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



      FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS 
                        APPROPRIATIONS FOR 2003

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS
                             SECOND 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
 Department of State..............................................    1
 Export Financing and Related Programs............................  189
 Department of the Treasury.......................................  265

                              

                                ________
         Printed for the use of the Committee on Appropriations
                                ________
                     U.S. GOVERNMENT PRINTING OFFICE
 81-778                     WASHINGTON : 2002




                      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)

 
      FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS 
                        APPROPRIATIONS FOR 2003

                              ----------                              

                                      Wednesday, February 13, 2002.

                   UNITED STATES DEPARTMENT OF STATE

                                WITNESS

HON. COLIN L. POWELL, SECRETARY OF STATE

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe. The Subcommittee of Appropriations on Foreign 
Operations will come to order. We are here today to welcome 
Secretary Powell for our first hearing of this year on the 2003 
budget cycle.
    Mr. Secretary, we are especially pleased to have you lead 
off our hearings this year. I will begin with a statement and 
then ask Ms. Lowey for hers; and then, Mr. Secretary, we will 
ask you for your comments.
    Mr. Secretary, we especially want to thank you for being 
here today. We know how busy a day it is with President 
Musharraf in town, and I know you have come from a luncheon 
with him. Here, as I think I explained to you, on Capitol Hill 
we are debating campaign finance reform, and we expect frequent 
interruptions during the course of the day. I know your time 
frame is such that you have to leave around 3:30 for your 
appointment to be with the President.
    Mr. Secretary, you have been involved in budget and 
appropriations matters for a long time, since you worked with 
Secretary Weinberger back in the 1980s. You know that every 
budget that is submitted by a President is a draft. When it 
comes to, at least the 150 account, the foreign operations 
account, I am of the view that this draft needs quite a bit of 
work.
    You can expect this subcommittee to work with you to 
produce a final bill that meets the needs of Congress, the 
President and the Nation. That is what we did last year and 
that is what I expect us to do again this year--to move our 
bill forward so we can have early and timely enactment. 
However, we face greater challenges than ever. Mr. Secretary, 
the budget for the subcommittee simply doesn't accommodate the 
national security commission so eloquently expressed by 
President Bush in his State of the Union address.
    The emergency response fund appropriated in the 
supplemental act last September appears to meet your 
requirements during the remaining months of fiscal year 2002, 
so I am unaware of the need for any supplemental appropriations 
for foreign operations in the current fiscal year 2002 budget. 
The gap, and I would call it a dangerous gap, between 
requirements and resources, emerges in this request for fiscal 
year 2003.
    Working together, Congress and the President can roll back 
international terrorism, can reduce threats from weapons of 
mass destruction; Congress may fully fund the President's 
foreign aid budget. But it is very unlikely that Congress will 
on it is own initiative go any further than that. Our bill can 
meet the national security requirements that were identified 
since September 11, but only if the President amends his 
request for fiscal year 2003.
    Mr. Secretary, you fully understand that what we spend on 
foreign assistance is an integral part of our national security 
budget. I am not sure that everybody in the administration 
shares that understanding or that view.
    An unanticipated obstacle is a handful of senior advisors 
in the White House complex. As we work to support partners in 
the war against terrorism, some advisers of the President are 
attempting to unravel last year's conference agreement. While I 
am sure they share the President's focus on the mission at 
hand, most of us privately agree that the budget for foreign 
operations is dangerously inadequate. It largely reflects a 
world that ended on September 11.
    A few adjustments were made to include new requirements for 
our coalition partners in Operation Enduring Freedom, but not 
nearly enough by my calculations. Frontline States that risk 
popular unrest to support us in current and future military 
operations must have assurances that we will, in turn, 
adequately support their efforts at internal reform. Countries 
such as Turkestan, Oman, Pakistan, Turkey, Tajikistan come to 
mind when I make that statement.
    It seems to me, Mr. Secretary, that too much of this is 
business as usual, just exactly business as we have done it 
before. Major initiatives seem to be to eliminate the Child 
Survival and Health Fund and to restore the annual drug 
certification process. No funds are shown for Afghanistan in 
fiscal year 2003, although your testimony mentions $140 
million.
    Let me mention, of the proposals that appear less than 
convincing, they may make great press releases, but we have to 
consider the forgone opportunity costs and remind ourselves 
that none of them are directly relevant to the war against 
terrorism which is, as the President stated over and over 
again, our first priority.
    This budget would increase funding for AIDS so rapidly that 
it calls for sharp cutbacks in maternal health, child survival 
and the equally critical struggle against resurgent 
tuberculosis and malaria. We all want to sustain the fight 
against HIV-AIDS. In fact, I have made that, since assuming the 
chairmanship of this subcommittee, a priority of mine. I know 
it is an urgent, personal concern of yours as well. So by all 
means, we do need to increase funding for AIDS, but we need to 
do so at a pace that can assure effective utilization.
    The budget would have us commit another $200 million to the 
global ATM fund before it has a staff or has made a single 
grant, but we are informed that $50 million will be taken this 
year from the ongoing USAID child survival and health programs 
for this global fund that is not yet operational. I hope that 
is incorrect.
    This budget proposes to add $40 million for the Peace Corps 
at a time when the management of security issues of that agency 
remain unresolved. Does it make sense to send additional Peace 
Corps volunteers to volatile Frontline States? Do we really 
need yet another training center for law enforcement officials? 
On the other hand, are we giving enough attention to the needs 
of frontline nations, to promoting America's public diplomacy, 
to building the foundations of democratic institutions in 
Islamic states that might counter the rise of theocracy there 
or to laying the foundations of economic development in the 
least developed countries that are potential breeding grounds 
for terrorism?
    Before I conclude these remarks, I do want to express my 
personal appreciation to you as well as to four of your 
officials, Deputy Secretary Rich Armitage, Under Secretary for 
Economic Affairs Al Larson, Assistant Secretary Paul Kelly, who 
shared our recent journey to Central Asia, and Joe Bowab, your 
intrepid Budget Coordinator who, I know, had major surgery at 
the end of budget preparation season and is probably the reason 
that any of the botches were made in the budget here.
    Secretary Powell. Of course.
    Mr. Kolbe. Mr. Secretary, the reemergence of budget 
deficits limits the amount of spending that we can afford; yet 
in this war against terrorism and nations that seek to threaten 
us with weapons of mass destruction we are asking nations to 
choose our side. Governments that make a clear choice for the 
freedom coalition need to know that the United States stands 
ready to help them also.
    I would just say, Mr. Secretary, if there is a Presidential 
request to amend the budget or to increase it, that I think 
this subcommittee will give that every consideration.
    I would like to ask Mrs. Lowey for her remarks, and then, 
Mr. Secretary, we will take your statement.
    Mrs. Lowey. Thank you, Chairman Kolbe. And it is a pleasure 
for me to welcome you, Mr. Secretary, to the Foreign Operations 
Subcommittee once again. We are indeed fortunate to have you 
represent the United States of America at this very, very 
difficult time; and I, too, want to congratulate you and your 
staff for the information you shared with us. It has really 
been a pleasure working with you, and I am delighted to welcome 
you to this committee, and I hope it will be a frank and open 
discussion.
    With respect to the fiscal year 2003 request, I am 
encouraged that some increases have been sought, and I 
appreciate the role that I am sure you played in achieving 
this. However, I share the chairman's view that many of the 
priorities are skewed and the increases are small, especially 
in light of the huge increases we have seen in the defense 
budget.
    The most glaring problem, for me, is the lack of resources 
for the reconstruction of Afghanistan and the needs of Central 
Asian countries. I understand that you hope to request 
supplemental funding for these needs, but there is no assurance 
that the rest of the administration will support this approach; 
and in any case, the funding gaps for reconstruction occur in 
fiscal year 2003 and fiscal year 2002. Funding the 
reconstruction and development needs in these countries should 
be our highest priority, not left for another day.
    There are other problems too, many have been expressed by 
our Chair. Increases for the HIV-AIDS programs have been offset 
by decreases in other infectious disease and child survival 
programs. We still do not have a commitment from you to even 
maintain the fiscal year 2001 level of 425 million for 
reproductive health, much less achieve the fiscal year 2002 
level of $446 million.
    At a time when education is seen as the keystone to 
development in Pakistan, Afghanistan, Africa and around the 
world, you propose only a token increase for basic education. 
High levels of funding are continued for the Andean initiative, 
and there are a number of increases proposed for military 
assistance and training programs which will require careful 
scrutiny.
    You have proposed decreases for both the New Independent 
States and Eastern Europe despite the fact that so much remains 
to be done in these regions. I certainly intend to work with 
you and our chairman, Mr. Secretary, but I hope you can 
understand my concerns.
    The members of the Foreign Operations Subcommittee were 
pleased to have the opportunity to meet with you earlier this 
month to discuss programs and priorities. At that gathering you 
expressed your appreciation for both the increased funding 
level achieved and the flexible authorities contained in the 
fiscal year 2002 Foreign Operations bill. In fact, the bill was 
the product of bipartisan collaboration in both the House and 
the Senate with the full participation of the administration. 
It is therefore regrettable that the administration has chosen 
to revisit the compromise reached on the United Nations 
Population Fund.
    One of the most unfortunate results, Mr. Secretary, of this 
decision is the erosion of trust that has occurred between 
Congress and the White House. When is a deal a deal, Mr. 
Secretary?
    There are innumerable instances in the fiscal year 2002 
bill where the subcommittee showed remarkable cooperation, 
whether it was restraint on the number of the earmarks, the 
granting of numerous waiver authorities or providing additional 
supplemental resources for urgent needs even without a budget 
request. These actions produced a bill signed by the President, 
that gave you more funding than you asked for with extremely 
flexible authority to carry out the war on terrorism.
    I know you agree with my assessment, Mr. Secretary, and 
that the final decision on UNFPA funding lies with the White 
House. But Congress cannot and will not wait forever for this 
decision. Perhaps you could comment on the status of this 
decision in your opening statement.
    Mr. Secretary, you have been instrumental in creating a 
national consensus that recognizes the direct correlation 
between diplomacy and robust levels of foreign assistance and 
our national security, and I want you to know that I personally 
am deeply appreciative for your leadership on this front. The 
United States has been generous with its resources, but we must 
do better than the requests we have before us today.
    Americans are more aware than ever before of the need for 
constructive engagement with the developing world, and I hope 
that the administration would share this realization and break 
new ground in the foreign assistance budget. Instead, this 
proposal, frankly, is virtually the same size pie with the 
pieces cut just a little differently. The lack of vision in 
this regard is disappointing indeed.
    So I want to close by thanking you again, thanking youfor 
your leadership, thanking you for appearing before us today. I look 
forward to working with you, with our distinguished Chair, and I look 
forward to your testimony.
    Mr. Kolbe. Mr. Secretary, you may proceed with your 
statement. As you know, we will put the entire statement in the 
record if you want to summarize it.

                  Secretary Powell's Opening Statement

    Secretary Powell. Thank you very much, Mr. Chairman. I do 
have a prepared statement and I thank you for putting it in the 
record, for the benefit of the members and for the staff.
    Let me begin, Mr. Chairman and Mrs. Lowey, by thanking both 
of you and all the members of the committee for the solid 
support that you have provided to me and to the State 
Department over the past year as we sought to reinvigorate the 
Department, as we sought to rearrange our priorities, and as we 
sought to get the real increases that I believe are necessary 
to conduct foreign policy in the 21st century. You gave us more 
than we asked for last year, and we are deeply appreciative of 
that.
    As you know, we have come in for more real growth this 
year. I wish it had had been a lot more real growth, but the 
nation is facing many challenges. These challenges were 
increased in scale as a result of the events of 11 September, 
requiring significant increases for homeland defense and for 
the Defense Department, which is really also part of our 
foreign operations, the security shield for the world, really, 
and for the United States. The President had to make some very 
tough choices with respect to resourcing, and it was quite 
appropriate that Defense and Homeland Security got significant 
increases.
    I am pleased that the State Department also was able to 
achieve some level of real growth in the President's budget, 
especially while facing a deficit that we had not expected a 
year or so ago. I am pleased with what the President has been 
able to allocate to the Department, and my task today is to 
present it to you, ask for your support and answer whatever 
questions you may have.
    Before going into my opening statement, an abbreviated 
version of what I have submitted for the record, I might touch 
on a few points that have been mentioned. With respect to the 
United Nations Population Fund, you are quite right, Mrs. 
Lowey. I know the arrangement that was made last year in 
considerable detail. We have had intense discussions about this 
in the Administration. And I hope that a decision will be 
forthcoming from the White House in the very near future, but I 
cannot tell you what day of the week. But we are looking for a 
way that will square the circle and be faithful to the 
commitment that was made to the Congress by each body with each 
other, Republicans and Democrats together. The White House was 
aware of it, the administration was aware of this arrangement. 
Even though not a party to this arrangement, we certainly were 
witting of what was going on; and the President feels strongly 
about finding a solution that is faithful to the arrangement 
that had been made up here on the Hill.
    With respect to some of the decreases you mentioned, Mrs. 
Lowey, in the Newly Independent States, in Southeast Asia, we 
have to find some way to reallocate money. Since a number of 
these countries have been given that start on the road to 
progress in the early 1990s, we thought it was prudent to make 
some adjustments in their accounts that I think, upon 
examination, will seem to be prudent.
    With respect, Mr. Chairman, to your question about an 
amendment as opposed to a supplemental, I understand your 
point. We will take it back to the Department and to the 
Administration. I just might point out that there are some 
needs that we have in 2002 that I think will be requiring 
supplemental action, and we would not be able to wait for a 
budget amendment--operating security and major facilities costs 
in Kabul and the Frontline States, public diplomacy efforts 
that we are trying to put in place and accelerate. We became 
very much aware of the need for a more aggressive public 
diplomacy effort in the administration.
    Some other activities having to do with police and security 
requirements in Afghanistan and the Frontline States, military 
assistance in Afghanistan and the Frontline States.
    Many of the things you have touched on, Mr. Chairman, are 
pressing, and, for that reason, as we consider how to move 
forward, we have to keep open the option of a supplemental and 
a budget amendment, because I think there are some things that 
will need supplemental funding. And I take your point very much 
to heart and will discuss it with my colleagues back in the 
Department as well as in the Administration.
    With respect to HIV-AIDS funding, this has been quite a 
success that the world has come together and contributed well 
over a billion dollars, up to $1.7 billion, to the new global 
trust fund. So far, our contribution has been $300 million, 
$200 million from the administration and the Congress 
generously added another $100 million. And for 2003 we are 
adding another $200 million to bring it to $500 million, $100 
million out of State Department and another $100 million from 
the Department of Health and Human Services.
    Quite correctly, as was pointed out, some of the money that 
we are using for that plus-up came out of some of our child 
survival accounts, and we are now working with Tommy Thompson 
at HHS to see if he can help us replenish those accounts, 
because it is a limited amount of money we have. There are 
pressing needs that we are trying to fill, but I am anxious to 
see that we do not take money away from the neediest of our 
fellow citizens around the world, children. Right now that is a 
problem that I have to do more work on within the Department 
and working with the Department of Health and Human Services.
    I think most of the other issues you have touched on, were 
touched on so far, Mr. Chairman and members of the committee, I 
will cover in my opening statement and also in my prepared 
statement.
    You may recall, Mr. Chairman, that in your opening 
statement last year you reminded me that this committee 
provides two-thirds of the funds that the State Department 
needs and uses; and I told you that your words will be 
emblazoned on my forehead, I would never forget that statement. 
And they are emblazoned there.
    But you may also remember that I told you that I believe 
that I am more than just a foreign policy adviser to the 
President. I am the chief executive officer and chief operating 
officer of the State Department. I have those responsibilities 
as well as being foreign policy adviser. In wearing that hat, 
my CEO hat, I want to tell you that we have made some solid 
advances over the past year--advances in hiring and bringing 
state-of-the-art information technology to the Department and 
in streamlining our overseas building process and making our 
buildings more secure for our people.
    Morale is high at the State Department. My folks are proud 
of what they are doing. They are proud of being in the front 
line of offense for the national security interest of America 
and of our friends and allies. I want to thank you, Mr. 
Chairman, and all the members of this subcommittee in your 
capacity as members of the subcommittee, but also as members of 
the full body, for the support that you have provided. And I 
want to ask you for your full support in full committee and on 
the floor, when it gets there, for our $8.1 billion request for 
State Department and related agencies for 2003.
    I want to keep the momentum moving, but of course I need 
your support so very, very much for the $16.1 billion request 
for foreign operations. These dollars will support the 
continuing war on terrorism, the work we are doing in Colombia 
and the Andean region at large, and our efforts to combat HIV-
AIDS and other infectious diseases around the world.
    In addition, these funds will support essential development 
programs in Africa, the important work of the Peace Corps and 
the scaling up of the work of the Peace Corps, and our plan to 
clear arrearages at the multilateral development banks, 
including the Global Environment Facility.
    We are requesting an estimated $5 billion to fight 
terrorism, as well as alleviate the conditions that fuel 
violent terrorism in the foreign operations and state 
operations budgets. This funding includes $3.6 billion for 
economic and security assistance, military equipment, and 
training for Frontline States and our other partners in the war 
on terrorism.
    The $3.6 billion from the foreign operations account 
includes $3.4 billion for Economic Support Fund, International 
Military Education and Training, Foreign Military Financing, 
and Freedom Support Act activities. It also includes $88 
million for programs in Russia and other states of the former 
Soviet Union to reduce the availability to terrorists of 
weapons of mass destruction that are available in Russia and 
other former republics of the Soviet Union. There is a request 
for $69 million for counterterrorism engagement programs, 
training, and equipment to help other countries fight global 
terror, thereby strengthening our national security; and $4 
million for the Treasury Department's Office of Technical 
Assistance to provide training and necessary expertise to 
foreign finance offices to halt terrorist financing.
    Mr. Chairman, in the fiscal year 2003 budget request there 
is, as you noted, approximately $140 million available for 
Afghanistan, including repatriation of refugees, food aid, 
demining, and transition assistance. It doesn't leap out to you 
as a single item, and there may be a need--there will be a need 
for additional funding as we go forward through supplemental or 
amendment action in order to match what we did last year and 
perhaps even do more. As you know, we committed $297 million, 
but a lot more is going to be required; but we have identified 
$140 million already in 2003.
    I know that President Bush, the Congress, and the American 
people recognize fully that rebuilding that war-torn country 
will require additional resources, and that our support must be 
and will be a multiyear effort. Your own trip to the region, 
Mr. Chairman, I am sure, reinforced your view of that same 
proposition.
    We may need additional funding for the war on terrorism 
either in the form, as I mentioned earlier, of a 2002 
supplemental or a 2003 budget amendment. Moreover, to meet our 
commitment to assist Afghanistan in its reconstruction efforts, 
we will definitely need additional funding for fiscal year 
2003.
    Moving on in our budget request for foreign operations, we 
are requesting $731 million for the multiyear counterdrug 
initiative in Colombia and other Andean countries that are the 
source of the cocaine sold on America's streets. ACI assistance 
to Andean governments will support drug eradication, 
interdiction, economic development and development of 
government institutions. In addition, the Colombians will be 
able to stand up a second counterdrug brigade. Assisting 
efforts to destroy local coca crops and processing labs there, 
doing it there, increases the effectiveness of U.S. law 
enforcement here.
    In addition to this counterdrug effort, we are requesting 
$98 million in FMF to help the Colombian Government protect the 
vital CLC oil pipeline from the same terrorist organizations 
that are involved in elicit drugs, the FARC and the ELN. Their 
attacks on the pipeline shut it down for 240 days in 2001, 
costing Colombia revenue, causing serious environmental damage, 
and depriving us of a source of petroleum. This money will help 
train and equip two brigades of the Colombian armed forces to 
protect the pipeline.
    We are also requesting $1.4 billion in 2003 for USAID 
global health programs. Of this amount, we are requesting $540 
million for bilateral HIV-AIDS prevention care and treatment 
activities and $100 million for the global funds to fight AIDS, 
tuberculosis and malaria, as I mentioned earlier. All of this 
funding will increase the already significant contribution to 
combating the AIDS pandemic that we have made and will make us 
the single largest bilateral donor to that effort.
    I should add that the overall U.S. Government request for 
international HIV-AIDS programs exceeds $1 billion, including 
the $200 million for the global fund. You made reference to the 
fund earlier, Mr. Chairman. I am pleased that it is now in the 
process of being staffed.
    Procedures are being put in place, there is a structure and 
a request for proposals being issued, and hopefully disbursal 
from the funds will begin in the not-too-distant future. I 
think that fund has come together quickly in a very prudent 
manner and will be well managed. Soon people will begin to see 
benefits arriving in their countries, in their villages, in 
their towns.
    Mr. Chairman, we all heard the President's remarks in the 
State of the Union address with respect to the U.S.A. Freedom 
Corps and his objective to renew the promise of the Peace Corps 
and to double the number of volunteers in the Corps in the next 
5 years. We have put $320 million for the Peace Corps in the 
2003 budget request, an increase of over $42 million from our 
fiscal year 2002 level.
    I take seriously the concern you raised about the security 
for additional Peace Corps volunteers, and I will make sure 
that as we expand the program, this is uppermost in our minds. 
But my understanding of the program and the plans that exist 
for the program, it is a scaling up that is achievable with 
these added resources.
    The Peace Corps will open programs in eight countries, 
including the reestablishment of currently suspended posts, and 
place over 1,200 additional volunteers worldwide. By theend of 
2003, the Peace Corps will have 8,000 volunteers on the ground.
    The 2003 request also includes an initiative to pay one-
third of the amount the United States owes to multilateral 
development banks for our scheduled annual commitments. With 
U.S. arrears currently now totaling $533 million, the request 
would provide $178 million to pay one-third of our total 
arrears during the fiscal year. These banks lend to and invest 
in developing economies, promoting economic growth and poverty 
reduction and providing environmental benefits. We need to 
support them.
    All of these programs, Mr. Chairman and members of the 
subcommittee, are integral to our conduct of foreign policy. 
Since that heart-rending day in September when the terrorists 
struck in New York and Virginia and Pennsylvania, we have seen, 
as you have noted, Mr. Chairman, why the conduct of our foreign 
policy is so important. We have had great success over the past 
5 months in the war on terrorism, especially in Afghanistan, 
and behind the courageous men and women of the armed forces has 
been the quiet, steady course of diplomacy, assisting our 
military's efforts to unseat the Taliban government and defeat 
the al Qaeda terrorists in Afghanistan.
    We have reshaped the whole region and established a new 
U.S.-Pakistan relationship. I just left, as you noted, a lunch 
with President Musharraf, and you can see here a courageous 
leader who has put his country on a path 180 degrees in a 
different direction than it was headed on the 11th of 
September.
    We have been able to set up a new interim authority in 
Kabul, and I think we should be very proud of the role that the 
United States and United States diplomats played in supporting 
the Bonn Conference, which resulted in the creation of an 
interim authority, and the superb work our diplomats are doing 
there. The Taliban are gone or on the run; terrorists, dead or 
in jail, or also on the run. We are also forming new important 
relations in Central Asia with Uzbekistan, Kazakhstan, 
Tajikistan, and Turkmenistan. They all want to have a better 
relationship with the United States.
    What is so very, very interesting is that we have been able 
to achieve this without causing a problem with Russia. Russia, 
a year or so ago, would have been terribly distressed to see 
the kinds of things we are doing in that part of the world now. 
But I would like to tell the story of my friend Foreign 
Minister Igor Ivanov, whom I have come to know very well over 
the last year, just as President Bush has come to know 
President Putin.
    A year ago, when we first met and started measuring each 
other and getting to know one another, he would complain, ``We 
don't like you all in Central Asia. That is really our part of 
the world. Why don't you go somewhere else?'' But last week he 
was asked at a television interview, ``Foreign Minister 
Ivanov,'' this is in Russia ``aren't you worried about the 
Americans having a presence in that part of the world? They are 
the enemy.''
    And his answer was, ``Wrong. The enemy is fundamentalism. 
The enemy is terrorism. The enemy is drugs. The enemy is 
smuggling. Now we are allied with the Americans in meeting this 
common threat.''.
    That is a sea change in the relationship, and it really 
reflects many changes in the relationship between us and 
Russia, and with so many other nations that have been brought 
about in the first year of the Bush administration, and 
accelerated, especially after the events of the 11th of 
September.
    In Russia, a solid commitment was made by President Putin 
to move his country forward with us, in step with us on the 
campaign against terrorism. Mr. Putin was the first foreign 
leader to call President Bush after what happened on that 
terrible morning, and ever since they have been a strong 
supporter of everything we have been doing.
    Because of the fact that Russia wants to come west, not go 
east, and because we are working together to their south, they 
are on a path of being integrated into the Western economic 
structure; and I hope that at the NATO ministerial meeting in 
May we will be able to conclude a NATO/Russia agreement for 
Russia to work with ``NATO at 20,'' as we call it. That will be 
an historic move and will make things much easier as we move to 
the Prague Summit in the fall, when we will no doubt invite a 
number of nations to join NATO to add to the size of the 
alliance.
    I think the same thing can be said with respect to our 
relationship with China. It is improving. Many people worried 
last April, when we had the incident with the reconnaissance 
plane and the Chinese fighter, and our plane was forced down 
and the Chinese pilot was lost, that this was going to throw 
the whole relationship into the refrigerator for who knows how 
long. Well, it turned out it wasn't for very long. With some 
very, I think, effective diplomacy on the part of your State 
Department and with open lines of communications with the 
Chinese leadership, we had our young men and women home soon 
and our plane a little while after that, and we quickly got 
back on track with the Chinese.
    I visited China last summer. The President went there in 
the fall as part of the APEC summit and struck up a personal 
relationship with President Jiang Zemin, and he is going back 
next week. And so rather than the relationship going into a 
deep freeze, it is moving forward on the basis of common 
interests.
    But with both Russia and China, even though things are 
going in the right direction, that we have common interests, we 
do not hold back our criticism when it comes to human rights. 
When it comes to proliferation activities. When it comes to 
religious freedom. When it comes to things that go against the 
universal values that the President spoke about in his State of 
the Union address. With these two countries, we are moving 
forward, I think, on a solid path of cooperation and, where 
necessary, honest open debate about things we are in 
disagreement over.
    I am also pleased that the President has been able to 
structure an agenda for our own hemisphere that is a positive 
one based on free trade. The free trade area of the Americas 
that we launched at the Quebec Summit of the Americas last 
year, bilateral trade agreements throughout the region. That is 
why we want the Andean Trade Preference Act extended again, 
because trade is the engine that will pull people out of 
poverty by reducing barriers to their goods and allowing us to 
import their goods, make our markets successful and at the same 
time make it easier for us to invest in their countries. So I 
think things are going in a positive direction there.
    People often say that we are unilateralist compared to our 
European friends when, in reality, President Bush has reached 
out in the most effective way with our European allies. We are 
working closely with the European Union, with NATO. We have a 
steady stream of visitors coming to see the President and 
coming to see your Secretary of State. And weare as 
multilateral as a man can stand.
    Trust me, I have spent my whole life in this multilateral 
world. But when we have a matter of principle that we feel 
strongly about we act on that principle whether others are with 
us or not. More often they are, but when they are not, then we 
stand on principle and we do what we think is right because it 
is in our best interest, but more importantly, because it is 
the right thing to do. And that, I think, is a hallmark of this 
administration.
    I cannot leave this brief tour of the horizon without 
touching on Africa. Africa is a major priority for this 
administration. President Bush is totally committed to the 
African Growth and Opportunity Act. He wants to see it 
expanded. We had the first forum to implement that act last 
fall; we will do it again this year.
    President Bush responded immediately when I met with him 
one morning, after calling Secretary Thompson. I went into the 
Oval Office and said to the President that Tommy Thompson and I 
wanted to cochair a task force on HIV-AIDS because of the 
nature of this crisis and especially the way it affects sub-
Saharan Africa. Before the last sentence was out of my mouth, 
he said, ``Do it; I want to do this.'' And he has given it full 
support.
    We wish we could give it even more money than we have, but 
I think we have made a very responsible contribution. We are 
the leader of the world with respect to our assault against 
HIV-AIDS and other infectious diseases.
    Secretary Powell. There are very dark spots remaining on 
this landscape. The Middle East is an area that consumes a 
great deal of my time. Our strategy is simple. The Mitchell 
Peace Plan is there as a way to get to negotiations that will 
lead to a solution where these two peoples can live side by 
side in their individual states. Israel, a Jewish state, secure 
behind its borders. Palestine, a land for the Palestinian 
people, secure and free behind their borders. Both sides 
trading with each other in friendship and partnership, not 
hatred.
    That remains our vision. To get to that vision we need a 
ceasefire so we continue to apply pressure to Mr. Arafat and 
encourage restraint on the part of Mr. Sharon until we can get 
the violence down and get the discussion started again. The 
President talked about other dark spots in his State of the 
Union Address when he talked about an axis of evil. He wasn't 
talking about people who are evil. He was talking about regimes 
who are evil or who do evil things. I think he spoke with 
clear-headedness and with a realistic point of view. Doesn't 
mean that anybody is declaring war on these states tomorrow, 
but we call them the way they are. North Korea is a state that 
we provide a great deal of its food. We have an agreement to 
help them get power that they need. We are also anxious to 
engage with them, as the President has said and I have said 
repeatedly, any time, any place, without any preconditions. All 
they have to do is say so. And it is a despotic regime and we 
should not shrink from calling what it is, but at the same time 
we are absolutely aligned with our South Korean friends in 
encouraging engagement so that these two States can ultimately 
become a joined people again as the Korean people were joined 
for much of their long history.
    We also have a problem with nations such as Iran, which is 
trying to find its own way. And in some ways Iran has been very 
helpful to our efforts. It was very helpful at the Bonn 
Conference and the Tokyo Conference with respect to 
Afghanistan, but at the same time we have to be troubled by a 
regime that is pursuing weapons of mass destruction and nuclear 
capability and that is supporting terrorism. For us to say, 
well, they have done these good things and let's ignore all the 
unpleasant things they are doing, I think would be 
hypercritical of us and not consistent.
    We are also concerned about some of the actions they are 
now taking in Afghanistan with respect to perhaps introducing 
weapons or doing other things that might not be stabilizing in 
the western part of Afghanistan. And so the President called it 
the way it is.
    With respect to Iraq, we have long had a policy of regime 
change, believing that the Iraqi people deserve better 
leadership than they have had for the last 30 years. We also 
worked within the UN framework to keep the sanctions in place. 
When I became Secretary of State on the 20th of January last 
year, the sanctions were collapsing. All of the permanent 
members of the Security Council were moving in different 
directions. We arrested that. The sanctions are in place. The 
Security Council has come together, and I believe by the end of 
May we will have moved to smart sanctions so the Iraqis can no 
longer claim that we are somehow affecting the well-being of 
their citizens. It was a false claim all along, and this will 
show the falsity of it for the whole world to see.
    So there are these dark spots that we worry about, but we 
worry about them from a position of strength. We have allies 
around the world who are joined with us in this campaign 
against terrorism, this campaign for freedom. Whether it is in 
Asia--and I just touched on a couple, I could also mention the 
strong support we received from Japan and Australia and so many 
other nations there. We should be proud that we have such 
friends and partners.
    We should be very proud of the coalition that President 
Bush has been able to put together over the last 5 months, a 
coalition that in my humble judgment will be for more than just 
terrorism. It will go beyond terrorism. It will find ways to 
work together to combat HIV/AIDS, to provide more development 
assistance to countries in need, to open the doors to free 
trade. It is a coalition that we should not just say fine, we 
have dealt with terrorism, let us break it up and move on. No. 
Let us continue to pursue these universal values that we all 
believe in. It is a coalition that I think can keep going 
because it has a common purpose, and it is a noble purpose.
    Mr. Chairman, I will stop at this point because I think it 
is much more interesting to get into your questions, at least I 
hope so, than to listen to my speech.
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    Mr. Kolbe. Of course, it is more interesting for us because 
the members want to ask questions here. We will try to adhere 
to the 5-minute rule, including myself as chairman, and let me 
just say that we are going to call on people in the order in 
which they were here after we began the testimony here this 
morning.
    Mr. Secretary, let me start with two questions that I have 
about our struggle with Colombia and the Andean region. One is 
a general question for you. You know how much difficulty we had 
last year with the President's request. We didn't get as much 
but we struggled in conference to get as much as we could. I 
argued with my colleagues that we needed more time to see how 
well it was working. I don't know how much more time we are 
going to get in order to show that we are making some progress 
there.
    And my question to you is: In the months ahead--by the time 
we get down to the nitty-gritty of negotiating the number here, 
do you think we will be able to show adequate progress in what 
is happening in that region and the war on drugs there, 
particularly in Colombia and its struggle with the FARC and the 
paramilitaries?
    And let me throw my second question at the same time if I 
may, and it has to do more specifically with the request for 
the funds to defend the oil pipeline. You mentioned it in your 
statement and also in your words here. I think thisraises a 
number of interesting questions.
    Have we decided to move beyond a role in support of 
Colombian counternarcotics efforts to direct involvement in 
government-supported counterinsurgency activities? That is a 
major policy change if that is the case and I think you need to 
tell us about that. The President in his requests for military 
assistance raises questions about what do we do with other oil 
pipelines in the world that are very, very vulnerable. Do we 
respond in a similar way to those? I think it raises questions 
about oil pipelines that are half owned by U.S. Corporations, 
such as Occidental Petroleum, and specifically how are the 
funds going to be used? It says to procure helicopters, 
vehicles and other materials to provide training, but is there 
going to be U.S. Forces on the grounds in the region of the 
pipeline? Are we going to try active support there? Let me 
throw out all of that to you for a comment.
    Secretary Powell. On Colombia, I think by the time you get 
to your serious deliberations later this year we will be able 
to make a persuasive case to you that we are starting to see 
progress with respect to eradication. I hope we will be able to 
demonstrate more progress with respect to crop substitution. We 
will have gone through an election in Colombia by that time and 
have a better sense of the commitment of the new President. But 
as I look at the political landscape there, I think you will 
find that whoever does win the election will be committed to 
counternarcotics efforts in a way that will make our efforts 
even more important.
    I think we will be able to demonstrate a good case. With 
respect to the pipeline, what makes this pipeline unique is 
that it is such a major source of income. Without this pipeline 
operating something close to its capacity, it is not just a 
military problem, it is a serious problem with respect to the 
economy of the country. It is for that reason that we thought a 
$98 million investment in Colombian brigades to help protect 
this pipeline is a wise one and a prudent one and that it also 
affects and supports our counternarcotics efforts in many ways 
because it assists the government in funding their own efforts 
through the revenues derived from the pipeline.
    I don't have the military plan in front of me of how we are 
actually going to do this and how we would support the 
Colombians or their military plan, but I think I can say safely 
we don't intend for U.S. Forces to be down there protecting or 
guarding this pipeline. It is the introduction of equipment, 
helicopters, training of the brigades and that kind of an 
effort rather than U.S. Forces running the security operations 
for the pipeline.
    Mr. Kolbe. Do you think this is a departure from our policy 
in the past? Are we getting into counterinsurgency?
    Secretary Powell. It is a close line. I don't think it is 
quite into counterinsurgency to the extent that they are not 
using this investment and this new capability to go running 
into the jungles looking for the insurgents, but essentially to 
protect the facility.
    Mr. Kolbe.  Passive rather than active?
    Secretary Powell. Yes, sir.
    Mr. Kolbe.  Mr. Secretary, as you know, last year we waived 
the drug certification for 1 year, and we did it for all 
countries, not just for the Western Hemisphere as has been 
proposed. But this budget proposal from the administration 
proposes striking that language altogether. Can you tell us why 
it is not in there and what is the administration's request to 
Congress going to be with regard to drug certification 
legislation?
    Secretary Powell. I think we were satisfied, and I will 
have to review it again. But I think we were satisfied with the 
position we ended up at where rather than certifying each 
country, we would accept each country--the presumption would be 
that they are doing what they should do unless something had 
come to our attention that makes them a major--is a term of 
art, but a major violator.
    Mr. Kolbe. We said we identified major problem areas.
    Secretary Powell. And that is still our position. In those 
cases we would identify those countries and make notification 
to the Congress.
    Mr. Kolbe.  But that unfortunately is not in the request. 
That is an appropriation bill, so it would have to be renewed, 
and you did not request that language----
    Secretary Powell. I will have to go back and find out why 
it was taken out at another level within the administration.
    Mr. Kolbe. I think to be honest with you, from what I hear 
from people here in the Congress, the intention is to try to do 
this through the authorization process, which is where it ought 
to be done. But I will bet you a buck that come this fall you 
are back asking for that language in the appropriation bill 
because it hasn't gotten through the authorization process.
    Secretary Powell. I would not wish to put a dollar at risk. 
I am a humble civil servant these days. We do want it however 
we get it.

