projects. The real impact for small business lies 
in the implementation phase of major projects, where small companies 
stand to export billions of dollars in goods and services as suppliers 
and subcontractors to major projects. By continuing to do what TDA does 
best--investing our money wisely in the planning stages of 
international industrial and infrastructure projects--there is a 
significant ripple effect for small businesses as they enter the 
international playing field at the supplier stage and sweep up 
lucrative new work.
    Additionally, all of TDA's due diligence projects, our Definitional 
Missions and Desk Studies, are undertaken by small businesses. This 
provides interested small businesses with an opportunity to gain 
experience in working with TDA, to allow them to progress to 
feasibility studies, which are considerably larger and that provide an 
opportunity to compete to participate in the implementation phase of 
adevelopment project. Accordingly, TDA provides small businesses with 
many opportunities to expand their international work.
    With respect to challenges facing small businesses in exporting 
their goods and services, their major challenge is their limited 
resources, which constrain their ability to identify and pursue foreign 
opportunities. TDA's outreach efforts, including such activities as 
conferences and reverse trade missions, directly respond to this 
challenge. Moreover, with respect to the projects with which TDA is 
directly involved, small businesses face the same challenge as that for 
all other U.S. businesses, namely, subsidized foreign competition. As 
discussed above, all of the major exporting countries, such as Japan, 
France, Canada and the United Kingdom have substantial export 
assistance programs for the companies that compete with U.S. companies 
that TDA serves.
    In sum, TDA works closely with small businesses and strives to 
ensure that they are active participants in TDA's activities. Moreover, 
TDA strives to counteract the effects of subsidized foreign 
competition, thereby increasing the success rate for small businesses' 
efforts.
Economic Impact of TDA's Programs
    TDA often receives high marks and praise from the U.S. business 
community for the services it provides for U.S. exporters. Economists, 
however, are skeptical about the overall impact of export promotion 
policies on the economy. They argue that such policies can do little, 
if anything, to improve the economy as a whole, but serve only to 
benefit those firms that export over the interests of the rest of the 
economy. As a result, they argue that such policies misallocate 
resources within the economy by shifting jobs and other resources among 
economic activities without creating additional resources.
    Question 1. How does TDA respond to concerns expressed by 
economists and others that its programs misallocate resources within 
the economy without improving the long run growth potential or 
performance of the economy?
    Answer. TDA does its best to position U.S. firms that want to 
compete in the developing world into projects where U.S. firms are up 
against competition from firms from other countries, many, if not most, 
of which receive substantial export assistance from their own 
governments. The agency puts a relatively small amount of money into 
the earliest stages of the project to orient the project toward U.S. 
technology and expertise in order to offset other governments' support 
of their firms competing for the same project. Thereafter, U.S. firms 
must compete on a level playing field against all international 
competition to win contracts under the project. The relatively small 
amount of U.S. foreign assistance funds used by TDA goes a long way in 
helping developing countries and opening doors for U.S. firms to 
compete in international projects.
    Additionally, a substantial amount of TDA's resources go to small 
and medium-sized businesses, many of whom would not have the resources 
to become involved in foreign projects absent TDA's activities. 
Overall, TDA makes particular efforts to ensure that it provides 
additionality with its resources, that is, that TDA does not merely 
assist those who can otherwise help themselves.
    Question 2. How does TDA assess the impact of its programs on the 
U.S. economy?
    Answer. TDA assesses each project proposal to determine that it 
will not have an adverse effect on the U.S. economy by causing the loss 
of U.S. jobs, and also that it will have a beneficial effect on the 
U.S. economy because the U.S. exports involved will be made in the 
United States. If a project proposal does not pass this assessment, TDA 
does not provide funding or technical support for the project. Thus, 
TDA makes sure that its efforts result in a net benefit to the economy. 
Its multiplier rate, which shows that more than $35 in exports result 
from each dollar invested in our core programs, shows our success in 
achieving that goal.
    Question 3. The U.S. trade deficit has run at historic proportions 
this past year. Most economists attribute this to large capital inflows 
to the economy, which have strengthened the dollar relative to other 
currencies. Discuss TDA's efforts to promote exports in terms of these 
macro-economic developments?
    Answer. TDA's mandate and programs cause it to focus on specific 
projects in the developing world as part of the U.S. foreign assistance 
program. The mandate of the agency does not change as market conditions 
change, but these market conditions, such as a strong dollar, do affect 
TDA's programs. For example, a strong dollar causes U.S. goods and 
services to be relatively more expensive than when the dollar is weak, 
making it even harder for U.S. firms to compete overseas with firms 
from other countries, especially when those firms are receiving support 
from their own governments. It is well known that the U.S. spends a 
tiny fraction of its resources providing assistance to U.S. firms 
competing abroad, and most of those resources are restricted to 
providing assistance to difficult markets in developing countries. This 
assistance is even more valuable to U.S. firms working in those areas 
when the U.S. dollar is in a relatively strong position.
    Question 4. Congress has indicated its desire that TDA focus 
increased efforts on such areas as energy, transportation, 
telecommunications, and environment, where it believes U.S. firms are 
especially competitive. How has TDA altered its efforts in these 
sectors? What arethe greatest challenges and opportunities TDA faces in 
these areas in assisting U.S. firms?
    Answer. TDA has paid and will continue to pay particular attention 
to the areas of energy, transportation, telecommunications, and 
environment where, as you point out, U.S. companies are particularly 
competitive. To that end TDA is vigilant in identifying projects 
throughout the developing world in those areas and bringing them to the 
attention of U.S. companies. At the same time, TDA works with the 
project sponsors, by such means as making feasibility studies 
available, organizing orientation visits and offering technical 
assistance, in order that they are aware of available U.S. solutions 
for their project development needs.
    Throughout TDA's history, the development of natural resources 
(including coal and oil exploration and development) and the promotion 
of electricity generation and transmission have been among TDA's 
largest investment targets. These sectors have also been responsible 
for generating a substantial portion of the exports that TDA's 
activities have assisted. In the last three years (FY 98-00), TDA 
invested between 25 and 30% of its resources in these sectors and 
supported more than 100 different activities annually. Since its 
creation, TDA has assisted in creating more than $6 billion in U.S. 
exports due to projects that the agency's activities have supported. 
Thermal power projects (gas, coal and oil fired generating plants) have 
produced $2.4 billion of these exports.
    TDA's investments in telecommunications have been extremely 
diverse. TDA has supported large scale sector technical assessments 
designed to assist host country officials privatize and/or improve 
their regulatory framework for telecommunications activities. In 
addition, TDA feasibility studies have been done for a large number of 
satellite, cellular, fiber optic cable and modernized telephone 
switching projects. In the most recent three years, TDA supported a 
total of 100 telecommunications activities and utilized more than $11 
million (about 7% of TDA's budget) on such projects. In the agency's 
twenty year history, telecommunications projects have produced nearly 
$1.5 billion in U.S. exports. Satellite projects designed for 
telecommunications project for TDA and have accounted for nearly $500 
million in U.S. exports. TDA has participated in successful satellite 
projects in Indonesia, Malaysia, Korea and Chile.
    With respect to transportation, TDA's activities in this sector 
have always ranked among the agency's most important targets. In recent 
years, TDA's focus on transportation activities has grown and now 
account for over 30% of the agency's investments. From FY 98 to FY 00, 
the agency provided more than $50 million to fund more than 300 
feasibility studies and other related activities in support of proposed 
host country transport projects. These projects include: port 
modernization, expanded and modernized locomotive fleets, improved 
switching and signaling equipment for railroads and mass transit 
systems, modern highway projects, air and marine traffic control 
systems and new or renovated international airports. To date TDA's 
activities in the transport sector have assisted more than $2 billion 
of U.S. exports.
    Environmental and water projects are grouped together at TDA and 
projects in this sector have typically occupied about 10% of TDA's 
budget. In the last three fiscal years, TDA has spent a total of nearly 
$17 million on approximately 50 projects each year that were designed 
solely or primarily to improve the host country environment. TDA's 
environmental projects have assisted nearly $1 billion in U.S. exports. 
The largest successes have included a joint effort with the World Bank 
to develop an air quality program for Mexico City and a number of 
highly successful water control, water supply and wastewater treatment 
facilities in Venezuela. In addition to these projects, there are a 
large number of other TDA projects that have important components 
designed to improve the environment. For example, TDA fossil fuel power 
generation feasibility studies always contain a component designed to 
assess the environmental impact and to provide the best way to 
implement the project with the least harmful impact on the environment.
    Challenges and opportunities facing TDA in these areas include the 
internationalization of the market place and the privatization of 
developing economies. The internationalization of the market place 
brings both challenge and opportunity because large projects are much 
less likely to go ``all U.S.'' or ``all Japanese'' and so on. Project 
sponsors in the developing world are getting more and more 
sophisticated, and the equipment for their new installations from 
whomever will give them the highest quality at the lowest price. This 
is a double edged sword for TDA's work. On the one hand, TDA's efforts 
to orient project sponsors toward the U.S. for their technology needs 
and expertise is expected to continue to result in a number of U.S. 
exports, but perhaps not as significantly as in the past, since 
projects sponsors may look to a greater variety of suppliers in a given 
project. On the other hand, even where a project does not fundamentally 
``go U.S.'' as a result of TDA's efforts, the project sponsor's greater 
flexibility may result in some portion of the project nevertheless 
going to U.S. companies, rather than going completely to another 
country's suppliers.
    Likewise, the privatization of developing economies presents both 
increased challenges and opportunities. Over time, TDA's portfolio of 
projects has moved from almost entirely public sector projects to about 
50% private sector projects. The private projects are generally smaller 
in size, and their project sponsors are accustomed to dealing in the 
commercial arena. TDA's programs continue to evolve to assist U.S. 
firms in staying extremely competitive in these marketplaces. Thus, on 
the one hand, the size of projects is decreasing, so the opportunities 
for large export results from single projects may be diminishing. 
Nevertheless, increased privatization is likely to result in project 
sponsor decisions being made more on market-based criteria rather than 
on political criteria; this tends perhaps to better serve the interests 
of U.S. firms over time and over a cross section of projects. We 
believe that under such conditions, U.S. firms, who offer excellent 
technical expertise and overall value for their goods and services, are 
likely to be even more competitive in a more market-based environment.
                                 ______
                                 
                    Questions for the Record to OPIC
Chairman Jim Kolbe:
OPIC Liabilities
    Question. Mr. Watson, given that OPIC operates where demanded is 
highest, much of OPIC's portfolio of risk is concentrated in a few 
countries. This is particularly true for OPIC's currency 
inconvertibility insurance that have originated primarily in Brazil, 
Argentina, Mexico and Turkey. We see the IMF bailouts of Argentina and 
Turkey and the energy crisis that will have drastic effects in Brazil.
    Given that claims often parallel the level of turmoil in the 
capital markets, is OPIC's portfolio diverse enough in different 
countries and different sectors to minimize exposure to the United 
States government?
    Answer. While the level of claims to a certain extent does parallel 
turmoil in capital markets, our overall portfolio is intentionally 
diversified by sector in those countries with large exposure as a hedge 
against such turmoil. For example, in Brazil, our largest country of 
exposure, with over $2 billion in Finance and Insurance combined, no 
single sector accounts for even one-third of our exposure, and we have 
outstanding exposure in all eight of the diverse sectors we track.
    As a practical matter, it is worth noting that with the exception 
of Indonesia, no inconvertibility or expropriation claims were made as 
a result of the Asian crisis. Additionally, the level of claims out of 
Russia after the ruble default was very small given the overall level 
of OPIC exposure there.
    In general, OPIC is able to recover claims paid because of the 
strength of its bi-lateral agreements. Further, its identity as a part 
of the United States government encourages host country governments to 
cooperate in a settlement resulting in an excellent recovery rate on 
insurance claims. However, because OPIC seeks to be responsive to our 
clients' needs for risk mitigation, we cannot always diversify our 
portfolio as completely as we might like. But, those countries in which 
we do have large exposure are precisely those countries that the 
committee has observed, below. ``have integrated themselves into the 
global economy and have more to lose from poor decisions.'' OPIC 
assesses the risk associated with the cover we provide in each country 
and limits that exposure accordingly.
    Question. In some ways, the world is less risky for investors 
because more countries are integrated into the global economy and have 
more to lose from poor economic and policy decisions. But 
alternatively, as we have seen in the past 5 years, flows of short term 
foreign capital can leave an emerging market nation so quickly. How 
different is the risk OPIC assumes today given the degree of 
international integration in emerging market economies?
    Answer. The risk OPIC assumes today is in some ways higher and in 
some ways lower than the risks assumed in the past. For example, 
international integration may result in increased instances of the 
``contagion effect'' of similar circumstances, such as high fuel costs 
leading to higher tariffs for electricity that may eventually result in 
an inappropriate government intervention or currency and banking 
crisises leading to an inconvertibility event. But the flow of private, 
long-term, patient capital is so important to the economic development 
of these countries that these events tend to have relatively short 
lives and are rectified reasonably quickly so as to regain investor 
confidence. With the recognition after the Asian crisis of the impact 
of rapid inflows and outflow of short-term capital on a country's 
economy, many host governments are taking steps to mitigate these 
risks, some very successfully. OPIC plays a key role in helping restore 
confidence in fundamentally sound economies where short-term events 
have temporarily eroded investor confidence.
OPIC's Administrative Expenses
    Question. I wanted to compare OPIC's administrative expenses to 
those of the Ex-Im Bank. OPIC has approximately one-half the FTEs--Full 
Time Equivalent employees--than Ex-Im. The Budget appendix shows that 
OPIC has 209 FTEs in 2001 and the Ex-Im Bank has 434. But the OPIC's 
administrative costs per FTE is approximately $185,000 and only 
$142,000 per FTE at Ex-Im. Additionally, Ex-Im lends at a level of 
authorizations of over $12 billion, three times higher than OPIC's 
total insurance and lending, which is just under $4 billion. What are 
the reasons for OPIC's higher administrative costs?
    Answer. The level of administrative expenses at OPIC stems from the 
specialized mission and type of transactions conducted by the agency. 
OPIC deals with long-term investment transactions that are unique and 
require individualized tailoring of a complex and highly technical 
nature. Generally, the Ex-Im mission in different in that it performs a 
high volume of fairly standardized individual export transactions.
    More specifically, OPIC's workload is very intensive--including the 
structuring, documentation and monitoring requirements. The complex 
nature of OPIC's transactions requires a high percentage of experienced 
professionals who come from the private sector and return to it and who 
require high grade levels. OPIC also performs all underwriting in-
house--both credit due diligence and political risk underwriting. Ex-Im 
delegates authority to hundreds of banks and uses outside financial 
advisors to perform credit due diligence and underwriting.
    Additionally, OPIC has unique and complex monitoring requirements 
which require extensive highly-qualified staff resources. OPIC requires 
every project to meet a variety of statutory and policy requirements 
that must be monitored throughout the life cycle of the project, in 
some cases up to twenty years. Another factor is that OPIC is located 
in a privately owned building and not a government owned building.
Merger of the Ex-Im Bank, OPIC, and TDA
    Question. What are your views on the past proposals to merge the 
Ex-Im Bank, OPIC, and TDA?
    Answer. OPIC, the Export-Import Bank (Ex-Im) and the Trade and 
Development Agency (TDA) each have specifically designed missions that 
complement each other as part of an overall American foreign and trade 
policy without overlap. OPIC provides long-term investment assistance 
to mobilize U.S. private capital in developing countries. TDA provides 
up-front feasibility assistance for export and investment projects, 
while Ex-Im primarily provides export financing assistance for U.S. 
export transactions around the globe.
    In light of the above, I see no compelling case for merger. In 
fact, in addition to there being no efficiency in a merger, it would on 
the contrary create a larger and more cumbersome bureaucracy which 
could prevent us from fulfilling our respective missions.
    Alternatively, I support close OPIC cooperation and coordination 
with Ex-Im, TDA and other agencies where it is helpful. The three 
agencies have a close and complimentary working relationship, as 
exemplified in the shared offices in Turkey and Croatia. We have met as 
agency heads to affirm our commitment to work together and identify 
future areas of coordination.
                                 ______
                                 
Representative Nita Lowey:
Africa
    Question. As we witness the devastation that HIV/AIDS is causing to 
the countries in Africa we continue to look for ways to increase our 
assistance. Unfortunately to date those efforts have not resulted in 
significant increases in economic assistance for the continent.
    I would ask each of you to comment on what efforts you are 
currently making in Africa. Each of you has programs of different 
degrees and in different countries. Outline your plans for Africa. Will 
you be increasing the resources devoted to the continent. Will you be 
expanding the number of countries in which you operate. What will you 
do with American companies to promote business awareness and 
opportunity in Africa?
    Answer. As of December 31, 2000 OPIC's exposure in sub-Saharan 
Africa (SSA) was $1,086,729,152, which represents support for 50 
projects in 20 countries. Sub-Saharan Africa's exposure now accounts 
for 7% of OPIC's total maximum exposure worldwide. This growing 
commitment to sub-Saharan Africa (SSA) is expected to continue.
    Consistent with the Trade and Investment Act of 2000, which 
included the Africa Growth and Opportunity Act, OPIC has comprehensive 
objectives for FY 2001 and beyond. OPIC actively supports American 
companies as they develop their investment plans in various African 
markets. OPIC's pipeline of potential projects for Africa is the 
strongest it has been in many years. OPIC staff reach-out to smaller 
companies in the United States to explain OPIC products and services 
and also work closely with U.S. Embassies and other government offices 
and agencies in Africa to identify projects. OPIC seeks to promote best 
practices in U.S. direct investment in Africa, especially in the 
environment and in respect to human and worker rights. OPIC will 
shortly announce the selection of a replacement manager for the $350 
million African Infrastructure Fund, which will significantly increase 
the scope of OPIC investment funds devoted to Africa and will have 
representative offices in South Africa as well as in East and West 
Africa. As the needs and the demands of the market for OPIC services 
has changed, OPIC has responded and now where is this more evident than 
in sub-Saharan Africa. OPIC is supporting it's first micro-finance 
project in Africa, the Peoples Investment Fund for Africa in 
partnership with the African Development Bank, and the International 
Foundation for Self Help (IFESH), founded by the late Reverend Leon 
Sullivan. OPIC is also working in partnership with the Department of 
Energy on a small $400,000 pilot project to support sustainable energy 
projects in SSA that includes a small $100,000 grant from USAID. We are 
also pleased to note that last year OPIC committed a $173 million loan 
for the construction, ownership and operation of a methanol plant in 
Equatorial Guinea--the agency's largest-ever loan to a project in sub-
Saharan Africa. The Board also approved up to $200 million in political 
risk insurance for the project.
    Since my arrival and during my first board meeting, OPIC's Board of 
Directors approved up to $200 million in political risk insurance for a 
power project in Nigeria toaddress the emergency power situation in 
Lagos. This is OPIC's first support for an independent power project in 
SSA.
    OPIC programs are currently available in 40 of the 48 countries in 
SSA. Countries where OPIC programs are unilaterally inoperable for 
statutory, political, economic, or other reasons include Burundi, 
Comoros, Cote D'Ivoire, Gambia, Guinea Bissau, Liberia, Seychelles, and 
Sudan. OPIC's ability to open its operations in these countries are 
based on foreign policy determinations as well as GSP issues, as in the 
case of Liberia.
    OPIC will continue its marketing and business development efforts 
to promote business awareness and opportunities in Africa by 
participating in various conferences, meetings and forums in the U.S. 
and Africa, working with U.S. Export Assistance Centers, OPIC's website 
and electronic Newsletter, the media, and other speaking engagements.
Contingent Liabilities
    Question. OPIC continues to have a positive cash flow into the US 
treasury with the payment of fees and the low level of loss. However, 
its total contingent liability is quite large. Can you comment on the 
extent of the liability. Should we be doing anything to either reduce 
US government exposure or reduce the risk of massive payouts?
    Answer. OPIC's currently has a strong reserve position with over $4 
billion in reserves against a maximum contingent liability of $16 
billion. OPIC reserves are even stronger when measured against current 
exposure which is $9 billion as of March 31, 2001.
    OPIC's level of contingent liabilities must also be put into the 
context of OPIC's history of low losses and the excellent track record 
of OPIC's recovery efforts. Our finance program has an average per 
annum loss rate of well less than 1.0% of the average amount 
outstanding, which compares very favorably with the commercial banking 
sector. Our insurance recovery record against both claims paid and 
insurance in force is remarkable. In fact, OPIC's recovery rate on 
settled insurance claims over its 30-year history is an exemplary 90 
percent. In addition to OPIC's status as a government agency, a key 
factor is that OPIC retains sufficient liquidity, through its large 
reserves, and sufficient flexibility in its ability to work out 
effective settlements and recoveries. The ability to actively develop 
and implement recovery strategies is crucial to success in claim or 
loan workout situations.
Investment Funds
    Question. Mr. Watson, OPIC is currently participating in over 35 
investment funds which combine OPIC investments with private funds. Can 
you give us your, overall philosophy on these funds.
    Answer. OPIC currently has 24 active funds, and two are under 
development. Going forward, I plan to examine to what extent OPIC-
supported investment funds are contributing to OPIC's mission.
    Question. Do you intend to shut any down, or simply manage the risk 
as best you can?
    Answer. As part of the program mission review, I intend to review 
the current portfolio and take actions as they are appropriate to 
protect the full faith and credit of the U.S. Government.
    Question. What is the status of the Maritime Fund mandated by 
Congress. Is it operating and have they financed any actual deals yet?
    Answer. The Maritime Fund was established by OPIC pursuant to 
Public Law 106-113, Section 598 which was a sense of the Congress that 
OPIC shall ``select a fund manager for the purpose of creating a 
maritime fund with total capitalization of up to $200,000,000.''
    A private fund manager for the Maritime Fund was approved by the 
OPIC Board of Directors in December 2000 following the recommendation 
of an internal selection committee after an open and transparent 
competitive selection process. The fund now has to negotiate a debt 
guaranty financing agreement with OPIC and raise the private equity 
commitments that support the guaranty. In this $200 million fund, the 
sponsors are required to raise $70 million in private capital. The 
equity raising process can take 12 to 18 months. The managers of the 
Maritime Fund, which is now called The Great Circle Fund, are in that 
cycle. They expect to become operational sometime in the first quarter 
of 2002.
                                 ______
                                 
Representative Nancy Pelosi:
China
    Question. Is the Bush administration considering any waiver of the 
existing post-Tiananmen sanctions on OPIC assistance to China? Is this 
under review before President Bush goes to Shanghai in late Oct. for 
the APEC summit?
    Answer. The administration is not considering a waiver of existing 
sanctions on OPIC operations in China at the present time. OPIC's 
operations in China were administratively suspended in June 1989 and 
statutorily suspended in 1990 as a result of sanctions imposed by the 
President and the Congress after the Tiananmen crackdown in June 1989. 
In addition, were OPIC to be reauthorized to operate in China, it would 
have to determine that its statutory standards on worker rights have 
been met, or seek a Presidential waiver of the restriction on the 
grounds of ``the national economic interests of the United States.'' 
Neither of these options is currently under consideration.
    Question. As you may know, the Chinese government recently 
announced it would finally ratify the International Covenant on Civil 
and Political Rights. But, the Chinese government clearly stated that 
it would not abide by the provision in the Covenant that would 
guarantee workers the right to strike and form labor unions (Section 
8). The only labor union now permitted in China is controlled by the 
Chinese Communist Party. Section 231A(a)(1) of the Foreign Assistance 
Act prohibits OPIC from operating in any country that is not ``taking 
steps to adopt and implement laws that extend internationally 
recognized worker rights.'' Considering these facts, would it still be 
illegal for OPIC to do business in China even if the President adopts a 
waiver to the Post-Tiananmen sanctions?
    Answer. Any future OPIC determination regarding China's eligibility 
for OPIC programs under section 231A(a)(1) of the FAA would be made in 
close consultation with the Departments of State and Labor and the ILO. 
Although China did qualify its ratification of the International 
Covenant on Civil and Political Rights with respect to Section 8, of 
the Covenant, China recently signed an agreement with the ILO under 
which the ILO will provide China with advice and technical assistance 
on collective bargaining, the settlement of labor disputes as well as 
workplace safety, job creation and social security. This is the first 
such agreement that China has signed with the ILO. At the same time the 
Chinese government continues to reiterate its commitment to a unitary 
trade union system under the direct authority of the Communist Party 
and has declined to sign ILO conventions banning forced labor.
Indonesia
    Question. How does the unrest in Indonesia affect OPIC's long term 
prospects in the country? Is OPIC giving political risk insurance to 
companies making requests for projects in Indonesia? How do you factor 
in serious human rights abuses being committed by Indonesian security 
forces in Aceh and elsewhere when making decisions on political risk 
insurance?
    Answer. Political unrest can certainly have an impact on OPIC's 
perception of risk. Whether unrest is targeted or general in its scope, 
there is an impact on the investor community and any mechanisms, such 
as political risk insurance, protecting investors. This can range from 
higher prices to withholding of coverage depending upon the degree of 
severity.
    OPIC is not presently providing coverage to any new projects or 
requests for coverage in Indonesia. This is due to the lack of 
finalization of a settlement with the Government of Indonesia over a 
large expropriation claim paid by OPIC in 1999. When settlement is 
achieved, OPIC will consider insurance applications, however, only 
under terms and conditions appropriate for the risks involved.
    OPIC seeks direction and guidance on human rights conditions from 
the State Department. This guidance applies both to the country and to 
the individual project within the country. We seek direction prior to 
each and every commitment.
East Timor
    Question. As you may know, the ``East Timor Transition to 
Independence Act'' (H.R. 675) has been introduced in the House and has 
been referred to the International Relations Committee for 
consideration. This legislation contains a provision that allows OPIC 
to begin negotiations for start-up programs in East Timor. Have you 
made any contingency plans for this?
    Answer. OPIC is aware of this legislation and is in consultation 
with its sponsors. In order to open its political risk insurance and 
guaranty program in any country, OPIC is statutorily required to 
establish a bilateral agreement between the United States and the 
country. Subject to the guidance of the Secretary of State, at the 
appropriate time, OPIC would be prepared to undertake negotiations to 
open its programs with the new elected government of East Timor 
following transition from the United Nations Transition Administration 
for East Timor.
                                 ______
                                 
