[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
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PART 2
Page
Department of State.............................................. 1
Export Financing and Related Programs............................ 189
Department of the Treasury....................................... 265
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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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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
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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
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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