                           Drug Certification

    Question. . . . last year we waived this drug certification for one 
year . . . But this budget proposal from the Administration proposes 
striking that language altogether. Can you tell us why it is not in 
there and what is the Administration's certification legislation?
    Answer. The Administration did not request the continuation of the 
new certification procedures in the FY 2003 budget because we did not 
want to prejudge the new process. At the time the President submitted 
his budget request, it was too early to assess the effectiveness of the 
modified procedures.
    The President's report, as mandated in section 591 of the Kenneth 
M. Ludden Foreign Operations, Export Financing, and Related Programs 
Appropriations Act, 2002 (P.L. 107-115), was submitted on February 23. 
It reflects the modifications to the narcotics certification procedures 
contained in P.L. 107-115. The designations and determinations in the 
President's report were quite similar to the determinations and 
certifications the President made on March 1, 2001, pursuant to section 
490 of the FAA.
    We and other members of the interagency community believe that the 
modifications to the narcotics certification procedures contained in 
section 591 will enhance our ability to work with our international 
partners to achieve the cooperative counternarcotics objectives that we 
desire.
    The Administration wishes to consult with Members prior to seeking 
permanent extension of this modification to the certification process.

    Mrs. Lowey. Mr. Secretary, once again, just for further 
clarification, the fiscal year 2003 request contains $60 to $70 
million for Afghanistan in its disaster assistance and refugee 
accounts. The number you gave includes the food and agriculture 
account. The administration has chosen to simply straight-line 
amounts in the 2002 budget for Afghanistan prior to the war and 
has not addressed urgentreconstruction needs or even come close 
to our $296 million pledge for fiscal year 2002.
    In addition, the pending requests for Uzbekistan, 
Tajikistan and Turkmenistan merely maintain the 2002 levels. On 
the other hand, the budget request does reflect war-related 
adjustments such as the $250 million requested for Pakistan, 
448 million for Jordan, doubling of assistance, which we 
support, and new military assistance programs for India, Oman, 
Turkey and the Philippines.
    So perhaps you can explain further how you intend to meet 
our obligation to participate in the reconstruction of 
Afghanistan, and what assurances can you give us that the 
administration does in fact plan to request these funds?
    Secretary Powell. At the Tokyo Conference, I made a pledge 
of $297 million on behalf of the American people. We had found 
an additional $50 million the night before the conference so I 
could take it up to 297, or something in that neighborhood. I 
also said at that conference that we would be committing 
ourselves to find similar amounts in the future. I didn't give 
a specific number because we could not at that time. And I 
fully expect that in the course of this year or the upcoming 
year we will have a requirement for something in the 
neighborhood of $300 million again. Because of the rapidity 
with which the Bonn Conference concluded, the Interim Authority 
stood up, their ability to absorb money, working on the Tokyo 
Conference, getting the national Army going and a lot of other 
things, we couldn't tie down the specific needs well enough to 
put it all in the budget at this time.
    We have identified, though, the $140 million, as you 
described, and we will have to come back for something in the 
neighborhood of a like or larger amount in the course of this 
year, either through supplemental or amendment action. I have 
not yet been cleared to do that by the administration, but the 
President is committed to provide a strong level of support to 
the Interim Authority and to the next government that is coming 
along in the few months time. We have worked very hard to give 
them access to their own money and spent a great deal of time 
in generating other funds from other nations. So, yes, we will 
be back.
    Mrs. Lowey. We are looking forward to the request because 
we do feel that our country made a commitment and it is real, 
it is needed and I know that you have our support.
    Regarding the assistance levels for Uzbekistan, Tajikistan 
and Turkmenistan, they have remained constant for several years 
despite the grinding poverty there. While we provided 
supplemental assistance this year, the 2003 request returns to 
old levels, as we noted. So the United States is now relying on 
all three of these countries to support our troops in the war 
effort.
    None of the Central Asian republics have what I call a 
model democracy certainly, yet we all agree we must enhance our 
engagement with them as we look for effective ways to fight the 
war on terrorism.
    Uzbekistan has major economic difficulties despite a once 
thriving agricultural sector. Their continued repressive 
policies towards their own Muslim population will only stoke 
the fires of radicalism if they go unchecked.
    In Tajikistan, the Civil War has made a bad situation worse 
for the population. It is one of the few countries in the world 
where literacy rates are actually falling. The government has 
offered unlimited support to the United States in the war and 
has yet to receive more than a few million dollars.
    Fact is, and I know you are well aware of this, that a 
modest investment of increased resources to these countries now 
will pay huge dividends in the future. Can you expand upon 
that? When do you think we will see proposals from you that 
show a vision for additional investment in these countries?
    Secretary Powell. We are examining each of those countries 
and each has exactly the needs you described, Mrs. Lowey, and 
we did the best we could within the limited resources we have 
this year and we are still structuring programs with them to 
see what they need. We are still in discussions as to the 
nature of our security relationship with them. We are still in 
discussions with them with respect to what military residual 
presence we might want there. Not a base. We don't want any 
bases. We want to be able to use their facilities and have 
access to the region.
    And so we are in the process of conducting between the 
State Department, the Defense Department and other agencies of 
government a long range strategy for Central Asia, and I would 
put Kazakhstan into that pool. When we have that comprehensive 
strategy done, then we will be in a better position to 
determine what funds are required and which countries should 
get what amount of funds for what purposes.
    We have a challenge here in that their regimes certainly do 
not meet the standards that we believe in with respect to human 
rights, democracy and open markets. But we believe that with 
this new entree we have with them, this new relationship we 
have with them, we can do a better job with moving them in that 
direction, and it will take funds and we will have to come back 
up when our comprehensive strategy is completed.
    Mrs. Lowey. Thank you, Mr. Secretary. I think my time is 
gone.
    Mr. Kolbe. We will come back for a second round, at least 
until the Secretary has to leave, but I want to get everybody 
in as quickly.
    Mr. Callahan.
    Mr. Callahan. Thank you, Mr. Chairman. Mr. Secretary, I 
hope a decision to eliminate the child survival account from 
your request this year was a decision that was conceived in the 
bowels of OMB rather than in the higher intellectual level of 
your Department. Mr. Secretary, this decision, regardless of 
who made it is ill-conceived, impractical, was not politically 
sensitive or not good policy, and I hope that during this 
process we can convince you as we convinced your predecessors 
that this is something that this Congress wants, that this is 
something the American people want, that this is something that 
was based, as you say, on a decision that was a matter of 
principle conceived by this committee and it was the right 
thing to do.
    So I hope that during this process, you will reconsider. I 
hope what was OMB's decision and not yours and that you will 
submit an amended version of your suggested appropriations of 
16.1 billion to this committee. I hope you reconsider that and 
that you will reinstate the direction that I think this 
administration and certainly this committee wants you to do, 
the child survival account.
    This is the most popular request that we receive and as 
Chairman Kolbe will receive requests from nearly every Member 
of Congress. This is one of the reasons we arenow able to get 
the administration the monies they request for their direction from the 
Members of Congress. In the last 6 years or so, we have increased the 
support of foreign assistance because of this matter to over 400 
members.
    If you poll the American people, Mr. Secretary, as I am 
sure you have these polls, and you ask them about foreign aid, 
they are opposed to it. If you ask them about child survival, 
about protecting the livelihood, protecting the health, 
educating children, then they will 99 percent support you.
    So I strongly ask you, Mr. Secretary, to reconsider the 
ill-conceived, wherever it was conceived, direction that you 
want to abolish this program because I know that your 
intelligence would not permit you to do that, politically, 
morally or any other way.
    So I will let you respond to that and then I have two other 
areas that I want to talk to you about. But I want to pledge to 
President Bush's administration, the same pledge I gave to the 
President that preceded you and the Secretary that preceded 
you, we want to work with you. We don't want to interfere with 
what we think is your constitutional charge, and that is to 
handle foreign policy. But you must recognize that this account 
must be reopened and that I am going to do everything I can, 
whether or not you want to reopen, to reopen it to reestablish 
what I think is probably the best thing that this Congress has 
done with respect to foreign policy in the last decade.
    Mr. Kolbe. Before you respond can I say I think Mr. 
Callahan certainly speaks for my views on this. I also think a 
number of members of the subcommittee feel strongly about this 
account.
    Secretary Powell. Thank you very much, Mr. Callahan, and 
thank you, Mr. Chairman. I got the point.
    Mr. Callahan. Let me just say a letter will be forthcoming, 
and then I will go on to my other two questions.
    Secretary Powell. You do know that we remain committed to 
the purpose of the accounts and the purpose of these programs. 
You are absolutely right. But what I have to do now is go back 
to the Department and back downtown and take another look at 
the actual accounting for and the establishment of the various 
programs and accounts and a letter will be forthcoming with an 
answer.
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    Mr. Callahan. I thank you very much, Mr. Secretary.
    Secondly, let me talk briefly about Yugoslavia and I need 
to know what your current position is on the independence of 
Montenegro. And the budget proposes a modest increase for 
Serbia from 105 to 110 million. Montenegro will be decreased 
from 60 to 25 million. But this represents an overall reduction 
for Yugoslavia. And given the challenges that are there, is it 
appropriate now to cut Yugoslavia? And further, what are our 
priorities in that region now? Do we support that one country 
philosophy as the last administration did?
    Secretary Powell. We continue to believe that we should 
take the time necessary to see whether or not Montenegro can 
find a way to stay within the Yugoslav Federation. When you 
look at the viability of Montenegro as a country and you look 
at a variety of other aspects, it suggests to us that it would 
be wise to go slowly and not immediately say it is time for 
Montenegrin independence. There are different points of view on 
this issue, as you well know, and we have supported Montenegro 
at an extremely high level of funding as compared to the rest 
of Yugoslavia. And I think there is some readjustment in the 
funding.
    Montenegro has done quite well in the support that we have 
provided to it, and so we have not changed that policy. We are 
in constant touch with both Montenegro and Yugoslavia over 
this, and in constant discussion with our European friends, 
especially within the EU framework. So we have not yet come out 
and said independence for Montenegro is the way to go. We want 
to take more time to study this, reflect on it and see what the 
implications on such a policy would be and to see whether or 
not they can find a way to move forward and continue in the 
arrangement that they are in now.
    Mr. Callahan. Lastly, Mr. Chairman, let me just touch 
briefly on Colombia and let me tell you, Mr. Secretary, that I 
handled the legislation that contributed $1.3 billion towards 
Colombian's efforts to eliminate drugs. It is my understanding 
that very few of the contributing nations have come up with 
what they pledged nor has Colombia, and that while I will 
certainly listen to you and respect your decision to give 
Colombia even more money, my attitude at this point, Mr. 
Secretary, is to work with you during the coming months to 
rescind some of the $1.3 billion that we gave them in our 
initial legislation because I am not at all satisfied with the 
direction that that war is taking there. But I will be happy to 
work with you. But I actually intend at some point during this 
process to rescind part of the $1.3 billion that we 
appropriated and a bill with my name on it.
    Secretary Powell. I look forward to working with you on it, 
Mr. Callahan. My Under Secretary for Political Affairs Marc 
Grossman, has just spent several days in Colombia and has come 
back with a great deal of information. I want to sit and spend 
more time with Under Secretary Grossman and then we would like 
to work with you and come on up and talk to you.
    Mr. Kolbe. Ms. Kilpatrick.
    Ms. Kilpatrick. Thank you, Mr. Chairman and members of the 
committee. Mr. Secretary, it is good to see you again. I was 
happy when you started out your conversation recognizing that 
this committee did give you more funding than you asked for. 
You asked us to restrain on the earmarks. We did that, gave you 
much more flexible authority than you had previously. And I 
find now that the legislative intent--and that I was probably 
one of the last ones to sign the conference committee because I 
feel very strongly about the education of particularly girls, 
but people in the poor countries, and we have the finances to 
do that. I think education is the key, whether it is in America 
or other places of the world, to success of those families and 
countries at large, only to find that the Education for 
Development and Democracy Initiative, the EDDI program for $17 
million was highly suggested to be spent on the program. The 
program serves over 30 African countries, has private sector 
partnerships with Microsoft, Texaco, Lucent Industries, 
Hewlett-Packard, has provided over 6,000 scholarships for girls 
to receive education with another6,000 in the pipeline to 
receive so they can go to school, has distributed other a million books 
to African children across the continent. And then today I find staff 
working on seeing what happened to this EDDI program and my 
understanding now is that there is no money for EDDI specifically, that 
the money will go into a new initiative by the President, and certainly 
the President has the authority and the will to do that.
    In the brief that we got on that, it is not much that I 
have been able to receive on his new initiative, and I 
certainly support anything on education, will cover 12 
countries and not knowing which countries and not knowing what 
countries those are, Mr. Secretary, I was one who was leery of 
not having it earmarked but went along as a team player because 
you asked us to. It was my understanding that I was going to 
see 17 million for this program for 30 countries in Africa that 
has been doing quite well and building good partnerships, as we 
want them to do, now only to find that now it is not going to 
happen. That $17 million is going to be used for a new 
initiative that the President wants. Why is that and how did 
that happen?
    Secretary Powell. Mrs. Kilpatrick, basic education for 
children, especially girls, is a very important program and has 
our priority. It went from 115 million in 2001 to 170 million 
in 2002 and in 2003 it is 195 million. There has been some 
shifting from ESF accounts to development assistance accounts. 
So there has been some rearranging of the accounting. What I 
would like to do is have my staff get with your staff to 
specifically show you how those changes occurred and why and 
get you a specific answer with respect to the $17 million you 
are talking about.
    Ms. Kilpatrick. The money and the program most important.
    Thank you, Mr. Secretary. I look for that immediately.
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    Secretary Powell. May I make one other point? I should have 
made it in my opening statement, but I do thank the committee 
for the relief you gave me on earmarks.
    Ms. Kilpatrick. You thanked us.
    Secretary Powell. I thank you again because it was a major 
priority for me last year, and we responded.
    Ms. Kilpatrick. And we want to be a team player.
    Secretary Powell. And I don't want to get back in the box 
again.
    Ms. Kilpatrick. Help me out on the 30 African countries.
    Let me ask you about the Andean initiative. This is now 
probably the third budget cycle that I have been sitting in 
where we have given billions of dollars to first Colombia and 
now to that region of the world to stop the drug trade. I have 
yet to see any kind of a report on what has happened. Where has 
our money gone? Colombia first and now the other countries. We 
know they move from one place to another as the enforcements 
increase. I haven't seen it in my district. The demand is still 
high. Drugs still flow across America almost at will. Too many 
people are being addicted.
    What is happening with the money that we spend? Do you have 
a report? I mean the other contributing countries have not been 
contributing. We have put our money up. They haven't put their 
money up. And many of my constituents still can get treatment 
on demand from drugs that come from South America.
    Secretary Powell. To go back to Mr. Callahan and then to 
your point, the other contributing countries have not done what 
they were supposed to do, and I am disappointed in that as 
well. We are working with them, especially the Europeans, to 
live up to the commitments they made. I dealt with the drug 
issue in many ways over the years growing up in a neighborhood 
that was contaminated by drugs and then trying as Chairman of 
the Joint Chiefs of Staff to see whether we could use the Armed 
Forces to interdict it. But it begins with demand. As long as 
that demand is high here in the United States, someone is going 
to try to supply it if there is a profit in it, and there is 
always a profit in it.
    Ms. Kilpatrick. That is why we have to have treatment.
    Secretary Powell. I couldn't agree with you more. 
Treatment, education of young people, mentoring of young 
people--and I dedicated a part of my life to that as well--is 
what keeps the demand down and gets rid of the demand. Once the 
demand is there by the time they are 16, some 16-year-old in 
Colombia or somewhere else is going to try to meet that demand 
and make money for himself and for his family.
    And so as both demand, supply and interdiction, I think 
with respect to the ACI program, we are working hard on the 
supply part. We have had success with the eradication efforts, 
and I think you will see over time that as the money that was 
appropriated last year really starts to kick in, I think you 
will see our success.
    Ms. Kilpatrick. Is there a document that we can refer to?
    Secretary Powell. I will give you all the documentation I 
have. And on top of that I will be more than pleased to send 
Assistant Secretary Rand Beers, who runs the program for us, to 
assist you.
    Ms. Kilpatrick. And show me how the money is being spent.
    Mr. Kolbe. We will come back to another round. Let me just 
tell you what we are going to do here. Mr. Lewis is going to do 
his questions now. By the time he gets finished or he may have 
to recess for a minute or two, Mr. Knollenberg and Mr. Rothman 
will be back to resume.
    Mr. Lewis [presiding]. Thank you, Mr. Chairman, Mr. 
Secretary, pleasure to be with you. I am frankly very pleased 
to have this hearing here for we have an Intel briefing 
regarding Afghanistan from our subcommittee for the next hour 
or so. I probably won't be able to come back, so it is a 
pleasure to say hello and express my deep appreciation for you 
and the work you are doing on behalf of our country around the 
world.
    Secretary Powell. Thank you very much.
    Mr. Lewis. I noted with interest on the Senate side a 
question was asked relative to if you had one more dollar to 
spend and I was intrigued by your response, and so I want to 
just raise the subject area of IMET, the International Military 
Education and Training Program, and those related subjects you 
referred to in your opening statement. If you would respond for 
the record as well as now relative to the importance of IMET. 
Oft times we don't hear enough from the Department and 
otherwise about the role that it plays, so I would appreciate 
very much your comments.
    Secretary Powell. Thank you for the softball, Mr. Lewis. I 
really appreciate it.
    IMET is great. International Military Education and 
Training. We have added $10 million to the account this year. 
It was $70 million last year and we are asking for $80 million 
this year.
    I have been associated with this program for 40 years. When 
I was a brand new Lieutenant at Fort Benning, Georgia, and then 
a captain and a major at Fort Benning and Leavenworth and at 
the War College. We had officers from other nations who sat 
there with us, and they not only learned military subjects, but 
they learned American values. We didn't ask them to adopt those 
values, but they learned about the American value system. They 
learned how a military is supposed to act within a democratic 
system. They learned the code that the American military 
officer lives by.
    This is invaluable education, especially for developing 
nations or nations that are coming out of totally different 
totalitarian systems. So it is a remarkable return on the 
investment. For many of the officers that I served with in 
other countries 40 years ago, I stayed in touch with them. We 
became Chairmen of the Joint Chiefs in the case of my Belgian 
colleague. I stayed in touch with Pakistani officers over the 
years. So it is an incredible return on the investment.
    Does it mean that every single one of these officers with 
this American exposure turns out well? No, it is not always the 
case. Most of them do and most of them make a positive 
contribution to our foreign policy as well as the development 
of their own nation.
    So I support IMET. If it is in Congress's desire to double 
it, and find the doubling money somewhere else, that is okay by 
me.
    Mr. Lewis. Mr. Secretary, I very much appreciate your 
reaction and I am very surprised by your enthusiastic response.
    Secretary Powell. If I may, a lot of people say, well, this 
nation isn't behaving well so here. This is how to punish it. 
Take away its IMET and don't let its military officers come to 
the United States. Just let them wallow in their despotic 
behavior. That is penny wise and pound foolish.
    Mr. Lewis. Mr. Secretary, the first time this whole subject 
area came into focus to me--well, you were talking about your 
CEO hat earlier. You were wearing another hat in those days. It 
was that of Chairman of the Joint Chiefs. And we were talking 
in those days about Central Americans and some of the despotic 
problems there. And it became almost a cause celeb to take on 
IMET where some of these generals had been trained, people 
presuming that that training some way misled them. Nothing 
could be farther from the truth. You have expressed that. And 
it is long past due that the whole Congress understand that 
this is not some game to be played for partisan purposes, but 
rather recognize the real value of exposures to our values and 
the impact it can have overseas.
    Mr. Secretary, speaking of doubling accounts, some years 
ago when I was formerly a member of this subcommittee, one 
Lorette Rupe was the chairman of the Peace Corps. After her 
presentation I suggested that it would be very helpful to the 
committee if she would outline for us what she would do with 
the money if we actually decided as a committee to double her 
budget. And later in the year we did just that. The numbers 
were different than the numbers this year, but the Peace Corps 
has tremendous potential for the country and some have 
suggested more than the impact it may have on an individual 
nation, but more on the impact on the American individual that 
serves is so critical.
    You are asking for significant adjustments upward here and 
as a reflection of the President's view and attitude relative 
to the service at home as well. There is concern that some of 
us have, however, as you put your CEO hat back on that as this 
program does get more funding that the moneys be delivered very 
carefully, that we not try to do too much too fast, to assure 
ourselves that we don't stumble and fail.
    Secretary Powell. I couldn't agree with you more, Mr. 
Lewis. It is a wonderful program and I knew Ms. Rupe well, and 
she was quite a dynamic director. The presentation I made 
talked about eight new countries, and my understanding of how 
all of that was determined and structured was on the basis that 
it is achievable in the course of the year. Therefore, it would 
be a good investment, but it will be something we should 
monitor carefully and make sure we are not putting our young 
volunteers into insecure situations or where the country isn't 
ready to accept. But every country I visited wants them and 
wants more of them.
    Mr. Lewis. That would be my caution and that is the CEO's 
job, and I appreciate very much your focusing upon that side of 
it.
    Quickly to the reality that the President of Pakistan is 
here in our country at this moment, one of the hot spots in the 
whole world involves the confrontation between Pakistan and 
India; namely, in Kashmir to be specific. I have had some 
conversations with the President of Pakistan regarding some of 
my concerns. I would like to know if you are or are having 
ongoing conversations with India especially relative to the 
volatility of nuclear weapons.
    We talked yesterday about separating the ability to propel 
weapons, versus the warhead itself being separated. Are you 
having those kinds of discussions with India as well?
    Secretary Powell. Yes. When this crisis broke a few months 
ago, we were all terribly concerned because we weren't sure 
where it was headed. You had two nations with nucleararmaments. 
We talked to both nations, and we watched very carefully, best we can--
we don't have complete knowledge or complete transparency, but we watch 
very carefully. And while the crisis built, both nations having this 
capability acted responsibly. We never reached a point where we became 
overly alarmed.
    Mr. Lewis. Mr. Secretary, I am going to try to come back, 
but they are telling me that I am about to miss a reasonably 
important vote. I am not sure what it is. For a moment, I am 
going to recess this hearing and I will try to get back.
    Thank you very much, Mr. Secretary.
    [Recess.]
    Mr. Knollenberg [presiding]. The committee will come to 
order and thank you. I now have an opportunity to ask you a 
question. Thank you for your great work and the cool hand and 
the patience that you exercised. I think we all appreciate 
that. I want to turn to your comments about the axis of evil.
    One of those countries happens to be North Korea. Assistant 
Secretary Richard Armitage I think covered this pretty well in 
a couple of different settings, but I want to look at States 
like North Korea, which incidentally we have been assisting in 
a great way for quite some time. KEDO alone is 345 million, and 
the food assistance is 445 million. Now that part is not 
foreign aid but it is money that the U.S. Government commits. I 
have had reservations, as you know, about the agreed framework 
for many years. Today I would like to focus though on the 
process.
    For example, we made a deal with them and that deal commits 
us to deliver these modern nuclear reactors, fuel, oil and 
food. In the meantime we were to get from them an assurance 
that they would allow our folks to get in and inspect those 
facilities. As you know, that hasn't happened. 2 years ago, 
Congress passed a bill 374 to 6. It was bipartisan legislation 
that would at least give Congress some role in making a 
decision about North Korea. Do we let them begin pouring 
cement--we will be pouring the cement of course before we get 
some agreement on the inspections, I have been told, and maybe 
you can comment on it, but it may begin as early as August that 
they will start pouring cement. And by the way, I should also 
mention Henry Hyde sent a letter to John Bolton on the matter 
of urging bipartisan support and giving Congress some 
consideration of making a decision along with the President on 
the issue of do we in fact start building before getting some 
assurance there will be inspectors allowed to get into North 
Korea. And maybe you can tell us briefly where we stand on this 
and are we amenable to--I shouldn't say amenable, but are we 
going to allow them to continue obviously to deny and disavow 
and not allow our people to get inside to get a look at what is 
going on. I think the fear is we don't know what is going on, 
but yet there appears to be a thrust forward to bring about a 
resolution of this commitment that was made with the Framework 
back in 1995.
    So if you would give us a thought about that.
    Secretary Powell. Well, let me say, Mr. Knollenberg, we are 
still committed to the Agreed Framework that was set up in 1994 
to provide them with lightwater reactors, and we have not been 
satisfied with all of the transparency and access we would like 
to receive, but we are continuing to move forward with the 
program. We know that there will come a time when the 
construction will reach the point where they have to provide 
access under obligations they have under other treaties and 
allow in inspectors and others, at which point we have a fail-
safe. If they don't allow the inspections required at that 
time, then I think the whole program will come to a stop, and 
they will be in desperate shape because they won't have the 
energy they are looking for as a result of those lightwater 
reactors.
    With respect to the pouring of concrete this summer and 
what we are entitled to look at at that time; what I would like 
to do is get back down to the building and sit down with Under 
Secretary Bolton and review Mr. Hyde's letter and give you an 
answer that is more comprehensive than I have today .
    Mr. Knollenberg. I appreciate that. My concern or our 
concern, and many us feel that way about it, that if the 
President perhaps, and he is a person I guess we should be 
talking to, isn't in favor of granting us that consideration 
then it suggests something about where he is on this issue. And 
obviously it might take two-thirds votes of the House and the 
Senate to override any kind of veto. That is just a scenario 
you could draw out. But I have a concern about that and I do 
appreciate you taking the step of getting that information.
    And if I have a couple of moments left here, I want to 
cover Iran----
    Mr. Kolbe [presiding]. Just one.
    Mr. Knollenberg [continuing]. With Iran and this will be 
very quick because this is another country that is part of this 
axis of evil. We wouldn't think for a minute, I don't think 
even with the prior administration or any administration, of 
giving them the same deal we gave North Korea. Again they are 
lumped into this axis of evil grouping. And with respect to 
Iran, we find--and Russia, and you spoke glowingly of Russia 
and I respect that because I think it is good we have turned a 
corner with Russia, but what are we doing with regard to Russia 
when it comes to stemming the flow of technology that may be 
coming from Russia and also the know-how?
    Secretary Powell. It is a major point of debate and frankly 
in some cases heated disagreements with Russia. We keep telling 
them that we have certain knowledge that entities in Russia are 
providing technology to the Iranians that are helpful--that 
will be helpful in the development of nuclear weapons. We also 
know that the Russians have a rather considerable arms sales 
program with Iran, and we have been conducting a strategy 
review so that we can go to the Russians and say, look, arms 
sales are reasonable if they are defensive in nature and don't 
upset the regional balance, but we really do have to have more 
serious conversation of what you are doing with respect to 
missile delivery systems and nuclear technology. Both hard 
technology and knowledge that might enhance the Iranians' 
ability to get nuclear weapons.
    On every occasion upon which they had met, President Bush 
has raised this with President Putin and constantly reminded 
him of who is liable to be the target before we become the 
target. Russia is liable to be the target. Therefore, it is not 
in the Russian interest to keep up with this kind of effort. 
The Russians take it aboard and their response is we are not 
doing what you say we are doing. And of course we understand 
the danger it would present to us if they got this kind of 
capability, but that is not what we are doing.
    So we still have a disagreement with the Russians and it 
comes up in every one of our meetings. We will continue to 
pursue it. I did speak positively about the Russian 
relationship, but at the same time we talk about issues such as 
proliferation of this kind and we talk about human rights. We 
talk about freedom of the press and every other area where we 
have disagreements with them. We don't shrink from those 
disagreements.
    Mr. Knollenberg. I understand that the President will be 
meeting in May with President Putin so perhaps that will be 
brought up again.
    Secretary Powell. It will be brought up before May because 
I will have at least 2 meetings with Mr. Ivanov before then.
    Mr. Kolbe. Mr. Rothman.
    Mr. Rothman. Let me publicly thank you for all of the 
cooperation and openness with which you and your staff have 
made yourselves available to us and it is much appreciated 
especially from this side of the aisle.
    I would also like to follow up on what my colleague 
Congressman Knollenberg was saying regarding Russia and its 
allowing a flow of technology, of know-how for the development 
of weapons of mass destruction to Iran or, for me and for many 
of the members of Congress who I speak with, Russia's failure 
to stem that flow is a major obstacle which will present and 
presents now for us a major obstacle to normal relations with 
Russia as far as we are concerned. They are aiding and abetting 
a terrorist nation or terrorist regime running the nation of 
Iran, and that is a direct threat to the well-being of the 
people of the United States. And until Russia stems that flow 
and deals with that problem to the satisfaction of the 
administration and this Congress, I cannot foresee normal 
relations between the United States and Russia.
    With regards to the axis of evil statement of the 
President, I fully agree with his characterization and his use 
of the word ``axis.'' that is fine by me. I think they should 
have added one more, perhaps maybe Syria. I would be interested 
to know, you know Syria is also trying to acquire weapons of 
mass destruction. They are assisting the world's leading 
terrorist groups, Hezbollah, PFLTGS, the Palestinian Islamic 
Jihad. Why wasn't Syria added to the list and what are we doing 
about Syria's failure to join Israel at the negotiating table? 
We understand from many, many different sources that Israel has 
openly asked the Syria government to join them in negotiations 
and the Syrians have not yet agreed to do so.
    Secretary Powell. A decision was made to restrict the list 
of those three countries as the leaders of the pack, but that 
is not to say there are not other countries with which we have 
strong disagreements. In the case of Syria, we have listed them 
as a State sponsor of terrorism, and we have not held back from 
talking to them about it. They are developing weapons, but not 
as aggressively or with the same kind of commitment that the 
ones we did label in the President's speech. I can assure you 
that we are quite knowledgeable about what they are doing and 
we take them to account for it.
    We have better communications with Syria than we have with 
the other three. We have an ambassador there. We can present 
our positions and views, and so I think the situation with 
Syria is a little bit different.
    With respect to negotiations with Israel to settle the 
issue of Golan Heights, I have spoken directly to the President 
of Syria about this last year and I think that possibility is 
there once we have progress on the other negotiation having to 
do with West Bank and Gaza and the Palestinian and Israeli 
issue. I have tried to see whether it was possible to push the 
Syrian issue and the Syrian negotiations to the forefront while 
we are still working on the Palestinian piece of it, but I 
think they are connected to one another. But I think if we can 
solve the Israeli-Palestinian problem, then there are prospects 
to move forward with respect to the Golan Heights.
    Mr. Rothman. That would be acceptable in a sense as long as 
Syria does not add to the destabilizing atmosphere of the 
region by allowing arms to be shipped through its country or 
over to its country to Lebanon to be used against Israelis.
    Secretary Powell. We have demarched repeatedly on this 
subject.
    Mr. Rothman. My question about North Korea, there are 
allegations that North Korea is providing long range missile 
technology to Egypt, and I wonder if you could comment on that. 
And also with regard to Egypt, there was an article in this 
week's Defense News suggesting that the Bush administration 
would be proposing the sale of Harpoon missiles to Egypt but 
would disable their land attack capability. Can you comment on 
the nature of any sale of such Harpoon missiles, and are you 
concerned as are many supporters of America's number one ally 
in the region, State of Israel, that even if the Harpoon 
missiles were sold with different software to prevent land 
attack capability, that with some minor adjustments those 
restrictions on missiles themselves could be overcome and they 
would then be a direct land attack capability against our ally, 
the State of Israel?
    Secretary Powell. With respect to the North Korean piece of 
it, I can't go into specific details here. But suffice it to 
say, and I think it does answer your question, that we are 
troubled about North Korea's willingness to export missiles to 
anybody who will buy them, both responsible and irresponsible 
nations. With respect to the specific Egyptian issues, I would 
rather have my expert deal with that in another forum with you.
    With respect to the Harpoon, there is a proposal that is 
under discussion, and I no longer am a Harpoon expert, but I am 
assured by those who are that it would be a nonland attack 
version that would not have the capability of being 
reconfigured into land attack.
    Mr. Rothman. If I have time for one more question?
    Mr. Kolbe. Next round we will come back.
    Mr. Kingston.
    Mr. Kingston. Thank you, Mr. Chairman. Mr. Secretary, thank 
you for all the good work that you are doing and your very 
capable staff. I am sorry that I had to go vote and may have 
missed somebody asking this already, but the post-Yasser Arafat 
era, are we ready to get into it?
    Secretary Powell. Post-Arafat?
    Mr. Kingston. Is there a possibility that we are there 
already? Is it something that we just can't get let go?
    Secretary Powell. We are not there, and I don't know when 
it will arrive. All of us are mortal. But Chairman Arafat 
remains the elected leader of the Palestinian Authority. And 
the Palestinian people, if you put it to them by vote or by 
popular opinion poll, he is recognized as their leader. It is 
for that reason that we talked to his associates. We stay in 
touch with Mr. Arafat.
    He wrote me a letter 3 days ago now on the Karine A 
accepting responsibility, not personal responsibility but as 
Chairman of the Palestinian Authority, and he is still there 
and both we and the Israelis are working with his closest 
associates.
    Mr. Kingston. In your testimony you are saying we need 
actions, not just words from him. What would constitute action 
on the Karine A in respect to that issue or in respect to 
anything else these days?
    Secretary Powell. With respect to the Karine A, we believe 
that the evidence is so overwhelming that he has to accept 
responsibility as Chairman of the Palestinian Authority for 
what happened. And we want him to forswear any acquisitions 
like that in the future, and he said he would on behalf of the 
Palestinian Authority.
    We also want to see more done with respect to arrests of 
known terrorists and killers, and he is working on a couple of 
lists that have been provided to him. We want to see these 
people in real jails and not just revolving doors where they 
are back out on in the street 3 days later.
    We have also said rather directly to him and to his 
associates that even this is not enough if the violence doesn't 
go down. Violence has to go down. Israel has made it clear and 
from a position as I think of solid reasoning that they will 
not negotiate and they cannot go forward in the Mitchell Peace 
Plan if bombs are going off on a regular basis and if smuggling 
of the kind we saw with Karine A continues.
    There has to be some level of quiet in order to enter a 
cooling off and ceasefire period before we get back to the 
negotiations that are so desperately needed to find a solution 
to this crisis.
    Mr. Kingston. Can you tell me if Sharon is of the same 
philosophy? I know he wanted a cooling off period, but I have 
read some comments where he is very frustrated with Arafat.
    Secretary Powell. Yes, he is. Frustrated is a--Well, yes. I 
don't wish to speak for a head of State who speaks very well 
for himself. But, yes, he is frustrated with the whole 
situation. But he remains absolutely committed to the Mitchell 
Peace Plan. He said that to the President of the United States 
last week when he was here. He knows that this is a terrible 
situation for both the Palestinians and the Israelis, and so he 
is anxious to see progress. He has spoken out a number of times 
in the last 6 months for a Palestinian State as part of his 
vision. And so he remains committed to that proposition. But as 
the elected leader of a democratic state, he owes his people 
security, and until he can get some level of security where the 
bombs are not going off and not spending their days going to 
funerals, he is unable and unwilling, for quite understandable 
reasons, to pursue negotiations of a political nature. That is 
the conundrum we face.
    Mr. Kingston. With the aid packets that were given to the 
Palestinians, 400 million over 3 years I guess, something like 
75 million since 1994, and then we passed a 3-year package I 
think in 2000, is it time to reexamine that funding? Will that 
bring him around a little bit faster if we start threatening 
removal of that money?
    Secretary Powell. He has a variety of funding sources both 
from us and from the European Union. I don't know that it would 
change things markedly. It is a tough situation because if you 
want him to act responsibly and to arrest people and hold them 
in jail, and if you want him to bring security to different 
places and you want him to have a police force to do that, you 
have to fund it. By not funding it and if the Europeans stop 
funding and everybody cut off funding, then it would be hard to 
say to him now go use your 40,000 man security force to do 
this, that and the other. He could be doing a lot more, and I 
think we have to keep pressing him to do a lot more.
    Mr. Kingston. What about Egypt? Egypt made a statement--Mr. 
Chairman, I am not sure how much time I have.
    Mr. Kolbe. Zero.
    Mr. Kingston. I will look forward to hearing that statement 
later.
    Mr. Kolbe. We will come back on a second round.
    Mr. Sununu.
    Mr. Sununu. Welcome, Mr. Secretary. Mr. Secretary, for the 
record, I want to thank you for meeting with us again. You were 
generous with your time with the members of the subcommittee as 
our paths crossed in Central Asia. Although there were not C-
SPAN cameras at the time, I think the general consensus was 
that constituted a hearing, so I want to welcome you back.
    I want to talk about the assistance package and the plans 
for reconstruction in Afghanistan. Mrs. Lowey, I think spoke 
accurately about the lack of specificity in the budget 
proposal. I understand that there may be some reasons for that. 
But during our visit Chairman Karzai was very specific about 
his priorities, security, infrastructure, education. I would 
like to hear a little bit about your perceptions and your sense 
of two things, one, what the priorities really need to be, what 
they ought to be for reconstruction and investment in 
Afghanistan to support the interim government and ultimately 
the permanent government there.
    And second, speak a little bit about the timing, because 
while the commitment of $297 million may be adequate or an 
important part of the global commitments that occurred during 
your visit to Japan, it is not enough just to say there is 
adequate pledges or adequate commitments. My sense is in 
Afghanistan time is of the essence, that the people need and 
want to see immediate action, benefits, changes, investmentson 
the ground to the credit of all who have been involved in Afghanistan. 
From what we saw during our visit, the Afghan people welcome U.S. 
Involvement and the involvement of other countries. But I think that 
grace period will expire, if you will, if we don't see some sort of 
material improvements in the infrastructure, irrigation and other 
areas.
    What are the priorities, what are your priorities and what 
is being done to expedite this investment?
    Secretary Powell. I share Chairman Karzai's first priority, 
and that is there has to be security in Kabul first and then 
throughout the country or else you really can't do the other 
things effectively. Not only is the interim security assistance 
force under very capable and gifted British leadership 
establishing security in Kabul, they are looking at what else 
the international security force might do in other parts of the 
country.
    Secretary Powell. Roughly eight different sections of the 
country are being looked at. The United States is willing to 
serve as an enabling force, provide transportation, logistics, 
and intelligence kind of support, but we don't really need to 
put our ground troops there. There are others that can do that.
    Security is number one. Key to that security is not just 
what the international security assistance force does, but the 
creation of an Afghan national army. No amount of outside 
security force troops can do what a national army can do and 
what a national police force can do. And General Tommy Franks 
is hard at work with Secretary Rumsfeld and their colleagues to 
assist the Afghans in creating and training this national army, 
totally subservient to civilian control.
    Then comes humanitarian aid, which continues, but then 
infrastructure and the kinds of things you touched on are 
exactly the kinds of things we were looking at in Tokyo: clean 
water, health care, shelter, basic utilities, electricity. 
Restoring all of that, those are the infrastructure priorities.
    I would add just two more priorities to that. One, getting 
a civil government up and running. They are moving cash around 
by baling it with string and putting an address on it and 
sending it. There is no electronic funds transfer system. Just 
putting in place the base basic government structure to run a 
country is a major priority and challenge. The other major 
priority is to get economic activity started so that they can 
start collecting their own revenues through customs duty and 
taxes. Things of that nature, so that people can start going 
back to work. Getting economic activity jump-started, and then 
of course that rests on having an infrastructure to support 
that economic activity.
    There is nothing this country does not need at this point. 
That is why, as I said earlier, we will increase our 2003 
commitment even though it isn't reflected in the budget at this 
point, only $140 million of it. And we will continue to work 
with our friends throughout the world, as we did for the Tokyo 
Conference, to let them know it can't be a one-time shot.
    Mr. Sununu. What if anything is being done to make sure 
that proposals and plans with regards to infrastructure are 
implemented as quickly as possible? I would be concerned as a 
member of this committee that we rely on channels that already 
exist that might not work in the case of Afghanistan or that 
might simply take too long to deliver a benefit. In the case of 
security I know we can move independently, unilaterally, and 
the coalition that is already there on the ground in Kabul has 
done an exceptional job. I am not concerned about the timing on 
security. I am concerned about the timing of infrastructure if 
we rely on some of the old mechanisms for delivering 
assistance.
    Secretary Powell. I think we have to do it as quickly as 
prudent, not as quickly as is possible. We have to avoid just 
dumping money into a place or dumping people who have no 
connection to the country into the country and say, fine, let 
us fix all of the water system in a year, no matter how 
pressing a problem that is. We have to make sure we do it right 
and doing it in a way that we can be confident the money is 
being spent properly. Some of these old ways of doing business 
are established ways of doing business. It might take a little 
bit longer, but if you get it done right--for example, the 
Indians have 50 years of experience working in the educational 
health care systems within Afghanistan. There is a long 
tradition. They are willing now to come back in and pick up 
that tradition again and put a lot of money behind it, but it 
may not be done quite as fast as we would like to see it done, 
but it will probably be done in a more effective way. And each 
country that made a contribution is going to come and do it in 
accordance with their procedures. They are all before their own 
Parliaments getting the money that they committed, and they 
have their own domestic political system that they have to go 
through in order to deliver the funds or the in-kind resources 
that they have pledged.
    So I am with you. We want to do it as fast as I would say 
prudent, as opposed to possible, so that we don't waste it. 
There is an absorption problem: How much can a country absorb 
in any finite period of time? As part of the reconstruction 
effort, we have put in place a group, committee, to monitor the 
contributions and make sure the contributions are solid. They 
are going to the right place. We are not duplicating 
contributions in any one area. I am rather pleased that in a 
short period of time we did put together a rather effective 
system of receiving the aid and controlling the aid so it isn't 
wasted.
    Mr. Sununu. During our visit to Pakistan----
    Mr. Kolbe. Mr. Sununu, your time has more than expired.
    Mr. Sununu. My time has more than expired. Thank you, Mr. 
Chairman. Thank you, Mr. Secretary.
    Mr. Kolbe. Mr. Jackson.
    Mr. Jackson. Thank you, Mr. Chairman. Let me begin by 
making a brief apology to both you and the Secretary for my 
tardiness. I am torn between a couple of hearings this 
afternoon. Mr. Secretary, let me once again thank you for the 
outstanding leadership that you have shown not only your 
Department but our Nation during this critical and very 
difficult time. I think, as I have shared with you andMembers 
of Congress when we had some joint meetings, that it is really a 
certain level of comfort that all of us share when we see you 
articulating the critical issues that confront us.
    Mr. Secretary, I have two brief questions, and maybe I will 
just ask them and then maybe you can give me a response. The 
first is the broad category of funding for Africa. From what I 
have read, you have said that foreign assistance to Africa 
increases by 9 percent overall. Most of that increase is in 
development assistance, more specifically child survival. 
However, after looking at all the foreign assistant accounts, I 
am concerned about the unequal nature of these increases. I am 
wondering, sir, what rationale is used to increase funding for 
health while significantly decreasing funding for economic 
support funds and peacekeeping? For example, sir, the numbers 
that at least I have, in fiscal year 2001 it was 85.8; fiscal 
year 2002, 100; and then in fiscal year 2003, down to 77 for 
economic assistance. And military and peacekeeping in fiscal 
year 2001, 73.2; fiscal year 2002, 81.2; and fiscal year 2003, 
69.6.
    And lastly, Mr. Secretary, the broad category of Egypt. I 
noticed the President's budget contained 1.3 billion in foreign 
military financing funds for Egypt. Recently I have heard 
Members of Congress suggest that these FMF funds should be 
redirected and provided as ESF, economic support funds. Is it 
your opinion, or probably more appropriately stated, is it in 
the national security interests of the United States to provide 
this 1.3 billion in FMF funds for Egypt?
    Thank you very much. Thank you, Mr. Secretary.
    Secretary Powell. On the first question, if I can just go 
to the overall levels of funding, by my accounting for Africa, 
have increased by $94 million; from $1.4 billion in 2002 to 
$1.5 billion in 2003. And of the $540 million in bilateral HIV-
AIDS assistance worldwide, Africa will be a major beneficiary. 
Development assistance in child health funding for Africa, 
including HIV-AIDS funding, increases $122 million, from $878 
to $1 billion; and food aid of about $450 million and nonfood 
aid of about $120. And the number of Peace Corps volunteers in 
Africa will also be expanded.
    Perhaps my staff can get with you and go into greater 
detail on the overall levels to deal with the specific concerns 
you have concerning allocations between health and other 
accounts.
    On the Egyptian financing, this is an area we constantly 
review, and in another committee hearing one of your colleagues 
raised the issue. We believe we have made the right allocation 
between FMF and ESF. Egypt has been a strong partner and ally 
over many years. This is a program that goes back for some 20 
years, and they have been an especially valuable ally assisting 
us with the Middle East peace process as well as in the 
campaign against terrorism. I think we have got the correct 
allocation, but it is something that we review every year.
    Mr. Jackson. Thank you, Mr. Secretary. Thank you, Mr. 
Chairman.
    Mr. Kolbe. Thank you very much. I think we have gone 
through the first round of questioning and when Mr. Wicker and 
Mr. Bonilla return, we will pick them up.
    But if I might begin this second round, I will try to keep 
it as brief as possible so hopefully we will get back to 
everybody here. First of all, let me say with regard to 
comments that were made earlier in response to Mr. Kingston's 
questions, I just wanted to say I am especially pleased about 
the request for additional assistance to Jordan. I think it 
sends the right signal to a country that is extraordinarily 
supportive and is the kind of country we hope to see develop 
the kind of democracy--the road at least towards democracy, 
globalization, and modernization that we would like to see in 
the Middle East.
    Also in response to questions from Mr. Sununu about 
Afghanistan, please understand that we are moving to establish 
a coordinator that will be on the ground, just as we have 
somebody who coordinates our military operations there. As you 
know, when we had breakfast, I made the point that I thought we 
really needed to look into having somebody to coordinate our 
assistance programs and I am pleased that that is being done by 
the administration.
    Secretary Powell. I might point out the coordination group 
I was speaking of with Mr. Sununu had to do with all of the 
nations coming together. But in direct response to what you 
just said, Ambassador Jim Dobbins, whom you know, did a 
terrific job at the Bonn conference and is now back in the 
Department, and I am using him to coordinate all of the efforts 
here in the United States Government.
    Mr. Kolbe. Thank you. I will ask a couple quick questions. 
I see we have Mr. Wicker back, who hasn't had a chance to ask 
questions. Let me just follow up on the questions that were 
asked by Mr. Knollenberg about North Korea. The President of 
course in his State of the Union address talked about North 
Korea, Iraq, and Iran as being part of an axis of evil. I might 
be a bit puzzled about the phraseology there, especially to put 
such mortal enemies such as Iraq and Iran on the axis. But I 
agree with the basic point about the countries that are 
involved and their fundamentally bad regimes.
    However as Mr. Knollenberg said, the administration has 
asked for $75 million to implement the agreed framework in 
North Korea through the Kedo process. At the same time on the 
other side of that part of Asia, Turkey's request for relief in 
its debt to the United States has not been acted on. Turkey is 
a key coalition partner in Operation Enduring Freedom, and has 
been in the past, and I think we can say it will be in the 
future.
    If you look at U.S. Food assistance that we are providing 
to the world food program, North Korea is one of the biggest 
recipients of U.S. Foreign aid in East Asia. I just wonder 
about where our priorities are here. Should a member of the 
coalition against global terrorism be treated--or shouldn't it 
be treated better than a member of the axis of evil? And do you 
see a change in the policy towards North Korea? I know Mr. 
Knollenberg was trying to get to that, but I think it is very 
important for us to understand--are changing our policy with 
regard to North Korea?
    Secretary Powell. As the President said before his State of 
the Union address, and as he subsequently said, our policy 
towards North Korea is a policy that we articulated last summer 
after completing our review. We are willing to talk to North 
Korea any time, any place, on the issues that exist between our 
two nations, the size of their conventional forces along the 
border, their export of missile technology, the development of 
weapons of mass destruction, and things of that nature.
    As part of that policy, we remain committed to the Agreed 
Framework and the Kedo program with its $95 million, because 
frankly, it serves our interests. Food assistance is one of 
those areas where we concern ourselves with people who are 
starving, regardless of the nature of the dictatorial regime 
that they may be living under. And no people are in greater 
need than North Koreans. As part of this humanitarian program 
that we have, we felt it was appropriate as a nation of values 
to provide food assistance to these desperate, desperate people 
who are starving as a result of their regime and not a result 
of their own actions.
    With respect to Turkey, they have had financial 
difficulties, and we have worked with them to improve their 
economic situation and to diversify their economy. They have 
shown considerable progress in recent months, and we will 
continue to support them. I would like to do more for all of 
our friends but, within the limited resources that are 
available to the Departments, I think we have made a pretty 
good allocation.
    Mr. Kolbe. I will just finish up because I only have time 
for one small question here with my second round and then we 
will go to Mr. Wicker. The largest single increase in the 
foreign aid budget request for fiscal year 2003 is the 4.1 
billion for foreign military financing to provide military 
assistance to our friends and allies. That is an increase of 13 
percent over fiscal year 2002. I don't disagree with that, and 
I certainly see the need for it. I believe this is part again 
of our national security budget, something I have been harping 
on for a long time. But the request includes an increase of 60 
million for Israel, which is part of an agreement, of course, 
that we have; an increase of 123 million for Jordan; new 
programs of 20 million for Oman; and 50 million each for 
Pakistan and India; reestablishing a program for Turkey at 17-
12 million; and 98 million for Colombia.
    If the subcommittee goes along with this in short or in 
part, it will be my job to defend this increase on the floor of 
the House. And I just ask that you might give us justification 
for the increase as a whole, as well as specific justifications 
for the establishment of the new programs in Pakistan, India, 
Oman, Turkey, and that that include some policy rationales as 
well as some detailed information about the proposed use of the 
funds because I think we are going to need that.

