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



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

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS
                             SECOND SESSION
                                ________
   SUBCOMMITTEE ON FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED 
                                PROGRAMS
                      JIM KOLBE, Arizona, Chairman
 SONNY CALLAHAN, Alabama             NITA M. LOWEY, New York
 JOE KNOLLENBERG, Michigan           NANCY PELOSI, California
 JACK KINGSTON, Georgia              JESSE L. JACKSON, Jr., Illinois
 JERRY LEWIS, California             CAROLYN C. KILPATRICK, Michigan
 ROGER F. WICKER, Mississippi        STEVEN R. ROTHMAN, New Jersey  
 HENRY BONILLA, Texas
 JOHN E. SUNUNU, New Hampshire      
                     
 NOTE: Under Committee Rules, Mr. Young, as Chairman of the Full 
Committee, and Mr. Obey, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
    Charles Flickner, John Shank, and Alice Grant, Staff Assistants,
                     Lori Maes, Administrative Aide
                                ________
                                 PART 3
                                                                   Page
 Agency for International Development.............................    1
 U.S. Assistance for the Front-line States........................  167
 U.S. Assistance for Colombia.....................................  271
 The Administration's Proposed Millennium Challenge Account.......  441

                              

                                ________
         Printed for the use of the Committee on Appropriations
                                ________
                     U.S. GOVERNMENT PRINTING OFFICE
 81-779                     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, March 13, 2002.

               U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT

                                WITNESS

ANDREW NATSIOS, ADMINISTRATOR, USAID

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe [presiding]. Morning. The Subcommittee on Foreign 
Operations will come to order. Thank you very much.
    We welcome this morning the administrator of the Agency for 
International Development, Mr. Andrew Natsios, who is making a 
second appearance here before us.
    When you first appeared, Mr. Natsios, 10 months ago, you 
certainly faced a lot of challenges that the agency has and 
participating since that time in the president's national 
response to global terrorism. This has been a priority for all 
of us.
    I want this hearing today to complement the hearing that we 
had a month ago with the Secretary of State. I think the 
discussion we had that day with Secretary Powell, between the 
members of the committee and Secretary Powell was very direct 
to the productive. So this we hope will be your opportunity to 
describe USAID's role in advancing the nation's national 
security interests as determined by the president and the 
Secretary of State.
    Of course we know that the president and the secretary and 
his advisers make the major policy decisions, but it is the men 
and women of USAID that have the critical role of implementing 
many of those policies on the ground in the front-line states. 
We owe each of them, especially those who serve in the front-
line bureau, the ones that cover Asia and the Near East, our 
special thanks for the work that they do in the face of some 
significant physical dangers and certainly mental stress.
    A year ago, I identified three priorities as chairman: 
global health, effective management of the trade--of the 
agencies funded by the bill, and export promotion and trade. 
They are still priorities but, of course, they have been 
somewhat subsumed by the need to support key states who are 
assisting this country in the war against global terrorists who 
threaten our very existence.
    Last month, many of us told Secretary Powell we thought the 
new national security situation was not adequately reflected in 
the budget request that the administration has made for this 
subcommittee. Now we understand the president is going to 
submit a supplemental budget request within a few days. Of 
course,we can hope that this supplemental request will remedy 
some of the shortcomings that we see in the budget request or 
the budget that is before us that we are looking at today. And 
while I know that you cannot talk about that at this time, 
perhaps you can indicate in general terms, where we can expect 
to see augmented funding.
    For example, the budget request that we have before us 
refers to future Afghanistan assistance levels as ``to be 
determined.'' There will be more discussion, I am sure, of the 
front-line states as we go through this hearing.
    Before returning to my original three priorities, let me 
mention for a moment an issue involving taxation of our West 
Bank, Gaza program by the Palestinian Authority.
    Mrs. Lowey and I have been very concerned that the USAID 
mission failed to inform us that such taxes were being 
collected, at least since 1998. And until we made inquiries to 
the State Department--and frankly I learned about this in a 
press report--no action had been taken on this issue.
    Let me repeat for the record that what we have told to 
members of this subcommittee on many occasions, and what I have 
certainly told the public, others, that I have spoken to, this 
subcommittee is not going to be party to having payments made 
to the Palestinian Authority. Our assistance to the people, the 
Palestinians of the West Bank and Gaza is for humanitarian 
purposes. It is not to support Chairman Arafat--his structure 
of his Palestinian Authority.
    With regard to our original priorities, the subcommittee 
has championed child survival and global health issues long 
before they attracted as much attention as they do today. We do 
not understand why the president proposes abolishing Child 
Survival and Health Fund. You cite streamlining as a reason in 
your prepared statement. This subcommittee already gives 
unprecedented discretion to the secretary and to USAID. Doesn't 
this streamlining concept logically lead to a proposal that the 
Appropriations Committee put all the discretionary spending 
under the subcommittee into one singleaccount? Maybe we could 
label it Support for Executive Branch Press Releases.
    At this time, I am going to limit my remarks on global 
health to taking note while the African AIDS crisis remains the 
focus of attention, we have to continue to focus also on other 
major infectious diseases, such as tuberculosis and malaria, 
and on the emerging HIV pandemics in the Caribbean, in South 
Asia and in other parts of Asia, as well now as in Russia. 
Internal health too remains a priority for us.
    As I told Secretary Powell, my second priority is 
management for the Agency for International Development, and 
the division of labor between it and the State Department. You 
have made clear that correcting management deficiencies at AID 
is your top priority as well. A good start has been made over 
the past few weeks by your new management bureau team, but it 
requires concurrent efforts by your policy and program bureau 
coordination team. We hope that both bureaus will respond 
promptly to requests for information and meetings by our staff.
    Our members will continue to have suggestions for AID 
activities. As I said last year, our members need to be 
convinced that reasonable proposals will receive rapid and fair 
consideration, return for your commitment. To have your senior 
staff review detailed written suggestions will work to clarify 
that support for a project in the committee report is not the 
same as a check in the mail.
    The Senate is cooperating on this matter too, but after 
eight months our initial efforts with university directives has 
not produced an effective central response mechanism within the 
agency.
    My final priority, the signature issue that I have had in 
Congress for a number of years, is trade and export promotion. 
Much of what this subcommittee is trying to accomplish will be 
adversely affected if the president's trade agenda is stalled 
in Congress.
    His Andean Trade Preference Act, for example, is 
particularly critical as the president prepares to travel to 
Lima next week; it is particularly critical with the change 
that is taking place in the situation in Colombia.
    I am encouraged that your budget indicates additional 
support for trade and export promotion, but I want to review 
the substance of the individual programs under this particular 
label of trade and export promotion.
    Mr. Administrator, there are a number of other matters of 
concern but we will take them up as we go through the 
questions.
    Let me just add that there has been a bit of grumbling from 
members and staff about the seven-volume budget justification 
in support of the appropriations request being delivered here 
on March 7. It is certainly better than last year, but it is 
not exactly a user-friendly document and the quality varies, I 
think, among the bureaus and offices that are contained within 
it. So while I want to thank you for the effort that has been 
made, let's work together to try to make it even better for 
next year.
    Let me turn to Ms. Lowey for her opening remarks and then, 
of course, we will receive your remarks, Mr. Chairman.
    Ms. Lowey.

                     Mrs. Lowey's Opening Statement

    Mrs. Lowey. Thank you, Mr. Chairman, and good morning.
    I do want to join the chair in welcoming you, Mr. Natsios, 
to the subcommittee's hearing on the fiscal year 2003 request 
for programs administered by the Agency for International 
Development. I intend to cover a wide range of topics and 
issues this morning in both my statement and questions, and 
look forward to a useful and constructive dialogue with you.
    I have been a steadfast supporter of AID's development 
program over the years and, in fact, have played a significant 
role, I hope, in successful efforts to secure greater resources 
for development programs. In fact, in 2002, the committee 
provided increases above the amounts requested for both child 
survival and disease programs and development assistance to the 
tune of over $200 million, or 10 percent above the request. 
This enabled the acceleration of many programs, but 
particularly basic education, HIV/AIDS prevention and fighting 
tuberculosis and malaria.
    I am grateful that the administration has sought further 
increases for 2003, but I have several concerns.
    The first is that while a substantial increase has been 
sought for HIV/AIDS prevention, other vital programs in child 
and maternal health, TB and malaria prevention, and vulnerable 
children have been cut. While the other areas where you have 
requested major increases--agriculture and business, trade and 
investment--have merit, many of the proposals are unproven and 
many have yet to be designed.
    Let me be extremely clear on the area of basic education. 
This minor increase proposed is simply not adequate. As you 
have indicated, 110 million primary school age children in 
developing countries remain out of school. Expanding our reach 
in basic education programs should be the top priority of AID, 
not the fourth or fifth, as your request reflects.
    I also will echo some of the comments made by the chairman 
about the budget structure and management concerns. In the 
past, Congress has provided resources to AID with a high degree 
of flexibility and recognition of the many inherent 
difficulties in carrying out effective development programs.
    For the past two years, we have worked in close partnership 
to develop an account structure for the child survival account 
that struck the appropriate balance betweenCongress and the 
executive. That careful work and trust has been scrapped by the 
administration. The administration has even reneged on its commitment 
to submit budget information using last year's agreed upon account 
structure. AID is also in the midst of a reorganization that will yet 
again change internal procedures and account structures.
    I get the distinct feeling that responsiveness to Congress 
is at the bottom of AID's priorities when all these decisions 
are made. The extraordinary autonomy and freedom from 
congressional earmarks AID now enjoys compared to other 
agencies of government will have to be carefully examined and 
may have to change.
    Moving back to the small increase requested for basic 
education, as I have indicated, it does not begin to address 
the need to accelerate these programs around the world. Given 
the events of September 11, if there is anything more important 
than rapidly expanding basic education programs it escapes me, 
frankly.
    Last year's conference report called for an immediate 
review of ESF-funded countries' education programs for this 
specific reason. To my knowledge, that directive has been 
completely ignored by the administration. The only new idea we 
have been informed of to date calls for $100 million in Egypt's 
assistance to be set aside in an endowment for graduate-level 
scholarships. The education initiative mentioned for Africa is 
still in the planning stages and the $22 million set aside for 
it may, in fact, come from ongoing successful education 
programs. The countries of Central Asia continue to struggle 
with outmoded Soviet-style education systems and in Tajikistan 
literacy rates are falling.
    We must find a way to do more.
    With respect to Afghanistan, we look forward to receiving 
the administration's supplemental request for reconstruction. I 
hope that it is adequate to meet the needs and does not leave 
to our allies what the United States should be doing. The fact 
that $50 million was added to the fiscal year 2002 bill for 
AID's programs by this committee has given you the flexibility 
to respond to immediate needs while planning for new resources.
    It should be a strong indication that we will not allow 
this reconstruction effort to fall into the all-too-familiar 
pattern that is overwhelming international support and pledges 
at the outset followed by endless foot-dragging by the U.N. and 
other donors with program implementation at a snail's pace. 
Without significant U.S. on-the-ground presence, the 
reconstruction effort will flounder, and we must provide the 
necessary resources to make it work.
    I just want to add to my distinguished chairman's comments 
on the shock and the astonishment when we found that the 
Palestinian Authority had collected nearly $7 million in value-
added taxes in past years from goods and services purchased by 
USAID, its contractors and its grantees in order to implement 
USAID programs in the West Bank and Gaza. Prior to last week, 
the PA had still not agreed to extend USAID and its agents zero 
percent VAT status, and none of the $7 million already 
collected has been refunded.
    I simply cannot express adequately how much this revelation 
troubles me. USAID failed to inform Congress about a situation 
that has persisted for a number of years, which would have been 
of specific and intense interest to many members of Congress. 
It also allowed a situation to persist whereby U.S. taxpayer 
money has gone directly into PA coffers. While I understand 
that tax revenue is exempt from the prohibitions currently in 
U.S. law against providing U.S. funds to the PA, the 
arrangement that has persisted for many years clearly violates 
the spirit in which this law was written and, frankly, is a 
direct affront to the generosity of the American people. I 
fully intend to work with our chairman to correct this loophole 
at the earliest possible opportunity.
    In response to direct pressure from our subcommittee 
chairman and me, I understand that the PA agreed last week to 
extend USAID zero percent VAT status. The speed with which this 
response was achieved, frankly, leads me to believe that if 
Congress had been informed earlier, we could have gotten 
results earlier as well. We still have the problem of the $7 
million, though, and I understand the State Department is 
currently working to resolve this issue as well.
    Let me be perfectly clear: If the tax money went into PA 
coffers directly, where it could have been devoted to any 
number of violent purposes, the refund must come directly out 
of PA coffers, in my judgment. And until this happens or a 
suitable payment plan is worked out, I am not sure that I can 
support the continuation of the West Bank and Gaza program.
    Thank you very much, Mr. Chairman. And I yield back.
    Mr. Kolbe. Thank you, Ms. Lowey.
    That is the second bell for a vote on the journal, and I 
want members to be able to hear Mr. Natsios' opening statement, 
so we are going to stand in recess until we can vote on the 
journal. There will be no further vote for at least an hour, 
and so I would urge members to come back as quickly as possible 
here. The moment we get back we will resume with his statement.
    And yes, priority will be given to those as they came in 
for the beginning of the hearing.
    We will stand in recess.
    [Recess.]
    Mr. Kolbe. Subcommittee will resume.
    Mr. Natsios, we are prepared to hear your statement. And of 
course, the full statement will be put in the record. Andif you 
would summarize, it will get us to questions.
    We expect to have a vote in less than an hour. So the 
quicker we can get through this, maybe we can get through the 
whole thing here.
    Mr. Natsios.

                     Mr. Natsios' Opening Statement

    Mr. Natsios. Thank you very much, Mr. Chairman, members of 
the committee, for the opportunity to speak before the 
subcommittee on my favorite subject, foreign assistance, and on 
my favorite agency, USAID.
    I want to also thank all of you for the leadership you have 
shown on the extra money we received, which we certainly do 
appreciate, and we are spending very carefully.
    I would also, particularly, want to thank you for the $50 
million, Mr. Chairman, that you and the ranking member on the 
minority side and Congressman Lewis, as the chairman of the 
Defense Committee, put in for Afghanistan. It was very well-
timed, because timing is everything in this sort of work, 
particularly in the reconstruction after or during a war. And 
that helped our staff be able to push money up very rapidly in 
some critical areas of Afghanistan. So thank you very much for 
doing that.
    I know there are many issues, like the education issue, 
which are close to members of this committee, who have provided 
leadership long before I arrived at AID. And I do very much 
appreciate the support and leadership of the members on these 
important issues.
    Our budget proposal calls for us to manage $8.48 billion in 
fiscal 2003. This includes $2.74 billion for development 
assistance, including child survival and health programs; 
$235.5 million in international disaster assistance; $55 
million for the Office of Transition Initiatives; $586 million 
for operating expenses; and $95 million for a capital 
investment fund, which will be focused on the reconstruction of 
USAID missions to make them more secure, given the threats that 
we face around the world, and for some infrastructure work in 
our computer areas.
    The budget also calls for $2.29 billion in Economic Support 
Funds; $495 million for Assistance for Eastern Europe and the 
Baltics; $755 million for the Assistance to the Independent 
States of the Former Soviet Union. We co-manage these three 
accounts with the State Department.
    Within the next several weeks you will receive a 
supplemental budget--Congress will receive a supplemental 
budget from the President. I am very pleased with the initial 
set of decisions. No final decisions have been made, but some 
initial decisions are tentatively in place. And I have to tell 
you, I am very pleased with what is in that bill. It will 
answer some of your questions. It is, of course, focused on 
those states, front-line states, which are critically important 
to the United States in the war against terrorism, but there is 
assistance in them for our kind of programs that are critically 
important in this war on the soft side of American power.
    I cannot say anything more about that supplemental budget 
if I want to go back to my office intact. That is for the 
President to announce, not me.
    I have to tell you, Congresswoman, that I was more shocked 
than you were when I found out about this tax in the West Bank 
and Gaza. And I will tell you why, because I knew what was 
going to happen to me very shortly, given the revelation of 
this. And I was even more disturbed that my staff did not tell 
me about this. This has been in place apparently since 1995. I 
do not like surprises at all. And I told the staff, "Tell me 
before things happen, so that we can fix them before they 
become issues."
    We did immediately act, based on the comments made by 
committee members and based on my own concern about this issue. 
And we have a letter in writing from the PA saying there will 
be no tax in the future.
    The State Department is dealing with the issue of the back 
payments. And it is very clear that we want those payments and 
we want them now. We have made that clear. The State Department 
wants the same thing; they are doing the negotiating of this, 
because this is a highly sensitive issue, given the other 
things that are happening in the Middle East right now.
    We will get you a report as soon as the final agreements 
are reached, but those are in process as we speak--those 
negotiations on that issue.
    As part of the management reforms in USAID, which I have 
spent a lot of my time on, I want to discuss at length, and I 
have put in my statement some more details on many of the 
initiatives that we have launched.
    But one of the things we have done is to reorganize USAID 
around what we call three new technical or pillar bureaus. In 
fact, the career staff are now calling them pillar bureaus--
USAID has been built on four pillars for 40 years now, and the 
pillars change in terms of--depending on the administration--
what the focus is.
    The three focuses are, first, on economic growth, 
agriculture and trade, because without economic growth all the 
evidence is there will never be a way out for these countries 
in poverty. That is the basis for the AGOA legislation which I 
strongly supported when I was with World Vision in the NGO 
community. Many of the big NGOs realized that that legislation 
was absolutely critical as a first step.
    The second is in global health. We are the preeminent aid 
agency in the health area; 50 percent of our DA account goes 
toward health. It will continue to go to health. We assure you 
of that.
    And the third area is in democracy and governance 
onconflict prevention, a new focus of our agency, and on humanitarian 
assistance in this bureau that I, in fact, managed in a different form 
10 years ago, in the first Bush administration.
    There has been a dramatic increase in HIV/AIDS funding. 
Since fiscal year 1999, long before I joined USAID, the 
Congress had a lot to do with that, of course. Our funding in 
this budget increases from $435 million for our bilateral DA 
program in 2002 to $500 million in 2003--an increase of $65 
million. The total amount in DA for all health care, total 
health, will go up $60 million. So there is an increase. I am 
aware of the concern over the cuts that were made on some 
programs.
    I have to say though, in terms of the reality on the 
ground, whether you say you are doing an STD program, a 
sexually transmitted disease program, whether it is part of the 
population program, and many of them are part of that account, 
or whether it is part of child survival, because of course it 
affects newborn children, or whether it is part of the HIV/AIDS 
program, to be very frank with you, the program is still a 
program on the ground. There are certain clinical procedures 
that we follow when we do these kinds of programs. They have to 
be done. They are absolutely essential to stop the spread of 
that disease, but the disease itself in and of itself is 
something we need to deal with.
    And so the important thing is is that the DA health 
programs are being increased by $60 million in this budget.
    Our HIV/AIDS work will get to approximately 50 countries in 
the next fiscal year--oh, I am sorry, in this fiscal year. We 
are the lead U.S. agency in the fight against HIV/AIDS. Along 
with the National Institute of Health and the Center for 
Disease Control, the amount of money the U.S. Government is 
proposing to be spent on HIV/AIDS internationally, outside the 
United States in the developing world, in 2003 is $1.185 
billion, almost $1.2 billion, which is a third of the total 
amount of money spent in the whole world, including money spent 
by the U.N. agencies, other donors and Third World countries.
    Reforming USAID business systems may sound like a boring 
subject, but, Mr. Chairman, you are absolutely right, in your 
opening statement, that this is essential to the work of the 
agency, for the programmatic work that we do in the field, 
because how the business system that we have function affects 
how fast we can get money obligated into the institutions that 
we do work through. It affects our overhead rates.
    And the five management systems I promised to correct I 
spent a lot of time on working on. We now have finally, after a 
very long search, John Marshall in place, who is a management 
expert the career people are telling me maybe the best we have 
had in 25 years in that job, and he is inspiring people to 
themselves come up with innovations and improvements.
    Let me go through just a few things we have done so far. We 
have installed new software that can save considerable time on 
small purchases. We have developed improved procedures to 
recover unused funds from expired contracts. We are instituting 
uniform standards. We have now 15 different models for IQCs, 
indefinite quantity contracts, major mechanisms by which we 
spend money. Fifteen makes it much more complicated to do these 
things; we are going to go one or two models, and that is it, a 
standardized format.
    We have automated the personnel recruitment system. We have 
also come up with new software that was just recently installed 
I think last November in our procurement system. I do not know 
why it took all these years to buy this system and install it, 
but it is now installed, and the procurement system will run at 
an automated basis now, because much of the documents we 
produce for grants and contracts are the same--are supposed to 
be the same--from one contract or grant to another. Why we keep 
duplicating that is beyond me.
    In any case, it is now automated so that that can be 
programmed, and it will save a lot of time. It is also 
connected into the new Phoenix system, which we have installed 
in Washington, which is our new financial management system. It 
has yet to be installed in the field, but we are now doing a 
review of that. We hope to begin that process very shortly.
    We are also simplifying the internal and external reporting 
requirements for the agency and consolidating them so you do 
not get so many different kinds of reports. Seven is still too 
many, Mr. Chairman, but I am hoping that, as things progress, 
we will meet the standards which you have set which I very much 
agree with.
    We have established a BTEC, a business council of career 
staff, that is chaired by Fred Schieck, my deputy, that will 
look into these five management areas. And I went to one 
meeting. I have to say I was quite astonished at how rapidly 
they were making decisions and moving things into place.
    Let me talk about our program and what the major 
initiatives are. The first is to reinvigorate agriculture. 
Agriculture has been cut dramatically in the late 1980s and 
1990s, and I think it was a disaster to do it. Seventy-five 
percent of the poor people in the world live in rural areas. 
They are either farmers or they are herders. Eighty percent of 
the poor people in Africa live on farms. If you ask the heads 
of state, the finance ministers, the trade ministers, even the 
health ministers in Africa, what is the area that we need the 
most help in, they will tell you agriculture.
    Why? Most of them came from farms themselves, and theyknow, 
if the farms are prosperous, then the country will be prosperous. If 
the farms fail and there is famine, nothing else will work, because 
there is no amount of aid we can possibly provide that can support all 
of the social service requirements unless people have some income in 
their own pockets, and agriculture provides that. So we have a major 
new initiative in Africa to end hunger through a major new agriculture 
initiative, a $60 million initiative.
    Our program will have four elements to it in the 
agriculture area: one, to mobilize science and technology to 
reduce poverty and hunger; two, to develop new global trade 
opportunities for farmers; three, to bridge the knowledge 
divide in terms of training, outreach and adaptive research at 
the local level; and four, to take the long view, promoting 
sustainable agriculture and sound environmental management.
    The environment and agriculture are intimately related. The 
rainforests are all not being cut down by big logging 
companies. They are also being cut down by farmers who do not 
have the technology in order to fertilize their existing soil, 
so when the soil gets depleted, they move and cut more trees 
down. If we can make their farms sustainable, we can reduce the 
damage being done to the environment in many of these 
countries, particularly in terms of the rainforests.
    We know that agricultural production is profoundly affected 
by education levels, particularly education levels of women. 
Studies done in Kenya show dramatic increases in agricultural 
production when women have at least a sixth-grade education, 
with no other interventions. So we know education has an affect 
on agriculture, and that is why education is a major initiative 
of the administration.
    Our increase is modest, but it is still an increase. It 
goes from $100 million basically last fiscal year to $150 
million this year, $165 million for the next fiscal year in our 
DA proposal.
    We do have strategy papers that are circulating in the 
interagency process. We have been working on them for some time 
for that strategy, particularly in Africa.
    Mitigating conflict is a very important part of what we do. 
Now, we are not going to be able to mitigate international 
wars. That is not the focus of what we do. But there are many 
localized conflicts, Mr. Chairman, that are causing chaos in 
these countries that do have potential solutions through the 
kinds of work that NGOs do, conflict management techniques that 
are used in the industry in this country.
    We know that there are certain techniques used that can 
deal with debates over land tenure, for example. A lot of 
conflicts in Africa are between herders and farmers, and if you 
find ways to mediate between the two, you can stop a lot of 
regional wars that are extremely destructive that sometimes 
become larger wars. The small wars sometimes mutate into 
national wars, which is the last thing on Earth we want to see.
    In terms of our regional initiatives, we want to stabilize 
the front-line states of Central and South Asia. As you know, 
we have a $100 million, five-year primary education program 
that this committee had a lot to do with, in terms of focusing 
my attention on, even before September 11, I might add. 
Congresswoman Lowey was very strong on that. I know you were, 
Congressman Kolbe, as well.
    We know the failure to do this kind of work in the 1990s in 
Pakistan has something to do with what happened on September 
11. Because as the void was filled by the schools in Pakistan, 
run by the more extremist element within Islam, they were 
training young men who know nothing about the outside world in 
a form of Islam that is actually very alien to Central Asia.
    All of the stuff we are seeing, it gives the impression of 
an Islamic fundamentalism in Central Asia that is indigent. It 
is not indigenous. It was imported. Because there was no other 
way of providing education through the public sector, parents 
who had no choice turned to the private sector.
    So we have a focus on Central Asia. Education is one of 
those central focuses. We hope to have 4 million text books 
printed within the next few weeks for the opening of school on 
the 22nd of March in Afghanistan.
    We have an ongoing drought there and we have a major 
reconstruction program that will focus on health and on family 
income and on agricultural production and on getting people off 
poppy production in Afghanistan.
    In terms of Africa, we have three initiatives. I mentioned 
the agricultural initiative earlier.
    The second is in trade. We have increased the amount of 
money to help train African leaders, which they are strongly in 
favor of. The prime ministers I met with regularly and the 
foreign ministers and heads of state want this training program 
for their ministries and their business community, and how they 
can take advantage of the AGOA legislation by trade capacity 
building.
    Our third initiative is in Africa. We are asking for an 
increase of $22 million in that budget overall. The total 
amount we are spending in Africa on education is actually going 
up 35 percent this year over last year, goes from, I think, $67 
million in 2001 to $91 million in 2002, and $95 million in 
2003, as I recall the exact figures.
    Finally, there is an anti-corruption initiative in the 
democracy and governance area for the coming fiscal year. We 
know that unless governance improves in developing countries 
that everything else will not work well. It is a critical 
element of what we are doing.
    And finally, we have the Andean Regional Initiative, and we 
have in Latin America, a new initiative called Partnership for 
Prosperity in Central America to deal with the severe drought 
in rural areas and the collapse of the coffee crop, which is 
causing severe problems in rural Central America.
    Anyway, those are our new initiatives. I could go into much 
more detail, but I have talked too long already.
    Mr. Chairman, I would be glad to answer questions or move 
on.
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    Mr. Kolbe. Thank you very much, Mr. Natsios.
    We will stick to the five-minute rule here, because we are 
going to be under some real pressures here on time here.

                        WEST BANK GAZA TAX ISSUE

    Let me just start by trying to get this issue of the West 
Bank--the Gaza tax issue off the table, at least as far as I am 
concerned. I appreciate very much your response. USAID did 
response and the State Department did response very quickly 
when we identified this problem and brought it to your 
attention. And we appreciate it. We do have the copies of the 
letter from the minister of planning and international 
cooperation and the minister of finance in the Palestinian 
Authority saying they will not impose the tax in the future. 
And we will make these letters part of the record, I might add.
    But we still have the issue of the $6.8 million that has 
been collected and not reimbursed at this point. But let me 
just focus on a couple of things.
    Knowing that we said there was not supposed to be any money 
going to the Palestinian Authority, have you been able to do 
any investigation within your agency to determine why this 
practice was allowed to continue for as long as it did?
    Mr. Natsios. I have not found out why. I do know that in 
1999 a very senior-level team was sent in to negotiate this 
issue, and they came back having failed. Why they failed--the 
people have retired from the agency who did it. And I want to 
call them up and ask them why this was not fixed. It is so 
obvious a political issue, it is so explosive, particularly 
under these circumstances right now.
    And I have to tell you, I used to have to deal with this, 
in the first administration, in civil wars around the world, 
where they wanted to tax our food aid. And I had an absolute 
rule in USAID: We are helping people survive. We are not going 
to pay taxes on our humanitarian relief.
    And when I was in the NGO community, we had people trying 
to say, for our private fund-raising, that when we sent aid in 
it was going to be taxed. And we had an absolute rule in many 
of the NGOs that we would not pay those kind of taxes.
    So why this was allowed to----
    Mr. Kolbe. Why didn't those people say flatly at that 
point, ``Well, this violates Section 555 of the appropriations 
act which says none of this money can go to the Palestinian 
Authority''? Why did not they just say, ``Well, then there is 
going to be no contracts; there is going to be no projects 
here''? There is not a negotiation. It is either you do not 
impose a tax----
    Mr. Natsios. You are absolutely right. I do not know the 
answer to your question. We are still looking into it.
    Mr. Kolbe. No, I think we need the answer to that----
    Mr. Natsios. Need your oversight.
    Mr. Kolbe [continuing]. And I appreciate the fact that this 
is a different administration, you are a different 
administrator at this point, but nonetheless we have to make 
sure that this kind of thing does not occur again.
    Can you assure us that this is not happening elsewhere?
    Mr. Natsios. Well, I gave an order last week, when I found 
out that this was going on, for a review of all national 
portfolios, even in peaceful countries where there is a 
democratic government. It is not a function just of this 
particular area. We should not be paying any taxes on our 
assistance, period.
    So there is a review going on now worldwide, for all our 
AID missions on this issue.
    Mr. Kolbe. And when that is completed, would you please 
make me a copy of that----
    Mr. Natsios. I will get you a copy of the report.
    Mr. Kolbe [continuing]. Available to us?
    And similarly, when you are doing your investigation, as to 
why it was not felt by anybody in the agency that it was 
important to come back to Congress with this.
    Mr. Natsios. Or to tell me, since I am the administrator.
    Mr. Kolbe. Well, tell you or the previous administrator or 
to come to Congress with it. When they failed at those 
negotiations in 1999, why was not Congress informed? We need to 
get some answers to that.
    Let me just turn to a couple of other issues in my 
remaining time here.

                              ALLOCATIONS

    One of the measures, obviously, of effectiveness is the 
coordination between State Department and USAID--to measure the 
effectiveness of the coordination is how long it takes you to 
obligate or contract the appropriation accounts that are co-
managed.
    Can you indicate whether there are significant levels of 
appropriated funds from fiscal year 2001 that remain 
unobligated at this time? For example, what percentage of the 
economic support fund, ESF fund, not including the cash 
transfers to Israel, remains unobligated? And what is being 
done to alleviate this obstacle?
    Mr. Natsios. I will get you a report on that in some 
detail, because it actually changes from week to week as to 
what is obligated and what is not.
    I can tell you the money is all allocated for 2001. As you 
know, the allocation money for our largest program, Egypt, was 
not approved until the first week of October. It was done after 
the end of fiscal 2001. And I was troubled by that.
    You did pass some legislation. There has been a dramatic 
change in the speed with which the approvals are taking place 
for ESF for the current fiscal year. So this is very different 
than it was last year.
    Mr. Kolbe. But even the allocations I do not think were 
just completed until just very recently.
    Mr. Natsios. That is correct.
    Mr. Kolbe. So here we are, four or five months after the 
end of the fiscal year, and we are just completing the 
allocations for the previous fiscal year.
    Mr. Natsios. Right. I think one of the reasons on this 
particular issue is because of the nature of the Egypt program. 
Part of that is budget support in exchange for policy reforms, 
and those monies were kept in accounts. And only, I think, in 
January or February was there an agreement reached with the 
Egyptian government on those policy reforms. So there was an 
issue around our ability to release the funds, since they were 
contingent on----
    Mr. Kolbe. I am advised by staff that it is almost half a 
billion outside of Egypt that was not----
    Mr. Natsios. I will check on that with you. My impression 
was----
    Mr. Kolbe. It is more than just Egypt here.
    Mr. Natsios. Yes, Okay. I will get back to you with a 
report.
    Mr. Kolbe. Let me turn--no, I want to come back to the 
health care issues in some detail here. I will pass at this 
point and go to Ms. Lowey.
    Mrs. Lowey. Thank you, Mr. Chairman.