Representative Carolyn Kilpatrick:
Debt Retirement and OPIC
    Question. The Congressional Budget Office estimates that under 
current economic conditions, the U.S. Treasury Department will retire 
all outstanding Treasury securities by 2006. Assuming those conditions 
are proven correct (CBO and other economists call them problematic), 
businesses, government agencies, and private investors who currently 
hold U.S. Treasury certificates will need to devise investment 
strategies that are consistent with replacing the retiring Treasury 
securities with private assets and corporate securities. Even if all 
Treasury securities are not retired, the magnitude of the current 
budget surpluses means that a significant number of those securities 
will be retired. OPIC holds nearly $3 billion in U.S. Treasury 
certificates that it uses as a reserve fund to finance losses it 
sustains in its insurance fund. These Treasury securities also generate 
interest income from which OPIC operates its direct lending programs. 
Has OPIC started planning for the possibility that, under current 
budget estimates, outstanding U.S. Treasury certificates either will be 
retired altogether or reduced significantly by 2006?
    Answer. OPIC would work closely with the Bureau of Public Debt of 
the U.S. Treasury and follow the guidance that would be given to all 
agencies who invest in U.S. Treasury securities. At the present time, 
it is unclear whether the securities that OPIC and other U.S. 
Government agencies hold, which are a special class for U.S. government 
agencies only, are included in the pool that will be retired.
    Question. Assuming that all U.S. Treasury certificates are retired 
by 2006, how will OPIC manage its portfolio of private assets to 
provide an adequate reserve fund and to preserve the fundamental 
security of its assets?
    Answer. OPIC is mandated by law to invest in U.S. Treasury 
securities only. If it becomes impossible to continue investing in this 
way, OPIC will need authorization from Congress to make investments in 
other instruments. It is important that OPIC's cash reserves be 
invested to maintain the soundness of its reserves. Therefore, OPIC 
will work closely with the Administration and Congress to ensure that 
authority is given to allow OPIC to invest its reserves in a manner 
that will provide an adequate return with appropriate regard for the 
security of public funds.
Prevention of Government Fraud
    Question. The United States, along with other developed economies, 
supports international efforts to establish a standard set of rules, or 
codes of conduct, governing overseas investment by multinational 
corporations. As part of that effort, the United States and numerous 
other countries adopted the Convention on Bribery, which entered into 
force February 15, 1999. The Convention makes it a crime to offer, 
promise or give a bribe to a foreign public official in order to obtain 
or retain international business deals.
    Success in reaching this agreement, however, contrasts with the 
failed attempt to develop and adopt a broad multilateral agreement on 
foreign investment practices, known as the Multilateral Agreement on 
Investment (MAI).
    Does OPIC support continuing efforts within international arenas to 
achieve an international agreement on investment standards? Which 
approach does OPIC believe will bring about the greatest success in 
developing an international investment agreement, through the 
Organization for Economic Cooperation and Development (OECD) or through 
the World Trade Organization? According to OPIC, what should the United 
States set as negotiating objectives for such an agreement, if it 
pursued one? What role does OPIC foresee for itself in such 
negotiations? What role should environmental and labor issues play in 
such negotiations? What role does foreign investment play in overall 
U.S. economic policy and foreign relations?
    Answer. OPIC's mission is to mobilize and facilitate the 
participation of United States private capital in the economic and 
social development of less developed countries and countries in 
transition from nonmarket to market economies. The achievement of a 
multilateral framework for international investment with standards for 
the liberalization of investment regimes, as well as continuing efforts 
with respect to bilateral investment agreements, should facilitate 
foreign investment and, in OPIC's view, would complement OPIC's 
mission.
    Foreign investment involves long term commitments that help create 
jobs here and abroad and contribute to economic growth and the creation 
of free market systems. For these and other reasons foreign investment 
plays an important role in U.S. economic policy and foreign relations.
    OPIC operates under the policy guidance of the Secretary of State 
in accordance with the statutes establishing OPIC. Accordingly, OPIC is 
not directly involved in the determination of U.S. Government policy 
with respect to multilateral investment agreement negotiations and 
related issues. The U.S. Department of State and the Office of the U.S. 
Trade Representative have the leading roles in any international 
investment agreement negotiations. Traditionally, OPIC has not played a 
role in multilateral negotiations.
Economic and Social Development Goals of OPIC
    Question. As directed by Congress, the role of the Overseas Private 
Investment Corporation is to ``mobilize and facilitate the 
participation of United States private capital and skills in the 
economic and social development of less developed countries and 
countries in transition from market to nonmarket economies'' in order 
to complement the development assistance objectives of the United 
States. As a result, OPIC now operates in 145 countries around the 
globe. Among these countries, Congress has directed OPIC to give 
``preferential consideration'' to investment projects in less developed 
countries.
    What share of OPIC's activities are directed toward ``less 
developed countries?''
    Answer. OPIC's authorizing legislation limits its operations to 
less developed countries (LDCs) or countries in transition from 
nonmarket to market economies. OPIC's legislation further requires the 
agency to give preferential treatment to investments in LDCs with per 
capita incomes of $984 or less in 1986 United States dollars, and to 
restrict its activities in LDCs with per capita incomes of $4,269 or 
more in 1986 United States dollars. Based on this statutory guidance, 
OPIC groups LDCs into three income-based categories. During the past 
five fiscal years, the highest income LDCs such as Argentina have 
hosted only 7 percent of OPIC-sponsored projects. Medium income LDCs 
such as Guatemala, South Africa and Thailand have accounted for 65 
percent of OPIC-sponsored projects. The lowest income LDCs, such as 
Ghana, the Philippines and Nicaragua, have accounted for 28 percent of 
OPIC-sponsored projects.
    Question. Does OPIC act primarily to facilitate private sector 
investment in the less developed countries, or does it attempt to 
promote U.S. private sector investment in those countries?
    Answer. OPIC acts primarily to promote U.S. private sector 
investment in less developed countries. Substantial U.S. participation 
is a prerequisite for OPIC to support an investment.
    Question. Does OPIC face any obstacles in the less developed 
countries that are unique to the less developed countries as a group? 
If so, how does it overcome those obstacles?
    Answer. One of the greatest obstacles to investment in less 
developed countries (LDC's) is the lack of transparent legal systems. 
With extensive experience in LDCs, OPIC is positioned to encourage 
governments over time to develop the legal structures that generate 
investor confidence. OPIC's presence also helps to establish the 
credibility of LDCs as viable venues for investment and serves to 
catalyze subsequent investment. For example, OPIC support for a gas 
project in Equatorial Guinea in the early 1990s helped to open up that 
country to foreign investment.
    Question. Do U.S. firms face any particular obstacles in investing 
in the less developed countries that OPIC's programs help them 
overcome?
    Answer. In addition to the legal obstacles described above, U.S. 
firms face the challenge of finding political-risk insurance and 
medium-to-long term financing for projects in the poorest LDCs. OPIC 
offers insurance and financing in countries where service by the 
private market is limited or nonexistent. In addition, OPIC offers U.S. 
firms investment expertise that reduces the time, expense and 
difficulty of investing in developing countries. Finally, OPIC 
leverages its role as a U.S. government agency to facilitate 
cooperation between U.S. investors and local government authorities.
Small Business Outreach
    Question. Congress has instructed OPIC to ``give preferential 
treatment in its investment insurance, reinsurance, and guaranty 
activities in investment projects sponsored by or involving United 
States small business.'' The Corporation has also been directed to 
``increase the proportion of projects sponsored by or significantly 
involving United States small business to at least 30 percent of all 
projects insured, reinsured, or guaranteed by the Corporation.''
    What proportion of OPIC's programs are accounted for by small 
businesses?
    Answer. Forty percent of all projects OPIC supported in Fiscal Year 
2000 involved U.S. small businesses. Data on the specific U.S. 
companies that will provide goods and services to OPIC-assisted 
projects for the seven fiscal years 1994 through 2000 show the specific 
U.S. suppliers for $11.4 billion in expected procurement for OPIC-
assisted projects. These U.S. companies are located in 46 states. It is 
estimated that approximately 62 percent of these identified suppliers 
to OPIC-backed projects are U.S. small businesses.
    Question. What is OPIC doing to make its programs available to 
small businesses?
    Answer. Let me highlight some of the ways OPIC is responding to the 
needs of U.S. small businesses. First, we have reduced our loan size 
from $2 million to $100,000 to better address the needs of small 
business. We have also created new loan structures that are more useful 
and friendly to the needs of small and medium businesses and 
streamlined the application process for small businesses and reduced 
red tape. For example, our insurance application went from 20 pages 
down to 5 pages for small businesses. OPIC has a small business hotline 
and a small business outreach coordinator to respond to the unique 
needs of the small business community.
    For small businesspersons that are not able to participate in these 
events, OPIC is also reaching out to small businesses in two important 
ways. First, OPIC works very closely with the U.S. Export Assistance 
Centers (USEACs) and their satellite offices, which are coordinated by 
the U.S. Department of Commerce and include officials from the Export-
Import Bank and the Small Business Administration. They serve as 
coordinated centers for trade information and are listed in most 
telephone directories under U.S. government agencies. The 19 USEACs are 
located in the major population areas throughout the United States and 
the U.S. Commerce Department also operates smaller satellite offices. 
They provide walk-in and one stop service for small businesses 
interested in trade, export or overseas investment. Frequently, they 
are the first and most accessible points of contact for a small 
businessperson. OPIC works very closely with USEAC officials to be sure 
that they have the latest information about OPIC services and can 
provide referral advice when a small business is interested in overseas 
investment. The USEACs are also repositories of the latest OPIC 
educational and marketing materials and a listing of OPIC's small 
business services. This includes an information booklet targeted for 
small businesses, the small business hotline that provides specific 
small business information, a small business electronic mail box, 
apublic information officer for general information, and the small 
business outreach coordinator to provide more detailed information.
    Second, OPIC is utilizing the Internet to reach out to small 
businesses. Most small businesspersons interested in trade, exports or 
overseas investment are familiar with the web and have Internet access. 
The central U.S. government website includes a link to the OPIC 
website. In addition, the SBA, Ex-Im, and DOC websites include links to 
OPIC's website. OPIC has also proactively ensured that search engines 
using generic key words (e.g. small business, loans, investment) will 
bring the small business person to OPIC's web site. Once in the website 
the small businessperson will find a specially designated small 
business section. This section includes an interactive small business 
training on OPIC's products to help a small businessperson determine 
how they can best utilize OPIC's products and an investor's gateway 
that provides country and sector information and links, and personnel 
contact information.
    Question. What is the largest obstacle small businesses face in 
investing abroad?
    Answer. Of the services which OPIC can provide, one serious 
obstacle for a small business investing overseas is preparing for the 
political uncertainty in the host country and securing adequate 
financing. OPIC, through its political risk insurance and financing 
products, helps small business to overcome these obstacles.
    Question. OPIC is directed to focus its activities on improving the 
economic and social development in the less developed countries. Does 
OPIC's emphasis on the less developed countries present any unique 
challenges to small business investment?
    Answer. For a small business looking for growth opportunities, 
doing business in today's global economy can be challenging. This is 
particularly true in emerging markets. But OPIC fills an important role 
in helping small businesses meet this challenge. OPIC's political risk 
insurance can protect small businesses from political uncertainty. As a 
U.S. government agency, OPIC also serves as an effective advocate for 
its small business clients who are confronted with the arbitrary 
actions of a host country's government. Finally, OPIC helps small 
businesses respond to the challenge of investing in emerging markets by 
providing financing when private sector financing is not available.
OPIC and the U.S. Economy
    Question. Various groups avow diametrically opposed positions 
concerning the impact of OPIC's programs on the U.S. economy. Some 
groups believe OPIC's programs are a form of ``corporate welfare'' that 
merely help U.S. firms shift jobs abroad at the expense of domestic 
jobs and national income. Other groups argue that OPIC's programs 
actually aid the U.S. economy in the long run by improving efficiency. 
In addition, some groups disagree over the role OPIC can and should 
play in the economic development of less developed economies.
    How does OPIC respond to charges that its programs serve only the 
interests of the largest U.S. multinational firms, which use OPIC's 
programs to shift jobs overseas?
    Answer. It is a misconception that OPIC provides its services to 
only a select group of large, multinational businesses. OPIC recognizes 
that small businesses are one of the major engines of economic 
prosperity in the United States, and that these dynamic businesses are 
increasingly seeking to gain access to the growing markets of the 
developing world. Moreover, in FY 2000, approximately 40 percent of the 
new projects that OPIC supported involved American small businesses, 
exceeding by a large margin the 30 percent target that Congress has 
set.
    In addition, the larger projects that OPIC does support also 
significantly benefit small business. Many projects undertaken by big 
companies generate procurement that often involves many small firms 
that otherwise would have little involvement in emerging markets. For 
the seven fiscal years 1994 through 2000, OPIC has identified the 
specific U.S. suppliers for $11.4 billion in expected procurement for 
OPIC-assisted projects. These U.S. companies are located in 46 states, 
the District of Columbia, Puerto Rico and the U.S. Virgin Islands. It 
is estimated that approximately 62 percent of these identified 
suppliers to OPIC-backed projects are U.S. small businesses.
    Whether supporting large or small American businesses, OPIC cannot 
and does not support projects that shift jobs overseas. As mandated by 
its authorizing statute, OPIC carefully screens and monitors the 
projects it supports to make certain that these projects do not result 
in a loss of jobs for American workers.
    OPIC employs a multi-step process to make certain the projects it 
supports do not harm U.S. workers. First, OPIC protects U.S. jobs by 
carefully screening each project prior to approval. OPIC has a separate 
office dedicated to examining each incoming project for statutory 
compliance, including the project's impact on the sponsor's U.S. 
operations and the U.S. economy. Second, larger projects are subjected 
to scrutiny by the OPIC Board of Directors, which includes 
representatives from organized labor and the U.S. Department of Labor. 
Third, OPIC ensures that the projects it supports do not hurt the U.S. 
economy by vigilantly monitoring sensitive projects after they commence 
operations. Monitoring verifies that projects conform to OPIC standards 
for protecting U.S. jobs.
    Question. In which area does OPIC believe its programs offer the 
greatest economic benefits to the U.S. economy: jobs, export promotion, 
or economic efficiency?
    Answer. Jobs, exports, and economic efficiency benefit 
simultaneously from OPIC programs. OPIC programs support U.S. jobs 
through the exports generated to build and sustain OPIC-supported 
investments, which in turn enhance U.S. international competitiveness. 
Thus, OPIC programs support economic relationships that mutually 
benefit the U.S. and developing countries.
    Over the past three decades, OPIC-supported investments have 
generated more than $63 billion in U.S. exports. OPIC estimates that 
these exports have resulted in the creation of nearly 250,000 U.S. 
jobs.
    Question. Is an OPIC guarantee or insurance a subsidy for an 
American firm?
    Answer. No. OPIC does not provide subsidies to its finance or 
insurance customers. On the contrary, OPIC charges all its clients 
risk-based fees for its services. OPIC depends on these user fees to 
fund its operations in a self-sustaining manner. Since OPIC was created 
in 1971, OPIC's clients, big and small, have paid well over $1 billion 
in fees to OPIC for insurance alone, a fact generally not associated 
with subsidized programs.
    Question. How is an OPIC guarantee or insurance different from a 
subsidy?
    Answer. OPIC's direct loans, loan guarantees, and political risk 
insurance are products that OPIC provides to qualified customers in 
exchange for risk-based fees and interest payments. Far from ``taking a 
loss'' on these transactions, OPIC earns sufficient income from its 
user fees to operate on a self-sustaining basis, at no net cost to the 
U.S. Government--a method of operation that should not be classified as 
a subsidy.
    Question. How many requests for insurance or guarantees has OPIC 
turned down because it believed a U.S. firm was attempting to shut down 
a U.S. plant or factory in favor of opening a substitute plant or 
factory abroad?
    Answer. Given OPIC's statutory prohibition on supporting projects 
that will shut down U.S. operations in favor of producing abroad, OPIC 
effectively discourages requests to support such projects during the 
earliest contacts with prospective investors. Consequently, OPIC 
receives very few applications to support runaway plants. In examining 
all project applications, OPIC does not rely solely on sponsor 
representations but conducts a comprehensive economic analysis to 
determine whether a project demonstrates a risk of moving U.S. 
production overseas or otherwise harming U.S. industry. Although OPIC 
rarely receives applications to support projects, OPIC formally turned 
down one application to support a potential runway plant within the 
past year.
                                            Thursday, May 10, 2001.

                           SECRETARY OF STATE

                                WITNESS

COLIN L. POWELL, Secretary of State

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe. The Subcommittee on Foreign Operations will come 
to order.
    We are very pleased to welcome today to the subcommittee 
our distinguished 65th Secretary of State, Colin Powell.
    I think, Secretary Powell, this is the first opportunity 
that you have had, of course, to testify before this 
subcommittee that provides two-thirds of the resources for 
international affairs.
    I would like this hearing to mark the renewal of what I 
think has been a very productive partnership between Congress 
and the executive branch, and certainly between the majority 
and the minority on this subcommittee.
    We all know our Constitution gives Presidents exceptional 
powers in foreign affairs but reserves the power of the purse 
to Congress. Such a division can, of course, result in a 
stalemate. But this subcommittee has worked with many 
Secretaries of State to resolve critical resource and policy 
differences between Congress and the President.
    Mr. Secretary, allow me to recall the constructive roles 
played by current members of the subcommittee in the Middle 
East.
    Our full committee chairman, Mr. Young, who I believe will 
be here shortly--he is with the Speaker right now, excuse me--
was the ranking minority member when President Sadat was 
assassinated in 1981. He worked with his friend, Hosni Mubarak, 
and with President Carter and Secretary Vance to ensure that 
Egypt received its share of the Camp David accords.
    Ten years later, then-Chairman David Obey worked with 
President Bush and Secretary Baker to convince a skeptical 
Congress to forgive Egypt's multibillion dollar military aid 
debt to the United States.
    And more recently, my predecessor, Chairman Callahan, 
boldly set out to convince Israel that it was prosperous enough 
to volunteer to phase out over 10 years the $1.2 billion 
economic support fund program. And that phaseout, I might add, 
of the economic assistance will free up more than $600 million 
for assistance to other priorities.
    I am recalling this history for a reason. Several years 
ago, a resolution of critical issues in our appropriations bill 
was kicked up to the congressional leadership and to the 
director of the Office of Management and Budget.
    Last year, our committee conference between the House and 
Senate resumed its historic role but the then-Secretary of 
State was somewhat disengaged. So we invite you, Secretary 
Powell, to resume the traditional role that the Secretary of 
State has played as the President's principal interlocutor with 
the subcommittee.
    I have identified before, and my subcommittee members have 
heard this, three of my priorities. One of them is global 
health; another is effective management of the agencies funded 
by this bill; and the third is the export promotion and trade.
    This subcommittee championed child survival and global 
health issues long before they attracted a lot of attention. We 
are presently reviewing requests in support of numerous 
proposals to try to reduce the threats that are posed by 
infectious diseases, such HIV/AIDS and tuberculosis.
    We understand that President Bush will publicly unveil his 
own new proposal tomorrow. And I hope, perhaps in your remarks, 
Mr. Secretary, you might tell us something about that.
    Five years ago, the subcommittee established a separate 
child survival and disease programs account. This has proven to 
be the most popular account among members, I think, on both 
sides of the aisle.
    Your testimony incorporates reproductive health under the 
global health category and moves basic education from child 
survival to the economic growth category. Although the 
administration did not seek a modification of the existing 
child survival account, we should consider reconciling your 
management structure and our account structure. The differences 
are not large, but they could prove confusing to us, if we do 
not try to resolve that.
    A major focus of my second priority is the management 
forthe Agency for International Development, USAID, the division of 
labor between it and the State Department. You and the administrator of 
AID, who will be appearing before us next week, by the way, have made 
clear that the management deficiencies at the State Department and AID 
are your top priorities as well.
    The subcommittee includes, as I indicated earlier, a wealth 
of experience and knowledge, and we hope to work with you to 
better manage both your department and AID as you serve to 
carry out the objectives of our national foreign policy.
    We need to understand better your rationale behind the 
proposed new financial management bureau within the department. 
Your intent is to bring some order to the chaotic division of 
labor between AID and the department. That is certainly a 
welcome change.
    Establishment of a direct operational link between you with 
the deputy secretary and the AID administrator could isolate 
AID from unreasonable demands within the executive branch and 
Congress, as well, and allow AID to concentrate on its unique, 
longer term development and humanitarian relief missions.
    The new bureau could collaborate with the committee on 
restoring standards for use of the economic support fund and 
other accounts. You inherit a situation where there are 19 
offices in the State Department with program funds from our 
bill when only a handful have any procurement management 
capacity. That was not the case 10 years ago.
    We understand you want more flexibility in the use of 
appropriated funds, in something called earmark reform. I am 
sure that you have been told that the House has not originated 
earmarks in recent years. For us to reduce the number of 
earmarks coming out of conference with the Senate, bonds of 
trust are going to have to be established with the House and 
Senate subcommittees and leadership as well as with your 
department.
    We all have to share in this understanding on the degree of 
specificity as to how the funds appropriated in our bill are 
going to be used. Our members have to be convinced that 
reasonable proposals that originate outside of the Department 
of State and AID will receive fair and quick consideration.
    Not all good ideas originate downtown. Our constituents 
have some, too, and so do members of this subcommittee and 
Members of Congress.
    You know Congress does not give the Secretary of State or 
any other Cabinet member a single discretionary pot to use for 
any purpose whatsoever. If you propose to use funds, Congress 
appropriates for one purpose. For a different or a new 
requirement, the department has to come back to us before 
reprogramming the money.
    Past breaches of comity between the executive and 
legislative branches are why our bill and report carry so many 
restrictions and directives. Each one of them has a little 
history of its own. Together, over time, we can remove many of 
these statutory directives if all parties respect each other, 
and we hope that process is going to start today.
    My final priority, my signature issue for many years, has 
been trade and export promotion. Much of what this subcommittee 
is trying to accomplish would be adversely affected if the 
President's trade agenda is stalled here in Congress. So I 
encourage you to do all you can to work with Ambassador Bob 
Zoellick in the difficult job that he has. With regard to our 
bill and our responsibility, before I recommend any part of the 
President's reduction in the Ex-Im Bank, I expect the 
subcommittee to take a very close look at the details and the 
potential consequences that we would have from such a 
reduction.
    Again, Mr. Secretary, we welcome you here. Your full 
statement, of course, is going to be made a part of the record. 
And we will take that in just a moment, as soon as I take 
opening remarks from Mrs. Lowey and others that might be here.
    Mrs. Lowey.