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    Secretary Powell. Would you like me to talk to it now, Mr. 
Chairman, or----
    Mr. Kolbe. I would be happy to have you comment and then 
I'd like some more perhaps written information----
    Secretary Powell. Yes, of course. With respect to Israel, 
as you know, it has been for decades the policy of the United 
States that we will work with our Israeli friends to provide 
whatever they need for their security. As the only democracy in 
that part of the world, we have that obligation, and it is 
reflected in this increase.You also know there has been a shift 
in the kind of aid we give Israel, and this reflects that shift 
to FMF.
    With respect to Jordan, Pakistan, India, and Oman, as you 
noted, Jordan is a Frontline State that plays a vital role in 
that part of the world, and is a close friend of the United 
States. It has been in the forefront of our efforts in the 
campaign against terrorism. It has dispatched a hospital unit 
to Mazar-e Sharif that is seeing thousands upon thousands of 
Afghanis who otherwise would not have received any health care, 
and it is very appropriate to cement even closer that 
relationship with this kind of support and this kind of 
program.
    I think Pakistan and India, that reflects the sea change in 
relations between the United States and the two countries over 
the last year or so. Things were rapidly improving with respect 
to India before this administration came into office, and 
things have continued to improve, especially since the events 
of last September 11. We have worked very closely with India, 
and we have done it in a way--especially since Pakistan made 
its strategic choice to join in the campaign and move away from 
past policies. We have had to keep a balance between India and 
Pakistan, especially as we entered into the crisis of December 
where both nations looked like they were racing towards war. So 
these two programs reflect our new engagement with India and 
Pakistan.
    Oman has been a good friend. It's been one of the principal 
supporters of our deployment efforts into the region, and so we 
believe that was appropriate as well, and the Colombia pipeline 
protection project I spoke about a little earlier.
    Mr. Kolbe. Thank you very much. Mr. Wicker.
    Mr. Wicker. Thank you very much, Mr. Chairman, for waiting 
for me and thank you, Mr. Secretary. You know, I am hardly one 
to ask but has your hair gotten a lot grayer in the last 14 
months?
    Secretary Powell. Yes, sir.
    Mr. Wicker. I think I can see why. It has been a tough 
hearing. But I think you know that you also have an awful lot 
of goodwill on this subcommittee. As you know, I accompanied 
Mr. Kolbe and Mr. Kingston on a CODEL to central Asia, and you 
were kind enough to meet with us toward the end of our tour, as 
you were coming in to talk with the Pakistanis and the Indians.
    We met with Mr. Kharzi in Kabul, and I think it is fair to 
say that the entire delegation was impressed with what he had 
to say. And he outlined his priorities for the interim 
authority beginning with, of course, security, then a strong 
central government, and then he got to the more social and 
humanitarian issues of education, infrastructure. Only then did 
he mention food, which we found interesting as a delegation, 
and also the drug problem.
    My first question to you is concerning that second priority 
of a strong central government, which I think you and I can 
both agree is very important. It seems that that is going to be 
one of the toughest issues that he has to crack because of a 
problem with a sense of nationhood in Afghanistan. It is 
something that we call E Pluribus Unum, and that is more than 
just a phrase to me. It is something that really makes our 
society remarkable. But you find this problem certainly in 
Afghanistan. The primary way in which so many of their citizens 
identify themselves is according to the tribe, and not as 
members of one people, one group of Afghans. Frankly, of 
course, as you know, this is also a problem all over Africa, in 
Rwanda, it has been a terrible problem between the Tutsis and 
the Hutus.
    I might ask you to comment on how we are doing in that 
respect in Afghanistan, what your hopes are, and what we can do 
as a State Department or a government. And also is there 
anyplace that we are doing a good job at resolving that issue, 
and I mention Bosnia, central Europe, where again Iwonder if 
people are ever going to think of themselves even as Bosnians, but 
rather as Bosnian Serbs or Bosnian Croats or Bosniaks. And so if you 
would touch on the issue as it relates to Afghanistan, and also are we 
doing well anywhere on the globe with that issue?
    Secretary Powell. It is a tough one. There is no nation on 
the face of earth who has done it the way we have. I love to 
say that we are a country of countries, touched by all and we 
touch all. What is an American? Just walk through any street in 
any American city and you will see nothing but Americans, but 
we don't look alike. We have been able to take this great 
diversity that exists in our country and make it a source of 
strength, not a source of weakness, through frankly a troubled 
history of the United States over the last 225 years.
    Mr. Karzai and the new government that will be coming in 
after the Loya Jurga faces that challenge and I think they have 
to find the right balance between these tribal affinities and 
relations and the need for a central government to be able to 
exercise control over them. So I think the model they will be 
looking at is a reasonably strong central government but a lot 
of regional autonomy, so that people can feel secure in their 
regions but also feel part of the Afghan national identity.
    There is something of a national identity. This is a 
country that has never been overwhelmed, has never been broken 
up. It has always managed to throw off the invaders in due 
course. It may take time. So there is something that pulls them 
together. I hope that Mr. Karzai, as he goes forward, will be 
able to use these differences as sources of strength.
    I think we also might find a rallying figure in the King, 
when he returns, that can be seen as a source of national 
identity and national pride and a coming together. So they have 
a real challenge. We have a lot of experience. That is why we 
are staffing up our embassy to help them with the creation of 
central administration but also regional administration. So I 
think we are very sensitive to this and in Bosnia and Kosovo 
where we are trying it, it has been very hard. We have been 
pushing to get more organizations in there that are designed to 
teach people how to do these things.
    This is not the job of the military. The military sort of 
sits on this situation rather than correcting the situation, 
and sooner or later, in both Bosnia and Kosovo, we have to 
reach the point where they are able to resolve these problems 
themselves, because they do gain some national sense of purpose 
and identity and are not just Serbs or Albanians. That is the 
toughest part of Bosnia and Kosovo, but it is also the solution 
to how we finally get out of Bosnia and Kosovo.
    Mr. Wicker. I don't hear your saying that we have made any 
progress in Bosnia and Kosovo.
    Secretary Powell. I think we have made some progress 
because we have been able to draw down our forces by a 
considerable number, but it is going to be a long time before 
all of the forces from all the countries will be able to leave. 
And in the year that we have been in office, we have been 
pressing the UN authorities and the other international 
organizations that are responsible for those two countries to 
do more in terms of getting civil police set up. To do more in 
terms of getting civilian agencies from other parts of Europe 
to come in and help these people establish those institutions 
that a modern nation, a modern diverse nation requires.
    Mr. Wicker. If I could just ask one-half a question to 
follow up, do you advocate the creation of a federation in 
Afghanistan, or would that be counterproductive and spin the 
country into the various ethnic groups and tribes?
    Secretary Powell. At the moment, I think it would be very 
inappropriate for me or the United States to advocate a 
federation as opposed to some other form of government. I think 
the one thing we have learned and the one thing we have been 
pressing from the very beginning is that the Afghans are going 
to have to figure it out. They have been conducting their 
business for several thousand years through these tribal 
arrangements, and they are going to have to figure out the 
model that works with their history, their culture, their 
background, and their tribal relations. We will help them. We 
will guide them. We will give them suggestions. If they want to 
learn how a federated system works, we will teach them. But I 
think it would not be appropriate for us to try to tell them 
what the form of government or arrangement should be between 
the different provinces.
    Mr. Kolbe. Thank you very much. By the way, Mr. Wicker, the 
only thing tough about this hearing is, unlike those hearings 
held by some of our colleagues on the other side of the 
Capitol, this one is about substance.
    In order to try to get as many in the second round in, I am 
going to ask people to limit it to one question here. The 
Secretary has to be at 4 o'clock to meet the President at the 
State Department, where the President is going to be talking to 
State Department employees. And so if you ask one quick 
question and we have a quick answer, we might get through here 
before the Secretary has to leave.
    Mr. Knollenberg.
    Mr. Knollenberg. Mr. Chairman, thank you. Mr. Secretary, I 
wanted to associate myself with the comments made by Mr. 
Kingston regarding the situation with Chairman Arafat and the 
Korean aid. My question, and I have several but I will limit it 
to one, has to do with Iraq. Iraq hasn't been mentioned, I 
don't believe, to this point. And we have talked about North 
Korea and we have talked about Iran. We know there are some 
concerns, some sensitivity about Iran along a couple different 
paths.
    With respect to Iraq--and I have a great many Iraqi 
Chaldeans that live in my district, so I have an understanding 
of the country--but with respect to the plans we might have, if 
any, and I know this might be something that you can't talk 
about in this venue, but is it going to be diplomacy we are 
going to use, is it going to be economic matters? Is it going 
to be--you mentioned I think a new UN inspection regime, which 
historically looking at that, we have had a terrible record of 
implementing it or getting it to be successful. Are any of 
those things options within the----
    Secretary Powell. The President, as he said earlier today 
in response to a question, all options are available to him and 
he is pursuing them all. He is looking at what we do 
politically, what we do diplomatically, and he is always 
reviewing nondiplomatic, nonpolitical options. But he has made 
no decisions beyond the policies we are currently pursuing, and 
part of that is UN resolutions which require the inspectors to 
go back in and sanctions to be in place. The sanctions are 
being strengthened and the team is ready to go in. Hans Blix is 
the leader of the team. They have been training for a couple 
years now, and as soon as the Iraqis dowhat they are supposed 
to do or say what they are supposed to say, they will go back in.
    The President has repeatedly called for the inspectors to 
go back in. They were not singularly unsuccessful for a number 
of years. They picked up a lot of material, a lot of 
information. They destroyed a lot of capability, and I think 
that is one reason why the Iraqis were anxious to throw them 
out of the country at the end of 1988 and were willing to 
accept a 4-day bombing from the United States in order to get 
the inspectors out.
    Dr. Blix is quite skilled at this kind of work, and I think 
if he gets back in, he may not find everything but he will 
certainly give a good look. He will serve as a deterrent to 
anything that might be going on that will have to remain hidden 
because it dare not come out and be seen in the light of day.
    The President also, however, is committed to regime change, 
as was the previous President, and that remains U.S. Policy. 
How to achieve regime change through opposition activity, 
military activity, other kinds of activity, all of those 
options are under consideration.
    Mr. Kolbe. Thank you. Mr. Rothman.
    Mr. Rothman. Thank you, Mr. Chairman. Mr. Secretary, what 
is your understanding regarding Argentina, the measures taken 
there by the government there in Argentina against U.S. 
Companies that have invested so many billions of dollars in 
that country; and, specifically, is there any recourse that 
American companies can take in the event of an action that is 
they say, quote, ``tantamount to expropriation''? And, by the 
way, I am not going to be asking you if we have our eye on 
Venezuelan President Chavez and his relationship with the FARQ 
in Colombia.
    Secretary Powell. We do, but you didn't ask.
    Mr. Rothman. Thank you.
    Secretary Powell. With respect to Argentina, I raised this 
issue with the Foreign Minister, Mr. Ruckauf, just two weeks 
ago, and there was a law they were getting ready to pass, a 
bankruptcy law that would have been very disadvantageous to our 
investors. I think they may have taken action to modify that 
proposed legislation. It is a concern to us, but at the same 
time, people who invest, invest with some knowledge of the risk 
that they take when they invest. That is why they get a return 
on that investment.
    We don't want to see any of the assets of American 
companies expropriated. But of course there is exposure to a 
number of American companies because of the investment they 
made in Argentina over the years. We are hopeful that President 
Duhalde and the other leaders who are now running Argentina and 
the Argentine economy will be successful through the very bold 
steps they have taken to restore confidence in the economy. As 
the peso floats, restore confidence in the economy so that we 
can start this country with such potential moving in the right 
direction again and see that those investments are protected.
    Mr. Kolbe. Thank you. Mr. Rothman, I hope you will follow 
that question up in detail with Secretary O'Neill.
    Mr. Kingston.
    Mr. Kingston. Thank you, Mr. Chairman. Mr. Secretary, since 
we are only limited to one question, I am not sure which I 
should ask you. Maybe you could advise me what I should ask?
    Secretary Powell. Is this a multiple choice hearing----
    Mr. Kingston. I was just wondering what the definition of 
``axis of evil'' is, what qualifies a country for that? Or I 
was going to ask about Daniel Pearl and Martin Burnham and 
wasn't sure which direction to go, so I will follow your lead.
    Secretary Powell. Let me just take Mr. Pearl because I 
think it is a topical item. We raised the case with President 
Musharraf this morning. We thanked him for the great work the 
Pakistani authorities have been doing. They have picked up one 
of the key ringleaders. We haven't been able to get sufficient 
information out of him to determine whether Mr. Pearl is still 
alive or not, although President Musharraf still thinks he is. 
The case hasn't been cracked, but the Pakistanis have been very 
aggressive in pursuing the case.
    Mr. Kingston. Thank you.
    Mr. Kolbe. Thank you very much. Mr. Jackson.
    Mr. Jackson. Mr. Chairman, I am going to submit the rest of 
my questions for the record in the interest of time.
    Mr. Kolbe. Thank you very much. Mr. Wicker.
    Mr. Wicker. Thank you very much. Let me ask my question 
about the UNFPA, and I am aware of what the Congress did last 
year. I think it is fairly well known that I approach this 
issue from a different perspective than my Chairman and my 
Ranking Minority Member. But let me just ask you with regard to 
what you are hearing out of China on coercive population 
control. The House International Relations Committee held a 
hearing regarding new evidence of forced abortion and forced 
sterilization. At this hearing, information from investigations 
in China was presented by the Population Research Institute. 
They outlined detailed accounts of coercive policies of family 
planning. These included forced sterilizations, forced 
abortions, nonvoluntary use of IUDs, imprisonment of dissenters 
and their families, and destruction of homes for noncompliance.
    We have also been informed that in one location, Mr. 
Secretary, the UNFPA has an active presence and shares office 
space with the Chinese Office of Family Planning. I am mindful 
of what we did last year, but what we did not do is repeal the 
Kemp-Kasten anticoercion language in the basic law, and I just 
would appreciate your comments on what you understand the facts 
to be in China regarding these coercive practices today.
    Secretary Powell. I have seen those reports, and I have 
followed the work just as you have described it. I have also 
received reports from UNFPA that they are trying to comply with 
the U.S. law with respect to the use of our funds on how they 
do that work. One of the things we are looking at within the 
administration is how to get to the truth about this. I am very 
mindful of my obligations and the administration's obligations 
of Kemp-Kasten, and we will comply with the Kemp-Kasten. But we 
are trying to get ground truth, and we may have to send people 
over to make an independent evaluation and take a look at it.
    Mr. Wicker. Thank you.
    Mr. Kolbe. Last question, Mr. Sununu.
    Mr. Sununu. Mr. Secretary, one of the striking things about 
our visit to Pakistan was hearing senior political and military 
officials admit very candidly that up until September 11 they 
had provided very significant support to the Taliban. They made 
no bones about it. Since that time, since September 11, things 
have changed dramatically. We recognize President Musharraf and 
his work to outlaw extremist organizations, to reform the 
Madrasa school system and the cooperation they have given to 
you and to our troops in the war on terrorism.
    Last year we provided an unprecedented level of support, 
$600 million in direct budgetary support to Pakistan. You spoke 
briefly about $250 million in support this year. My question is 
what conditionality, if any, is there on that $250 million and 
what assurances have you received or conditions have you 
received from President Musharraf regarding their influence and 
efforts to shape the new government in Afghanistan or, 
conversely, their willingness to allow the Afghani people 
really an independent approach to structuring a new government 
in Afghanistan?
    Secretary Powell. I don't think we have specific conditions 
on the money. But to the question, President Musharraf has made 
it clear that he has the same interest that we have in a 
government in Afghanistan that represents the people and is not 
under the influence of any of its neighbors, undue influence of 
any of its neighbors. He wants to have a good neighbor on his 
western border, and he is working hard to that end.
    He restated to the President again today his commitment to 
go after these terrorist organizations that reside within 
Pakistan. He also reaffirmed his commitment to stop cross-
border actions across the line of control, and he gave a most 
eloquent talk not only to the President but to the press 
afterwards on how he plans to reform the Madrasa and get them 
back to teaching science, math, Pakistani history, and the 
English language. Recognizing that the Madrasa perform a useful 
function with respect to room and board and health care and 
food for kids, but now they have to educate them and not just 
indoctrinate them.
    I think he continues to move on the right path, and 
watching his actions now for the one month since he gave his 
speech, I am impressed by what he is doing, and I think that 
Pakistan is very, very worthy of the support that we have given 
them and have proposed for them.
    Mr. Kolbe. Mr. Secretary, I know I speak on behalf of all 
the members by saying we thank you for the tour de force you 
have given us of the world today, and I think you know there is 
a great deal of goodwill in this subcommittee for you and the 
efforts that you are making. We appreciate your candor and your 
taking the time to answer our questions as thoroughly as you 
did.
    Thank you very much. This subcommittee stands adjourned.
    [Questions and answers for the record follow:]

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                                           Thursday, March 7, 2002.