                OVERSIGHT OF U.S. AID WEST BANK PROGRAMS

    And thank you, Mr. Natsios. I think we have discussed the 
issue of the VAT adequately. Except there is one other question 
that remains in my mind. Can you tell us a little more about 
the oversight of USAID programs in the West Bank and Gaza? What 
controls are in place to ensure that funds are not going to the 
PA? How are audits conducted? How do you ensure that you are 
not funding individuals or groups involved in terrorism?
    Mr. Natsios. When we had our hearing last year, questions 
came up on the general subject. And I went back, since I had 
literally just taken over when the hearing was held, and I 
asked the three questions you just asked.
    And I said to the senior staff in that bureau and in PPC, 
``I want a system put in place so that next year, if this 
question is asked, I can say that we have put a system in place 
to ensure this is not happening.''
    Now, I do not think the senior people--because they were 
political appointees who were confirmed--in fact, I know they 
did not know about this VAT tax issue, because I called them in 
and said, ``You know, this is part of what I told you last May 
we did not want to have, this kind of thing.'' I did not 
mention this because I was not aware there was a VAT tax to be 
collected.
    We have put a system in of review, not just in the West 
Bank and Gaza, but there are issues raised about the Lebanon 
program, same issues. And I said, ``We just cannot, in a highly 
politicized area, with violence going on, endanger the lives of 
people--our staff or other people--because our funds are being 
misused.''
    So we have to have these systems in place, and it was made 
very clear. Why this escaped that, Congresswoman, I do not 
know. I am going to find that out, and I will get back to you 
on it.
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    Mrs. Lowey. Do you feel confident that, in terms of other 
assistance programs that you are administering, that this is 
not happening, putting aside the VAT issue?
    Mr. Natsios. I am convinced of that because I have had 
conversations with the mission director and the staff of the 
bureau at a senior level, and I have told them what the 
consequences will be if we fail at this.
    Two, in many cases, we cannot do work because the intifada 
is so acute right now, and has been since I took over, that 
many of our programs have simply stopped. We are doing some 
humanitarian programs.
    The foreign minister has asked me three times not to stop--
the foreign minister of Israel has asked me three times, ``Do 
not stop the water projects because they benefit both sides.'' 
Even though they are in the Palestinian areas, the water tables 
are under the ground; they are not something that belongs to 
one side of the other in the conflict. Andhe said, ``You have 
to keep the programs going.''
    To the extent that we have been able to, we have continued 
that construction. But even that has had to slow down 
substantially because of the violence that has been going on.
    Mrs. Lowey. Thank you.

                            Basic Education

    Let's move on to basic education. Again, as I mentioned in 
my opening statement, I was extremely disappointed by the lack 
of vision demonstrated by the fiscal year 2003 request, with 
respect to the importance of providing basic education in 
developing countries.
    I am very proud that, working with Chairman Kolbe, we were 
able to provide a total of $165 million for that purpose last 
year--significantly above the president's request. And I think 
the dedication of this subcommittee to this issue reflects a 
consensus in Congress that basic education is the foundation of 
good development. And I had hoped that the administration's 
request would acknowledge and build upon this momentum.
    Instead, you have requested $165 million from the 
development assistance account, with additional funds coming 
from other accounts. While this represents an increase over 
last year's level, it by no means reflects the importance of 
these programs to U.S. foreign assistance today.
    Could you discuss with us the current status of our 
education program in Egypt?
    I was distressed to learn of a proposal to divert a 
significant amount of resources to endow a program which would 
provide graduate-level education. It certainly has not been the 
priority of most of the people with whom I have had this 
discussion.
    Mr. Natsios. Let me address the Egypt program first, 
Congresswoman.
    I share, and I must say the president shares, your deep 
interest in education. Because one of the principles I have 
used over the years, both in the NGO community and AID in 
designing programs and working in programs, is to try to chose 
those programs that have multiple good side effects. If you 
have a program that only has the affect of the narrow focus of 
the program, it really does not give us the value added-ness we 
would like.
    The benefit of an education program--particularly, primary 
education, particularly for women--for young girls--is it 
affects health. Child survival rates go up just by increasing 
the education level of young women.
    Let me repeat, the data from the surveys in Africa and in 
other areas of the world indicate that when women farmers--in 
many countries, women are the farmers--get at least a sixth-
grade education that agricultural production goes up without 
any other input because there are disciplines you learn in 
basic education that affect other things. And so, we know it 
has very good side effects and that is why we are so strong on 
it.
    We are only getting the interagency process. We do have the 
strategy papers and they are circulating, but I do not have 
authority yet. Because this is a big issue, I have got to get 
other people's approval. For things that I initiate that are 
not everybody else's interest in the administration, do not 
have to get everybody else's approval. This is very, very 
important to the National Security Council and to the 
president, so everything we are doing in this area, in a very 
constructive way, is being reviewed to see if there are things 
we can add in. And so, there is a lot of support for this.
    It is going to take a while to get a program of a large 
size up and running. There is the question of absorbative 
capacity, when you can have a program that is--particularly in 
Africa--of this size and in Afghanistan and Pakistan.
    The focuses on this, by the way, will be--there is a 
teacher training program in Latin America--but the big focus is 
sub-Sahara Africa and Central Asia, and you mentioned that, I 
think, in your remarks and you are absolutely right--Pakistan 
and Afghanistan. The literacy rates in Central Asia--former 
Soviet states--are like 98 percent. So they are extremely high 
now. They do have an old kind of system, but if you ask them 
that is not where they want the help. They want help in other 
areas in Central Asia--I mean, in the former Soviet states.
    In terms of Egypt, the proposal that you meant is a 
proposal circulating around. I have not approved that and 
neither has the senior leadership. We have just looked at it, 
Okay?
    When I was in Egypt, the first time I was in Egypt was in 
1982. When I was in state government in Massachusetts, I went 
with the American Jewish Committee in Boston, with state 
legislators, to view the Camp David Accords and it was my first 
trip to Egypt. I would have to say the country is profoundly 
different 20 years later than it was when I went in 1982.
    And I went to the city of Alexandria and saw a model 
education reform for basis education. This is in poor 
neighborhoods now. And I said, ``Why are we not doing this in 
other areas?'' Interestingly enough, Mrs. Mubarak visited the 
same program and said the same thing, without me knowing it. 
She looked at the program and said, ``This is a model program. 
This is what we should be doing''--in what is called Upper 
Egypt, which is the southern part of the country, which is, 
frankly, the poorest area of Egypt.
    Now what has happened is, because of her interest, the 
governors in other areas are now asking us USAID to come in 
tomodel what they did in Alexandria in other areas.
    So we are looking at basic education and I asked the staff 
to revisit this issue of the allocation of resources in Egypt 
because of the very reasoning that you used in your comments.
    Mrs. Lowey. I will have to save my questions for the next 
round. Thank you.
    Mr. Kolbe. Mr. Knollenberg?
    Mr. Knollenberg. Mr. Natsios, welcome. I am glad to have 
you here.

                              Middle East

    Let me get into the matter of Egypt, relative to assistance 
and, obviously, I would like to talk about the Middle East as 
well, but I want to just centralize my thoughts on Egypt.
    One of the things that I have been thinking about since the 
11th of September, and I am sure everybody has, is the question 
of democracy and how do we expand democracy in the Middle East? 
I think it is a healthy question to think about in terms of how 
we look at restructuring or reassessing what we are doing in 
terms of foreign aid and U.S. aid.
    I think promoting democracy is a great idea and you feel 
strongly about that. Good government, rule of law, transparency 
in the regulatory process. But here is what I am thinking 
about: What concerns me is I think we have to put this question 
of democracy front and center in what we do with our assistance 
and be able to monitor or measure the results.
    What I am concerned about in the case of Egypt is are we 
really focusing on where the money should be going?
    For example, on this order of restructuring or refocusing; 
in the last 20 years--maybe 22 years--we have provided some 
$18.5 billion in military assistance and about $28.8 billion in 
nonmilitary or economic assistance. Where are we with respect 
to the successes, and with respect to those things I mentioned? 
Is democracy really on the bill? Is it growing? Is it getting 
better?
    But, honestly, I am not talking about eliminating aid. I am 
talking about restructuring, refocusing, redirecting aid to 
where it will deliver some examples of democracy being 
improved. And I think that it is healthy to talk about this 
kind of thing, because we are at a point right now where we 
look back over the last 20 years and say, ``Have we done the 
right thing or should we have rechanneled some things''
    I could talk about a lot of things. I could talk about the 
impartial judiciaries and the media and some other things that 
maybe have not risen to the point that we would expect and I 
would like your opinion to share with us as to what 
restructuring, what refocusing is needed. And--what kind of a 
grade do we put on the progress with respect to democracy; in 
this case, in Egypt? And I am looking to you, obviously, for 
answers and for any improvement.
    I do not have any answers, but I just have a feeling that 
we have made, perhaps, some mistakes and should alter what we 
are doing to ensure successes in those areas. I would welcome 
your comment.
    Mr. Natsios. Thank you. Clearly, the one area of the world 
where democracy has not taken root--even if the democracies, as 
in the case of some African and Latin American countries are a 
little fragile, they are still there. They have elections, they 
have multi-party democracies, they have a free press, there is 
debate going on.
    The one area of the world that that has not happened, other 
than Kuwait and Jordan, is the Middle East and it is 
disturbing. It is not a good trend. And there is a lot of 
analysis. I am not an expert in that region. I have been to the 
region. I have been through Jordan many times and Israel. I was 
in the Gulf War myself as a soldier and I am familiar with the 
area.
    I do not have a good answer for you as to why that is. 
There are a lot of different theories by people more expert. 
But we are looking at that now; our PPC office is talking to a 
lot of scholars to ask what we need to do to encourage 
democratization in countries that have not historically been 
democracies.
    But one thing I would say that we do know is the way in 
which to do it--programmatically, in an operational sense--when 
we cannot actually insist that there be democratic elections 
with multi-party participation is through developing civil 
society. What does that mean? It means developing an NGO 
network.
    Why is American democracy so robust? Why did it survive 
when it was not supposed to 200 years ago? Everybody in Europe 
thought our little experiment in democracy was going to end 
very rapidly, as I am sure you know, and it did not. And de 
Tocqueville said why--because of all of these independent 
groups--he did not call them NGOs, he did not call them a civil 
society, but that is what they were. If you read de 
Tocqueville, it sounds like he is describing some of our 
programs now in many areas of the world.
    We know in countries like South Africa that the USAID 
program in the 1980s to encourage civil society had a profound 
affect on the ability to move toward a full democratic system 
in South Africa where the entire population participated by 
encouraging NGOs, by investing in the university sector, by 
training reporters in investigative journalism, by doing 
exchanges back and forth to show how our society worked.
    We believe that can have a very good affect in laying 
afoundation. But there are political issues that are beyond us USAID's 
control in terms of insisting that there be elections and that kind of 
thing.
    Now, in terms of Egypt--you mentioned Egypt specifically--I 
will just tell you what we have done with the money. You had 
mentioned what we had done with the money.
    Mr. Knollenberg. What I know what you have done with the 
money. What I am really concerned about, are we using it 
properly today? Have we used it properly in the last five or 10 
years? Should we rechannel some of those monies in different 
directions? And I am even suggesting it might mean reducing 
some of the military and putting more into economic.
    But if we are not getting the bang for the buck in terms of 
democracy, there has to be some reason why. I do not mean to 
suggest that you have got to know the answer. I do not know the 
answer either. I think we can do better. I just do not know 
what to do about getting it or making it better. But that is my 
concern.
    Mr. Natsios. There is more focus in the Egypt program than 
there ever has been on this civil society aspect and the new 
plan they put together has a much greater focus on this, in 
Egypt, for the very reasons that you just mentioned. So there 
is an interest in that.
    The second interest is in moving a lot of the program to 
Central Egypt and to what is called Upper Egypt, which is the 
poorest areas of the country, for the very reasons that you 
just mentioned because it was too focused on Lower Egypt. It 
has been a successful program but it needs to change now, and 
that is what we are in the midst of doing.
    Mr. Knollenberg. Thank you.
    Mr. Kolbe. Ms. Kilpatrick.
    Ms. Kilpatrick. Thank you, Mr. Chairman.

                          Education Initiative

    Good morning, Mr. Administrator. I am happy to hear that 
education is one of your priorities. As we move around the 
world to assist other countries, I believe education is the 
most important in any country that we might do for its people, 
here and abroad, that we stimulate and grow those who are able 
to learn, and I believe everyone is.
    The president has a new initiative in the 2003 budget, and 
it is really called Education Initiative, I think; $22 million. 
You alluded to it. Heretofore, there has been an education 
program called Education for Democracy and Development 
Initiative serving over 30 countries; partnerships with private 
industry and others; and having served over 6,000 girls in 
Africa. Currently funded--and I am happy that since we have 
Secretary of State Powell here that the staff has met and has 
worked out what the 2002 funding is. No mention of EDDI in 
2003, or is there a description of what the $22 million will be 
used for.
    Question: Will EDDI be included? Do you have more specifics 
we can look at, in terms of what the $22 million--how it will 
be used, what kinds of things?
    Will the partnerships that EDDI has already established 
with the companies--very companies I am sure we will probably 
want to keep--that include some of the bigger ones, like 
Microsoft and other major corporations who have partnered with 
us. And we believe that the partnership is what we need, 
because public dollars will never be enough. If we can get 
private participation, we always want that.
    Is there more detail on the $22 million?
    Mr. Natsios. I will send you, Congresswoman, because I know 
you are deeply interested in this, the education strategy that 
we are pursuing worldwide. And then we have specifically one 
that is more tailored to Africa, but it is in the framework of 
this larger strategy. And let me describe what it is.
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    Ms. Kilpatrick. And is that $22 million for the world, 
then?
    Mr. Natsios. No, no, no. The $22 million is just for 
Africa.
    Ms. Kilpatrick. Okay.
    Mr. Natsios. And that is only for basic education. There is 
more money that is being spent on other forms of education at 
the higher level. For example, we need to trainmore 
agricultural scientists if we are going to get the research capacity in 
the countries to improve production.
    Ms. Kilpatrick. And on that point, can't we----
    Mr. Kolbe. Would the gentlelady yield, just to ask can you 
send the report to all the members?
    Mr. Natsios. Yes, I will send it to everyone.
    Ms. Kilpatrick. Certainly, Mr. Chairman. Thank you.
    If we would use the wealth of knowledge that our 
universities have--Michigan State University, for example, is 
already there in Africa. It is a land-grant college, high in 
ag, and I am sure there are other universities in America.
    So when you talk about the technology transfer and the ag 
needs, the universities are the prime partners that need to be 
included in much of this.
    Mr. Natsios. Absolutely.
    Ms. Kilpatrick. And we hope that you will work with our 
universities as we move into the new--but the report the 
chairman asked for, you will see that we all get it?
    Mr. Natsios. I will see that you get it. Let me just, sort 
of, briefly summarize it.
    The model education reform that I am most impressed with in 
Africa is in Uganda. President Museveni is one of my favorite 
heads of state. I was just with Mrs. Museveni recently. We had 
a very good conversation about the spectacular success of their 
program.
    They have doubled the number of kids, over four years--and 
I have to say it was through his leadership, but AID was one of 
the--Dawn Liberi, who is our mission director there, was one of 
President Museveni's--he told me this--one of his principal 
advisers in the education reform. We put a lot of money into 
it.
    Ms. Kilpatrick. It can happen--and you are absolutely 
right. It is a partnership, and the people working together can 
make a difference.
    Mr. Natsios. Absolutely.
    Ms. Kilpatrick. I feel your commitment, and I hope you will 
continue. And I would like to be very much a part of that.
    Mr. Natsios. We will keep you informed.

                           THE CONGO VOLCANO

    Ms. Kilpatrick. Okay. And number two, there has been a 
horrific volcano in the Congo, and I am sure you are very 
familiar with that. We helped Mozambique years ago during their 
floods. A couple years ago, Chairman Callahan helped in that 
effort.
    Has there been any attempt to come to you to ask, or--I 
know there has been in my office. But has there been any formal 
requests from any of the Congo leaders to ask for assistance 
from us?
    Mr. Natsios. You are talking about the Goma area, the 
Goma----
    Ms. Kilpatrick. Right, and it is very volatile, as you 
know.
    Mr. Natsios. Yes. Politically, it is not under the control 
of the central government, as you may know.
    Ms. Kilpatrick. Yes.
    Mr. Natsios. My area in the first administration was in 
disaster relief and natural disasters. Of course, this was 
something that, when I went there with World Vision in the mid-
1990s, I said, "Why is a refugee camp with a million people a 
quarter of a mile from an active volcano?" I told the U.N. I 
thought it was madness to have it located there.
    AID, before I arrived, installed, with the experts in this 
from other federal agencies in the U.S. government which they 
have relationships with, equipment to monitor both the levels 
of gas underneath the lake, which could explode, and with the 
volcano for the precise reasons that you just mentioned.
    Ms. Kilpatrick. Okay. I would like to follow-up with you on 
that, and we will put something in writing.
    Mr. Natsios. Okay. We would be glad to get back to you.
    Ms. Kilpatrick. Thank you.

                                COLOMBIA

    Then finally, Mr. Chairman, if I might, the Andean 
initiative, we started Plan Colombia three years ago; I was on 
this committee at that time too. We have given now over $2.5 
billion. I have yet to receive a report. I have asked the 
secretary of state, as well as now you. And I know that, of the 
money that they get, that your portion is some $278 million of 
this 2003 budget that you will manage.
    Why cannot I get a report on what is happening? Is it so 
clandestine and so secretive----
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    Mr. Natsios. No, you will get a report.
    Ms. Kilpatrick. I do not know if the rest of the members 
have seen one. I have not.
    Mr. Natsios. You will get a report, Congresswoman.
    Ms. Kilpatrick. How do we spend the money? I know over 
300,000 people have been displaced. What kind of programs are 
used to be putting those displaced people back into? Are there 
any programs?
    Mr. Natsios. Absolutely.
    Ms. Kilpatrick. What is happening with that? I mean, we 
send the money, the drugs still flood our country. You know, I 
do not know--certainly the supply is not down. The demand is 
still high. The people in Colombia, half--a quarter which are 
African-Colombians are highly displaced. I mean, I have nothing 
to hold onto, no kind of report, no kind of--can you give me a 
summary of----
    Mr. Natsios. I certainly can. There were essentially four 
elements of the Andean initiative on our side. I cannot 
describe what the Defense Department and State is doing, just 
what USAID is doing.
    The first element is to deal with the internally displaced, 
and there are a lot of them at this point. It is increasing 
because of the acceleration of the conflict over the last few 
months. And so, we have an active program to provide food, 
medical care and shelter for internally displaced people. That 
program is actually functioning the way it should, because the 
people----
    Ms. Kilpatrick. Are numbers of people being replaced--wrong 
word?
    Mr. Natsios. They are being provided for. They cannot go 
back to their villages because of the conflict, which is why we 
are able to help them. They have left the insecure areas.
    Ms. Kilpatrick. And you are placing them in new areas where 
they are being helped.
    Mr. Natsios. That is correct.
    Ms. Kilpatrick. What percent?
    Mr. Natsios. Our program was for 300,000 or 400,000 people, 
and we have provided that assistance as we had planned to. So I 
know that has been implemented properly. I asked for a review 
of that to see whether we should increase the percentage of 
people we are assisting, because other countries are also doing 
work there--the U.N. and other agencies.
    But I will get back to you as soon as the report is done on 
whether we should expand that.
    Ms. Kilpatrick. All right. And it is three years old, the 
initiative is, Plan Colombia now--Andean is too. I do not----
    Mr. Natsios. Right. They were----
    Ms. Kilpatrick. But you will see that we get something and 
we can correspond. And I can work with you and your staff.
    Mr. Natsios. There is an agriculture component, an 
infrastructure component and a justice component to it. But we 
will get back to you with a report.
    Mr. Kolbe. Might I also add, Ms. Kilpatrick, that we have 
hearing planned on April 10, specifically on Colombia on this 
subject?
    Mr. Kingston.

                                  NGOS

    Mr. Kingston. Here is my question to you. In terms of the 
NGOs and their involvement around the world, do you feel like 
we get enough credit from them for what the USA is doing?
    A little background on it is, you know, one of the great 
frustrations about Afghanistan is the tremendous amount of 
foreign assistance we gave them and are still giving them, yet 
neither Americans nor Afghans seem to know it, aside from 
people who are in this room. On our food aid, I am also on the 
Agriculture Subcommittee--you may know--we changed our labeling 
on food assistance--but do we get the credit that we need?
    I apologize for being late. It is possible you talked about 
this already.
    Mr. Natsios. I have not talked about it, Congressman. And 
this is a frustration that I have as well. It has been the 
subject of considerable discussion. In some countries it is not 
that important, but in other countries, in a politicized 
atmosphere it is very important.
    It is an instruction from the State Department and the 
White House that we need to make it very clear--and I might add 
from Chairman Karzai, who I have gotten to be friends with. I 
have met with him now several times in his office in Kabul. I 
was on his plane coming back to the United States and then we 
had a reception for him in my office. He keeps repeating, ``You 
know, I am helping the United States war on terrorism. But if 
you do not visibly produce assistance, even if you are doing it 
and no one knows it, it is not going to help me, because I am 
telling the Afghan people that the United States is going to 
help us rebuild. And if they cannot see visibly that the United 
States is doing, will look like what I promised is not going to 
happen.''
    So it is not just a function of us getting credit for our 
own sake, it is the interim government is at risk if we do not.
    So we have had a discussion about it and we are going 
through an effort to make it much more systematic that whenever 
we provide assistance to any institution, if they want to get 
the assistance--I have told them all this. I met with 300 of 
them and they did not argue with me. They understand the 
important of this; that the U.S. government's role will have to 
be very visible. There is a whole strategy we have laid out in 
the last month to ensure that.
    So it is a very good question, Congressman, and you are 
absolutely right.
    Mr. Kingston. Well, it is something that, I think, all of 
us on the committee and in Congress are sensitive to, because, 
I guess, we know, as members of Congress, that if you go off to 
Washington and you do great things for your district, unless 
you go back home and tell the people about, nobody else is 
going to tell your story for you. So we understand the paradox 
here: You do not want to be greedy and try to claim headlines, 
but there are those that are so wrapped up in the NGO-world, as 
they should be, their hearts in the right place, but do they 
have a tendency to think, ``What I am doing is more noble than 
simply grabbing credit for the folks back home.''
    And so, we do need to push this. And if there is something 
that I can do to help you, I will be glad to work with you or 
the capable Mr. Fox or whomever.

                        UN WORLD FOOD PROGRAMME

    How about the World Food Programme, in particular? Howare 
they doing, the U.N. World Food Programme?
    Mr. Natsios. The World Food Programme director, Catherine 
Bertini, is one of my best friends in the humanitarian world. 
She is just retiring. She is an American. She served in the 
first Bush administration as assistant secretary of 
agriculture. She is just retiring after 10 years.
    And a gentleman named Morris, whom I am meeting with for a 
second time today, has been approved and is about to take over. 
And he is very sensitive to Congress, and knows our system 
well, and is a very skilled administrator.
    Catherine has made dramatic improvements in the World Food 
Programme's management in the last decade. In my view, it is 
one of the best managed agencies in the U.N., as a result of 
her leadership, and some profound changes that have taken place 
the last decade.
    In terms of the assistance that we give them, a lot of 
their food comes from the United States--a huge percentage of 
their food. We made the decision in late October, when the war 
started in Afghanistan, to put the American flag and, in Dari 
and Pushtu, the two principle languages of Afghanistan, print 
``A gift of the people of the United States'' on the bags. And 
Agriculture agreed to put that on. I requested it, and they did 
it. Ann Veneman did it very quickly. And the food going in now 
has that printed on all the bags. So it is very clear where it 
is from, okay.
    And I told Catherine, ``If you want the food, that is the 
condition: It has got to have the American flag on it.'' And 
she said, ``Fine. There is no problem with WFP on it.'' And it 
has been distributed and everybody knows where the food is 
coming from, because it is very visible.
    Mr. Kingston. Well, I know that we have a lot of allies in 
the U.N. that I am sure would want to bend over backwards to 
make sure America was given full credit for anything America 
does. So I feel more comfortable now. I'm kidding, but you 
know, we are committed with you. We will do whatever we can.
    Let me ask you about a $100 million in aid to Pakistan. Do 
you feel that it is being accounted for? That is one of the 
questions that this committee asked Mr. Musharraf when we were 
over there. And, they told us all the right answers. But it is 
always good, when you are talking that kind of money, to hear 
it quite often.

                                Pakistan

    Mr. Natsios. There are two different questions. One is the 
budget transfer which took place. We were concerned about that, 
because there are histories in many countries. And so what 
happened basically is we used the American money, at the 
instruction of the State Department, to spend down their 
existing debt. The cash actually never went to Pakistan. It was 
used here to pay down debts they had, which freed up cash 
within the budget to spend on social services.
    Our job is to track that surplus money that is now being 
used to make sure it is being spent in those areas. And we are 
doing that. There is an accounting system in place, they were 
putting in place to do that.
    In terms of our own USAID bilateral program, that is a 
separate matter, a different system. That experience is over 40 
years, and we put in place a lot of systems to avoid problems--
there are a lot of horror stories from the past. Because of 
that, we put in place systems within USAID to ensure that does 
not happen.
    Are they always fail-safe? No, but most of the time they do 
catch things before they get out of control.
    And so this is a highly visible program, it is very 
important to the security of the United States. It is not just 
a do-good program; it is very important to the stability of 
Central Asia. And so we are putting heavy emphasis on 
accountability in that program with President Musharraf and his 
cabinet.
    The minister of finance for Pakistan was voted the best 
minister of finance of the developing world recently. He used 
to work for Citibank as their Asia vice president. He is a 
business man. He understands the consequences. And so he is an 
ally in this, and they are being very cooperative on this.
    We have not actually started spending our money yet. We are 
in the design phase. We are now advertising for a mission 
director. Teams have been going in to do assessments, but we 
are not actually spending money yet in Pakistan.
    Mr. Kingston. I have one more question, Mr. Chairman. It is 
a quicky.

                             AIDS in Africa

    Your statement says that 30 percent of the people in Africa 
or in some countries are affected by AIDS.
    Mr. Natsios. That is correct.
    Mr. Kingston. Do you have a number of that? It says in some 
countries more than 30 percent of the population is infected. 
Do you have a number for the continent or breakdown country-by-
country? Or could you send it to me?
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    Mr. Natsios. We will send you that. The general percentage 
for sub-Sahara Africa is 8 percent, but some countries like 
Botswana, which is the worst in the world, is 38 percent 
infection rate among adults. It is the worst. Which is tragic 
because Botswana is one of the best-lead, best-governed Third 
World countries in the whole world. For them to have to deal 
with this is a very great sadness I have to say.
    Mr. Kingston. Thank you.
    Mr. Kolbe. Thank you.
    I am going to go to Mr. Wicker, because he was here when we 
gaveled the hearing, and I know he has been shuttling between 
two subcommittees here. Mr. Wicker, and then we willgo to Mr. 
Jackson.
    Mr. Wicker. Thank you, Mr. Chairman.
    Let me just first follow-up on that last question by Mr. 
Kingston. We are going to move from 17 to 23 priority 
countries. And if your request is approved, we will be in 50 
countries on HIV/AIDS. We have been in it for a while now; 
where have we had some success on this issue, Mr. Natsios?
    Mr. Natsios. We have had success--I should not say we had 
success. The Ugandan government has provided enormous 
leadership--President Museveni, once again, in Uganda, and we 
have been helping him because he is providing leadership. You 
cannot make this work, unless the national leadership of a 
country is out in the front. Our job is to help them do their 
job. And President Museveni I think will be the first to tell 
you that we have been right behind him helping him with that.
    We have tested over the last decade, a series of 
interventions, some of which have not worked, some of which 
have worked very well. Quickly go through them.
    One is counseling teenage girls to delay first sexual 
contact which has a profound effect in infection rates, and has 
reduced infection rates among teenagers in the countries where 
we have done it by 50 percent.
    If we do testing and counseling--voluntary testing and 
counseling--to see where the people have the infection, it 
affects their behavior. There is a 50 percent increase in the 
number of people willing to go through that, if they get 
immediate results from the test rather than wait for results. 
So we have introduced a test package that gives immediate 
results to the tests right when they are in the office. And we 
found that when you do that, there is a dramatic increase in 
people's participation, and willingness to do that.
    The third is, there is a particular drug that is given once 
to a pregnant woman. It will reduce by more than 50 percent the 
infection rate at which the newborn child will get infected.
    Condom use is very important in this, and I have doubled 
the purchase of condoms from $250 million to $500 million this 
fiscal year, because we know there are many men or women who 
come home with a disease, and if you do not use condoms, they 
will infect their spouse.
    Mr. Wicker. Okay. I do not want to take all of my time on 
following up on a previous question. Let me just specifically 
ask you to submit in writing, as a follow-up to this question, 
in addition to Uganda, where there has been success. Even if it 
is and principally because there is national leadership, if you 
could be specific where our taxpayer efforts are doing well, 
and what lessons we might have learned from that, I would 
appreciate it.
    Let me move on to Afghanistan. The International Relations 
Committee is holding a hearing tomorrow and you are the star 
witness.
    Mr. Natsios. I look forward to that, Congressman.

                              Afghanistan

    Mr. Wicker. I understand there is legislation being 
prepared by that committee which amounts to detailed 
authorizing legislation on our assistance to Afghanistan and 
other front-line states. I also understand that the 
administration has not yet transmitted its supplemental 
request, nor published policy objectives on economic 
development in the core front-line states in the region.
    So let me ask you about those issues, and have you read the 
bill, and what are you going to tell the committee tomorrow 
that you would like for us to know a day ahead of time?
    Mr. Natsios. You may ask more questions if I tell you 
today.
    I am going to describe to you what the reconstruction 
program is. It is in writing. I will be glad to share with 
committee members who are interested a copy of the outline of 
the plan. We are now implementing it. We have obligated $67 
million of the $167 million that we were given in January for 
Afghan reconstruction. We are rapidly increasing the obligation 
rates. Obligation is the transfer of funds to institutions that 
will be doing the work for us.
    I could go through if you want me to the details of it, but 
you will get it in writing. It is based on food security, which 
means livelihoods, increase in family income, job creation, 
agricultural production, health care, because the health care 
indicators are horrendous in Afghanistan, and fourth in 
education. And we are printing textbooks that will be used in 
schools in two weeks: 4 million textbooks.
    Mr. Wicker. So it was reduced to writing very recently.
    Mr. Natsios. No, actually we had it probably a couple of 
months ago. It has been approved--see, we do not do anything 
ourselves without getting interagency approval. And that is a 
fairly long process sometimes, and so before I can release 
stuff, I have to get other agencies to buy off on what we are 
proposing, and we have done that now.
    Mr. Wicker. Well, if you could then comment on the other 
aspects of my question, the supplemental request and have you 
read the bill that the International Relations Committee is 
preparing?
    Mr. Natsios. I have been briefed on it. I have not read it. 
I am going to read it this evening in preparation for the 
hearing tomorrow. The supplemental budget--I just talked with 
Mitch Daniels--will be available in the near future. I 
mentioned several weeks' time period.
    I am pleased with what is in it. It does have money for the 
front-line states in the war against terrorism. We arepart of 
that bill, and I am very pleased how we are included but I cannot 
mention any numbers if I want to keep my job. So I will just leave it 
at that and let the president submit the bill to you, and you will see 
whether you agree with them.
    Mr. Wicker. I guess we will tune in tomorrow.
    Let me just ask you finally, with renewed violence in 
Afghanistan and the brutal murder of Danny Pearl, how safe is 
it for USAID staff and contractors to work in those countries? 
And how has the security situation affected your plans to 
mobilize mission programs in Afghanistan and Pakistan?
    Mr. Natsios. The security situation has always been 
unstable, even before September 9, I might add. Because as you 
remember, Taliban had kidnapped or arrested some people and was 
putting them on trial and that sort of thing. So this is not a 
stable area to work in. I have to just tell you. It is 
dangerous and it has deteriorated over the last few weeks apart 
from the current actions going on, which is a very, actually 
very circumscribed area, the American military action.
    The larger problem is insecurity in other areas of the 
country. The two things we are doing about it--I am not doing, 
the Pentagon is--is building, with Chairman Karzai and his 
government, a new national army which is what they desperately 
need to establish some national order and some stability. And 
the second thing is the Europeans have agreed to train a 
national police force to keep order in the streets in terms of 
street crime. You have got to have both those things in place 
for us to do a full reconstruction program.
    Right now, we are under constraints. Our staff in the USAID 
mission live in the AID mission because there are a number of 
Marine guards there who are quite well armed. I was there 
myself a few months ago, as I am sure you know. And you were 
there yourself.
    Mr. Wicker. Yes, the subcommittee was there also with Mr. 
Fox who was representing USAID.
    Mr. Natsios. I hope you did not have to sleep in my bed, 
Congressman. But I know how much of a problem security is 
because I get reports every day from our staff. We are being 
very careful, but there are serious constraints on us.
    Mr. Wicker. We have seen that also our workers in Pakistan 
would be in some danger.
    Mr. Natsios. They are not in the same kind of danger, 
because there is a national police force and a national army.
    Do we take precautions in Pakistan? Absolutely. It is not 
the same as Afghanistan though. Afghanistan is much more 
unstable.
    Mr. Kolbe. Mr. Jackson?
    Mr. Jackson. Thank you, Mr. Chairman.
    Welcome, Administrator Natsios, and thank you for your 
testimony.
    Under the rules of the committee, I have five minutes. So I 
am going to ask all of my questions. And also under the rules 
of the committee, you have an unlimited amount of time to 
answer them. [Laughter.]