                     Mrs. Lowey's Opening Statement

    Mrs. Lowey. Thank you, Mr. Chairman.
    And, Mr. Secretary, it is truly an honor for me to join 
with our chairman in welcoming you before our subcommittee. I 
want to assure you that I am very pleased that the 
administration's initial fiscal year 2002 request would 
increase the resources devoted to foreign assistance.
    For the past several years, many of us in Congress have 
fought tooth and nail to ensure that the overall funding level 
adequately supports our nation's vital foreign assistance 
priorities.
    And I do look forward to working with you this year to 
achieve this goal. I want to take this opportunity to express a 
few of my initial concerns about the priorities reflected 
within some of the requested account totals.
    The amounts devoted to narcotics interdiction, for example, 
are vastly increased, while most other accounts have been 
straight-lined or increase only slightly.
    The Export-Import Bank's request is cut 25 percent below 
last year and will result in fewer U.S. firms receiving export 
assistance.
    We have also had indications that the administration will 
propose new initiatives to be funded within the existing AID 
request, which could result in decreased resources for many of 
our ongoing development assistance programs.
    Mr. Secretary, all in all, your request presents us 
withsome good news and some bad news, in my judgment. And I do hope 
that this afternoon we can discuss some of my specific concerns.
    But let's put the request aside for a moment and examine 
another relevant issue: Will Congress give you what you have 
asked for? As you know, there is no guarantee that the 
committee will provide the full $15.1 billion requested in its 
302B allocation.
    I believe that Chairman Kolbe will seek an allocation that 
mirrors the budget request, but the budget resolution we passed 
yesterday provides for only one-tenth of 1 percent in 
additional spending, while creating the expectation that 
additional funding will be made available here at home for 
critical education, agriculture, health, and infrastructure 
projects.
    In this context, it is not at all clear that foreign 
operations allocations will receive $15.1 billion, and I hope 
you will take the opportunity in your statement today to 
comment on the consequences of this to our foreign aid 
programs.
    Mr. Secretary, I want to assure you that I intend to work 
very closely with you and my good friend, Chairman Kolbe, this 
year. We are always stronger as a nation if our foreign policy 
is bipartisan.
    However, I do have some policy concerns, which I would like 
to discuss very briefly.
    As you know, Mr. Kolbe and I have just returned from the 
Middle East with several members of this committee, and with 
few exceptions, every official we visited expressed to us an 
extreme frustration with the current situation and a deep 
concern that the ongoing violence will increase the stock of 
those who seek permanent instability, if not outright war, in 
the region. And I think everyone on the trip agreed that the 
situation requires strong U.S. leadership, and I welcome your 
efforts in this regard.
    As you know, despite the desire expressed by all parties to 
return to the negotiations, the violence continues to escalate. 
I look forward to hearing more about the State Department's 
recent efforts, and I encourage you to give the issue your 
close attention.
    With respect to Colombia, despite good intentions, Plan 
Colombia seems to have become an unbalanced and poorly executed 
foreign policy initiative. Delivery of assistance for judicial 
reform and alternative development has languished, while 
military training and the delivery of equipment and 
infrastructure improvements for the police and military have 
proceeded aggressively.
    Not one grain of rice, nor one seed for an alternative 
crop, has actually been delivered to communities in Putumayo, 
who have signed pacts to forgo drug cultivation. Meanwhile, the 
spraying of their neighbor's coca fields and the deployment of 
the counternarcotics battalions have continued and even 
increased in scope.
    Given the growth in paramilitary strength and the continued 
presence of guerrillas, the government of Colombia controls 
less territory today than it did when Plan Colombia was 
proposed.
    With respect to family planning and the President's 
imposition of the Mexico City policy, I simply want to make one 
point: The imposition of these onerous restrictions on small 
health-related organizations abroad will decrease the number of 
women and children in the world who have access to basic health 
care and family planning services.
    While your personal views, if I may be so bold to say, may 
conflict with those of the administration, the sad fact is that 
this policy is now in place. And it will, without doubt, hurt 
the poorest women in the developing world.
    With respect to HIV/AIDS, I understand that tomorrow the 
administration will announce that its commitment to this 
international pandemic will take the form of a proposal to 
contribute $200 million from existing resources to an as-yet-
undefined trust fund.
    While the international community, the World Bank and the 
U.N. all seem ready to commit to such a fund, I want to stress 
that our own bilateral programs run by AID have been the most 
effective in battling this epidemic on the ground with real 
resources that actually reach real people. And I want to stress 
that we must maintain our leadership role as these new funding 
mechanisms are established.
    We have a responsibility to ensure that the resources 
apparently pledged by the international community to fight this 
pandemic are not squandered.
    While this does not directly relate to our budget, I just 
wanted to make you aware of my serious concern about what 
transpired recently at the elections to the U.S. Human Rights 
Commission. I am obviously upset that our allies, who pledged 
their support to us on this important vote, broke their word. 
But I do hope that the State Department will continue to say on 
top of this.
    Clearly, this is very upsetting to so many of us. The 
Commission has allowed the United States to shine a light on 
human rights abuses around the world. I do view this as very 
troubling and a defeat for our country, and I hope the 
department will be vigilant in regaining and maintaining the 
United States position of leadership in the United Nations.
    And finally, Mr. Secretary, I am concerned about the State 
Department's recent reorganization proposals. While I 
understand that the consolidation of the budget function was 
necessary, I hope that it is not a backdoor attempt to bring 
USAID under the complete control of the State Department.
    In my judgment, USAID is a critical tool of our foreign 
policy, and curtailing its role would be disastrous for the 
continued implementation of sound, sustainable development 
programs. And I hope you can assure me in your testimony that 
my concerns are unfounded.
    I am also concerned about the proposed merger of the 
Eastern Europe and Independent States coordinators. The 
Appropriations Committee has developed constructive working 
relationships with both offices, allowing for the smooth 
implementation of these programs.
    Obviously, there are many other issues that I would like to 
discuss. I hope you will have time for a candid exchange later 
on in the hearing. I thank you again for coming and look 
forward to your testimony.
    Thank you, Mr. Chairman.
    Secretary Powell. Thank you, Mrs. Lowey.
    Mr. Kolbe. With that, Mr. Secretary, the floor is yours.
    As I said, we of course will put your full statement on the 
record.
    Thank you, Mr. Secretary.

              Statement of Secretary of State Colin Powell

    Secretary Powell. Well, thank you very much, Mr. Chairman, 
and thank you, Mrs. Lowey, for those opening remarks. Thank you 
for allowing my full statement to go into the record.
    What I would like to do, Mr. Chairman, is to summarize that 
statement, touching on a few high points, and then before going 
to your questions, responding to the specific points that were 
made by you and Mrs. Lowey.
    First of all, let me say that I did not miss, Mr. Chairman, 
in your opening statement, the observation that you provide 
two-thirds of the funds that the State Department needs and 
uses. I will never forget that opening statement and the 
message that you have emblazoned on my forehead. [Laughter.]
    And I can also assure you that I look forward to the most 
cooperative relationship with this subcommittee and with all 
the committees of Congress.
    I think this is either my sixth or seventh hearing in the 
3-plus months that I have been Secretary of State, and I have 
not avoided or turned down a single one because I think it is 
my responsibility to make the case to the Congress about the 
need for the resources that we are getting and to justify any 
increases to the level you gave us last year.
    So I see this not as something that is not part of my job 
or any annoyance, but an essential part of my job, because for 
us to have the right kind of foreign policy--you made your 
reference to the Constitution--it has to be a joint 
responsibility between the United States Congress and the 
Administration, with the President formulating foreign policy, 
but always formulating it in the name of the people, and the 
Congress is also in the name of the people.
    So we all have to work together, Mr. Chairman, and I pledge 
my cooperation.
    I am very pleased, then, to be before you for the first 
time as Secretary of State and to testify in support of this 
very imposing budget request for foreign operations for fiscal 
year 2002.
    The request represents a needed increase in the 
Department's dollars for the upcoming fiscal year, and we are 
pleased that it does show an increase.
    I hope it is just a good start. I hope that in future 
years, I can make that case to the President, to OMB, and to 
the Congress that it is a wise investment. It is a good use of 
the people's dollars to invest in activities outside our 
borders which affect us more and more directly every day 
because of the nature of the changing world and the impact of 
globalization.
    We are not alone. We are not an island alone anymore, and 
the investments we make overseas will redound to our credit in 
due course.
    This is the first step, then, of what I hope will be 
further requests for additional resources to help us do the 
work of the American people.
    As Secretary of State, I feel very strongly about the 
following point, and that is that I wear two hats. I am the 
foreign policy adviser to the President of the United States, 
but I am also the chief officer, chairman, CEO, COO of the 
Department of State.
    And as such, I believe I have an obligation to do 
everything I can to lead and manage the wonderful men and women 
of the Department of State, the foreign service professionals 
we have, the civil service professionals we have, and the 
foreign service nationals who support us so very, very well 
around the world.
    But since this committee is particularly interested in the 
foreign policy aspect of my job, I will wear that hat for the 
purposes of this testimony.
    Of the $23.9 billion in the budget request from the 
President, there is $15.2 billion for foreign operations, about 
2 percent more than last year. Let me just touch on some of the 
highlights of that request and then get into the specific 
issues that were just mentioned.
    The budget marks a rather significant change with respectto 
the United States Agency for International Development. The budget 
marks the beginning of rather a new strategic orientation for USAID.
    The Bush Administration intends to address the new 
development assistance demands of a globalizing world by 
concentrating USAID resources and capabilities for a more 
effective method of delivery. We are calling this new approach 
the Global Development Alliance.
    It is global because, as I noted earlier, America has 
interests everywhere. It is an alliance because we are 
acknowledging the need for partners in addition to the 
traditional government partners overseas with whom we have 
always worked or other government partners right here in the 
United States.
    Over the past 20 years, as you know from your own travels 
and experience, a growing number of new actors have arrived in 
power on the world stage: nongovernmental organizations, 
private voluntary organizations, foundations, corporations, 
universities, and even individuals of considerable wealth or 
personal talent are now providing development assistance on a 
global or regional basis. We need to support and help these 
sorts of efforts and form alliances with them.
    So USAID, as part of this GDA, as we call it, Global 
Development Alliance, will be reaching out and trying to play 
the role of a strategic alliance investor, a role analogous to 
a venture capital partner.
    Unlike a venture capital fund, however, the agency would 
not seek to establish equity positions or seek early exits from 
the activities in which it invests. Sustained improvement, 
sustained involvement with these kinds of organizations, 
leveraging up U.S. dollars with the dollars they bring or the 
energy they bring, it seems to us, will pay off in the future 
as a force multiplier that will help us with our development 
goals and objectives.
    Of course, USAID will continue to deploy resources where 
private funding is not available and for activities where the 
need for a governmental role is clear and preeminent, if we are 
to create institutional and policy changes.
    I know that you will be hearing from the new USAID 
director, Andy Natsios, within the next two weeks, and he can 
go into incredible detail on this new way of looking at it.
    I also want to say that I feel that I am enormously 
fortunate, and the American people should feel very, very 
fortunate, that Andy Natsios has taken on this job. He is going 
to bring energy to USAID. He is going to bring new ideas. I 
have charged him to be a change agent in USAID, to look for new 
ways of doing the work of USAID.
    It is a marvelous organization, full of terrific people who 
have done a great job, and they are ready to do better. They 
are ready to change, and they are ready to change in accordance 
with the demands of the 21st century.
    To touch on a couple of the questions that you and Mrs. 
Lowey raised with respect to USAID, as you know, USAID reports 
to the Secretary of Defense and is under my authority and 
policy direction.
    But I still see it as an independent agency that has unique 
talent in it, and I am not going to do anything that would get 
in the way of the use of that talent or get in the way of Andy 
Natsios running a dynamic organization.
    One of the reasons among many reasons that we created this 
new office with a new assistant secretary is to pull together 
all the resource pieces that were laying around the Department. 
It took us weeks to kind of figure out where the pockets of 
money were. How did they flow? How were they linked to 
strategic objectives? Who had the authority to move money? Who 
had authority to say, ``EUR, sorry, we are taking something 
from you to give to South Asia,'' or somewhere else?
    Where did that all come together in one place? We found 
that we were not doing it well enough. And so we are creating 
this Assistant Secretary and elevating his position so that he 
reports directly to the Under Secretary of Management and 
through him to the Deputy Secretary and to me.
    And the Deputy Secretary and I, Mr. Armitage and I, are 
interchangeable. I have delegated almost all authority that I 
have to him. And so we have two people running this outfit. I 
will occasionally revert to my original language of infantry, 
but we have two people running this outfit, two people who are 
committed to leading it on a day-by-day basis as leaders and 
managers as well as foreign policy people.
    I think what you will see is that this will help USAID 
protect themselves from errant runs and flank attacks on their 
various accounts, and it will also empower Mr. Natsios to do a 
better job by having a single point of entry with respect to 
resource management into the Department of State.
    Andy attends my staff meeting every single morning. He sits 
in my conference room, the large conference room in my suite, 
every single morning at 8:30 with all my assistant secretaries 
and under secretaries. He is an essential and integral part of 
the State family, and that is the way we are going to be 
running the organization.
    So I think I can allay any concerns you might have with 
respect to the relationship between USAID and me and the 
Department of State in how we will work all issues, either 
resource management or other kinds of strategic issues.
    Mr. Chairman, the budget request also fully funds for FY 
2002 scheduled payments to the Multilateral Development Banks. 
And taking into account the carryover funds from FY 2001, it 
fully funds America's commitment to help financehighly indebted 
poor country debt reductions by the multinational development banks.
    With respect to the comment, ma'am, that you made earlier 
about the Ex-Im Bank, we think that changing the risk levels 
and asking private companies to take on a slightly higher 
degree of the risk associated with their investments justified 
us lowering the amount of money being requested for Ex-Im Bank.
    In other words, in collaboration, you take on a greater 
part of the risk, you be a little more careful about the kinds 
of things you invest in, and we can return a couple of hundred 
million bucks to the taxpayers. It seemed to us this was 
reasonable, it was sound, and we can monitor it to see how it 
works out in the fiscal year for which it is requested.
    Another strategic orientation I want to call to your 
attention, and it goes to some of the points that were raised, 
is our Andean regional initiative. Important U.S. national 
interests are at stake in the Andean region. Democracy is under 
pressure in all the countries of the Andes.
    Economic development has been slow, and progress toward 
economic liberalization has been inconsistent. The region, as 
has been noted, continues to produce all the world's cocaine 
and an increasing amount of heroin. All of these problems are 
interrelated and need to be addressed in a comprehensive way.
    Plan Colombia was an approach to do that, and the money 
that was allocated for Plan Colombia last year allowed us to 
get a jump start in going after those fields, and there was a 
significant military component to it.
    The previous administration recognized and we recognized, 
as soon as we came in, that you do not solve the problem just 
by squeezing it here and pushing it somewhere else. And you do 
not solve the problem by pushing it somewhere else without 
development activities, human rights activities, alternative 
crop substitution, and a broad array of other things you have 
to do for the other countries in the region.
    So the Andean regional initiative moves us in that 
direction in this fiscal year request. The total amount of 
dollars we will have available not only from your appropriation 
but from other assets available to the Department will reach 
$882 million for the Andean regional initiative.
    About 45 percent will go to Colombia, 55 percent to other 
countries in the region. Roughly half for counternarcotics 
interdiction activities, the other half for the other 
activities such as: alternative development; development 
assistance; child survival and diseases, as was mentioned; 
economic support funding and other activities that help to 
build hope in a different way, so that people can start looking 
in other directions and not trying to figure out how they can 
grow coca because they want to sell it to the United States.
    I think you will also see a more intense direction of this 
effort now that the President has announced earlier today his 
new narcotics czar, Mr. Walters. We look forward to working 
with him with respect to the Andean regional initiative.
    Mr. Chairman, there are several other areas I just want to 
touch on and then get into your questions and my answers.
    We have $369 million in the budget request to continue to 
fight on HIV/AIDS. When you add in monies available in other 
departments of the executive branch, the number goes to over 
$500 million.
    The Congress has been very generous. This represents a 100 
percent increase in the last several years. And frankly, no 
other country is anywhere close, or a combination of countries 
anywhere close, to the contribution that the United States is 
making to this fight.
    If you look in HHS and other accounts, you can find 
billions of additional dollars that are being used within the 
United States alone to fight against HIV/AIDS.
    As was noted, tomorrow the President will be making an 
important announcement on this subject, and I will let him have 
the benefit of the attention of that announcement.
    But, I think it is an exciting announcement. It will be 
made in conjunction with the Secretary General of the United 
Nations, and it takes us in a new direction.
    We will use funds that we believe are available from other 
accounts, not taking away from any of the HIV funding we are 
doing now, and make a significant new contribution to this new 
proposal of a trust fund and do it in a way that will encourage 
many other nations to join us and many other organizations and 
private citizens and NGOs and maybe even kids dropping nickels 
and dimes in milk boxes or March of Dimes-type cans. It is that 
kind of a challenge, it is that kind of a crisis, and we have 
to get everybody involved.
    I think, as a result of the President's announcement 
tomorrow, you will see that the United States will be playing a 
leading role. We are committed to playing a leading role in the 
fight against HIV/AIDS and other related infectious diseases, 
malaria and tuberculosis, especially in sub-Saharan Africa.
    But this is not just a sub-Saharan African problem. It is 
in the Caribbean. It is in the subcontinent. It is in Russia 
and many other places. And it is going to require the whole 
world to get involved.
    And it is not just a health crisis. It is a crisis of 
nation-states. Nations will collapse if they do not fix this 
problem. It is destroying families. It is destroying cultures. It is 
destroying everything that people live for and hope for.
    It requires that kind of an approach, and the United States 
will be in a leadership role. Secretary of Health and Human 
Services Thompson and I will be leading the joint task force 
for the President on this subject, so we have both the foreign 
and domestic policies linked together.
    We are also working closely with the HIV/AIDS director in 
the White House, Mr. Scott Evertz. A major, major challenge.
    On just a few other items: a $110 million increase in 
military assistance funding, $36 million increase in disaster 
assistance funding, $17 million in migration and refugee 
assistance, and a number of other programs that I think are 
well-documented in my formal statement and in the budget 
submission itself.
    And let me just say that I hope I can satisfy the Committee 
and the Members of Congress that the increase we have asked for 
is right and appropriate. I hope, in the course of our 
discussions here today and in my conversations with members of 
the Budget Committee, we can get the entire allocation up to 
$15.2 billion.
    We need it all. We can justify it all. I will fight for it 
all. And I hope as we go through this process, we will be 
successful.
    I have touched on a number of your opening comments, but 
let me make one or two additional comments just to make sure I 
have not forgotten anything.
    With respect to earmarks, Mr. Chairman, I know that there 
are occasions when an earmark is probably quite appropriate, 
when you want to get the Administration's attention or you 
think we have not been paying attention. I understand that the 
Senate feels particularly strongly about this from time to 
time.
    But every earmark takes away flexibility from the 
administration. And when you look at earmarks and sanctions and 
certifications and requirements and all sorts of things that I 
discovered when I returned to government and took over the 
Department of State, it is very, very limiting and inhibiting 
on the ability of the President and the Secretary of State to 
conduct foreign policy in the most effective manner possible.
    We are not trying to get out of oversight, but we need much 
more flexibility in the conduct of foreign policy than we 
currently enjoy. I do not shrink from making this statement, 
and I look forward to working with all of the Committees that I 
work with to see if we can start moving in the other direction, 
start sunsetting some of these requirements.
    I am not a rookie or naive. I know, in many cases, things 
are imposed upon us in order to keep from having something 
worse imposed upon us. That happens from time to time.
    But, I think we have to take a hard look at all these 
things to make sure that they are serving their originally 
intended purpose and they are continuing to serve the will of 
the American people.
    Mr. Chairman, if you ever catch me breaching one of your 
reprogramming rules, I would expect you to haul me up here and 
let me know about it. Call me, sir. Chew me out. Nail me. And 
if I do not have a good reason, I will fix it. If I do have a 
good reason, well, we might have to have a discussion. 
[Laughter.]
    But I will always try to abide by the will of the Congress, 
both in tone and in intent, and you can be assured of that. And 
I think I have a record and a reputation for that from my 
previous assignments in government.
    Trade and export promotion: I could not agree with you 
more. Trade is what is fueling globalization. It is a mixed 
blessing.
    With globalization, you create the opportunities for wealth 
around the world, for people to get on that lowest rung of 
wealth creation and start up. But we have to be careful when we 
do that to make sure that labor is protected, to make sure we 
are not taking advantage of people.
    And so, I am a freetrader. The State Department is 
committed to free trade just as much as you know the President 
is.
    We look forward to working with the Congress, and I am 
closely working with Mr. Zoellick on all of the various pieces 
that are out there, from trade promotion authority to the 
various bilateral agreements.
    Middle East: Perhaps I can respond to the questions so as 
not to take time, since it looks like some of you may have to 
leave for the vote. I talked on Plan Colombia.
    Mexico City policy: The President, I think, has made a 
persuasive case. We still are contributing well over $400 
million to family assistance programs. And in the few instances 
where the Mexico City policy has affected a number of worthy 
deliverers of care, I think that they have been successful in 
finding alternative means of support and able to carry out 
their important function.
    I think I have touched on many of the things you are 
interested in. If time permits, I would like to say a word 
about the Human Rights Commission, unless you have to start 
going, Mr. Chairman.
    Mr. Kolbe. I suspect you are going to get a lot of 
questions on that.
    Secretary Powell. Why do not I wait then?
    Mr. Kolbe. Okay, that would be helpful.
    Secretary Powell. I will end at this point. Thank you.
    [The statement of Secretary Powell follows:]
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    Mr. Kolbe. Thank you very much.
    Mr. Secretary, since this is the first time I have had all 
my members here, let me just say that the process that I follow 
is to go with the order that people come in from the time the 
person testifying begins, and then we will just go down the 
line back and forth.
    I realize we have to balance. I do not like to cut people 
off in the middle of lines of questioning. And yet, with as 
many people as we have, we really do need to adhere to the 5-
minute rule as much as possible.
    So I am going to use this timekeeper here, which is a very 
good 5-minute timekeeper. We will try to keep to this as much 
as possible as I begin.
    First, let me just start. We do have several votes here. We 
have three votes in a row. So at some point, members may want 
to go and come back so we can keep the testifying and the 
questioning going as much as possible.
    I will try to get my questions in now, and then we will----
    Secretary Powell. Can I just make one correction? I 
indicated the new Assistant Secretary reports to Management; it 
will be directly to the Deputy.
    Mr. Kolbe. Thank you. I had a note, and I was just going to 
ask you about clarifying that.
    Secretary Powell. I was thinking of another position we 
created which I will touch on, the foreign buildings office.
    Mr. Kolbe. Now, let me just say that, as far as earmarks, I 
appreciate the comment that you made, and I hope we can work in 
that vein.
    I would just say that if the department will give as much 
attention to fending off the restrictions, the sanctions, the 
unilateral actions, and if you will be as persuasive with 
Congress in doing that, and not rolling over and playing dead, 
as has often been the case, then I think I would certainly be 
very inclined to work with you on the earmarks as well.