                 EXPORT FINANCING AND RELATED PROGRAMS

                               WITNESSES

EDUARDO AGUIRRE, VICE PRESIDENT, EXPORT-IMPORT BANK
PETER WATSON, PRESIDENT, OVERSEAS PRIVATE INVESTMENT CORPORATION
THELMA ASKEY, DIRECTOR, TRADE AND DEVELOPMENT AGENCY

                      Chairman's Opening Statement

    Mr. Kolbe [presiding]. The Subcommittee on Foreign 
Operations of the House Appropriations Committee will come to 
order.
    We welcome our three panelists this morning, who will 
testify on behalf of their agencies.
    This is the second of our hearings on the President's 
fiscal year 2003 budget request. We are going to hear from 
three agencies whose jurisdiction includes export assistance 
and trade promotion: the Export-Import Bank, the Overseas 
Private Investment Corporation, and the Trade and Development 
Agency.
    I think this hearing is important for a number of reasons. 
We understand that these agencies are one of our main tools for 
foreign policy, for increasing U.S. trade and investment 
overseas, but perhaps they have even greater potential in the 
future.
    Let me frame the discussion today by saying that I am very 
concerned about today's international investment climate. 
Foreign direct investment and other cross-border flows of goods 
and capitals have stalled or fallen, partly as a result of a 
slowdown in the global economy but also because of the shocks 
of the last several months, including, of course, the economic 
impact of the events of September 11, the financial and 
economic crisis in Argentina and the devastating effects of low 
prices of commodities such as coffee. We see the 
marginalization of the poorest countries, already a problem 
before the Asian financial crisis of 1997, that only seems to 
be getting worse.
    According to UNCTAD, U.N. Conference on Trade and 
Development, the least 49 developed countries in the world 
together attract only 0.3 percent of the foreign investment in 
the world. These agencies we have before us today hold a great 
deal of potential to influence these unfortunate realities.
    Additionally, of course, since this is a budget hearing, we 
hope the witnesses can clarify their 2003 budget requests. And 
I must admit at first glance some of the numbers look a little 
odd. The President requested $541 million for the Ex-Im Bank's 
loan program account, which is a 26 percent cut from the 2002 
level of $727 million. My understanding is that this request, 
although a cut, would result in no decrease to Ex-Im's program 
level. I am interested in knowing how that is going to work.
    Accompanying the cut in the loan program account is a 
requested increase of $7 million, or 11 percent, for the Ex-Im 
administrative expenses. So I will ask about what seems to me 
to be two figures going in opposite directions when I get to my 
question time.
    OPIC's request for 2003 includes a fairly large increase I 
hope to understand by the end of this hearing. The president is 
requesting $40.6 million for administrative expenses and $24 
million for OPIC's loan program account. Last year, the 
subcommittee only provided administrative expenses for OPIC at 
a level of $39 million. My understanding is that the loan 
subsidy expires every two years, hence the need for another 
appropriation this year.
    And finally in 2002, the Trade Development Agency was 
funded at a level of $50 million. But in 2003, the president is 
requesting a cut of $5.5 million from last year's levels. TDA 
helps U.S. companies pursue overseas business opportunities 
through funding feasibility studies and other forms of 
technical assistance. So we want to learn more about these 
reductions.
    I would like to begin today by welcoming Mr. Eduardo 
Aguirre, the vice president of the Export-Import Bank of the 
United States. Prior to joining Ex-Im Bank, Mr. Aguirre was 
president of the Bank of America's international private bank 
and was just confirmed in this role as a member of the board on 
December 20 of last year.
    In addition, we will be hearing Peter Watson who we did 
hear from last year, the president of OPIC; and Thelma Askey, 
the director of TDA. Both of them have testified before this 
subcommittee before.
    Before I call on their opening statements let me ask my 
distinguished ranking member if she would like to add opening 
remarks.

                     Mrs. Lowey's Opening Statement

    Mrs. Lowey. And I thank my distinguished chairman, and I 
join my chairman in welcoming our witnesses today.
    I have been, as the chairman knows, a consistent supporter 
of the conceptual framework of all three of these agencies as 
they seek to promote U.S. investment abroad and enhance job 
creation at home. However, I have always been concerned about 
the degree to which the assistance supports large corporations 
and the extent of U.S. government risk that is taken on in 
these large transactions.
    These programs can be an integral part of United States 
foreign policy and an effective tool in keeping United States 
business competitive with the rest of the world, if they are 
administered with the appropriate degree of financial due 
diligence.
    I do have concerns with respect to the extent of business 
Ex-Im and OPIC have done with the Enron corporation over the 
past 10 years, and the apparent inability of Ex-Im or OPIC to 
detect the inherent flaws in Enron's management structure that 
led to unwarranted cash bonuses to executives who used the 
taxpayers, United States taxpayers, as guarantors of their 
risky undertakings.
    All three agencies before us today enjoy almost complete 
autonomy from congressional and executive branch oversight when 
it comes to responding to specific proposals from the private 
sector. Along with this autonomy comes the responsibility to 
ensure that the essential goals of export financing are 
maintained, promoting opportunity for United States businesses 
and creating jobs here at home.
    Most importantly, these agencies must ensure that proposals 
they receive are based on sound financial ground. Expanding 
globalization, the growth of multinational corporations, and 
complex financing and ownership schemes have made that job more 
difficult. But I cannot fathom frankly how both Ex-Im and OPIC 
could have been so misled over such an extended period with 
respect to the Enron corporation.
    Enron has already submitted an OPIC claim for its India 
power program for $200 million. At this point, we have the 
prospect of a taxpayer bailout of the Enron project, despite 
the apparent fact that they have clearly misled you about their 
financial soundness.
    Again, I have consistently supported high funding levels 
for export financing programs for a long time. But I have to 
say at this point, my confidence in your procedures and 
decision-making processes has been severely eroded. I do look 
forward to your testimony.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you, Ms. Lowey.
    Any other members of the subcommittee have an opening 
statement?
    If not, we will proceed to the statements. We will take all 
three statements and we will go to questions. We will begin 
with Mr. Aguirre, then Mr. Watson and Ms. Askey.
    May I remind you that we have all the statements. The full 
statement, of course, is a part of the record, and I urge you 
to--looks like we are going to get interrupted. No, that is the 
going into session bells. I urge you to summarize your 
statements. You will do yourself and us a favor if you do that. 
Thank you very much.
    Mr. Aguirre.
    Mr. Aguirre. Am I on?
    Chairman Kolbe, Congresswoman Lowey, members of the 
subcommittee, I am pleased to be here today representing 
Chairman John Robson and all who work for the Export-Import 
Bank.

                    Mr. Aguirre's Opening Statement

    Mr. Aguirre. As you mentioned, my written testimony is 
being submitted for the record.
    I am an old banker who is proud to be working for the first 
time for the federal government. I am finding that much of what 
I did in the commercial sector matches the way we are doing 
business at Ex-Im Bank. We do our utmost to keep our customers 
in mind in everything that we do, and to serve them with a 
winning team. And I am proud to be a new member of that team.
    Our job at Ex-Im is to support U.S. jobs by financing U.S. 
exports that would otherwise not take place. And we recognize 
that the current economic climate and the tragic events of 
September 11 presents us with challenges we have to face 
squarely and realistically. We are needed more than ever to 
take the lead in helping U.S. companies penetrate risky 
emerging markets overseas with our programs of loans, loan 
guarantees and insurance.
    In order to finance these programs and to meet expected 
exporter demand, I am asking you to support the request for our 
program budget or credit subsidiary of $541.4 million. Combined 
with all fees and interest charged, this is what we are 
required to set aside to cover potential losses in our 
programs.
    Though active and risky markets, over the past five years 
Ex-Im Bank has only had a 2.3 percent default on average; an 
admiral indicator for any financial institution. With the 
additional and estimated $90 million in cancellation of 
transactions approved in previous years, we will have available 
to us about $631 million which will support $11.5 billion in 
Ex-Im Bank authorizations. These will turn support about $15 
billion in total U.S. exports. We also estimate that over 86 
percent of our authorizations will directly benefit small and 
medium-sized businesses.
    Let me take a minute to explain why our request is lower 
than the authorization for the current fiscal year of $727.3 
billion. Put briefly, the Office of Management and Budget has 
made some changes in the method used to establish the cost of 
international loans and other kinds of international financing. 
OMB has developed a method to isolate just the risk of default 
and has also used actual historical experience of default and 
linked this to borrower interest rates. This has resulted in a 
more focused estimate of default, thus lowering our costs.
    I would like to move now to our administrative budget which 
is every bit as important as our program budget. We are 
requesting $70.3 million, which includes for the first time 
$1.9 million in pass through payments for retirement and health 
payments which used to be included in the ``central mandatory 
accounts.'' Therefore, the apples-for-apples comparison with 
our current year budget figure is a request of $68.4 million 
from the current level of $63 million.
    It is the administrative budget that makes the program 
budget work. About 90 percent of our administrative costs are 
fixed. This, of course, includes salaries, mandatory salary 
increases, rent supplies, and all the other inputs that we 
recognize as necessary for the running of a government agency.
    Mr. Chairman, this $5.4 million increase will allow us to 
continue to improve the efficiency of our operations. We have 
greatly improved our exporter database, but we also need 
similar improvements in our customer tracking system so we know 
who we need to reach and how we need to reach them. 
Modernization of computer systems such as the insurance system 
can both exponentially leverage staff resources and provide for 
greater efficiencies in the way we serve our customers, 
especially small businesses.
    Mr. Chairman, I would like to spend the last part of my 
testimony discussing the effect of the events of September 11 
had on the Bank, and how our plans for fiscal year 2003 might 
be affected.
    Air travel in many parts of the world was depressed, 
reducing the revenues of many of Ex-Im Bank's airline 
customers. In addition, the world's commercial aviation 
insurers canceled all airlines' third-party war-risk liability 
insurance, which is now only available for reduced amounts of 
coverage and/or significantly higher premiums. Ex-Im Bank, 
which traditionally requires third-party war-risk liability 
insurance, reframed from revoking financing, giving our airline 
customers and the international aviation industry breathing 
room to find a longer-term solution to this problem.
    I have just returned from a trip to Pakistan where, along 
with colleagues from OPIC and TDA, I spoke with President 
Musharraf, members of his cabinet and representatives from the 
Pakistani business and government sectors about how to best 
develop distance relationships with Pakistan and the 
possibilities of structuring support for Afghan reconstruction 
possibly through Pakistan.
    In closing Mr. Chairman, I said at the beginning of this 
testimony that challenges have to be faced squarely. No one 
would have predicted one year ago what the world would be like 
today. So I am not going to predict what fiscal year 2003 holds 
for the Bank. But I can tell you that we are ready to deal with 
a new and challenging international environment, and I am 
optimistic in the long run about the health of the U.S. economy 
and the ability of Ex-Im Bank to help the U.S. compete 
internationally.
    I would like to close by thanking the Subcommittee for its 
efforts last year in extending our charter as part of the 
fiscal year 2002 appropriations process. We are making progress 
on this front, and I hope we can count on your continued 
support if needed. Thank you, sir.
    [Mr. Aguirre's written statement follows:]

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    Mr. Kolbe. Thank you very much.
    Mr. Watson?

                     Mr. Watson's Opening Statement

    Mr. Watson. Thank you very much, Mr. Chairman, Ms. Lowey. I 
very much appreciate the opportunity of being with you here 
today.
    In light of the large participation by members and the 
number of subjects to be covered, I would like to thank the 
chairman for including my written statement in the record.
    I would just like to reemphasize the priority that myself 
and this administration had when it came to assume the 
stewardship of OPIC. A key priority, and this is from our news 
release of July 18, 2001, a month after being in the agency, is 
to strengthen the agency's consciousness of its developmental 
mission. At the same time, there was a news report that quoted 
the president of the agency as saying that he felt that the 
agency had developed a corporate culture that favored large 
commercially sound projects over ventures that could aid 
development abroad and encourage investments by smaller U.S. 
companies.
    We are going to change OPIC's incentive framework, and let 
OPIC staff people know that we are not going to penalize them 
if they think in terms of opportunities rather than just 
volume.
    In that context, let me just say how pleased we are to have 
concluded a historic agreement with the Small Business 
Administration, which is going to result in a significant new 
pipeline of qualified small businesses into OPIC programs 
abroad. And small business is one of our major focuses of the 
agency.
    Ms. Lowey, you have, raised some very important questions, 
and I would like to conclude my statement at this point so we 
can pick those up later on. Thank you.
    [Mr. Watson's written statement follows:]

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                     Ms. Askey's Opening Statement

    Ms. Askey. Thank you, Chairman Kolbe, Congresswoman Lowey, 
and members of the subcommittee. I appreciate this chance to 
come before the Foreign Operations Subcommittee on behalf of 
the U.S. Trade and Development Agency to explain our budget 
request and the exciting opportunities and challenges we 
foresee in the coming year. I want to begin by thanking this 
subcommittee for its support of our dual mission of creating 
export opportunities for U.S. companies while supporting U.S. 
policies by fostering economic growth in emerging and 
developing markets around the world.
    I am honored to appear before you today with my colleagues 
Peter Watson and Eduardo Aguirre. As promised during last 
year's hearing, shortly before I was sworn in, TDA, Ex-Im and 
OPIC have kept open the lines of communication and cooperation 
between our agencies. I look forward to continuing to do so in 
the coming year.
    Before I focus on the coming year, let me first briefly 
outline USTDA's achievements since I last appeared before you. 
This past year has brought many changes and challenges to the 
agency as a result of political events around the world. 
Although USTDA has continued its regular activities supporting 
U.S. business community and overseas trade development, 
international events have created many challenges and 
opportunities for our agency going forward.
    For example, as the result of September 11 and the 
administration's new policy stance toward Pakistan and 
Afghanistan, we are now actively pursuing development 
opportunities in both countries, particularly where U.S. 
companies can be partners for progress and reconstruction 
efforts. I believe this new policy approach opens a wealth of 
opportunities for the U.S. government and U.S. firms to help 
rebuild a region that has been torn apart by war for the better 
part of 20 years.
    In addition, shortly after testifying last year, we signed 
a framework agreement with China that has opened another market 
for USTDA to support U.S. policies and U.S. companies. With 
China working to fulfill its obligations for membership in the 
World Trade Organization, USTDA intends to work diligently to 
ensure that U.S. companies and technology are best positioned 
to assist in this effort.
    Over the past year, I have seen how the agency does so much 
with limited but disciplined resources as it supports U.S. 
companies and U.S. foreign policy around the globe.
    I would like to highlight the return on USTDA's budget 
since its inception 21 years ago. This agency has facilitated 
more than $35 in exports for each dollar invested since 1980, 
with the grand total of over $17 billion in U.S. exports over 
this time span.
    I believe this success rate is partially related to TDA's 
size. because we are a small, nimble agency with a 
compact,seasoned and highly skilled staff, we can respond quickly to 
opportunities as they appear, can adapt rapidly to changing market 
conditions, can work with other agencies depending on the issue 
involved, and can target our resources quickly.
    USTDA's fiscal year 2002 budget was $50 million, and the 
president's fiscal year 2003 budget request includes $44.7 
million for TDA. USTDA expects this requested budget amount to 
be sufficient to satisfy anticipated demands for the agency's 
service in fiscal year 2003. I look forward to continuing to 
leverage our agency's resources into substantial successes that 
support U.S. businesses and U.S. foreign policy objectives.
    Given the rapid pace of changing developments throughout 
the world we need to be vigilant for new opportunities to 
promote and advance U.S. trade and foreign policy objectives 
wherever they arise. We are doing this in many ways, such as 
opening regional offices in strategic locations around the 
world to allow TDA a local presence in emerging markets.
    In our offices in Zagreb, Croatia, and Ankara, Turkey, 
USTDA, Ex-Im and OPIC are working in concert to bring about 
economic development in these areas of the world. Additionally 
we have just moved our regional office in Asia from Manilla in 
the Philippines to Bangkok, Thailand, and are about to open a 
regional office in Johannesburg, South Africa. The Johannesburg 
office is being established in support of the principle behind 
the African Growth and Opportunity Act, that increased trade 
between the U.S. and African nations will benefit both sides.
    The president's budget request will allow us to continue to 
focus on particularly important sectors such as the 
environment, energy, transportation and high technology. We 
have learned that when industries decide to upgrade their 
infrastructure using cutting-edge technologies, such a decision 
is often tantamount to going with American technology.
    However, overseas competition is greatly increasing in the 
information technology sector, requiring USTDA staff to be 
ever-aware of new opportunities for U.S. companies in these 
emerging economies.
    The same holds true for environmental projects. While the 
U.S. private sector is the worldwide leader in the 
environmental technology, they are continuing to face 
increasing competition.
    An example of how this agency is supporting an important 
sector in the U.S. economy is our planned regional water 
conference that we are planning in conjunction with the White 
House. It will be held this summer in Thailand and will focus 
on water management systems throughout the region. This 
conference will provide Southeast Asia project sponsors and 
other decision-makers an opportunity to meet with 
representatives from key U.S. equipment manufacturers and 
service providers. The conference is designed to lead to future 
business opportunities between the U.S. participants and U.S. 
companies.
    Further, we are supporting the administration's leading 
trade policy objectives by working in cooperation with the 
Office of the U.S. Trade Representative on key trade technical 
assistance activities. For example, TDA cooperated with USTR 
and the U.S. embassy in Morocco to offer a technical assistance 
grant to Morocco's Ministry of Trade and Industry. The study 
will examine the probable effects of the EU-Morocco association 
agreement on the United States, and will recommend options for 
improved terms of trade between our two countries and possible 
steps leading to an FTA between the U.S. and Morocco.
    In closing, your approval of the president's budget request 
will allow USTDA to continue its core work in its five regions 
and to respond to increasing demand, as well as to meet new 
challenges with the assistance of our regional staff.
    Let me say again that I am delighted to have the 
opportunity to share with you the recent successes of this 
important agency and the many challenges and opportunities for 
the future. I am excited about the possibilities inherent in 
such a dynamic agency and look forward to continuing to move us 
forward in the coming year by continuing to seize upon the new 
opportunities in this rapidly changing world.
    Again, thank you, Mr. Chairman, Congresswoman Lowey and 
subcommittee members for allowing me the opportunity to appear 
before you. I look forward to continuing to work with you in 
the future, and I would be pleased to answer any questions you 
have about our budget.
    [Ms. Askey's written testimony follows:]

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    Mr. Kolbe. Thank you very much.
    We have a number of members here, and we have three people 
that we want to ask questions of. I would like certainly if 
possible for this first round to try to contain our questions 
to five minutes to allow everybody to get through at least one 
question per witness. And so I will adhere to that myself here.

                      Subsidy Account Request Cut

    Let me begin, Mr. Aguirre, with you and ask about this 
decrease that you have in your subsidy account request, a 26 
percent cut that the Administration is asking for, which you 
say is going to allow you to support an increase from $10.3 
billion to $11.4 billion in your program level. And I know your 
testimony talks some about the reasons for this change and the 
methodology that OMB uses. But I would like you to tell me a 
little bit more about the assumptions that are involved.
    What underlying assumptions have you and OMB made that 
explains these projections, this reduction in the subsidy 
account, and the increase in the program level?
    Mr. Aguirre. Mr. Chairman, I will give it my best shot.
    OMB is sponsoring a formula that identifies the potential 
credit risk that we have. In the past, that formula included a 
number of elements which were really extraneous tothe foreign 
risk that we faced, and as time has gone on, those extraneous elements 
have been identified and removed, leaving us with a more focused 
estimate as to the credit risk that the Bank would have. It includes 
past history. It excludes some of the areas that would be related to 
domestic issues, as opposed to international issues. And so the actual 
formula has changed.
    I would like to answer the question perhaps in a different 
fashion. What we did at Ex-Im Bank is we took quite a bit of 
care to try to determine what the exporters needs were going to 
be in fiscal year 2003. The number for us was $11.5 billion, 
and that is the number that we submitted to OMB. That was, in 
turn, cranked into the formula, and the formula came up with 
this dollar amount. So we did not actually ask for a particular 
budget number, but for an authorization amount to finance 
exporter demand.
    Mr. Kolbe. It would appear, at least, from the methodology 
that the government is making an assessment that the risks of 
international lending are lower today. Given the events of the 
last few months and what we see happening in places like 
Argentina, that seems hard to swallow. Would you say this is a 
fair assessment? Are we assuming that the risks of lending are 
lower today?
    Mr. Aguirre. No, sir, I think what we are doing is we are 
making a formula truer to assessing the risk. Just to give you 
an example of some of the issues that used to be included in 
the formula actually that we are operating under today, it 
included profits, opportunity costs, tax effects and other 
items that impact interest rates, which really have very little 
to do with the foreign risk that we face.
    So I think, you know, the answer to the question, from 
where I sit, is that the formula actually measures better the 
credit risk that we are facing, whereas the old formula, I 
think, was quite inexact and really did not bear a good 
resemblance to bear risk.

                        OPIC AND PRIVATE SECTOR

    Mr. Kolbe. Mr. Watson, you repeat in your testimony 
something that we have heard you say before, and that is that 
OPIC should not compete with the private market. And I know 
this is a debate that has been going on here in Congress. I 
remember it well by the former Budget Committee chairmen of 
both Ex-Im and OPIC. We debated whether or not it ought to be 
privatized, whether it was corporate welfare, whether it is an 
undue burden placed on the taxpayer. But we have, sort of, 
settled that debate here.
    In the last five years, OPIC's level of business has 
declined as has its role in the political risk insurance 
market. Meanwhile, the private sector's role has grown 
exponentially. I think you only completed 18 insurance deals 
last year, which is down from 40 in previous years, while the 
private sector did literally hundreds and hundreds of deals.
    Is there any evidence that OPIC is crowding out the private 
sector insurance market?
    Mr. Watson. Mr. Chairman, thank you. This is a very 
important issue for us to address.
    I do not think that there is necessarily any evidence that 
we are crowding out the private market. I think it is a 
function of ensuring that taxpayer monies are being used in a 
way that, in fact, responds to or supports a legitimate U.S. 
government function. We believe it does, which is to say to 
provide the necessary incentive or gaps in insurance coverage 
that but for OPIC an investment might not otherwise take place.
    Historically, of course, when OPIC was formed, there was no 
private insurance market for political risk to speak of, and so 
the agency's mission was obviously much more heavily oriented 
toward political risk insurance. However, the drafters of the 
OPIC charter wanted to see us help develop a private political 
risk insurance market.
    Part of our statute, Section 234A, requires OPIC to 
undertake programs of cooperation with the private insurance 
industry, to encourage greater availability of political risk 
insurance by enhancing the private political risk insurance 
industry. One of those means include providing risk insurance 
through coinsurance and other mechanisms.
    I think the real concern that all of us have is that OPIC 
remain able to provide coverage as and when the private market 
does not. And for our part, we are committed to providing such 
coverages in such amounts as is not otherwise available by the 
private sector, which I think is exactly the mission which we 
had in the beginning.
    So it is a function as the private insurance market has 
increased, OPIC has sought to have complimentary ways to 
continue to make sure that gaps in availability are met. And as 
our political risk insurance business has decreased, I think it 
is incumbent upon OPIC also to try and identify other insurance 
coverages and products, which are not available and which 
likewise we could be leading in the provision for.
    So it is not so much of crowding out, I think, Mr. 
Chairman, as identifying the correct relationship with the 
private market as to provide the most coverage for sponsors.
    Mr. Kolbe. That answer raises some other questions, but my 
time on the first round is gone.
    Mrs. Lowey.

                             OPIC AND ENRON

    Mrs. Lowey. Thank you, Mr. Chairman.
    And thank you for appearing again before us.
    Mr. Watson, according to recent press stories, OPIC has 
supported $1.7 billion for Enron's foreign deals since 1992 and 
had promised $500 million more for projects that did not go 
forward.
    Ex-Im has apparently put about $700 million into Enron's 
foreign ventures. And according to recent testimony, Enron 
executives pocketed multimillion dollar bonuses for signing 
international deals under a structure that rewarded deal-
signing without regard to actual risks.
    OPIC has indicated to Congress that it is currently 
supporting 10 international projects with political risk 
insurance involving the Enron Corporation with a combined 
maximum coverage of $204 million. In addition, OPIC is 
supporting finance projects in which Enron is the shareholder. 
Enron has apparently filed a $200 million claim with OPIC on 
the Dabhol power plant in India.
    While I appreciate OPIC sharing information with the 
committee on the extent of Enron's business with OPIC, I 
frankly do not believe you have been forthcoming enough, with 
all due respect. So a couple of questions.
    First, what is the status of Enron's claim with the Dabhol 
power plant in India? What specific actions have you taken with 
respect to pending Enron requests, new financing and insurance?
    Maybe I will combine the second one, as well; given that it 
is now obvious to everyone that Enron's internalaccounting 
system was rife with irregularities and that aggressive management 
practices encourage questionable foreign investments, how is it that 
OPIC's finance program approval process did not detect this fraudulent 
activity?
    Mr. Watson. As to the first premise, Madam Lowey, I am 
sorry that there might be a view that we have not been as 
forthcoming as we might be. Let me just say that we have been 
as responsive as we possibly could have been to the only 
committee of Congress that has written to us, which is the 
Senate Finance Committee, and we have a second group of 
materials that, in fact, we are providing them at the present 
time. So I would like to believe that we are being completely 
responsive, but allow me to get to your specific questions, if 
I could, please.
    In terms of the status of the claim for Enron's interest in 
Dabhol, we have only received a single letter, assertion of a 
claim at this point, which is not a completed application. It 
is just an indication that a claim is going to essentially be 
forthcoming or is possible under our policy.
    And a number of things would have to happen before we 
would, in fact, be obliged to make a payment under that 
particular policy. Not the least of which would be that they 
would have to prove that the necessary confiscatory and other 
expropriation activities that have been alleged do, in fact, 
are covered by the policy, which is something that they are 
going to have to prove.
    Let me just say as to the actual exposure to OPIC, even 
assuming that we had to make a payment under that policy, of 
course, OPIC has a right to claim against the government of 
India for any such payment. And our history of collections for 
such actions under our bilateral agreements is 94 percent. So 
the possibility of the taxpayer being actually liable at the 
end of the day is, in fact, very, very questionable.
    In terms of the request for new financing, there are no new 
financings that I am aware of regarding Enron. All financings 
that are subject to question were approved between 1992 and 
2000, prior to my arrival at OPIC. In fact, it was this 
administration that was in a situation of preventing $390 
million of funding to be extended to Enron.
    As to the internal accounting finance questions, we are 
just as concerned as you and others as to whether or not, in 
fact, the full amount of information was provided to OPIC. We 
are very concerned to ensure that we have not been misled in 
this process. We have an internal review going on and we have 
also requested the assistance of the Attorney General's Office, 
Department of Justice, to assist us in providing any 
information they come across and to provide us legal assistance 
in making such determinations.
    So we are very concerned to ensure that there not be any 
inappropriate claims for payments by OPIC.
    Mrs. Lowey. I just wondered to date, have you determined 
during the process of the investigation, whether any of the 
submissions were fraudulent or misleading?
    Mr. Watson. As you might imagine, Mrs. Lowey, there is a 
substantial amount of financial information that is provided. 
What, of course, we are not privy to and do not have is the 
financial information that was not provided to us or may have, 
in fact, been withheld from us. That information, of course, is 
currently or attempting to be collected by the Department of 
Justice.
    So it was by reason of our concern that we be provided with 
that information that becomes known to the Department of 
Justice, that we wrote to the Department of Justice on February 
the 25th precisely asking them for information that they may, 
in fact, come across that would inform us on our own decision-
making and specifically requesting that they give us legal 
opinions as to any such fraudulent statements.
    Mrs. Lowey. Thank you, Mr. Chairman.
    Mr. Kolbe. Mr. Knollenberg.
    Mr. Knollenberg. Mr. Chairman, thank you very much.

                          THE CAUCASUS REGION

    And welcome, panel. Appreciate your being here.
    Regarding regional development and the Caucasus.
    Is this microphone doing something funny? I sound like I am 
coming out of a barrel, I think. [Laughter.]
    Anyhow, as you know, the South Caucasus is not a place that 
most people around the world know much about. If you ask 10 
people on the street, they would not know where it was. But for 
members of this subcommittee, we are all very familiar with it, 
and it is an area of the world that we take very seriously.
    Over the seven years that I have been on this subcommittee, 
I worked with my colleagues, the chairman, whether it was Sonny 
Callahan or Chairman Kolbe, they have all been very gracious 
about allowing us to get our story out relating to Armenian 
issues in the Caucasus region.
    In fact, in 1997, I think it was, Ranking Member Nita Lowey 
and I went into Nagorno-Karabakh and had a little party on a 
hillside. It was not a party, it was a discussion that we had 
with the officials of that area, and she will remember that 
very well. Was Ms. Pelosi on that trip, too, as well? She might 
have been. I am not sure. Was Nancy Pelosi a part of that trip?
    Mrs. Lowey. I do not think so. But I will never forget the 
landing on the cliff.
    Mr. Knollenberg. And the helicopter and all the rest of it.
    Mrs. Lowey. And the helicopter.
    Mr. Knollenberg. And Charlie Flickner, obviously, our 
subcommittee clerk, was along for the ride, as well.
    And this contributed very nicely to a working relationship 
with the chairman. So we appreciate that.
    One of the important principles I have been trying to embed 
into U.S. policy toward the Caucasus is the matter of regional 
integration. If we are ever going to have sustainable peace and 
sustainable development among Armenia, Nagorno-Karabakh, 
Azerbaijan and Georgia, I think we have to focus on regional 
cooperation and not exclude one country from regional projects. 
This is the reason that I have introduced a resolution with a 
couple of members from this committee as cosponsors that has to 
do with the Baku-Ceyhan pipeline.
    And I know, Ms. Askey, you are familiar with that, as I am 
sure the rest of you are, as well.
    Fortunately, I understand that there is some good news on 
this regional development in the area of air traffic control. 
That is something that I want to hear from you about. But TDA 
has been particularly involved in that. I believe Ex-Im as 
well. OPIC has also been involved in an important hotel project 
in Armenia.
    So the question is, specifically, first, the air traffic 
control project, could you tell us where that standsright now?
    Ms. Askey. Thank you, Mr. Knollenberg.
    We absolutely agree with you that cooperation among the 
countries in the Caucasus region will help bring stability to 
the region and promote economic growth in all three countries.
    And we have given a grant to conduct an air traffic, to 
build on an air traffic control project that USTDA and Ex-Im 
funded in Georgia. And this will be a regional air traffic 
control proposal that Northrop Grumman will begin evaluation on 
shortly. And we hope that it will bring these countries closer 
together and help the economic development in all three.
    And we will actively continue to seek other opportunities 
to promote economic growth and U.S. involvement as a regional 
objective, as opposed to a country----
    Mr. Knollenberg. What has 9/11 done to that project in 
terms of revenue or growth?
    Ms. Askey. Well, September 11 certainly has focused 
everyone's attention and concern on both the part of U.S. and 
the part of these countries in the region on air traffic safety 
standards and, of course, security standards.
    Mr. Knollenberg. You have modern radar now, don't you, as 
part of the project?
    Ms. Askey. Right, absolutely.
    So there is not a whole lot of additional money attached to 
the project, although there is some effort to modernize it, as 
you say, provide more modern radar equipment and the CNS/ATM 
system satellite technology that is the most advanced.
    But certainly, the priority and the effort to move forward 
with this as quickly as possible has become greater since 
September 11.
    Mr. Knollenberg. Are all three agencies working together on 
this?
    Ms. Askey. Yes. Certainly TDA and Ex-Im are kind of first 
in the door on this. To the extent that subsequent U.S. 
investment reaches OPIC standards, they will be involved as 
well.
    Mr. Knollenberg. So thank you very much.
    Mr. Kolbe. Ms. Kilpatrick.
    Ms. Kilpatrick. Thank you, Mr. Chairman.
    And good morning. I look forward to working with you all.
    Mr. Chairman, I have Transportation going on right now, 
too, so I will be trying to cover two meetings and come back on 
the second round. And I would also advise you that I will have 
questions in writing, because I know I will not be able to get 
them to you today.
    Let me start with OPIC. Mr. Watson, good morning. It was 
nice meeting you, too.
    Mr. Watson. Thank you, ma'am.
    Ms. Kilpatrick. Look forward to working with you.
    Mr. Watson. Thank you, ma'am.
    Ms. Kilpatrick. AGOA is how it is referred to. October was 
their coming-out reception. And the president, the secretary of 
state and yourself mentioned that you were opening a $200 
million facility to assist American businesses access to loan 
guarantees, political risk insurance and the like.
    Has that facility been started? Is it open? Is it open for 
business?
    Mr. Watson. It is certainly open, ma'am.
    And I am pleased to tell you that in a concerted attempt to 
make available those funds for specific projects, there is a 
group of us who are going to Africa in April to visit three 
countries and bringing our investment fund managers with us. 
Joining the Assistant Secretary of State for Africa, Walter 
Kansteiner, we are going to Ghana, to Kenya and to South 
Africa. And we will be using those three places as a staging 
point to bring in investor opportunities from the other parts 
of the region.
    Ms. Kilpatrick. You can stop there. That is a good answer 
for that. [Laughter.]
    Is the facility on site on the continent, or is it 
something here? And as you visit those three places and taking 
the staff aides with you to assist on the continent, where 
exactly is the facility? Is it a place? Is it something that 
they interact with on this side of the Atlantic? Or how does 
that operate?
    Mr. Watson. It is an amount of funds that we have allocated 
for eligible projects in the region and----
    Ms. Kilpatrick. Okay. So businesses have to access that 
from this side of the Atlantic?
    Mr. Watson. Yes, but having said that, we are in constant 
contact with our embassies abroad and our commercial 
counselors, and so we are getting input both from the region, 
and from various ministers. For example, we had the South 
African housing minister visit with us recently.
    Ms. Kilpatrick. Okay. Stop.
    Mr. Watson. Okay. [Laughter.]