                                 Africa

    First question: The president's budget reflects a $23 
million decrease in economic support funds for Africa. While 
there is an increase of $13 million in development assistance 
funds for Africa, there is still a net loss of $10 million for 
Africa. Furthermore, the decreasing ESF funds has a negative 
effect on the economic growth and democracy programs that are 
funded through flexible ESF resources.
    Aren't we in danger of neglecting the other aspects of 
development in Africa if we do not grow ESF resources on par 
with other accounts for Africa? My first question.
    The ESF budget cuts specifically eliminate the Education, 
Development and Democracy Fund, the South Africa Development 
Council Initiative, the Great Lakes Justice Initiative, and 
wipes out funds for Sierra Leone, a country going through 
fragile transition from civil war to peace and democracy. In 
fact, the budget commits only $32 million to ensure free and 
fair elections in Africa, bring peace to the Democratic 
Republic of the Congo and solidify democratic change in 
Nigeria. It commits only $31 million to help transition Sierra 
Leone, Eritrea, Ethiopia and Angola to more stable situations.
    Question number two: Do you think we can work together with 
State and try to restore some of the cuts back to Africa?
    Number three: The president's budget commits funds to 
combating global terrorism which is absolutely necessary for 
our country--from a standpoint of safety and security. I am 
wondering how much of the anti-terrorism bilateral assistance 
is going to Africa.

                         Global Health Accounts

    Fourthly, I am concerned with what the administration has 
proposed to this subcommittee regarding international health. 
The administration's budget cuts funding for TB, malaria, and 
child survival programs, all programs I believe Congress 
strongly supports, and wraps up the stand-alone child survival 
and health account created by my good friend from Alabama, 
Sonny Callahan, into development assistance accounts.
    It appears to me that the child survival and maternal 
health programs are cut from $435 million down to $415 million. 
Cuts to TB, malaria and all other infectious diseases funding 
is down nearly one-half, from $175 millionin fiscal year 2002 
to $110 million in fiscal year 2003.
    Lastly, Administrator, I think some of the increases we are 
making in our bilateral contributions for HIV/AIDS is a good 
first step. But it seems to me that we are simply robbing Peter 
to pay Paul. Could you explain to us why we are not growing all 
the global health accounts equally?
    Thank you, Mr. Chairman.
    And thank you, Administrator.

                             AFRICA ACCOUNT

    Mr. Natsios. Let me answer your first question. I am not 
sure that the budget is properly describing in a narrative form 
what is happening with the Africa account. We have a chart in 
your papers on what the development assistance account looks 
like for Africa. Secretary Powell and I decided even before I 
became the administrator, when I had been nominated, that we 
would press to have the Africa development assistance budget 
increased substantially. And we have succeeded in doing that, 
in terms of our proposal. Of course, I believe Congress will 
approve it.
    But there has been a 25 percent increase in assistance to 
Africa for development--the DA account, over a two-year period, 
from 2001 to 2003. It is up to $1 billion in our proposal for 
2003. And it has been leveled funded or even actually be cut 
over the last 10 years, through several administrations, I 
might add.
    So there is a substantial increase in that funding for 
Africa. Much of that will be--half of that increase will be in 
HIV/AIDS. The rest of it will be in education--in primary 
education, agriculture and trade capacity building. So it is a 
balanced strategy, in terms of what we are doing.
    I think the confusion may be over the ESF account. No money 
has been cut for Africa, okay? Certain programs are finishing. 
You know, you have three-year programs, two-year programs. When 
the program is finished, it is finished and we start new 
programs. I think that is what may be misleading in the text of 
what we have submitted.
    The ESF account has not been cut for Africa. It has been 
increased. Walter Kansteiner showed me that and I went over the 
budget figures.
    What has happened is, they have not allocated all of the 
money; some of the money is in the central pool, but it only 
can be spent in Africa. So economic development funds have not 
been cut for Africa, they have been increased, but they are in 
a pool. They have not been allocated by country yet. That is 
money controlled by the State Department; we spend it for them 
when they decide how they want to allocate it.
    The DA account has increased substantially. A 25 percent 
increase in two years is a--if you ask anybody who follows 
this, is a very, very big increase.
    Excuse me, I am told ESF has been cut. I apologize. I 
thought it had been increased. It has been cut by $23 million. 
Excuse me, I was wrong.
    But the account for the DA has been pretty substantially.
    The second question you asked was the terrorism account. I 
have not seen all the country breakdowns for the supplemental 
budget, but there is some for Africa. I just do not know how 
much broken down. You will see it as soon as the OMB submits 
it. But Africa has some front-line states in it, clearly. It is 
very important.
    In terms of international health, it is up $60 million, in 
terms of all international health spigots, which means 
infectious disease, micronutrients--a favorite program of 
mine--in terms of child survival, maternal health population, 
and HIV/AIDS.
    What I said earlier is this: There are number of things we 
do in HIV/AIDS which is also something we do in maternal health 
and in child survival. For example, a mother that has sexually 
transmitted disease that is pregnant has a very high risk of 
the kid dying when the child is born. The survival rate 
dramatically drops if the woman has STD when she is pregnant. 
So part of our child survival strategy is STD strategy. That is 
also part of our HIV strategy.
    So a lot of these programs in the field are actually 
integrated together and they have to be or they do not work. 
Our population programs have condom programs in them; that is 
part of our population programs, has been for 15 years. It is 
also part of our HIV/AIDS strategy. We are doubling the number 
of condoms from 250 million to 500 million in the central 
condom fund that we have set up with speedy disbursement. Is 
that a population program or is it an HIV/AIDS program? Has the 
same effect.
    The important factor I would point out here in all of these 
health accounts is the bottom line is up $60 million. And so 
there is $60 million more being spent on health programs than 
there were before. And I think that is a good message.
    Mr. Jackson. Administrator, if I could get some clarity, 
Mr. Chairman, on the first question, since the ESF question was 
still in front of us at the time. Mr. Natsios, if you could 
just give me some clarity on the question I raised about the 
on-par accounts, in terms of the cuts for Africa, in light of 
the fragile democracies that--in light of the information that 
you now have.
    Mr. Natsios. We will send you a breakdown of the increases 
that we put in from the DA account. What has happened here is, 
there has been a merging of development assistance and ESF 
during the 1990s for reasons that have to do with the cuts that 
were made in foreign assistance. We are trying to separate them 
now, and in many areas of the world we are taking ESF programs 
that were basically funded by the State Department; that money 
is being put in centralfunds and then we are taking DA money 
and putting it into those same programs. Programs are not being cut in 
many cases, they are simply being funded out of a different account.
    There are some new democracy and governance programs we are 
initiating in Africa. They are a little different, some of 
them, but they are democracy and governance programs that we 
think are critically important.
    I have to tell you that Connie Newman, who is the assistant 
administrator for Africa, sat on the board of one of the 
democracy NGOs. She has a heavy interest in this. And so, we 
are not going to cut democracy in Africa. It is going to be 
increased, as a matter of fact, in terms of the actual bottom 
line, all spigots.
    The net increase in Africa, DA and ESF, net increase is $90 
million. Okay? They cut ESF by $23 million, but they increased 
DA by $113 million, so the net is $90 million. So it is up.
    Mr. Kolbe. Thank you for clarifying that. I was going to 
say a moment ago, I do not think you were doing yourself any 
favors with your answer, because----
    [Laughter.]
    Mr. Kolbe [continuing]. Because you really just transferred 
accounts, you transferred funds and they are still there, they 
are just in DA instead of ESF at this point.
    We have just had the vote on the--we have a vote on the 
previous question. My guess is that they will voice the rules, 
so it will be just one vote. I am inclined--what is your 
druthers, Miss Lowey? We will stand in temporary recess, short 
recess for this one vote, because I am quite sure it will be 
just a single vote.
    Okay. All right. We will let Mr. Kingston get his vote--Mr. 
Knollenberg get his questions out of the way now, and then you 
can recess it. You can go ahead and come back.
    Mr. Knollenberg [presiding]. Thank you, Mr. Chairman. I 
appreciate that.

                           NAGORNO--KARABAKH

    Mr. Natsios, Nagorno-Karabakh, we, back some five years 
ago, appropriated about $20 million for assistance there. And I 
believe as of last year USAID had obligated some $15.8 million. 
Do you know what the status is of the remaining $4.2 million? 
Has it been obligated, or is it going to be obligated?
    Mr. Natsios. It has not yet been obligated, but we will get 
a full answer back to you, Congressman.
    Mr. Knollenberg. We would appreciate a full answer because 
apparently there is no money requested in the 2003 budget at 
all. And yet last year I know that there was this feeling, the 
agency's feeling that the work in Nagorno-Karabakh should not 
come to a halt.
    So if it is suggested that there is going to be more work 
done, it would seem to me that we ought to have an answer or as 
to when or what USAID has obligated so far.
    Mr. Natsios. We will get back to you.

                              WORLD TRADE

    Mr. Knollenberg. And what programs, obviously, that you are 
going to utilize that money for.
    Let me just go to trade and investment. I know you are a 
fellow who believes in free trade around the world, and we 
appreciate that very much. Mr. Kolbe, the chairman, obviously 
is very strongly involved, as I am. And the president has said 
that he wants to ignite a new era of global economic growth 
through a world trading system that is dramatically more open 
and more free.
    I could not agree with him more, because in my home state, 
there is some $51.6 billion of exports--that is the fourth 
highest of any state in the country--that goes to some 200 
foreign markets around the world, and many of those markets are 
developing countries. But I think in order to increase trade 
with these developing countries, we need to help them attract 
foreign investment, expand their own interests, and their own 
exports.
    I think I would like to get a better sense of where you 
think USAID can play a role in expanding trade, and there are a 
couple or three questions you can mull over here. One is: What 
role does USAID have in bringing developing countries into the 
WTO? Another is be: How do the microcredit programs fit into 
this concept? And how can USAID help reform commercial laws in 
developing countries? There are other questions, but how can we 
expand these efforts in these areas to bring about what you 
want to see?
    We would like to see, obviously, growing global trade.
    Mr. Natsios. Bob Zoellick, my friend and U.S. trade 
representative, came to see me when I became administrator, and 
after he took his office. And my staff said, ``No U.S. trade 
representative has ever been physically in the USAID building 
until he walked in,'' which was a, sort of, sad, sort of, 
commentary.
    And we have agreed to have an alliance. And when he visits 
the Third World, he asks to see the USAID staff, and he 
recognizes them for the work they do in trade capacity 
building. Because we are the principal agency in the federal 
government that does trade capacity building in the Third 
World.
    What does that mean, trade capacity building? Well, you can 
collapse barriers--trade barriers, in terms of tariffs, 
Congressman, but there are other kinds of barriers. The phyto-
sanitary codes that are used, because most of these countries' 
exports are primarily in the area of agriculture, and if they 
do not conform to our rules, which they should,in terms of 
health, they cannot export to us.
    I went to a mechanized farm--a very, very sophisticated 
farm in Egypt that employs 5,800 people with $1,600 a year 
salaries, which is very high for Egypt, and it was like being 
in California. But what they produce is not produced in the 
United States, and most of what they produce is exported to 
Europe; that is where their market is.
    And I said, ``Well, who did all this?'' And they said, 
``Well, you, AID, helped train us in what the rules were, not 
the American rules for hygiene, but the European Union rules.'' 
So we do the training in terms of the regulatory systems that 
they have to comply with in order to do exports.
    The second thing we do is we help them in terms of revising 
their commercial laws, in terms of copyright law. There is a 
whole set of codes that you have to adopt if you want to get 
into WTO. We help, one, design with them the laws; and then we 
help them, in the finance ministry and the trade ministries, to 
understand what that means in terms of implementation.
    So it is basically capacity building in terms of training 
and the design of statutes and regulations that will allow them 
to enter the global trading system. And we spend a lot of money 
on this. We have spent a lot of time. And I have to tell you, 
it is a very successful program in terms of the--you can see 
the increases in trade once the countries go through this 
training program.

                         MICRO CREDIT PROGRAMS

    Mr. Knollenberg. It is a very small amount, but what about 
the micro-credit? I do not know if you touched on that or not. 
But is that anything that could be a factor here of any kind?
    Mr. Natsios. The micro-credit programs really are not for 
export markets. There may be some, but it is a $150 million 
program, it is a large program, but the size of these programs 
is not large enough in terms of production to really provide 
for export markets. Most of the micro-enterprise programs are 
for domestic consumption.
    Mr. Knollenberg. Just certain sectors that we might be more 
successful in within those developing countries, certain 
sectors of that developing country that we might be able to 
promote?
    Mr. Natsios. In terms of micro-credit or in terms of trade 
generally?
    Mr. Knollenberg. No, just trade generally, not micro-
credit, just trade.
    Mr. Natsios. Yes, it depends on the physical, believe it or 
not, the physical location of the country. What we will do is 
an analysis with them what their climatic conditions are. Egypt 
has two months out of the year where they can produce things 
that no one else can produce for export to Europe, so they have 
no competition. It is in strawberries and a couple of other 
areas.
    Mr. Knollenberg. So the geography plays a pretty important 
part there.
    Mr. Natsios. Yes, it does. Yes.
    Mr. Knollenberg. All right. Well, I thank you for that. I 
appreciate your responding.
    We have to vote. So we will recess for a few moments. We 
will be back. Thank you.
    [Recess.]

                           HEALTH CARE ISSUES

    Mr. Kolbe [presiding]. The subcommittee will resume.
    And we will keep track of time, because Ms. Lowey is on her 
way back here. I will do a set of questions here. Mr. Lewis is 
on his way, as well.
    I want to ask a couple of questions about health care 
issues here. I think it is safe to say that in the front-line 
states--which, by the way, that is just a curious thing. Really 
not a question, but just, kind of, a comment. We seem to 
undergo a constant redefinition of what front-line states are. 
Maybe I should ask, do we have this week's current definition 
of what front-line states?
    Mr. Natsios. Congressman, we are given the list, we do not 
make it up.
    Mr. Kolbe. Okay. So State decides the front line.
    Mr. Natsios. Yes, State decides that. I do not decide it. I 
just memorize it. [Laughter.]
    Mr. Kolbe. I think it is safe to say, what I understand to 
be the current list of front-line states, AIDS is not a major 
problem in most of those, but in countries like Afghanistan and 
Pakistan and Central Asia, tuberculosis and malaria are huge 
problems and they are growing and they are resurgent there. And 
it is going to require additional USAID resources, perhaps more 
than HIV/AIDS.
    So my question really is, why does the budget proposal 
suggest reducing resources for TB and malaria, while calling 
for unprecedented increases for HIV/AIDS when we are focusing 
on the front-line states?
    Mr. Natsios. The first thing I would say, Mr. Chairman, is 
the accounts out of which we deal with those issues is not the 
health account, either in the supplemental or in this budget. 
We have $140 million reserved between State and AID for 
reconstruction of Afghanistan in 2003. It is in the existing 
budget. It is not labeled Afghanistan. It comes from OFDA's 
budget, OTI's budget, there is some D&G money, Democracy and 
Governance, and there is food aid.
    A lot of the money that OFDA spends in emergencies in cash 
grants is for medical care and it deals with malaria--we do a 
lot of stuff in malaria within OFDA's budget--and tuberculosis, 
because if you are in a famine and a kid is acutely 
malnourished and they get malaria, 50 percent of themdie. I 
mean, the death rate among kids with malaria is extremely high under 5 
if they are acutely malnourished.
    And so, we have programs that deal with infectious disease, 
but they are not labeled in the health account. They are in the 
OFDA account. And there are specific NGOs that just do health-
related work in emergencies, like the International Medical 
Corps, for example, out of Los Angeles.
    And so, the amount that we have reserved in the budget for 
2003, is about $100 million in AID's budget for the 
reconstruction of Afghanistan. It is in the International 
Disaster Assistance account, food aid, Transition Initiatives, 
Development Assistance and the Economic Support Fund.
    In terms of the Central Asian countries, which are 
Uzbekistan, Tajikistan, Kyrgyzstan, Turkmenistan, and 
Kazakhstan there are a number of health programs. But, once 
again, as you know, the DA account is not, in any form--either 
DA or child survival, those accounts are not used to fund 
things in the former Soviet states; that will be in the Freedom 
Support Act account.
    And I do not want to describe the supplemental, because I 
will get into trouble on it. But there is a health care 
component of our program in Central Asia, let me just put it to 
you that way. But it is not reflected in the budget. How is 
that, before I get into trouble?
    Mr. Kolbe. Let me follow this up with just a more general 
question about the health care part of the budget. I do not 
know what we are going to do, how Congress is going to react in 
what is going to be a very difficult budget year. Congressman 
Lewis is getting it all. [Laughter.]
    And it is going to be tough at this end.
    I am sure we are not going to get an allocation that is 
greater than the president's request. I suspect that is the 
case.
    If Congress fully funds the HIV/AIDS request that the 
president has made, it is going to have to be something reduced 
somewhere else: economic growth, agriculture, trade. That 
happens, the advocates of trade promotion, basic education, 
microcredit, all of which are represented before this 
committee, are going to face some tough choices. And your 
desire to increase agricultural programs, which I also think--
do not disagree with, is probably going to get challenged. Do 
you disagree with that?
    Mr. Natsios. I did not quite hear the first part of the 
question.
    Mr. Kolbe. Well, the question is, if we go complete full 
funding of what there is a huge amount of public pressure now 
to do, which is funding in HIV/AIDS and who knows how much for 
the global fund and, you know, TB, in those areas, the other 
kinds of things in agriculture, trade promotion are going to 
likely suffer. Do you disagree?
    Mr. Natsios. Well, I hope that does not happen, but I am 
aware of the pressures, Congressman. It is very clear those 
pressures exist. Having been a former legislator, I know people 
get mail and there are editorials written and all that.
    But the reality is, the thing I would like to say before 
the committee is, these issues are not separate from each 
other. The onset of AIDS itself is accelerated when people are 
acutely malnourished. The disease can be in a person for a long 
time before it manifests itself in terms of AIDS symptoms. If a 
person is acutely malnourished that can speed up that process. 
So agricultural programs, as well as trade programs, by 
increasing people's income, if their health improves generally, 
the onset of AIDS will be slowed down.
    These programs cannot be separated from each other. And I 
think sometimes one of the things that all of us are concerned 
about, I know you are concerned about, the people who 
understand this, is that we get into the situation where there 
are national issues that have a lot of currency and the other 
things that do not have editorials behind them all the time get 
shortchanged.
    We have tried to balance that out here. I think we have 
succeed in it. But I recognize the pressures are on, and I do 
not know what else I can say.
    Mr. Kolbe. Well, we are likely to have above-the-line, 
above-the-request amounts in those areas of tuberculosis, 
malaria, HIV/AIDS, even probably in basic education. It is 
going to mean something else, other economic assistance stuff 
is going to suffer along the way. I am just, kind of, putting 
it up as a flag as we try to think about how we are going to 
work our way through this.
    Let me ask you another question on HIV, of the global fund. 
It is really not clear to me how we are going to coordinate our 
bilateral efforts with this brand new--what has the potential 
for being a very large fund, the global fund for HIV/AIDS, 
tuberculosis and malaria. How are we going to coordinate this? 
Do you see USAID filling in the gaps behind global fund or vice 
versa, the global fund going to fill in the gaps behind what we 
are already doing in other countries and doing it bilaterally? 
And how do you expect to coordinate this?
    Mr. Natsios. Well, we had a little bit of discussion about 
this very issue in USAID. And the decision was made for us to 
take leadership quietly in the setting up of the fund staff; 
several USAID staffers have been seconded to the fund 
administratively to run it at the beginning. Two, we have 
provided the funding for the initial administrative costs of 
the fund, the central costs. The way in which the system will 
work was actually designed by a lot of USAID staff. Andso, we 
know exactly how the systems work because we help designed them.
    And we are also setting up systems in the developing world 
to help generate the proposals that the fund will fund. So a 
lot of the proposals which are going to the fund are being 
written by ministries of health with our help. And so, we 
obviously know what our program is, because our staff is 
running them, but the same staff are helping many ministries of 
health comply with the regulations, which we also helped write, 
the fund levels. So it is being coordinated simply by having 
the same staff doing the fund stuff centrally, the fund stuff 
in the countries, and our own bilateral program. That is how we 
are coordinating it.
    I should never have said this publicly, but that is one way 
of ensuring it. It is the same people doing all three things.
    Mr. Kolbe. Mr. Lewis, we will call on you.
    Mr. Lewis. Thank you.
    Mr. Kolbe. Jerry, how much of a rush are you in? She does 
have----
    Mr. Lewis. Well, I certainly am not going to stand in front 
of the gentlelady who is very important--as long as it is not a 
political meeting that you are going to. [Laughter.]
    If it is not a political meeting, then I will be glad to 
yield.
    Mrs. Lowey. Two quick questions, with two short answers. 
Thank you, again.

                     INTERNATIONAL FAMILY PLANNING

    First of all, we talked briefly before about international 
family planning. Unfortunately, your budget justifications 
indicate that you are only requesting a total of $425 million 
on international family planning in fiscal year 2003--a cut of 
$21.5 million from the fiscal year 2002 level--and that ESF 
countries will be cut from $53 million to $36 million, and NIS 
countries will be cut from $25 million to $20 million. In what 
specific countries will these reductions be taken? And why is 
AID retreating from this area where the needs are so vast?
    Maybe I should get the other question in quickly and then 
you can respond in the balance of time. And this was regarding 
the supplemental.
    We have been expecting the submission of the fiscal year 
2002 supplemental on March 18. There is a rumor that the 
submission of the supplemental will be delayed by OMB because 
of offsets for the domestic homeland security funds that are 
being sought. Have you been asked by OMB to find offsets to pay 
for new international funding programs?
    Because I do not want to hold up our distinguished chairman 
all the way at the end. If you can divide your time between 
those. Or if you do not use up all the time, I am sure our 
chairman will be delighted.
    Mr. Natsios. The answer to your second question is no.
    Mrs. Lowey. Okay.
    Mr. Natsios. The staff would come in and tell me 
instantly--yes, that is the shortest answer I will give today. 
We were not asked for any offsets. And I would know about that 
very quickly if they did, believe me.
    Mrs. Lowey. Okay.
    Mr. Natsios. The answer to your first is, I do not want to 
keep coming back to the fact that many of these programs can be 
titled Pop, they can be titled child survival, or they can be 
titled HIV/AIDS. It is the same program. Condoms are a 
principle part of our population programs. We are doubling 
condom purchase--I am doing it and I am pretty conservative. As 
you know, Congresswoman, I doubled it from $250 million to $500 
million in this fiscal year. We are going to increase it even 
more in the future years.
    Is that a population program or is it an HIV/AIDS program? 
The way in which we distribute this, frankly, is through the 
same mechanisms that we do the population program. We do it 
through the ministries of health. We do it through NGOs. We do 
it through contractors.
    So my bottom line was, when I looked at the budget at the 
bottom I said, ``I do not want to cut the health accounts.'' 
Okay? We may cut one subsidiary. I know many people in Congress 
are--and NGOs come in here and say, ``Well, change this from 
$1.75 million in this subsidiary of a subsidiary of a 
subsidiary and increase it by $250,000.'' The reality is in the 
field, that is not how it works. It works in an integrated 
fashion in sectors.
    If the whole health account were cut, I would be sweating 
right now. But it is not being cut. It is being increased by 
$60 million. And that does not include, by the way, the money 
we are sending to the trust fund. That is separate from the 
trust fund.
    Mrs. Lowey. Is that finished? Okay. I will just submit a 
question then to you and we can get additional replies on this 
issue, because I do not want to hold up my distinguished 
colleague.
    Thank you for your graciousness.
    Mr. Lewis. I appreciate that.
    Thank you very much, Mr. Chairman. And to the gentlelady, I 
appreciate that.
    Mr. Natsios, sometimes one of the better experiences we can 
have is to have people who have been elected to public office 
come and be witnesses, for you understand the variety and mix 
of the pressures we find ourselves under. I wish I could have 
been here for the medical portions of this discussion and I 
know that we will have other opportunities.

                                 BUDGET

    I was heard to say in the past, however, to the Secretary 
of State, former chief of staff in my other department, that it 
is amazing for me to see our budget pushing at $350 billion-
plus, and he was on his knees here for $15 billion or something 
like that. When, indeed, the role of the United States in the 
world fits many a pattern, but it certainly is not related.
    Having said that, if I were putting labels on some of your 
own programs and they all come through the same process, I 
would put as big a label on child survival as possible because 
that has a lot of currency around here in terms of the sizzle. 
And that is purely a political comment, but probably helpful, 
hopefully. From there, you do give--Mr. Chairman, let me say 
this to you, if I could.
    Mr. Chairman. Let me say this to you. I am very 
disconcerted by the prospects of this budget over time and if, 
indeed, my voice would be helpful to you in the budget 
process--one that I scratch my head about continually--I would 
be very happy to participate. For we have got to have more 
money in this whole program--all of these programs----
    Mr. Kolbe. I appreciate very much what you are saying and I 
think your voice probably carries more weight than mine with 
the big chairman.
    Mr. Lewis. I doubt that.
    Mr. Kolbe. And so when it comes time for the allocations, 
it would be helpful if you would speak up.
    Mr. Natsios. Your comments warm our hearts, collectively, 
Congressman.
    Mr. Lewis. Well, the other committee does take a lot of 
time, but this is a very important one.
    Mr. Natsios. And it does protect our soldiers. Having been 
on the other side, Congressman, I can tell you that.
    Mr. Lewis. I was going to suggest, relative to medical 
accounts, that we ought to be talking with the Secretary of 
State about this one specific account that is going to cost a 
lot of money and it can put pressure on the programs that are 
very, very important, if there is a way we can structure a 
separate flow, that addresses the role we are going to play 
without impacting the rest of your budget.
    I would be happy to talk to the Secretary of State about 
that, but I think you and I ought to talk about it as well, Mr. 
Chairman.
    Now, from there, within your budget, you do have a 
significant increase in agriculture account funding and I would 
like to hear what you have to say about the importance of those 
adjustments and why you give them priority.
    Mr. Natsios. I am a very practical person. I want to know 
what works and also I was trained in history as a student, and 
I want to know what the past shows us. We have been doing this 
for 55 years now, since World War II when the Marshal Plan 
started.

                              AGRICULTURE

    All of the examples--all of the examples, except for 
three--and I will mention the three exceptions--of countries 
that have been very poor, that have made it into middle-income 
status or become First World nations have first developed 
agricultural surpluses, which they have either consumed 
themselves or exported. What are those countries? South Korea, 
even Japan, during the occupation, Taiwan, Thailand, Greece, 
Turkey, Malaysia--I can go through a whole list. The 
Philippines are showing that now. Indonesia did. I know it has 
problems now, but Indonesia began its industrialization after 
it built up its agricultural sector.
    The only three exceptions to the rule are Hong Kong, 
Singapore and Mauritius--the Mauritius Islands. Why? Because, 
you know, it is like saying Saudi Arabia is going to be an 
agricultural country. Other than herding, you do not plant 
crops in the middle of a desert. So Singapore and Hong Kong are 
not going to be agricultural countries because they are not 
countries. They are city states.
    All of the other countries that are doing well, and there 
are--Costa Rica; I go through the whole list--all of them 
started with agriculture.
    Now, we should learn something from that, which is 
agriculture is the prelude to taking off economically. You can 
go through the countries in Africa that are doing well now: 
Mozambique, Ghana. Ghana went from 1990, $150 million in 
agricultural exports to $400 million 10 years later. We helped 
do that. Ghana is one of the best African countries right now 
in terms of the progress they are making. That is first.
    Second, you cannot reduce poverty if most of the poverty--
or three-quarters of it is in rural areas. What do people do in 
rural areas? They herd animals and they grow crops, and that is 
it. Or they live on something that is related to it, like they 
treat animal skins to make them into leather.
    And so if you want to build the rural economy to stop 
migration to cities, to reduce the level of poverty, to 
increase the living standards, it has got to be done through 
agriculture.
    If you have child survival projects and you keep kids alive 
until they are 5 years old--which is what we do in our program, 
very successfully, we have dropped those rates--you know what 
happens after 5? They become malnourished, because the parents 
are still so poor they cannot provide for them.
    We should look at the countries we have child survival 
programs for older kids to see what the malnutrition rates are. 
They have been disturbingly high.
    The biggest problem we are facing right now is Africa--sub-
Saharan Africa, rural Central America, because ofthe drought 
and coffee crop collapse, and in Central Asia, on the subcontinent. 
Those are the three areas we are focused on.
    So agriculture is essential to this, essential.
    Mr. Lewis. I very much appreciate that response. For the 
first country, could start with America.
    Mr. Natsios. That is right.
    Mr. Lewis. But indeed, I have felt for many, many years it 
is very difficult to talk to developing countries about 
democracy and freedom and peace, and indeed terrorism, if their 
children go to bed with their stomach hurting every night.
    Mr. Chairman, I am sorry that I was so delayed.
    Mr. Kolbe. This is the second round. Please go ahead if you 
have another question or two.
    Mr. Lewis. Well, I do have other questions.
    You are also seeking significant funding in the democracy 
and government conflict account: $119 million to $199 million. 
Give me what your outline of justification is for this 
increase.