                              MIDDLE EAST

    Ms. Lowey referred to the fact that we have been there, and 
I think we came back disturbed and concerned about the 
prospects of getting the peace process moving forward. I had a 
chance to talk to you a little bit about this last week. But I 
would like you just to clarify for us your view.
    Many people told us they thought that the United States has 
to be engaged, more engaged than we are today. And for most 
people that we talked to, they suggested that we had to have a 
special envoy, somebody that they know they can work with on 
this issue, that we are the only ones who have the credibility 
to help to get this process moving forward again.
    I am wondering if you can tell us about where it stands at 
this point and what you see as the role and the level of 
engagement of this government in this Middle East peace 
process.
    Secretary Powell. We, of course, are as deeply concerned as 
you are. And the events of the last couple of days make it more 
disturbing.
    The tragic murder, outrageous criminal act, against those 
two youngsters yesterday in the West Bank, who were out on a 
hike, for whatever reason, but to have them stoned to death is 
an outrageous act against humanity. And I think we all must 
deplore acts of that nature.
    We also have to have sympathy for those caught up in the 
crossfire, whether it is a 4-month-old Palestinian child or an 
Israeli teenager. The level of violence has to start going back 
down.
    We have conveyed this message consistently to both sides. 
The United States is deeply engaged. The President has been 
calling the leaders on a regular basis.
    We had Foreign Minister Peres here last week. The President 
spent time with him; I spent a great deal of time with him.
    We are engaged to the extent that I talk to the two 
leaders, Mr. Sharon and Chairman Arafat, on a very regular 
basis, sometimes every couple of days, less than once a week or 
so.
    We are also engaged to the extent that we have started 
security consultations. We are hosting security consultations 
between the two sides at two levels.
    At one level, we are hosting meetings between military and 
police authorities and security authorities to find ways to 
begin getting the violence going back down, opening avenues of 
access for Palestinians to get to their workplaces in the West 
Bank and Gaza and in Israel proper, and moving back and forth, 
seeing if we can get this cycle moving in another direction.
    At a slightly higher level, we have our Ambassador and our 
Consular General hard at work, shuttling back and forth to try 
to find ways to begin confidence-building again and ultimately 
leading to negotiations at some point.
    But what has become absolutely clear is that negotiations 
or an improvement in the economic situation of the Palestinians 
is not going to occur until we start to see a reduction in the 
level of violence. When that starts to happen, I am confident 
there will be a response on both sides, and we can get the 
cycle going in the other direction.
    We are also deeply engaged with the latest initiative that 
has been put forward by our good friends, the Egyptians and the 
Jordanians, in their nonpaper, as it is called, which laid out 
a potential framework for moving forward onnegotiations. We 
discussed it with Mr. Peres when he was here last week, and the 
Palestinians have it under advisement.
    So those four parties and the United States are working on 
this paper, and it is being improved and moved along and made 
more acceptable to all the sides. And it is out there as a 
possibility of something to work on once the level of violence 
goes down.
    We also have received the Mitchell commission report, a 
very fine report, which in the next few days we will be 
publicly providing, with a cover letter from me, after we 
receive comments from the Palestinians and the Israelis as to 
their reaction. The Mitchell report may also give us a 
launchpad to start a new initiative.
    So we have a lot of things going on. When and under what 
circumstances there might be a need for somebody to be 
designated as a special envoy remains to be seen.
    But, it is not that we are not engaged; we are very much 
engaged. We just do not yet see circumstances that would 
involve the need for a special envoy to shuttle back and forth 
on a constant basis. We have people who can do that, are doing 
for us now, who represent us very well.
    But we do not rule out moving to that, if and when 
circumstances suggest it is the right thing to do.
    Mr. Kolbe. Thank you. Well, my time is up. And even though 
I have several followup questions, I will abide by my own rule 
here.
    Do you want to begin to start your questions for 3 minutes 
before we have to recess?
    Mrs. Lowey. Tough chairman. [Laughter.]
    Well, then perhaps I will ask a question directly following 
up on your question, Mr. Chairman. And I appreciate your 
comments.
    As the chairman said, we were very much involved with 
meetings with all the parties involved. And we did hear from 
all the parties that they want to see some serious 
negotiations, and they all want to work toward peace in the 
region.
    In looking at the State Department's recent Palestinian 
compliance report, the actions and those of the Tanzim and 
Fatah, as enumerated in the report, really tell a different 
story and raise questions. And the real question is, who is in 
control and who can stop the violence.
    You talked a little bit about the status of the 
negotiations. Could you evaluate Chairman Arafat's commitment 
to ending the violence and returning to negotiations, because 
that is the question that was brought up in our meetings with 
Mubarak and all the other parties: Can he stop the violence? 
And what about the Tanzim and the Fatah?
    Secretary Powell. It is the $64,000 question. I believe 
that Mr. Arafat is anxious to get the peace process started 
again, and I have had many conversations with him. As you know, 
I met with him when I visited the West Bank and Ramallah two 
months ago now.
    I know that he also knows that at some point we have to get 
back on the negotiating track. I believe he has considerable 
authority over a number of the units that exist within the 
Palestinian movement and the Palestinian Authority he has 
control over.
    I am also quite confident he does not have control over 
every rock-thrower. That would be asking too much. And there is 
a lot of frustration in the region.
    But he does have control over some portion, some 
significant portion, of those organizations that are either 
part of the Palestinian Authority or within the Palestinian 
movement.
    And I also know he does have a powerful voice in the 
region. We have been encouraging him in every way to speak with 
that powerful voice and let his moral authority also be heard 
and seen. And he is very sensitive to our comments in that 
regard.
    So he does have some level of control, certainly not 
control over everything, but some considerable level of 
control.
    Mr. Kolbe. We have less than 5 minutes.
    Mrs. Lowey. Okay.
    Thank you, Mr. Secretary.
    Mr. Kolbe. We will resume the questioning.
    We will recess. We have two votes following this, but they 
are 5-minutes votes, so we will get back fairly quickly. And 
whoever is here, we will resume with questioning, whoever gets 
back here. I will come back immediately.
    This committee will stand in recess temporarily.
    [Recess.]
    Mr. Kolbe. The subcommittee will resume its hearing. And 
Mr. Wicker won the race back here. [Laughter.]
    Mr. Wicker. Well, thank you very much. I won the race 
because I ran it with the chairman.
    Mr. Secretary, thank you so very much for your testimony.
    And I know that on both sides of the aisle, there is a 
great deal of confidence in our foreign policy because of your 
leadership. And we are expecting and hoping and praying for 
great things.
    Let me just follow up on a point that the chairman and Mrs. 
Lowey have made concerning the trip of some members of our 
subcommittee to the Middle East.
    First of all, let me just say how impressed I am with 
theState Department personnel.
    Secretary Powell. Thank you.
    Mr. Wicker. Our ambassadors in the area, I know some of 
them are slated for greater positions of responsibility and a 
bit of moving around there, but utterly professional and 
talented and a credit to the United States of America and 
respected by the parties over there.
    It is hard to come away from the Middle East without being 
at least somewhat pessimistic.
    We found that Mr. Sharon appears to be in no hurry to get 
back to the peace table. And I will ask you in a moment to 
comment on that, on if I am correct there.
    But Mr. Peres, a member of the other party but a member of 
the government, stated to this subcommittee, to our delegation, 
that he believed Mr. Barak offered too much and that no Israeli 
government in the foreseeable future could offer what Mr. Barak 
had offered at Camp David.
    And so you have actually the leadership of both political 
parties there not sounding the most optimistic about even 
getting back to the table.
    We did find that Mr. Sharon has tasked his son to act as a 
sort of informal emissary between his government and Mr. 
Arafat. And I appreciate what the Jordanians and the Egyptians 
are doing.
    I think that the quick ratification of the Jordanian free 
trade agreement would be a way to give King Abdullah II more 
credibility in a hurry, and I think it would also be a win-win 
situation for Jordan and the United States of America.
    I was disappointed to learn that there is so little 
communication between Mr. Mubarak and Prime Minister Sharon. I 
found out they had talked three times, total, on the telephone 
since Mr. Sharon took office as prime minister.
    And it just seems to me that one of the things that both 
parties could do there is to at least talk frequently. I am 
glad to know that you talk on the telephone with Mr. Arafat and 
Mr. Sharon, sometimes twice a week, I think is your testimony.
    Ms. Lowey asked about stopping the violence, and you 
commented on that, and your testimony centered on what Mr. 
Arafat might do. I just want to ask you a sort of sensitive 
question: What role does Mr. Sharon have in stopping the 
present level of violence so that we can get back to the very 
first step and that is the parties talking to each other?
    If you could comment on that, and the other matters that I 
have touched on, I would appreciate it.
    Secretary Powell. Thank you very much, sir.
    Before responding to your question, I wonder if I might be 
allowed to make a correction, an extension or revision of my 
earlier remarks. My staff noted that at one point I said AID 
works for the Secretary of Defense.
    This represents 35 years of cross-wiring that I am trying 
to fix. [Laughter.]
    And I know how overjoyed Don Rumsfeld would be to know that 
AID worked for him. [Laughter.]
    But, unfortunately, that is not the case. AID works for me, 
sir, and the President.
    Mr. Wicker, thank you for your observation. I believe that 
both Mr. Sharon and Mr. Peres, as well as Mr. Arafat, King 
Abdullah and President Mubarak and all the other leaders in the 
region, want peace and want to see negotiating on track as soon 
as possible.
    But I think Mr. Sharon has to constantly recall to himself 
that the reason he was elected the prime minister and the 
reason Mr. Barak is not the prime minister is because of the 
violence and because, I think, the people of Israel were 
concerned that perhaps too much was being offered up at the 
negotiating table.
    So Mr. Sharon won the election on a platform that says, ``I 
am going to restore security. We cannot have peace unless we 
have security. We cannot negotiate for peace unless we have 
security, and we cannot have security unless we get the 
violence under control, and I will be strong.''
    I have looked across the table at him several times over 
the last several months and I have talked to him late at night, 
in the middle of the night, on a number of occasions, and I 
believe this is a man who does want peace. He has come into 
this position of responsibility anxious to be a statesman that 
will have the opportunity and, hopefully, grab the opportunity 
for peace.
    But I think, first and foremost, he believes that the 
violence has to come under control.
    And when the violence comes under control or at least 
starts moving down so that reciprocal moves can be made, then I 
think we can get negotiations going again. There is no one who 
believes that there is a military solution to this problem, at 
the end of the day.
    Both sides have to do everything they can to avoid 
violence, and when they believe they have to respond to 
violence--and that is up to everyone's individual judgment; a 
leader has to make that decision concerning the best interests 
of his people--you respond in the most restrained way possible 
so as not to just trigger another cycle of violence.
    So in my conversations with the leaders on both sides, I 
have cautioned, I have pleaded for lowering the level of 
violence and not responding to every provocation and especially 
not overreacting to provocations, because that just makes 
things worse.
    But I do believe there is a commitment for peace, and I am 
also convinced that, in due course, we will find that path 
again. It will not be where it was a few months ago. I do not 
think that deal is on the table.
    But we will find the path, because the path in the other 
direction, there is no end to that path. There is no future 
going backwards into violence.
    When can we see the cycle go down in the other direction, I 
do not know. I hope it is tomorrow, but it is not very 
promising right now.
    But I do not believe it suggests that the leaders are not 
interested in peace. They are very much interested in peace.
    Mr. Kolbe. Thank you very much, Mr. Wicker.
    Ms. Lowey has about 2 minutes, 2.5 minutes remaining.
    Mrs. Lowey. Thank you, Mr. Chairman.

                             PLAN COLOMBIA

    I think I will move on to Plan Colombia again, because we 
talked about it a little bit.
    Of the $1 billion provided for Plan Colombia, as I 
mentioned before, less than one-third has actually been spent. 
And of that $300 million, the vast majority has gone for 
military equipment and infrastructure improvements.
    I mentioned that we do not see a bean, a grain of rice at 
all actually reaching the communities. And in addition, as of 
early April, only $4 million of the $88 million designated for 
judicial reform has been spent.
    My question, Mr. Secretary, is, given the fact--and you 
talked about it--that the resources contemplated in Plan 
Colombia economic restructuring have not materialized to date 
and the fact that the internal forces within Colombia have 
become stronger in the past year, should we not be providing 
more of our assistance to assisting Colombia in repairing its 
rural infrastructure? Could you discuss that further with us?
    Secretary Powell. Yes, I think we should be doing more. I 
think we should be applying pressure on Colombia and applying 
pressure on our own agencies, or getting through whatever 
bureaucratic barriers might exist to providing the kind of aid 
you suggest.
    It is always sort of cleaner and easier to provide the 
military aid in a quicker way. The military and the Pentagon 
tends to be geared up to do that kind of thing very well and 
very, very quickly. And my experience in a number of instances 
is that it takes a lot longer to get the development stuff 
moving.
    So I take your point and I agree with your point that we 
should be doing more. And I will make it a priority and go 
through all of the subaccounts you mentioned, and subprograms 
you mentioned, and get the status of our progress.
    Mrs. Lowey. Thank you, Mr. Secretary. And we will look 
forward to an ongoing briefing in that regard. Thank you.
    Secretary Powell. Thank you, ma'am.
    Mr. Kolbe. Mr. Callahan.
    Mr. Callahan. Thank you.
    Mr. Secretary, welcome to the committee.
    And I say this in all due respect to your predecessor, but 
in defense of your lapse of memory, she at times thought she 
was Secretary of Defense, too, Mr. Secretary. [Laughter.]
    But in any event, I am not going to question your 
submission to the Congress or to this committee for your 
funding. I do have some questions.

                          FOREIGN AID PROGRAMS

    You have touched on some of the responses on the Ex-Im Bank 
and the Overseas Private Investment Corporation.
    I am real pleased to see that for the child survival 
account, you have requested an increase to over $1 billion. I 
think that is one of the bright stars of USAID and the State 
Department and the United States of America and this Congress. 
And I am happy to see that this administration, under your 
leadership in this area, is going to continue to push that.
    The Andean counterdrug initiative, we are going to have to 
hear more about that. And I am sure that as time goes on, we 
will.
    The debt restructuring, we heard a lot about that last 
year. We first funded it last year, and I see that you are 
continuing that funding and I hope that the program is working.
    Peacekeeping is going to be questioned because we did 
reduce it somewhat last year, not because we wanted to, but 
because our colleagues forced us to.
    Yugoslavia is still a problem, and I would like to talk to 
you at some time in the future about that.
    Mr. Secretary, on this committee, we are appropriators, not 
policymakers. And this committee has, historically, at least 
for the last six years, left the discretion of foreign policy 
to the Executive branch of government.
    I think that is what the Constitution charges us to do. We 
have a right to express our own views to you and to the 
Commander in Chief on issues that we have some jurisdiction 
over.
    And no doubt, during the next four years, there are going 
to come times when you have to come to some of us that have 
that philosophy, in order to protect and to assure that you are 
able to get the resources or to deny the blockage of resources, 
which is a major problem here in Congress for any endeavor you 
might want to undertake.
    And even though a lot of us disagreed with PresidentClinton 
and Madeleine Albright and her predecessor on some international 
endeavors, some of us felt that if the Executive branch made that 
decision, that it was up to some of us to go to our colleagues and 
convince them to allow them to have an effective foreign policy.
    So I look forward to working with you. I look forward to 
getting answers about why OPIC and Ex-Im especially were 
reduced, especially with Vice President Cheney's knowledge of 
these two very important agencies.
    And I look forward to discussing at some time in the future 
the situation in Yugoslavia and the future of Yugoslavia, and 
look forward to working with you in your vast respect worldwide 
in your capacity as Secretary of State.
    Secretary Powell. Thank you, Mr. Callahan.
    Mr. Callahan. I yield back.
    Mr. Kolbe. Thank you.
    Mr. Jackson.

                              MIDDLE EAST

    Mr. Jackson. Thank you, Mr. Chairman.
    And I want to begin by welcoming Secretary Powell to the 
subcommittee hearing today. And I also want to take this 
opportunity to congratulate you on your appointment.
    Mr. Secretary, a number of my constituents have serious 
concerns about the role of the United States in the peace 
process of the Middle East.
    In order to be a broker in the peace process, the United 
States must be an honest broker, it must be perceived as an 
honest broker. Martin Luther King Jr. once said that peace is 
not the absence of noise but the presence of justice.
    Mr. Secretary, from the perspective of the United States, I 
am wondering, what is Israeli justice and what is Palestinian 
justice?
    Secretary Powell. Justice, in my mind, Mr. Jackson, is a 
universal concept, where people have been given inalienable 
rights by God. And those rights include life, liberty, and the 
pursuit of happiness; and to be free in their homes, safe in 
their streets, answerable to a system of law that is designed 
by the people which the law is imposed upon; that they be 
allowed to determine how they will be governed. And everybody 
should seek that noble concept and ideal for their nation, for 
their state.
    It exists in many places in the world. In many places in 
the world, it does not exist.
    In the case of Israel, Israel is a democratic country with 
people who are free to vote for their leaders and with a system 
of law that we understand well and I believe is consistent with 
these concepts.
    The Palestinians have created an authority, and they are 
seeking their place in the world. At the end of the day, these 
two peoples will have to live together in this blessed land 
together. I hope they can find a way to do that, both of them 
being answerable to their faiths and to the universal concept 
of justice.
    Mr. Jackson. Mr. Secretary, is it the administration's 
position that in order to achieve this mutual coexistence, that 
both the Israelis and the Palestinians should be sitting around 
a common table to achieve the basic tenets of justice for which 
you have outlined?
    Secretary Powell. It is the administration's position that 
the two sides have to decide how they will live with each 
other.
    We can help them. We can facilitate it. We can put ideas on 
the table. We can provide financial support. We can do many 
things. But at the end of the day, they do have to sit together 
and come to agreement with each other across the table.
    Mr. Jackson. Last week, the Israelis caught a ship 
attempting to smuggle a load of weapons to the Palestinians. We 
have read that the ship was sent from Lebanon, and we have read 
that the weapons were sent by the PFLP-GC, led by Ahmed Jibril. 
This group, based in Syria, has consistently rejected the peace 
process and opposed Yasser Arafat's leadership.
    We would all agree, I think, that the attempt to smuggle 
these weapons, which included Katyusha rockets and anti-
aircraft missiles, demonstrates the terrible threat of an 
escalation of violence.
    There have been articles in the U.S. and in the Israeli 
press that have also concluded that this attempt to smuggle new 
weapons into the Palestinian hands is proof that Arafat and the 
Palestinian Authority are not interested in negotiations and 
are making preparations to wage an all-out war against Israel.
    What I want to know, if you can answer this, is if the U.S. 
has any evidence linking the Palestinian Authority and Yasser 
Arafat to the attempted smuggling or if the weapons are 
believed to be a part of an effort by a faction that has 
historically opposed Arafat to strengthen its supporters in the 
West Bank and Gaza and potentially further erode the authority 
not only of the Palestinians but of the peace process, 
particularly at this very delicate stage of the process, to get 
both parties back to the table.
    Secretary Powell. I cannot confirm the facts that you 
describe, as to where the ship came from, who might have been 
its sponsor, where it was heading. I just do not know the 
answers to those questions.
    With respect to what other branches of the United States 
Government might think, I cannot talk to that either. I have no 
information of my own or available to me from my department 
that would give me the insight to answer your question, sir.
    Mr. Jackson. Mr. Chairman, if I might, I just have a 
question or two about Africa, as well.
    Mr. Kolbe. You might get one of them in. [Laughter.]
    Mr. Jackson. Thank you, Mr. Chairman. I will wait for the 
second round on the second one.

                                 AFRICA

    I read with great interest during your confirmation 
process, Mr. Secretary, about your thoughts on Africa. It is my 
opinion that Congress has historically ignored this continent, 
and it is with great enthusiasm that I read your comments.
    I am wondering what kind of commitment the United States 
needs to make to Africa in order to fulfill your vision.
    Secretary Powell. To fulfill my vision, we have to help 
Africa in a number of different ways, and in the interest of 
time, I will be quick: one, debt relief; two, the HIV/AIDS 
crisis; three, the Africa Growth and Opportunity Act and what 
more we can do with respect to opening markets to African 
products and giving people hope; next, I think we have to 
invest in those countries in Africa that have committed 
themselves to freedom and democracy and the concept of justice 
we have just discussed, and not cooperate and participate and 
work with those nations that are still trapped in dictatorships 
or totalitarian regimes that are corrupt and exploiting their 
people.
    Mr. Jackson. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Mr. Knollenberg.
    Mr. Knollenberg. Mr. Chairman, thank you very much.
    Welcome, Secretary Powell. We are delighted to have you 
here.
    Secretary Powell. Thank you, Mr. Knollenberg.
    Mr. Knollenberg. Thank you for all the great work you have 
done for this country. And thanks for accepting the position 
you hold today.
    Along with former chairman Mr. Callahan, I, too, have some 
concerns about the budget numbers for OPIC and Ex-Im.
    I also see a spike upward in the request for KEDO. I am not 
going to discuss that today, but that is a concern that I have, 
and we will have some discussions about that, I am sure.

                              THE CAUCASUS

    First, I would like to talk about your role with the 
Caucasus. Most recently--in Key West--you hosted the two 
presidents, Kocharian and Aliyev.
    I noticed in the introductory comments of the two, that Mr. 
Aliyev went on and Mr. Kocharian was somewhat in line with your 
comments. You were both very short.
    So I suspect that, having read it, that Mr. Aliyev was 
doing some politicking of his own of a kind. I do not know what 
took place later. I know that has been pretty much in the 
background. But I do believe that your attention to this has 
helped bring them to this point.
    They are at a level now where they have never been before, 
and they are expected to meet in Geneva in June. It does look 
like there is potentially a prospect of peace in the Caucasus, 
which would be remarkable, considering the fact that we have 
this great, great problem in the Middle East.
    Can you comment--for the record--based on the Key West 
meeting, what are the prospects for peace? And you might want 
to telescope into the Geneva meeting, to give me some idea 
about what progress might be made in that regard. And what role 
do you see the U.S. playing, in terms of foreign assistance in 
those areas?
    Secretary Powell. As you know, we are one of the three co-
chairs of the group that is shepherding this, along with the 
Russians and the French. All of us were in Key West. There was 
a Russian delegate and a French delegate and our ambassador, 
Ambassador Cavanaugh.
    I went down to serve as the host of the meeting and invited 
President Kocharian and President Aliyev to come and represent, 
of course, Armenia and Azerbaijan, respectively, to build on 
the work that they had been doing previously with President 
Putin and President Chirac.
    It was an excellent meeting in Key West. Mr. Aliyev did 
give a very long opening statement, describing the historical 
buildup to the current crisis, and it was rather thorough and 
definitive.
    President Kocharian thought it appropriate merely to note 
all of that, and his statement was brief.
    But then they got into some very serious and hard work, and 
it was a successful meeting. They both went home to reflect on 
the framework that was discussed and will ultimately be 
presented to them formally by the co-chairs when we reach an 
appropriate point.
    It is a very difficult negotiation, a negotiation that, if 
it is successful at the end, will be difficult for the two 
presidents to present to their people. And so there are still 
some serious hurdles ahead, but progress was made in Key West.
    Whether we are ready for Geneva or not is a subject of some 
discussion this very day.
    Mr. Knollenberg. People keep talking about a peace 
dividend, and they are talking about the removal of the 
blockade by Turkey. Are these a part of these discussions? To 
what extent are they a part?
    Secretary Powell. Well, I think I need to be a little 
circumspect at this point, sir, because of the delicacy ofthese 
negotiations. Let me just say that if the two presidents, at the 
ultimate invitation of the co-chairs, are able to accept what the co-
chairs put on the table, and we do get an agreement, and it is all 
tidied up, it will be just wonderful for the region.
    Armenia is losing its population because of lack of 
economic opportunity. There is a continuing war there that is 
under a cease-fire status, and there is wealth in that region 
that can be released, if only we can get stability and the end 
of this conflict. And I think lots of good things in 
neighboring countries would happen as well.
    Mr. Knollenberg. Thank you.
    Mr. Chairman, do I have any time left?
    Mr. Kolbe. Oh, you have a few seconds.
    Mr. Knollenberg. A few seconds. Okay.
    Well, I will not get into a long one, then. I will 
relinquish my time back to the Chair, and I will save it for 
the next round. Thank you.
    Thank you, Mr. Secretary.
    Secretary Powell. Thank you, Mr. Knollenberg.
    Mr. Kolbe. Just to advise members, I know the Secretary has 
a meeting at the White House, so we may not get much of a 
second round here just because of that meeting.
    Ms. Kilpatrick.
    Ms. Kilpatrick. Thank you, Mr. Chairman.
    Secretary Powell. Ms. Kilpatrick.
    Ms. Kilpatrick. Mr. Secretary, let me add my voice to your 
congratulations and all. As we look forward and out to the new 
century, the leadership that you will provide will be most 
important to move our country, our children, forward, and I 
appreciate your coming.
    In the interest of time, I would like to have permission to 
submit questions for the record to you and have you comment in 
a timely manner. I do have a couple of short ones here.
    I appreciate your interest in Africa. You have demonstrated 
that, and you mentioned earlier, this is your seventh visit 
before committees in this Congress.