                             HOUSING SECTOR

    Ms. Kilpatrick. I am very interested in the housing aspect. 
My reason for asking, too, is I have companies in my district. 
For example, one particular company built a plant in one of the 
countries selling General Motors cars, who is also located in 
my district. I do not know that they know all of this.
    So I would like to work with you to make sure that we get 
the information out in our newsletters or whatever else we have 
available to us. I think I want to be a partner in that, 
because we many times too often forget Africa, but we have 
African and other American businesses who want to build and 
grow.
    The housing sector being another. I know you are moving 
into that.
    Mr. Watson. We sure are.
    Ms. Kilpatrick. We have businesses in our district who want 
to participate, who have the wherewithal to invest their own 
capital and others to do the building. So I want to be a 
partner in that. I do not want you to forget it.
    Mr. Watson. I will not forget it.
    Ms. Kilpatrick. Okay. And then probably lastly on my first 
five minutes, I understand you have 200 professionals-plus in 
OPIC----
    Mr. Watson. Yes, ma'am.
    Ms. Kilpatrick. Of which eight or more, give or take, are 
African American. Are any of those eight going with you to 
Africa?
    Mr. Watson. I am not entirely sure how the makeup staff-
wise is going to be, ma'am, but I would be very pleased to find 
out and come back to you on that.
    Ms. Kilpatrick. Very important.
    Mr. Watson. Yes, ma'am.
    Ms. Kilpatrick. Very important. You know, I am just not 
saying that for Africa, but whatever country you go to it is 
always good to take the people who look like the people you are 
going to visit with you.
    Mr. Watson. It is just as well they do not have programs in 
New Zealand. [Laughter.]
    Ms. Kilpatrick. All right. I am talking Africa. We are 
going New Zealand as well.
    And then lastly, if I can ask Ms. Askey, you have mentioned 
an office open in Joburg. When is that happening?
    Ms. Askey. It is on track. It should be open actually 
within a month. We currently are evaluating the person that 
will be placed there. Ex-Im will join us with dispatch, I am 
sure, and hopefully OPIC will as well. So that will be a place 
where people can access in sub-Saharan Africa.
    Ms. Kilpatrick. Like to work with you. Anything that my 
office can do to assist in the regard.
    Ms. Askey. Absolutely. Absolutely. It is going very well, 
and we are pleased at the response of the countries in the 
region.
    Ms. Kilpatrick. Thank you, Mr. Chairman. And I will submit 
questions for the record.
    Mr. Kolbe. Thank you, ma'am.
    Mr. Lewis.
    Mr. Lewis. I need all the help I can get.
    Mr. Aguirre, Mr. Watson, Ms. Askey, welcome.
    I might say, Mr. Watson, that the former speaker of the 
California assembly was from New Zealand, and it is a pleasure 
for me to see so many New Zealanders rise so high.

                                 CHINA

    Ms. Askey gave me a hint that she had just spent a little 
time in China. A major area of interest of mine involves Asia 
and our future long-term relations with key Asian countries, 
China being one of them, further in Southeast Asia, India being 
another.
    I would be very interested in having all of you, perhaps 
starting with Ms. Askey, give the committee a feeling for the 
work of your agencies in terms of expanding opportunity for 
trade in both China and specifically India, if you will as 
well.
    And I will not be so specific as the former member who was 
asking questions, but rather I would like to hear your input, 
the progress that is being made by way of your agencies. The 
WTO, for example, is a very important question.
    Ms. Askey. Thank you, Mr. Lewis.
    Asia certainly offers the most growth potential right at 
the moment. Certainly, China is growing quite fast and, 
particularly in some sectors, is the only area in the world 
that is growing. Say, the aviation sector is a good example of 
that.
    So we are working quite actively in China from both a 
policy support point of view; as you suggested, they are new 
entrants into the WTO and they need and want and requested a 
lot of assistance in helping build capacity in their country 
for an open market or for specific WTO obligations.
    So we are working with the Chinese on that, as well as on 
business opportunities. U.S. firms are quite active in China 
and throughout the region, and there is quite substantial 
competition from key competitors, the EU, Japan and others. And 
so, they look to the U.S. to help ensure that the playing field 
is level as they participate in these activities abroad.
    But certainly we just opened up in China last year, and 
China's emerging as one of the key countries in our portfolio.
    India is a difficult market, but we are also increasing our 
activity there with some success. And we continue to press them 
on the capacity building side, because it is, from our point of 
view, just as important to provide expertise and technical 
assistance to create appropriate commercial environments for 
future economic activity, particularly by U.S. firms, as it is 
to work on particular projects that U.S. firms might or might 
not be participating in.
    So, yes, the region is very important. We are very active 
in Vietnam these days. And look to those areas where the U.S. 
has shown some policy interest, China, Vietnam, places where 
there are new FTA interests. And, of course, India is a very 
important market because of the large middle class----
    Mr. Lewis. Right.
    Ms. Askey [continuing]. And dynamic economy.
    Mr. Watson. Being mindful of your time, Mr. Lewis, OPIC has 
not been operating in China since Tiananmen. There are a number 
of other restrictions that pertain to us and predicate to us. 
Recommencing our operations would require several executive 
waivers, and not the least of which would be one pertaining to 
worker rights. And this week, of course, saw the release of the 
most recent human rights report from the Department of State, 
which has some very concerning statements there, particularly 
as pertains to religious freedom in China.
    With respect to India, we have the Dhabol power project. We 
are hoping that all of the respective government interests in 
India can join with us in a constructive manner to be able to 
demonstrate that the country is dedicated to good foreign 
direct investment rules and procedures. This is, I think, a 
wonderful opportunity for the authorities in India to 
demonstrate that they are committed to sound law and rules and 
encouraging foreign direct investment.
    Mr. Aguirre. Congressman, Asia, of course, is a very 
important area of the world. And mindful of the fact that Ex-Im 
Bank is actually supporting exporters where they may go, I will 
just point out a couple of things in response to your question.
    One, China is very important to us. We share one FTE in 
Beijing with the Department of Commerce to identify 
opportunities. Second, China is where we have the largest 
exposure to date, and that has to do more with financing that 
we provided a few years ago on Boeing aircraft.
    Looking at the numbers for 2001, looking at the top 10 
countries that we did business with, four of the 10 are in 
Asia. So I think that somehow addresses the question.
    Mr. Lewis. Mr. Chairman, I am raising this question this 
way for the following reason. Wearing another hat, I spent a 
lot of time worrying about peace in the world. And the reason 
we spend the money we do in this committee is because we are 
the force for peace.
    Asia, if you look forward 15 to 20 years from now, has to 
be a major area of interest for us, especially if you are 
concerned about it as part of our responsibility for peace.
    Your agencies can play a very, very significant role in the 
two most potential areas of the region, India and China.If we 
attack those private marketplaces and encourage our people to 
participate. If, indeed, there are human rights limitations in India or 
China, for example, we ought to figure out how we can eliminate them.
    We are not going to change that piece of the world very 
quickly, but not opening doorways could significantly limit 
some of our most important avenues to playing a role for peace.
    We will be asking this same question in a number of ways 
over time.
    And so, Mr. Chairman, I appreciate your patience.
    Mr. Kolbe. Thank you, Mr. Lewis.
    Ms. Askey, let me just ask you very quickly for the record, 
I have asked this last year, and I just want you to put it on 
the record this year.

                          FEASIBILITY STUDIES

    How many feasibility studies did TDA conduct last year? And 
of those conducted, how many resulted successfully in the U.S. 
company winning the procurement of other kind of export, 
contract? Do you have any dollar value you can attach to that?
    Ms. Askey. Well, feasibility studies, of course, are just 
one part of our activities. It is an important part, obviously. 
Last year, we did complete 100 feasibility studies. Sometimes, 
these projects are three to five years in the making, and the 
feasibility study can come at various parts of this project, 
albeit early in the process.
    The total value at the feasibility studies funded is about 
$29 million. And, let's see, that would be about $35 in exports 
for each $1 spent, and is therefore likely to lead to 
approximately $1 billion in exports from last year's studies. 
So around 33 percent out of the 100 would likely result in 
exports within a reasonable time period, and then others would 
follow beyond that.
    But again, I would also note that capacity-building support 
and technical assistance, say, for regulatory reform and other 
aspects are also a very important part of our portfolio. And it 
is harder to attach a dollar success rate, with respect to 
specific exports in the immediate term, because you are 
creating an environment for long-term improvements in export 
opportunities.

                               TRANSFERS

    Mr. Kolbe. I do not see a lot of details in your budget 
justification regarding, particularly, the transfers that you 
get from other agencies. They have ranged in the past from $5 
million to about $21 million.
    How much are you assuming you are going to get in transfers 
from other agencies this year?
    Ms. Askey. I believe we are getting about $10 million this 
year.
    Transfers come at odd timing. It does not come in the 
beginning of the fiscal year. We get some from State for the 
Caucasus, for example. And usually, transfer money does not 
really show up in our agency until summer, and then, it is 
spent over a two-year period. So it fits rather oddly into the 
fiscal year situation, and it can cause, sometimes, an odd 
carryover number.
    Mr. Kolbe. But you have to use some kind of an assumption 
of what you are going to have in order to----
    Ms. Askey. Well, it is about $10 million. Yes, about $10 
million in this go around. And it will show up in summer of 
this year, and it is spent over a two-year period.
    As you say, it can range depending on some of the demands 
on our agency and some of the interest of State Department.
    Mr. Kolbe. Thank you.

                             DHABOL PROJECT

    Mr. Watson, first a comment about Enron and the Dhabol 
project in India. Last year when I traveled to India and 
Pakistan, we visited with the energy minister in India to talk 
specifically about the Dhabol project. I did that not because 
anybody from Enron contacted me, but because I was concerned 
about the exposure that OPIC was facing in India.
    My understanding of this project is that it is a 
straightforward--it is not what Enron got itself into trouble 
with, which was trading. This was a straightforward 
construction project; they had covered everything they thought 
they needed. But unfortunately there was a dispute between the 
state, Maharashtra state, and the federal government over--it 
is a very complicated political dispute as to who is going to 
have the liability for this thing.
    Can you just tell me, where are we? It was 90 percent 
completed when it stopped, as I understand it. Where are we 
with the completion, getting somebody to complete that or take 
it over? And where are with regard to your exposure on that?
    Mr. Watson. Certainly, thank you.
    First, let me just say, you are absolutely correct. The 
nature of the problem on Dhabol had----
    Mr. Kolbe. Nothing to do with Enron.
    Mr. Watson. Nothing to do with the financial difficulties 
of Enron. It was created purely as a result of the breach of 
contract by the authorities on the state of----
    Mr. Kolbe. By the power authority.
    Mr. Watson. They failed. They were unwilling to carry out 
their obligations under the power purchase agreement. Their 
unwillingness to buy power at the contracted rate resulted in 
the stop of money to the Dhabol Power Corporation. And as a 
result of that, in fact, construction in phase one, in fact, 
has still stalled. It is all but completed.
    Mr. Kolbe. It is about 95 percent----
    Mr. Watson. That is my understanding.
    Mr. Kolbe. It is unbelievable that they could leave a power 
project sitting there 95 percent complete.
    Mr. Watson. You asked for the status of the project. There 
is, in fact, a dialogue going on now between the equity holders 
in Dhabol.
    And by the way, Enron is only one of four shareholders in 
that particular company. Our exposure is to a project as you 
know, sir, we do not provide corporate finance, we provide 
project finance. So, in fact it is the project that OPIC was 
lending to, not Enron.
    But the point is that we are hoping that the dialogue 
between the equity owners and potential bidders may result in a 
situation whereby this could be resolved and the project 
completed.
    Mr. Kolbe. So you do have some hope that it is going to get 
completed.
    Mr. Watson. We continue to work very hard toward getting a 
resolution.
    Mr. Kolbe. My time has expired here.
    Do you know if this is a priority with the State Department 
and our other people that are working in India, to get them to 
address this? Because this is a serious matter. Your exposure, 
the exposure of the taxpayers is substantial here because of a 
political problem they have in India.
    Mr. Watson. That is absolutely correct. The fact of 
thematter is, this is a problem that is being driven by the Indian side 
of this. Yes, it is correct that State and other U.S. government 
agencies have attempted to address the situation. It is unexceptional 
that there be any type of advocacy to try and redress the breach of 
contract here, where you have U.S. taxpayer money at risk, not only 
ourselves but Ex-Im as well.
    And this is an appropriate response where there is this 
outstanding. Any company who, Enron or otherwise, change the 
name--again, others are in that project, Bechtel and GE and 
others. And they all have a right to have their interests 
protected against this type of breach of contract.
    Mr. Kolbe. Thank you.
    We have votes going on. How many votes is it, just one? Oh, 
I thought I heard the bells go off twice.
    Do you want to try to take a round here now, so that you do 
not have to--well, the second bell has not rung, so we have 
about 11 minutes. But we will come back. I have some more 
questions, if you want to go ahead and catch the vote and come 
back.
    Yes, go ahead. We will come back. You can resume, in fact, 
when you get back.
    Mrs. Lowey. Thank you.
    Again, Mr. Watson, OPIC approved political risk insurance 
for a 136-megawatt power plant in the Gaza Strip despite the 
fact that one of the primary foreign investors had links to the 
Saudi bin Laden group. This $140 million project is now in 
jeopardy due in part to the turmoil in the region and Enron's 
financial difficulties.
    Can you explain, first of all, how you determined to 
proceed with this project despite the involvement of a 
prominent investor from the Saudi bin Laden group? What is 
likely to happen to this plan? And what is OPIC's exposure?
    Again with this project, it appears that Enron ignored the 
risk because their executives were focused on the fact that 
their bonuses were based on anticipated revenue over the life 
of the project. Did OPIC's review of this proposal reveal this 
practice? If not, why not?
    Mr. Watson. Ma'am, the project in Gaza was approved in 
1999, before we assumed the management of OPIC, and I am unable 
to give you any details as to the questions. The better thing I 
think I could do is just to take those and make sure that we 
give you a full response.
    My understanding is that the project ultimately did not, in 
fact, come to fruition. And if I understand correctly, the 
amount of political risk insurance that was issued by OPIC was 
to cover the investment that had been made by Enron in seeking 
to get the project operational. But my understanding is that 
there is not an operational project in Gaza. That failed to, in 
fact, come to completion.
    Mrs. Lowey. Well, it is clear that you were not in charge 
at the time, but I would appreciate your information. I assume 
this is being investigated, how you got involved in the 
proposal at the very beginning.
    Mr. Watson. We are reviewing all of these particular 
matters, Mrs. Lowey, and we would be pleased to work with your 
staff to answer specific questions.
    Let me just make a correction to the record, if I could 
please, on Dabhol. There are two phases of Dabhol. Phase One 
was operational, but it was Phase Two where, in fact, 
construction was approximately 90 percent complete. And, 
obviously, payments have been cut off on Phase One by reason of 
the breach of contract and therefore the failure to pay the 
amounts for the power.

                               INDONESIA

    Mrs. Lowey. Moving on to Indonesia, the White House has 
announced a joint trade and finance initiative for Indonesia 
involving all three agencies here today. This $400 million 
initiative comes on the heels of claim payments and ongoing 
project workouts involving Indonesia in the wake of the Asian 
financial crisis.
    Can you explain how new energy-related investments can be 
approved for Indonesia while we are still in the workout phase 
for other energy-related programs there? And would these 
investments have been viable without United States government 
involvement?
    Mr. Watson. Thank you. In fact, since OPIC was the only 
agency ultimately to participate in that, let me take this 
question.
    This is actually an outstanding opportunity that 
demonstrates the ability of the United States to differentiate 
between different risks, take those that are appropriate and 
not support those which are inappropriate. What should not be 
confused is oil and gas, which was the project in question, as 
opposed to electricity, which was the subject of the earlier 
dispute.
    The reason that we were willing to, in fact, review the 
particular project in question was that, it was, in fact, an 
offshore oil and gas project which had a commodity as its 
product, which is oil and gas. It is shipped into international 
commodity markets immediately from being produced in dollar 
terms, and we are paid back on what they call a waterfall 
account in dollars offshore.
    So, in fact, it was a fantastic opportunity to, in fact, 
contribute to the economic development of Indonesia through a 
mechanism that is secured by U.S. dollars offshore by an 
international commodity.
    Whereas, in the power sector, where we had our problems, 
was an electricity plant onshore where you had regulatory 
interference at the time, and you had a structure which lent 
itself to, you know, such interference and being able to, in 
fact, interfere with the payment process in local currency.
    So we were very pleased to be able to do the oil and gas 
project, because it, in fact, had significantly limited risks 
and very high economic development value.
    On the last question, there is a second part of your 
question that went to----
    Mrs. Lowey. That the governments had been----
    Mr. Watson. Yes, ma'am. The great thing about that is----
    Mrs. Lowey. With the investments, right.
    Mr. Watson. That is right. There was absolutely no 
commercial funding available for this project. And the 
particular sponsor in question was obliged to demonstrate to us 
that they had made substantial efforts to secure private 
financing. They were unable to do so.
    The positive results, however, of OPIC committing itself to 
financial investment is that, having done so, commercial banks 
are now willing to come in and supplement our financing for 
further development of that same project.
    So this is, I think, a poster child, exhibit A of the 
profoundly useful mechanism of risk analysis that can help 
economic development in secure and appropriate ways, that 
brings in the private sector to supplement OPIC's financing.
    Mrs. Lowey. Thank you very much.
    I think I have to vote. Should we recess? Why do not we 
just recess until our chairman returns.
    And thank you very much.
    [Recess.]
    Mr. Kolbe. The subcommittee will resume here.
    I think Mrs. Lowey finished at least one line of 
questioning and we will come back. If she comes back, we will 
certainly give her another opportunity and any other members 
that do. But since we do not have others here, I will proceed 
with my questions and then, perhaps, we might even end it at 
that point, who knows.
    Here comes Mr. Knollenberg, so we will certainly--in fact, 
I will forego my questions at this moment in order to give Mr. 
Knollenberg a chance to get a second round of questions in here 
since it is his turn to do so.
    Mr. Knollenberg, I am going to let you go. I was just about 
to preempt your time here and take it away.
    Mr. Knollenberg. Thank you, Mr. Chairman.
    I want to talk about a program that we have in Michigan. I 
know we have talked, Ms. Askey, about this and I may have 
talked to some others, but it is called Automation Alley. And 
it has a little bit to do with autos, but it has a great deal 
to do with high-tech in a whole lot of other areas.
    And it is pretty critical to us, because in Michigan some 
372,000 jobs are dependent upon manufactured exports. In 2000, 
we sold some $51.6 billion of goods to some 200 different 
markets. And the year 2000, we posted the fourth-highest export 
total of any state.
    Let me just tell you what this Automation Alley is. It does 
include autos, but what it really includes is computer 
software, hardware, telecommunications, design and engineering, 
health care and manufacturing, and all of these things are 
high-tech. And maybe you have a piece on it in front of you. If 
you do not, we can get a piece to you.
    But in particular, the Automation Alley small-business 
export initiative is designed to help companies in my district 
and certainly around that area of southeastern Michigan by 
developing growth opportunities with global partners around the 
world.
    There is a group right now, by the way, that is going to 
China that has some 22 or 23 firms, small, medium size, that 
are going to make that trip, in the first part of May. And they 
are working on these trade missions, as well, with Mexico and 
others.
    The Department of Commerce has been very helpful in the 
development of Automation Alley. I credit the county executive 
of Oakland County, Brooks Patterson, as being the catalyst for 
all of this.
    What I would like to have you respond to, and you can all 
respond, but can you help us identify some partners for 
Automation Alley, not just in China and Mexico but other areas?
    Because, by the way, this area is probably the fourth most 
impressive, fourth largest high-tech area in the country, 
Oakland County is coming along very quickly.
    So can you respond, first Ms. Askey and then the others as 
well, with what you can suggest we do to help Automation 
Alley's export operation and the initiative that is under way?
    Ms. Askey. Thank you, Mr. Knollenberg. I had actually hoped 
to visit with some of this group while I was in China most 
recently, but I understand their trip was postponed.
    But certainly the very fact that they have come together to 
form this group helps us help them. Since 1991, 12 Michigan-
based companies, shared $90 million in exports affiliated with 
seven TDA projects.
    Many of these companies are small and find it more 
difficult to sustain themselves in a market. Sometimes they can 
make one shot, get one set of exports, but find it hard to 
continue that, because they are small and the difficulty of the 
travel and everything else.
    So coming together in this kind of Automation Alley 
grouping is very helpful, I think. It helps them pool 
resources, and it helps us help them.
    One of the things we try to do to create the most bang for 
our buck, shall we say, is do orientation visits so we can get 
a large number of either project sponsors or government 
employees who would be in a decision-making position to decide 
on their goods and services that they have to export in one 
place. We facilitate focused meetings to connect those project 
sponsors to U.S. exporters, whether they are exporters of goods 
and services, and they all do not have to travel individually 
abroad for each transaction.
    So we do those efforts in a number of ways. But the fact 
that they have consolidated helps us, and the Commerce 
Department helps them, as well.
    Mr. Knollenberg. The Commerce Department contributed some 
$400,000 to help develop this program.
    And I know that TDA has been into my area before, and we 
welcome you any time, because I do think exporters gain a great 
deal from that kind of association, where they learn firsthand 
what services you provide.
    For the the small business world, they do not know about 
that opportunity until somebody, tells them about it.
    Ms. Askey. Almost always Ex-Im and OPIC will come with us 
on those orientations----
    Mr. Knollenberg. I was going to say, yes, Mr. Aguirre, you 
might have a comment, or certainly Mr. Watson as well.
    Mr. Aguirre. Yes, Congressman, I have been reading this, 
and I will take more care to make sure that I address the 
Automation Alley issue.
    But generically, I would like to point out that quite a bit 
of the equipment that we are financing involve high 
technology--satellites, airplanes, and avionics. Even tractors, 
civil engineering and agriculture equipment involve high 
technology.
    But I cannot pass up the opportunity to note that one of 
the customers could be Ex-Im Bank. We need better technology at 
the Ex-Im Bank, and in fact that is part of the request that we 
have before you. Right now, we have to use five different 
systems to process one transaction.
    And we have just completed a review by a Technology Task 
Force. We are going to look at opportunities to improve our 
assistance, and we are requesting your assistance on improving 
our administrative budget just to take care of this particular 
issue.
    Mr. Watson. Thank you very much, Mr. Knollenberg. I would 
like to respond specifically in terms of addressing the 
coalition.
    Well, by way of background, we just enteredinto this 
cooperative joint venture with the Small Business Administration. 
Hector Baretto, the administrator, and I are looking for precisely 
these types of opportunities to focus in tangible ways how to help 
groups. I would be very surprised if he did not share my enthusiasm for 
coming and visiting with them and seeing how specifically we may be 
able to help them in the countries that they are interested in.
    China, again, we are not able to do business in for the 
reasons that I mentioned to you earlier. However, turning to 
Mexico, we do have in fact a very vibrant small-business 
finance program in Mexico that would be ideally suited for a 
number of these companies. And technology, including 
telecommunications and others, have been identified in our 
Mexico initiative as being priorities.
    I am not going to steal the President's thunder. You do not 
want to step on his lines, but when he goes down to Mexico 
shortly with President Fox, the Project for Prosperity that 
many of us have been working in will in fact speak to how 
better to get U.S. investment and U.S. small business into 
Mexico. And we would like to speak to you about that when it is 
released.
    Mr. Knollenberg. My time has run out, but I just wanted to 
thank you. And by the way, I think the president has some 
awareness of this as well, so we are on the same page. Thank 
you very much for your response.
    Mr. Kolbe. Well, Mr. Knollenberg, I think it is maybe just 
you and me that is going to be here. If you want to finish your 
questions, if you have a couple of others, then I will have the 
rest of the day to just put them on the rack here. [Laughter.]
    Mr. Knollenberg. Thank you. I think I have pretty much 
covered mine, and so with the response that I have gotten here 
on this issue and certainly the one before, I think I have 
covered the waterfront as far as I am concerned. So thanks for 
your courtesy.
    Mr. Kolbe. Thank you. Well, then I will finish up the 
questions, assuming nobody else does return here.
    Mr. Watson, I want to go back to the issue of OPIC risk 
exposure. When I look at the information that was provided, at 
least indirectly--I do not think this was in your budget 
justification--but the five countries where you have your 
largest exposure, reading down from top to bottom, Brazil, 
Argentina, Turkey, Venezuela and Colombia, and your sectors, at 
least four of them, power and financial services, oil and gas 
and communications, all pretty volatile sectors in those 
countries, critically volatile countries.
    Nothing in your testimony suggests that you have any 
concern. I do not know. I will not characterize it as an Alfred 
E. Neuman ``What, Me Worry?'' attitude, but I did not see any 
real concern about the political risks that you are facing 
overseas.
    Can you assure me that the OPIC portfolio is diverse enough 
that the exposure to the United States taxpayer is minimized?
    Mr. Watson. Thank you, Mr. Chairman.
    Risk management, although it may not have been identified 
specifically in my testimony, in fact is one of both mine and 
the agency's highest priorities. And indeed, we do seek to 
ensure that the portfolio is diversified both geographically 
and by sector.
    I was very concerned to ensure that the incoming 
administration took the assessment of risk and management of 
risk very seriously. As a result of that, we have elevated the 
internal workings of that office within the office now of 
investment policy which has the responsibility of risk analysis 
and management right across our entire portfolio. And we 
continue to improve and enhance those technical capabilities, 
both with new staff and indeed with new technology.
    We obviously are mindful that new risk countries and 
sectors be merged, but obviously that is precisely why, I 
guess, the agency was established in the first place to 
mitigate risk and to facilitate investment into those countries 
that, but for our involvement, would not happen.
    Mr. Kolbe. Now the chicken has come home to roost, maybe. 
You have an exposure of $1.2 billion in Argentina. You must 
surely be facing some significant payouts there in the months 
ahead.
    Mr. Watson. The Argentina coverage or exposure, in fact, is 
staggered in the sense that not all of the obligations to pay, 
whether in convertability or transferral expropriation or 
other, under the insurance contracts, in fact, vest at one 
time. And indeed, it is over the life of the loans or the life 
of the premium or the policy do, in fact, we have to determine 
whether or not there is an obligation to pay at that point, 
e.g., on the interest or principle payment date.
    And we obviously expect that over the whole tenor of these 
risks that there will, in fact, be an improvement in the 
economic environment in Argentina. And so, while there is 
certainly a large overall risk, we are not going to be facing 
the possibility of it, in fact, vesting in the immediate time 
frame.
    Mr. Kolbe. I think you hold about a two-thirds equity 
investment in the South American Investment Fund, and I think 
you have just recently had to pay a claim of about $150 million 
because its equity had dropped so precipitously. Do you see 
more problems like this in Latin America?
    Mr. Watson. Obviously, we are very careful to review 
situations in all those countries that we have large 
portfolios. Venezuela and others, of course, Brazil, we 
continue to review with a great deal of care.
    The only thing I think we can point to is not only ongoing 
risk management controls, but also our historical loss in 
recoverage ratios. We have, on the insurance side, a 94 percent 
recovery rate, or put another way, a rather minor loss rate, 
both in terms of our insurance and our finance programs. And 
the same is true even in the funds area, which, notwithstanding 
the fact that we do have the occasional loss on balance, the 
funds portfolio is quite firm.
    That is not to say that we do not take risks seriously. It 
is, in fact, something we continue to evaluate and carefully 
watch all the time. But I would just say that we have enhanced 
our capabilities. We continue to do so. And we will not put the 
taxpayer in a situation whereby we are taking unreasonable 
risks.
    Mr. Kolbe. Okay. Thank you. And that is, obviously, 
something all of us would be concerned and watching this 
carefully. And we will want to review these answers next year 
when we come back here.
    Mr. Aguirre, last fall, at the behest of the authorizers, 
we put in only an extension of the authorization forExport-
Import Bank to March 31 of this year with the assurance that this would 
get worked out, with the assurance that putting in this short time 
frame would prod the authorizers to do their work.
    Parenthetically, I might say, appropriators are often in 
the position of having to fill in for authorizers who cannot 
get their work done. But that is another story here.
    In any event, just barely three weeks from now, your 
authorization is going to expire. Your carriage is going to 
turn back into a pumpkin at midnight. And I understand it is 
held up over the issue in the House of the tied aid war chest, 
which is about $300 million. In the Senate, it is disagreements 
over steel, but the Administration has concerns over the tied 
aid issue.
    Do you have any idea where the authorization is at this 
point, since I am just a mere appropriator here? [Laughter.]
    Mr. Aguirre. Mr. Chairman, thanks for reminding me that we 
have three weeks to go on that deadline. [Laughter.]
    If there is anybody that is more concerned about this issue 
than you, Mr. Chairman, it certainly is us at Ex-Im Bank. And I 
am the eternal optimist, I am hopeful that things will work out 
just in time for a lengthy reauthorization.
    It is hard to predict the end of a game when we are still a 
few minutes away from the closing bell. But we are working very 
closely with both the Senate and the House on trying to iron 
out the differences and hopefully take it to conference.
    Certainly OMB and the Administration has been very helpful 
in assisting us on this, and we will keep you posted. I am 
certainly praying for a good outcome.
    Mr. Kolbe. Well, I hope so too. I hope you have some 
fallback or some alternative positions here in case you do not 
get a paycheck after the end of this month.
    Mr. Aguirre. Well, my paycheck is the least I am worried 
about. I am worried about serving the exporters.
    Mr. Kolbe. I understand that, and I appreciate that.
    Mr. Aguirre. And, indeed, it is no light matter.
    Mr. Kolbe. No.
    Mr. Aguirre. If we do not get reauthorized, we then go into 
a very serious situation.
    Mr. Kolbe. I was nervous about putting the authorization in 
only for that length of time but was assured that the six 
months would be adequate and that we would have this issue 
taken care of. Here we are again.
    Let me ask a question both of Mr. Aguirre and Mr. Watson, 
if I might. Both of you face, in a sense, a similar problem. 
You are both leading demand-driven organizations, and the 
demand for your product has been falling as the international 
investment climate has worsened.
    And, Mr. Aguirre, in a speech you made you referred to the 
work of the Ex-Im as part of the administration's attempt to, 
``reignite global economic growth,'' which we certainly hope 
will be the case.
    But I would like you both to tell me how this downturn in 
the investment climate has affected your agency and your level 
of business.
    Mr. Aguirre.
    Mr. Aguirre. Mr. Chairman, actually the first half of this 
fiscal year has been traditionally slow for us, so it is hard 
to gauge exactly what is in store for us in the second half.
    Mr. Kolbe. Well, but cannot you compare this half to last 
year's first half?
    Mr. Aguirre. Yes, sir, we can, and actually they track 
favorably in terms of slowdown.
    I would like to maybe look into the crystal ball in terms 
of how Ex-Im Bank is going to deal with this issue, and what I 
really think is that, with the U.S. economy having had a 
slowdown, I think we are going to find companies, particularly 
medium- and small-sized companies, looking at all their 
opportunities beyond their backyard neighborhood. I think 
possibly they are going to look at exports as an additional 
opportunity for revenue, and possibly they will look to Ex-Im 
Bank to assist them there.
    That is what I was talking about reigniting the economy, 
because I think we can facilitate; we can take out one of the 
uncertainties of a transaction, and that is by facilitating the 
exports, or rather, their financing. So that is in the context 
in which I am responding to you, sir.
    Mr. Kolbe. Mr. Watson, and particularly would you comment 
about loans?
    Mr. Watson. In fact, the terms of our finance part of the 
portfolio, the loan portion of the agency, that continues to be 
in fact a significant area in which we are seeing growth.
    Certainly we do have a fewer number of applications this 
year than last year. But we expect that, by reason of our 
proactive activities, we in fact will hope to have a good year 
in terms of priorities that we have been able to reach out and 
have been our priorities.
    For example, I mentioned the small-business initiative that 
we have concluded with SBA. We expect that that will result in 
some significant increase in SME applications.
    As you heard earlier, three agencies had an investment 
mission to Pakistan that just recently concluded. We have a 
proactive mission to Africa that is going out in mid-April. So 
we are not sitting on our hands waiting for business to come to 
us. We are in a very proactive mode and doing our best to 
ensure that the business and overseas investment climate is 
supported and increased.
    Mr. Kolbe. Thank you very much, Mr. Watson.
    It seems to me, Ms. Askey, that for your agency, for TDA, a 
downturn is an ideal time for you to show what you can do to 
help spur U.S. investment. Can you tell us what you do to help 
counter these cyclical downturns?
    Ms. Askey. Yes, thank you, Mr. Chairman, because we 
anticipated a downturn as well. That has not materialized. We 
have had a significant increase in demand on our resources. And 
I attribute it----
    Mr. Kolbe. By downturn, I meant the economic downturn in 
the world.
    Ms. Askey. Right, right. I attribute the increase in demand 
on our resources on the fact that U.S. businesses, having less 
opportunities here at home, are searching for greater 
opportunities abroad.
    But also after 9/11, there has been some significant 
changes in policy objectives that have increased our demand, 
for example, in Russia, in the Eurasia countries, in Pakistan, 
in Afghanistan. And also because of our involvement in AGOA and 
in APEC, we have found that we have substantially greater 
pressures on us because of the kind of changed environment 
since 9/11.
    Mr. Kolbe. That is a good point. Are you doing any studies 
in Afghanistan?
    Ms. Askey. We are working currently with the World Bank on 
a number of projects. We have been evaluating Afghanistan quite 
aggressively, as you know.
    Mr. Kolbe. Do you have somebody on the ground there?
    Ms. Askey. No. We have talked to a private-sector person 
who is on the ground, a contractor.
    Mr. Kolbe. Your contractor, it is a contractor.
    Ms. Askey. And the situation in Afghanistan, of course, it 
is very difficult to be on the ground.
    Mr. Kolbe. Yes, very. Very difficult to do a project, I 
might say.
    Ms. Askey. Right. We are trying to work on the kind of 
traditional things. You know, they have to open airports. They 
have to have ministries to deal with telecommunications, with 
electrical power generation, et cetera.
    So we are looking for technical advice we can offer, and 
are working through Pakistan and Turkey and the Eurasian 
countries as kind of jumping-off places because they are 
familiar with doing business in the region.
    But the situation on the ground of course is so difficult. 
We are just, right now, positioning ourselves to be ready to 
go. But we are already doing a project with the World Bank.
    Mr. Kolbe. Thank you. That concludes my questions.
    Ms. Lowey.
    Mrs. Lowey. Well, thank you very much, Mr. Chairman.
    And just to follow up with that question, OPIC recently 
announced a $50 million line of credit for Afghanistan. Have 
any U.S. businesses shown interest in this proposal?
    Mr. Watson. Yes, actually, the response has been quite 
significant, Mrs. Lowey. We at OPIC hosted a roundtable with 
the Afghan-American Foundation, and in fact we have had a 
significant number of Afghan-Americans and American business, 
in fact, come and visit with us about investment prospects 
there.
    We are mindful, as everybody is here, of how cautious we 
should be in dealing with that, but, in fact, construction 
materials, is one sector that we looked at, brick-making and 
cement production. There has been a proposal by a large U.S. 
telecommunications company about taking up a contract there 
with the government that would be paid for by U.S. servicemen 
and the U.S. government there.
    So while it was intended that, in fact, the same group that 
was in Pakistan, Eduardo, my deputy, Ross Connelly, and TDA, 
were in fact hoping to go onto Afghanistan, but holidays and 
other things precluded that.
    We will be cautious about going in there, but where we do 
identify responsible projects, we are going to, in fact, do our 
best to make sure that American business is able to compete 
there. And we think that it would be in an appropriate amount 
of time that that facility be used.
    Mrs. Lowey. Thank you. OPIC has had extensive consultations 
with insurers and investors on the possibility of facilitating 
a co-insurance program with the private market. While this is 
described as mitigating risk while encouraging investment in 
emerging markets, I am concerned that it will increase OPIC's 
exposure to potential losses and let investors off the hook.
    Can you explain how this program works? In what geographic 
areas is it likely to be used? How will you ensure that the 
private investor shares in the risk? And OPIC apparently 
intends to draw on its $4 billion reserve to subsidize these 
higher-risk projects. Can you explain that process?
    Mr. Watson. Certainly. Firstly, let me say the insurance 
program is self-funding. It does not use subsidy. But suffice 
to say that the whole concept of co-insurance would be, in 
fact, to make available to sponsors, on the most transparent 
basis, all available options that they would have in terms of 
seeking the coverage that they need.
    OPIC is obliged by its statute to, in fact, work with the 
private industry, under section 234A. of the Foreign Assistance 
Act, using such mechanisms as co-insurance to encourage greater 
availability of political risk insurance and by enhancing the 
private political risk insurance industry.
    This is actually a mechanism not for enhancing our risk, 
but indeed for, in fact, mitigating our risk.
    For example, if there was a tenor that we would be taking 
exclusively of, let's say, 10 or 12 years, and by reason of 
their limitations, the private insurance industry could only 
take, say, seven of those 12, previously we would have had 100 
percent of that risk. Now we only have 25 percent of that risk.
    And as we have learned from the private insurance industry, 
the last five years is not inherently more risky. It is just 
that the reinsurance contracts that go behind the private 
sector do not go out that far.
    And parenthetically, the problems that we have had as an 
agency with many of our projects are in the early years. Dhabol 
is an excellent example. The Indonesian project, Mid-America, 
another example.
    In fact, it is when you have a country that has an 
experience of payments over a period of time for power of its 
consumers, that, in fact, it becomes more reliable.
    Mrs. Lowey. Thank you.
    And lastly, but least, last year Ex-Im had a $189 million 
carryover. If you could tell us what you anticipate this year, 
and is your estimate based on the pace of transactions to date 
this year?
    Mr. Aguirre. Congresswoman, what we are going to do with 
that as part of the formula is we will carry it over into this 
year. And we are putting that into the equation for supporting 
the programs.
    The process allows us for a four-year window because this 
certainly is not an exact science. We are trying to forecast 
what we are going to do in 2003, and there is recognition of 
the fact that we may miss that mark by one factor or another.
    So I think, in response to your question, what we are 
planning to do with anything that may be left over is we will 
have three more years to apply it. But we will be, fortunately, 
cranked into the number for next year.
    Mrs. Lowey. Let me just conclude by thanking you all for 
your testimony.
    I do hope that in the coming years there will be an 
additional focus on small- and medium-sized businesses. I have 
always felt, although I am a great supporter of this program, 
that many of the firms to which we are providing assistance and 
insurance and facilitating studies are perfectly capable of 
assuming that risk on their own. And the extent to which we 
assist them, I would hope that the goal of providing jobs here 
at home and helping ourbusinesses expand still remains primary 
on our mind.
    When many of us see this assistance--though it can be very 
helpful in expanding the business overseas--and at the same 
time we see cutbacks at home in these same corporations--it 
raises many questions for my colleagues.
    So I would hope that we keep in mind the goal of supporting 
American business, providing jobs, and also keep in mind, 
obviously, the important role of the United States and 
globalization, because in the end it is helpful to us here.
    Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you, Ms. Lowey.
    Do not put all your papers away yet. I thought I was done, 
but you just said something, Mr. Watson, that ran a flag up the 
pole for me.
    Mr. Watson. Sorry about that. [Laughter.]
    Mr. Kolbe. So I just want to follow it up with one 
question. You used the term ``reinsurance.'' My understanding 
is that OMB has said many years ago that you could not do 
reinsurance.
    Are you doing reinsurance with private insurance companies? 
And who is reinsuring who? Are they reinsuring your risk, or 
are you reinsuring their risk?
    Mr. Watson. Well, I am pleased I brought Rod Morris along, 
who is our Vice President for insurance. He can speak to this.
    Let me just say that the OPIC statute specifically permits 
reinsurance to be used as a mechanism for insurance. It is 
correct that there is some sensitivity by OMB as to the nature 
of reinsurance and how and in which cases it is used.
    My understanding is--and I might ask Rod Morris to just 
give us some elucidation. He is right here.
    Mr. Kolbe. We can have him pull up one of the chairs right 
along the side there.
    Mr. Watson. Reinsurance is just a mechanism for cooperation 
in the covering of a risk. And I do not believe that, in fact, 
we use reinsurance on an extensive basis, but we have an 
ongoing dialogue with OMB as to what would be appropriate 
circumstances in which it would or would not be used.
    But, Rod, I wonder if you can help.
    Mr. Morris. I think the prohibition that you are referring 
to dates back to 1996 in the budget process.
    Mr. Kolbe. Right.
    Mr. Morris. It resulted from the Grace Commission report. 
That was specifically designed to address----
    Mr. Kolbe. 1986, not 1996, 1986.
    Mr. Morris. 1986. It was specifically designed for cost-
cutting measures. It did not refer, for instance, to risk 
mitigation and other statutory obligations that we have, as 
well and it reflected only upon treaty reinsurance, as opposed 
to what is called facultative or project-by-project 
reinsurance.
    The discussions that we have had with OMB subsequent to 
that, and we agreed, by the way, that treaty reinsurance is 
probably not an appropriate mechanism for an agency of the 
federal government.
    On the other hand, risk mitigation on an individual 
project-by-project basis is an effective tool, both co-
insurance and reinsurance. They are effectively the same 
vehicles, they just----
    Mr. Kolbe. Let me just paraphrase you, so I understand. 
Treaty reinsurance covers a whole portfolio as opposed to just 
a project?
    Mr. Morris. That is right. That is correct.
    Mr. Kolbe. So you keep referring to discussions with OMB. 
You are having discussions. You have not concluded anything? 
You are not engaged yet in anything with private insurance that 
could be strictly called reinsurance, at this point?
    Mr. Morris. The only reinsurance that we have engaged in so 
far, in fact, I do not think we have actually closed on any 
reinsurance deals at the moment, but we are engaged in 
discussions on reinsurance projects that are what is called 
assumed from the private sector, private marketplace, as 
opposed to the other way around. Although we are entertaining 
the possibility of doing the risk mitigation for ourselves, as 
well, where we would go to the private market and mitigate that 
risk, again, on an individual project-by-project basis.
    Mr. Kolbe. Okay. Well, this is something we obviously want 
to follow carefully.
    And I would encourage you, as we have on this whole issue 
of working jointly with private insurers, Mr. Watson, that you 
have these discussions not just with OMB, but with the 
authorizers and appropriators, as well, so that we are not 
caught flat-footed on these kinds of things.
    Mr. Watson. Certainly, sir. Thank you.
    Mr. Kolbe. Thank you.
    We may have other questions that, after looking over this 
testimony, we want to follow up with specific written 
questions, and we will if we need to.
    I want to thank all of you for appearing here today. I 
think this has been a thorough and a very enlightening hearing 
for us, and it helps us a great deal as we prepare for the 2003 
budget request. So my thanks to the representatives of all 
three agencies that are here today.
    And we will be meeting next Wednesday for our next hearing.
    With that, the subcommittee will stand adjourned.
    Thank you very much.
    [Questions and answers for the record follow:]