                               CORRUPTION

    Mr. Natsios. The first comment I would make is that we know 
that countries that are succeeding are dealing with the problem 
of corruption. And there are different degrees of it. There are 
lots of humorous stories told. There is corruption in many 
countries, but there is now an institution in Germany, a 
worldwide NGO, Transparency International it is called. I met 
with the secretary general of it; we are a big supporter of 
that group.
    And we know that countries that take off economically 
constrain the level of corruption. So we have a new initiative 
in Africa, a new initiative in Eastern Europe, a new initiative 
in the former Soviet states to just say to governments, "If you 
want our help, you are going to have to do something about this 
corruption problem, because we are really not going to be very 
successful unless you do." So that is one of our new 
initiatives in that account.
    Mr. Lewis. How many accounts over the years--I am not 
looking for an answer here--but how many accounts in government 
agencies, organizations over the years have we delivered money 
for poor people and the money goes into somebody's bank 
account? I mean, there is little question that that kind of 
oversight should have priority. I am really appreciative of 
that.
    I used to chair a subcommittee dealing with housing, and we 
found we were sending housing money to any number of agencies 
around the country and no new housing got built. Gee whiz, I 
wonder what is going on. These messages need to be delivered in 
very clear terms, so I appreciate that.
    Mr. Chairman, I will not ask my list of questions about 
India, because you know I dwell on that all the time. We will 
do that at another time, and I appreciate very much your being 
with us.
    Mr. Natsios. Thank you, Congressman, because I know your 
committee actually had the money in your appropriation bill of 
$50 million that was added in--sort of, the last minute, which 
is the best way--for Afghanistan reconstruction. It made a huge 
difference to us. And I have to tell you, it does affect the 
security of our troops to have a robust, visible AID 
reconstruction program where we have troops in place.
    Mr. Lewis. Well, I must say the department was very 
responsive to those of us who expressed early concern as we 
went about this war on terrorism that it not be a war against 
Muslims, that we communicate to poor people who are trying to 
survive that we are going to be responsible to the stress they 
will be under, et cetera. I mean, that responsiveness was very 
helpful in the early stages, I think.
    Mr. Natsios. Wise advice, Congressman.
    Mr. Lewis. Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you very much, Mr. Lewis.
    In response to his questions about agriculture, you spent a 
great deal of time in your opening statement talking about it 
in response to his questions. But we did a lot more, USAID did 
a lot more on agriculture until about 12 years or so ago. Did 
we stop because the programs were not working or we had 
succeeded in this first tier of front-line states of making 
them into successful in what you described? Now we are going 
back to it.
    Mr. Natsios. Two comments. The first is, the most 
spectacular success of USAID, in its 40-year history, was in 
agriculture, in the 1960s and 1970s, in what is called the 
green revolution in Asia. The green revolution was created 
basically by the Consultative Group on Agricultural Research, a 
subsidiary of the World Bank we have been funding for 35 years 
to do research. It was the World Bank itself, it was the 
Rockefeller Foundation, it was USAID, even before there were 
other aid agencies.
    Asia would be starving now without the green revolution, 
and that was an AID agriculture program, and it helped create 
the conditions for the takeoff of those economies. So it was 
very successful.
    We tried to take the Asia model and apply it to other areas 
of the world, like Africa. It does not work everywhere the same 
way. We learned one very important thing painfully. If the 
right policy framework is not in place, macro-economically, if 
the prices are distorted, if you have central socialist control 
of agricultural prices, control of seed, control of fertilizer, 
if you do not have trade capacity building to export, if you do 
not have the infrastructure in the rural areas to move 
surpluses around,the agriculture systems will fail.
    In those countries where we were sensitive to those issues, 
the programs in the 1980s did work, but in many countries we 
did not do the policy work we have to do.
    So basically I am telling heads of state, ``You want our 
help in agriculture, we will give it to you. There is a 
condition, however. The policy framework is not in place, it is 
a waste of time. All of the literature shows that. All of our 
studies show it. And all our agricultural economists saying do 
not waste your time.''
    Go to the countries like Mozambique, 14 percent growth rate 
last year. The worst civil war in African history, 2 million 
people died. Mass starvation--I was there when it was 
happening--believe me it was horrible. Fourteen percent growth 
rate last year.
    Mr. Kolbe. Yes, we are going to be in Mozambique next 
month. Thank you for that comment. We ought to give some credit 
to the Rockefeller Foundation too which was so instrumental in 
bringing about the green revolution.
    Mr. Lewis. Mr. Chairman, Mr. Natsios' priority here is 
really a positive reflection of looking at the world that has 
worked. And I think we ought to encourage it as much as we can.
    Mr. Kolbe. Well, I certainly agree with that.
    Mr. Natsios, you have an interesting comment, statement in 
your prepared testimony about, and I am quoting a quote, a 
third category of countries where there is little we can do 
until the governments change their policies and practices. 
Until then our programs within will be limited to emergency, 
humanitarian or transition assistance, unquote.
    That is an interesting--it would be a very candid admission 
if we had a list of them attached to it. [Laughter.]
    Mr. Natsios. And this would be my last hearing, Mr. 
Chairman, if I did that.
    Mr. Kolbe. Well, you know it does not do much good to say 
that if we are not willing to say what those countries are. I 
have got some candidate countries for it. And I will be happy 
to identify a few of them here. But I am wondering if you would 
identify with the kind of country you think falls into that and 
how is our assistance program changing once you have 
categorized those places where there is very little that we can 
do?
    Mr. Natsios. Well, I can think of one right now that is in 
the news, and that is Zimbabwe.
    Mr. Kolbe. Zimbabwe?
    Mr. Natsios. It is a functional country. Ninety-two percent 
literacy.
    Mr. Kolbe. Haiti is certainly another one that is 
dysfunctional.
    Mr. Natsios. Haiti is another one, and it is sad to see it.
    Haiti has been poor. Zimbabwe was a prosperous country with 
one of the highest literacy rates in the developing world, and 
what Mugabe has done to this country is in my view appalling, 
including the outrageous destruction of the election system 
that just took place. But that is a State Department question, 
but it is frustrating. We have a USAID mission there, none of 
our stuff goes through Zimbabwean government. We have been 
working through NGOs, we have been looking through civil 
society supporting people who are trying to keep alive 
democracy in that country.

                                COLOMBIA

    Mr. Kolbe. Let me ask you about Colombia. In fiscal year 
2002, AID is planning to spend about $105 million in Colombian, 
of which $57 million is for alternative development; it is part 
of the Andean counter-drug initiative. And the request in 
fiscal year 2003 is for $151 million.
    We are reorienting, I believe, our development assistance 
there because we have--it is failed in its initial 
configuration to where--what we had for Plan Colombia. Have you 
identified why our development assistance, as part of Plan 
Colombia, did not work, why it did not work?
    Mr. Natsios. There are two reasons why it did not work, Mr. 
Chairman. The first reason is that we are not allowed----
    Mr. Kolbe. Let me just--if I might just follow it up with 
this, so that you could work your answer to this. To the second 
question, what is going to be different about our new approach 
in Colombia? Do you think it is going to be more successful 
this time?
    Mr. Natsios. The answer to your first question is why it 
did not work. The first reason is that spraying is an essential 
part of this. The government does the spraying; the government 
decided not to do the spraying. We can not do alternate 
agriculture under those circumstances--it does not work. You 
have got to do both, okay. And we are not in control of that 
agenda; the Colombian government is. We have talked with them.
    I am being very candid now. I am telling you like it is, 
Mr. Chairman.
    Second is the insecurity.
    Mr. Kolbe. Let me clarify that. Are you saying no spraying 
is going on?
    Mr. Natsios. Very little spraying.
    Mr. Kolbe. Very little?
    Mr. Natsios. Maybe I should not have said that, but it is 
true.
    The second reason it failed is--and it is failing, it is 
not working. We are having to revise the strategy because these 
alternate agriculture strategy and the strategy we havebeen 
pursuing has not been successful.
    Well, why hasn't it been successful? It is not because the 
money is being stolen: The money is actually being well-spent 
where we can spend it. The insecurity is so severe now in many 
areas that we simply cannot work without having our staff 
kidnapped or shot, or the farmers shot, for that matter, who 
are working with us. And we cannot put our people in that 
situation; we just cannot do it.
    The NGOs that we are working with, local Colombian NGOs in 
some areas to do this work, they cannot work in these areas, 
because the killing has gotten so bad.
    So there has to be some degree of government control of the 
situation on the ground for an alternate development program to 
work as crop substitutions for drugs. We did it successfully in 
Peru, we did it successfully in Bolivia, and the condition was 
the military or the police had to have control over it.
    Mr. Kolbe. So what has changed? What is going to be 
different now?
    Mr. Natsios. There are discussions going on about things I 
do not have control over, about the security situation. I do 
not want to discuss them here. It is not appropriate.
    We are looking at whether or not some of the infrastructure 
projects could be moved into areas that are secure and maybe 
draw people into those areas from the areas that they are in 
now that are insecure where drugs are being produced.
    So it may involve, frankly, a strategy of drawing people 
out of the insecure areas where we cannot do work into areas 
where we can that are secure, that will remain secure.
    Mr. Kolbe. Well, that does not really--is not a terribly 
satisfactory answer. But we have a hearing scheduled for April 
10, as you know, dealing specifically with Plan Colombia----
    Mr. Natsios. There is a lot of work done on that now.
    Mr. Kolbe. We will need to get a lot more answers to that.
    Mr. Lewis?
    Mr. Lewis. Could I follow up on that and not talk about 
Colombia, but that there are other parts of the world that have 
serious potential drug resource difficulties for us? Do we 
have, and is AID involved in any kind of program relative to 
Afghanistan's potential problem with producing drugs?
    Mr. Natsios. It is a huge problem. 70 percent of the heroin 
produced in the world is from Afghanistan. Ten years ago in 
Iran and Pakistan, there were about 30,000 to 50,000 addicts. 
There are 3 million now in Pakistan, and 2.5 million in Iran. 
And I am told by Chairman Karzai--I thought there were not many 
in Afghanistan. He said, ``What are you talking about? There 
are whole areas where people are hooked on heroin.''
    It is one of the most severe problems for the region. 
Forget the people who are getting the export of the heroin in 
Europe.
    Mr. Lewis. Because if we are talking about Plan Colombia, 
for goodness' sakes, if that is the case, what are we going to 
be doing about it?
    Mr. Natsios. We are designing an alternate agriculture 
program as we speak, taking the lessons we learned in other 
areas into account. And as we--our staff believes we can have 
some success because of market conditions and because of the 
security situation. I will not go into any more depth than 
that. But we are more optimistic there than we are in Colombia 
in terms of potential success.
    Mr. Lewis. Would you make a note to somebody that I would 
like to know a good deal about that in depth?
    Mr. Natsios. Yes.
    Mr. Kolbe. Mr. Lewis, thank you very much.
    I have a couple of other questions I will submit for the 
record, trying to clarify more specifically where we are on the 
reorganization of the agency. And it seems as fast as we change 
our accounts then you----
    Mr. Natsios. It is OMB increasing our accounts, Mr. 
Chairman.
    I hope that will not be in the record. [Laughter.]
    Mr. Kolbe. Don't we wish?

                             REORGANIZATION

    I was going to say, as fast as we change our accounts to 
conform to the kinds of things you are doing in reorganization, 
then OMB changes their accounting by eliminating the childhood 
disease fund--child survival and health fund, so it is hard to 
keep up with all that. But I will have some questions that I 
want to submit for the record on that.
    I want to just end the hearing by really taking a moment to 
commend you for the terrific team that you have put together of 
experienced managers that are working with you at USAID. 
Assistant administrators--some of these I have known for some 
times, like such as Constance Newman, who has an extraordinary 
reputation for being one of the nation's top public servants 
over a number of decades, and particularly as undersecretary of 
the Smithsonian and director of the U.S. Office of Personnel 
Management, which is where I knew her in a previous 
incarnation. She has a long history of service to Africa, and 
serves with me on the board of the International Republican 
Institute. So I know something of her work there.
    Adolfo Franco is with us here today. He is the assistant 
administrator for Latin American and the Caribbean. Also has a 
number of years of distinguished service at the Inter-American 
Foundation. And I have gotten to know him verywell in his role 
with the International Relations Committee here.
    Then there are those that I have come to know more recently 
in their capacity with us as chairman of the subcommittee: Dr. 
M. Peterson, the assistant administrator for global health, who 
has done a terrific job, I think, as Virginia's commissioner of 
health and spent a number of years in sub-Saharan Africa.
    Roger Winter, for humanitarian assistance; effective 
advocate for refugees for two decades as executive director of 
the U.S. Committee for Refugees.
    Laurie Foreman, who is--now we call it the front-line 
bureau for Asia and the Near East. Of course, she directed the 
Nature Conservancy's Japan program after serving more than five 
years prior to 1990 in the bureau she now heads. I know that 
she has taken a leave for a critical family emergency, and we 
are looking forward to having her back and working with her in 
the near future.
    John Marshall, who is your newest person for management, 
spent a number of years in the private sector as IBM's 
government consulting--with IBM's government consulting 
organization. So he knows what transformation is.
    And last, but certainly not least, let me mention your 
assistant administrator for legislative affairs, Ed Fox, with 
whom I have had the privilege of traveling to Uzbekistan and 
the other 'stans, and is an old hand with congressional 
interaction and the executive branch.
    So I commend you for what you have done in assembling this 
team. And I would just say, with that collection of talent and 
experience, I hope we are going to resolve the USAID's 
management deficiencies very quickly here and we are going to 
get the agency on the track that I know that you want to see it 
on.
    Thank you very much.
    Mr. Lewis, do you have anything further?
    Mr. Natsios, with that, other questions will be submitted 
for the record. And we thank you very much for appearing today.
    The subcommittee is adjourned.
    Mr. Natsios. Thank you very much, Mr. Chairman.
    [Questions and answers for the record follow:]

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                                          Thursday, April 18, 2002.

                  ASSISTANCE FOR THE FRONT-LINE STATES

                                WITNESS

RICHARD L. ARMITAGE, DEPUTY SECRETARY OF STATE

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe. Good morning. The Subcommittee on Foreign 
Operations will come to order. Secretary Armitage, we are very 
happy to have you here with us today to talk about the 
President's request for fiscal year 2002 emergency supplemental 
funds for the programs that are under the jurisdiction of this 
subcommittee, as well as to talk about the fiscal year 2003 
request for assistance to the frontline states. So our hearing 
this morning is on those two topics, both supplemental and the 
frontline states in the 2003 budget.
    It has been just over 7 months since the attacks against 
the World Trade Center in New York and the Pentagon here in 
Washington. Congress has already provided $40 billion to the 
President in response to those events, and we are now preparing 
to respond to a second major request that totals $27.1 billion 
to support the war on terrorism and provide money for homeland 
security and economic revitalization. But this request includes 
$1.279 billion for an international affairs program that comes 
under the jurisdiction of this subcommittee.
    In addition, the fiscal year 2003 budget request includes 
increased assistance to many of our allies who are with us in 
this war against terrorism. While much of the focus of this 
hearing is going to be on the supplemental request, we need to 
remember that the fiscal year 2003 budget that we will be 
addressing next month also contains considerable funding for 
the same purpose, and it is advisable for us to consider this 
all together here today.
    On March 11th, the President marked the 6-month anniversary 
of the September 11th terrorist attacks in a speech that 
included the following comment. Quote: We face an enemy of 
ruthless ambition, unconstrained by law or morality. Against 
such an enemy there is no immunity and there can be no 
neutrality. Unquote.
    I agree with those remarks of the President and I agree 
that this war against terrorism is not finished, and no one can 
say for certain that the terrorists will not attempt to strike 
again here in the United States someplace. We cannot act alone 
in this effort. That is why the request for the international 
affairs program is just as important in its own way as the much 
larger part of this request that the President has made for 
defense activities. We need to provide security and military 
assistance to our friends and allies in this war, because they 
are putting the lives of their soldiers and citizens on the 
line, just as we are doing every day.
    In addition, we need to provide many of them with the 
economic assistance that they need to continue to work towards 
the rule of law, economic reform, all of which can provide a 
brighter future for their people. Poverty and hopelessness do 
not necessarily generate terrorism. They certainly can provide 
the conditions under which it becomes more likely, conditions 
that provide a more fertile soil for terrorism to grow in.
    Congress has already given the President generous funding 
and legal authority as he conducts the war on terrorism. 
However, as we move forward we cannot abdicate our 
constitutional responsibilities as caretakers of the taxpayers' 
dollars. In that regard, we appreciate this opportunity to hear 
from the distinguished Deputy Secretary of State, Mr. Richard 
Armitage, regarding the details of this request.
    I think I can say, Mr. Secretary, for all of the members of 
this subcommittee, that any skeptical questions that you might 
hear today from us do not indicate in any way a lack of a 
commitment to a common goal that we all share in this war 
against terrorism, but only a desire to make sure that we are 
making the best possible use of the taxpayers' funds.
    One of the things that I would hope is that in your opening 
remarks and certainly in our questions we will address the 
issue of defining the frontline states. This is, as we know, a 
constantly shifting description--as well as it should be 
flexible--but I think it is important for us to know how the 
administration looks at this issue and whatstates would be 
defined as frontline states.
    With that, let me stop and give the floor to my 
distinguished ranking member, Mrs. Lowey, and ask her for her 
opening statement. Mrs. Lowey.

                     Mrs. Lowey's Opening Statement

    Mrs. Lowey. And I thank you, Mr. Chairman, and I want to 
join the chairman in welcoming Deputy Secretary Armitage to our 
hearing, and I want to particularly thank you, Mr. Secretary, 
for keeping me and this committee informed of this 
administration's actions. It is very much appreciated, and I 
want you to know that. Your timely calls really do make a 
difference, and I thank you very much.
    The events of September 11th require that we take a new 
approach to our foreign assistance programs, reflected in the 
administration's request for $1.3 billion in emergency funding 
for a wide variety of initiatives. I am gratified that we have 
now achieved a broad consensus that our foreign assistance 
programs are vital to the national security interests of the 
United States. I hope this recognition, which I have long 
sought, will help steer many resources to all aspects of our 
foreign aid programs. It is long overdue.
    In that spirit, Mr. Secretary, I will begin by expressing 
my support for the vast majority of items requested in the 
supplemental for emergency funding. We have clearly embarked on 
a new path that will involve greater focus on military and 
security assistance programs, coupled with economic assistance. 
This new direction puts a special responsibility on the Defense 
Department to carry out programs while respecting congressional 
directives and restrictions.
    While I support most of the initiatives in this request, I 
strongly caution the administration not to expect blanket 
waivers of all existing restrictions in law in the name of 
combatting terrorism. Specifically, I am concerned that 
supplemental requests for ESF, FMF, peacekeeping and 
nonproliferation accounts totaling over $1 billion contain 
notwithstanding any other provision of law clauses 
consistently.
    This request also applies to all previously appropriated 
funds in these accounts. The explanatory materials sent to 
Congress contain no justification for these actions, Mr. 
Secretary, so if there are specific concerns about existing 
restrictions on specific countries, I would encourage you to 
address them here today. We will work with you, but Congress 
should not and will not grant this type of broad waiver.
    It is my understanding that the supplemental request was 
structured around the concept that funds requested will be 
obligated by September 30th of this year. However, after a 
careful review of your request, I have concluded that there is 
no way most of this funding will be obligated by then. I also 
believe that the challenges we face in these countries are far 
too important for us to impose artificial deadlines on 
ourselves because of budget politics.
    The majority of items in the supplemental will initiate new 
country programs and will significantly expand existing small 
programs. I am reasonably confident that Congress will approve 
almost all of this request and will provide the resources with 
the appropriate flexibility. However, there are also a number 
of areas where we may seek to modify the request or add 
funding. In these cases, I hope that the administration will 
also show flexibility, recognizing the need to work with 
Congress with the understanding that not all wisdom--even 
though it may be a great deal--lies in the executive branch. 
Maybe with you, but not with the whole executive branch.
    With respect to funding for the United Nations Population 
Fund, the committee has been patiently awaiting White House 
action on releasing the $34 million provided in the fiscal year 
2002 bill. As you well know, because we have talked about 
this--I must be honest and say that my patience has run out. 
Given the continuing absence of any movement, I feel I have no 
choice but to pursue a course of action in the supplemental. I 
think you realize, Mr. Secretary, that it is not in the State 
Department's interest to allow this issue to remain unresolved 
until we mark up the fiscal year 2003 bill.
    With respect to Colombia, as a follow-up to last week's 
hearing, I am pleased that the administration is working with 
the Colombians on severing links with paramilitary 
organizations. However, as far as I know, the Colombians have 
yet to take the specific steps we requested that they take. 
Obtaining that cooperation is vital to achieving the consensus 
in Congress that will be necessary to approve a broadening of 
our commitment there.
    I would also appreciate a clarification from you on the 
expanded authority sought in your request. As submitted, the 
language contains a broad, again, notwithstanding clause, with 
specific exemptions: the human rights vetting requirements and 
U.S. manpower limits. Therefore, if approved as requested, the 
requirements included in the fiscal year 2002 bill on severing 
of links with paramilitaries, section 567, reporting on the 
safety of aerial fumigation, and notifying Congress on 
resumption of the air bridge operations, will all be removed. I 
hope this was not the administration's intent, and I would ask 
that you address this concern in your remarks.
    The supplemental request also contains language in the DOD 
section authorizing the use of $100 million in DOD resources 
for military assistance to foreign countries and $30 million 
for indigenous forces. Although DOD has attempted to play down 
the significance of this, the fact remains that it would be a 
considerable sum with wide open authority for military 
assistance to any country, withoutinput from Congress or the 
State Department.
    The Foreign Operations Subcommittee has jurisdiction over 
these programs, and as far as I know, the State Department 
still has the primary role in setting foreign policy 
priorities.
    Let me reiterate that most Members of Congress are willing 
to work with the administration and support necessary resources 
with appropriate flexibility, which will include a substantial 
increase in foreign military financing. But this proposal, and 
the cavalier manner in which it was put forward by the 
President, erodes the premise that the administration is 
seeking that type of partnership.
    Another specific concern I have is the request for $8 
million for training and equipping a domestic peacekeeping 
force in Indonesia. Current law prohibits military assistance 
to Indonesia, and this appears to be an attempt to circumvent 
these restrictions by assisting the military, couching the 
proposal as peacekeeping. In addition, recent press reports 
have characterized Indonesia's cooperation with us in the war 
on terrorism as extremely poor. Apparently they have been 
unwilling to cooperate in efforts to locate and apprehend known 
associates of Osama bin Laden residing in Indonesia. Given the 
administration's continued inability to certify that the 
conditions for resumption of military assistance have been met 
and the absence of cooperation on terrorism from Indonesia, I 
see no reason to go forward with this program.
    While I know this issue lies outside the scope of the 
subcommittee's formal mandate, I want to take this opportunity 
to express some concerns I have about the direction of our 
policy toward Afghanistan. I strongly support the war on 
terrorism, Mr. Secretary. I believe that defeating terror in 
the long term will require a prolonged effort from the United 
States, and that is why I am concerned about the timidity I 
believe our country is showing in Afghanistan right now. While 
most of the big military battles may be over, the war for 
Afghanistan's future has just begun, as you well know, and 
winning it will take a sustained substantial commitment of U.S. 
assistance and personnel.
    The situation in Afghanistan right now, particularly 
outside of Kabul, and our country's response to it does not 
bode well for the promise of stability and prosperity in that 
country. If we have time, I hope we can discuss this issue.
    Finally, Mr. Secretary, we welcome the President's 
announcement in Monterrey that he would seek to increase 
resources for foreign assistance by $10 billion over 5 years. 
However, I was really disappointed that he has chosen to put 
off this effort until 2004. We have before us a request for 
$1.3 billion in emergency needs related to the war on 
terrorism. The fact that the President has already made a 
commitment to increased resources for other development 
programs indicates that he, too, recognizes that there are 
other emergency needs that require immediate attention. Waiting 
for the 2004 budget means that no impact from this commitment 
will be felt on the ground in poor countries for at least 2 
years.
    Our chairman has just returned from Africa, having seen 
firsthand the ravages of HIV/AIDS there. Even with the 
additional resources available for HIV programs already in 
place, access to testing, counseling, and treatment for this 
disease remains unavailable in most rural areas, and infection 
rates are continuing to climb worldwide. Illiteracy rates in 
many countries in Africa remain well over 50 percent in many 
countries where there continues to be no access to basic 
education for the majority of children. As the continent still 
reels from the internal conflicts of the past decade, the 
battle for basic food security is still being fought day by 
day.
    The President has decided we need to do more, and I 
wholeheartedly agree. We all know the needs are vast, so let us 
begin today, not 2 years from now. This, too, is a matter of 
national security. I look forward to your testimony, Mr. 
Secretary.
    Mr. Kolbe. Thank you very much, Mrs. Lowey.
    Mr. Secretary, we are prepared to hear your opening 
statement. As always, of course, the full statement will be 
placed in the record, if you would like to summarize the 
statement.

                    Mr. Armitage's Opening Statement

    Mr. Armitage. Thank you, Mr. Chairman, and let me assure 
you and Mrs. Lowey and all of the members of the subcommittee 
that we have a very rich understanding that all wisdom does not 
reside in the executive branch, and, indeed, we have a very 
rich understanding that there is a necessary and very creative 
tension that exists among the three branches of our government, 
for good reason. The Founding Fathers were brilliant in that 
respect. We can assure you we fully respect that.
    Mr. Chairman, you have a very happy witness in front of you 
today. I don't know actually who is happier, Secretary Powell 
because he has returned, or Rich Armitage because Secretary 
Powell returned, but you have got a pretty happy guy here 
today. I realize the patience of the subcommittee is in inverse 
proportion to the length of any opening remarks, so I am going 
to just try to answer directly each of your questions as you 
raise them.
    I just simply want to say to the subcommittee, first of 
all, thank you. I believe you have been great partners. That 
does not mean that we didn't tussle and wrestle a bit along the 
way, but you have been great partners in this creative tension 
between the executive and the legislative branch. Secretary 
Powell, myself, our whole Department is very grateful for that 
support and for the intellectual challenges that you raise 
along the way. They help us.
    Second, I particularly want to thank the chairman. I can 
remember an evening I caught you in your district, sir. I was 
at a Georgetown basketball game, and I asked you if you could 
find your way clear to go to Kabul and to go to Islamabad, and 
you said you would do it because I felt we needed the Members 
out there to see what was going on. I know you met Secretary 
Powell in Islamabad during that trip, and I want to add a 
personal thanks for that.
    And I will just stand by and try to answer any questions 
the members may have.
    [Mr. Armitage's opening statement follows:]

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    Mr. Kolbe. Thank you. That certainly is one of the shorter 
statements that we have had on record.
    Mr. Armitage. I can go on and on, but----
    Mr. Kolbe. No. I am delighted. I think there is no doubt 
about the answer to your question, Who is happier? Secretary 
Powell is happy because he is not up here in front of the 
committee. Testifying in front of congressional committees is 
always the most sincere desire of the members of any 
administration.
    Mr. Secretary, let me begin, and we have a number of 
members here, and more I think that will be coming in. We'll 
probably have questions in a lot of areas, so I am going to try 
to keep our questions to the time limit. So that we can go back 
and forth as much as possible and give everybody an 
opportunity, we will just keep going with rounds of questions. 
We may well get interrupted by votes here very shortly here.

                              Afghanistan

    I want to start with a question about Afghanistan. Mrs. 
Lowey spoke about this issue as well. The funding request for 
Afghanistan in the supplemental is $250 million. Much of that 
is for the interim authority for training and equipping a new 
military for Afghanistan. Of that amount, $30 million would be 
provided to AID for reintegrating former combatants into Afghan 
society, and another $40 million would be used for 
reconstruction and rehabilitation activities.
    Those items that I mentioned gives us a total of $70 
million. Given the amount of damage that has been caused by 
decades of war and ravaging of the violence in that region, I 
think a case can be made that this is not sufficient. My 
understanding is that AID did request a total of $150 million 
for its reconstruction activities in Afghanistan. I certainly 
don't always endorse what agencies go to OMB asking for, but I 
think in this case a good case can probably be made that 
additional funds are going to be needed.
    I don't think we are going to be in a position to add funds 
above the overall request--level requested by the President. We 
may want to shift some of those funds around to provide a 
higher level for reconstruction activities in Afghanistan, if 
indeed we decide that that is needed.
    So my question is twofold to you. One, I would just ask for 
your general comments on the level of the supplemental funding 
level that is requested for AID reconstruction activities in 
Afghanistan. And, second, the President's budget request for 
the next fiscal year, for 2003, indicates that assistance for 
Afghanistan would be determined at a later date. Are you in a 
position now to share with us details of how that $138 million 
would be allocated for Afghanistan as part of the budget 
request?
    Mr. Armitage. Thank you, Mr. Chairman. You are right. Not 
only in Afghanistan, but in a number of areas, many different 
parts of our bureaucracy asked for enhanced levels of funding. 
OMB was very strict. I believe they wanted to keep their 
credibility with you and with the Congress as a whole. They 
wanted to keep this directly as a 2002 supplemental, something 
that is a shortfall in our 2002 funding.
    Number two, as Mrs. Lowey correctly points out, the desire 
from OMB was that this money be truly emergency; therefore, 
money that can be obligated before the end of this fiscal year, 
September 30th. That is one of the reasons that the numbers 
were generally down.
    More specifically, on your comment about shifting monies 
around, Mr. Chairman, to more DA, we initially were wary of too 
much development assistance; not because the need isn't huge, 
but because access to some areas of the country and security to 
those areas gave us some pause. And I was not sure myself that 
we could engage actively in a very robust DA program.
    About a month has passed since we put this together. I 
believe in some parts of the country conditions are changing, 
and that we ought to be able to work with the committee and 
with the staff, if that is your desire, to perhaps talk about a 
little different funding profile for developmental assistance.
    On the question of the 2003 request, it is TBD. I have the 
numbers. I think you have the same numbers, $139 million. Let 
me make a few comments about what we are really trying to do 
here. We have 2 months until we have the Loya Jirga. We are 
trying to simultaneously train an Afghan army of somewhere 
between 60- and 80,000; 60,000 soldiers, 12,000 border guards 
and 6,000 of something else, or 8,000 troops of one sort or 
another. That is why we requested the FMF. That is why we 
request the $20 million in PKO funds to be able to pay the 
salaries of this army until we get rolling. This is something 
that our Department of Defense in the main will take on. We 
hope to start May 1. I am not sure that we will be able to. It 
is not entirely sure to me.
    I think most of us who are involved in Afghanistan would 
say that the $138-plus million that we are requesting in the 
2003 budget, whether it is in refugees, migration accounts, or 
whatever, is short. It is short because we didn't count on the 
rapidity with which refugees would desire to return to 
Afghanistan, and frankly we didn't count on the fact that the 
refugee or returning refugee population has become somewhat of 
a hotbed of dissatisfaction. And I don't feel fully comfortable 
in putting my name next to the 2003 numbers, because I am not 
sure we have settled out correctly, particularly in the refugee 
accounts and the migration accounts.
    Mr. Kolbe. Mr. Secretary, that is a new wrinkle. I hadn't 
heard before that the funding level might actually be short in 
the 03. Do you expect to either ask for an amendment or just a 
reallocation of some of the--if you are talking about refugees, 
you are taking about a different account, the refugee account. 
Is that correct?
    Mr. Armitage. Right.
    Mr. Kolbe. And you would expect that more of these funds--
--
    Mr. Armitage. Well, I am just pointing out to you my 
personal belief, but I think my Department would certainly 
stand behind it, that we are short in that area. We didn't 
credit the amount of refugees and the returns, and we have got 
a lot of work to do. I think we are short in our overall 
refugee account.
    Mr. Kolbe. And I had not heard about that number returning. 
For the record, perhaps the Department could give us some 
figures about the return of refugees, the numbers that have 
actually returned in the recent months, and the trends, the 
direction that it is going----
    Mr. Armitage. Thank you, Mr. Chairman.
    Mr. Kolbe [continuing]. And the expectations for that, the 
numbers that would be returning.
    Mr. Armitage. Yes, sir.
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    Mr. Kolbe. Mrs. Lowey.
    Mrs. Lowey. Thank you. Thank you again.
    Mr. Secretary, as I have indicated in my statement, I think 
we all agree that there is a humanitarian emergency in much of 
the world today that requires the United States to increase 
levels of assistance now, not 2004.
    A few questions; perhaps you can just answer them together. 
Given the President's commitment to this concept, first of all 
why has the administration put off requesting new resources 
until 2004? Secondly, would you agree that this puts off the 
effects of these increased resources for 2 years? And, with 
respect to HIV/AIDS, many are calling for additional resources 
for both the trust fund and bilateral programs. As programs 
move from prevention and awareness to counseling, testing and 
treatment, it is clear more resources will be needed. What will 
the administration's position be if Congress adds more 
resources for HIV?
    And if you can deal with that together, thank you.
    Mr. Armitage. I am trying to think how to do yes, no, and 
maybe, but I can't quite answer the questions like that. First 
of all, with regard to the millennium account, we are taking 
our time about getting into it because we are working out the 
contribution criteria for various countries and what Treasury 
and what State Department's roles will be in the allocation of 
these funds. We are intending this year in the 2003 budget to 
have a pilot program, probably in Africa, but we haven't even 
defined that yet. But that is the intention, to see what works 
and what doesn't, before we come forward with a rather large 
increase in our overall funding.
    On the question of--the second question was?
    Mrs. Lowey. Putting off the resources for 2 years.
    Mr. Armitage. Yes. It has that practical effect. I can only 
say in my defense that if we get it right, then it is better 
than going ahead in a hurry and not quite get it right. We need 
to know what we are doing and not have really reached out to 
all the Congress and explained ourselves articulately in just 
what these monies are for and how we intend to apply criteria 
and what countries are eligible, et cetera. But, yes, it delays 
for 2 years.
    Finally, on the question of HIV/AIDS, anyone who opposes 
anything that assists and alleviates the scourge of this would 
be in my view wrong. I understand competing priorities, and I 
understand budget exigencies and things of that nature, but it 
is not just Africa, it is all through Russia, it is through 
Central Europe. This is a scourge that won't be stopped unless 
we lead the way. We are the leading donor in the world. But 
from the Department of State's point of view, if the Congress 
adds money, we will use it well.
    Mrs. Lowey. I won't pursue the putting it off till 2004, 
but I hope we can have further discussions about this, because 
I think we can get this money out much more quickly, and there 
is a crisis in the world, and I think we have an obligation to 
respond in this regard, in addition to the military.
    With regard to the Middle East, it is my understanding that 
among the many State Department requests for the supplemental 
that were not granted by OMB was a request for $200 million to 
help Israel with border and other national security priorities. 
In fact, I wondered, number one, on what basis did you 
recommend that the administration request $200 million in the 
supplemental for Israel? Do you consider Israel to be a 
frontline state in the war on terrorism, and do you believe 
that Israel currently has resources sufficient to meet the 
threats it currently faces, including the threat of a missile 
attack from Iraq?
    Mr. Armitage. I am a little embarrassed to be discussing 
what is supposed to be internal deliberations of the executive 
branch, but it was so well publicized in the newspapers that I 
feel I must.