                               OPIC/EX-IM

    Debt relief, HIV/AIDS, the African Growth and Opportunity 
Act. How can you achieve what Africa really needs, which is 
economic stability and investment, with OPIC and Ex-Im, who 
have been bringing dollars into our treasury because of the 
programs? How, now with the change, are we able to implement 
and fortify, really, the economic base those countries need if 
in fact we are taking the instruments, in OPIC and in Ex-Im 
away. They have been doing an excellent job?
    Secretary Powell. Well, both institutions do an excellent 
job, and I am a great supporter of all of the international 
funding instruments that were created as a result of Bretton 
Woods many years ago and have been built up over the years.
    In the case of OPIC, you are seeing a reduction because, 
from year to year, depending on how well they have done, the 
returns on the investments they have made and how they have 
conducted their business, sometimes it is a negative entry and 
some years it is a positive entry, and so we have to put more 
money up for OPIC use.
    With respect to the Ex-Im Bank, I mentioned earlier that we 
are asking some of the borrowers to take a slightly higher 
degree of risk, which does not seem inappropriate. Why not 
review the level of risk that we are asking borrowers to take.
    And in the same vein, as a policy choice, we are also 
looking at some of the potential borrowers and wondering, you 
know, you are such a big company, you are doing so very, very 
well, why should you not be seeking funding for your business 
programs in the private equity market or private market, debt 
market, rather than coming to this subsidized Ex-Im Bank?
    So I think we have made two sensible policy choices to make 
sure that we are really providing resources to borrowers who 
need them, and not subsidizing people who are just unwilling to 
take a slightly higher level of risk or who have access to 
private equity.
    Ms. Kilpatrick. I appreciate your comments, and I hope you 
would watch it carefully, to make sure that your theory, what 
you hope will be, will be achieved through your actions.
    Secretary Powell. We will. No, we understood, when we put 
the Ex-Im Bank piece together, that this was going to draw 
attention, and we had to watch it carefully.
    Ms. Kilpatrick. Okay.

                              BUDGET CUTS

    Then there have been cuts in the 2002 budget, to economic 
assistance as well as the total child survival and development 
assistance account for Africa. How, then, when you cut them, 
will they ever be able to get to where they ought to be without 
the foreign assistance from our country they need in Africa?
    Secretary Powell. Overall child survival and disease funds 
goes up a bit.
    Ms. Kilpatrick. Not for Africa.
    Secretary Powell. I would have to look at the specific 
account level, if I may, and give you an answer for the record.
    Ms. Kilpatrick. I appreciate that.

                      ANDEAN COUNTERDRUG OFFENSIVE

    And then finally--I know time is short--the Andean 
counterdrug initiative, Mrs. Lowey began that. We know we gave 
a billion to Colombia, a third has been used. I am not sure 
what that has done, what effect has been made.
    And now I see two, four, six, eight other countriescoming 
in now to the collaborative, of some $800-plus million, almost $900 
million. A, can we get a detailed response on what happened with the 
first billion and where we are? Have we made a dent in that? And then, 
B, with the new investment and the nine countries coming on board, a 
lot of it in interdiction. What is the plan?
    We do know that when you go to Colombia and close its 
borders, they go to Peru, and, you know, and it keeps moving in 
a circle. Is there a plan? Drugs are a devastating cancer for 
our country. We do have to provide interdiction as well as 
education and all that goes with it. Is there a plan, and are 
you confident that we can make a difference here?
    Secretary Powell. We do have a plan, and I am confident it 
will make a difference. Will it solve the problem? No.
    As long as there is a market in cities all over America, as 
long as people are using drugs in the United States and as long 
as youngsters are still becoming addicted and as long as adults 
continue to be addicted and continue to find it to be a 
sociable thing to do, there will be a supply for that demand.
    And so I think what we have to do is attack this problem at 
every level: education of our young people to show them how 
destructive a habit it is, arresting those who are conducting 
criminal activities to supply these users, but also going after 
the supply itself and trying to interdict that supply from its 
source coming into the United States.
    Ms. Kilpatrick. And the one piece that was missing there 
was treatment.
    Secretary Powell. Treatment as well. Treatment is----
    Ms. Kilpatrick. That is a major piece of all of this. We 
have done the----
    Secretary Powell. It is the----
    Ms. Kilpatrick. The numbers keep going up. If we looked at 
the amount of dollars that we have been putting--we, the 
country--into drugs interdiction and all, the money is going up 
and up. The dent is not being made, and we do have to address 
all those fronts.
    Secretary Powell. Treatment is----
    Ms. Kilpatrick. Treatment is a very real part of that.
    Secretary Powell. Treatment is an essential part of it.
    And I was pleased when the President announced the new drug 
czar today, Mr. Walters. In the White House statement that was 
put out, there was quite a focus on treatment, because there 
are large numbers of people who are incarcerated and who have a 
high likelihood of returning unless they get the kind of 
treatment, the kind of counseling, the kind of help they need.
    Ms. Kilpatrick. Well, I would like to be your partner in 
both the drug offense as well as Africa-building.
    Thank you, Mr. Secretary.
    Secretary Powell. Thank you, Ms. Kilpatrick.
    Mr. Kolbe. Mr. Lewis?
    Mr. Lewis. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary.

                             BUDGET PROCESS

    I cannot express to the committee, let alone to you, just 
how much I appreciate the fact that you are serving in this 
responsibility. I look forward to a lot of years of working 
together.
    Today, because of that opportunity, I am going to spend a 
little time on nuts and bolts.
    I am a very strong believer in separation of powers. But 
nonetheless, in the final analysis, when it comes down to 
money, we are either in this together or we are not.
    As I look at my own bill where I have chairmanship 
responsibilities, the National Security Subcommittee, we are 
dealing with $325 billion. And here we have the former chairman 
of the Joint Chiefs of Staff, essentially on his knees, asking 
for $15.1 billion. The irony is startling.
    But having said that, there is an authorizing process as 
well as an appropriations process. Today we have been spending 
time on the floor debating amendments that swirl around what I 
consider to be almost senseless controversy that gets in the 
way of our really being able to accomplish those things that 
are so important for the world of peace.
    If we work together, I think we can do a lot more about 
that. I am inclined, Mr. Secretary, to try to become a partner 
to increase your budget sizably beyond that which you are 
requesting. And I am not exactly on the left side of the aisle 
here. But nonetheless, it is a critical responsibility for our 
federal system.
    We are not going to be able to effectively accomplish those 
kinds of goals, if they are shared by members here and others, 
unless we can somehow break down that which is taking place on 
the floor today.
    And that means that I am asking a person like you to talk 
with the secretary of the Defense Department, to talk to the 
President of the United States, and others about how we can 
impact both our authorizing and appropriations process. I mean, 
it is that fundamental.
    Working together, we can stop a lot of this stuff, if we 
will. If we do not, I think the rest of our struggle in terms 
of increasing dollars available may be like talking in the 
wind.
    So let me just make that point and give me a reaction, if 
you will, and then I will move on quickly.
    Secretary Powell. Thank you, Mr. Lewis.
    First let me say that I look forward to working with you. 
We have done a lot of things together over the years.
    And I appreciate your statement of support for ourbudget. I 
am here to defend the President's budget, so it would not be correct or 
proper for me to suggest you increase the President's budget. 
[Laughter.]
    But I do thank you for that expression of support.
    The challenge of authorizing an appropriations process is 
always with us. I stand ready to help you and your colleagues 
work through that by trying to give you the best answers and 
the best justification I can for everything we are asking for, 
and see if we can bring comity between the executive branch, 
especially the State Department and the Congress, both on the 
authorizing and appropriating sides.
    Mr. Lewis. But I really just wanted to suggest that it is 
nuts and bolts, that it is a priority of perhaps the highest 
order of leadership, and people do not often focus upon these 
things in this way. The Speaker should be involved in these 
concerns, as well as we try to work with the President and this 
specific budget.
    But we often stumble over ourselves because we take 
relatively trivial matters, in terms of real dollars, and have 
them become the cause celebre of the year.
    And I would urge us all at least to talk with each other 
about the question that I am raising here.
    To a more directly substantive subject, would you share 
with your committee alarm bells that you may be very concerned 
about--I would presume very concerned about--with the former 
Soviet Union and those states and communities that surround the 
Soviet Union on the west and give us some sense for what your 
people are saying and what you are saying within the 
administration about America's roles and responsibilities 
there?

                   AMERICA'S ROLE AND RESPONSIBILITY

    Secretary Powell. It is fascinating to watch what is 
happening in that part of the world, after having been a 
soldier for 35 years and essentially ready to fight that part 
of the world.
    Just a few weeks ago, I was in Macedonia and had a meeting 
with 11 foreign ministers from Romania, Bulgaria, Hungary, 
Bosnia-Herzegovina, Albania, and they all went around in a 
circular room arrangement and each one gave a little mini-
speech.
    I started with my mini-speech and then painfully looked at 
the 11 folks in the room, knowing I was going to get 11 
speeches before the afternoon was over. [Laughter.]
    But rather than being tired, I was absolutely exhilarated 
when all 11 of them were finished, because they spoke of 
democracy, they spoke of freedom, they spoke of the hopes they 
have for their peoples. Almost every one of them spoke in 
English.
    They want to be close to America. They came from all over 
the region, on something like four days' notice, to be with me.
    At the end, I could not help but speak again and say how 
proud I was to be part of a grouping like this, a grouping that 
12 years ago were all on my target list. They had gone from 
being on my target list to my friends.
    So there is hope for this part of the world. There are 
great difficulties and challenges and dangers, but there is 
hope, and we should never lose sight of that hope or fail to 
try to grasp that hope, with all the problems and with all the 
challenges.
    With respect to Russia, it is a great nation, with people 
who are educated, with natural resources. About 10 years ago, 
it lost its economic system, its political system, its military 
system, its belief system, its ideology. Everything all at 
once. Hard.
    Now they are growing back, trying to figure out the right 
path into the future. I think we have to help them. I think we 
have to be ready to work with them, ready to support them, 
challenge them when we think they need to be challenged and 
embrace them when they need embracing, when they need a friend, 
and let them know we have interests, but we think we have 
mutual interests.
    They have challenges in some of the countries to the 
southern part of Russia that they worry about. They are doing 
some things we do not like, in places like Moldova, Georgia, 
Belarus. There are challenges in the Ukraine.
    I have met with almost every foreign minister from that 
region, in the three months I have been Secretary of State. And 
so we will be engaged, we will go after that hope and 
opportunity, but we will remain strong and not unmindful of the 
challenges and dangers.
    When we see things we do not like, we will speak out 
against it, not let them get away with it. It does not serve 
their interests for us not to point out their deficiencies. But 
on balance, I am hopeful.
    The President has a pretty clear idea of what he wants to 
do. He has cemented our situation in the Americas. He met with 
the Canadian Prime Minister. We have been to the Summit of the 
Americas. He visited with the new president of Mexico. The 
Andean regional initiative, all part of what we are doing in 
the Americas.
    Now we are moving out. The President is getting ready to 
meet with President Putin, I expect, in the not too distant 
future.
    My attention will be moving more toward Europe. I will be 
going to Africa a week and a half from now. So we are now going 
beyond and starting to create the right kinds of relationships.
    Notwithstanding the hiccup we had with China over thisplane 
incident, we have important equities with China that we have to pursue, 
and we will do that.
    But when we see things we do not like, like on human 
rights, we are going to speak out against it. If you throw us 
off the commission, that is not going to slow us down. We are 
going to speak out just as loudly, just as strongly.
    We are going to be as big a burr under your saddle in the 
future as we were in the past. And that is the way mature 
countries should deal with each other.
    We will work with South Korea as they try to find a way to 
move forward with North Korea.
    So I think we have a pretty good idea what we are trying to 
do: American values, American strength, speaking out for what 
we believe in, but also listening to our friends.
    The President sent these teams around the world this week 
to talk about missile defense. We went to listen. 
Controversial. Difficult. New ideas always are. They went to 
listen.
    And we understand, we have a responsibility to be big, to 
be strong, but also to be humble and to listen.
    Mr. Lewis. Thank you, Mr. Secretary.
    Mr. Kolbe. Mr. Rothman?
    Mr. Rothman. Thank you, Mr. Chairman.
    Mr. Secretary, it is a pleasure to be with you, and thank 
you for appearing before this body.

                              MIDDLE EAST

    Mr. Secretary, you are talking about human rights. 
Recently, we had the leader of a nation utter the most 
despicable and unacceptable anti-Semitic remarks that I have 
heard in my lifetime. It is absolutely disgusting and 
revolting, but there was not sufficient worldwide criticism. I 
know that you and others in our administration have criticized 
his behavior.
    That behavior is not only wrong, morally wrong and 
factually wrong, it also damages any possibility that we would 
have any kind of inclination to be friendly toward that regime.
    I want to move on, because I only have 5 minutes.
    In that part of the world, we spend a lot of money, because 
it is in America's national interest to make sure that that 
region is secure, for lots of different reasons. And that is 
why we support our friends there.
    We presently give over $2 billion in aid of one kind or 
another to Egypt and to Jordan. In the last few days in the 
press, there have been some statements that arms have been 
flowing through Egypt and through Jordan to the Palestinian 
Authority for terrorist purposes.
    And I would be hopeful that you would have some thoughts 
on, if those statements are true, how we could make sure that 
our friends, the Jordanians and the Egyptians, do not permit 
that to happen anymore, if in fact it has happened already.
    Secretary Powell. I am aware about some reporting of 
weapons entering the southern end of the Gaza Strip, and I have 
raised it with my Egyptian colleagues. They suggest they will 
do nothing to support such things, will act against it, and it 
enjoys no support from Egypt. Egypt is strongly against that 
kind of activity.
    Mr. Rothman. And, sir, Jordan?
    Secretary Powell. I did not have a case or specific 
incident that I had a need to raise with Jordan.
    Mr. Rothman. With regard to another area of the world, 
Turkey is a vitally important strategic ally of the United 
States. Turkey, though, has some problems in its region with 
its neighbors. And so I was pleased to hear, and we are all 
hopeful, that Nagorno-Karabakh will be resolved, that the 
dispute regarding that land will be resolved, and that the 
Cyprus question will be resolved, so that these problems and 
obstacles in our way to an even fuller and better relationship 
with Turkey will begin to fall, and we can embrace them more 
fully.
    I hope you can address that and one other last thing, and 
that is the bilateral relations with India. Are there any plans 
to raise any new initiatives with India as a new strategic 
partner or simply upgrade the level of our dealings with India, 
in light of the current situation in the region, specifically 
with regard to China?
    Secretary Powell. First of all, Turkey is great friend and 
ally of the United States. We have been trying to help them in 
this time of economic difficulty that they are having. We also 
are working with them to help them deal with some of the issues 
respecting the European Security and Defense Initiative, and we 
will continue to do that.
    I am very proud of the relationship we enjoy with Turkey. I 
have met with my Turkish colleague at least three times so far, 
since I have become chairman, to go over issues of mutual 
interest and concern.
    With respect to India, I also had excellent meetings with 
Foreign Minister Singh, who visited just a few weeks ago. We 
are very pleased at the improvement in our relationship with 
India over the last several years.
    We are sending a very, very qualified new ambassador in to 
replace Ambassador Celeste, who has done some excellent work. I 
look forward to improving the relationship, and Foreign 
Minister Singh and I talked about other things we could do to 
take the relationship to a higher level.

                     INTERNATIONAL FUND FOR IRELAND

    Mr. Rothman. If I have time for another question, with 
regard to the International Fund for Ireland, many of us have 
been involved to one degree or another in supporting the 
efforts of the parties to reach a lasting peace, a just and 
lasting peace in Northern Ireland.
    I see that the $25 million sum for this fund is flat-lined 
again for this year. Does that send any message at all about 
complacency on our part with the progress, slow progress there? 
Or will the parties, in fact, get the right message, if in fact 
it is true that this administration is committed to being more 
aggressive with regard to our efforts to try to bring the 
parties to a peace settlement in that area?
    Secretary Powell. I think the $25 million is an adequate 
amount to show our interest. I think they know we are 
committed.
    When we had the St. Patrick's Day events here in 
Washington, D.C., I met with every one of the leaders, to 
include Gerry Adams paying his first visit to the State 
Department, and Mr. Trimble and others and made a commitment.
    Ambassador Haas on my staff will be my personal 
representative and the President's personal representative to 
work with the leaders in the region to keep the process moving 
forward.
    Mr. Rothman. Thank you, Mr. Secretary.
    Mr. Kolbe. Thank you, Mr. Rothman.
    Let me advise my colleagues that with the intense interest 
in this hearing and with everybody here, we will only get 
through one round of questioning. We have three members left to 
go so we will just barely finish that in time for the Secretary 
to get to the White House.
    I will invite you to include additional questions for the 
record.
    Mr. Bonilla.
    Mr. Bonilla. Thank you, Chairman.

                       DRUG CERTIFICATION PROCESS

    Mr. Secretary, welcome. I just have a couple of very brief 
questions regarding the drug certification process of Mexico 
year in and year out. I find it counterproductive, and so do a 
lot of folks in this country. I was pleased to hear the 
President share this concern recently, although he did not 
outline anything specific in terms of what kind of reform he 
would like to see in this process.
    I am wondering if someone is taking a serious look at 
reform and what specifics there might be that you are looking 
at.
    Secretary Powell. We are taking a serious look at it. There 
are a number of ideas floating as to how the certification 
process might be modified, eliminated, done in a different way, 
made regional. But a lot of different ideas are being looked 
at.
    And I would like to pursue them with you at an appropriate 
time, Mr. Bonilla.
    But we find the current system somewhat dysfunctional and 
not really serving its purpose as well as it might.
    Mr. Bonilla. I would anticipate, with President Fox being 
in office now, that the prospects would be even greater for a 
quick resolution of this.
    Secretary Powell. Yes. I must say, in the few months that I 
have been working with President Fox and Foreign Minister 
Castaneda, we have just gotten started on a number of terrific 
initiatives with respect to migration, border control, the 
trucks coming back and forth, how to implement NAFTA, how to 
have a shared responsibility over the problems with the borders 
and not just point fingers at the United States. We are off to 
a terrific start with the new leadership of Mexico.
    Mr. Bonilla. In terms of the interdiction with drugs and in 
trying to deal with some of the corruption there, Fox has made 
some strides in that area?
    Secretary Powell. He has made some strides, and he has 
taken some tough political chances on this to help our efforts.
    Mr. Bonilla. Secretary, that is all I have today, and I 
thank you for being here.
    Secretary Powell. Thank you, sir.
    Mr. Kolbe. Ms. Pelosi.
    Ms. Pelosi. Thank you very much, Mr. Chairman.
    Mr. Secretary, welcome. Thank you for your excellent 
presentation. It is an honor for us to have you here. This is 
not your first appearance before the committee, as we all know, 
but nonetheless your first one before our committee as 
Secretary and with our new leadership as well. So a nice fresh 
start.
    I want to associate myself, in the interest of time, with 
some of the comments my colleagues have made about our interest 
in Armenia, the Caucasus, the Lebanon situation, Northern 
Ireland, and of course the Middle East is so very important to 
all of us.
    And I have some questions that I understand were not asked 
about some of these other areas, which are just the start of a 
conversation. I know, in the short time, we cannot get through 
it.
    AIDS in Africa. The global health initiative is 
interesting, I just do not know how much additional funding 
there is there. It looks to me like some reprogramming of 
funding that we had allocated there.
    For many years on this committee, we all talked about how 
it was important to have AIDS on the agenda of the G-7, then 
the G-8, going way back to when James Baker was Secretary of 
Treasury and coming before our committee, and Secretaries of 
State from that time on.
    Finally, now AIDS in Africa is getting center stage and the 
attention, but there are many lives that could have been saved 
in the meantime.
    And I appreciate your very, very sincere and informed 
statement that you made on AIDS. I am encouraged by it.

                        GLOBAL HEALTH INITIATIVE

    But just in this global health initiative, it looks like 
some money dressed up for a presentation, and I do not know how 
much of it is new. Do you?
    Secretary Powell. It will be new money for this account, 
but it will be drawn from other accounts where we can find 
money.
    Ms. Pelosi. Okay, so this is reprogramming of funding from 
last year?
    Secretary Powell. It will be in the form of, I expect, and 
I think I need to withhold too much comment until the President 
has announced it tomorrow, because there are decisions being 
made in the White House, I expect this afternoon.
    But either in the form of a budget amendment or some other 
activity, it will be money that will be new for this purpose 
being taken from accounts that exist.
    Ms. Pelosi. I understand that. But we are, of course, 
interested in additionality.
    Secretary Powell. Yes.
    Ms. Pelosi. So hopefully this will provide a framework for 
us to add funds because this is a matter of life and death. I 
know the whole world is your brief, but I know you have a very 
special interest in Africa.
    Secretary Powell. Yes.
    Ms. Pelosi. You have talked about how devastating it is 
there. And I look forward to working with you on that.
    And I commend you for the collaborative effort between the 
State Department and USAID and HHS. But AID does a terrific job 
with our bilateral assistance.
    Secretary Powell. Yes.
    Ms. Pelosi. And as we collaborate, I do not want to eclipse 
or undersell what they have done in the past.
    Secretary Powell. Yes.
    Ms. Pelosi. I wanted to say something about Plan Colombia. 
As you may or may not know, I had to vote against my own bill--
not my own bill, but the bill from my own committee, because if 
our goal with Plan Colombia is to reduce demand in the United 
States, it is just far too expensive and ineffective.
    A RAND report states that if you want to reduce demand in 
the U.S. by 1 percent using treatment on demand, it costs $34 
million. To reduce demand 1 percent in the U.S. by eradication 
of the coca leaf in the host country, it costs 23 times as much 
or over $700 million.
    So my question to you is, why are we giving this money in 
Plan Colombia to Colombia? Is it for assistance to help in 
their democracy? Or is it to reduce demand in the United 
States?
    And I think both of those are noble. I am not putting the 
democracy initiative down. I just want to know what the purpose 
of our sending all this money to Colombia is.
    Secretary Powell. It is to reduce supply and access to that 
supply coming out of that region.
    I could not agree with you more that the real solution is 
to get demand down and, as was noted earlier, to have treatment 
programs that prevent the recurrence of demand after somebody 
has been addicted.
    I would support any program anyone wishes to put forward 
that goes to treatment and prevention and education of 
youngsters in the first place.
    As you know, before coming back in the government, I worked 
on children's programs that had as one of its principle 
objectives moving kids in a direction where they did not even 
want to think about drugs. They were living for something far 
more important.
    Ms. Pelosi. I appreciate your leadership on that. Thank 
you.
    On the question of China--I have a few grains left, I 
think.
    On the question of China----
    Mr. Kolbe. They just disappeared. [Laughter.]
    But I will let you ask----
    Ms. Pelosi. You know what, I will not put it in the form of 
a question. I will just say that I hope the opportunity 
presented by a new President and a new Congress will give us a 
chance for all sides of this issue to share in promoting our 
democratic values, promoting our exports and protecting our 
national security. We can come together in one voice to have a 
sane policy towards China.
    And I will look forward to working with you on this, and 
with our distinguished chairman, as well, on that.
    Secretary Powell. With the chairman's indulgence, I know of 
your interest in this, Congresswoman Pelosi. We have discussed 
it before.
    Let there be no doubt that this administration--this 
Secretary and this President--will be pressing China on human 
rights.
    Part of the problem we had in the commission was that I 
think perhaps some people thought we were too aggressive on 
human rights. But we are going to remain aggressive on human 
rights and in China.
    Ms. Pelosi. I appreciate what you saying that, Mr. 
Secretary. Congratulations and good luck to you.
    Secretary Powell. Thank you.
    Mr. Kolbe. Thank you very much, Ms. Pelosi.
    Mr. Sununu.
    Mr. Sununu. Thank you, Mr. Chairman.
    And welcome, Mr. Secretary. I am happy to ask questions, 
and I am sure you are happy to hear the last of the questions from the 
subcommittee.