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                                         Wednesday, April 24, 2002.

                       DEPARTMENT OF THE TREASURY

                                WITNESS

PAUL H. O'NEILL, SECRETARY OF THE TREASURY

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe. The Subcommittee on Foreign Operations of the 
House Appropriations Committee will come to order.
    We are very delighted this morning to be able to welcome 
Secretary of the Treasury Paul O'Neill to the subcommittee to 
testify on the President's fiscal year 2003 request for 
Treasury's international programs. John Taylor, the Under 
Secretary, is also with us; and we welcome both of you here 
before our subcommittee.
    The President's request to the subcommittee for fiscal year 
2003 is $1.4 billion to fund U.S. contributions to the 
Multilateral Development Banks, and $10 million for the 
Treasury's international technical assistance program.
    The request is approximately the same as last year, but the 
details of it are quite different. For the first time, the 
Treasury budget contains no requests for multilateral and 
bilateral debt relief. With the $229 million that was provided 
in the fiscal year 2002 bill, the U.S. has fulfilled its 
commitment to the multilateral Heavily Indebted Poor Countries 
Initiative, or the HIPC trust fund.
    I understand we have also completed our HIPC bilateral debt 
relief program as well, with the exception of the Congo. I will 
have a question dealing with that.
    Taking the place of $229 million are increases for the 
Multilateral Development Banks, the MDBs. The largest increase 
is a $50 million increase to the IDA, the International 
Development Association. That, of course, as we know, is the 
concessional lending facility of the World Bank.
    Additionally, the President has requested a third of the 
total arrears of what the U.S. owes to the MDBs. I hesitate 
using the word ``arrears.'' it implies that it is an 
obligation, a contractual obligation, treaty obligation, a 
status that commitments of the MDBs do not carry. But I use it 
to describe commitments that have been made by this 
administration and previous administrations that were not 
funded by Congress.
    These arrears or shortages in those commitments total $533 
million. The President has asked for a third of that, $178 
million, with the majority of it going to the funding for 
Global Environmental Facility.
    Now, having the necessary budget bills this year out of the 
way, let me say the tremendous respect that I have for 
Secretary O'Neill. I think there are some Members of Congress 
that sometimes object to his very forthright style, but I find 
it charming, not only charming but good, something that we need 
to see more often; and I see Secretary O'Neill and his team as 
one of the shining lights of this administration.
    I really admire your willingness to tackle tough issues and 
tackle them head on and speak very candidly and openly. The 
sessions that I have had with you have been for me just very 
inspiring, the kinds of information that I have gleaned from 
them and knowing of your commitment to dealing with these 
issues.
    Together with Secretary Powell, Secretary O'Neill has been 
designated by the President to more fully develop the 
Millennium Challenge Initiative that was proposed by the 
President last month in Monterrey, Mexico; and I was there 
along with the Secretary at that conference. His keynote 
address at the Texas A&M forum last week put the Millennium 
Challenge in the context of spreading the context of 
globalization.
    The Millennium Challenge has the potential, I think, to 
change for the better the way the United States cooperates with 
poor countries. It has the potential to change for the better 
the way Congress and the executive branch allocate the 
resources in our bill. I look forward to working closely with 
Secretary O'Neill, with the administration, other Members of 
Congress to move the Millennium Challenge from its concept and 
design that we are talking about now to rapid implementation I 
hope, even as a pilot project, in the 2003 appropriations bill.
    There is already--there are special interest groups that 
are already trying to set aside for themselves percentage 
shares of the new Millennium Challenge account. I certainly 
hope we don't allow that to happen, or we don't allow waivers 
to be made. If we do, we defeat the very purpose for it.
    We will have some questions for the Secretary about the 
President's request for 2003, and I am certainly interested in 
the IDA negotiations, especially the grants versus the loans 
issue that seem to be dominating the negotiations.
    I was in Africa during the Easter recess, and it reaffirmed 
for me the tremendous problem that we face, the immediacy of 
the HIV/AIDS pandemic in that continent. While I can talk about 
the necessary health and social programs that Africa needs, 
this is a Treasury hearing. So let me mention, instead, the 
effect HIV and AIDS is going to have on the economic growth in 
these countries.
    It is already having a devastating impact, as you know, Mr. 
Secretary, on the labor force and the public finances of these 
countries. It is seriously affecting their ability to make 
their debt payments. Additionally, many of these countries are 
dependent on primary commodities for their revenues, and with 
all of the commodity prices falling across the board, the 
sustainability of even basic levels of debt is inconceivable.
    One of the countries we visited was Ethiopia. It has the 
third largest number of people infected with HIV/AIDS in the 
world. There are over a million AIDS orphans in that country. 
Its largest creditor is the World Bank; and just recently 
Ethiopia was approved for a $62 million, 30-yearloan for basic 
health needs.
    The paradox of Ethiopia's situation startles me. It really 
bewilders me. Why are we encouraging the World Bank to lend 
money to a country as poor and desperate as Ethiopia when it 
has this dreadful HIV/AIDS problem? It seems to me to be 
immoral.
    The MDBs lend large amounts of money. Yet the one theme 
that was reinforced by my visit to Africa is that money isn't 
enough. Money is not enough to tackle the basic issues when 
governments fail. Money can't buy leadership or the conditions 
where jobs can be created. Money doesn't impose the rule of 
law. Money doesn't solve the problem of corruption. Money isn't 
going to increase basic access to education or health care in 
and of itself.
    The point that I am making is that we have a long road 
ahead of us, both the Congress and the Administration, as we 
find a way to ensure to the U.S. taxpayers--that the assistance 
we provide is not just feel-good money but a catalyst for 
change that can bring the most desperate people out of poverty; 
and I appreciate the work that you have been doing to bring 
that about.
    We have a limited time for the hearing this morning, so I 
am going to end and ask Ms. Lowey for her opening statement. 
Then we will go to your statement and then the questions.
    Ms. Lowey.

                     Mrs. Lowey's Opening Statement

    Mrs. Lowey. Thank you, Mr. Chairman.
    I, too, welcome Secretary O'Neill to our hearing today on 
the fiscal 2003 request for $1.4 billion for the Department of 
Treasury's international assistance programs. The request 
before us not only meets current United States obligations to 
the international financial institutions, it also begins a 3-
year process to wipe out U.S. arrears to these institutions. 
Given that we are now more than $500 million in arrears, this 
is a welcome step.
    I will begin by complimenting you, Mr. Secretary, on your 
efforts to seek changes in the International Development 
Association replenishment that would specify that up to 50 
percent of financing for the poorest and least creditworthy 
countries be provided as grants rather than loans. This effort 
follows up on report language from last year's bill and would 
provide another way for the poorest countries to lift 
themselves out of their quagmire of debt. In fact, it is my 
understanding that a recent GAO report concludes that the 50 
percent grants plan would help poor countries more than HIPC 
debt relief.
    I realize that our allies continue to be reluctant to go 
along with this proposal and that the eventual result may be 
that significantly less than 50 percent of IDA resources from 
the next replenishment will be provided as grants. This is 
unfortunate in my view, and I would remind other bank partners 
that it is Congress that makes final determinations about 
appropriations levels. If their concern is future U.S. 
commitment to World Bank funding, I would state unequivocally 
that increasing the amount of IDA resources devoted to grants 
would increase the support in Congress for additional IDA 
resources.
    I would also remind our friends that it is the United 
States Congress that provided the impetus to HIPC debt relief. 
Having granted this relief, it is unwise in my judgment to put 
these same countries immediately back in debt.
    I suspect, Mr. Secretary, that at least some of our allies' 
reluctance to go along is based on your blunt characterizations 
of the Bank's performance over the years. The fact that the 
United States is the only contributor to IDA that is willing to 
increase its contribution over the next 3 years, however, 
should counterbalance that criticism.
    I intend to seek clarification from you today on just how 
you intend to assess achievement of specific measurable results 
that will trigger these increases. I am hopeful that such 
clarifications from you will allay some concerns and move your 
proposal forward.
    I also congratulate the administration on the President's 
proposal to increase bilateral foreign aid to combat poverty by 
linking greater contributions by developed nations to greater 
responsibility by developing nations. This is a further 
indication that we have finally achieved a broad consensus here 
at home that our foreign assistance programs are vital to our 
national security.
    This recognition, which I have long sought, is overdue. In 
that regard, I have to repeat what I told Mr. Armitage last 
week. The President's recent commitment demonstrates that he, 
too, recognizes that there are emergency needs in developing 
countries. However, waiting until 2004 to begin increasing 
resources means that no impact will be felt on the ground for 
at least 2 years.
    I understand you are about to embark on a trip to Africa. 
What you will find is that, even with the additional resources 
in place for HIV programs, access to counseling, testing, and 
treatment remain unavailable in most areas, and infection rates 
are continuing to rise. Illiteracy rates in many African 
countries remain above 50 percent, and access to basic 
education is still elusive in many areas. As the continent 
attempts to recover from a decade of internal conflict, basic 
food security is still an issue.
    Although the international banks have devoted more 
resources to those problems, the effects of these new resources 
are just beginning to be visible. We should not wait until 2004 
to initiate these increases.
    I am also concerned about the direction of current planning 
for the Millennium Challenge account and will address this in 
my questions today.
    Essentially, I am unconvinced that we need to set up an 
entirely new structure with new criteria to justify spending 
more to help impoverished countries. We don't need an excuse to 
do the right thing.
    The present structure for our bilateral assistance is not 
perfect, but it certainly gives you the flexibility to set 
whatever criteria you wish and to reward those countries that 
choose to cooperate. The problem, therefore, is not a lack of 
performance criteria. It is simply that there have never been 
enough resources available to reward performing countries. This 
can be dealt with by providing those resources, rather than 
developing an elaborate set of new criteria to layer on top of 
all of the other existing IMF, World Bank, and AID criteria now 
in place.
    I have no disagreement with the broad principles that the 
President has elaborated so far, but I remain skeptical on the 
framework.
    It is also unclear to me at this stage how the 
administration intends to deal with the implied mortgage 
created by the supplemental we are now considering. That is, we 
are increasing our assistance, both military and economic, to 
many of the frontline states with the expectation of a 
newpartnership in the war on terrorism. Having granted large increases 
in 2002 to these countries, what happens to levels of assistance to 
these same countries in 2003 and 2004? Do they revert to pre-2002 
supplemental levels? Do they receive funding from the Millennium 
Challenge account based on cooperation in the war on terrorism?
    I also understand that the numbers released by the 
President in his statement--increases of $1.7 billion in fiscal 
year 2004, $3.3 billion in fiscal year 2005, $5 billion in 
fiscal year 2006--are considered only illustrative by OMB. I 
hope this doesn't mean that we will see less than a $1.6 
billion increase in 2004.
    Finally, I want to address the issue of debt relief. There 
are several new proposals being floated on how to provide 
additional debt relief to poor countries. Most discussions 
center around what kind of additional relief should be granted 
after the relief planned under the HIPC programs has been 
completed.
    It is my understanding, however, that there is significant 
financing gaps in completing the debt relief under the HIPC 
initiative which is in the order of $700 million to $1.5 
billion. This gap has apparently been caused by serious cost 
miscalculations, falling commodity prices and the practice of 
topping-up debt relief for countries as they reach their 
completion point. This financing gap is a huge mortgage that is 
hanging out there that has been ignored by contributing 
nations, and I would appreciate your comments on how this gap 
has come about and how it would be addressed.
    I have other questions, Mr. Secretary, but I will save them 
for questions.
    Thank you, Mr. Chairman; and thank you, Mr. Secretary. I 
look forward to your testimony.
    Mr. Kolbe. Thank you, Ms. Lowey.
    Mr. Obey, do you have a statement?
    Mr. Obey. No. We might as well get on with it.
    Mr. Kolbe. In that case, Mr. Secretary, would you like to--
your full statement, of course, will be placed in the record. 
If you would like to summarize or add anything to it, you may 
do so.

                 Secretary O'Neill's Opening Statement

    Secretary O'Neill. Mr. Chairman and Ranking Member Lowey 
and members of the committee, it is a pleasure to be here. 
Indeed, I do have a prepared statement. I think it is complete. 
It is five and a half pages; and with your permission, as you 
indicated, I would just be happy to put it into the record.
    I do note that Under Secretary Taylor is here with me. He 
spends all of his time working on the issues that are of 
interest to this committee, and I thought it would be useful 
for him to be here as well today, because we are both finding 
there are enormous challenges and lots of interesting work to 
do. I thought it would help to have him here to see if there 
are detailed questions you would like to ask him as well.
    I think I won't have more to say. I am happy to respond to 
questions. There were many questions in the statements that 
were read, and I would be happy to deal with any of those in 
whatever order you propose.

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Mr. Kolbe. Thank you very much, Mr. Secretary. I appreciate 
that.
    I think, as I said to you before, this is a first to not 
have a long opening statement here, so we are delighted to have 
the time for the questions.
    You can see from the members that are here that there is a 
great deal of interest in this hearing this morning. I will 
begin, and we will recognize members, after the ranking 
members, in the order in which they came; and then we will go 
and we will try to stick to the 5-minute rule so that we can 
get to as many rounds of questioning as possible in the time 
that the Secretary has.

                                  IDA

    Let me begin by asking something I mentioned in my 
testimony about the IDA loans and the replenishment 
negotiations. I understand that they have been contentious, and 
so far there has been no real agreement. The issue, as I 
understand it, is the loans versus grants issue for the poorest 
countries.
    We have been urging this and the previous administration, 
this subcommittee has been urging administrations to change 
this practice for a long time. Now, of course, the proponents 
of moving to grants to the poorest countries are worried about 
reflows, as they call them: the World Bank relies on repayment 
from foreign countries to replenish the IDA. About 45 percent 
of the current lending, I think, is from reflows. But IDA is 
continuing to lend to many HIPC countries that suffer from the 
AIDS epidemic where reflows are inherently questionable.
    So, Mr. Secretary, could you give the subcommittee an 
update on the current IDA negotiations?
    Secretary O'Neill. Mr. Chairman, this is an ongoing 
subject. Over this last weekend we had here in Washington the 
G-7 group, and the International Monetary Fund and World Bank 
people were here for the weekend as well. So we had lots of 
opportunity for continuing engagement on this subject.
    For those of you who don't know, this is a subject that has 
divided the G-7 and, more broadly, the interested IDA community 
since last year. President Bush proposed that we should move 
from a 2 percent grant funding to 50 percent grant funding. 
Frankly, when the President proposed it, it didn't seem to me 
that it would be so controversial, that we wouldn't be able to 
agree fairly quickly to do this.
    Because when you look at the subjects of these money flows 
and you see countries with 1.2 billion people living in 
countries with incomes of an average of less than a dollar a 
day and you see the spreading HIV/AIDS epidemic and you see 
hundreds of millions of people living without clean water and 
you see more than a hundred million children without anyaccess 
to any primary education at all, that seems on the face of it that it 
made sense to give grants.
    But with a special understanding that a grant doesn't mean 
you roll the money up into a ball and throw it over the fence 
and hope that it does some good. Rather, to the contrary, with 
the expectation, with a notion of a grant, there is a specific 
performance expectation going with the money. So that, contrary 
to what I think, frankly, our experience has been, regrettably, 
to a significant extent over the last 50 years, yes, we have 
had criteria, as the ranking member indicated, and we have lots 
of criteria, and none of it seems to have mattered very much.
    Because if you look at the conditions that exist in the 
developing world today, there are many places where the 
conditions are worse today than they were 50 years ago before 
we started having all of this compassionate flow of money. So I 
think there is a really good reason to have a new criteria that 
we mean and that we insist on, not that we just talk about in 
passing as ``wouldn't it be nice if.'' So I think there is a 
very good case for new criteria.
    So we have engaged with the other nations that are 
contributors who need to agree to the change in these flows of 
money, and I frankly thought we were at agreement a couple of 
weeks ago.
    I have been doing a lot of traveling. I have made a trip to 
Europe and was in Germany and France and the UK for a week, and 
in going to the capitals and talking with people I thought that 
we were there. Because every place I was invited people agreed 
that the categories that I just mentioned were obviously 
reasonable categories where grants should go instead of loans.
    Well, when we got to the UK, there was a dispute about what 
was in the numbers roll-up of the tables. They said they were 
okay with the categories, and that added up to 18 percent. The 
consequence of these categories would have been a movement to a 
level of 18 percent in the form of grants instead of loans.
    I said, on the basis of the information John Taylor had 
provided to me, well, the categories seemed perfectly agreeable 
to me, but the numbers that they were using weren't the right 
numbers. When the numbers were redone, it turned out they were 
22 percent, something on the order of 22 percent.
    They said, we will have to adjust the categories to get 
back down to 18 percent; and I said, you know, over my dead 
body. You know, if you all want to go make a case to the people 
that we are going to make them loans for HIV/AIDS programs in 
order to keep it 18 percent, go ahead. I am not going to be a 
party to that.
    So over the weekend we had further engagement with the 
folks who were in the decisionmaking roles on this, and they 
asked for a little bit of additional time, in fact, until the 
next meeting of the G-7 in Halifax where the finance ministers 
indicated they would try to work with their development 
ministers to get some agreement.
    The hang-up in all of this is that the development 
ministers really believe that somehow giving people grants will 
diminish the flow of funds; and, just as the ranking member 
said, the U.S. has shown that good faith already by indicating 
an increase that the President wants to add above where we are 
that will completely take care of this question for a 
significant period of time.
    So, at the moment, we are being hard-headed, I suppose you 
would say, but we think it is being hard-headed over a matter 
of principle, it is not being hard-headed for the sake of 
having our way. It just doesn't make any sense to retreat on 
this important issue.
    Mr. Kolbe. Thank you. My time obviously expired, but I am 
going to try to ask one quick follow-up.
    Secretary O'Neill. Sorry, Mr. Chairman.
    Mr. Kolbe. No, That is fine. It was an important response 
that we needed to get on the record here.
    GAO has done a study here which I am sure you are familiar 
with about this issue, that could alleviate the fears about the 
reflows. If I think--it says if the World Bank contributions by 
the developed countries were to increase by 1.6 percent, less 
than the inflation rate, you would be able to cover all of the 
lost reflows. Do you agree with that?
    Secretary O'Neill. Absolutely. I think it is a very 
profound figure. We shared it with the members who were here 
over the weekend.
    Mr. Kolbe. Good. Ms. Lowey.
    Mrs. Lowey. Thank you, Mr. Chairman.
    I know you dealt with criteria a little bit, but I would 
like to pursue it, following up on my statement.
    We established that Treasury is in charge of developing 
eligibility criteria for the Millennium Challenge account, and 
that these criteria will be developed around the principles of 
a country's political will, policy reforms, efforts to meet 
peoples' needs and willingness to engage progress.
    If you could please address why this initiative should have 
to wait until 2004 and why new criteria are needed at all. You 
touched on it a little bit. How will new criteria be melded in 
with other IMF, World Bank, and AID criteria, and how will 
cooperation in the war on terrorism be factored in?
    Secretary O'Neill. I am going to do this as fast as I can, 
but this is a really important question. So bear with me as I 
tell you. It may be more than you want to know.
    Mrs. Lowey. Go ahead.

                                  G-7

    Secretary O'Neill. I think there is a good reason not to 
rush what we are doing here, because the identification of the 
expectation levels that we have for countries, and the measures 
that we will use, that we decide now, will determine in the 
long term whether what we are doing works or not.
    My experience is you get what you measure, and you have to 
be really careful in deciding what you measure, because the 
secondary and tertiary consequences sometimes can defeat the 
purpose that you thought that you had in mind.
    So let me give you an example, and it is related to an 
action that the G-7 took over the weekend. We took an action 
over the weekend to agree that, as a matter of policy, we were 
going to work with the developing countries to move them in a 
direction where, hopefully, in the not-too-distant future, each 
of them will be in a situation where they have sovereign-
investment-grade debt.
    Now, let me tell you why that is important. The interest 
rate that a sovereign has to pay tells you an enormous amount 
about the degree to which there is a rule of law and 
enforceable contracts and the level of corruption in the 
country and the fiscal and monetary policy of the country. So 
this one measure, the notion that every country in the world, 
poor or not, should be in effect a bankable debt is the kind of 
expectation indicator that we are looking at for these 
Millennium Challenge grants.
    I only offer it to you as a suggestion of the kind of 
thought process we are going through. Because, again, 
underneath this one notion, this one number that the market can 
tell you about every place in the world, are all of the 
connections that make conditions that will create the flow of 
foreign direct investment, which is absolutely essential to 
real, lasting, meaningful economic development in every place 
in the world.
    Okay. And, again, this is just a suggestion. It is not a 
decision yet.
    The President said to Secretary Powell and myself, go work 
with people in the world who care about these issues, and come 
back to me with the best thinking that you can muster on what 
these essential measures should be so that we can get it as 
nearly right as possible. Because getting the front end right 
will determine whether what we are doing really begins to make 
a difference.
    Mrs. Lowey. I will move on. I have more questions, so I 
won't pursue that.
    If you can discuss with us what form the assistance will 
take, will the recipient country get more for bilateral health 
or education programs or infrastructure needs, or will the 
assistance be in the form of budget support? Will it be used 
for military assistance?
    One other question to add to it. How many countries will be 
eligible in any given area? What magnitude of resources are we 
talking about?
    Let me just stop with that and ask you those two follow-
ups.
    Secretary O'Neill. Well, these are obviously all important 
questions.
    Again, as a matter of principle, I would say to you that I 
don't think we should decide these questions that you are 
raising in the traditional way of saying, well, we are going to 
have this hard-and-fast rule, that is how we are going to do 
it.
    I am sure you all have traveled around the world as I have, 
and you know every country has its different cultural heritage 
and history and economic circumstances. I think one of the 
mistakes, frankly, that we have made is we have tried to create 
cookbooks for economic development. I must tell you I think it 
is nonsensical. I also think it is part of the reason we 
haven't made much progress, because we have these far-away, 
abstract ideas that don't have anything to do with the life--
what life is really like on the ground.
    So I think, yes, we are going to have to answer those 
questions, but I would hope that we would maintain enough 
discipline not to fall into the trap of knowing more than we 
really do from thousands of miles away and imposing things that 
don't work on the ground.
    So I think we have to be really careful as we proceed. 
Maybe that is not a satisfying answer, but I think we need to 
specify what we are trying to do in terms of the expectation 
for increasing real jobs and the average level of income in 
countries. That will take different kinds of infusions of money 
and resources and expectations depending on the economy.
    If we had more time, I will tell you about education, 
because I think that education is a critical aspect of this. I 
think we have never clearly measured the most important thing 
about education. That is one of the things we are thinking 
about again in connection with establishing criteria for how to 
make this different and really spectacularly successful.
    Mrs. Lowey. I am out of time. But, as you know, education 
has been a key issue for Chairman Kolbe and myself. I hope we 
can get into that.
    Mr. Kolbe. Mr. Obey.