                              MIDDLE EAST

    Yes, we requested $200 million for Israel. It was in the 
main something that I felt and the Department felt was a legacy 
from the evacuation of Lebanon that we had to honor. There were 
discussions held in the then-administration about this, and 
particularly for protection on the northern border which 
Secretary Powell has recently spent so much time and energy on. 
And by the way, for a third day in a row, it has been 
relatively quiet, thank God.
    The decision to not go forward with that money was based on 
I think three things. First of all, the fact that Israel does 
receive $2.76 billion per year in rapid-disbursing funds. 
Number two, that we have a very robust program in support of 
the Arrow program with digital technology. I am actually 
pleased to say I started it at the Department of Defense for 
the U.S., which tries to address the problem of missiles, 
particularly from Iraq. And three, when things come up from 
time to time, we are able to respond with the help of the U.S. 
Congress.
    For instance, about 2 months ago, we came to the Congress, 
the DOD and State, with a request to be able to take DOD funds, 
bring them to State, to allow us to buy for the Israelis 
robotic EOD detection equipment, to the tune of $29 million. 
For all of those reasons, a decision was made not to put the 
money in this year, ma'am, in the emergency supplemental.
    Mrs. Lowey. Thank you very much. I think my time has 
expired. Thank you.
    Mr. Kolbe. Mr. Callahan.
    Mr. Callahan. Good morning, Mr. Secretary. First of all, I 
think this committee would share in the wisdom of its own self 
by saying to you and the State Department and to thePresident, 
we are going to give you whatever resources you need to complete 
Operation Enduring Freedom. So when we question you, it doesn't mean 
that we are not supportive of what you are doing or the mission.
    But I do wonder in reading your request, the definition of 
emergency funding and coupling it with the Operation Enduring 
Freedom, what Colombia has to do with that. I know you have a 
bill coming up, and in addition to the money that you are 
requesting here, in another section of this same supplemental 
you are asking for half a billion dollars more for Colombian 
assistance.
    I notice that you are asking for aid to Ecuador. And while 
I might support that, I have some questions about Ecuador. And 
I want you to respond about the Manta base, to question you as 
to whether or not we ought to condition the assistance to 
Ecuador with respect to the prohibition against American forces 
for using that base, which we paid millions of dollars to 
prepare and turn over to Ecuador, and yet they are telling us 
they are not going to allow us to use it for anything that has 
to do with Operation Enduring Freedom.
    So there is a question there. If this is for Operation 
Enduring Freedom, what is Ecuador doing there? If we are going 
to justify that, do you think we ought to condition it with the 
Manta base?
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    Mr. Callahan. Secondly, what is Colombia doing at this time 
under Operation Enduring Freedom? I mean, that is another war 
that we have, and maybe it is right, maybe it is wrong.
    Mrs. Lowey touched on the fact that you didn't include any 
money for Israel, but certainly you have been here on Capitol 
Hill long enough to know that if you put $200 million--$100 
million in for Jordan, plus $28 million FMF, that somewhere 
during the process, Israel is going to get probably five or six 
times that amount of money. And then when Israel gets five or 
six times that amount of money, Egypt is going to come along 
and say, well, we are entitled to two-thirds of whatever Israel 
gets. So I don't know why we are including Jordan at this 
point, even though I support King Abdullah, and I want to help 
him be a successful king. At the same time, I wonder what all 
this has to do with emergency funding, and is it about 
Operation Enduring Freedom, or is it just a supplemental to get 
your wish list that we didn't give to you for this fiscal year 
under the name of some emergency funding?
    Mr. Armitage. Mr. Callahan, I can assure you if it were a 
wish list, it would have been a lot more robust, if I had had 
my wish.
    I will try to answer your question. On Colombia, 
particularly why we are asking for the $35 million, we do 
believe this is part of the global war on terrorism. We know, 
and many of the members here know, that the FARC is targeting 
Americans and not just targeting officials and infrastructure 
in Colombia. Some of the money that we are requesting for 
Colombia, for instance, is specifically for antiterrorist and 
anti-kidnaping training. We have seen one of the candidates, 
Mr. Uribe, suffer his 12th assassination attempt in 2 years. I 
think I would get out of the business if that is the kind of 
reception I got. But 12 in 2 years, I think, is indicative of 
the size of the problem.
    On the question of Jordan and then Ecuador. Jordan is a 
frontline state, both regarding Iraq and its cooperation which 
she has given to us, sir, on the question of al Qaeda. She has, 
with us and with our various agencies of our government, broken 
up safe houses. We have gotten excellent cooperation getting 
into certain computer bases, computer files, et cetera. Jordan 
has been terrific. And I would argue they are also doing this 
in the face of a rather loyal population, given that the 
majority of Jordanians now are Palestinian in origin. They have 
been cooperating very closely on border security with Israel as 
well.
    And Ecuador, we believe we have in the tri-border area a 
bit of a problem with al Qaeda and some Hezbollah elements, and 
we do need cooperation. And, frankly, we are afraid as we 
squeeze Colombia with hopefully the assistance and the support 
of the Congress, that, like a balloon, some of the problems 
might balloon out in other areas, and we want to do what we can 
to try to keep Ecuador from ballooning out.
    On the question of the air base, I am not informed of that. 
And I have to tell you that, and I have to give you a straight 
answer. I will take it and give it to you, sir.
    Mr. Kolbe. Ms. Kilpatrick.
    Ms. Kilpatrick. Thank you, Mr. Chairman. Good morning, Mr. 
Secretary, good to see you again.
    I have a couple questions. The new authority that is 
mentioned in the supplemental for the Defense Department, 
heretofore the State Department has really been charged with 
the responsibility of foreign military financing and 
assistance. I know you two are brother organizations, sister 
organizations. What is the State Department's position on the 
new authority?
    Mr. Armitage. Well, the intention of the request for the 
new authority was to allow DOD to pay cost-related 
contingencies such as we had in Pakistan, for which there is no 
other mechanism that existed. By that I mean when we first 
started using Pakistan's bases, they were providing assistance 
and fuel and other things before we had a cross-servicing 
agreement with them, and we didn't really have a mechanism to 
pay those. So the intention was very benign.
    I think we drafted this in a rather poor way. We at the 
State Department fully support the intent of that language, 
but, as you may have read in the newspapers, unfortunately we 
had a little contretemps about whose prerogatives were being 
upheld or not. And our view and the Department of Defense's 
view is that we want to work with the committee and the Defense 
Committees to make sure that the prerogatives in the House and 
Senate Committees and the prerogatives of the Secretary of 
State, as the chairman mentioned, as the overseer of foreign 
policy and foreign aid, is upheld.
    Ms. Kilpatrick. Now, you just said all of what we would 
like to have. The language in the supplemental kind of takes 
the defense authority and leaves that not so much with the 
entities you just mentioned, the subcommittees or the State 
Department, but solely with the Secretary of Defense.
    Mr. Armitage. I hope you will see from my comments that my 
own view is we drafted that in a rather shoddy manner. We at 
the Department of State support what Defense wanted to do. We 
want to work this out in a way that protects our prerogatives, 
first of all to tell the truth, and the prerogatives of the 
Foreign Ops Committees in the House and the Senate, and work 
with the Defense committees. And I can tell you that Defense 
and we will come up and work with you to get language that is 
appropriate that preserves those prerogatives.
    Ms. Kilpatrick. So then from what you say, Mr. Secretary, 
you want us to continue to work with the language and not to 
have that made solely at the discretion of the Secretary of 
Defense, but in a coordinated effort.
    Mr. Armitage. Under the overall supervision of the 
Secretary of State, which allows the Foreign Ops Committees 
to----
    Ms. Kilpatrick. We would appreciate that, because if the 
Secretary does have that sole responsibility--terrorism, human 
rights, nonpayment of dues, those kinds of things--he can 
ignore those; where the State Department now has to adhere to 
those. So that would be important to this committee, I am sure.
    Mr. Armitage. Well, they are important to us, too.
    Ms. Kilpatrick. Thank you.
    And number two, Mr. Chairman, if I might, our friendly 
states around the Nation of Israel--and you mentioned Jordan, 
and many Palestinians live in Jordan, we can say Saudi Arabia, 
perhaps a couple others who are now--and maybe I heard you say 
earlier you may not be able to answer, Secretary Powell is just 
returning and maybe the President has to be debriefed. But are 
we losing our support in the region because of the very serious 
conflict that we are now having in the Middle East? Can you 
speak on that as much as you can?
    Mr. Armitage. We are clearly, at least temporarily, losing 
some support. All of our embassies in the Middle East have had 
to be buttoned up over the past 2 weeks, and I----
    Ms. Kilpatrick. What does that mean, ``buttoned up''?
    Mr. Armitage. Secured against any demonstrations, et 
cetera. And we have had, very unfortunately, for the first time 
in, I believe, 20 years, student demonstrations in Alexandria, 
Egypt, for instance, which were directed against an American 
center in which a young student died. We had a young man die in 
Bahrain as he actually got into our embassy; 20 or 30 people 
demonstrating got into the embassy and burned some cars. So 
temporarily, we are in a bit of a problem.
    And Secretary Powell's comments, if you noticed in Israel 
as he was departing for the United States, tried to address the 
three factors in this equation: one, our support for Israel, 
which is not a question; the support of Palestinian people, 
that they have a right to have hopes and aspirations; and our 
Arab friends, that we were trying to address these problems, 
because Secretary Powell was trying to keep the streets calm. 
So we have a problem.
    Ms. Kilpatrick. We have a problem, and we certainly want to 
work with you. You mentioned Egypt, Jordan, Saudi Arabia, some 
of the other countries who have been friendly, many who are 
Arab ethnicities. It is a balancing act. I think it isvery 
serious. And we look toward to the debriefing that Secretary Powell 
will give the President, as well as what the Congress is able to 
receive, because I think we have to be actors and players in this whole 
discussion as we represent the people of America.
    Mr. Armitage. Well, thank you very much. I am not going to 
volunteer Secretary Powell to appear; I am sure he will be 
appearing on this subject. He is at a 10:30 meeting with the 
President. And after that with the President he will appear 
publicly, I think around noon, and make some comments about 
this situation.
    Mr. Kolbe. Mr. Lewis.
    Mr. Lewis. Thank you, Mr. Chairman. Welcome, Mr. Armitage.
    Mr. Armitage. Thank you, sir.
    Mr. Lewis. I am going to follow up a bit, if I may, on the 
line that Ms. Kilpatrick was following herself. I am, as you 
know, chair the subcommittee that deals with national security. 
Throughout the years I have served on this subcommittee, I have 
rather strongly agreed with the view that the fundamental 
leadership relative to the FMF should be with the State 
Department. Clearly if we are looking at long-range foreign 
policy, while military assistance does play a role in all of 
that, if you are going to support the long-range policy 
direction, one has to deal with military assistance with great 
care, diplomatically and otherwise. That is the long-range 
view. In the shorter term, there can be obvious difficulties 
and complications.
    So the law does provide that the Defense Department has 
responsibility in supervising and administering some of those 
funds in certain circumstances. I am concerned about the short 
term. A lot of communication between DOD and State has taken 
place regarding the language that has come up in the 
supplemental that gives DOD authority relative to certain 
portions of what essentially would be described as FMF. When we 
are in a place like Afghanistan, and in a very short period of 
time you are interested and actively and aggressively training 
and retraining, giving capability to troops in the field, this 
requires very, very quick action.
    The State Department has lots of priorities around the 
world. None of our major agencies are noted for quick action, 
especially when there are competing priorities. So I am 
concerned very much with that question. As we are training and 
retraining troops in Afghanistan, as we are looking to fighting 
this war across borders in the surrounding area in a relatively 
short time frame, it strikes me that some authority for action 
is needed by the Department of Defense.
    Now, whether it needs to really massage and change 
significantly existing authority, I don't know, and the broader 
authority of the President. But would you help me address that 
question? In DOD, is it going to totally violate your 
circumstance if we have language that extends authority 
relative to this kind of training and retraining?
    Mr. Armitage. Mr. Lewis, I think the authority as drafted 
by us is a little broader in scope than we really intended. On 
the question of Afghanistan, for instance, in training the 
Afghan army, et cetera, notwithstanding the elephant-like 
movements of a bureaucracy, whether it is State or DOD for that 
matter, the authorities that exist in FMF allow us to have very 
quick disbursement.
    Mr. Lewis. Allows. That is correct.
    Mr. Armitage. Pardon me?
    Mr. Lewis. Allows. That is correct.
    Mr. Armitage. Bureaucracy. I am in it, and it is slow and 
plodding.
    But the contingencies that we were trying to address in 
this language were more like the contingencies we found in 
Pakistan, as I mentioned, when we first went in and had no 
authorities to pay for some services and fuel and things of 
that nature such as the use of APUs to start the jet engines. 
Those are the things that we didn't know how to address. And 
that is the kind of contingency we were trying to address.
    I think we were a little too broad. It is why I wrote in my 
letter to OMB to signal we need to work this thing out, and why 
I am pledging to you--and I can pledge my brothers and sisters 
in the Defense Department--to come up and work with the 
committee and the Senate to make sure we have language that we 
think really addresses the contingencies and doesn't trample on 
both the prerogatives of the House and the Senate and, by the 
way, of the Secretary of State's overview of foreign policy.
    Mr. Lewis. Well, I must say that the Defense Department 
does have serious capability as it relates to abusing those 
monies, especially in the training arena. There is little doubt 
that quick action was necessary, is necessary in other 
circumstances in the immediate term in the region. We are 
considering, as you know, the language that is being submitted. 
And while I have reservations, I also have reservations about 
my--closing the door to the request that is being made by the 
Defense Department. I presume that this request and this 
direction was not made without some consultation with higher 
levels.
    Mr. Armitage. No. We want the flexibility that is in this 
language. The Secretary of State supports giving DOD that 
flexibility. But what we want to make sure is that he and you 
all maintain your oversight roles in foreign ops and in foreign 
policy. But the general flexibility that we were seeking was 
developed in conjunction with State and Defense. I don't think 
we drafted this as well as we should have.It is too broad.
    Mr. Lewis. You said that in your statement. I must say that 
my traditional support for FMF, being within the jurisdiction 
of this subcommittee as well as the State Department, is 
comforted by the fact that the Secretary of State himself has 
some considerable experience in both arenas. But, nonetheless, 
it does bring us to the nexus of a very challenging policy 
consideration that I think deserves a lot of massaging over 
time.
    Mr. Armitage. You are absolutely right, and we want to 
massage it with you and with the Defense Department, with you 
together.
    Mr. Lewis. Did you have some time, Mr. Chairman? I would be 
happy to move on.
    Mr. Kolbe. Your time has expired. Before I call on Mr. 
Rothman, I am going to exercise my prerogative, which I rarely 
do, to follow up, however, on this question, because this is a 
very important question, and we really need to get to the 
bottom of this thing.
    First of all, though you can't say it here, I will say it. 
My understanding was there really was no consultation between 
State and Defense on this issue. There was zip, zero, zilch, 
consultation. It was just in there.
    My question to you--you talk about the flexibility. That 
five-line provision, notwithstanding any other provision of the 
law, not to exceed $100 million from appropriations of the 
Department of Defense may be used to support foreign nations, 
et cetera, in the furtherance of the war on global terrorism. 
Why do we need that at all?
    Mr. Armitage. We were trying to address the problem that I 
addressed earlier, Mr. Chairman. Before we had agreements with 
Pakistan and others we were making use of their services. We 
didn't have mechanisms to pay; we were getting bills without a 
mechanism to pay.
    Mr. Kolbe. But you do have that now, don't you?
    Mr. Armitage. Where we have an agreement, yes, sir. Where 
we have an agreement we have that mechanism.
    Mr. Kolbe. For reimbursing them, this provision is not 
necessary, is it?
    Mr. Armitage. Not for Pakistan, no, sir.
    Mr. Kolbe. Mr. Rothman.
    Mr. Lewis. Well, what about----
    Mr. Kolbe. Mr. Lewis, go ahead.
    Mr. Lewis. What about Afghanistan?
    Mr. Kolbe. Afghanistan?
    Mr. Armitage. Well, I don't think we have a problem with 
any in Afghanistan, but----
    Mr. Kolbe. No, because I think the language is broad enough 
to do anything in Afghanistan.
    Mr. Armitage. I stated that we don't have agreements with 
Pakistan. So we were trying to address the contingency that we 
found in Pakistan. We didn't have the agreements that exist 
that allowed us to pay. We do now have it with Pakistan and we 
are in good shape.
    Mr. Kolbe. Thank you. Mr. Rothman.
    Mr. Rothman. Thank you, Mr. Chairman.
    Mr. Secretary, as always, it is a pleasure to be with you. 
You are one of the few--let us put it this way--or the best in 
this administration to not only present an intelligent and 
articulate answer to our questions, but you have a wonderful, 
plain, clear-spoken style, and I appreciate that. And I have 
the sense that you have the highest degree of integrity, and we 
can rely on what you say.
    Mr. Armitage. Thank you very much. There are some who have 
questioned that from time to time, but I am very grateful. I 
will take it when I can get it.
    Mr. Rothman. So far, so good. And I am grateful.
    Two questions, if I can get them in, one on the Middle East 
and one on Colombia. On the Middle East, did I hear you say 
that Saudi Arabia had been helpful, or--I didn't actually hear 
that from you, did I?
    Mr. Armitage. No, I didn't address Saudi Arabia, sir.
    Mr. Rothman. Yes. I didn't hear that myself coming from 
you. I note that in the frontline states' request of the 
emergency supplemental, Jordan, Bahrain, Oman, and Yemen are 
getting specific allocations. And then there is a general 
category in addition to that of $50 million, economic 
initiatives for the Middle East. Would you just spend just 45 
seconds of my time on that? And if you can fit in within that 
time, describe are there specific parties in the Middle East 
that you are expecting to engage with these economic 
initiatives, and have you approached them, and what kind of a 
response have you gotten?
    Mr. Armitage. Yes. The whole idea of this came out of the 
meeting with President Mubarak and President Bush, where Mr. 
Bush announced an economic initiative. We want to have a 
certain amount of money available to match, or even exceed, 
with philanthropic donors, and we can address areas that are 
not traditionally addressed by us. We want to get everything 
from enterprise funds in Egypt. And this is, by the way, 
following along the lines of a lot of the work done by Hernando 
DeSoto, the Peruvian economist, to try to make better use of 
dead capital in Egypt, to try to improve education; not just 
education and scholarship opportunity for the wealthy and the 
well-to-do, but for others who might strive----
    Mr. Rothman. Is this designed solely for Egypt?
    Mr. Armitage. No, it is not, but Egypt is our test case, 
and that is where we are looking at it in the first instance.We 
want to broaden it to the Middle East in general and that is, hence, 
the name MEEI.
    Mr. Rothman. Okay. And----
    Mr. Armitage. And it hasn't been discussed with Egypt.
    Mr. Rothman. Have you discussed any of these initiatives 
with other Middle Eastern countries yet?
    Mr. Armitage. I have not. We brought a young woman, who 
just happens to have the name of Liz Cheney, on board to 
actually shepherd these programs. She worked for me 10 years 
ago. And the reason we brought her in is that she is an expert 
on the international financial institutions. That is what she 
has been doing for the last 10 years. So we are trying to marry 
up a certain amount of money from you all, if you are so 
willing, the international financial institutions and 
philanthropic donors. She has talked to Gates and Steve Case 
and others.
    Mr. Rothman. I think it is a wonderful idea and I wish you 
well on that.
    On the Colombian emergency supplemental, the $6 million 
related to protecting the Cono Limon pipeline. In addition, 
your 2003 request, as I understand it, has an additional $98 
million, a total of $104 million to Colombia for the protection 
of a 400-mile-long pipeline. I further understand that the 
guerillas are attacking the first 75 miles of the 400-mile 
pipeline. Is it conceivable that if we are going to spend $104 
million now, and the guerrillas are attacking the first 75 of 
the 400-mile long pipeline, that we are going to be asked to 
fund more money for the rest of it? And let me give you some 
sub-questions. And is America the sole recipient of the oil 
that comes out of that pipeline, and if not--I imagine it is 
not--are the other nations of the world who get oil out of that 
pipeline, are they going to contribute to protecting that 
pipeline as well?
    Mr. Armitage. I don't think any of them are. And I may be 
misinformed on that, on protection of the pipeline. I think 
that others do benefit from the oil. And as a fungible 
commodity, I guess, you know, oil is oil, and whether we get it 
or somewhere else gets it, it all raises the general oil market 
level.
    Is it conceivable? Yes. Is it on the drawing board in the 
administration? Not to my knowledge, sir.
    Mr. Rothman. You know, I am just curious. Is this $104 
million to protect the pipeline, is it really just extra--
another way to provide military assistance to Colombia to 
defend themselves against these terrorists, which I would not 
necessarily oppose; or is it specifically to protect this 
particular pipeline which--again, I would be interested to know 
how much oil Americans, the United States of America gets out 
of that pipeline.
    And if it is not significant and this is really just about 
the pipeline and not general military assistance to Colombia, 
then I darn well would like to see the other nations who are 
getting oil benefits out of that pipeline contribute. Or if our 
share is minuscule, what we get out of that, I would be 
reluctant to support.
    Mr. Armitage. I understand. I will have to take the second 
part of the question. I don't know how much we get and I will 
provide it.
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    Mr. Armitage. On the first part, I think we have to be 
absolutely clear. That pipeline is vital to Colombia in the 
first instance. It is a lifeline for them. They are in a real 
tussle--in my view, a tussle for survival, and I am actually 
surprised more people aren't upset about it. I think the fact 
that it has been going on for over 20 years has let people get 
used to it.
    We want to train--as my colleague, Mark Grossman, 
testified, we want to train another battalion to be able to 
enhance that pipeline's security. Could these forces be used in 
counterinsurgency? Absolutely. Could they also be used to 
protect the pipeline from insurgents and terrorist attacks? 
Absolutely.
    I don't think there is an ability to draw a fine line 
between soldiers almost walking the pipeline and those that 
might be used for more offensive prosecution of guerrillas.
    Mr. Rothman. When Secretary Grossman was here, we had a 
discussion about the level of financial commitment from the 
Colombians themselves vis-a-vis their gross national product. 
Do you have any follow-up on that?
    Mr. Armitage.  Yeah, we heard very clearly from several 
members of the committee. I think Mr. Callahan was particularly 
vocal on this subject, as were others. Mark took it back, and 
we discussed it.
    President Pastrana is with our President, or was 
earlierthis morning, and the message that we got from that hearing was 
very clear. Colombia has to do more. They have to do more, not just in 
human rights and the areas that we have as a subject of our law, but 
they have to do more in their own interest. And that is the message I 
think President Pastrana will be getting in order to continue support.
    Mr. Rothman. Are they getting that message from the 
President?
    Mr. Armitage.  Well, he is going to get it from us, and it 
was suggested to the President. I can't say that he is going to 
do it. I expect he will.
    Mr. Rothman. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Mr. Knollenberg is next.
    Mr. Knollenberg. Thank you, Mr. Chairman. Welcome this 
morning, Mr. Armitage. Nice to see you.
    I was not here a few moments ago when questions arose about 
the supplemental funding potential for Israel; and I understand 
the sequence of those questions--I have been briefed on that--
and the answers you provided.
    Let me ask one more, which I don't believe was asked; and 
that is simply this. Within the administration, there was 
apparently a disagreement because the State Department did 
recommend 200 million for Israel. Is that true?
    Mr. Armitage.  Yes, unfortunately I have to admit to you, 
it is true.
    Mr. Knollenberg. Let me ask you this question: Would you 
oppose an effort by Congress to provide supplemental funding 
for Israel?
    Mr. Armitage.  No, of course, we won't oppose supplemental 
funding for Israel. I will make the point, if I might, that 
additive funding is great. I couldn't afford, in what I think 
is a relatively lean request, to take it out of hide.
    Mr. Knollenberg. I understand that. I do appreciate that. 
But you would not oppose an effort by us here in Congress to 
add that supplemental money in?
    Mr. Armitage. I have a good sense of my own self-interest.
    Mr. Knollenberg. Thank you.
    Let me go to another question. And that has to do with the 
Korean Peninsula Energy Development Organization. I have been 
on this subcommittee ever since we started funding KEDO and the 
agreed framework; and we have had conversations about this, as 
you well know. And you know my view. I have been saying for 
years that we shouldn't be doing this, because of the fact that 
North Korea doesn't live up to its end of the bargain. It is 
very clear in our foreign operations bill that these funds will 
not be available unless the administration certifies that North 
Korea is complying with all provisions of the agreed framework. 
Earlier this year--and you well know this--the President did 
determine not to certify that North Korea is complying with all 
of its requirements, in essence, that they aren't meeting the 
requirements.
    But, in fact, we find ourselves still funding KEDO. For 
2002, it is 75 million.
    Now, I recognize that----
    Mr. Armitage.  $95 million next year, right.
    Mr. Knollenberg. That is right. But the certification has 
to do with the 2002 bill.
    But here we are proposing the 2003 bill, and the President 
says, North Korea is not meeting the requirements. Yet we 
continue to fund this KEDO.
    Here is a country--I don't have to tell you; I know you 
respect and understand this--that is part of that so-called 
``axis of evil.'' I frankly considered them a part of that 
before the President said they were. I think members on this 
committee thought so, too.
    So my question is, isn't there something wrong with this 
picture? The President doesn't provide certification; here we 
are upping the ante--we are even going beyond what we have been 
doing. Why should we send this money on behalf of North Korea 
under these circumstances?
    Mr. Armitage.  Sir, I think the only difficult conversation 
you and I have ever had was about this issue.
    I will note that the President did not certify, but the 
language that we used was pretty careful. We said we lacked the 
information to be able to certify that North Korea was living 
up to all of their requirements. There are three certifications 
required: one on North-South nuclear cooperation, which we 
could not certify; another on nonproliferation, which we could 
not certify; and the third was that they were keeping their 
part of the Agreed Framework.
    We lack insight and knowledge.
    We didn't feel comfortable saying to you that they are 
making the grades when we couldn't grade them. So we gave them 
no grade. That is important.
    In a way, we went somewhat towards where you have been. And 
I think, over time, we will know if we are right or wrong 
because the North Koreans had a recent visitor from South 
Korea, Ambassador Lim Deng Wong, and indicated they wanted to 
restart discussions with the United States about this matter. I 
think the understanding in North Korea, it has finally hit 
them, is that there is a new team in town, and that you don't 
automatically pick up where your predecessor left off. A little 
uncomfortable for them, perhaps, but I think the message has 
gotten through.
    I think we will see, as we move forward, whether it worked 
out. All I know is that they have indicated they want to see 
Ambassador Pritchard on this matter. So I think we went 
somewhat to your direction, but we can't say they are not 
living up.
    Mr. Knollenberg. I do appreciate the steps that have been 
taken. I appreciate the President not providing that 
certification. I guess what we have to do is look again at 
this, continue to look at it with very, very strong scrutiny in 
mind to make sure that we are seeing some improvement over 
there, because there doesn't appear to be what we like to have. 
There isn't what we like to have, for sure.
    Mr. Armitage. The chairman used the term about 
``skeptical,'' and I understand that. It is well warranted in 
this case.
    Mr. Knollenberg. Absolutely. I would buy that word. Thank 
you very much.
    Mr. Kolbe. We will have time for one more set of questions. 
We have two votes, so we will go over and vote, get the second 
vote, come right back; so we won't have much of an 
interruption.
    Mr. Jackson.
    Mr. Jackson. Thank you, Mr. Chairman. I want to start by 
welcoming Deputy Secretary Armitage here today.
    I also want to thank you, sir, for your testimony. Sir, I 
have four questions. Does the name Suraida Salah mean anything 
to you?
    Mr. Armitage. Salah?
    Mr. Jackson. Suraida Salah. Suraida Salah is a 21-year-old 
American woman, born in Washington, D.C., who was killed in the 
first days of the offensive in Ramallah. I wonder what is being 
done by your office and American officials to find out 
information about how and why she was killed.
    Mr. Armitage. I will find out.
    Mr. Jackson. Many of my colleagues have many priorities for 
what you and your offices should be doing. But I think one 
thing we can probably all agree on is that one of your primary 
responsibilities is the protection of Americans abroad and, 
certainly, Americans who are living in the West Bank.
    I am concerned about what your office is doing to find 
Americans who live in the West Bank, what instructions your 
office has given them with respect to their security, and also 
those Americans living in Israel. I specifically would like 
information other than ``Travel at your own risk'' and ``Get 
out.'' I would like to know what your office is doing with 
respect to that.
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    Mr. Armitage. Can I make a comment on that?
    Mr. Jackson. You certainly can.
    Mr. Armitage. I obviously will have to provide you the 
numbers of Americans that live in Israel, and the numbers who 
live in the territories of Palestinian origin. I will do that.
    Generally--as a general matter, whether it is in Israel or 
anywhere else, or the consulate in Jerusalem, we have a ``no 
double standard'' policy. That is that anything that is told to 
my folks in the embassies has to be made public as well. And 
that is quite different from what you correctly point out are 
the travel warnings which say, ``You shouldn't travel here'' or 
``Travel at your own risk'' or ``Don't go there.'' But I will 
get the specific answer to your question.
    Mr. Jackson. I am concerned about the interests of these 
Americans who were born in the United States, who are living in 
this very difficult geography and situation, and what your 
office is doing to instruct them and provide them with the kind 
of security that they need.
    We have also seen, Mr. Secretary, pictures and reports of 
incredible destruction and devastation to the civilian 
infrastructure in the West Bank. All of us have seen the water 
systems destroyed, pipes broken, records and computers in 
places like the Ministry of Education. As a matter of fact, it 
was on Nightline just a few days ago, the Ministry of Housing 
had its computers destroyed.
    For a number of years, this committee has supported U.S. 
assistance to help develop exactly this kind of infrastructure 
in order to improve the lives of Palestinians, to help reduce 
the threats of terrorism to Israelis. Given all the recent 
damage and destruction, I am wondering, does the State 
Department or USAID plan to carry out any kind of assessment of 
the current IDF offensive to U.S.-funded projects?
    Mr. Armitage. I know that we have discussed an assessment 
of the damage more broadly, both in human terms as well as 
infrastructure. And, by the way, it is both Israel and 
Palestine. Obviously, in the Palestinian area the damage has 
been quite extensive. We have not moved beyond that to 
specifically what was U.S.-funded and what was European Union-
funded, et cetera.
    Mr. Jackson. Has there been an idea of explaining to Mr. 
Sharon, and also to Mr. Arafat, by Secretary Powell, that U.S. 
funding of these projects--should be respected and not subject 
to any offensive in the region?
    Mr. Armitage. Well, is that a question, sir?
    Mr. Jackson. I guess it is sir. Somewhat rhetorical.
    Mr. Armitage. No, I want to try to address your question.
    There is plenty of discussion between Secretary Powell and 
Prime Minister Sharon and Chairman Arafat about what is going 
on on both sides of the line--suicide bombings, on the one 
hand, which rip away lives and aspirations of young people who 
are in church or at prayer and seder. And by the same token, 
there are Palestinians who are killed who are not fighters as 
well. That is why Secretary Powell is trying to stop it, bring 
it down.
    The question of infrastructure is a horrible fallout of 
this tragedy. And if we move forward we are going to have to, 
and the international community is going to have to, move 
forward and address this. But you can't move forward and 
address the humanitarian challenge and infrastructure challenge 
until we have some sort of political process that allows, 
somehow, that we won't repeat this terrible tragedy.
    Mr. Jackson. I accept that, and I recognize, as well, these 
events are tragic. They are obviously tragic on both sides; 
everyone on the committee is fully appreciative of that. But it 
doesn't appear to me that this committee should be 
appropriating any more money for vital infrastructure unless we 
are willing to come up with the plan for protecting the vital 
infrastructure that we are supporting.
    So does the State Department have a plan for protecting 
this committee's resources in that area, which we have designed 
and specifically are spending to help reduce tensions in that 
area?
    Mr. Armitage. The State Department is not going to protect 
infrastructure in any country. That is the business of the host 
country and its authorities, and police force or its military 
if it comes to that.
    So the answer, I guess, would be, no, we don't, sir.
    Mr. Jackson. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you. The subcommittee will stand 
temporarily in recess. We will resume just as soon as we get 
back from this vote.
    [Recess.]
    Mr. Kolbe. The subcommittee will resume, and since I am the 
only member here, I will start asking some more of my 
questions. We will go back to the regular order. We still have 
Mr. Kingston, Ms. Pelosi, if they return, to go back to before 
we start the second round of questions.
    I want to ask a question, Mr. Secretary, about Pakistan, 
which we have had some discussion about here today. We 
obviously have been very successful in getting a very high 
degree of cooperation with Pakistan in this war against 
terrorism. I think we are all very appreciative of the support 
that President Musharraf and the Pakistani Government has given 
to us.
    They are very much on the front door of this war, but of 
course, we also know that they bear a major responsibility for 
the initial success of the Taliban regime coming to power in 
Afghanistan.
    Now, however, we are hearing some rather disturbing reports 
that the Government of Pakistan is not cooperating as closely 
with the United States as it was immediately upon the events of 
September 11th. As an example, Pakistan has balked at our 
proposal to go into the Afghanistan and hunt down al Qaeda 
terrorists. In addition, 800 of 2,000 Islamicprisoners that 
have been in prison since January have been released from jail.
    Finally, there are questions as to the degree of 
cooperation which the Pakistani authorities provided to the 
U.S. in investigating the murder of the reporter of the Wall 
Street Journal, Daniel Pearl.
    In a newspaper column written a couple of weeks ago Jim 
Hoagland states, ``The clear instructions that Deputy Secretary 
Armitage gave to the Pakistanis soon after September 11th, 
`Halt all support for terrorism or else,' have with time faded 
and seemingly lost their impact. Washington is now negotiating 
with Musharraf, not negotiating him to act.'' Now the 
supplemental request has another $45 million for Pakistan and 
the 2003 includes another $250 million beyond that.
    Before Congress acts on these proposals, I think we want to 
have an assurance from you and others in the administration 
that Pakistan continues to be a full and active partner in the 
war on terrorism. Could you comment on that?
    Mr. Armitage. Yes. No one is in a position to give you a 
full assurance. I think I can state the facts as I know them, 
Mr. Chairman.
    First of all, about 2 weeks ago Pakistanis involved with 
the U.S. law enforcement and intelligence operatives took down 
three safehouses, had a couple of gun battles and captured one 
of the leading al Qaeda figures who is now being debriefed, Mr. 
Zubaydah, which is not a bad sign of cooperation.
    I think to the extent there has been an interruption, 
particularly on the western border of Pakistan, it was more 
involved in the fact that Pakistan and India were glaring at 
each other over Kashmir.
    As you well know, sir, many forces were moved from west to 
east on Pakistan. That trend is reversing to some extent, and 
some of the Pakistani forces are going back home.
    On the question of the assistance in the Pearl murder 
investigation, I think it was unfortunate that the Pakistanis 
apparently had Sayed for several days before they informed the 
United States. But in terms of following up and helping Mrs. 
Pearl and things of that nature--I should let her speak for 
herself--but I talked to her during that time and she seemed to 
me to be quite satisfied with their assistance.
    I have a fair degree of confidence that we are going to 
continue to get assistance from Pakistan. I think they have 
thrown their lot in with us. I don't think they have a choice.
    I can't say what you said about their responsibilities for 
the Taliban and their support for the Pashtuns in large measure 
for 10 years. But I can say that I have a fair degree of 
confidence that they have made a decision, and they have very 
little choice but to follow through with it.
    Mr. Kolbe. Well, I appreciate that comment. I certainly 
hope you are right. You just have the impression that maybe it 
is because of the vote that is coming up and President 
Musharraf is finding himself engaged in a political campaign. 
Although he has no opposition in this campaign, that he wants a 
very sizable vote.
    But there just seems to be a noticeable coolness on the 
part of the Pakistanis towards the United States at this point.
    Mr. Armitage. Well, I have not personally noticed it. We 
have pretty good conversations with him, back and forth. Since 
the terrible grenading in the church in Islamabad, it was such 
a shocking thing that perhaps we have, at least in Islamabad, 
gone to ground a bit. We are not as totally active. That was a 
very shocking, terrible moment for the embassy.
    But I notice that, from the Secretary's point of view, he 
has fairly frequent discussions with President Musharraf and 
fairly congenial ones.
    I have not noticed the cooling, Mr. Chairman.
    Mr. Kolbe. Thank you.
    We have members back who have not had a moment or chance to 
ask their questions, so we will resume the regular questioning 
with Mr. Kingston.
    Mr. Kingston. Thank you, Mr. Chairman.
    And, Mr. Secretary, it is great to have you back before 
this committee. We certainly commend everything that you and 
the State Department and this administration are doing to make 
the world a safer place. One of the things that we politicians 
will be doing a lot of this summer and this fall is taking 
polls to find out what we are doing wrong and what we are doing 
right and what public perceptions are out there about us that 
we need to correct between now and November.
    So, while we will be doing that the thought occurs to me, 
well, we seem to have a lot of friends in this world, and we 
still seem to have a lot of enemies. A lot of those enemies are 
ones that do get foreign aid from us, and I am wondering if 
there isn't some kind of a mechanism that we could use--
surveying, polling, or whatever--to find out among the 
countries where we are doing things for them and we are not 
getting a little more credit, indicating, in point, of course, 
Afghanistan. I know it is difficult to get the word out to the 
people, but as I understand, we were giving $173 million in aid 
directly and indirectly to Afghanistan prior to 9/11.
    Mr. Armitage. That's right.
    Mr. Kingston. You know, if there is--if they are oppressed 
by the Taliban government, and we are still helping them, can 
we get that word out to the population that the American 
people, regardless of what the Taliban is sayingabout them, 
that Americans are the ones who are responsible for the grain that you 
are eating or enjoying or something like that? It just appears to me, 
something beyond putting our label ``Made in U.S.A.'' on the packages, 
there should be something that we could do to persuade the people--you 
know, not just to get credit, but it is a national security issue. We 
want to make sure that our friends are our friends.
    Mr. Armitage. Mr. Kingston, you point to a dilemma that 
during the Taliban regime, there was humanitarian assistance. 
And I think we get wrapped around our very, I think, formidable 
and proper humanitarian impulse to feed people who are starving 
and put behind the politics. And I don't know how you modulate 
that, because the humanitarian impulse of the United States and 
Americans as citizens of the world is pretty great, and thank 
God, it is so.
    More broadly, on finding out what works and what doesn't, 
there are terms of foreign aid. I think that is what we are 
getting at. I can only say that we have recognized this in the 
department as a problem.
    Mr. Burnham, our chief financial officer, has redone what 
we call an MPP, a mission performance plan, that was to get the 
missions to tell us what they spend their time on, where our 
assistance goes, what we are seeing for it. Over time, we will 
be able to judge if we are putting money down the proverbial 
rat hole, or else there is some recognizable benefit beyond the 
humanitarian impulse I think we all feel.
    This has been changed this year because we want to be able 
to grade ourselves a little bit, and I think it helps us in our 
presentations to you.
    So I am aware of the problem. I think we have started in a 
minor way on the answer, but we have got a lot to do.
    Mr. Kingston. I think there should be some way we can 
measure what our 5-year return on investment is, if the country 
is moving towards democracy or moving towards pro-West, or 
there are trade benefits or something, that we should have some 
idea.
    And I certainly would never suggest that in a disastrous 
situation like Rwanda, where we are rushing in there and people 
are dying and dead, that we go out and give out our business 
cards. We don't want to be in a situation like that at all.
    But I think in terms of a steady, long-term partnership 
with a country, it should be understood that they are getting 
assistance and it is American assistance. And make no mistake.
    In terms of Palestinian PLO, what kind of aid do they get 
from us? Because I hear all kinds of different stories about 
them getting some indirect support for this and that.
    Mr. Armitage. No, we are not. The PLO, no. We had stopped 
the aid to the Palestinian Authority directly and are providing 
it through NGOs and other things that directly affect the 
Palestinian people. And the President, a couple of days ago, 
signed a new $20 million, I think, release for UNWRA 
activities. I don't think we give anything to the PLO, for 
sure.
    Mr. Kingston. There is some, but it goes through NGOs?
    Mr. Armitage. It goes to the people. The Palestinian 
Authority, I think was widely seen, as corrupt.
    Mr. Kolbe. Just to clarify that it goes to the West Bank, 
and that none of it goes to the Authority.
    Mr. Kingston. Okay.
    Mr. Armitage. Yes. You are right.
    Mr. Kolbe. We have a member that has joined us, who has not 
had a first round of questions. We will go to Mr. Bonilla; then 
we will start our second round.
    Mr. Bonilla. Good morning, Secretary.
    Mr. Armitage. Good morning, sir.
    Mr. Bonilla. I want to start out by asking about setting up 
the International Narcotics Control and Law Enforcement Project 
in conjunction with Mexico. And I just want to make sure, as we 
do this, that we are--I know we are looking at this as a 
national project, but we want to make sure that some of the 
folks that are actually on the front line along the border are 
consulted, because they are the ones that have been dealing 
with a lot of this for many, many years.
    So is that happening? And if not, why? If not, when will 
that happen, when will we start including the locals in this 
project?
    Mr. Armitage. I am a little hesitant to give you a really 
robust answer because I am not sure I am right that we are 
doing that. Your point is to recruit locals who really know 
what is going on, vet them, obviously, and then put them into 
the game. My understanding is, that is very much a part of this 
project.
    We have a different ongoing and complementary project that 
we are suggesting in our supplemental--emergency supplemental 
request for $25 million for border security, and is coordinated 
between Frank Taylor's office, antiterrorism, and Governor 
Ridge's Homeland Security. And it goes to such things as 
information sharing and systems; passengers, goods that cross 
our borders; creates inspection capability, including mobile x-
ray machines and things of that nature; trains and equips 
Mexican law enforcement agencies to prevent migrants from 
entering the United States; and creating additional entrance 
high-volume lanes at ports of entry and those kinds of things. 
And that is all covered in our supplementary.
    Mr. Bonilla. The reason I ask that, the area I have along 
the southwest border--I have almost 800 miles of the Texas-
Mexico border that includes that huge land port at Laredo. They 
move a monumental amount of traffic across there every day. Not 
only that; I have that area which is similar to much of the 
terrain that goes west of Texas, as well, where it is very 
isolated, desolate in some cases. Over the years, there might 
be one or two Federal law enforcement agents, more than likely 
Border Patrol, that are patrolling hundreds of miles of 
territory.
    So the possibilities of not just narcotics moving from some 
of the areas where manpower has been beefed up to these more 
desolate areas has increased; and in some cases, we are asking 
park rangers to carry some of the load, especially in Big Bend 
National Park. That is a huge part of that left, hanging part 
of the State as you are looking at the Texas map.
    So, to our knowledge, none of our folks down there have 
been part of this process. And again with an 800-mile span of 
border, I think that is significant.
    Mr. Armitage. Mr. Bonilla, if you will entertain a call 
from Rand Beers, our Assistant Secretary, I will have the 
expert give you an expert answer.
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    Mr. Bonilla. Okay. I appreciate that.
    I only have one other question related to Afghanistan, 
which I know has been discussed in great detail here today. We 
heard some time ago from a Director of USAID that because of 
the extreme, volatile and outright dangerous conditions that 
our rebuilding personnel are operating under, that there was a 
very, very serious concern when he appeared here before us a 
few weeks ago.
    I don't believe in that period of time much has changed, 
but if it has, please let us know. If it hasn't, I guess it is 
something that this subcommittee needs to continue to address. 
We don't want our folks operating in that kind of environment 
if we can help it.
    Mr. Armitage. It was certainly an inhibiting factor when we 
put together our request. We were reluctant to look for more 
reconstruction aid if we weren't sure we would be able to be 
safe and have a presence.
    Some things have changed. For instance, in Harat, which is 
in the far west of Afghanistan, our ambassador recently visited 
and found the city under complete and total control. And it 
seems to me that this is an area that we could start moving out 