                         COLLABORATIVE PROCESS

    I want to touch a little bit on some of the concerns you 
raised in your testimony regarding policy prescriptions, 
riders, provisions that hinder your flexibility in trying to 
manage the affairs of State and, of course, the President's 
flexibility in setting foreign policy.
    In particular, the legislation we have on the floor now to 
reauthorize the State Department, that affects not only you, 
your department, and the President's ability to conduct foreign 
policy, but it affects the workings of this subcommittee and 
our ability to effectively provide and budget for priorities 
that we think are important.
    The administration, through OMB, has put out a policy 
statement about the State Department authorization bill in 
which a few concerns were raised, concerns about the way the 
bill might infringe upon some constitutional provisions and, of 
course, the way it would affect your ability to conduct foreign 
affairs, calling on us to vote a certain way in the U.N., 
consult allies at a particular time, affecting the final status 
or the position of our embassy in Jerusalem, reopening 
embassies around the world, appointing envoys, et cetera. There 
are a number of these provisions.
    I would like you to talk in a little bit more detail about 
the way in which these provisions create difficulty for you in 
managing your department, implementing foreign policy, and also 
perhaps touch on the way in which these kinds of provisions can 
affect the way the United States is perceived overseas, because 
I think that is an indirect effect that perhaps here on the 
subcommittee we might not be as aware of as we should.
    Secretary Powell. Well, thank you, Mr. Sununu.
    First and foremost, as I said earlier, what we do in the 
world should be a collaborative process between the 
administration and the Congress, and so Congress has every 
right to give us suggestions, ideas. And of course, you have 
the power of the purse, at the end of the day.
    But there has to be a level of trust in the President 
elected by the people to conduct the foreign policy of the 
United States.
    Some days, I will sit in my office in the State 
Department--got it right this time, in the State Department--
and I am doing nothing but signing out reports to the Congress, 
reports this thick on the most obscure things. And I will never 
hear anything from the Congress about the report I am 
submitting, and it is been there for years. I cannot get rid of 
it. I cannot get rid of it.
    It is not so much it takes my time to sign the thing. I 
have dozens of people who are doing nothing but accumulating 
data, embassies that are drowning in requests for information 
in order to provide this.
    I do not want them to do that. I want them to be out 
talking to people; I want them out interacting; I want them out 
learning what is going on in that country, not just collecting 
data for reports.
    When the Congress overdoes this, when there are 535 
additional Secretaries of State helping, it can get a little 
complex and a little bit difficult.
    We were voted off a committee in the United Nations. I was 
rather mad that day. I will not go into the details; it was a 
not-pleasant day. I was disturbed. I was distressed. More 
distressed are the people who believe in human rights around 
the world.
    And for whatever reason, we got voted off that committee. 
We should not now try to find a way to punish the United 
Nations or the Congress or the committee that did it.
    We lost the vote. Let's take our loss, continue to commit 
ourselves to human rights, do what we think is right. We are 
still going to be in Geneva. We will have observer status. We 
are going to cajole people. We are going to push people to 
introduce resolutions.
    For a year, we will not be able to vote, and we will not be 
able to introduce them ourselves.
    So let's not be too irate, to the point where we start to 
take actions in the heat of the moment, in the passion of the 
moment, that we may regret 6 or 8 months from now.
    Everybody would like to have a shot at it when they see a 
problem and the answer is a special envoy. I think you have to 
have a mission and a goal and a plan before you have a special 
envoy.
    So I think that kind of choice is best left up to the 
President and the Secretary of State, in consultation with the 
Congress, as opposed to being put in legislation.
    When you start to tell me in one law, ``Open these 
embassies,'' and then in another law you tell me, ``Do not 
build embassies that cost $100 million,'' or you tell me in 
another part of the legislation, ``We want you to right-size. 
You have too many people overseas doing this, that and the 
other,'' you know, sometimes my eyes cross trying to figure 
out, you know, what is the real intent of the Congress.
    So I understand the authority and the role that Congress 
plays, but I would ask a little bit of additional restraint on 
the part of members in acting in the heat of every moment to 
give me another restriction on my ability to assist the 
President in conducting foreign policy and his ability to 
conduct foreign policy.
    Mr. Sununu. One final question, a specific question about a 
provision that is being contemplated for that bill, and it 
deals with an issue that our subcommittee Chair raised with 
Prime Minister Hariri of Lebanon.
    There is a proposed amendment that would place a 
restriction on economic aid and on military aid unless certain 
restrictions or requirements regarding troop deployment and 
assertion of authority are met.
    You may not be prepared to comment on the specific 
amendment, but does, I guess, this meet those criteria? Does 
this raise concerns for you?
    Secretary Powell. I do not----
    Mr. Sununu. And is it appropriate for the administration to 
offer a letter of position on this kind of amendment?
    Secretary Powell. We do not support that particular 
amendment. And a lot of the aid that is being spoken of is 
distributed to nongovernmental organizations, so you are 
hurting the ability of those nongovernmental organizations to 
provide the service to people in need. So I would not support 
that amendment, and we do not.
    Mr. Sununu. Thank you, Mr. Secretary.
    Mr. Kolbe. Mr. Secretary, we certainly appreciate your 
testimony today.
    A couple of things I just want to say with regard to the 
rising level of your voice at the end there and the frustration 
you feel, which I also share with you.
    I think it is important that you understand that that kind 
of thing that we just experienced on the floor, with regard to 
the U.N. arrearages and the issue of the Human Rights 
Commission, did not come from this subcommittee. We need to 
make sure you understand the difference----
    Secretary Powell. I do, sir.
    Mr. Kolbe [continuing]. Of the kinds of things that come 
from this subcommittee as opposed to another committee of the 
Congress. [Laughter.]
    I just want you to understand.
    And I would also say that I appreciate the strong position 
that you took. I wish there had been more lobbying or more 
time, perhaps, for the administration to make its views known.
    Unfortunately, that amendment was one of the amendments 
that was just voted on on the floor, and the vote was 252-165. 
I think we could have done a lot better if the administration 
would have had more time or perhaps had spoken up more strongly 
on that.
    I want to clarify the record with regard to one thing, 
regarding a query Ms. Kilpatrick made when she talked about the 
cut in funds for Africa. When you look at the ``all accounts'' 
table, that is not an accurate statement.
    In 2001, Africa had $1.225 billion; the administration is 
proposing $1.264 billion or an increase of $39 million over 
last year. So it is not a cut when you look at all accounts. 
When you put together all the accounts, it is not a cut.
    And finally, there are going to be a lot of additional 
questions that members will have.
    I want to discuss the Salvador earthquake. We visited that 
on our trip to South America, and I think it is one of the 
things that gets neglected. We heard universally from our 
people down there that the U.S. military SOUTHCOM is not 
participating in the same way that it did with Hurricane Mitch, 
and I would hope that is something that you would take up with 
the Defense Department and with the White House.
    Secretary Powell. I will.
    Mr. Kolbe. If members would have their questions in writing 
to the subcommittee staff no later than next Tuesday, we will 
ask the Secretary's office to respond within four weeks so we 
can print this hearing before we go to the floor with our bill.
    The next hearing will be with Secretary O'Neill at 2:30 on 
this Tuesday, in this room.
    Ms. Lowey is going to make one very quick statement, 
because I know he has to be at the White House.

                   STATEMENT OF ADMINISTRATION POLICY

    Mrs. Lowey. One very quick statement. I noticed, in looking 
at the SAP, in the statement of administration policy, in the 
very first paragraph, it makes it very clear that the 
administration would veto the bill with regard to Hyde, with 
regard to the Mexico City policy.
    And I was surprised, because I happen to agree with you and 
voted with the administration against the Hyde-Lantos language 
with regard to the United Nations. I think that was such a 
carefully negotiated position.
    And I wondered why it was not in the SAP, in the statement 
of policy?
    Secretary Powell. I do not know that I can answer that, 
ma'am. I have not seen the statement.
    Mrs. Lowey. I thank you for your comments, because many of 
us felt very strongly against that.
    Thank you, Chairman.
    Mr. Kolbe. I want to thank all the members for their 
participation and especially for helping us adhere to the time 
rules so everybody could get their questions in.
    Again, Mr. Secretary, thank you.
    The subcommittee stands adjourned.
    [Questions and answers for the record follow:]

 Questions for the Record Submitted to Secretary of State Colin Powell 
                         by Chairman Jim Kolbe

    Question. Basic education should be a fundamental pillar of our 
assistance programs throughout the world. Yet over the past 15 years, 
few and fewer AID country programs have made it a priority. Where it is 
due to bureaucratic inefficiencies in recipient countries or 
bureaucratic ineptitude on our part, the capacity of U.S. to provide 
basic education for poor children (particularly girls) has been 
seriously eroded. On a recent visit to Egypt, I visited a primary 
school in Cairo. A mere $60,000 in U.S. aid dollars had been enough to 
establish five new schools in an area of Cairo where there were no 
opportunities for girls to become educated. Its success has moved 
Egyptian education officials to replicate the model elsewhere.
    Mr. Secretary, we need to reinvigorate our capacity to meet this 
fundamental need with resources and people. How do you plan to do this?
    Answer. USAID Administrator Andrew Natsios and I share the 
commitment to quality basic education, especially for girls and other 
under-served populations, as a cornerstone of USAID's activities. 
However, the demands on USAID to finance a multitude of priorities have 
hindered our ability to fund basic education at preferred levels. 
Nevertheless, we are beginning to address the shortfall. For fiscal 
year 2002 AID's budget request includes an increase in the allocation 
for basic education from $103 million to $123 million. We also are 
taking steps to increase our education specialist staff. In addition, 
we plan to pursue partnerships with other donors, U.S. universities, 
foundations, non-governmental organizations and the private sector to 
highlight the need for more attention and resources for basic 
education.
    Question. Last year the Congress provided $72.3 million in funding 
for Montenegro and $100 million for Serbia, or a total of $172.3 
million. This year the Administration is requesting a total of $145 
million for both Montenegro and Serbia. However, a separate line item 
for Montenegro is not identified, so one or both of these Republics 
will see a decline in U.S. assistance. Although both Republics are part 
of Yugoslavia, technically so is Kosovo and it is receiving a separate 
request of $120 million.
    Why has the Administration made this decision? What is the 
projected allocation for Montenegro for fiscal year 2002, as well as 
the projected allocation for Serbia?
    Answer. We are following the normal practice for the President's 
Budget Request of allocating funds on the basis of a single budget line 
item per country. Even in countries with distinct entities that we have 
treated differently, such as Bosnia, we have made one budget request 
for the country. After the establishment of diplomatic relations with 
the Federal Republic of Yugoslavia (FRY), we returned to the practice 
of a single line item for the FRY in the budget request for FY 2002. We 
understand the special interest of the Congress in Serbia and 
Montenegro, and will consult closely on the allocation of funding for 
the Republics as the year progresses.
    We decided to maintain Kosovo as a separate line item in this 
year's budget request in recognition of the special status accorded 
Kosovo under UNSCR 1244 and the role played by the United Nations in 
administering the province during the period of international interim 
administration until Kosovo's future status can be determined through a 
political process.
                                 ______
                                 

 Questions for the Record Submitted to Secretary of State Colin Powell 
                          by Rep. Jerry Lewis

    Question. What is the Bush Administration's approach toward 
recognition of the Ukraine and other Eastern block countries in an 
effort to build democratic institutions, a market economy, and in the 
long-term, ensuring political stability in the region?
    Answer. It is a guiding principle of President Bush's foreign 
policy that America stands ready to help any country that wishes to 
join the democratic world and build a prosperous, free market economy. 
Our engagement with Ukraine, Moldova, Belarus, the countries of Central 
Asian and the Caucasus is based upon two premises. First, that the 
United States has a strategic interest in their transition to 
democratic, free-market countries. Second, that this outcome is more 
likely if we remain engaged as a partners in that transition.
    As we pursue our strategic goals in this region we are also guided 
by two important facts. First, the transition process will be a long 
one. We should not allow short-term events to distort or weaken our 
pro-reform polices. We must keep focused on our long-term goals of 
democratic and free-market reform. Second, our engagement and our 
assistance will only be successful if these countries are committed to 
implementing change. They, not the United States, will make the key 
decisions that will determine their future. They must decide whether to 
move down the path of democracy and the free enterprise system. Our 
assistance is designed to help them understand the benefits of doing so 
and to facilitate the transition.
    Question. To what extent is the United States encouraging its NATO 
partners in Europe to pursue this course in concert with our own 
efforts?
    Answer. We work closely with our NATO Allies and the European Union 
to support democratic and free-market reform in Ukraine, Moldova, 
Belarus, the countries of Central Asia and the Caucasus. The importance 
of these countries and how we can best help them make the transition to 
democratic and free market societies is a regular subject of our 
consultations with our European friends and Allies. The President is 
discussing these issues during his trip to Europe June 11-16 and will 
do so again during the G-7 Summit this July.
    We have collaborated on assistance projects with the EU, such as 
the $5 million U.S.-EU Tranatlantic Civil Society Program designed to 
support Ukraine's democratic transition. We have also worked closely 
with the EU and EU members at the OSCE to highlight human rights abuses 
in this region and urge governments to correct them. In Belarus, the 
U.S. and the EU did not recognize the undemocratic parliamentary 
elections last year and are now working together to get the Lukashenko 
regime to carry out free and fair presidential elections this year.
    NATO's Partnership for Peace has also played an important role in 
the region helping these countries implement defense reforms and 
strengthen ties to the West. The NATO-Ukraine Commission has also 
opened up new avenues of cooperation for regular consultations between 
Allies and Ukraine on issues such as defense reform, air traffic 
management and civil emergency planning.
    Our bilateral cooperation and work through NATO and with the EU 
reflects our shared interest in and commitment to building a Europe 
that is whole, free and at peace.
Ending Middle East Violence
    Question. In your testimony today, you outlined the 
Administration's involvement with the Middle East peace process 
including your own personal dialogue with the leadership of Israel and 
the PLO. In light of the continuing and escalating violence from both 
sides, what specific leverage can the Administration apply to insist 
that the violence cease? What, in your estimation, can be done to 
change the renewed climate of hate and reduce the killings on both 
sides?
    Answer. As events have shown, only the parties can end the 
violence. We are pleased that both parties have accepted the work plan 
proposed by DCI Tenet to resume security cooperation, end the violence 
and restore the situation on the ground that existed before September 
28, 2000. We are now looking for mutual steps on the ground to fulfill 
the immediate requirements of the work. In addition, in close 
coordination with others in the international community, the United 
States is continuing to work actively with the parties to complete a 
timeline for the full implementation of the Mitchell report's 
recommendations in all their aspects.
Ukraine
    I join many members of the Subcommittee in applauding the Bush 
Administration for its commitment to combating HIV/AIDS throughout 
Africa, in the Caribbean, and in India. The challenge throughout Africa 
is well known; quite literally, the survival of the continent is at 
stake. You are well aware of my personal interest in India.
    Question. Can you provide some perspective on the threat of HIV/
AIDS in India and the specific steps the Administration is taking to 
address this challenge?
    Answer. The ravages of infectious diseases threaten India's long-
term economic growth and stability. India has about 3.7 million 
citizens infected with HIV/AIDS, second in absolute terms only to South 
Africa. HIV/AIDS' impact on sufferers' immune systems makes them more 
susceptible to TB and other opportunistic infections. India, not 
coincidentally, has the highest rate of TB incidence in the world.
    In India for FY 2001, USAID has provided nearly nine million 
dollars for HIV/AIDS prevention programs, as well as $3 million to 
support TB research. The National Institutes of Health currently 
support twelve HIV/AIDS research grants involving teams of U.S. and 
Indian scientists.
UNESCO
    Question. Mr. Secretary, the House voted this afternoon to support 
the United States renewing its membership in the United Nations 
Educational, Scientific, and Cultural Organization (UNESCO). What 
reforms do you believe were in order at UNESCO and have those reforms 
been successful to merit our return following a 16-year absence? Does 
the Bush Administration support renewed membership in UNESCO?
    Answer. The United States withdrew from UNESCO in 1984 because of 
excessive politicization, in particular, threats to press freedom, poor 
management, and lack of budgetary restraint.
    These problems have in large measure been resolved.
    --The World Press Freedom Committee, an NGO watchdog of the free 
press, now considers UNESCO a valued ``partner'' in the struggle to 
maintain and extend press freedom in the world.
    --Director General Matsuura is implementing a top-to-bottom 
management reform with emphasis on oversight.
    --UNESCO has adopted a zero nominal growth budget for its past 
three two-year budget cycles.
    The Administration is currently reviewing its position on re-entry, 
considering both policy and funding issues. Estimated cost of re-entry 
would be approximately $60 million annually, plus a one-time payment of 
$5.5 million to the Working Capital Fund.
                                 ______
                                 

 Questions for the Record Submitted to Secretary of State Colin Powell 
                        by Rep. Roger F. Wicker

Iraq
    Question. Given the President's continued interest in Iraq, can you 
give the Committee an idea of this Administration's policy towards Iraq 
as it relates to the possible development of nuclear weapons and other 
weapons of mass destruction? Earlier this year, you stated that you 
were ``reasonably confident that Iraq does not yet have the kind of 
capability that would threaten the whole region the way they used to.''
    Answer. We are concerned by activity at Iraqi sites known to be 
capable of producing WMD and long-range ballistic missiles, as well as 
by Iraq's continuing efforts to procure dual-use items with WMD 
applications, but we do not have conclusive evidence that Iraq has 
successfully reconstituted its WMD or missile capabilities.
    In the absence of United Nations inspectors on the ground--carrying 
out the Security Council mandate in Resolution 1284--uncertainties 
about the significance of Iraq's activities will persist. Given Iraq's 
record, we see no reason to give Iraq the benefit of the doubt, and we 
remain vigilant.
    Our new approach to Iraq is designed to prevent Iraq from 
rebuilding its military capability, including weapons of mass 
destruction, by strengthening controls on weapons and sensitive dual-
use items that would support a WMD or missile program.
Iraq: Opposition Groups
    Question. Some have suggested that the U.S. provide weapons support 
to Iraqi opposition groups such as the Iraqi National Congress (INC) as 
a means of at least containing Saddam, and at best, bringing a new 
regime to power. Without the appropriate support, these organizations 
are powerless.
    What do you feel should be the extent of our involvement with these 
opposition groups?
    Answer. The Iraqi people would plainly be better off without Saddam 
Hussein. Our policy objectives in the region would be better met 
without him as well, but the United States cannot impose a new 
leadership on Iraq from outside. We continue to work with the Iraqi 
opposition, under the Iraq Liberation Act and using Economic Support 
Funds, to encourage internal forces not only to bring about regime 
change, but the right kind of change. The Administration has been 
comprehensively reviewing our Iraq policy, but there are no easy 
answers. We expect to consult closely with the Congress as we grapple 
with this problem.
    Question. There have been calls from some international 
organizations for the U.S. to lift sanctions on Iraq. Others have 
suggested that the U.S. reform existing sanctions, or adopt, as some 
have called them, ``smart'' sanctions. If the last decade has shown 
anything, it has apparently shown that no sanctions are going to bring 
an end to Saddam Hussein's reign.
    Do you have any indication that sanctions are weakening Saddam or 
lessening his grip on power or are we simply hurting the people of 
Iraq?
    Answer. Following Iraq's 1990 invasion of Kuwait, the UNSC imposed 
sanctions on Iraq to prevent Saddam Hussein's regime from 
reconstituting weapons of mass destruction, rebuilding its military, 
and once again threatening the region's security. Those controls remain 
in force because Iraq has refused to comply with its obligations under 
relevant resolutions, including disarmament, and continues to pose a 
serious threat to the region.
    The UNSC did not design sanctions to topple Saddam. Nonetheless, 
UNSC sanctions have helped significantly in limiting Iraq's capability 
to militarily threaten its neighbors and in promoting regional 
security. Since the imposition of sanctions, Iraq has not continued its 
serial aggression against neighboring states.
    To strengthen efforts to prevent Iraqi aggression and to improve 
the humanitarian circumstances of the Iraqi people, the Administration 
has proposed a new approach on Iraq. The new approach would allow 
substantially increased civilian trade with Iraq and contact with the 
Iraqi people. It also would more tightly focus controls on the Iraqi 
regime to constrict its access to the revenue, weapons, and sensitive 
dual-use items it seeks to reconstitute weapons of mass destruction and 
revitalize its military. We are currently working with the UNSC to 
adopt this approach as a new resolution on Iraq.
Iran
    Question. Have there been any signs that Iran is decreasing its 
support for terrorism or its efforts to acquire weapons of mass 
destruction and the missiles to deliver them? In light of recent gains 
by ``reformers'' in recent parliamentary elections, is the 
Administration planning any unilateral ``gestures'' toward Iran?
    Answer. We have seen no evidence that Iran is decreasing its 
support for terrorism or its efforts to acquire weapons of mass 
destruction or long-rang missile technology. As the Administration 
reviews Iran policy, these will remain primary strategic concerns. The 
Administration is not planning unilateral gestures toward Iran.
Iranian Support to Hamas & Hezbollah
    Question. Have we been able to determine how much assistance Iran 
is providing to Hamas or Hezbollah?
    Answer. Iran has long provided many forms of assistance to these 
groups, including weapons, training, political support, and millions of 
dollars of financial assistance. It is difficult to quantify this 
assistance more specifically, but we believe that Iran has increased 
its support and encouragement for these groups over the past year and 
especially since Israeli-Palestinian violence erupted last fall. We 
continue to monitor this issue closely.
                                 ______
                                 

 Questions for the Record Submitted to Secretary of State Colin Powell 
                          by Rep. Nancy Pelosi