                          SUPPLEMENTAL REQUEST

    Mr. Obey. Well, thank you, Mr. Chairman.
    Mr. Secretary, I would like to talk to you about something 
else, about the supplemental request the administration has 
before the Congress, at least in part before the Congress. We 
haven't received a lot of the documentation that we need yet.
    We had a $27 billion supplemental to deal with a lot of 
things, especially Afghanistan. So far my understanding is we 
have spent about $12 billion on that effort, and the 
expectation is that we will spend about another $18 billion for 
the rest of the year. My concern is that, despite the 
tremendous investment that we have made to dump the Taliban and 
put in a new regime over there, that in contrast to the maximum 
efforts we made up front, we are making rather minimalist 
efforts right now that risk our not achieving our goals.
    I see that the President has cut significant amounts of 
money from the agency requests for dealing with these problems. 
DOD, for instance, if you look at another point from talking to 
the Pentagon, it appears to me that the White House request is 
about $3 billion short of what the Pentagon is actually going 
to need, unless we are going to have another supplemental. The 
cost of mobilizing the Guard and Reserve, it appears, is 
underestimated by at least a billion and a half dollars.
    The President has said in the past that he would veto any 
bill that did not meet his definition of responding to the war 
on terrorism; and yet, as I see it, his own request is 
significantly lacking in asking for the resources that the 
agencies clearly are going to need before the year is out.
    I guess I would simply like to ask you, as the senior 
advisor, or certainly a key senior advisor to the President, if 
this committee chooses to add those billions of dollars above 
the President's request to the supplemental, will you be 
recommending a veto?
    Secretary O'Neill. Well, you told me about things that I 
honestly have not paid detailed attention to in the Defense 
Department budget and other aspects of the supplemental. I 
honestly have not looked at the totality of what has been sent. 
If I had known you wanted to talk about it and expected me to 
be responsive, I would have done so. But, frankly, I have got a 
big enough brief already without dabbling in Secretary 
Rumsfeld's business.
    I would tell you what I do know. I went with Colin Powell 
and we helped to co-chair the Afghanistan fund-raising 
conference in January. I think we had 59 nations that were 
present for that, and I thought the response both from the U.S. 
and from the world community was very forthcoming.
    We had a Treasury person in Afghanistan working on these 
complicated subjects. I don't know about you, but my own view 
is that the problem of creating a sustainable government in 
Afghanistan may be the biggest challenge anyone could ever 
imagine. To start with, no system of discipline and cultural 
heritage, of no democratic society, and to go from where they 
are, which represents deterioration over the last 20 or 30 
years, to what we would call stable and sustainable is not 
going to be easy at all.
    And it is not going to be mostly about money, I don't 
think. It is about leadership, which is a rather scarce 
characteristic in the world.
    So I think this is a very big job, and I don't think we 
know how much it will cost. But I really do not think money is 
the most difficult issue. The most difficult is creating an 
organized society out of chaos with no traditions.
    Mr. Obey. Well, I would agree with that with respect to 
Afghanistan. But, nonetheless, while money isn't the only 
consideration, we can't do it without it. I am deeply concerned 
that we are going to be setting ourselves up for yet another 
supplemental; and every time you do that, you wind up spending 
more money in the end than you do if you are honest and 'fess 
up and face up to the costs that you are likely to incur the 
first time around.
    I would simply like to note this: If you look at DOD or if 
you look at the Afghanistan situation, or whether you look at 
the Guard and Reserve, or whether you look at the Customs 
Service, or the FBI, in my view the administration has 
seriously underestimated the funding that is required now to 
deal with these problems. For what it is worth, I would urge 
you, as one of the people closest to the President, to use your 
influence to see that we don't have a repeat of what we had 
last year.
    Last year, we had an unnecessary fight between the Congress 
and the President because the President decided it was going to 
be his way or no way, and he threatened to veto the additions 
that we wanted to provide to the homeland security package 
before he even heard what we wanted to add, which I thought was 
kind of a quaint way to deal with people. But I would like to 
point out, for instance, coming from the northern part of the 
country, that we were told by the Customs Department after 
September 11th that the key crossing points at the Canadian 
border were being guarded by these. They don't do you much 
good.
    So we wound up--despite the President's threat to veto the 
bill, we wound up adding enough money so that we could add 
about 1,400 agents who have been added this year for Customs. 
Let me check the number. I think--no, it is 1,075 more agents 
and inspectors. We were able to add them this year. If we would 
not have done that, we would have waited till 2003 to 2004 to 
deal with that.
    And we wouldn't have the FBI with its new computer system 
up and running this summer. It would been another year, and we 
would have been stuck with the fact that the FBI had computers 
that couldn't even transmit pictures of suspected terrorists to 
other FBI computers around the country.
    So I would simply urge you to urge the White House to work 
with us. Because I think you are going to find that, on both 
sides of the aisle, this committee is going to find that there 
is a need to add significant funds above the amounts provided 
by the President if we are to meet our responsibilities to 
protect the country from potential terrorist attacks. Be it in 
ports or across the border, or you name it, there are serious 
holes. I think OMB and the President are seriously and 
unnecessarily risking some unpleasant things because they are 
downsizing some of those requests.
    Secretary O'Neill. May I respond, Mr. Chairman?
    Mr. Kolbe. Certainly. Then we will go on to the next 
question.
    Secretary O'Neill. Since you mentioned specifically the 
Customs Service and the orange cones, which is my 
responsibility, I want to respond to that. After September the 
11th, indeed, I, like I think all of my Cabinet colleagues, had 
requests from the bureaus and agencies for huge amounts of 
additional funds and additional people.
    What I said to my people in the Customs Service is I 
believe that whatever I respond to the President I need to be 
able to defend, because I am the last stopping point on the way 
before the request goes to the Congress and they dispose of it. 
I think I have a fiduciary responsibility to the American 
people to run this place the way I would run it if I was on the 
outside. You haven't given me any basis for adding more 
resources. You have simply told me another thousand people cost 
X number of dollars, and we need $700 million more; and I said, 
not on my watch.
    I also said I know something about how to create value, and 
I am saying this as a broad general point. Public services are 
operating at 25 or 30 percent of what their real economic 
potential is, and part of the reason they do is because there 
are not enough people who will say, "Stop it." .
    I want to give you an example of the change that we have 
made in 7 months and 5 days in the Customs Service. The 
Congressman was with me last week under the Ambassador Bridge 
in Detroit, and we were there to witness a system that has been 
created in 7 months and 5 days after September the 11th which 
does this.
    Before this time--this bridge is a bottleneck from Canada 
into the United States, for those of you who don't know. Before 
this, it took 54 minutes for goods coming across the Canadian/
U.S. Border to go through the inspection process--checking the 
bills of lading and all of the rest of that. Since September 
the 11th, in order to improve the security--to substantially 
improve the security and at the same time not cause economic 
harm to our society, we have invented a new system in the 
private sector that puts the security at the manufacturing site 
and then secures the transportation vehicle and puts all of the 
information into a computerized form so that when a truck 
approaches the Customs stations now at the Ambassador Bridge, 
there is a transponder in the cab of the truck that sends all 
of the information to the control booth.
    It is displayed on a flat-screen television in front of the 
Customs inspector. The driver gives the card with his 
identification picture to the inspector. All the information is 
there. It tells where the goods came from, where they are 
going, consignments, how much money, how much weight, all of 
the rest. This transaction takes 17 seconds, not 54 minutes. So 
that we have defeated terrorists by creating better security 
with a lot fewer people, with a lot less time, which accrues to 
a reduction in the whole inventory chain for creating goods in 
this country.
    That is how we are going to beat the terrorists. We are not 
going to beat the terrorists by simply taking practices that 
came from Thomas Jefferson's time and doing the arithmetic 
extensions of how many more millions of more----
    Mr. Obey. Mr. Secretary, that is nice to know. I am glad to 
hear that it happened. But the fact is that, today, this year, 
we are going to have over a thousand additional people on the 
border protecting us that we needed. I assume if you don't 
think you needed them, that they would have been included among 
the President's request for recissions. Theyweren't, so I 
assume that you think that it is a good thing to have those people. If 
you don't, then we respectfully disagree.
    Secretary O'Neill. As we get better, we will have a need 
for fewer people. And it is not because of technology--I want 
to make the point this story is not about technology. These 
ideas were around for 20 years. It is for lack of leadership as 
to how to put together an available technology and human 
resources, that the public sector is, in fact, the drag on our 
economic performance. So as long as I am here, I am going to 
push as hard as I know how to bring modern leadership ideas to 
bear on how we operate the government so that when people come 
and say to me, the train is moving and we have got this event 
and let's go get a bunch more resources, I am going to say, 
wait.
    Mr. Obey. Well, I am glad to hear that. But as long as I am 
here we have got human beings guarding the border, rather than 
traffic cones. I am going to see, if we have additional 
responsibilities in the area of the Pentagon budget, the Guard 
and Reserve, we are going to meet those.
    Mr. Kolbe. Thank you very much.
    Mr. Lewis.
    Mr. Lewis. Thank you very much, Mr. Chairman.
    Secretary O'Neill, welcome. I welcome very much your 
testimony and the emphasis upon improving the way we might 
deliver assistance to the developing world. Especially your 
description of throwing of a baseball over a fence and hoping 
that it might have some positive results on either side is very 
apt.

                                 MDB'S

    A long time ago, I joined this committee. For a while, 
before they threw me off this subcommittee, David Obey, for 
most of that time, was the chairman of this subcommittee. In 
those days, I spent a lot of time looking at the MDBs, haven't 
done that in a long time. But the emphasis then from our 
perspective was to try to figure out the way that you better 
impact the moneys flowing through the MDBs in terms of the way 
they really affect the economies of those developing countries.
    We looked at the regional banks; and, among all of them, 
the Asian development banks seemed to have better or the best 
measurable results. I personally came to the conclusion that 
much of it centered around the fact that they were emphasizing 
within that regional bank, money flows that impacted the 
private sector development of those countries.
    So we began hammering away at the MDBs from the World Bank 
on down, attempting to change those attitudes and policies. We 
found great resistance within our own departments, Treasury as 
well as the State Department, et cetera, horrible great 
resistance within the MDBs. Nonetheless, we began to have an 
impact in terms of those attitudes and those views. I mean, 
even the InterAmerican Development Bank began to pay lip 
service to some values and moneys flowing to private sector 
development.
    I would be very interested--I don't know if you can comment 
for the record today, but I would be very interested if there 
has been a reversal of that pattern over a decade and a half 
that I have been involved in this issue. I guess there has been 
a reversal, and I am personally convinced that more money 
flowing in a fashion that causes delivery by way of government-
to-government loans, rather than emphasizing the private 
sector, is money that is likely to be cloth thrown over--as a 
small ball thrown over the fence.
    Would you like to respond?
    Secretary O'Neill. I tell you, I think there is something 
very important going on. It is a much more open discussion of 
challenge and how we create the conditions and realize the 
prospects of real economic growth that benefits average human 
beings in other countries.
    There is an old saying that says, the operation was a 
success, but the patient died. I think that a lot of what has 
been done--if you look at the project evaluations over the last 
40 or 50 years, you can find lots of projects and even lots of 
projects in the same country where people said these are 
wonderful projects; look at the great success we had. But if 
the average income doesn't go up, you have to wonder, what did 
we really accomplish?
    It is not the gains they are giving children, vaccinations 
to protect them against childhood diseases and things like 
that. Indeed, those are important things. But, at the end of 
the day, if people live relatively short lives in misery, then 
I think you have to judge that what we have been doing is not 
succeeding.
    I personally don't believe we have to live with the lack of 
success that we have seen. You know, from personal experience, 
I can tell you every place in the world people have the human 
capability to produce goods and services at the level we enjoy 
here in the United States. Now, they need education and they 
need potable water and they need lots of the other things that 
we take for granted, like the rule of law and to be sure your 
neighbor is not going to slit your throat and all of those 
other things that we do take for granted. But in every place in 
the world the human material is capable of living life at our 
level.
    I think it is largely a matter of insisting, as we provide 
assistance, that certain conditions are created by sovereigns 
that create a seedbed for rapid growth in the average level of 
income in the developed world.
    Mr. Lewis. Mr. Secretary, your testimony that says we are 
pressing the MDBs to measure results is not enough, that the 
MDBs are increasing funding for education, for example, that 
measuring results is another question. So I am asking the 
question in kind of a different way.
    The President, using a small carrot and stick, suggested 
that, by delivering some money for reading, for example, in the 
United States and insisting on testing that we might impact 
those individual school districts by the thousands across the 
country--small carrot and stick.
    Do you have any reason--I mean, any real input from your 
staff that would suggest that asking the MDBs to measure the 
results for reading, for example, et cetera, that there is--
anybody, any organization in place that begins to suggest that 
that is going to do anything for us--or for them, rather.
    Secretary O'Neill. If we can get the measurements right, 
and hold our own and other people's feet to the fire even with 
the amounts that we are suggesting as incremental for IDA 
replenishment, then, for sure, for the Millennium Challenge 
Account, I think that we can succeed in leveraging everything 
that is going on in the developing world. Because if the basic 
conditions are right so that when foreign direct investment 
comes, you begin to get, a multiplier effect.
    So that beyond our ability to predict or plan--because out 
there everywhere is latent demand that is just waitingfor job 
creation that comes after there is stability and a reasonable 
marketplace and a government that doesn't take everything away from you 
that isn't nailed to the ground.
    For example, in the education area, I said earlier I think 
we have been measuring the wrong thing. We have been measuring 
the number of children in primary schools, not to say that it 
is not an interesting measurement. But I can show you places 
around the world where there are 110 kids sitting under a tin 
roof with no walls and an older person than the children in 
attendance has no basis for really teaching anyone anything, 
and that is called primary education. That is worthless.
    You know, on the other hand, where you can see that 10-
year-olds have the competency to read and write and compute at 
a level that makes them lifelong learners----
    Mr. Lewis. Of course.
    Secretary O'Neill [continuing]. Then you have accomplished 
something really important.
    Mr. Lewis. I must say that I have much less confidence than 
some within the organization about our ability to actually 
measure that, let alone MDBs measuring it.
    You are suggesting that the interest rates that are paid on 
loans is evidence of a lot in terms of stability and otherwise. 
I would really push your people to give you some idea as to how 
that increased money is really going to get results by 
measuring whether it is effective.
    Secretary O'Neill. We will do that.
    Mr. Kolbe. Ms. Kilpatrick.
    Ms. Kilpatrick. Thank you.
    Mr. Secretary, again, your visit to my district, I wasn't 
there. Short notice. I had to be in New York that morning. I 
certainly apologize. But I do trust and have heard that both 
you and Governor Ridge were well treated, and you did see 
something. I know my colleague, Mr. Knollenberg, was there, as 
well as my son, the mayor, and others. So I personally wanted 
to apologize for the record. And please give me a little bit 
more warning. When you came, I wanted to be there. But thank 
you for coming to Michigan.
    I want to go back--and I wasn't going to go there, but 
since we did talk about the Ambassador Bridge, which is one of 
the largest, most busy border crossings in the country as far 
as commerce is concerned, the big three and the others use that 
border quite a bit. Over the last several years that I have 
been on this committee, just 4, but prior to that as a member 
of the Appropriations Committee in the State, the three 
entities--four I might add. I say four that are at the border--
Customs, INS, Border Patrol and Coast Guard--have been sorely 
underfunded and really understaffed.

                             CANADA BORDER

    When I came to this committee, I always wanted to do--put 
more attention on our border, but they said, oh, Kilpatrick, 
the problem is the southern border. Your border is fine, Canada 
is a good neighbor, and all of that.
    Well, if I were a criminal, that is where I would come 
across, Canada. Because less attention was there, less staffing 
and the like.
    I think September 11th kind of shook us all, all over the 
country on all of our borders, particularly the northern border 
in which my district lies with Canada and some of the largest 
commerce in America crosses every day.
    I heard what you said with Mr. Obey. I feel, too--not this 
morning--I know you come from the private sector, but you 
really don't believe that public servants carry their load. You 
said again this morning--you said some low percent. You said 25 
or 30 percent of our capacity that we can do--I am putting all 
of us in there, not to label any particular job market or job 
specification. It is probably higher than that.
    I think public servants perform their work. Of course, 
there is room for improvement. I think that we have to get 
there. But the Ambassador Bridge that connects Detroit, U.S. 
and Canada is an important bridge.
    The technology you just described, I am very happy with 
that. We met with the Canadian Prime Minister and others trying 
to do just that. He came and met with President Bush to try and 
see what other staging areas might we use other than that 
bridge to do just what you just said with the technology that 
is available. I am happy to hear that that is being instituted. 
I hope that we can get it so that we can be more efficient and 
safe on the one hand. So I appreciate that, and I want to work 
with you.
    I want to switch just a bit to the HIPC countries.
    In last year's budget----
    Secretary O'Neill. Before we do HIPC, can I say a word 
about the public service? I am really glad that you questioned 
me about public service. I think you probably know in my early 
life I spent the first 15 years of my career as a public 
servant, as a civil servant not as an appointed official, 
because I really care a lot about public service. I want to be 
really clear about this point.
    Some of the most wonderful, caring people I have ever known 
worked in the public service. I don't know any bad people in 
the public service.
    What I said about performance of public service is not 
because of the people. It is because of the lack of leadership, 
that we don't do a better job.
    As a matter of fact, I would say to you, every place in the 
public sector and the private sector, the people are terrific. 
The ones that are able to perform well are able to perform well 
because their leadership creates a basis for their using their 
full potential. So many things that we do in the government 
limit people's ability to really make the contribution because 
we won't let them rethink how to do things. We keep mindlessly 
doing things the way we have been doing them and evolving them 
for 75 years.
    So please be sure to understand. I think public service is 
a great, important work.
    Ms. Kilpatrick. Thank you for saying that, because I didn't 
get that earlier. Thank you very much, Mr. Secretary.
    But on those four agencies that I mentioned--Coast Guard, 
INS, Border Patrol and Customs--they need--we met three or four 
times with the leaders in the region. They can't say very much 
because everything has to come from Washington, which we 
understand. So leadership has to go both ways.
    Those who are on those borders have to be able to at 
least--and I am sure they talk to you all in the--Admiral Lloyd 
and others here from the Coast Guard on what they need. But 
they can't tell an appropriator what they need because it has 
to come from Washington. I don't know if that is a good thing 
in light of the terrorist economy that we live in or what. I 
think that needs to be looked at as well.

                                  HIPC

    But let me speak to HIPC. I know my sand is moving quickly. 
In HIPC, countries getting ready to qualify for those debt 
relief monies, they can't get it because many of them need 
technical assistance and aren't able to get it.
    I was trying to increase those dollar amounts. They told me 
in Treasury, no, we have got 3.5 million. We have got enough to 
do it. Have you done it? Have you gotten more countries 
qualified to do it with the money that you had available to you 
last year?
    Secretary O'Neill. We have asked for $10 million for 
technical assistance. And I tell you, as I go around the world 
and talk with people, there are lots of areas where we need to 
provide technical assistance, not just for HIPC but for working 
on the issue of terrorist finance.
    Right now, there are 58 countries I think out of 189 that 
have set up financial intelligence units. Many of them need 
technical assistance to understand what a financial 
intelligence unit is all about. So, yes, we have work to do on 
a technical assistance side.
    Ms. Kilpatrick. In this particular area----
    Secretary O'Neill. In the HIPC area----
    Ms. Kilpatrick [continuing]. Have any new countries 
qualified?
    Secretary O'Neill. Where is Bill?
    Ms. Kilpatrick. Could you get back to me, Mr. Secretary, 
and let me know the status of that and how it is working? To 
get the money, they have to fill out these papers that are a 
reduction strategy that are quite complex. We want to help them 
in that effort, and hopefully we can work together to get that 
done.
    [The information follows:]

In Response To Question From Congresswoman Kilpatrick on Progress Under 
         the HIPC Initiative and Treasury Technical Assistance

    With the qualification of Ghana and Sierra Leone earlier this year, 
26 countries have now reached their enhanced HIPC Decision Points, 
allowing them to start receiving substantial debt relief. These 
countries stand to have their debt burdens reduced by almost two thirds 
in net present value terms.
    In recognition of the fact that full Poverty Reduction Strategy 
Papers (PRSPs) take time and substantial effort to prepare, the HIPC 
framework was modified to allow countries to reach HIPC Decision Points 
on the basis of interim PRSPs. The countries thus benefit from 
substantial debt relief while they prepare full PRSPs. Although some 
countries are taking longer than originally expected to complete their 
PRSPs, they continue to receive HIPC debt relief. A key feature of the 
PRSP process is that the documents are prepared and ``owned'' by the 
country itself, with priorities chosen by the government on the basis 
of consultation with civil society.
    The World Bank and the regional development banks provide 
assistance on PRSP preparation, while taking care not to dictate 
country priorities. Discussions with the IFIs on this subject have 
concluded that Treasury's Office of Technical Assistance (OTA) 
involvement would be largely duplicative to their efforts, while 
increasing the complexity of communications and potentially distracting 
focus from producing the strategy paper. However, OTA projects are 
designed to support the reforms embodied in PSRPs, and they may be 
integral to a country's strategy for implementing reforms or verifying 
their effectiveness.
    With the $6.5 million provided to the Treasury Internal Affairs 
Technical Assistance Program (TIATA) in the FY2002 Congressional 
Appropriation, OTA will carry out the following technical assistance 
projects in HIPC countries:

----------------------------------------------------------------------------------------------------------------
                                                                       TIATA           USAID       Total Project
                             Country                               Contribution    Contribution        Cost
----------------------------------------------------------------------------------------------------------------
Chad (Oversight Board)..........................................        $500,000              $0        $500,000
Ethiopa \1\.....................................................         580,000               0         580,000
Ghana...........................................................         450,000         427,390         877,390
Guinea..........................................................         250,000         250,000         500,000
Senegal.........................................................         225,000         225,000         450,000
Uganda \2\......................................................          80,000               0          80,000
Honduras........................................................         250,000         250,000         500,000
Nicaragua.......................................................         250,000         250,000         500,000
                                                                 -----------------------------------------------
      Total.....................................................      $2,585,000      $1,402,390       3,987,390
----------------------------------------------------------------------------------------------------------------
\1\ Funds amounting to $325,000 came from the FY01 TIATA program.
\2\ Funds amounting to $80,000 came from the FY01 TIATA program. Other funding for the project came through the
  ATRIP initiative.

    As the above table shows, Treasury will spend about 40% of the 
available funding on projects in HIPC countries. Moreover, Treasury 
technical assistance work is an important catalyst in making projects 
come together in these countries. Of the almost $4 million being spent, 
65% is contributed by Treasury, but local USAID missions provide an 
additional 35%, magnifying the impact of the program.
    The project with the Petroleum Pipeline Revenue Oversight Board in 
Chad is a good example of how OTA assistance projects support the HIPC 
process. A petroleum pipeline being built through the country will 
begin to provide significant revenues beginning in 2004. The IFIs are 
concerned that revenues associated with the pipeline flow to the 
Government, and in particular, are used to support the social programs 
outlined in the PRSP. OTA, working with the Board established to 
oversee transfers from the pipeline consortium to the GOC, is helping 
to establish an open and transparent budget process, so the citizens of 
Chad can know what revenue is being collected from the pipeline. This 
will reduce opportunities for such revenues to be inappropriately 
diverted. OTA is also working on budget methodologies to show that the 
funds freed up from debt relief and received from the pipeline are 
spent in the way stipulated in the PRSP.
    Other projects will cover a broad range of issues. The financial 
institutions project in Ethiopia will help that country improve bank 
supervision and regulation as it moves from dominance by one state-
owned bank to a competitive market. In Ghana, OTA's government debt 
team will help the GOG re-structure the relationship between the 
central bank and the Ministry of Finance with the goal of lowering the 
cost of debt sold in the domestic market. Tax work in Ghana will be 
focused on improving that country's tax administration with the goal of 
increasing state revenues. In Senegal and Guinea, work will be done in 
central government budget development and presentation, making it clear 
to citizens how tax revenues are being spent. New budget methodologies 
will also enable donors to more readily assess how the benefits of debt 
relief are being spent.
    This description of OTA projects does not include Treasury's 
efforts in the area of money laundering and combating terrorist finance 
on the African continent. This effort is largely being financed by a $1 
million transfer from the State Department Africa Bureau to OTA. Most 
of this work will be done in South Africa, but Tanzania will be another 
important recipient of this type of assistance. In particular, OTA will 
work with the Tanzanian government and with the Eastern and Southern 
Africa Anti-Money Laundering Group (ESAAMLG), of which Tanzania serves 
as the Secretary. Other HIPC countries that may receive assistance in 
this effort are Cote d'Ivoire and Mozambique.

                                BORDERS

    Secretary O'Neill. Mr. Chairman, can I say just one more 
thing about the four agencies that the Congresswoman raises?
    I quite agree with you, and I think one of the things that 
we are working to do is to create an integrated basis for 
thinking about the borders--in fact, in some ways to eliminate 
the idea of a border. You used the example that I gave of the 
Ambassador Bridge. What we basically have done is create a 
virtual border. We have set an imaginary line on the ground. 
There is no longer the place where we do Customs activity. It 
is way outside--the border now extends to the limit of where 
the factory is. That is a really important conceptual 
breakthrough.
    The way we need to think about the border again is not 
related to the Coast Guard function and the Customs function 
and the INS function. We need to think about it from the point 
of view of how do we provide security and improve productivity 
of commerce, which is the way we are going to really defeat 
terrorism. It doesn't come in agency flavors. And we are 
honestly working to try to create a unified basis for thinking 
about these things that is not bounded by bureaucratic----
    Ms. Kilpatrick. But they are right now. It sounds good. But 
the Coast Guard is only doing what they--INS is only going to 
do the cargo. The Customs is only going to do the people. That 
is how it is written. So to get to what you are talking about, 
which is a seamless kind of responsibility, then we need to go 
back to that leadership.
    Secretary O'Neill. We do. We need to multitask people 
instead of saying you only do what is related to your agency.
    Mr. Kolbe. Mr. Callahan.
    Mr. Callahan. Good morning, Mr. Secretary. I, for one, 
appreciate your candidness on every issue. I appreciate your 
willingness to come before the Congress and speak out on issues 
that are important to you and to your area of jurisdiction in 
this administration.
    I know that the administration frowns on anyone disagreeing 
with them, But I think President Bush, frankly, appreciates the 
fact that people like you are willing to speak their minds on 
issues that do impact the charge they have been given by the 
President.
    You mentioned--and also let me also what most everyone here 
has said, your position on IDA grants instead of loans, it is 
ludicrous for us to try to fool ourselves. I don't know who we 
are trying to fool with the loans that we know will never be 
repaid. Why not go ahead and give them the grants up front and 
create, if nothing else, a public relations of the grant versus 
the loan?
    You mentioned that you had been in Japan, I think, or China 
or somewhere with Secretary Powell. Maybe my question may fall 
under Secretary Powell's jurisdiction, but in yournegotiations 
on the Afghanistan contributions, do we have any system of monitoring 
whether or not these nations fulfill their obligations?

                    CONTRIBUTIONS FROM OTHER NATIONS

    Specifically, on the Colombian Plan, when President Clinton 
came to us and asked that we put up $1.3 billion out of a total 
$7 billion contribution plan, we find that very little of the 
money has ever been contributed by the nations that pledged it. 
Do we have any system of monitoring this and do we have any 
wedge capability whereby we can tell those nations--and 
especially the European nations who pledged so much money to 
Colombia, we can use to force them to put up the money they 
promised in these negotiations that we talk about this as 
arrearages? They are in arrears, too; and we need to find out 
how much money that international contribution stages have been 
fulfilled or commitments have been fulfilled. Do we have a 
monitoring system for that?
    Secretary O'Neill. I think we have learned a lot from 
experience over the last 10 years. Therefore, we have sought to 
put in place people and mechanisms to assure that we know the 
issues that you are raising. We know what other people are 
doing, we know where our own money is going, and we don't just 
write checks and assume that it is handled in a professional 
way. But we are putting in place tracking mechanisms to make 
sure that we get value for money spent and that every one comes 
along----
    Frankly, one of the complications in this Afghanistan 
pledging is, you know, it sounds simple, but it is not so 
simple, because some of the contributions are made in goods and 
food products and in other physical goods, and there is an 
evaluation question associated with that.
    In the early identification of amounts, there was 
uncertainty about the staging, you know, on what calendar 
period would the funds flow or would the goods flow. So those 
details are now being sorted out.
    On the other side of it, the Afghanis are working to create 
what you would say is a responsible receptacle for monies and 
goods and figuring out ways to distribute it.
    Mr. Callahan. I know it is a little early on Afghanistan to 
determine its success. It is not too early to determine on the 
Colombian Plan. Whether it is goods or whatever, all we have to 
do is ask the country, what have you paid--if they want to say 
they have sent pork and beans or whatever, that is all right. 
But, whatever they have contributed, there should be some 
reporting process.
    Now the administration is coming to us, they need another 
half billion dollars. Whereas we were told, if we put up our 
$1.3 billion, another $5.5 billion would come. It has never 
come.
    Secretary O'Neill. Bill, are you--is someone here on top of 
Colombia specifically?
    We will get you something. I take your point. I have not 
personally looked at it. We will get you an answer.
    Mr. Callahan. Thank you.
    [The information follows:]

   In Response To Question From Congressman Callahan on Plan Colombia

    The Administration, principally through our embassy in Bogota, 
tracks pledges and disbursements associated with Plan Colombia. The EU, 
the UN, and bilateral European, Canadian and Japanese donors have 
pledged to contribute $500-600 million. As of May 31, 2002, $244 
million had been disbursed by their entities.
    The Administration is disappointed that funds pledged by European 
and other international donors for programs in Colombia are being made 
available more slowly than originally contemplated. the Administration, 
while expressing its pleasure at the broad response of the 
international community to Colombia's humanitarian, social and drug 
reduction goals, will continue to urge countries to speed the 
implementation of these programs. However, there is no obvious letter 
the U.S. could use to make the Europeans and other speed up the payment 
of the amounts they have pledged. while the Europeans no doubt consider 
themselves to be in the process of meeting their commitments, we 
believe these pledges must be honored more promptly. We have raised 
this issue with the Europeans and others and will continue to do so. In 
this regard, we note that the Government of Colombia, which has also 
pressed the donor nations to fulfill their commitments. Moreover, 
President-elect Uribe will be in Europe twice in July to make the case 
for the Europeans' paying the amounts they pledged more promptly.

    Mr. Kolbe. Mr. Knollenberg.