developmental assistance. So I think what the director 
explained to you, sir, is it is very much a work in progress, 
and we will have a couple of steps forward and an occasional 
step back.
    President Bush reminded us in a meeting I attended the 
other day that if you look at the history of Afghanistan, 
whether it is the British experience or the Soviet experience, 
they did pretty well in their first year. When they took their 
eye off the ball the second year and third year, it started to 
go wrong way. We have to make sure we don't take our eye off 
the ball, Mr. Bonilla.
    Mr. Bonilla. The last thing I want to touch on is, I asked 
the Secretary last year and asked it again this year at an 
earlier hearing and I asked it during the hearing on Colombian 
assistance on the State Department's progress on drug 
certification. As you know, I and many of my colleagues believe 
this entire process is flawed and needs reform. Secretary 
Powell a year ago said that he understood where I was coming 
from and perhaps agreed that the system needed to be reformed, 
and we need to have a system of accountability that truly 
deters drug trafficking. Sometimes over the years we get in 
political hot water because of this system that is in place 
now, that is all we have.
    So my question is, is there any progress being made at the 
State Department in changing this process, so it can be 
actually addressed more to the legitimate reforms that are 
taking place in countries?
    Mr. Armitage. You know, if there is, it is not visible to 
me, and so I apologize for that. I am just going to have to get 
into it. But it hasn't come to me, so I suspect not much is 
going on. I suspect this is a case of taking our eye off the 
ball because of the war on terrorism, et cetera. But I will 
give you an answer.
    Mr. Bonilla. I certainly understand that. Because I know 
the priorities have shifted. But that is something I am going 
to keep asking about.
    Mr. Armitage. I got the message sir.
    Mr. Bonilla. Thank you, Mr. Chairman.
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    Mr. Kolbe. Ms. Pelosi is back, so we will get her questions 
and then we will begin our second round of questioning with Ms. 
Kilpatrick.
    Ms. Pelosi.
    Ms. Pelosi. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. Thank you for your good work on 
behalf of our country in this capacity. As ranking on 
Intelligence, we are all very, very proud to work closely with 
the administration in the war against terrorism.
    This supplemental is a very important one. I want to 
associate myself with the concerns raised by our ranking 
member, Congresswoman Lowey, about the fact that the funding 
that the President had suggested, which will help us alleviate 
poverty, alleviate the despair among peoples of the world, that 
is so important in our fight against terrorism, is not--would 
not begin until fiscal year 2004. Mrs. Lowey made that point; I 
want to reinforce it with you.
    I have very serious concerns that there is no funding for 
HIV-AIDS in this supplemental, which is indeed an emergency and 
has a very responsible place in an emergency, the supplemental. 
I think that point has been made by others, as well.
    I want to take this occasion and use my time though, Mr. 
Secretary, to ask you a question that is very bothersome to me. 
As I say, we all stand shoulder to shoulder with President Bush 
in the war on terrorism. As you know, I have worked closely 
with the administration in that regard. That was why I was so 
disappointed last week when the administration was ambivalent, 
or even cavalier, in response to the coup in Venezuela.
    Promoting democracy in the world is an important pillar of 
our foreign policy. Certainly it is a value in our hemisphere. 
And I talked with my colleague, Congressman Callahan, when he 
was chairman and I was ranking, we visited President Chavez in 
Venezuela and we know full well, speaking only for myself, the 
challenge that he presents to U.S. interests. This is no 
defense of President Chavez, but it was a defense of 
democratically elected governments.
    I would like to ask you a couple questions. One is, did we 
have any participation in the coup d'etat? And secondly, why 
was not the administration's response to a coup in our 
hemisphere more forceful and reported to a constitutional 
process? The leader of the coup, upon assuming power, dissolved 
the legislature, dissolved the supreme court, abolished the 
constitution and said there would be no elections for a year.
    I know our policies are always rooted in constitutional 
reform and a democratic--respecting democratic processes. So 
this coup did not represent that either. And yet the 
administration, as I said, was at best cavalier, and at worst, 
I think, dangerous to our interest in the nature of the 
response, a reaction that was not shared by any other country 
in the hemisphere.
    Could you comment on this?
    Mr. Armitage. Yes, ma'am. Thank you very much. I was 
taught, and I believe this administration embraces, the feeling 
that where principle is involved, we should be deaf to 
expediency. And I think that the formulation of our statements 
surrounding this event in Venezuela were not what they should 
have been. They certainly don't appear to be in hindsight. But 
like the music of Wagner was once described as being better 
than it sounded, I think our story is a little better than has 
been reported.
    As to a direct answer to your question, I have no 
knowledge. I have asked about any participation giving 
enthusiasm to this event before it hatched. I have gotten 
negative answers across the board, Ms. Pelosi.
    Second, the communications that our records show in the 
Department for months with the Venezuelans, whether opposition 
or government, were consistent in the need to follow the 
constitution and constitutional processes.
    The big irony for me, besides my friend, Chris Dodd, saying 
there was no adult supervision at the State Department--which 
kind of hurt my feelings, because I was there; the Secretary 
was gone--is that we signed in Peru on September 11th a Charter 
for Democracy for the hemisphere.
    Ms. Pelosi. I understand that.
    Mr. Armitage. Which directly makes the point you are 
making. That is the irony here.
    I think our public statements weren't sufficient. We are 
trying to do a little better. We have worked with the OAS; 
probably Secretary Powell will attend the OAS meeting to make 
the points that I think you would proud to have the government 
make, your government.
    But as I say, it wasn't quite as bad as it was reported, 
but it was not good enough for a principled nation.
    Ms. Pelosi. It didn't live up to the standards that you 
have set.
    Mr. Armitage. I agree.
    Ms. Pelosi. I am very concerned about the participation of 
Assistant Secretary Reich in all of this. Do you have any 
knowledge of his participation in any of this?
    Mr. Armitage. I have knowledge that he was misreported in 
the New York Times, that he had called the leader of the then-
opposition interim president. That was untrue. And I think that 
has been corrected today in subsequent publications. He, along 
with most members, certainly in the WHA Bureau, have met as a 
matter of course with both opposition and government figures. I 
myself have in the normal course of my business.
    As I say, I have no knowledge other than strict adherence 
to the constitution as the message from the United States.
    Now, during that whole time, from Friday afternoon on, I 
probably talked to Ambassador Shapiro five or six times 
primarily, and in fact exclusively, about what was going on, 
were our people safe, were the roads to the airport open in 
case we have to get them out? It was kind of a confused time.
    Ms. Pelosi. Well, Secretary Reich's reputation has preceded 
him, unfortunately. We had hoped that there would be a change 
under this administration. So I appreciate what have you said 
here today. I know this conversation will continue.
    But thank you very much for answering my questions so 
directly.
    Mr. Armitage. Thank you, Ms. Pelosi.
    Mr. Kolbe. While others were delayed getting back from the 
floor, I had a chance to ask a question. We will now go to Ms. 
Lowey for the second round of questions.
    Mrs. Lowey.
    Mrs. Lowey. Thank you for your integrity and the honor 
system. I appreciate that.
    Mr. Armitage. Where principle is involved, be deaf to 
expediency.
    Mrs. Lowey. I always can count on my Chair for principle. 
Thank you.
    We have discussed this issue before, but I did want to 
bring it up again. As you well know, when Secretary of State 
Powell appeared before this committee in February, he indicated 
that the administration was preparing to send a team to China 
to evaluate the, as yet, unfounded charges that the UNFPA 
supports coercive practices in that country.
    More than 3 months have passed since the President signed 
the fiscal year 2002 foreign operations bill, and more than 2 
months have passed since Secretary Powell informed us of the 
formation of this team. Yet there has been no progress on any 
front in ensuring that UNFPA receives the funding Congress 
intended for it. In my mind, this situation truly is an 
unacceptable breach of the faith in which Congress negotiated 
the 2002 bill with the administration.
    A few questions, Mr. Secretary. First, can you tell us who 
the administration has appointed to the fact-finding mission? 
When are they scheduled to depart?
    Well, rather than give you four at once--go right ahead.
    Mr. Armitage. I also heard you, Mrs. Lowey, be very clear 
in a conversation which you and I had a couple of months ago 
that patience has run out and the Congress may be taking this 
matter in its own hands.
    My present understanding of this situation is that former 
Ambassador Bill Brown, who was the ambassador in Israel and 
Thailand, as well as a State Department official for years, has 
been selected. There is a woman--I just can't remember her 
name. And they are vetting two doctors; they want to find one 
of two doctors to go. And my understanding is they will be 
embarking early May for a 2-week trip, after which the report 
should be issued.
    Interesting to you, to me, to others, would be that a 
similar British delegation from organizations who are very 
skeptical about policies of the Government of China went 
recently on a similar-type mission and came back with actually 
very positive things to say.
    And it was reported in our diplomatic traffic about the 
UNFPA activities in China, just for the record.
    Mrs. Lowey. I appreciate that, because it is moving 
quickly.
    Let me just for the record--is my time gone?
    Mr. Kolbe. No, I forgot to even turn it.
    Mrs. Lowey. I won't take advantage of you. But let me ask 
the rest of the questions regarding that issue. And I 
appreciate your response to the first question.
    I shouldn't have reminded you.
    If you can tell us, what would be the scope of the 
commission's investigation? Where will they visit? What will 
they be tasked specifically with finding out? When do you 
anticipate being able to make a determination about whether to 
release the fiscal year 2002 funds? Do you anticipate this 
happening before the end of the fiscal year?
    Once again, let me just say, many of my colleagues and I 
have made absolutely clear--and I know that you understand 
this--that this is a priority item for us. Nonetheless, it is 
clear that the administration has stalled in acting on specific 
requests to release these funds. I hope you are not trying to 
run the clock out until the next fiscal year.
    Mr. Armitage. If we try to run the clock out, we will find, 
as a matter of legislative directive language, I think, that is 
very well understood. So I don't believe that is what is going 
on.
    In preparation for this hearing, I asked a few questions, 
as you would imagine, because I knew you were going to be here, 
and I know, because of your many phone calls to me, what is on 
your mind.
    I haven't seen the scope of their investigations. A 2-week 
investigation, I think, will allow them to make sort of visits 
where UNFPA is very active and, of course, just check with 
themselves if abortions are in any way involved in UNFPA 
activities. I am very hopeful that they will come back very 
rapidly and allow us to spend not to exceed $34 million for 
UNFPA activities.
    Beyond that, I will take the question for the record and, 
as expeditiously as possible, provide you a full answer. But we 
in the administration are not trying to run out the clock.
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    Mrs. Lowey. I know that.
    Mr. Armitage. It is not in our self-interest because, as we 
have discussed----
    Mrs. Lowey. Just want to conclude that conversation because 
you and I, I think, understand each other. We have had several 
conversations on this issue.
    But given that this was a bipartisan negotiation, given 
that there was an agreement, given that there was an 
overwhelming vote in the House on this issue, it really raises 
unnecessary questions of the government's good faith in 
negotiating other issues. Because to take 2 months to appoint 
someone to go, and now you say--and I appreciate that it is 
scheduled to leave in May; I would hope that shortly, almost 
immediately after its return, the information would be 
absorbed, and we can move ahead on what I feel is a very 
critical program.
    And, in fact, one of the first appropriations that was made 
to Afghanistan was $600,000 for family planning. And most of us 
understand how very important that is for poor women around the 
world. So I would hope that you will accept these questions and 
these comments, the way they are meant, and that we can move 
forward on this issue as soon as possible.
    Mr. Kolbe. If the gentlelady would yield, I would point out 
to the Secretary that this is 1-year money, as the gentlelady 
suggested about running out the clock; and that at some point, 
you will run afoul of the Budget Impoundment Act, because it is 
against the law to not spend money for policy reasons. So you 
will be up against that at some point, very quickly.
    Mr. Armitage. I appreciate that, sir. I know very well of 
the arduous negotiations and the Mexico City language that went 
into this terrific compromise.
    Mr. Kolbe. Thank you.
    Mr. Lewis.
    Mr. Lewis. Thank you, Mr. Chairman.
    Mr. Armitage, your 2003 request involves a total of just 
over $16 billion. Within that package, to Israel, there is $2.7 
billion proposed, and Egypt, $1.916 billion. My question 
relates to the whole time that we have been involved in the 
peace process, roughly 1979 to today, my figures indicate that 
to Egypt has gone some $51.65 billion; to Israel, some 74.35 
billion--a total of over $125 billion.
    Two piece question: First, I can't see any significant 
evidence of improvement of the economic circumstances of 
average people, especially poor people, in Egypt during all 
that time. And I am worried about stability there. Clearly, 
economic opportunity, et cetera, ought to be a part of these 
kinds of economic flows, and I don't see much evidence of that 
at all. So if you would, address that question.
    The second piece goes to Israel, where we are hoping these 
monies lead to stability; and yet one of the major problems in 
our difficulty there right now is the horrid circumstances of 
the people who are in the West Bank largely, but who operate 
within Israel as well.
    The Palestinians are living in horrible conditions. They 
have been the core of this confrontation. We ought to be 
criticizing those pools of oil money for their lack of support, 
but what have we done or what have our dollars done to help 
overcome that circumstance?
    Mr. Armitage. I think it is a two-part question; it is kind 
of a many-part answer.
    In the first--and I don't mean to be trite--the fact that 
we haven't had conflict between Egypt and Israel is a 
noteworthy event. But there is more to it. We have 
successfully, on the military side, weaned the Egyptian armed 
forces completely off, almost completely off the former Soviet 
systems; and they are compatible with our systems, which both 
helps us, as it did in the Gulf War, in compatible warfare, but 
I also think is a guarantee that Egypt wouldn't be starting a 
war because of the supply chain.
    I am as despondent as you about the lot of the Egyptian 
people. There are a lot of them. There are a lot of them. And 
the bureaucracy in Egypt, we were joking about our own--it 
makes ours look like greased lightning and then adds to, I 
think, the malaise and the difficulty for ordinary Egyptians.
    I can't speak to what an Egyptian would say, who has gone 
to school here, who has benefited from some of the programs 
that AID has put into effect, some of water purification, how 
many Egyptians live because of some of those things, that 
wouldn't have otherwise. I just don't have the figures. But I 
suspect it is significant and yet somewhat invisible in terms 
of something that you can see that betters the lot of the 
people.
    And Israel, the fact, on the military side, that we have 
been able to maintain the Israeli military and technological 
edge, is dammed important, I think. It has, I think, kept the 
peace in the region for years.
    Second, on the economic support front side--I think Israel 
is taking another 50,000 Soviet Jews, for instance, this year. 
And look at the immigration to Israel. It is very much, since 
money is fungible, our funds and support for Israel that allows 
the country to grow and have a future.
    The money for the West Bank, as the chairman correctly 
points out, does not go to the Palestinian Authority; is goes 
to the people of Palestine. They are in difficult circumstances 
now, and in many areas, they are in worse circumstances than 
before. If we get a political processgoing, certainly we will 
be coming back to you, sir, looking for money for the Palestinians, not 
for the PA but----
    Mr. Lewis. Mr. Secretary, when I was a newcomer here in 
1979, I had just recently spent a good deal of time in Israel. 
And that horrendous maze of their politics, a lot of the debate 
then was saying, what do we do about stopping the desire to 
extend into the West Bank, the development of communities, et 
cetera, et cetera? I mean, that was really one of the thrusts 
of the majority-minority debate, and there was support on both 
sides to not do very much.
    Clearly, that debate went nowhere because there has been 
nothing but expansion. What has this money done to impact that 
sort of policy, that literally has been a major source of 
unrest, the expansion of the West Bank?
    Mr. Armitage. The settlements particularly are a major 
source of unrest. And I don't think there is a truthful answer 
to you other than, I think that for a lot of reasons, 
complicated reasons--some historical, some political--there has 
been a reluctance to be very heavy handed with Israel. Because 
we have no better ally and friend in the region, I mean, I 
don't know what to say.
    I don't think that heavy handedness works, actually. I 
think we have to be able to develop the proper amount of 
confidence in the Israelis that we are not going to leave them 
in the lurch, and try to work with them, as Secretary Powell 
was trying to do this week, to come to a better way of living 
and to realize the vision that the Secretary, but more 
importantly, the President laid out at the United Nations of 
two states, Palestine and Israel, side by side, living in peace 
with secure borders.
    Mr. Lewis. Let me just submit that the oil centers of 
control have conveniently used the Palestinians as their foil. 
It might be that our tendency to be more than gentle, relative 
to Israel itself, perhaps has made that foil much more 
effective, as well as convenient.
    Mr. Armitage. Well, we have certainly been a lot more--the 
United States Government, Congress, the people have been a lot 
more supportive of the Palestinian people than many of their 
so-called supporters in the Arab world, in terms of money 
provided and, I think, in terms of actually caring about the 
welfare of and the aspirations of the people.
    Mr. Kolbe. Thank you. Ms. Kilpatrick.
    Ms. Kilpatrick. Thank you, Mr. Chairman. I was going to go 
to Colombia, but I have got to stay on Chairman Lewis's just a 
moment. 1979 was 25 years ago when I was entering the Michigan 
State Legislature, where I served for 18 years, and the same 
expansion of the land, encroachment of what the Palestinians 
believe is their territory is a reason, one of the reasons why 
we are in the predicament that we are in. No easy answers to 
that, but we must acknowledge that that is really part of the 
problem, and until we deal with that--and of course Israel is 
our ally and I am not trying to take sides. I think America 
ought to be a negotiator, a broker. I don't think we should 
take sides at all. That is another problem.
    Having said that--that was my editorial comment--Colombia, 
since 2000 money has been spent--$2.5 billion have been spent. 
Defense really administers 80 percent of it. State Department 
gets 20 for humanistic, humanitarian needs. Relocation is what 
I want to get to. Is there something or is there a document 
within the State Department--and someone did come over and 
brief me verbally. I still haven't received anything in 
writing--that says how and where your 20 percent of that 
humanitarian assistance has been spent in terms of putting 
people back into their land? They have been dislocated because 
we have moved their crops. Can you give me an update on that?
    Mr. Armitage. Yes. There is a document and there are 
probably lots of documents that we would be glad to provide to 
you, and I think that most of us in the Department have come to 
the conclusion that the alternative development, which I think 
you are speaking to, has not been as successful in Colombia as 
we had hoped. Perhaps we didn't have the right partners. 
Perhaps we didn't understand the problems significantly enough, 
and we are trying to work through that. But I don't have--
unless one of my colleagues has the figures with me right here.
    Ms. Kilpatrick. If you could get back to me.
    Mr. Armitage. I would be more than happy to, ma'am.
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    Ms. Kilpatrick. The problem I have as a Congressperson, and 
I support whatever we can do to eradicate drugs in America--I 
have said it before, it is the cancer of America, of the world 
really. Seventy percent of cocaine comes from Colombia. We must 
do something about the interdiction, but we also have to do 
something about treatment on demand in America, which is 
getting further and further away from the people who need it. 
So as an appropriator and a person who represents the City of 
Detroit and surrounding areas, when I see people who are 
addicted, for whatever reasons, and cannot get the drugs and 
the drugs continue to flow and the families are devastated, 
children don't have--you know, a ripple effect, it is hard for 
me to continue to support on the one hand the money that is 
going to Colombia and the Andean region particularly, and on 
the other hand we don't have the money in our budgets here to 
fund treatment on demand. So the spigot continues to flow, but 
the treatment for those who are now strung out in America and 
around the world does not get the attention that it needs.
    You are State Department. I know we give you what you need 
and you are supposed to do what you do and I am sure you do 
that. As a Congressperson, many of our own discussions among 
each other, we don't see the right kind of support for 
communities around America where those Colombian drugs, Andean 
drugs end up.
    Any comment?
    Mr. Armitage. Well, I mean, as a citizen I have a comment.
    Ms. Kilpatrick. Let me hear that one. That is a step.
    Mr. Armitage. I am intimately involved with the problem of 
drug addiction and intimately aware for a lot of reasons we can 
go into privately, and I know that we have to--it is not just a 
matter of shutting down the supply or the demand. We have got 
to get supply, demand. We have got to have education.
    Treatment on demand is somewhat controversial. In some 
areas I think treatment that leads to something, and, you know, 
demands a performance is probably something that is----
    Ms. Kilpatrick. I wouldn't have it any other way. Treatment 
on demand that demands performance. Well put. That is how it 
should be.
    Mr. Armitage. You know, our part of this action is in the 
supply end, and we are trying to attack that and try to 
encourage people to have alternative crops and things of that 
nature, and I----
    Ms. Kilpatrick. So the money that this committee gives you 
is for alternative crops and putting people back in there, and 
you have some document that can show that that money----
    Mr. Armitage. And they are spraying and other things that 
are involved, but it is all to reduce in one manner or another 
the supply of coca.
    Ms. Kilpatrick. And so on the Colombian side, the people 
whose crops are now fumigated and they have been dislocated, 
the funds that this committee gives you guys, you use it to put 
those people and children back into their homes and other kinds 
of crops they may grow, cash crops and----
    Mr. Armitage. Yeah. It is what we call alternative 
development, to give them other development options, whether it 
is other crops, et cetera. But as I said, we haven't been quite 
pleased with what has gone on in Colombia in that regard and we 
are looking----
    Ms. Kilpatrick. Do you have a document that we can----
    Mr. Armitage. Yeah, I do, ma'am, and I will be glad to 
provide it, but I just don't have it at my fingertips.
    Ms. Kilpatrick. Thank you. I look forward to receiving it. 
Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you. Mr. Knollenberg.
    Mr. Knollenberg. Thank you, Mr. Chairman. Mr. Armitage, 
again thank you for your assistance here this morning and your 
responses. I know we have covered or been told we have covered 
the India-Pakistan situation a little bit here.
    Mr. Armitage. I will be glad to talk about it, sir.
    Mr. Knollenberg. As you know, to some extent it hasn't 
dropped off the radar screen but it certainly isn't as high as 
it was, for good reasons. These two countries, both of whom as 
you know have nuclear capabilities, really they are still 
locked in a standoff. At the present time they have a million 
troops, I understand--if that is not correct, challenge me--but 
on the border, and that is a little bit of presence, I would 
say. I think we have to keep our eyes on what is happening over 
there.
    The question I would have for you--and you haven't answered 
this. If you have already, you can embellish it even further. 
But what is the administration doing to sustain the momentum in 
our relationship with India? And I know why of course on the 
India-Pakistan money choice, there is some 145 million in the 
supplemental 2002 bill that went to Pakistan. Obviously there 
was none for India. And they are aware of that, I know, and 
that doesn't mean that we shouldn't be doing what we are doing, 
but it is a question I wanted toraise. And then for the 2003 
request, they have bumped theirs from $145 million to Pakistan to $305 
million, a sizable jump, which is substantially over what the India 
request is, which is 242. So what is the administration doing to 
sustain that relationship or the momentum in our relationship with 
India?
    Mr. Armitage. You know, there is a great irony. When 
Director Webster was Director of the Central Intelligence 
Agency, in his last testimony before the U.S. Congress he said 
that in his view--this was 12 years ago--in his view, the most 
dangerous, volatile situation in the world was on the India-
Pakistan border, particularly regarding Kashmir. I think that 
recent events, particularly from January on, have shown that he 
was right then and he is probably right now. The specter of two 
nations shouting and shooting and glaring at each other over a 
disputed territory is not exactly unknown, but when they are 
armed with nuclear weapons and they are having that kind of 
engagement, then there is a real bad recipe.
    The President, Secretary Powell particularly, Secretary 
Rumsfeld, have worked with both President Musharraf and most 
particularly with External Affairs Minister Jaswant Singh to 
try to bring the level of terror, if you will, down on the 
border. And although the Indians are still in large measure 
forward-deployed, some of the Pakistani units, as I indicated 
earlier to the chairman, have started to go back towards their 
western border or to more traditional locations.
    In terms of our relationship with India, the President 
stated, laid this out at the Ronald Reagan Library before he 
was President, that one of his major endeavors was to have a 
relationship with the nation that is soon to be the largest 
nation in the world, will soon surpass China. It is, as you 
correctly point out, a nuclear power, but, as is often not 
pointed out, it has the largest and fastest growing middle 
class in the world. Multi-ethnic, multi-religious democracy, 
sounds pretty good. And we have sent Ambassador Bob Blackwell 
out there with pretty specific instructions about improving 
this relationship. We have had Prime Minister Vajpayee here. We 
have also had the opposition here. I had Sonya Gandhi in not 
long ago to discuss with her the opposition's views of the 
direction of India, and I think that you will find that whether 
you are an American government official or an Indian government 
official, you are pretty confident that we are moving in a 
pretty new direction. We have recently--Mr. Lewis will be 
pleased. We have made some sales of defense equipment there 
that were reported in the press, which is rather relatively 
unprecedented for us.
    Mr. Knollenberg. The war on terrorism obviously has taken 
the focus away from perhaps what it was before, and the balance 
obviously between Pakistan and India is one that I am sure the 
State Department is concerned about. I am sure the President is 
concerned about it as well.
    Mr. Armitage. What we are concerned about, sir, is if you 
look at South Asia, we have never had a balanced policy. We 
just haven't. And we had a policy, however, that I think people 
couldn't be confident of. For instance, our relationship during 
the 1980s, when things were great with Pakistan, was not about 
Pakistan. It was about the war in Afghanistan. And so in a way 
it was a false relationship, and what the President has tried 
to do both with India and Pakistan is have a relationship that 
is about them.
    Now, clearly the war on terrorism gave us the entre now 
with Pakistan, but we are trying to be sincere with our 
Pakistani friends that we want a relationship that is about 
Pakistan. It is not about your relation with India or your 
relations with Afghanistan. It is about Pakistan.
    The same is true about India. It is not your relationship 
with China. It is India-U.S. that we want to concentrate on, 
and that seems to have some resonance.
    Mr. Knollenberg. I appreciate that. It is well said, I 
think. Thank you.
    Mr. Kolbe. Thank you. Mr. Jackson.
    Mr. Jackson.
    Mr. Armitage. I have some answers to Mr. Jackson's 
questions. If he wants more, I can provide them later.
    Mr. Jackson. Before I say anything which would count 
against my 5 minutes, why don't you go ahead? Don't turn that 
thing upside down, Mr. Chairman. We will wait for you.
    Mr. Armitage. No. We made some calls while you were at 
break, sir.
    Mr. Jackson. Thank you.
    Mr. Armitage. There are----
    Mr. Jackson. He started my time. Go ahead, sir.
    Mr. Armitage. There are 120,000 American Israelis in Tel 
Aviv and 280 in Gaza, and we have 90,000 in Jerusalem, 
primarily in the West Bank, the Palestinian Americans. And in 
particular answer to your question, what we did during the 
recent problems is with the assistance of the Israeli Defense 
Force, we had organized a convoy out of the disputed areas to 
bring people--which our Consul General Ron Slichter and others 
took part in--to bring people out who wanted to leave the areas 
where there was fighting. But I still owe you more answers and 
I will provide those.
    Mr. Jackson. I appreciate that, Secretary Armitage.
    Mr. Lewis indicated that when he came to Congress in 1979, 
there were some significant discussions on both sides of the 
aisle about the territories. Representative Kilpatrick said she 
was entering the State Legislature in 1979, and she was well 
aware of those debates as well in the State of Michigan, which 
has a very large Arab American population. In 1979, I was 
entering elementary school or high school. I don't mean any 
harm. But I am wondering, given that that is 25 years, and I 
have heard over the course of this debate that the occupation 
has been a 35-year proposition, I am wondering does the United 
States Government see the occupation over the last, let us say, 
25 or 35 years as a contributing factor in the present 
escalation?
    Mr. Armitage. I think, sir, we go back a lot further than 
35 years ago to find contributing factors, to--and I am not 
being trite--to actually the dissolution of the Ottoman Empire. 
To some extent what you are seeing in that whole region are the 
aftershocks of the Ottoman Empire's dissolution. That was 80 
years ago, which has a different set of questions about the 
Soviet Empire and other empires as they dissolve, how long you 
feel aftershocks. Clearly settlements, probably in the main, 
and occupation is a factor. But equally clearly a factor that 
Israelis take into consideration every day is they want to live 
a life in secure borders themselves, and I don't think the 
situation gives itself to simple answers. I am not suggesting 
you are suggesting it does, but there are lots of factors.
    Mr. Jackson. But my question is specific about how the 
United States Government views the occupation.
    Mr. Armitage. Well, the government has, as successive 
governments have, talked about settlement policy and 
occupation. It is the reason we have engaged in so many 
negotiations and attempts to resolve the question as a broker. 
I am not sure in a way that we can, as Ms. Kilpatrick 
suggested, be a completely honest broker. We are interested. We 
are not a disinterested party. But we are interested in 
fairness, but we are very interested in the survival of the 
State of Israel, too. But I think we are the only broker that 
can have any effect on this situation, and that is why everyone 
has encouraged us to jump in with both feet and the President 
dispatched Secretary Powell to the region.
    Mr. Jackson. Mr. Secretary, 5 years ago the Foreign 
Operation Subcommittee reached agreement for reductions of 
economic assistance to Egypt and Israel over a 10-year period. 
Egyptian and Israeli aid reductions were in a 3 to 2 ratio. 
Egyptian military assistance was to be maintained at a constant 
level. Israeli military assistance was to increase 
approximately $60 million a year. After 5 years, some Members 
are suggesting that our understanding with the Egyptians should 
be changed. They suggest more economic assistance should be 
given and military assistance should be reduced. Would reducing 
military assistance to Egypt and increasing economic assistance 
be in the national interest of the United States?
    Mr. Armitage. I have had these discussions with Mr. Lantos 
and others, and I don't believe it would be at this time. I 
believe the best solution would be something that is arrived at 
mutually between Egypt and the United States, and I know that 
in our discussions with the Egyptians this has not been 
something that they found favor with, sir.
    Mr. Jackson. Would reducing military assistance be a 
benefit to the U.S.-led war against terrorism?
    Mr. Armitage. I can't imagine that it would. I think it was 
in large measure the fact that we had a robust military 
assistance program with Egypt, that we were able to cooperate 
with them in the past, 10 years ago, and we may be able to 
cooperate with them and interoperate with them in the future.
    Mr. Jackson. I thank you, Mr. Chairman.
    Mr. Kolbe. Thank you. My colleagues get to ask all these 
fun policy questions. So it is left to the chairman to ask 
these nitty-gritty questions about the bill itself. So I have 
got a couple of these kind of boring questions here for you, 
Mr. Secretary.
    One has to do with the fact that other than some of the 
monies to Afghanistan, all of the funds in this supplemental 
request would expire at the end of the current fiscal year. 
Mrs. Lowey touched on this. In other words, if they are not 
obligated, they are going to get returned to the treasury. And 
certainly we expect, because it is labeled an emergency 
supplemental, it is going to get obligated as quickly as 
possible. We want State Department and AID to do that, but we 
also want to assure that important funds aren't going to be 
lost if funds are delayed.
    You know, we are not going to get this bill done, at the 
very most optimistic, until June enacted into law, maybe July. 
Is that going to give you enough time to fully obligate all of 
the funds you have requested? Does it make any sense not to 
keep the extended availability of these funds beyond the fiscal 
year into fiscal year 2003?
    Mr. Armitage. OMB, sir, wanted to keep discipline in the 
administration, and that is why they put the very tight time 
constraint to make it clear that this one was an emergency 
supplemental. Two, we needed it now, and we couldn't wait until 
the completion of the 2003, and that is why the time 
constraint. If the committee and the Congress in its wisdom saw 
fit to give a little flexibility, I think it would be great.
    Mr. Kolbe. Well, it might not be for all of the accounts, 
but it might be that there are some that will need that, and 
you will know more of that as we get closer to the end of this 
process. And as we do in the conference, it would be useful for 
you to give us a list of those funds which may need to have the 
extension of time.
    Mr. Armitage. I very much appreciate that, Mr. Chairman.
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    Mr. Kolbe. I would ask you if you would do that.
    And the other question that I wanted to ask has to do with 
the legal authorities that are involved here. Throughout the 
bill, the language here, there is the phrase ``notwithstanding 
the other provision of law,'' and we certainly are not trying 
to constrain the administration in its prosecution of the war 
against terrorism, but we also want to make sure that the 
authority is used appropriately. It is my understanding that 
the primary problem you face in obligating funds is the Brook 
amendment.
    Mr. Armitage. Yes, sir.
    Mr. Kolbe. The one that is contained in the foreign 
operations acts, and there is a similar statement in the 
foreign assistance act, and I am talking about the provision 
now that prohibits assistance for countries that are delinquent 
in their debt.
    Mr. Armitage. Yes, sir. Afghanistan and Ethiopia I think 
are the area----
    Mr. Kolbe. Yemen, I believe.
    Mr. Armitage. Yemen probably.
    Mr. Kolbe. Ethiopia. If we limit the waiver provisions to 
the Brook amendment, could the administration obligate funds 
consistent with its budget request?
    Mr. Armitage. Well, I believe in Cote D'Ivoire, there are 
also some--and I don't know the title of the law, but there are 
restrictions on coups, and the coup was sometime ago. We are 
not able to move forward yet, and so at least in Cote D'Ivoire 
I think we need a little help.
    Mr. Kolbe. I was just looking myself here to see where we 
have Cote D'Ivoire. There is $2 million, yeah, border customs 
support.
    Mr. Armitage. Yes, sir.
    Mr. Kolbe. Well, I think there is going to be a view on the 
part of--I shouldn't try to speak for Mrs. Lowey, but I think 
on this subcommittee to limit the waivers as much as possible. 
If there are other places other than that Brook amendment that 
applies to the countries just mentioned, it would be helpful if 
you could tell us where we would run afoul of being able to 
obligate these funds in other places.
    Mr. Armitage. That is very generous of you, Mr. Chairman. 
Thank you.
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    Mr. Kolbe. Because I think otherwise you are going to find 
yourself with just not getting the waivers there.
    Mr. Armitage. That is very generous. I appreciate it.
    Mr. Kolbe. So if you would do that, I appreciate it.
    The last question I will ask has to do with Jordan. I will 
also have a couple more for the record. We have a country that 
has been very supportive and given us a tremendous amount of 
help. I think helpful at least, if not perhaps most, in the 
sense that they have not tried to inflame the situation in the 
Middle East. I think that has been extremely important given 
the large number of Palestinians that live in Jordan. And so I 
think we should be very grateful to King Abdullah and his 
administration for the attempts that they have made to mediate 
peace in the region and to certainly counter the impact of the 
extremist elements.
    There is a request in this for $125 million, and then in 
the 2003 budget the request has another $250 million through 
the ESF, $198 million in military assistance. I certainly 
support these requests, but I have concerns about what the rest 
of Western Europe and Asia is doing in their share to support 
Jordan. I think 15 percent of the budget for Jordan is 
allocated to international debt service. Much of that is held 
now by Western European countries, maybe some of it by Japan. 
We have forgiven most of our debt over the years. Can you give 
me any indication of that? What is the status of Jordanian debt 
restructuring or forgiveness by Western European countries or 
Japan?
    Mr. Armitage. I cannot, and I will provide it for the 
record with your permission, sir.
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    Mr. Kolbe. I would appreciate that.
    Mrs. Lowey.
    Mrs. Lowey. Thank you, Mr. Chairman. I am going to ask a 
question about Indonesia, but before I do, I am sorry Mr. 
Jackson left because I just wanted to make a very brief 
statement on the Middle East. And I think it is important to 
remember if we are looking historically that the Israeli people 
have been talking about peace, looking for peace, not since 
Oslo in 1993, as you well know, but for 54 years since 1948.
    Mr. Armitage. Independence Day.
    Mrs. Lowey. Since the establishment of the Jewish State, 
and I think that is very important. And the Israeli people 
today, as you well know, are willing to give up land. They are 
willing to share in economic bounties. They are willing to 
share in technology. They really are focusing on normal 
relations. They want to bring about an end to the hostilities. 
They want to return to peace and security in the region. And I 
think it is important to remember--and I just happen to have a 
quote from David Ben-Gurion, Israel's first Prime Minister, 
1948, ``We offer peace and amity to all neighboring states and 
their peoples and invite them to cooperate with the Jewish 
Nation for the common good of all. The State of Israel is ready 
to contribute its full share to the peaceful progress and 
reconstitution of the Middle East.''
    They have been ready for peace for a long time, and I do 
hope that with the good efforts of this administration, and I 
would say all the parties in the region, I do hope we are 
putting sufficient pressure on the Saudis, on the Egyptians to 
stand up and work for a negotiated settlement to bring peace to 
the region. I don't know whether Arafat wants peace, could make 
peace, can make an arrangement. I don't know. He gave up a 
pretty good deal that Barak offered him last time around. But I 
do know that unless the Egyptians and the Saudis and the 
Jordanians are willing to stand up and support a settlement 
that is leveraged by the United States, I worry about the 
future of that region.
    Mr. Armitage. Because the administration agrees with you, 
we do think the people of Israel are willing to give up land 
for peace. It is the basis of U.N. resolutions 242, 338, and 
successive Israeli governments have embraced that, that we 
continue this search. Thank God for Harry Truman.
    Mrs. Lowey. And I thank you for your efforts.
    Quickly, with regard to Indonesia, I have indicated before 
the $8 million requested in the peacekeeping account for 
Indonesia amounts to military assistance in my judgment under a 
different name, and circumvents the certification standards of 
section 572 of the fiscal year 2002 bill.
    Number one, can you explain why this request is justified 
and what is the status of your ability to certify the 
conditions of section 572, and how would the provision of the 
$8 million affect ongoing efforts to obtain the compliance of 
the Indonesians on the conditions of section 572, particularly 
bringing justice to members of the Armed Forces or militia 
groups for human rights violations for East Timor?
    And lastly rebuilding efforts in East Timor have stalled. 
There will be a financing gap between known pledges and 
upcoming needs. In light of East Timor's obvious progress on 
the road to democracy and stability, why is there no request 
for East Timor in this package?
    And I just want to conclude that by saying for those of us 
who have been very concerned about human rights violations in 
East Timor and share their joy in the election of their new 
president, I would be very appreciative of your responses to 
these questions.
    Mr. Armitage. Yes, ma'am. On the $8 million for what we 
define as an indigenous internal. This is a term of art we use. 
There was no intent to evade legislation. We believe that in 
places like West Irion Jaya, Aceh, there have been sectarian 
violence episodes. There are real possibilities of further 
sectarian violence, that we would love to have a trained police 
force with some civil affairs people who would be able to fall 
in on these and take care of internal peacekeeping, and that 
was our thinking on this. We are very aware of the human rights 
abuses of the Indonesian armed forces, and, to my 
understanding, there was no desire to evade that. It is only a 
desire to not let the sectarian violence in those places get 
out of hand. It is a specter that we can't stand.
    We share your joy at the selection of Gusmao and his 90 
percent win in the elections. The reason that Timor is not in 
this is we didn't consider that part of an emergency 
supplemental, and particularly in the global war on terrorism. 
That does not mean to say that after the investment the 
international community and the United States has put into 
Timor that we are going to turn away from it. That is not the 
case.
    Mrs. Lowey. I would hope that we can have further 
discussions, because certainly if we can put in dollars for the 
military in Indonesia, I think we should consider funds to 
provide some stability and important assistance to the good 
people of East Timor who have been through an awful lot in the 
last years.
    Mr. Armitage. This is very true. We are really worried that 
places that have sectarian violence, if I can finish the 
thought on Indonesia, can become the breeding ground. Indonesia 
is a tough problem for governance, being 14 to 17,000 islands--
no one gives me a correct total--in far-flung locations. It is 
a tough problem that President Megawati hastaken on. It is an 
open, very hospitable country. It is a Muslim country. It is one we 
fear that al-Qaeda could operate in relatively freely, just, by the 
way, like al-Qaeda operates until recently relatively freely in our 
own, because we are a hospitable open country.
    To have that openness combined with the sectarian violence 
is a fearful specter for us. That is why we are trying to come 
up with some way to train some internal peacekeepers.
    Mrs. Lowey. I am going to conclude and submit my other 
question for the record, but I also want to conclude by 
thanking you for your direct responses, your openness. It is a 
delight dealing with you. You are always there to discuss any 
issue, and you are appreciated in case you didn't know it.
    Mr. Armitage. Thank you very much.
    Mr. Kolbe. Mr. Lewis.
    Mr. Lewis. Thank you, Mr. Chairman. Mr. Secretary, earlier 
I briefly mentioned that my job in this place, largely involves 
another subcommittee. In the Defense Subcommittee we will 
probably mark up the President's request of some $379 billion 
for the 2003 year. I think the public should note with interest 
that you were here speaking on behalf of a 2003 package as well 
as a supplemental, but the 2003 package at a level of $16.136 
billion, the defense package being 25 times that amount, and 
yet the role that foreign assistance plays in our ability to 
impact the world for peace cannot be discounted. Our public, 
our constituents presume that we spend half our budget on 
foreign aid of some kind. It is really important for the public 
to understand that, and as other members have suggested, you 
certainly do credit the institution that is our State 
Department as well as our foreign policy by way of the way you 
deal with this committee and others. So I appreciate that very 
much.
    Mr. Armitage. I am humbled by your comment. Thank you.
    Mr. Lewis. Back to Colombia, just briefly, the Plan 
Colombia swirls around our concern about Colombia as a source 
of drugs impacting our country. That is a significant piece of 
our committee's interaction currently. Colombia is known as the 
world's kidnapping capital. I am not sure if our public really 
understands why that is.
    Would you kind of outline for me, and for the committee, 
the numbers of kidnappings we have had, what we have done about 
that, what success we have had, et cetera?
    Mr. Armitage. Well, a part of our request, Mr. Lewis, gets 
right at the anti-kidnap training, anti-kidnap prevention, et 
cetera. We have had a presidential candidate, Bettencourt, 
recently kidnapped. I described Mr. Uribe's recent escape from 
an assassination attempt. There have been 12 of those. There 
have been kidnap attempts as well.
    Some of this is a business where people are kidnapped for 
ransom. Others are a political business where they are 
kidnapped to try to force a political change. It is a growing 
concern. It is why we specifically address kidnapping in our 
request for the supplemental, sir. I don't have figures on it. 
They are pretty, I am sure, readily obtainable, but it is a 
horrible problem. 3,000 in 2001 in Boab.
    Mr. Lewis. Well, to say the least, that challenge 
complicates our difficulty in all of our work in Latin America.
    Mr. Armitage. Yes, sir.
    Mr. Lewis. Some 50 years ago there was a textbook around 
that was entitled Wanted in Asian Policy, and within one 
chapter in that there was a discussion of India suggesting that 
as India goes, may very well go Asia and perhaps our hope for 
peace in the world. I must say your comments earlier, that 
which I know of changing policy there, I couldn't be more 
pleased with the raising of priority and new directions that 
are taking place, specifically in that country, India.
    Mr. Chairman, you have been more than helpful with your 
time, and recognition. I appreciate it. Thank you.
    Mr. Kolbe. Thank you, Mr. Lewis. Your questions have been 
very much to the point and very helpful to this hearing today.
    Mr. Secretary, I would echo the words of my good friend and 
ranking member Mrs. Lowey in saying we really appreciate your 
appearance here today, and we appreciate the directness of the 
answers that you have given us. It is very refreshing to get a 
government official, especially a diplomat, to come up and say 
I really don't know the answer to that, or, gee, that may not 
be a good policy answer. It is a political reason that we do 
this. It is very refreshing to hear that and we appreciate the 
directness and honesty of the answers you have given us. It has 
been very helpful to us.
    And with that, the subcommittee will stand adjourned.
    Mr. Armitage. Thank you, Mr. Chairman.
    [Questions and answers for the record follow:]