Education as a Priority
    Question. There will be an amendment to the State Reauthorization 
bill on the House floor today that will link payment of UN dues to the 
U.S. re-gaining its seat on the UN Human Rights Commission. Many people 
are predicting it will pass. Is the Administration putting any pressure 
on Congress to not pass this amendment?
    Answer. When the House was considering the Hyde-Lantos amendment, 
the Administration--including the Secretary and other senior Department 
officials--publicly opposed its inclusion in the authorization bill. At 
every opportunity, they reiterated our opposition to the placement of 
further conditions on U.S. arrears payments.
    On the heels of the major reform of UN scales of assessment 
achieved in December, we are making good progress in achieving other 
needed reforms in international organizations. Placing new conditions 
on the payment of our arrears will significantly dilute these efforts 
by compounding the problem of resentment towards the U.S. in the UN and 
providing ammunition to those who oppose our reform objectives.
    The Administration shares Congress' dismay at the result of the UN 
Commission on Human Rights election. We have engaged numerous countries 
to express our concern about the results of the election. We are also 
reviewing our policy about how we will engage with the UNCHR in the 
future.
China
    Question. Dr. Li Shaomin, a U.S. citizen and respected scholar 
teaching business at City University of Hong Kong, has been detained in 
China since late February under investigation on charges of spying. 
What level of consular access to Dr. Li has the U.S. been granted? Has 
China offered any explanation for Dr. Li's detention, or any evidence 
to warrant his being held without charge?
    Answer. Chinese authorities have granted monthly visits meeting the 
minimum standards prescribed in the U.S.-P.R.C. Bilateral Consular 
Agreement. A consular officer from the U.S. Embassy has visited Dr. Li 
four times since his initial arrest.
    On May 16 Beijing State Security officers informed the Embassy that 
Dr. Li was formally ``arrested'' May 15 on charges of espionage on 
behalf of a Taiwan intelligence organization. To be formally arrested 
under Chinese law means that the originating law enforcement entity has 
submitted sufficient evidence on which to prosecute the detainee. The 
Ministry of Foreign Affairs informed the Embassy on May 21 that Dr. Li 
had accepted compensation from a Taiwan intelligence organization in 
return for duties including the collection of secret Chinese government 
documents.
    Question. What has been the response to U.S. appeals for the 
release of Gao Zhan, the American University-based scholar, held since 
February, apparently charged with spying? Has the Chinese government 
continued to many her access to her attorney?
    Answer. We have consistently pressed the Chinese to grant Dr. Gao 
all due process under Chinese law. China has replied that Dr. Gao's 
case will be handled according to Chinese legal procedures. We have on 
many occasions requested the Chinese Government provide as much as 
information as possible regarding her case. Dr. Gao was formally 
charged April 3 with accepting funds for an overseas intelligence 
agency.
    Dr. Gao's attorneys have applied to Chinese authorities for 
permission to visit her in custody. This request has been denied. We 
continue to press the Chinese on this point. We are in frequent contact 
with Dr. Gao's attorneys (who do not have access to her) and share 
information with them about our actions on her behalf.
    Question. Is there a pattern, from what you can see, in the 
detention of these two scholars and also Wu Jianming, also a U.S. 
citizen detained in China without explanation since April 8?
    Answer. While the information available may not be sufficient for 
us to determine that there is pattern, it was sufficient to compel us 
to issue a Public Announcement. On April 19, 2001, the Department 
issued a Public Announcement cautioning Americans, especially Americans 
originally from China, that there may be a risk of being detained upon 
returning to China, if they have at any time engaged in activities or 
published writings critical of Chinese government policies. The Public 
Announcement also cautions the American traveling public that in some 
cases, travel to Taiwan or involvement with Taiwan media organizations 
has apparently also been regarded as the equivalent of espionage by the 
Ministry of State Security, and it encourages persons with a history of 
such activities to carefully evaluate this information in deciding 
whether to travel to China.
Global AIDS
    Question. I continue to be concerned about continuing reports of 
people with HIV and AIDS educators being endangered or harmed because 
of the stigma attached to this disease. What is the Department of 
State's position on developing a formal strategy to address the human 
rights aspects of the international epidemic?
    Answer. The ongoing tragedy of the global HIV/AIDS pandemic 
threatens the lives of millions who are the very development 
cornerstones necessary for building and maintaining an international 
community that is stable, democratic, and economically prosperous.
    The State Department coordinates the U.S. Government's response to 
foreign policy issues surrounding infectious diseases of epidemic or 
pandemic proportions. We encourage and support governments' efforts to 
take action to prevent HIV/AIDS to provide treatment and care for AIDS 
victims, and protect the human rights of people living with the disease 
as well as those working to mitigate the impact of this global plague. 
We also regularly speak out publicly and in private meetings with 
leaders on the need to end the stigmatization of those with HIV.
Colombia
    Question. Why has the Colombian army done so little to capture 
paramilitary forces and protect the civilian population? What will the 
United States do to make clear that army-paramilitary collaboration 
will not be tolerated? What is the State Department's plan to lay out 
clear benchmarks so that the Colombian army takes real and not cosmetic 
steps to address this problem.
    Answer. The Colombian Government has been hard pressed to protect 
its civilian population, especially rural inhabitants of contested 
areas, from the savagery of paramilitary and guerrilla forces seeking 
to assert or maintain their dominance. This reality will not change 
until the Colombian Government can establish an effective law 
enforcement presence in the conflictive areas of Colombia.
    More than any previous Colombian Administration, President Pastrana 
has instituted reforms to make Colombian military personnel accountable 
for both human rights violations and for maintaining links with 
paramilitaries. His administration has succeeded in passing a Forced 
Disappearance Law and instituting military penal reform, including the 
establishment of a corps similar to our Judge Advocate General. He has 
directed that human rights cases involving the security forces be tried 
in civilian courts. He has also promulgated decrees to restructure and 
professionalize the military, which included the discretionary removal 
from service of personnel; the latter decree has resulted in the 
removal of over 400 officers and NCOs from the military.
    Recognizing that paramilitaries represent a danger to the Colombian 
state, government security forces and law enforcement authorities have 
increasingly targeted paramilitary entities. According to the Colombian 
Ministry of Defense, this year Colombian security forces have killed 49 
paramilitary members and captured 401 as of May 29. Colombian military 
aggressiveness against paramilitaries has been especially evident 
recently, with notable successes scored against paramilitary columns in 
southern Colombia and the capture of an important paramilitary leader 
in Barrancabermeja. Another positive development was the government's 
arrest of alleged major financial backers of paramilitaries.
    We have consistently encouraged the Pastrana Administration to 
sever all remaining links between military personnel and paramilitary 
groups, and we will continue to do so.
    Question. While INL is pleased to report the extensive fumigation 
has been carried out in Putumayo, we are concerned to hear that the 
alternative development projects have barely started and even the 
limited numbers of farmers signed up have not seen signs of alternative 
development aid. Why were decisions made to fumigate when alternative 
development plans were not yet in place? Doesn't it make more sense to 
coordinate alternative development programs first that provide a 
sustainable solution to the terrible problem of drug production?
    Answer. The timing of spray operations in Putumayo was based on a 
number of factors. Some were operational concerns, such as seasonal 
weather conditions. The timing of operations was also meant to 
discourage the return of an itinerant labor pool (coca leaf pickers or 
raspachines) who generally spend the December holidays at their homes 
in other parts of the country.
    Importantly, the timing also corresponded with efforts to recruit 
communities to enroll in development programs. While the intent of the 
Colombian Government to conduct eradication in southern Colombia was 
well publicized, coca growing communities in the region initially 
showed little interest in participating in development programs, 
preferring instead to continue their illicit activity. Only after those 
initial spray efforts in Putumayo, which demonstrated the Government of 
Colombia's resolve to address the growing problem of coca cultivation 
in the region, did these communities express real interest in 
abandoning their illegal activities in exchange for assistance. Funding 
was already in place for these programs at the time spray operations 
began and, as each community signed up for the program, the process 
began to tailor community-specific assistance packages.
    Furthemore, USG humanitarian assistance in the region started long 
before the FY 2000 Plan Colombia Supplemental. In FY 2000, the U.S. 
provided over $10.7 million to the Western Hemisphere Appeal from the 
International Committee of the Red Cross (ICRC), most of which was 
spend in Colombia. Between October and December of 2000 alone, the ICRC 
provided emergency assistance to more than 36,000 people in Colombia, 
including many in Putumayo. Additional funds were provided to the UN 
High Commissioner for Refugees (UNHCR), the World Food Program, and the 
Pan American Health Organization for programs in Colombia.
                                 ______
                                 

 Questions for the Record Submitted to Secretary of State Colin Powell 
                           by Rep. Nita Lowey

    Question. How will imposing the global gag rule make abortion more 
rare in the developing world?
    Answer. One of the expressed goals of the Mexico City policy is to 
ensure that no USAID population assistance money goes to foreign 
organizations associated with abortion-related activities. In 
reinstating the policy, the President committed to maintaining the $425 
million funding level for family planning, indicating that one of the 
best ways to prevent abortion is by providing quality voluntary family 
planning services. USAID's family planning assistance will be made 
broadly available through the hundreds of foreign NGOs that operate 
consistent with the Mexico City policy.
    Question. Why has the State Department decided not to include names 
of Palestinian suspects on this site?
    Answer. We take very seriously the need to bring to justice the 
individuals responsible for the death and injury of American citizens 
in terrorist incidents in Israel, the West Bank and Gaza. We understand 
the concerns of the families and their supporters who suggested that 
the Department of State offer rewards and publicize them on the 
Department's ``Rewards for Justice'' web page. Rewards are available 
whether or not they are publicized.
    We are now reviewing whether or not to undertake a more aggressive 
advertising campaign for these cases, based on an assessment of the 
likely impact on efforts to bring the terrorists to justice, and 
whether advertising can be helpful in solving these cases.
Andean Narcotics Initiative
    Question. There appear to be no funds requested in 2002 to help 
Colombia deal with the violence caused by paramilitary forces. Are 
there any specific programs proposed, and do you favor placing these 
organizations on the terrorist list?
    Answer. We are providing significant assistance to strengthening 
the Colombian Government's ability to investigate and prosecute human 
rights violators as well as to strengthening its human rights 
mechanisms, including helping the government establish an Early Warning 
System to prevent massacres. We are also providing assistance to 
international organizations and human rights NGOs to strengthen their 
ability to report on human rights violations and to enhance the 
security of Colombian human rights NGOs.
    The U.S. Government does not provide counter-insurgency assistance 
to Colombia, whether for targeting right-wing vigilante militias or 
left-wing guerrilla groups. To the degree that elements of such groups 
are involved in narcotics cultivation, processing or trafficking, then 
they are legitimate targets of our counternarcotics assistance to 
Colombia. In practice, our counternarcotics aid has enabled the 
Colombian Government to conduct counternarcotics aerial eradication and 
ground interdiction operations in areas controlled by either guerrilla 
or paramilitary elements.
    The Department of State's policy is to not discuss publicly our 
internal deliberations regarding the possible designation of an 
organization as a Foreign Terrorist Group.
    The Department of State's current ``Patterns of Global Terrorism 
Report'' includes the paramilitary umbrella group, the United Self-
Defense Forces of Colombia (AUC), in its ``Other Terrorist Groups'' 
section.
    Question. Given the recent indictment of several Peruvian generals 
on corruption charges involving narcotics, what confidence do you have 
that the new generals in charge are working with us in good faith?
    Answer. The Peruvian generals indicted on drug corruption charges 
were all from the Peruvian Army. The U.S. provides no counternarcotics 
support to the Peruvian Army because it has no legal role in Peruvian 
counternarcotics efforts. In contrast, the Peruvian police, navy and 
air force all have government-mandated counternarcotics missions to 
which the U.S. provides support. To date, there have been no credible 
allegations of high-level drug corruption in these other institutions.
State Department Reorganization
    Question. It has come to my attention that you may propose the 
merger of the SEED and Independent States coordinators into one 
position and that it will be under the authority of the Europe Bureau. 
Both of these offices have been helpful to the Committee, and have 
enabled a more efficient delivery of assistance to those regions. Why 
is this merger being proposed?
    Answer. As you know, we are planning the merger of the Bureau of 
European Affairs and the Office of the Special Advisor to the Secretary 
for the New Independent States into a bureau to be known as the Bureau 
of European and Eurasian Affairs. A reprogramming letter explaining the 
reasons for and budgetary impact of this merger is being sent to all 
relevant Congressional committees.
    In conjunction with this overall merger, we are proposing a merged 
office for assistance coordination that would combine the current SEED 
and FREEDOM Support Act coordination offices. The objective is to give 
the Assistant Secretary a coordinated source of advice on assistance 
programs to more than 30 countries currently benefiting from funding 
appropriated under the International Affairs Function 150 portion of 
the budget.
    The integration of these offices will retain the authorities and 
funding from the SEED and Freedom Support Acts within separate entities 
under the leadership of three Deputy Coordinators--one for FSA, one for 
SEED and one for the Stability Pact and Southern European Cooperation 
Intitiative--but all under the supervision of one Coordinator. This 
merged office will continue to perform the same responsibilities as are 
currently performed by the separate offices, including providing 
information and analysis about assistance issues to the Foreign 
Operations Subcommittee and other Congressional committees. We believe 
the Department as a whole--and the Congress--will benefit from a more 
cohesive assistance effort that supports our broader policy goals in 
the region.
Iraq: Iraqi National Congress
    Question. Funds provided for the Iraqi opposition ($35m approved 
for '00 and '01) have moved slowly, primarily because the capacity of 
the Iraqi National Congress to manage and account for U.S. government 
funds is weak. Despite this, there is an expectation that funds will be 
spent this year and next on providing humanitarian assistance inside 
Iraq, and initiating television and radio broadcasting to the people of 
Iraq.
    Can you tell us how these will be accomplished, given the limited 
capacity of the Iraqi National Congress and the inherent dangers of 
providing U.S. funding to NGOs inside Iraq?
    Answer. We continue to work with the Iraqi National Congress (INC) 
to build its capacity to manage U.S. funds appropriately. The language 
of the FY 2001 appropriation states that, ``not less than $12,000,000 
should be made available for * * * humanitarian assistance * * * to be 
provided through the Iraqi National Congress * * * [and] not less than 
$6,000,000 * * * should be made available to the Iraqi National 
Congress * * * for the production and broadcasting inside Iraq of radio 
and satellite television programming * * *'' We have informed the INC 
that we have chosen to follow this suggestion. We have also told the 
INC that we plan to proceed with this funding in phases, according to 
their ability to manage the money, and achieve their goals.
U.S. Response to Earthquakes in El Salvador
    Question. Why have you not proposed funding for at least our share 
of their reconstruction needs (about $300 million) using an emergency 
designation?
    Answer. The U.S. Government has provided $27 million in emergency 
disaster relief and has committed $110 million in reconstruction 
assistance in FY 2001/02. Furthermore, the granting of Temporary 
Protected Status (TPS) for 18 months will result in significant 
remittances from Salvadorans residing in the U.S. (estimated at over 
one billion dollars). Thus, U.S. real and comparative assistance has 
been substantial. The needs are many, but we feel this package has 
addressed the most urgent ones. The administration will continue to 
look for ways to be helpful to El Salvador.
    Pledged international assistance of $1.3 billion from the March 7 
Madrid Consultative Group donors meeting covers a large portion of the 
$1.6 to $2 billion expected cost of reconstruction from the 
earthquakes.
El Salvador and India Earthquakes
    Question. In the case of India, direct assistance is needed, but 
some have suggested that we help them establish a FEMA-like 
organization so that they can develop their own capability to respond 
to natural disasters. Why is there no Administration proposal to help 
India?
    Answer. Helping India develop its own disaster response capability 
is a goal this administration shares. Working with Indian authorities, 
the U.S. AID mission in India is assisting India through two major 
disaster mitigation programs--the Program for the Enhancement of 
Emergency Response and the Asian Urban Disaster Mitigation Program. The 
programs develop and strengthen medical and search-and-rescue 
capabilities, and work with city managers to establish disaster 
management planning. As part of our efforts, a senior Indian disaster 
management official recently met with FEMA, Fairfax Search and Rescue, 
NOAA, USGS, and OFDA.
    We are consulting with other donors and the Indian Government on 
the question of long-term post-earthquake assistance. So far, we have 
identified projects totaling almost $10 million where direct U.S. help 
can make a distinct contribution, in addition to the $12.8 million of 
aid provided in the immediate aftermath of the earthquake.
Colombia
    Question. What does the State Department intend to do to ensure 
legal crops and family farms where people have agreed to eradicate coca 
do not simply get fumigated? What kind of a mechanism is being provided 
for compensation for those whose crops are destroyed unfairly?
    Answer. Many safeguards are built into the selection of spray 
targets and further improvements are constantly being made to the 
system. And while the Department of State does not select the spray 
locations, (those decisions are made by the Government of Colombia), 
State, through the Narcotics Affairs Section (NAS) of the U.S. Embassy, 
Bogota, does consult on the selection and supports the Colombian 
National Police (CNP) efforts.
    By law, an Inter-Institutional Technical Committee (ITC) of 
Colombian government officials determines what areas of the country may 
or may not be sprayed. The Colombian National Police (CNP) generates 
quarterly estimates of the illicit coca crop by flying over coca 
growing regions on at least a quarterly basis to search for new growth 
and to generate an estimate of the illicit coca crop. This information 
is reviewed for accuracy by Technical/Environmental Auditors and is 
passed on to the ITC. The Directorate of Dangerous Drugs (DNE) chairs 
the ITC, which includes representatives from the Anti-Narcotics Police, 
Ministry of the Environment, the National Institute of Health, the 
National Institute of Agriculture, the National Plan for Alternative 
Development (PLANTE), regional environmental agencies, and Technical/
Environmental Auditors. The CNP notifies the NAS Aviation Office of all 
decisions as to which areas may not be sprayed. Spray operations are 
then coordinated and conducted in those approved areas.
    Generally, reconnaissance flights are conducted over areas 
identified by the CNP in their quarterly coca crop estimates. With the 
use of SATLOC, an aircraft-mounted global positioning system, these 
flights identify the precise geographical coordinates where coca is 
being grown. Areas with large concentrations of coca are then plotted, 
and a computer program sets up precise flight lines, calibrated for the 
width of the spray swath of the spray plane to be used. Once the 
Government of Colombia has approved spraying in a given area, spray 
pilots then fly down those prescribed flight lines and spray the coca 
located there.
    For the most part, alternative development projects are being under 
taken away from the targeted industrial cultivation in areas that have 
been designated as no-spray zones. As an additional measure, the 
Government of Colombia is compiling a digital map of the region, 
indicating the exact location areas covered by community development 
pacts and other alternative development projects. While care has always 
been taken to avoid alternative development areas, this is the first 
time that flight planners will have been provided with such 
comprehensive information on their locations.
    Aerial eradication of illegal crops in Colombia has been ongoing 
for a number of years and the Government of Colombia maintains a system 
to compensate farmers for damages caused by the program. Over the past 
few months, we have encouraged the Colombian Government to streamline 
the process and efforts have been better to educate the public about 
that option.
                                 ______
                                 

 Questions for the Record Submitted to Secretary of State Colin Powell 
                     by Rep. Jesse L. Jackson, Jr.