                               ARGENTINA

    Mr. Knollenberg. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary; and thank you for your visit last 
week. It meant a lot in a whole lot of ways. Your assessment of 
what is happening and your comments this morning were most 
appreciated. Existing technology was utilized to bring this 
about, to bring about that fast lane, and that is very 
important. We thank you for that visit.
    I want to talk about the deteriorating situation in 
Argentina, which I think is becoming an emerging energy crisis. 
I sent a letter last week outlining some of the concerns that I 
had about it, and in particular there is a firm that is local 
to me, in my home state of Michigan that has several hundred 
million invested.
    As you know, with what took place down there when they 
devalued the peso, the whole problem began to develop, and now 
we have a succession of five presidents. I just saw today where 
Argentina lost the economy minister yesterday. That succession 
of presidencies and governments didn't do anything except none 
of them have paid any respect at all to those contracts that 
were negotiated some time ago with foreign investors.
    So these energy companies may, in fact, face possible 
collapse themselves by virtue of their investment, and 
certainly there will be--you have to deal with thissituation.
    I am wondering--I appreciated the comments of Dr. Singh--
the Director for Special Operations for the IMF. He stressed 
the importance of restoring investor confidence and resolving 
the issues faced by the private utilities. He felt that the 
U.S. should take a very strong stand on this issue of contracts 
in order to prevent serious long-term damage. Because it is not 
just damage within the country, it is damage outside the 
country, internationally as well.
    So my question to you is, what is your reaction to Mr. 
Singh's statement as it relates to the energy sector and 
particularly the privitized utilities?
    Secretary O'Neill. Well, Argentina has been in the center 
of our work pile now since we arrived. I think Dr. Taylor and I 
together have spent a huge amount of time, as have our staff 
people, working on Argentina, largely behind the scenes, 
because we didn't think it made any sense to seek publicity on 
these things.
    The President cares very much and frequently asks how are 
we doing on Argentina. He has had quite a bit of direct 
involvement himself, first with President de la Rua, and then 
there were a succession of changes over a very short period of 
time, and more recently with President Duhalde.
    One of the things that we have been saying consistently to 
the leadership there is the importance of providing a sense of 
confidence to the private sector and not scaring the private 
sector away.
    At the Monterrey conference, I had a bilateral meeting with 
Remes Lenicov, who is the finance minister who resigned 
yesterday, and talked to him specifically about these issues of 
driving private sector investment away by an unwillingness to 
negotiate, which I was hearing from all of the private sector 
investors. They were perfectly prepared to negotiate sensible 
rearrangements of their agreements and contracts to help the 
Argentinian government, and they were not finding anybody that 
was willing to work with them in a constructive way.
    I don't know what we will face now with Remes Lenicov's 
departure. I think that he was a person with an education and a 
background and an inclination I think that was pro stability, 
and he seemed to know the right things to do.
    But, for whatever reason, it wasn't possible to convince 
their congress to make the changes that are necessary for 
stability, so I honestly don't know what they will do next. But 
you can be sure we have been very forthright and I think clear 
in our statements to them about the importance of creating the 
condition of stability that would keep money in the country 
instead of driving it out.
    Mr. Knollenberg. Do you feel that the political will of the 
country simply isn't there?
    Secretary O'Neill. I think it is awfully easy to judge from 
afar. Because it does seem to me that it is very clear the 
things that they need to do in order to create a foundation to 
go forward. There has got to be some political explanation for 
why they can't get themselves together to take the action that 
is necessary.
    As an example, they have had this long tradition of the 
provinces in effect having an ability to make obligations for 
society at large--that is to say, for the state of Argentina--
without any responsibility to raise the revenues, which is just 
very hard to understand.
    It is clear that if they are going to have a new fiscal 
footing that is sustainable that they have got to have an 
arrangement so that the national government is not at the mercy 
of whatever the provinces decide to do; and, as clear as that 
seems to be, they are not able to politically pull it off.
    Mr. Knollenberg. I think we have to ensure that there is 
some agreement between the IMF and Argentina that does provide 
some protection for those private utilities. Because, as I say, 
some would be forced to consider insolvency.
    Thank you, Mr. Secretary.
    Mr. Kolbe. Thank you.
    Mr. Sununu.
    Mr. Sununu. Thank you, Mr. Chairman.
    Let me pick up there, at least briefly. My concern would be 
that one of the reasons that the Argentinian government may not 
be willing to work more aggressively to engage in negotiations 
and to take steps that might instill confidence in the private 
sector is because they think that they can avoid making those 
tough decisions. And the reason that they might think that they 
can avoid making those tough decisions is because when they sit 
down with people at the IMF, or perhaps with the Treasury 
Secretary--and I am not an expert on this--that they get 
reassuring tones, that they get a suggestion that we really 
want to work with you, we want to find a way to help you and 
support you.
    Certainly one avenue of thought, which is the moral hazard 
created by the IMF in the first place is what led to this; and 
unless it is made clear that the IMF is not willing to provide 
the safety net to the private sector in this case, that the 
government won't be willing to make some tough, important 
choices that will lay the foundations for future growth.
    My direct question with regard to this is, why not--or has 
the Treasury looked at making a firm stand and saying that the 
IMF will not lend, will not step in, will not provide a safety 
net through this crisis for a specific period of time and 
require that the Argentinian government work this out itself 
and move more aggressively? Forcing the depositors and banks to 
swap their currency for treasury bonds, which is what the most 
recent resignation occurred over, is not going to instill 
confidence in anyone, anyone in the country, is not going to 
instill any private foreign investment, and it is certainly not 
going to instill confidence in the domestic investment markets.
    Do you--will the Treasury, or through the IMF, be a little 
bit more firm in laying down clear conditions for timing of 
getting reinvolved in lending to Argentina?
    Secretary O'Neill. I am just stunned. No one has ever 
suggested to me that I was vague or elusive in what I thought.
    Mr. Sununu. I didn't use those words, Mr. Secretary. I have 
the greatest respect for you.
    Secretary O'Neill. That is the implication, that somehow we 
haven't been direct.
    Believe me--I think it is true to say this, and this starts 
with the President. You know, all of us ache when we look at 
the television and see people getting killed on the streets of 
Argentina. You know, so we start with, do we want them to 
succeed? You bet we want them to succeed. We want them to be a 
prosperous, growing country.
    So, yes, we do have that feeling about them. But, believe 
me, we have not left any daylight between ourselves and our 
view of about the absolute essential condition that Argentina 
itself create a sustainable set of conditions so that any IMF 
assistance that goes, goes to create a better future, not to 
pay somebody off who has been hoping against hope that somehow 
they were going to get bailed out.
    As you know, I have been maybe painfully critical of the 
IMF and the World Bank and the things they have done in the 
past. Believe me, Horst Koehler--I have watched him do this--
Horst Koehler has been absolutely clear about the determination 
of the IMF that, yes, they want to help, but they are only 
going to do it when Argentina takes the right steps.
    Over this weekend when we had the G-7 and the IMF World 
Bank people here, we had a session over lunch with the finance 
minister from Argentina, with 25 of the finance ministers from 
around the world sitting around the table with Wolfensohn and 
Horst Koehler. We had a very direct exchange about what is 
required. Frankly, I think the reason that Remes Lenicov 
resigned yesterday is because it was really clear to him there 
were no daylight cracks in what he was being told from the 
people he met with here and he wasn't able to convince the 
political system in Argentina to take the actions he knows are 
required for them to go forward.
    Mr. Sununu. Well, that is somewhat reassuring.
    Regarding the MDBs, you also indicated that you thought 
measurement was important in assessing progress, and you talked 
about education. Now, you talked about measuring the number of 
children in primary school settings, and you also mentioned 
that that wasn't necessarily the best measure. You had to look 
at the structure, the curriculum, what they were learning, are 
they getting skills in reading and writing and math.
    That might be lifelong learning skills. Well, I want to 
raise two questions. One, I don't know that the MDBs should be 
setting metrics and measurements for education or social 
development. I don't know that they are the right organizations 
to do that. I don't know to what extent that represents real 
migration of their mission.
    But, even if they were doing this measurement, I don't know 
that those metrics are even close to being what I would want 
MDBs to be involved in; and let me give an example. If you want 
to Russia in 1978 and said, are they learning to read, are they 
learning to write, are they learning mathematical skills, not 
only would the answer be yes, yes, they are learning it at 
levels that many primary schools in the United States aren't 
achieving. That is not the determining factor for economic 
growth and economic potential.
    Now, I would say from my perspective, fortunately, I think 
I did find the right answer on page 2 of your testimony. What 
really needs to be focused upon by the MDBs is the 
implementation of structure for the rule of law, for contracts, 
for transparent government and the elimination of corruption. 
If you have those things in place, then you are going to have 
the opportunity to use whatever education skills you have to 
create the economic future.
    Schools and health care, those are very important; and they 
ought to be part of the mission of our country and, of course, 
the work of our subcommittee here. But I would emphasize, in 
our effort to make sure that humanitarian relief and social 
infrastructure is being put into place, that we don't lose 
sight of the fundamentals that are necessary for future 
economic growth.
    I think in the past the World Bank and the IMF have spent 
too much time looking at measurements of social welfare or 
social well-being, not that those aren't important, but from an 
economic perspective the things we need to focus on are 
contracts, law, corruption and political freedom; and I would 
like you to comment on that point.
    Secretary O'Neill. Those are certainly on the top of my 
list of things that are necessary preconditions. The point--you 
know, again, let me say that I offered the education example 
only as an example. None of those things are decided yet, of 
what measures we should use. But I would differentiate in what 
you said this way, that for too long governments, not just the 
MDBs, but governments, including our own, have measured inputs 
as though it mattered.
    What I am saying is if we are going to measure education 
outputs, we ought to do the right things. And attendance 
doesn't have much of anything to do with anything. I will tell 
you of going to a Gulf country in the last 6 weeks, a Middle 
East Gulf country, and going to their selected example of the 
best vocational education program in their country where they 
have young men 16 to 22 or so, three years worth of engagement 
for their paying them scholarships to attend this school, and I 
honestly believe that what they are being taught in 3 years 
they could be taught in 2 weeks. Okay?
    Now if you look at this, at the standard measures that you 
see in that kind of a place, it shows lots of good attendance. 
Everyone shows up because they are getting paid to show up. And 
what is it worth? Zero, okay. And so I am saying, as we go 
forward, not only in this but in a lot of things we do in the 
government, we should insist that we get something for our 
money, not just patting ourselves on the back for being 
compassionate.
    Mr. Sununu. I appreciate that. But from an economic 
perspective, I would be at least as concerned about that Gulf 
states rules regarding foreign direct investment, free movement 
of capital, you know, foreign ownership structure, and the 
trade barriers that they have established. And I think those 
are things that the MDBs should be very reluctant to support if 
they are not trending in the right direction.
    Mr. Kolbe. Thank you very much. Mr. Kingston.
    Mr. Kingston. Thank you, Mr. Chairman. Mr. Secretary, glad 
to have you here. It is good to see you again.
    Secretary O'Neill. Thank you.
    Mr. Kingston. One of the questions that--I want to move 
away to a broader picture on whether it is new millennium 
accounts or whatever is getting credit for what we are doing 
overseas. I have raised this question with Richard Armitage 
last week. But, you know, prior to September 11th, we gave $174 
million in aid in various forms to Afghanistan, and we are all 
over the world doing good deeds like this, and yet we get anti-
Americanism. We do not get credit. And, you know, to me I think 
it is a practical matter if you do something for some nation, 
you should, just as a quid pro quo, be thanked for it. But I 
understand those who do not thinkAmerica should be appreciated, 
for whatever reason. But I do think that it is important for national 
security reasons for us and just building a better world to let people 
know we are doing this, we are involved in it. We are interested in 
your growth. We are interested in helping you find your way out of 
poverty. We want to help. And then we could get input from them as to 
what we are doing right and what we are doing wrong. And so kind of in 
a big picture, can you address that for me?
    Secretary O'Neill. Well, I think you are right. I think we 
need to figure out ways that we can better engage the American 
people in understanding what it is that is going on so that 
they know what is going on. I think, you know, we haven't done 
a good job of showing the American people themselves all of the 
things that are being done on their behalf, and I think we have 
not given the American people an understanding of what the 
problems really look like in some of those places that we are 
giving assistance to.
    You know, it is not too hard to get the television to focus 
on exploding bombs and things like that. It is harder to get 
them to do an educational job and giving people--giving 
Americans a sufficiently intensive understanding of what a 
place looks like and what the problems are like so that they 
can compare it to their own life and understand what it is that 
we are doing, and we should be proud of what we are doing. So I 
think that we have got a big job to do.
    Frankly, when this trip to Africa came up that is going to 
be a 12-day adventure, I wasn't too sure about having a rock 
star go along. But in some ways this presents a real 
opportunity, I think, because there are a whole planeload of 
people from the media that have decided to go along.
    If we can get the media to convey a story about what this 
is about and what America is doing out there, then I think that 
taking a rock star along is a very good idea if he brings with 
it an intensity and a focus that provides some educational base 
and Americans get some sense of pride of what it is that they 
are contributing to.
    Mr. Kingston. Well, I think that is very important. But I 
am less concerned about the Americans knowing where the tax 
dollars are, because I think that as Members of Congress, in 
order to vote for foreign aid so to speak, all of us, 
particularly on this committee, have to be able to sell it back 
home in terms of why it is important. But I am thinking in the 
other world, the recipients.
    Secretary O'Neill. I am thinking this. CNN is even in the 
most primitive mud hut in the world. When you go travel around 
the world, CNN is there. We get CNN there. If we can get CNN to 
show this story, it will affect people all over the world.

                       FINANCIAL WAR ON TERRORISM

    One thing I find--I am sure you do, too, as you travel 
around the world, I think that we have not done a good job of 
telling our own story. And what we have--some of the things 
that we have been doing have been distorted. I travel to the 
Middle East. I found lots of people, well educated people, I 
think, who felt that what we have been doing in the financial 
war on terrorism was aimed directly at them. And if you look at 
it from the point of view of the television that they see--you 
know, they do get CNN, but they get a lot of other television, 
too. And if you look at it from the information they are 
getting, it is not too hard to understand how--they saw what we 
were doing about terrorist financing as an attack on their 
religious charities, because we didn't have an American voice 
saying--what I said to them, do you know how much money 
Americans contributed to charities last year? I don't know if 
you all know how much it is. $200 billion. And you think we are 
against charities. Our middle initial in the United States is 
charitable giving. We would have a huge hole if we didn't have 
the charitable giving that we have in the U.S. You know, none 
of us who are involved in this ever imagined that you would see 
our going after where the money was going through, some of 
those charities, as an attack on your religious charity. But 
there was not an American voice who understood both what we 
were doing in terrorist financing attack and what we do more 
broadly in our society to stand up and say wait a minute, you 
know.
    So I found spending a week with the media in the Middle 
East useful. I think we did some really important damage 
control and repair by telling people what the real facts are 
and making it clear we are not against charities, we are 
against terrorists. We are going to chase the money where ever 
it goes. So part of our problem is we are not doing a good job 
of telling our own story. And what we are doing is being 
distorted by people who have a different agenda.
    Mr. Kingston. Well, it is interesting, Mr. Chairman, and I 
will just close with this, that prior to being here, I was at a 
meeting, the National Endowment for the Humanities. And what 
one of--our State director is telling me that when they send 
out a grant, for years the recipient would just take it and be 
thankful. That was kind of it. Now they actually have an in-
house policy that before the money is transferred to the 
recipient, the recipient has to do a press release thanking 
everybody in the chain for this, which is great politics on 
their behalf, but it is not a bad idea if you do go to this 
grant concept, simply because of national security, if nothing 
else.
    But, anyway, thanks a lot. Appreciate your good work.
    Mr. Kolbe. Thank you very much, Mr. Kingston. We will--
before we resume a second round of questioning, Mr. Wicker has 
returned to the dias here and we'll see if Mr. Wicker has some 
questions.
    Mr. Wicker. Thank you, Mr. Chairman. The difficulty that we 
have today is shuttling back and forth between other 
appropriations subcommittee hearings.

                             CREDIT RATINGS

    Has anyone asked you, Mr. Secretary, about your and 
Secretary Powell's new proposal with regard to credit ratings? 
Have you been asked that already?
    Secretary O'Neill. No. No one has asked me.
    Mr. Kolbe. Indirectly.
    Mr. Wicker. I know it touches on some things that you have 
already talked about. I notice in The Financial Times today 
that the proposal was met with skepticism by some of the World 
Bank officials at your recent meeting. If you could just tell 
us about this proposal, how many Sub-Saharan African countries 
you think might actually have access to private capital and 
just need technical assistance to prove their creditworthiness, 
how many HIPC countries are interested in this type of 
proposal, and are you concerned about the possible implications 
for their overall debt sustainability, and are we just 
encouraging more HIPC nations to get into deeper debt? So would 
you just comment on that? That will be my question today.
    Secretary O'Neill. Okay I believe this: Every country has a 
market-determined interest rate. Now there are a lot of 
countries that don't have an official private sectorcredit 
rating. But, make no mistake, every place in the world, there is an 
interest rate that one has to pay if you are going to build the plant 
or create a business, and if you are going to borrow the funds in that 
country, that is the rate that you will pay to borrow. Some other 
country, they will assess your ability to pay back the funds. And so 
there are worldwide capital markets.
    Now the notion behind this idea of moving toward credit 
ratings or more formal credit ratings is linked to the idea 
that every country should have an investment grade debt. Now 
this is important because the determination of investment grade 
debt basically says that corruption is very low, that the rule 
of law works, that there are enforceable contracts, that 
monetary and fiscal policy are being conducted in a 
conservative, stable way. And that one measure of market, of 
how much money you have got to pay to convince the market to 
let you have money, is a way of quickly looking around the 
world and seeing where we need some attention to improve the 
underlying conditions.
    I would argue that for a very long time that the developed 
world has accepted the idea that if a country is a very low 
income country, it is okay for it to be financially derelict. I 
would submit to you that is a really terrible concession to 
make because it is not true that it is necessary to be 
financially derelict simply because you are low income. And if 
you are financially derelict, the difficulty is that when bad 
times come in the form of a commodity cycle or a weather cycle 
or something, you have no protection, you are immediately in a 
situation that is going to directly affect in a damaging way 
your population.
    And so there is this idea of getting private sector credit 
ratings as part of a family of ideas of a philosophy about how 
to change the results that we are seeing in the world, in 
improving the average living standards of people of the world. 
This is a piece of the puzzle that is necessary to nudge the 
world in the right direction and it is also a way to have to 
signal to the developed world that we have got to stop taking 
actions, i.e., giving loans to very low income places that make 
them more likely to be HIPC countries for the next generation.

                         SUB-SAHARAN COUNTRIES

    Mr. Wicker. And then with regard to my specific questions 
about how many Sub-Saharan African countries.
    Secretary O'Neill. I think that they all ought to be 
investment grade. It is going to take some time to get them 
there. But they all ought to be investment grade debt, and they 
all ought to have a calibration of how far away from that 
standing they are. I think informally big companies like the 
one I came from, you know, we knew what the interest rate--what 
the real interest rate was for every country in the world, 
because it was our business to know how much money you have to 
make here in order to offset the risk that is associated with 
governmental malfeasance and, you know, all of the other things 
that you have to pay attention to around the world. So it 
already exists out there in a sense.
    Mr. Wicker. I take it from your remarks that you really are 
making this proposal beyond the African continent?
    Secretary O'Neill. Yes.
    Mr. Wicker. Do you agree with the assessment of The 
Financial Times that your proposal was met with skepticism and, 
if so, what did you say, what exactly were the conversations 
you had with the skeptics? If you could let us in on that.
    Secretary O'Neill. Well, you know, I take all of this with 
a grain of salt. There are a lot of people who don't know about 
world capital markets and don't have the knowledge.
    Mr. Wicker. Thank you, Mr. Chairman.
    Mr. Kolbe. Let me just note that we have cleared, this 
subcommittee has cleared funds for a conference to be held on 
this subject that you are going to be doing with the African 
countries to prepare for this.
    Secretary O'Neill. Yes, sir.

                            HIPC DEBT RELIEF

    Mr. Kolbe. Let me, if I might, turn to the issue of HIPC 
debt relief programs. Last year we appropriated $224 million to 
the multilateral fund, and we have appropriated all of the 
money for our bilateral HIPC relief for all of the countries, I 
think, with the exception of Congo, the Democratic Republic of 
Congo, which has not met the threshold yet.
    But just this last weekend at the World Bank IMF meeting, 
there was a report that came out for the World Bank that said 
that the original HIPC estimates were too low and the goals 
might not be very clear. I am wondering if you would comment on 
that and whether or not you could tell us whether we would 
expect a request for another round of HIPC debt relief, another 
HIPC initiative?
    Secretary O'Neill. You know, I am sitting next to one of 
the most distinguished economists in the world, and he has not 
had an opportunity to say a word. I am going to let him answer 
this question.
    Mr. Kolbe. We are delighted to have Mr. Taylor speak to us 
this morning here.
    Mr. Taylor. Thank you very much. There have been estimates 
of the cost of the HIPC program which have been changing. And 
the World Bank's reports reflect some recent changes. They are 
due to a number of factors. One is the fact that Ghana is now 
participating and there is different tabulations of what the 
total cost were going to be because of the additions of 
different kinds of measures of the debt, and I would say what 
we are going to do is look at these estimates, evaluate them, 
and try to be sure that any future estimates are as accurate as 
possible. But we do understand now that there is going to be 
some re-estimates of the total cost of HIPC, and we want to 
look at that.
    Mr. Kolbe. There are some other new ideas that came out at 
the meeting this weekend, one from the Center for Global 
Development, that suggests that we need new debt relief. You 
may want to answer this yourself, Mr. Taylor, either one of 
you, that any country that has greater than 2 percent of its 
GDP in debt servicing payments should have debt relief.
    Many suggest that maybe IMF should look at a way of selling 
$20 billion of its gold reserves to pay for that. Do you have a 
position on this? What about the disincentives that this 
creates for other countries?
    Mr. Taylor. First of all, I think it is important for us to 
go ahead with the HIPC process that is in place. And you just 
raised some questions about what the cost of that is going to 
be. We want to make sure that the countries are going through 
that process effectively, and are making the changes, actually 
moving in the direction of becoming more sustainable so that 
the debt becomes less of a problem in the future, and that 
grants proposal that we have and we are working for is a way to 
approach that. So we think it ismore sensible to continue with 
the current HIPC process as it exists and to try to move ahead with 
grants to deal with the sustainability problem in the future.
    I just recall Mrs. Lowey's reference to the GAO report 
which says that the grant proposal is a more effective way to 
deal with the sustainability issue than debt forgiveness.
    Mr. Kolbe. Thank you.

                      MILLENNIUM CHALLENGE ACCOUNT

    Mr. Secretary, let me turn to the issue of the Millennium 
Challenge Account. I know we are today talking about the 2003 
budget, and the President's proposal did not have that go into 
effect until 2004. First of all, let me say, as I have already 
said to you, and I know you had a major role in the thinking 
that went into making this proposal, that I think it is the 
right direction for us to be going. In fact, I said to a 
conference this morning of YPO, Young Presidents Organization 
Conference, that I think this is the only third major foreign 
assistance initiative since World War II. The Marshall Plan, 
President Kennedy's Alliance for Progress, and now this.
    The Millennium Challenge Account, in a very marked way, 
makes for a change in direction of foreign assistance. Would 
you be willing to think about whether or not a pilot program 
this coming year might be implemented? Is it possible that we 
could be far enough along and have the criteria in place that 
we try it, see if it worked in one or two countries?
    Secretary O'Neill. I would very much like to see us be able 
to do that. I think absolutely the sooner we can begin to move, 
the faster we are going to leverage everything else that is 
going on. I might very well be able to do that.
    Mr. Kolbe. I know that--and I have spoken, by the way, to 
the Chairman of the full Committee about whether or not we 
might get a small additional allocation in order to account for 
this.
    But let me just--let me just ask you what--to share with 
us. I know there is a task force that is working on this, but 
what do you think should be the criteria for how--what 
countries should be eligible for this millennium account, for 
this 50 percent increase, in a general way?
    Secretary O'Neill. Well, in a general way, I think we need 
to put this money where countries, where sovereigns are willing 
to dedicate themselves to the proposition that within a near 
term period of time they are going to take action to put in 
place the full-fledged rule of law and enforceable contracts. I 
think those are preconditions for the possibility of rapid, 
significant-scale economic growth that benefits average people. 
And I would say we need--we are going to find lots of places 
where those conditions don't exist, including some places that 
will surprise people. But I think if this is going to work, 
this money needs to secure the commitment and action of 
sovereign governments to actually make those things happen. 
Because we know without these things you can't get there.
    Mr. Kolbe. I agree with what you are saying, my time is up, 
and I want to go to Ms. Lowey, but let me add one comment. I 
think as an additional restraint on the Congress and the 
executive branch, we need to have some provisions that make 
sure we do not just quickly waive those provisions and that we 
do not take the money because there is a political crisis 
somewhere and commit it for political reasons. Otherwise, we 
lose all credibility for the purpose of the fund.
    Secretary O'Neill. I agree with you. I have said notionally 
in our inside councils, this is so important that it would be 
great if we could figure out a way that we could separate this 
money in this initiative from so-called strategic assistance.
    We have other reasons to give people money. That is quite 
okay with me, and quite understandable. But if we are really 
going to make this work, we have got to stop the confusion 
between so-called strategic and economic development.
    Mr. Kolbe. That is music to my ears. Ms. Lowey.
    Mrs. Lowey. Let me say, Mr. Secretary, I would welcome the 
further discussion, perhaps more informal talking about the 
criteria because although I certainly respect my colleague Mr. 
Sununu's thoughts, and we all want to see a system of laws in 
place, there certainly could be a strong rationale for 
investing in education, building up the educational level of 
the population so that they would be ready to accept a system 
of laws and fight for a system of laws, and like which comes 
first, the chicken or the egg. And I think frankly in this 
Committee, we have tried to do it across the board and 
sometimes we have succeeded, many times we have failed. And I 
think the discussion certainly is worth considering. And so we 
all would like to see a system of laws in place and understand 
the importance of it. When people are dying and they are not 
being educated, some times you have to do, in my judgment, both 
of those things at the same time. So I think this conversation 
is worth pursuing.
    I would like to go on to Colombia. 2 years ago when 
Congress was considering the original Plan Colombia 
legislation, I, along with many other Members, indicated that 
solving Colombia's economic woes was more important than 
providing helicopter and spray planes.
    Specific appeals were made to the Treasury to get engaged, 
to work with the IMF to provide Colombia with a plan that 
recognized their unique needs. Unfortunately that did not 
happen and Colombia was forced to make budget cuts in every 
area and even had to plead for relief from initial IMF demands 
they reduce their defense and police budgets.
    Those unfortunate policies have meant meager amounts 
devoted to economic development in rural areas of Colombia, no 
significant increase in the size or capability of the military 
and police, and almost total reliance on the United States' 
assistance to meet these needs.
    If I may ask you, why have we not recognized that 
Colombia's unique circumstances warrant a unique response from 
the IMF, number one, and second, what can be done now to alter 
current IMF plans to enable Colombia to make the significant 
additional investment in its rural areas and its military and 
police that Congress expects?
    Secretary O'Neill. I am sorry, I am not prepared to give 
you a reasoned response to Colombia. But I am sure that we can 
do that for the record.
    [The information follows:]

      In Response to Question From Congresswoman Lowey on Colombia

    In agree that it was extremely important to deal with Colombia's 
economies difficulties, and I think progress has been made. Working in 
conjunction with the IMF, in a program specifically designed to 
counteract low growth, a weak financial system, external imbalance, and 
rising fiscal deficits, the Colombian authorities have made substantial 
progress in the last two years. Colombia has both stabilized and 
improved the fiscal and structural foundations of its economy, and 
higher growth has resulted. I focus on economic growth because that is 
the end result that we all desire from investment. In the two years 
before Colombia agreed to a program with the IMF, growth averaged--1.8% 
y/y. In the two years afterwards, real growth averaged 2.2% y/y. I do 
not have specific data that indicate whether the rural regions of the 
country grew at, above or below the national growth rate.
    With respect to the fiscal adjustment in Colombia, the Colombian 
government has made quite small reductions in its overall expenditures; 
government expenditures declined fromn 33.8% of GDP in 1999 to an 
estimated 33.0% in 2001. These reductions, through small, were 
absolutely necessary, as the Colombian government's past inability to 
increase revenues to those expenditures levels led to large deficits 
and increases in public debt. Indeed, in late 2000 and early 2001, 
international private capital markets were closed to Colombia. At that 
time, Treasury helped Colombia and the World Bank design a policy-based 
guarantee for an international bond. That bond was placed in the 
markets in April 2001, and the Government of Colombia was eventually 
able to exceed its international borrowing targets for the year.
    As Colombia implemented fiscal cuts, every effort was made by IMF 
staff to ensure that the quality of spending improved. Recent technical 
assistance the IMF has provided Colombia has resulted in a 
strengthening of tax policy and administration, financial sector 
stabilization, more efficient bank restructuring, and significant 
improvements in the transparency and accuracy of national statistics. 
Similar efforts have been undertaken by the World Bank and the Inter-
American Development Bank, which also have active technical assistance 
programs in Colombia.

                                 BUDGET

    Mrs. Lowey. Fine. I thank you very much. And I know that we 
can continue talking about it.
    On the 2004 commitments, the President's announcement 
indicates an increase of 1.7 billion in 2004. OMB says that 
number is illustrative. What is your view? And perhaps you can 
define what illustrative means. What is your view about the 
level of increase for 2004?
    Secretary O'Neill. I think that--frankly, I noticed in your 
prepared remarks you said that, and maybe the smile didn't 
show. But I was thinking to myself, the President would 
certainly be amused to find out someone thought what he said 
was illustrative. I don't think there is any doubt in the 
President's mind, he said 1.7 and 3.3 and 5. And I think he 
said it in bold-faced type. It was not like, I am thinking 
about some number in this range, maybe you all could guess what 
it is.
    Mr. Kolbe. If the gentlelady would yield. I notice the 
White House press office says for 2004, it is an estimate of 
$1.7 billion. But the press release does not mention which year 
the increase in foreign assistance will total $5 billion. The 
Secretary is saying, at the end of 3 years, is Congress agrees, 
the total revenue will be $5 billion.
    Mrs. Lowey. Well, I would hope that that is the case. And I 
thank you very much for your comment on that.
    Mr. Kolbe. Thank you. Mr. Wicker, if we are going rotating, 
do you have another question?
    Mr. Wicker. I do not.
    Mr. Kolbe. Ms. Kilpatrick.

                                 Haiti

    Ms. Kilpatrick. Thank you, Mr. Chairman. And, Mr. 
Secretary, again on the second round, Haiti. The International 
Development Bank has $140 million that Haiti is supposed to 
have gotten last year, really, it has not gotten it. Many of us 
in a letter to the administration are asking that the money be 
released. We have been visited in our offices. There are 
several countries much more--what would the word be--I don't 
know, who are in similar situations. I do not know why the 
money is not being released. Can you shed a little light on 
that? Is there something that Haiti ought to do?
    Secretary O'Neill. I think there is a problem on the 
recipient side with meeting the conditions that are required by 
the law.
    Mr. Schuerch. Bill Schuerch, deputy assistant secretary. We 
have several projects, I believe the number is 4, for Haiti 
that were approved by the Inter-American Development Bank 
several years ago that took a number of years before they came 
through and were also approved by the Haitian Parliament. 
Consequently they are a number of years old, and they have been 
revisited by the Inter-American Development Bank staff, and 
they believe they really need to have significant 
reconfiguration at this point in time. So the bank is not 
willing to move those resources forward.
    Ms. Kilpatrick. Reconfiguration of the government 
leadership? Is that what you speak to?
    Mr. Schuerch. No. This is of the projects themselves.
    Ms. Kilpatrick. Of the old project in the Inter-American 
Bank?
    Mr. Schuerch. It is like the U.S. Budget process, you ask 
for a request, it is 18 months old by the time it gets to the 
Congress.
    Ms. Kilpatrick. Not with this Congress.
    Mr. Schuerch. With projects that were put together that are 
about 5 years old.
    Ms. Kilpatrick. Are you working or talking with President 
Aristide, or is--are they just in my office? Is there any 
connection between the Treasury and the banks and Haiti, you 
can't get it, period? Is there anything going on?
    Mr. Schuerch. No. Treasury has met with the IDB on these 
projects 3 or 4 times now, and there is a process. We have also 
met interagency.
    Ms. Kilpatrick. Okay. Thank you. I will follow up.
    Mr. Chairman, I know we are out of time but I would like to 
put a letter and a couple of other questions to the Secretary 
in writing.
    Ms. Kilpatrick. But lastly, let me talk about HIV/AIDS for 
just a minute. You mentioned earlier in your remarks today we 
thought that 7 to 10 billion would be needed for the Global 
AIDS Project.
    Ms. Kilpatrick. Other countries may not be doing all that 
they can do. We don't believe the U.S. is doing all that we can 
do, too, to reach that. Are you of the similar position? Can we 
be doing more? Will we do more? And what about the other 
countries who are supposed to be contributing to the global 
AIDS fund?
    Secretary O'Neill. My understanding--and I have been 
travelling so much, I am not sure, but my understanding was 
there was a meeting last week where there were decisions made 
to begin the first flow of funds. Yeah, I must tell you, the 
last time I spoke with the President about this, he was annoyed 
that our money was appropriated last year some time and here we 
are in April of the next year, and the first flow of funds is 
just beginning. And, you know, his feeling is, let us get going 
with what we have already committed; let us demonstrate we know 
what we are doing----
    Ms. Kilpatrick. Why the holdup?
    Secretary O'Neill [continuing]. And as we--well, it has 
been hung up in the UN process. The funds were all contributed 
to this UN process, and it has been hung up--yes, Mr. Chairman.
    Mr. Kolbe. If the gentlelady would yield, the announcement 
is tomorrow morning on the first--the first grant is being made 
tomorrow morning.
    Ms. Kilpatrick. And that is coming from where, that 
announcement?
    Mr. Kolbe. From the trust fund.
    Ms. Kilpatrick. Who is making it, US----
    Mr. Kolbe. In Geneva.
    Ms. Kilpatrick. So it is a UN----
    Mr. Kolbe. Well, New York, I guess they are actually making 
it.
    Ms. Kilpatrick. From the UN then. Is that right?
    Mr. Kolbe. No, not the United Nations. It is the global 
fund, the one we--that has been created.
    Ms. Kilpatrick. Created with $100 million?
    Mr. Kolbe. Correct. That is correct. So the first round of 
grants totaling, I think, about $147 million--between 150 and 
200 is going to be made tomorrow morning.
    Ms. Kilpatrick. Thank you very much. Mr. Chairman, can I 
have something in writing on that, please, as you get it in 
your office?
    Mr. Kolbe. Absolutely, we will make it all available to 
Members.
    Ms. Kilpatrick. Thank you, Mr. Secretary.
    Mr. Kolbe. Mr. Knollenberg.
    Mr. Knollenberg. I will be brief, Mr. Chairman. This 
millennium challenge, as I understand it, and you tell me ifI 
am wrong, it is not to increase foreign aid, but rather the goal is to 
reduce foreign aid by getting significant increases in private 
investment and productivity growth and, of course, finally, expanded 
trade. There are some people at this table that feel very strongly 
about trade, the Chairman himself, I know. We worked on trade issues 
over the years. And I think to choose the President's own words, to be 
serious about fighting poverty, we must be serious about expanding 
trade, and that was in his speech that he delivered. And I think in 
your own testimony--and these are your words--underlying the account is 
clear, that countries that rule justly and invest in their people and 
encourage economic freedom will receive more assistance from the U.S. 
Is that true?
    Secretary O'Neill. Precisely right.
    Mr. Knollenberg. That is what we are looking for. I just 
wanted to confirm that, because I think that you might have 
talked about some of the folks who got excited about more money 
for foreign aid, but it is not just for foreign aid. It has got 
to be leveraged in a way that makes it effective. So you do not 
even have to respond beyond that if that is your answer. That 
is how I see it, and I appreciate that.
    Secretary O'Neill. Thank you very much.
    Mr. Kolbe. I have some other questions I will put in the 
record, but there is one I would like to get you on record, 
because I think you can answer it in two sentences, I hope, 
because I am going to get asked by some fellow legislators 
about it.
    Mr. Kolbe. Last year we were not able to get the 
authorization for the Asian Development Bank. Now there are two 
more in need of authorization. We have IDA and we have the 
Africa Development Bank. Can you tell me what Treasury's 
strategy for this authorization is going to be this year?
    Secretary O'Neill. We have submitted them--we need to have 
them all passed by the Congress and----
    Mr. Kolbe. We would like to have the authorizers do their 
work as well and not have to do it on appropriations bills. I 
hope you are going to----
    Secretary O'Neill. We will----
    Mr. Kolbe [continuing]. Sort of----
    Secretary O'Neill.  We will use our voice, Chairman, to the 
best of our ability to take this load off the committee. We 
understand you would like to have this done.
    Mr. Kolbe. We certainly would.
    Mrs. Lowey, do you have anything else?
    Mrs. Lowey. No. I thank you very much, and I appreciate 
your appearance here, and there are so many major challenges 
ahead of us. I look forward to continuing to work together, and 
thank you so very much.
    Mr. Kolbe. Thank you very much. As I said at the beginning, 
I really appreciate the way in which you approach these 
hearings. I think they are very enlightening. I think we 
learned more in this hour and a half of discussion than we do 
in just about any others that we have. And I appreciate very 
much your being here. Mr. Taylor as well. Thank you very much 
both of you. The subcommittee stands adjourned.
    Secretary O'Neill. Thank you, Mr. Chairman.
    [Questions and Answers for the record follow:]

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                           W I T N E S S E S

                              ---------- 
                                                                   Page
Aguirre, Eduardo.................................................   189
Askey, Themla....................................................   189
O'Neill, P.H.....................................................   265
Powell, Hon. C.L.................................................     1
Watson, Peter....................................................   189


                               I N D E X

                              ----------                              

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

                                                                   Page
Africa 
Budget Request...................................................   100
Chairman Kolbe's Opening Statement...............................     1
China............................................................   128
Colombia 
Debt Relief......................................................   114
Drug Certification 
Education for Development and Democracy Initiative...............    43
Egypt 
Foreign Military Financing Justifications........................    60
Global Health....................................................   133
HIV/Aids 
India 
Indonesia........................................................   108
International Family Planning....................................   116
Iraq 
Israel...........................................................   162
Middle East......................................................   122
Oman.............................................................    37
Pakistan 
Palestinian Authority 
Peacekeeping Operations..........................................   156
Secretary Powell's Opening Statement.............................     5
The Philippines..................................................   171
U.S. Mexico Relations............................................    85

                 Export Financing and Related Programs
         (Eduardo Aguirre, Vice President, Export-Import Bank)
   (Peter Watson, President, Overseas Private Investment Corporation)
         (Thelma Askey, Director, Trade and Development Agency)

Chairman's Opening Statement.....................................   189
China............................................................   230
Dhabol Project...................................................   233
Feasibility Studies..............................................   232
Indonesia........................................................   235
Mr. Aguirre's Opening Statement..................................   191
Mr. Watson's Opening Statement...................................   203
Mrs. Lowey's Opening Statement...................................   190
Ms. Askey's Opening Statement....................................   214
OPIC.............................................................   224
Subsidy Account Request Cut......................................   223
The Caucasus Region..............................................   226
Transfers........................................................   232

                       Department of the Treasury
                      (Paul H. O'Neill, Secretary)

Argentina 
Borders 
Budget...........................................................   303
Chairman Kolbe's Opening Statement...............................   265
Colombia.........................................................   302
Contributions from other Nations.................................   291
Credit Ratings...................................................   298
Haiti............................................................   304
HIPC 
International Bankruptcy.........................................   311
International Fund for Agriculture and Development...............   312
Latin America....................................................   308
Millennium Challenge Account.....................................   301
Mrs. Lowey's Opening Statement...................................   267
NAD Bank.........................................................   308
Secretary O'Neill's Opening Statement............................   269
Sub-Saharan Countries............................................   299
Terrorism........................................................   297
Tropical Forest Conservation Act.................................   311

                                
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