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                                         Wednesday, April 10, 2002.

                      U.S. ASSISTANCE FOR COLOMBIA

                               WITNESSES

MARC GROSSMAN, UNDERSECRETARY FOR PUBLIC AFFAIRS, DEPARTMENT OF STATE
MAJOR GENERAL GARY SPEER, ACTING COMMANDER IN CHIEF, U.S. SOUTHERN 
    COMMAND
ADOLFO FRANCO, ASSISTANT ADMINISTRATOR OF LATIN AMERICAN AND CARIBBEAN 
    AFFAIRS
PETER RODMAN, ASSISTANT SECRETARY OF DEFENSE, INTERNATIONAL SECURITY 
    AFFAIRS

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe [presiding]. The Subcommittee on Foreign 
Operations will come to order.
    Mrs. Lowey will join us as soon as we have the vote. So she 
is expected in about 10 or 12 minutes. We will start, interrupt 
for the floor vote and then come back. But I think in the 
interest of time, both of our panelists and of the members of 
the subcommittee, and other events going on this afternoon we 
need to get started.
    We do have the ranking member of the full committee here.
    Mr. Obey, thank you.
    And, Mr. Lewis, thank you for being with us at the outset.
    Let me just say, our hearing today is on a very important 
topic, U.S. assistance to Colombia. It is our fourth hearing 
for this year. And we are going to hear today from Marc 
Grossman, who is the undersecretary of state for political 
affairs; from Mr. Adolfo Franco, the Assistant Administrator 
for Latin America and Caribbean for USAID. We are going to hear 
from Peter W. Rodman, who is the assistant secretary of defense 
for international affairs; and from Major General Gary Speer, 
who is the acting commander in chief at U.S. Southern Command 
in Miami.
    As I said, I think this is a very timely subject, one that 
is very important for us to be discussing. And I appreciate all 
of our panelists for appearing today.
    I support both this administration and the previous 
administration's policies and requests for assistance for 
Colombia. Last year funding for narcotics intervention in the 
Andean region proved to be very controversial, but eventually 
we did find a compromise, and we appropriated $645 million. The 
President's request was $731 million for the Andean counter-
drug initiative. Most but not all of the money for economic 
development, for democracy building and drug interdiction for 
the Andean countries is in this account.
    One could have predicted a heated debate last year about 
our policy in Colombia, but no one could have imagined the 
developments that have led us to where we are here today. After 
nearly four years of fruitless and one-sided negotiations, 
President Pastrana called off the peace process a few weeks 
ago. I sympathize with the frustration that President Pastrana 
expressed at that time and the frustration of the Colombian 
people for this failed attempt to negotiate a settlement to a 
40-plus year conflict given the FARC's mockery of the peace 
negotiations by their continued kidnapping and bombing.
    We have seen IRA terrorists arrested after leaving the 
demilitarized zone on a renewed urban and infrastructure 
terrorist campaign.
    Earlier this year a report that was paid for by USAID, but 
written by an independent contractor, known as the Gersony 
Report, came to the conclusion that U.S. drug interdiction 
policies of crop spraying and alternative developments have 
been equally unsuccessful. Small farmers appear to have never 
intended to voluntarily eradicate their coca crops. Now, with 
the release of new CIA unclassified numbers, we have to 
reluctantly but honestly acknowledge that there has been a 16 
percent increase in coca cultivation in Colombia.
    So we have a lot to discuss today.
    Some members have expressed concern with the speed that the 
administration has moved in labeling the FARC and the ELN as 
terrorists. But it is also important to note that the AUC, the 
paramilitary group, is also on the administration's terrorist 
list, and as well it should be.
    I am convinced that the link between the narco industry and 
corruption and money laundering and terrorism--all those links 
are very real. They demonstrate the problem that we are facing 
of refining and focusing our policy. It is more complicated 
than simply debating whether or not we should be spraying coca 
fields from airplanes.
    None of this discussion of how we interdict the supply of 
drugs that flows nearly unimpeded into the United States begins 
to speak of the actions needed by all levels of government and 
the NGOs that perform heroic deeds outside the jurisdiction of 
this subcommittee, including drug treatment, demand reduction, 
interdiction.
    My colleagues and members of this administration, let's be 
honest about our policy regarding Colombia. Let's be honest 
about the complexities of the problems we face down there. 
Colombia is not Central America in the 1980s. It is not Vietnam 
in the early 1960s. We are dealing with terrorists who get 
their funding from narcotrafficking and who thrive on the 
instability they create that then allows them to get more 
funding.
    Most alarming, of course, is that this tremendous 
instability is right here in our own hemisphere.
    On March 21, the president sent to Congress a $27 billion 
emergency supplemental. Included in the amount was a $35 
million request for new assistance to Colombia and changes in 
the law for the Department of Defense and the State Department 
to allow them to use funds already appropriated in fiscal year 
2002 and proposed sums for 2003 for Colombia to be available to 
combat terroristactivities and the threats to Colombian 
national security.
    I was pleased to see that the President requested these 
funds remain subject to what is known as the Leahy amendment, 
for human rights review. The administration also proposes to 
retain the personnel cap and make no change in the cap that now 
exists on the number of military and civilian personnel that 
are in Colombia.
    When we come back, I will ask Mrs. Lowey for opening 
remarks. I want to thank our witnesses for testifying today. I 
think it is the first time we have had for all four of the 
witnesses before our subcommittee. And we appreciate very much 
their ability to be here.
    Let me ask if there is any other member--Mr. Obey, did you 
have any opening comments that you would like to state, make?
    Is there any other member? If not, I think we can get 
through--we would like to advise you that your whole summaries 
will be placed in the record. So perhaps we can get through at 
least one of the opening statements. Please summarize and we 
will go with the following order: Mr. Grossman, Mr. Rodman, Mr. 
Franco and General Speer.