Development Fund for Africa
    Question. I am disappointed that the Administration did not request 
to make the Development Fund for Africa a separate line item, as it was 
several years ago. Many nations on the continent of Africa are making 
unprecedented progress toward democratic rule and open markets. With 
the Development Fund for Africa (DFA) appropriations as a separate 
account, funding is assured to remain focused on the long-term problems 
and development priorities of our African partners.
    The DFA demonstrates a commitment to providing consistent 
assistance to Africa which is laying the foundation for the expansion 
of economic growth on the continent and U.S. exports in the 21st 
century. Congress recognized the uniqueness of the continent's 
development challenges in establishing the Development Fund for Africa 
(DFA) in 1987. This bipartisan effort recognized that broad-based 
equitable development diminishes the potential for conflict, promotes 
stability and builds more prosperous nations.
    If the U.S. is going to be truly committed to Africa, wouldn't it 
be prudent [to] reinstate a separate Development Assistance account for 
the DFA?
    Answer. Since FY 1996, Congress has not supported a separate 
account for the Development Fund for Africa (DFA). Notwithstanding this 
lack of Congressional support for a separate DFA account, however, 
funding for Africa--including funding for the types of projects covered 
by the DFA--has increased steadily. Bilateral development assistance 
funding levels (Development Assistance, Child Survival and Diseases, 
and Economic Support Funds combined) have increased from $675.064 
million in FY 1997 to $884.247 million in FY 2001.
    The FY 2002 request for Africa includes $433.598 million in 
Development Assistance, $355.815 million in Child Survival and 
Diseases, and $105.500 million in Economic Support Funds, bringing the 
total amount of the FY 2002 request for Development Assistance, Child 
Survival and Diseases, and Economic Support Funds combined to $894.913 
million. We would hope that Congress would fully fund the FY 2002 
Africa development assistance request.
HIV/AIDS
    Secretary Powell, I understand that at the end of May you plan to 
go to Africa to highlight the U.S. concerns about the AIDS pandemic. I 
understand that you are working with HHS Secretary Thompson on this 
global AIDS pandemic.
    Question. How does the Administration's (sic) plan to address and 
curb the global HIV/AIDS pandemic?
    Answer. The United States has been, and will continue to be, the 
largest bilateral donor in the fight against HIV/AIDS, providing nearly 
fifty percent of international assistance for this disease.
    President Bush's FY 2002 budget proposal reflects the U.S. 
commitment to help those with HIV/AIDS and other infectious diseases, 
and to support research and development for new interventions for 
treatment and cures.
    The President's proposed budget allocates $480 million in funding 
to fight the international HIV/AIDS epidemic, dedicates $116 million in 
the HHS budget to fight global HIV/AIDS, and provides $2.5 billion for 
the National Institutes of Health for HIV/AIDS research, an increase of 
$258 million or 12 percent. But this is a global problem that no 
country can solve alone. So we are working closely with donor and 
affected nations around the world to fight this disease.
    In addition, and as a sign of the U.S. commitment to fight against 
HIV/AIDS, malaria and tuberculosis, President Bush announced on May 11 
that the U.S. is prepared to commit $200 million to a Global Fund 
focused on the fight against these three diseases.
    Another indication of the Bush Administration's leadership on this 
issue was the President's appointment of a Cabinet Task Force on HIV/
AIDS, under the co-chairmanship of Secretary of Health and Human 
Services Tommy Thompson and myself. He also expanded the mandate of the 
Office of National AIDS Policy (ONAP) to better facilitate domestic and 
international policy efforts on HIV/AIDS, and named veteran HIV/AIDS 
activist Scott Evertz as ONAP director.
    Question. Is the U.S. contribution to this global pandemic going to 
come from new funds or reprogrammed funds?
    Answer. The initial U.S. contribution of $200 million to the 
proposed multilateral Global Trust Fund to fight HIV/AIDS, Malaria and 
Tuberculosis includes $100 million in direct appropriations and $100 
million derived by transfer, detailed in the June 11 White House Fiscal 
Year 2002 budget amendment request.
    The Departments of State and of Health and Human Services will each 
finance $100 million of the total contribution.
    Question. What is the total the Administration plans to contribute 
to this global pandemic?
    Answer. The U.S., with Congressional support, intends to provide an 
initial $200 million in seed money to the proposed multilateral Global 
Trust Fund to fight HIV/AIDS, Malaria and Tuberculosis for Fiscal Year 
2002. This funding is in addition to the $480 million in overall 
funding to fight the international HIV/AIDS epidemic for Fiscal Year 
2002, an increase of over 100% from Fiscal Year 2000.
    In addition, through the National Institutes of Health the 
Administration will allocate $2.5 billion to HIV/AIDS research in 
Fiscal Year 2002.
    Question. Can you provide a comprehensive budget for these funds?
    Answer. The proposed Global Fund to combat HIV/AIDS, Malaria and 
Tuberculosis is still in its preliminary stages, and no comprehensive 
budget is available at this time. However, the Fund's budget 
allocations will be consistent with the Administration's approach to 
combating the global HIV/AIDS pandemic, with a focus on education and 
prevention within an integrated continuum of treatment and care.
Debt Relief
    Question. What is the Administration's position on debt relief?
    Answer. The United States has been a leading proponent of the 
Heavily Indebted Poor Countries (HIPC) initiative, which provides 
significant debt forgiveness to some of the world's poorest countries 
upon their implementation of economic reforms and a poverty reduction 
strategy. Since the initiative was launched at the 1999 Cologne Summit, 
we have supported debt relief for 23 countries, reducing their debt by 
$34 billion.
    The U.S. has gone beyond the HIPC initiative framework by 
committing to forgive 100 percent of all outstanding bilateral debts 
owed by eligible countries. The Administration continues to strongly 
support the enhanced HIPC Initiative as an important tool to help the 
poorest, most heavily indebted countries achieve debt sustainability 
and channel scarce resources to poverty alleviation programs. Our 2002 
budget request includes funds to fulfill our pledge to the HIPC Trust 
Fund, which helps support the cost of debt reduction by the regional 
multilateral development banks.
    We will also continue to support the reduction in the Paris Club of 
the debt of other very poor countries (those designated IDA-only by the 
World Bank) that are not eligible for HIPC and for whom repeated debt 
rescheduling has not led to debt sustainability--conditioned on 
continued pursuit of sound economic policies.
U.S. Relations with the Palestinian Authority
    Question. As a result of the current conflict in the Middle East, 
over 190 Members of the House and 87 Senators recently sent the 
Administration a letter asking that the U.S. downgrade its relations 
with the Palestinian Authority. Do you view this as something that 
advances U.S. interests or peace in the region?
    Answer. The goal of the United States remains supporting 
reconciliation efforts between Israel and all of its neighbors. Without 
effective U.S.-Palestinian channels, it would be more difficult for the 
U.S. to talk with the very people whose cooperation we are seeking to 
bring about an end to the violence. This would not be in our interest. 
Furthermore, we need to be cautious about sending a signal that the 
U.S. is no longer willing or able to play an effective role in Arab-
Israeli diplomacy, which would complicate our attempts to secure 
support from the international community for our efforts to end the 
crisis.
Palestinian Authority
    Question. There is continued discussion of a possible end to U.S. 
participation in the peacekeeping operations in the Sinai--the MFO. The 
Secretary of Defense is considering this from a strictly military 
perspective of reassessing U.S. troop commitment worldwide. As 
Secretary of State, you look at this from the perspective of our 
foreign policy interests in the region.
    In light of those interests, do you support the idea of withdrawing 
our participation in the MFO at this time?
    Answer. We understand the desire of the Secretary of Defense to 
reassess U.S. troop contributions world-wide. Given the current 
situation in the Middle East, however, we do not believe it is an 
appropriate time to make major changes in the MFO. We remain committed 
to taking those steps necessary to ensure the continued effectiveness 
of the MFO.
    Question. Are you at all concerned that such a decision, or even 
discussion of it, may send the wrong signal, leading people in the 
region to think that the U.S. is withdrawing from any active role in 
this crucial area?
    Answer. Yes. Given the current situation in the region, we need to 
avoid the perception that we are proceeding precipitously to withdraw 
U.S. troops from the MFO. The parties in the region should be reassured 
that the United States intends to continue to play an active role in 
the MFO, and that we do not intend to initiate any changes without 
consulting with the parties.
Israeli and Palestinian Assistance
    Question. What is the purpose of our assistance to the West Bank 
and Gaza and how much, if any, goes to the Palestinian Authority?
    Answer. U.S. assistance to the Palestinian people is devoted to 
three objectives: increasing access to and better use of scarce water 
resources, promoting economic development and strengthening democracy 
and good governance. Assistance is also helping to improve health and 
community services for the Palestinians.
    Each of these objectives contributes to meeting humanitarian needs, 
and enhances regional stability and the prospects for peace.
    None of our financial assistance goes to the Palestinian Authority 
or the PLO. Funds are provided through grants to NGOs or contracts for 
specific activities, and in strict compliance with USAID procurement, 
funds accountability, and reporting requirements.
    Question. Would the Administration support a further reduction in 
Palestinian assistance for FY 2002?
    Answer. The Administration has requested $75 million in ESF for the 
West Bank and Gaza in FY 2002 and would not support a further reduction 
in Palestinian assistance.
    Economic conditions in the West Bank and Gaza have deteriorated 
since the beginning of the peace process in 1993 and humanitarian and 
economic conditions have worsened significantly over the past seven 
months.
    This situation undermines stability, increases despair and 
hopelessness on the part of the Palestinian population, and undermines 
our efforts to encourage political progress in the region.
    The Mitchell Committee report, which the international community is 
looking upon as a road-map for a way out of the current crisis, makes 
clear that development assistance strengthens the socio-economic 
foundations of peace and is needed today more than ever.
    In light of the Intifada, we have redirected a significant portion 
of our assistance towards projects that (1) address current needs and 
(2) can be implemented on the ground despite restrictions on movement. 
Much of our assistance has been redirected to water projects, including 
desalination and waste water treatment.
    Any further reduction in our assistance, at a time when Palestinian 
needs remain great, will be interpreted by the Palestinian people as an 
indication of U.S. indifference to their plight.
    Question. Would the Administration support using funds previously 
appropriated for the Palestinian for other purposes at this time?
    Answer. The Administration would not support using ESF funds 
allocated to the Palestinians for other purposes at this time.
    Because of the current crisis in the region, we reallocated a 
significant portion of our West Bank/Gaza ESF to ensure that this aid 
was (1) addressing current needs in the region and (2) supporting 
projects that could be implemented on the ground.
    Much of this assistance was redirected to water projects, including 
desalination and waste water treatment, which will use up sizable 
portions of existing Palestinian ESF. These projects are also critical 
to Israel and Jordan, which share water resources with the 
Palestinians. Other humanitarian and economic development needs in the 
West Bank and Gaza also remain great, with the poverty rate having 
reached 40% and unemployment at nearly 50%.
    While redirecting our assistance resulted in a delay in getting 
funds obligated, we now have clear plans for obligating all West Bank/
Gaza ESF to projects that directly target the humanitarian and 
development needs of the region.
    Such projects contribute to regional stability and further our 
political goals in the region.
    Question. Given the recommendation of the Mitchell Committee for 
increased international development assistance, would you support an 
increase in U.S. funding, perhaps to last year's level of $85 million?
    Answer. The Mitchell Committee report, which the international 
community is looking upon as a road-map for a way out of the current 
crisis, does indeed make clear that development assistance strengthens 
the socio-economic foundations of peace and is needed today more than 
ever.
    U.S. assistance to the Palestinians is specifically targeted to 
projects that address the goal of increasing stability in the region.
    For FY 2002, we are requesting $75 million to further promote 
broad-based economic development. We believe the $75 million request is 
appropriate to meet the discrete, identifiable needs of the Palestinian 
people under the current circumstances.
    Question. The Mitchell Commission identified a settlement freeze as 
one necessary component for restoring faith in negotiations. Yet, I 
understand that Israeli Prime Minister Sharon has asked for an increase 
of $400 million in the Israeli budget to be used for further settlement 
activity. Given that the United States provides Israel each year with a 
cash transfer considerably larger than $400 million, and since money is 
fungible, is the United States not subsidizing Israeli settlement 
activity that is harmful to the peace process?
    Answer. The Israeli government has publicly denied that it plans to 
spend an additional $400 million on settlements.
    The United States views settlement activity as provocative. It 
risks inflaming an already volatile situation. We continue to convey 
our position to Israel, and question why Israel would be allocating 
more money for settlements at this time. As the Mitchell Committee 
Report makes clear, the issue of settlements is an essential one that 
the parties themselves must address as a key confidence-building 
measure.
The Mitchell Commission
    Question. We have seen press reporting on the findings of the 
Mitchell Commission on the Israeli-Palestinian violence. The report 
essentially calls on each side to take a major step to address the 
fundamental concerns of the other. For the Palestinians, the report 
said they should unequivocally make clear that terrorism is not an 
option and should take concrete steps to deal with security. For the 
Israelis, the report recommends a total freeze on settlement activity, 
including ``natural growth,'' to address Palestinian concerns. Mr. 
Secretary, do you share the judgment of the Mitchell Commission that it 
will require these major steps to get the negotiating process back on 
track?
    Answer. The Mitchell Committee report has been endorsed by the 
Israeli government and by the Palestinian Authority. The report 
recommends steps both sides should take in order to end the violence, 
restore confidence and resume negotiations. The lowering of violence in 
recent days illustrates that the parties can take concrete action to 
address the issues raised in the Mitchell report, and we are working 
with them to develop a timeline for the implementation of the Mitchell 
Committee recommendations in all their aspects.
    Question. As you know, there are two important diplomatic 
initiatives on the table right now--the Egyptian-Jordanian proposal and 
the Mitchell Commission Report. What do you believe should be the U.S. 
role in trying to use either or both of these initiatives as a 
mechanism to end the violence and help the parties return to 
negotiations?
    Answer. Assistant Secretary Burns has just visited the region, 
where he engaged the Israelis and Palestinians regarding a timeline for 
the implementation of the Mitchell Committee recommendations in all 
their aspects. We will continue our discussions with the parties for 
this purpose.
    Question. Mr. Secretary, how can the Mitchell Commission report be 
used by the Administration to get the two sides to reduce violence and 
return to negotiations?
    Answer. We believe the Mitchell Committee report offers the parties 
a roadmap for ending the violence, restoring confidence and resuming 
negotiations. Assistant Secretary Burns has recently visited the 
region, where he engaged the Israelis and the Palestinians in 
discussions to develop a timeline for the implementation of the 
Mitchell Committee recommendations in their aspects. We will continue 
our discussions with the parties for this purpose.
India and Pakistan
    Question. What should the United States be doing to diffuse the 
tensions between the two countries, and to resolve the dispute in 
Kashmir?
    Answer. We will continue our policy of active engagement with India 
and Pakistan. Doing so gives us the standing to press both to resolve 
their differences through dialogue. Similarly, it also makes it easier 
to encourage them to refrain from a costly and destabilizing nuclear 
arms and missile race. Over the past half year, the President and I 
have conveyed this message in meetings with the Indian Foreign Minister 
and Deputy Secretary of State Armitage did so as well when he traveled 
to India. We intend to give the same message to the Pakistan Foreign 
Minister when he comes to Washington for consultations.
    We have welcomed the upcoming visit of General Musharraf to India. 
India and Pakistan must find their own solutions. We have played a 
helpful role and will continue to do so.
    Question. I was pleased to see that the President's budget includes 
$25 million for the UN Population Fund (UNFPA), and I am hoping you 
might address how UNFPA and international voluntary family planning 
programs can help with [HIV/AIDS] prevention efforts.
    Answer. Preventing HIV infection is appropriately and directly 
linked to reproductive health care, including voluntary family 
planning; UNFPA's concern with the HIV/AIDS epidemic is long-standing. 
To stem the spread of this disease, we need to enlist the support of 
all partners in the national and international level.
    Through the 1990s, UNFPA supported the integration of HIV-
prevention efforts into a wide variety of its programs. It is currently 
supporting HIV/AIDS prevention activities in 138 countries. These 
activities include promoting behavioral change, especially among young 
people; involving men in HIV/AIDS prevention; empowering women to 
better negotiate safe sex; and preventing HIV infection in mothers and 
its transmission to their children. UNFPA is also an active partner in 
UNAIDS. As such, its comparative advantage in the provision of 
contraceptive supplies, including condoms, is recognized and valued by 
UNAIDS and its other co-sponsors.
Microbicides
    Mr. Secretary, U.S. national interests are affected in many ways by 
the HIV epidemic. The U.S. can no longer address infectious disease 
issues as the subject of foreign assistance alone but must instead look 
at them as issues on the foreign policy agenda. A global health crisis 
as severe as the HIV/AIDS pandemic is a danger to economic and social 
development, and poses a threat to political stability abroad.
    It is clear, Mr. Secretary, that you have a deep appreciation for 
the crucial role diplomacy plays in getting commitment and support from 
other governments to address the global AIDS pandemic in their own 
countries. The U.S. can play a crucial role in helping to leverage 
resources and negotiate an end to this killer pandemic.
    We have heard a fair amount generally about your intention to 
provide greater focus on the global HIV epidemic, and to forge a 
collaboration between the Departments of State and Health and Human 
Services to address the crisis in Africa and elsewhere. Your leadership 
could make a very substantial contribution to addressing the epidemic, 
and we are extremely heartened that you are making this a priority.
    Question. Can you give us more details on your thinking in this 
area?
    Answer. As I said during my trip to Africa, the HIV/AIDS pandemic 
is more than a health issue or social problem, but also a human 
tragedy, an economic and security problem, an issue of poverty, and a 
destroyer of societies.
    That is why I have joined the President, Secretary Thompson and 
others in the Administration and throughout the government in 
increasing the United States' already leading role as a provider of 
bilateral assistance and coordinator of the international response to 
this global plague.
    Question. What do you consider to be an appropriate mix of 
prevention, care and treatment?
    Answer. The Administration firmly believes that an integrated 
approach addressing prevention, training, care and treatment, and 
research is essential to successfully fighting HIV/AIDS. While 
prevention remains our primary focus as the most proven and cost 
effective way to save lives and reduce suffering, we recognize that 
providing care and community support can reduce the impact of the 
pandemic. We are also committed to developing indigenous capacity to 
delivery drugs including, on a pilot basis, antiretroviral drugs to 
prolong life and reduce suffering.
    Question. How do prevention technologies such as vaccines and 
microbicides fit into your overall funding strategy?
    Answer. The Administration is actively engaged in a cooperative 
effort to help developing countries gain access to HIV/AIDS prevention 
and treatment.
    We continue to pursue a comprehensive and integrated approach to 
combating the global HIV/AIDS pandemic, with a focus on education and 
prevention, as well as research and treatment in a continuum of care. 
Research on AIDS vaccines and the development of effective microbicides 
are programs supported by USAID and NIH.
                                 ______
                                 

 Questions for the Record Submitted to Secretary of State Colin Powell 
                   by Rep. Carolyn Cheeks Kilpatrick

Andean Counterdrug Initiative
    Question. Do you intend that the increase in Latin America funding 
under the Initiative will free up additional resources in the 
Development Assistance account for Africa or will Latin America and 
Africa receive similar funding priority in FY 2002?
    Answer. Increases in the appropriation for International Narcotics 
Control and Law Enforcement (INCLE) and the Economic Support Fund (ESF) 
under the new Andean Regional Initiative for FY 2002 do not replace 
development assistance programs. The increases are additive to other 
economic assistance and raise assistance to the Western Hemisphere 
significantly. Each region has extraordinary, critical problems to deal 
with--the threat of drugs in Latin America--the HIV/AIDS pandemic in 
Africa. At the same time, both regions continue to face high levels of 
poverty, serious health problems and challenges to democracy, which are 
normally addressed by Development Assistance. Each region has high 
priority for funding.
    Question. Do you expect funding to be roughly equal in future 
years? Is the Administration giving a higher or equal priority to Latin 
America or Africa?
    Answer. There are pressing, extraordinary needs in both regions; 
however, funding levels for either region will depend largely on the 
severity of the need, local willingness to effect change, and the 
availability of funds. In either case, solutions are not short-term.
    Question. How can we minimize the impact of the anti-drug 
operations of the program on legitimate agricultural farming 
operations?
    Answer. The manual eradication efforts in Peru and Bolivia have had 
no real impact on legitimate agriculture in those countries and, in 
Colombia, every effort is made to protect legitimate farming operations 
from possible damage from the aerial spray program. The crop dusting 
aircraft spray the glyphosate at low altitude against predetermined 
fields, identified by earlier reconnaissance. The planes carry 
computerized GPS monitoring equipment that records their position and 
the use of the spray equipment. This system serves to verify that 
glyphosate is being accurately applied to intended areas. After 
spraying, combined US-Colombian teams also visit randomly chosen 
fields, security permitting, to verify that the treated plants were 
indeed coca. To further aid in the identification of fields not subject 
to aerial eradication, the Government of Colombia is currently working 
to produce a comprehensive digitized map indicated exempted areas.
    Furthermore, the Government of Colombia maintains a system to 
compensate farmers for damages caused by the program. Over the past few 
months, we have encouraged the Colombian Government to streamline the 
process and efforts have begun to better educate the public about that 
option.
    Question. How do you think that the Andean Counterdrug Initiative 
addresses this problem more effectively than past efforts to combat 
drug trafficking? At what point would the Administration consider 
reevaluating this current approach to the War on Drugs?
    Answer. Just as Plan Colombia represented an improved approach by 
considering drug trafficking as part of Colombia's larger crisis, the 
Andean Counterdrug Initiative benefits from its appreciation of the 
illegal drug industry as part of something bigger. Drug trafficking is 
a problem that does not respect national borders and that both feeds 
and feeds upon the other social and economic difficulties with which 
the Andean region is struggling.
    The success of counternarcotics programs is monitored on a regular 
basis and refinements to policy occur regularly. That said, aspects of 
our policy are currently subject to a broader policy review by the 
Administration.
HIPC Status and Expansion
    Question. What is the progress of the HIPC initiative? Do you 
envision further steps toward debt relief . . . such as opening up the 
qualification criteria to permit heavily indebted countries like 
Nigeria and Haiti to benefit?
    Answer. Twenty-three countries are now benefiting from the enhanced 
HIPC Initiative, which will result in more than $34 billion worth of 
debt relief to the poorest, most heavily indebted countries. These 
countries have agreed to channel savings from debt relief to support 
poverty alleviation programs drafted in consultation with donors and 
civil society. Of those yet to benefit from HIPC treatment, nine 
countries are affected by conflicts that will make it difficult for 
them to meet the economic performance and poverty reduction conditions 
necessary to benefit at this time.
    The Administration does not support the expansion of HIPC 
eligibility to countries not currently qualified. Expanding the scope 
of the current initiative to include Nigeria would involve an extremely 
large budget cost and would open the door to additional requests for 
debt relief from others in similar circumstances, including Indonesia, 
Pakistan, and others. Countries such as Haiti, that are not heavily 
indebted, can benefit more from other types of assistance.
Peacekeeping
    Question. What does the administration see as the needs of Sierra 
Leone, Congo and Ethiopia/Eritrea and how will these additional 
peacekeeping funds be used to meet those needs?
    Answer. We have seen a significant rise in the need for 
international peacekeeping in Africa.
    Our Contributions for International Peacekeeping Activities (CIPA) 
funds will support the UN mission in Sierra Leone as it assists the 
Government of Sierra Leone to reestablish its authority throughout the 
country. An important part of this process is UN supervision of the 
disarmament of the rebel Revolutionary United Front, which has already 
begun.
    In Ethiopia/Eritrea, UN peacekeepers will patrol the Temporary 
Security Zone separating the two former combatants, as experts 
determine the precise location of the disputed border. U.S. support for 
this process will enable the two countries to get back on the track of 
democracy and economic development.
    The UN mission in the Congo will play a crucial role in ending a 
war which has involved most of the countries in the region and cost 
hundreds of thousands of lives. A peaceful Congo will contribute 
greatly to restabilizing almost a third of the continent. The U.S. 
believes this is a critical mission.
    Our support for peacekeeping in Africa goes beyond UN peacekeeping 
activities. Through the African Crisis Response Initiative, bilateral 
assistance to selected African countries, we prepare African forces to 
undertake peacekeeping in their own region.
    Question. Could you tell the Subcommittee how the United States 
support for UNFPA fits into our overall strategy for helping the 
nations of Sub-Saharan Africa achieve sustainable economic development?
    Answer. The activities of the UN Population Fund (UNFPA) are fully 
consistent with overall U.S. efforts in developing countries to raise 
the standard of living, reduce poverty and lessen disparities of wealth 
within and among countries.
    More specifically in sub-Saharan Africa, UNFPA is working to reduce 
some of the region's poor reproductive health indicators, such as the 
high levels of maternal and infant mortality. In order to improve these 
conditions, UNFPA provides reproductive health care, training of 
health-care providers, and information and services to protect the 
health of mothers and their children. UNFPA also works in two areas 
that are particularly critical in the African development context: 
advocating for the elimination of female genital mutilation (FGM) and 
combating the spread of HIV/AIDS through advocacy efforts, especially 
among young people, and the provision of condoms. UNFPA does not fund 
abortions nor does it advocate abortion as a means of family planning.
Conflict Prevention
    Question. I commend these efforts and would like to have your views 
on how you see these alliances and relationships evolving?
    Answer. The manner and nature of our formulation of strategic 
alliances is still in its early stages. USAID, which has placed 
conflict prevention as one of its three priority pillars, will take the 
lead. Two levels of alliances can be expected: general and country-by-
country. An example of a general alliance is working with organizations 
which have a conflict prevention program to develop a broad strategic 
approach, such as the Institute for Contemporary Studies, The Woodrow 
Wilson Center, and InterAction. An example of a specific alliance is 
working with the petroleum companies in Nigeria who have demonstrated 
an interest in USAID's Police Reform effort started there. United 
Kingdom's Department for International Development is also cooperating 
with USAID on this activity in Nigeria.
West Africa
    Question. I have a deep interest in Africa and its development. The 
wars in Sierra Leone, Guinea and Liberia have destabilized West Africa. 
The political situation in Cote d'Ivoire (Ivory Coast) is extremely 
fragile. A decade ago the Ivory Coast was seen as a model of political 
stability and economic development. This is no longer the case. The 
loss of life in West Africa as a result of these conflicts has been 
horrendous. West Africa has enormous potential which can only be 
realized in a stable environment.
    What is the Administration proposing to resolve these conflicts and 
restore political stability so economic development can advance?
    Answer. The Bush Administration is working to end the brutal 
conflict in West Africa and to stop the Revolutionary United Front's 
(RUF) terrible atrocities. We are continuing diplomatic and economic 
pressure on Liberia--aimed at cutting external support for the RUF. 
Working closely with the British, we secured adoption of UN Security 
Council sanctions on Liberia. Vigorous enforcement of the sanctions, 
plus the credible threat of further sanctions, are powerful tools for 
inducing Liberian President Taylor to end his support for the RUF.
    We are encouraged by UNAMSIL's deployments deep into RUF-held 
territory as it carries out its mission to assist the Government of 
Sierra Leone in progressively extending state authority throughout the 
country, including the diamond producing area.
    But sanctions on Liberia and support for UNAMSIL are only parts of 
our more comprehensive strategy for ending the conflict in Sierra Leone 
and ensuring regional stability. Operation Focus Relief training of 
West African battalions, support for UK efforts to rebuild the Sierra 
Leone Army, assistance to refugees and internally displaced persons, 
assistance to Guinea, support for establishing the Sierra Leone Special 
Court, an information campaign aimed at supporting disarmament, support 
for the Disarmament, Demobilization and Reintegration program for ex-
combatants, support for a certification regime for export of rough 
diamonds, support for the electoral process and support for rebuilding 
civic institutions in Sierra Leone are other key components of our 
strategy.
Sudan
    Question. I know that my colleagues on Commerce, State and Justice 
subcommittee raised Sudan with you during your recent hearing. I would 
like to second their views that the United States renew efforts to 
promote a peaceful resolution to the conflict in that country and stop 
the bloodshed and loss of innocent lives.
    Can you tell us what plans you have for the U.S. to assist peace 
efforts in Sudan?
    Answer. The United States wants to support a serious effort aimed 
at creating a just peace in Sudan. We are actively considering the 
appointment of a special envoy to address this issue. We are 
intensifying our work with other countries interested in facilitating a 
solution to the conflict.
    While responding to immediate needs and concerns, we must, of 
course, be realistic and prepared for a long-term commitment. The 
Sudanese civil war has been raging for 18 years. Both sides have taken 
firm and mutually exclusive positions on key issues such as the role of 
religion in the state, boundaries, sharing of oil revenue, and self-
determination for the south. Moving the peace process forward will not 
be easy or quick.
    We recently signed a $3 million contract to provide assistance to 
the opposition National Democratic Alliance to improve its ability to 
participate in the peace process. The focus of the contract is on 
teaching negotiating skills, organizing workshops, and initiatives that 
will enhance the opposition's ability to participate in peace 
negotiations.
Public Diplomacy
    Question. How are efforts in this area progressing?
    Answer. The State Department is a stronger team because of the 
skills and expertise USIA staff brought into the October 1999 
integration. Public diplomacy and public affairs are central to our 
efforts to implement U.S. foreign policy.
    Our expanding efforts with technology--both the Internet and 
broadcasting--are enabling us to reach more and new audiences more 
directly. We do this in keeping with Smith-Mundt requirements--with our 
public diplomacy programs focused on overseas audiences, and our public 
affairs efforts on the U.S. public.
    Question. How are your efforts progressing to place senior 
minority, particularly African American, diplomats in positions of 
responsibility in the Department and in overseas missions? I would be 
interested in any statistics you may wish to share with the committee.
    Answer. The Department remains committed to having a workforce, 
both overseas and in Washington, that directly reflects the great 
strength, talent and diversity of the American people. As of May 31, 
2001, 47, or 30%, of our 156 overseas Chief of Mission postings were 
held by minorities or non-minority females; 15 or 9.6% are African 
American. All of the new rotational assignments to these positions have 
not yet been announced. When they are, we currently anticipate only a 
modest gain in these numbers and percentages. Of our most recent 
Washington appointments at the Assistant Secretary or equivalent level, 
two are African American and one is Hispanic.


                           W I T N E S S E S

                              ----------                              
                                                                   Page
Askey, T.J.......................................................    93
Ford, J.T........................................................     1
Mosely, E.L......................................................     1
Powell, Hon. C.L.................................................   169
Robson, J.E......................................................    93
Watson, P.S......................................................    93


                               I N D E X

                              ----------                              

                   Implementation of Hurricane Mitch
(Jess T. Ford, Director, International Affairs & Trade, GAO Everett L. 
                   Mosley, Inspector General, USAID)

                                                                   Page
Adequate Coordination............................................    35
AID'S Capabilities...............................................32, 53
Chairman Kolbe's Opening Statement...............................     1
Contracting......................................................    33
Deadlines........................................................    44
Disaster Implementation Review...................................    46
Donor Countries..................................................37, 43
Five-Minute Rule.................................................    32
Flexibility......................................................    41
Foreign Governments' Oversight Capacity..........................    48
Host Country Contracting.........................................    51
Human Capital Management.........................................    34
Monies to Other Agencies.........................................    37
Mr. Ford's Opening Statement.....................................     4
Mr. Mosley's Opening Statement...................................    29
Nicaragua........................................................    49
Operating Expenses...............................................35, 43
Rebuilding the Frame.............................................    41
Repayment Rates..................................................    45
Retiring Workforce...............................................    36
SAI's In Latin America...........................................    50
Systemic Problem.................................................    33
Technical Staff In-House.........................................    33

                           Secretary of State
                  (Secretary of State Colin L. Powell)

Africa...........................................................   210
America's Role and Responsibility................................   216
Andean Counterdrug Offensive.....................................   213
Budget.........................................................213, 214
Chairman Kolbe's Opening Statement...............................   169
Collaborative Process............................................   222
Drug Certification Process.......................................   219
Foreign Aid Programs.............................................   208
Global Health Initiative.........................................   220
International Fund for Ireland...................................   219
Middle East...............................................202, 209, 217
Mrs. Lowey's Opening Statement...................................   171
OPIC/Ex-IM.......................................................   212
Plan Colombia....................................................   207
Statement of Administration Policy...............................   225
Statement of Secretary of State Colin Powell.....................   174
The Caucasus.....................................................   211

                 Export Financing and Related Programs
   (U.S. Export-Import Bank--John E. Robson, President and Chairman; 
Overseas Private Investment Corporation--Peter S. Watson, President and 
    CEO; US Trade and Development Agency--Thelma J. Askey, Director)

Chairman Kolbe's Opening Statement...............................    93
Ms. Askey's Opening Statement....................................   118
Mr. Robson's Written Statement...................................    99
Mr. Watson's Opening Statement...................................   110

                                

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