                    Mr. Grossman's Opening Statement

    Mr. Grossman. No, I understand. I understand. I have often 
been known as talking very fast, but I will see if I can do 
this in seven minutes at least to convey to you as much of the 
overall policy as I possibly can. And, of course, I am very 
very pleased to be joined by a number of colleagues on this 
table.
    First of all, Mr. Chairman, Members, it is very, very 
important that you invited us here to testify today on 
Colombia. Mr. Kolbe, as you said, I think it is time to be 
honest about our policy. I think it is time to tell exactly 
what we are doing, what it is that we have accomplished, and 
also to talk about the future.
    For me, this comes down to one thing, which is that 
Colombia matters to the United States. Congress has been a key 
partner in our efforts to help Colombia defeat the demons that 
it now confronts in narco-trafficking, underdevelopment, human 
rights abuses and terrorism.
    One other point I would like to make by way of 
introduction: Many members of this subcommittee have traveled 
to Colombia, and I thank you for that effort. Those of you who 
have not traveled to Colombia, I would really urge you to do 
so. Because you really are, for Colombians, real 
representatives of what we believe in, in trying to make 
progress on democracy, security and prosperity in Colombia.
    I would also like to thank the Chairman and Members of the 
subcommittee for the strong support that we have received over 
the years on these issues. Whether it was a bipartisan 
resolution that was passed after President Pastrana made his 
decisions or, as Chairman Kolbe outlined, the money that you 
have provided over these many years.
    As Chairman Kolbe said, on March the 21st, we came here and 
proposed, through a supplemental, some changes in law and 
regulation. We did that because we have come to believe, as 
Chairman Kolbe said, that the problems of narcotics and 
terrorism in Colombia are connected. And exactly as the 
Chairman said, we seek these new authorities because we believe 
that we can do a better job. More importantly we believe the 
Colombians can do a better job in dealing with their problems 
if we have this increased flexibility.
    I also want to highlight the points that Chairman Kolbe 
made, which is to say that our proposition would not in any 
way, shape or form seek to obviate the Leahy amendment. We want 
to continue to vet all of the people that we train; we think 
that is a very important thing for us and for Colombia. 
Secondly we do not in any way seek to exceed the caps in what 
is known as the ``Byrd amendment'': 400 people on the military 
side and 400 U.S. civilian contractors.
    I look forward to discussing this with you today, because 
when we were doing consultations late last year, and again 
earlier this year, what members said to us was, ``Do not 
stretch the definition of counternarcotics. Do not play games 
with the money that we have given you.''
    All of us who have sat in interagency meetings have talked 
to our principals about this, promised each other that we would 
not do that and that we would come to you straightforwardly and 
say, ``We want to make a change in what we want to do.'' Now 
the question is what will you do, and what the outcome will be.
    The reason we have asked for this is because the invitation 
was there, and also the instruction was there not to play games 
with the money we already had.
    Mr. Chairman, I think it is very important to take an 
overview here on what we are trying to accomplish in Colombia, 
which is a hemispheric vision of democracy, prosperity and 
security. I will not go into it in great detail, but you all 
know that in Quebec last year 34 heads of state and governments 
of this hemisphere got together and did two very important 
things.
    First of all, they passed a democracy clause which said 
that all countries in this region to be part of the 
conversation in the Western Hemisphere ought to be democracies.
    Second, they discussed an improved action plan to promote 
economic prosperity, protect human rights, fight drug 
trafficking and organized crime. Additionally, they also set 
2005 as a deadline for the Free Trade Area of the Americas.
    Democracy, security and prosperity. It seems to me that the 
question we have to ask ourselves is, what good are all these 
principles if they get trampled in Colombia.
    For me anyway, there is an assault today on Colombian 
democracy. The 40 million inhabitants of Colombia are under 
assault by the three narco-terrorist groups, the FARC, the ELN 
and the AUC. And these groups, with combined membership of 
about 25,000 combatants, massacre, kidnap and attack key 
infrastructure.
    The FARC and the AUC are involved in every aspect of 
narcotics trafficking. I think a very important fact here is 
that the income that they derive from narcotics, about $300 
million a year, is one of the reasons that they have grown both 
in their capacity and in their ability to do damage to 
Colombia.
    I would also say that these are groups that do directdamage 
to your counterparts in Colombia. The AUC has killed two Colombian 
legislators over the past 12 months. The FARC has killed six Colombian 
legislators and kidnapped presidential candidate Ingrid Betancourt. 
Groups assassinated 12 mayors in 2001, and the FARC efforts to disrupt 
the March 10 legislative elections are also well documented.
    I also believe that there is an assault on Colombia's 
prosperity as well. The ELN and FARC bombings of the key Cano 
Limon oil pipeline cost the government of Colombia almost $500 
million in lost revenue last year.
    Mr. Kolbe. I am going to interrupt you right at this point.
    Mr. Grossman. Yes, sir.
    Mr. Kolbe. I do want you to be able to give your statement, 
and this is very important, and we have just barely four 
minutes now--under four minutes. So I am going to interrupt and 
we are going to recess the hearing.
    Mr. Grossman. Okay.
    Mr. Kolbe. When we come back, we will let you complete your 
statement, then I will call on Mrs. Lowey for her opening 
statement.
    Mr. Grossman. That is fine.
    Mr. Kolbe. The order for questioning will be in the order 
that we already have, as people arrive. So as you come back, we 
will keep that order.
    Thank you very much. I apologize----
    Mr. Grossman. I will be glad to slow down----
    [Laughter.]
    Mr. Kolbe. It will be only one vote, I believe. It is just 
one vote, so we will be back forthwith.
    The subcommittee will stand in recess.
    [Recess.]
    Mr. Kolbe. The subcommittee will resume. We will finish Mr. 
Grossman's statement and then go to Mrs. Lowey for her opening 
statement.
    Mr. Grossman. Mr. Secretary.
    Mr. Grossman. If you do not mind, I am going to slow down a 
little bit, if you will give me an extra minute or two.
    Mr. Kolbe. Excuse me? [Laughter.]
    We have a lot of members that want to ask questions.
    Mr. Grossman. I certainly do not intend to dominate this at 
all.
    I just wanted to just say that, we think we have got a 
hemisphere consensus on security, prosperity and democracy and 
that these principles really are under attack in Colombia. They 
are under attack in terms of Colombia's democracy, on security 
and I would say also--on the Cano Limon pipeline--that there is 
an assault by the FARC, the ELN and the AUC on Colombia's 
prosperity.
    As I was saying, Mr. Chairman, the ELN and FARC bombings of 
this oil pipeline cost the government of Colombia about $500 
million a year, which is equal to about one-third of Bogota's 
spending on health for its citizens. FARC strikes against the 
country's power grid in February left 45 towns, including two 
departmental capitals, without electricity for days. The FARC 
also attempted twice to blow up dams near Bogota, and had these 
efforts not been stopped, we believe they would have killed 
thousands and thousands of Colombians.
    Finally, we have the question of this assault on Colombia's 
security. The terrorist attacks in Colombia have resulted in 
over 3,000 Colombians killed in the year 2001. Another 2,856 
were kidnapped with ELN, FARC and AUC responsible for almost 
2,000 victims. Again, I show you a chart, over the years, on 
kidnapping in Colombia.
    In the former demilitarized zone the Colombian military 
recently found two large FARC-run cocaine laboratories and 7.4 
metric tons of cocaine. AUC Commander Carlos Castano has 
publicly admitted that the AUC receives 70 percent of its funds 
from narcotics.
    We believe also that the FARC, the ELN and the AUC threaten 
regional stability because they regularly use the border 
regions of Panama, Ecuador, Brazil and Venezuela for arms and 
narcotics' trafficking, resupply operations, rest and 
recreation.
    It also has a great impact on us as well. Since 1992 the 
FARC and the ELN have kidnapped 51 U.S. citizens and murdered 
10. Colombia supplies 90 percent of the cocaine consumed in the 
United States. It is estimated that 60 percent of the heroin 
entering the United States is of South American origin; which 
is primarily Colombian.
    Mr. Chairman, I would like to talk for just a moment about 
Colombia's response to this attack on its prosperity, its 
democracy and its security. As you all know, President Pastrana 
in 1999 put out Plan Colombia, a $7.5 billion plan which calls 
for substantial Colombian investment in social reform; 
judicial, political, economic reform; and modernization of the 
Colombian armed forces. With your help, we have done the major 
job in supporting Plan Colombia.
    Since July of 2000, the United States has provided Colombia 
with $1.7 billion to combat narcotics' trafficking, terrorism, 
strengthen democratic institutions and human rights, foster 
socioeconomic development and mitigate the impact of violence 
on Colombian civilians.
    The question is, have we had any success? While you were 
out, sir, I was talking to Congresswoman Lowey and I promised 
her I would give her some examples of where we believe, since 
July 2000, we have had some real success in supporting Plan 
Colombia.
    First, we have delivered to the Colombian National Police 
eight of the 11 helicopters to be provided under Plan Colombia, 
and the Colombian military has received 35 of the 54 
helicopters that it is programmed to receive.
    Second, the government of Colombia has extradited 23 
Colombian nationals to the United States in 2001; an 
unprecedented level of cooperation, and I draw your attention 
to that chart on extraditions. And I believe that the reason we 
have had this increase in extraditions is the increased 
engagement we have had with Colombia.
    Third, we have trained, equipped and deployed the Colombian 
army's counternarcotics brigade which destroyed 818 base 
laboratories and 21 HCL laboratories and provided security for 
our aerial interdiction operations in southernColombia. General 
Speer perhaps will talk more about this. But this unit, operating as 
part of Joint Task Force South, is judged to be the best brigade-sized 
unit in the Colombian military.
    Next, Colombians and Americans sprayed a record potential 
84,000 hectares of coca cultivation last year, up from 58,000 
in 2000, and we have set a goal of 150,000 hectares in 2002, 
and I call your attention to the chart.
    Mr. Chairman, if I also might say, I took note of the point 
that you made that there is an argument now about what the 
right numbers are in terms of this, in terms of the spraying, 
and I can tell you that the Office of National Drug Control 
Policy, at our request, has asked for an outside expert to come 
and see if we can sort out what the right numbers are, and I 
hope that they will do that soon.
    Another on my list of 11 is that, through Colombia's 
Ministry of the Interior, we have funded, since May 2001, a 
program that has provided protection, like our witness 
protection program, to 1,676 Colombians whose lives were 
threatened, including human rights workers, labor activists and 
journalists.
    We have also funded early warning systems which alert the 
Colombian authorities to threats of potential massacres and 
other human rights abuses, enabling them to act in advance. To 
date we have already used this system 106 times.
    Next on my list, the United States, working with 
nongovernmental organizations and international agencies, have 
provided assistance to 330,000 Colombians who have been 
displaced by violence since mid-2001. We have a program to help 
demobilize child soldiers. We have a program to help the 
government of Colombia reform its administration of justice 
system. We have opened 18 houses of justice which provide cost-
effective legal services to Colombians who have not previously 
enjoyed access to the country's judicial systems.
    We are also helping municipalities increase their ability 
to manage their policies and their funds. We are working 
closely with the prosecutor general's office to set up human 
rights units throughout the country to facilitate the 
investigation and prosecution of human rights abuses. 
Furthermore the prosecutor general, as many of you know, was 
here a couple of weeks ago, and we had a chance to talk to him 
about the progress we are making in that area as well.
    So there are 11 things that I think we have a right to be 
proud of, 11 things that show the way for our support for Plan 
Colombia. If we can build on them, I believe we can do even 
more.
    Mr. Chairman, you raised the question of alternative 
development, which we remain committed to, and I am going to 
let Mr. Franco present to you a revised strategy in dealing 
with that today.
    I want to take one minute and focus hard on the question of 
human rights, because it is a concern that is central to our 
Colombian policy. I can tell you that in all of our meetings 
with Colombians, whether they be with civilian, military or the 
NGO Community, all of us at this table and all of us who 
represent the United States focus in on the questions of human 
rights.
    As I was reporting to Mrs. Lowey, last week the chief of 
the Army staff, General Shinseki, and General Speer, went to 
the highest levels of the military and said that, ``Human 
rights must, must, must be among the most important of your 
calculations as you move forward.'' And I believe, Mr. 
Chairman, it is right to say that our human rights message is 
making a real difference.
    The Colombian military captured 590 paramilitary members 
last year and killed 92 members in combat. Eight military 
personnel, including two colonels and a lieutenant colonel, 
were charged in civilian courts with collaborating with 
paramilitaries or committing gross human rights violations in 
2001, and that list goes on.
    Still, too many Colombians continue to suffer abuses by 
state security forces or by terrorist groups acting in 
collusion with state security units, and those responsible must 
be punished.
    The situation--Mr. Chairman, you referred to it. Since 
February 20th, the Colombian military has reoccupied the main 
urban areas in the former zone. President Pastrana came to us 
with three requests: he wanted increased intelligence, he 
wanted help with the terrorist threat, and he wanted to do more 
in terms of dealing with the FARC. We answered Pastrana's 
request by providing increased intelligence support on 
terrorist activities, expediting the delivery of helicopter 
spare parts already paid for by the government of Colombia, and 
assisting the Colombians with drug eradication activities in 
the former zone.
    But as we consulted with all of you after the 20th of 
February, you recommended to us that if we wanted to do more we 
should come and seek new authorities, and that is what we have 
done. We are seeking new legal authorities that would allow our 
assistance to Colombia, including assistance previously 
provided, to be used, and I quote from the proposition we have 
made to you, ``to support a unified campaign against narcotics 
trafficking, terrorist activities and other threats to new 
authorities.''
    Expanding the authorities for the use of aircraft and other 
assets to cover terrorist and other threats to Colombian 
democracy will, of course, not ensure that this battle will be 
won, because they are working against multiple threats. 
However, we believe that if you approve this proposition, they 
will give us the flexibility we need to help the government of 
Colombia more efficiently and more effectively attack the 
problems that they face.
    Mr. Chairman, I have already committed to you and commit to 
the rest of this committee that our request for these new 
authorities are not a retreat from our concern about human 
rights, nor does it signal an open-ended U.S. commitment to 
Colombia. As you said, we are not interested in breaking the 
personnel caps, and we are also not interested in changing the 
rule on vetting of the kinds of forces that we hope to train in 
the future in Colombia.
    Mr. Chairman, in addition to the new legal authorities, we 
also seek $35 million in the counterterrorism supplemental to 
help the government of Colombia protect its citizens. And if 
members would like to talk about that, I would be glad to talk 
about that in further detail.
    Two more points and then I will stop.
    First, on the peace process, we remain committed to 
supporting President Pastrana in his efforts on the peace 
process. We supported him when he was having the peace process 
with the FARC and ELN; we continue to support the peace process 
with the ELN if that is what President Pastrana wishes to 
pursue.
    Finally, a point about Colombia's commitment: Colombia has 
got to take the lead in this struggle. Colombians needto do 
more. All of our conversations with Colombia have made this a very 
important point, that it is their democracy, their security and their 
prosperity that is under attack and they need to do more in all areas 
to try to protect it.
    Mr. Chairman, all of us look forward to answering any 
questions that members might have. That is to say, we have this 
proposition in front of you, we have some principles we think 
are very important in Colombia, and we look forward to a 
conversation.
    Thank you very much.
    [Mr. Grossman's written statement follows:]

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    Mr. Kolbe. Thank you very much, Secretary Grossman.
    We are going to go next to Mr. Peter Rodman, assistant 
secretary of defense for international security affairs. Oh, I 
am sorry, we would like to hear Mrs. Lowey's statement first.
    Mrs. Lowey?

                     Mrs. Lowey's Opening Statement

    Mrs. Lowey. Thank you very much, Mr. Chairman.
    And I, too, welcome our principal witness, Marc Grossman, 
and our other witnesses to the subcommittee's hearing on our 
assistance program for Colombia.
    I would also like to take this opportunity to thank our 
chairman for holding this hearing. As he has indicated, we 
intend to address both the fiscal year 2003 requests and the 
fiscal year 2002 supplemental requests for Colombia.
    As we begin our discussion, I want to emphasize that I 
support the efforts of the Colombian government to fight 
terrorism and narcotics trafficking. President Pastrana and his 
government face a daunting challenge, and I am confident that 
he enjoys broad support here in the United States Congress. 
However, we have an absolute duty to be clear-eyed and 
realistic about these challenges, and it is in this context 
that I will comment today.
    When Congress first considered the request for over $1 
billion for Plan Colombia about two years ago, the plan, as 
represented to Congress, involved the expenditure of $7 billion 
from a combination of sources, including the Colombians 
themselves, the United States and our European allies. The 
original plan involves a sizable obligation of economic 
assistance from all three sources and recognition of the simple 
fact that any long-term solution to Colombia's problems would 
have to include significant new investment in rural areas of 
the country.
    Many members of Congress who were really quite leery of 
deepening our military involvement in Colombia, supported Plan 
Colombia on the basis of its balance; that is, a commitment to 
economic assistance, along with the strengthening of the 
military and police forces. I count myself among them.
    Unfortunately, that fundamental premise has not yet been 
fulfilled and our partners in Plan Colombia have not lived up 
to their original commitment.
    In making this statement, I acknowledge that there have 
been numerous complicating factors that were beyond the control 
of the Colombian government. However, as we reassess our policy 
and decide whether it ought to be expanded, we should not 
delude ourselves, because winning this war will take many years 
and significant resources from the United States. Support here 
at home for the provision of those resources over an extended 
period cannot be sustained without a genuine commitment from 
all elements of Colombian society.
    The administration has requested open-ended authority in 
the fiscal year 2002 supplemental to expand the use of U.S. 
resources to directly engage the FARC in military operations 
under the broad rubric of fighting terrorism. The 
administration has also requested $6 million in the 
supplemental to begin training and equipping the Colombian army 
to accelerate its oil pipeline protection program.
    These requests come despite the fact that alternative 
development programs in southern Colombia have been almost 
completely ineffective. The strength and reach of paramilitary 
forces has increased in all areas of the country with no check 
from the Colombian army, and the area of coca cultivation 
increased significantly last year despite our aerial spraying 
campaign. Further, no real commitment to economic assistance 
and infrastructure for rural areas has been forthcoming from 
the Colombians and desperately needed judicial reforms have 
stalled under the new attorney general.
    Spending more to fight terrorism in Colombia may be the 
appropriate step at this time, but it cannot be effective 
without some fundamental shift in our policy. Without 
comprehensive policy changes we will merely be putting a Band-
Aid on a hemorrhaging wound.
    I would sincerely hope, Mr. Secretary, that the 
administration will work with Congress to alter our policy so 
that we can make the necessary commitment of time and resources 
with confidence. None of us will be well-served by repeating 
the contentious atmosphere and divisive debates of earlier 
times involving our policies in Central America.
    If we take this approach, the administration needs to do 
several things, in my judgment, immediately. The first is 
securing a real and verifiable commitment from the Colombians 
on the extent to which they are willing to alter their own 
budget and policy priorities to strengthen their own military 
and to provide additional resources to rural areas.
    The second is a fresh examination of what direct role the 
United States should play in the reconciliation process with 
all rebel groups.
    Finally, we must reexamine the wisdom of plans to 
accelerate aerial spraying throughout the country, recognize 
and act on the need to increase resources to the DEA to arrest 
and prosecute major narcotics traffickers, including members of 
the FARC and the paramilitaries, and address the need to 
immediately reorganize their efforts to improve judicial 
systems in Colombia.
    These are not simple changes and, cannot be achieved in the 
short term. While the fundamental shift in policy that Congress 
has been asked to approve appears as a simple word change in 
the law, it is likely to lead to huge expenditures and expanded 
United States military deployments to Colombia.
    I believe there is an opportunity, Mr. Secretary, to work 
together on this, because, as I said earlier, there is broad 
consensus in the Congress to help Colombia. However, we need to 
have better cooperation on the part of the administration than 
we have seen so far. And that translates into recognizing that 
our program is out of balance at the moment, and that clear 
benchmarks for action by the Colombia need to be delineated and 
achieved.
    My final observation is that approval of this policy change 
may be premature given the upcoming presidential elections in 
Colombia. How can Congress act on this fundamental shift in 
policy without any assurance that the new government of 
Colombia will stick to any of the objectives, the policies of 
the Pastrana government? It perhaps wiser to wait until those 
commitments are forthcoming before approving this expanded 
role.
    I thank you again, Mr. Secretary, for your testimony. I 
thank you for your statement, and I look forward to the 
testimony of all of our witnesses.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you, Mrs. Lowey. My apologies for trying 
to brush of----
    Mrs. Lowey. No problem.
    Mr. Kolbe. We are going to go to Mr. Rodman for an opening 
statement. Let me say before he begins, however, I am going to 
ask the three remaining panelists to limit theirstatements--
their verbal statements to five minutes. I ask subcommittee members to 
hold their questions to that time, and I am going to ask you to do the 
same, because we are never going to get to questions unless we do that. 
The full statement will be placed to the record.
    Secretary Rodman.

                     Mr. Rodman's Opening Statement

    Mr. Rodman. Thank you, Mr. Chairman. I promise to be brief. 
You have my full statement.
    I am pleased to be here with my colleagues, because it is 
important that all of the different elements of the executive 
branch that are represented here have come together in support 
of this--the administration's approach, which does, as 
Representative Lowey suggested, include a new element: some 
modifications of our existing policy.
    And if I could sum up in a nutshell, the reason why we have 
come together on some new elements and new approaches is 
because a lot of things have changed in the past year. It is 
not only that September 11 happened and heightened our 
consciousness of the evil of terrorism. In Colombia itself, I 
think over the past year we have perhaps come to a better 
awareness or understanding of the link between narcotics and 
terrorism.
    In addition, in Colombia, of course, as has been discussed, 
the diplomacy that President Pastrana had committed himself to 
has tragically come to a dead end. And so President Pastrana 
has made, in my view, a courageous decision to draw conclusions 
from the failure of the peace process and to challenge the 
FARC. And that is something that cries out or calls out to us 
for a response.
    And lastly I would say, in our view, that the improved 
performance of the Colombian military over the past year is 
impressive. I think this must be at least in part the result of 
the assistance that we have been providing the Colombian 
military. They are able to confront the challenge more 
effectively. I think if a peace process were to resume at some 
point, a Colombian government would be able to conduct such 
diplomacy from a position of strength.
    And all of this is what leaves us in the administration, 
encourages us to believe that an additional increment of 
support, including the modifications we have proposed, will be 
effective, will have an effect, will enable the Colombian 
government, which is after all a friendly democratic 
government, to establish basic security and effective 
sovereignty over Colombia's national territory.
    This is the position of the executive branch. I certainly 
believe that a consensus between Congress and the executive is 
a prerequisite for an effective U.S. policy. And it is in that 
spirit that we have come here today. Thank you.
    [Mr. Rodman's written statement follows:]

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    Mr. Kolbe. Thank you, Secretary Rodman.
    Mr. Franco.
    Mr. Franco. Thank you, Mr. Chairman. I am pleased to be 
here as the president's representative for USAID, and to appear 
before the subcommittee. Mr. Chairman, I request that my 
prepared statement be included in the hearing record.
    Mr. Kolbe. It will be.

                     Mr. Franco's Opening Statement

    Mr. Franco. Mr. Chairman, USAID is proud to contribute to 
broader U.S. policy objectives in Colombia because, as 
Secretary Grossman has said, Colombia needs our help.
    I will try to synthesize my testimony by stating very 
clearly that conducting development programs in conflicted 
areas like Colombia is difficult and dangerous, but we believe 
that USAID has the experience and expertise needed to succeed 
despite these challenges.
    Some have suggested that alternative development programs 
are failing because they have not yet delivered adequate levels 
of assistance in remote parts of southern Colombia. Mr. 
Chairman, I am here to tell you that these statements are, in 
my view, overstated. While there have been some initial 
setbacks, USAID's program is on track and making progress.
    So far USAID has begun work with more than 5,000 farm 
families in southern Colombia and we are moving quickly to 
deepen and extend our reach while continuously learning and 
adapting to ever-changing circumstances in that area.
    Since assuming my position as Assistant Administrator for 
USAID Bureau for Latin America and the Caribbean two months 
ago, I have begun the process of conducting a comprehensive 
review of USAID's Colombia program, and expect to travel to the 
region again in the near future.
    What is clear to me so far is that there are so many 
unrealistic expectations and myths with respect to alternative 
development. It is essential to understand that we get past 
these fallacies and concentrate on the task at hand.
    Mr. Chairman, please permit me to briefly enumerate these 
myths. First, that wherever coca or poppy is grown, it is 
possible to substitute an equivalent cash crop. Second, coca 
farmers will switch to other crops, and will not revert to 
planting coca if they are simply provided with alternatives. 
Third, coca growers cannot cope on their own without coca. And 
fourth, that large scale assistance to provide new sources of 
income, in this case to 37,000 families in southern Colombia, 
can be identified, tested and delivered in one year.
    Mr. Chairman, the reality in southern Colombia is much 
different. There is no alternative agricultural production that 
can match the income of coca leaf and coca paste production by 
small-scale farmers working on a few acres of land. What can be 
done to help coca growers transition to other livelihoods, is 
to focus on larger job-and income-generating programs in areas 
where they have a chance to work. This is something we intend 
to do, and we will make adjustments. In southern Colombia, this 
will require developing other forms of income and employment 
besides agricultural products, and working beyond the immediate 
vicinity of coca plantations.
    In the interest of time, just briefly, because I know the 
committee is very interested in alternative development, I 
would like to talk about other aspects of our program. Of the 
$42.5 million that was appropriated to USAID for alternative 
development in September 2000, and depending on security 
conditions, which we continue to monitor, we expect that 
approximately $36 million of this total will be expended by the 
end of December 2002. The goal of our multi-year program is to 
gradually wean Colombia and other regions from coca and opium 
poppy production, and to sustain reductions in drug 
cultivations that are achieved through forced eradication 
efforts.
    While Colombian government efforts began earlier, 
implementation of our own USAID-financed programs started only 
in May of 2001 with the mobilization of a technical assistance 
team in Colombia. As I mentioned earlier, the USAID program is 
not one year old. We anticipate, as aconsequence of adjustments 
to the program, we will meet the needs of the region by providing 
alternatives such as infrastructure development, small manufacturing, 
as well as intensive labor infrastructure programs in the region. These 
programs will provide alternative income and employment opportunities 
for farmers that erradicate coca or opium poppu crops, but we ask the 
committee for the time necessary to accomplish our goals. Thank you, 
Mr. Chairman.
    [Mr. Franco's written statement follows:]

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    Mr. Kolbe. It is well within your time frame there.
    General Speer.

                     Mr. Speer's Opening Statement

    Major General Speer. Mr. Chairman, Representative Lowey, 
distinguished members of the committee, thank you for the 
opportunity to represent the men and women of United States 
Southern Command and discuss Colombia and other issues with you 
today.
    First of all, thank you for your unwavering support of 
Southern Command, in not only this program, but in our 
activities throughout the region. And especially today, thank 
you for your support to the men and women in uniform to pull it 
around the world.
    It is very important.
    Latin America and the Caribbean is an area of increasing 
importance and significance to the United States, based on 
demographics, trade, resources and the proximity to the United 
States at large.
    But over the last quarter of a century, there has been 
tremendous progress in this region toward moving in the 
direction of a hemisphere composed of a community of democratic 
nations.
    Much of the credit for that transformation goes to the men 
and women in uniform serving in the region and their day-to-day 
interaction with their host nation counterparts, through joint 
exercises and training, and the opportunities for foreign 
officers and non-commissioned officers to attend professional 
military education in the United States, where U.S. service 
members serve as a role model for the conduct of a military in 
a democratic society with respect for the rule of law, human 
rights and subordination to civil authority.
    But many of these democracies remain fragile and face the 
challenges of the region, stemming from instability and 
corruption that evolves from drugs and arms trafficking, 
illegal migrants, terrorism and other transnational threats.
    Nowhere is this more evident than in Colombia, where the 
FARC, the ELN and the AUC exact terror on the population of 
Colombia, financing their activities through drugs, kidnappings 
and extortions.
    Colombia is important to us for all the reasons Ambassador 
Grossman highlighted, and it is the lynchpin in the Andean 
region, and as such, has vital interest in not only what 
happens in Colombia but what happens around Colombia.
    Certainly, 20 February and President Pastrana's decision to 
terminate the despeje and the FARC safe haven has not changed 
the landscape in Colombia. The Colombian security forces moved 
in very deliberately to protect the population as they 
reoccupied cities in the despeje. But the real bottom line is 
the Colombian military and the police lack the resources, in 
terms of manpower, mobility and air mobility, to re-establish a 
safe and secure environment.
    And as Representative Lowey highlighted, in order to get to 
those other aspects of Plan Colombia--alternative development, 
social programs, judicial reform--we first must re-establish a 
safe and secure environment to let those other programs take 
hold.
    As we look to the region, many of the other militaries and 
security forces lack the resources and capabilities to protect 
their own borders. In fact, although we have had great 
increases--and we appreciate your support, in terms of FMF and 
IMET over the last year--FMF, over the last decade alone, has 
been insufficient to provide for the sustainment of the 
equipment that we had provided in the past, much less to 
address legitimate modernization requirements or demands for 
evolving challenges.
    These are the challenges that we look forward to 
addressing. And I thank you, the members of the committee, for 
your support of U.S. Southern Command as we try to address 
those challenges, so that we do not sacrifice the gains of the 
past 25 years.
    I look forward to your questions. Thank you.
    [Mr. Speer's written statement follows:]

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    Mr. Kolbe. Thank you very much. We appreciate all of your 
opening statements.
    I am going to limit myself, at least in this first round, 
to one question, because we have a number of people here that 
wish to speak. But my first question will be for Secretary 
Grossman.
    Mr. Secretary, the supplemental request the administration 
sent to us of $27 billion--has $35 million for additional 
assistance to Colombia. There is accelerated training for the 
pipeline protection, there is funding set up for an anti-
kidnapping unit, and police post reinforcement.
    In addition to the funding, the supplemental, of course, 
includes some language, some fairly general language, that 
would lift some restrictions on assistance for Colombia, though 
it keeps the limitation that is based on human rights 
performance as well as keeping intact the U.S. military and 
civilian personnel caps.
    Mr. Secretary, in proposing to allow counternarcotics aid 
to also be used for fighting terrorism, you are asking the 
Congress to give the administration, it seems to me, an 
unprecedented level of discretion over policy decisions with 
respect to Colombia. If that is going to be the case, it seems 
to me there has to be a concurrent flow of information in 
consultations with the Congress.
    Yet in the supplemental transmission, beyond what I just 
outlined in a half-dozen words or so, there really are no 
specifics about this proposal, and I do not feel the least bit 
enlightened about any new direction in U.S. policy regarding 
Colombia as proposed by the supplemental.
    So I ask you to be as specific as you possibly can about 
which funding in this supplemental and in the current year 2002 
budget and which assets--U.S. assets in Colombia does the 
administration propose to use for counterterrorism purposes.
    Mr. Grossman. Mr. Chairman, first of all, let me take the 
general point that you have asked, which is the need for more 
consultations and more conversations with this subcommittee and 
with the Congress. Point taken, and I would say that also an 
important point, as Ranking Member Lowey said as well. We 
cannot possibly accomplish this task, as Assistant Secretary 
Rodman said, unless we are working as closely as possible with 
you.
    I hope that you would consider this hearing to be the 
beginning of that and we are glad to do as much of this, either 
in public or in private sessions, any way that you want.
    Second point that I would make is one of the reasons--to go 
back to a conversation you and I had some weeks ago. One of the 
reasons that we came forward with this change in legislation 
was because after the 20th of February, when we had a chance to 
consult some of you, Members said, ``Please do not pretend that 
counterterrorism is counternarcotics. Do not stretch the law. 
Do not fool around here. If you are going to do different, say 
you are going to do different.''
    So, one of the reasons that we are here testifying and one 
of the reasons that we made this proposition is to put it out 
on the table. The question right now is: Since the 11th of 
September, have our views changed, have your views changed? 
Since the 20th of February, what do we want to do different in 
Colombia? We made a proposition to you, a proposition, I 
believe, one that you asked for, in a sense, to make sure that 
we were not stretching the laws that already existed.
    The way I would understand this, Mr. Chairman, and maybe my 
colleagues can help me out, is what we want to do with this new 
authority is essentially to make it possible for the Colombians 
to use the helicopters that have already been delivered to 
fight terrorism.
    Right now, if the FARC is attacking place X, Y, or Z in 
Colombia and it is not connected to narcotics, we do not allow 
the Colombians to use those helicopters. We would like to make 
it possible for them to use that equipment--and this is the 
focus of it--we would like to make it possible to use that 
equipment to fight terrorism.
    How we do that and the way that we would work out the 
mechanism is something about which we need to consult with you, 
and we also need to consult with the Colombians. Because, we 
want to make sure, when we do so, as General Speer said, we are 
dealing with vetted units; we are dealing with units that we 
have trained; and we are dealing with information that we 
believe, so that we are not creating more trouble than we are 
trying to solve. But this is really a focus-in on these 
helicopters that we have already given.
    You ask me to be a little bit more specific about the $35 
million. What I would say, Mr. Chairman, is that the $25 
million in what you all know is the NADR account, 
Nonproliferation, Anti-terrorism, Demining and Related 
Programs, is for funding for anti-kidnapping training and 
equipment group for the Colombian police.
    As we showed here, kidnappings in Colombia have just 
skyrocketed. What we want to do, like we have in the United 
States, is give anti-kidnapping and anti-hostage groups in the 
police and in the military training in hostage negotiation, to 
have the right kind of equipment that our SWAT teams have, so 
that they can deal with the incident with intelligence and try 
to get some of these hostages back and maybe some of the 
kidnappings too. That is what we are focused in on.
    In terms of the $6 million for foreign military funds for 
training of the Colombian military unit, we said, look, we put 
$98 million in the FMF proposal for this year. But the attacks, 
as we have shown you, on the Cano Limon pipeline, are happening 
now. It was the judgment of our military colleagues and our 
Defense Department colleagues that if we spent $6 million 
today, or whenever the supplemental is approved, if it is 
approved by the Congress, that we would be able to get a head 
start on dealing with the Cano Limon pipeline, get some of that 
more secure and get some of that money flowing back to 
Colombia.
    Finally, the $4 million in the International Narcotics 
Control and Law Enforcement account is to help organize, train, 
equip and deploy Colombian police units.
    As Assistant Secretary Rodman said, if you get this all 
down into one bumper sticker, what we are trying to do is 
trying to allow a democratic Colombia to again have control 
over its territory. All of what we are doing brings it down to 
that and we want the police to be out there to show Colombian 
control.
    Mr. Kolbe. Well, that took up my time. Let me just ask 
who--which I think you can answer in one sentence----
    Mr. Grossman. Yes, sir.
    Mr. Kolbe [continuing]. One follow-up. Is any of USAID or 
Department of Justice monies from 2002 or prior years going to 
be reprogrammed as part of this authority?
    Mr. Grossman. No, sir.
    Mr. Kolbe [continuing]. For counter-terrorism.
    Mr. Grossman. Can I give you one sentence? We are not 
seeking the authority to reprogram money. What we are 
interested in is a helicopter that is already delivered, be 
used for counterterrorism. But if we were to reprogram, we 
would come back and seek the authority of the Congress.
    Mr. Kolbe. But that is not your intention at this time.
    Mr. Grossman. It is my intention, yes.
    Mr. Kolbe. It is not your intention to reprogram?
    Mr. Grossman. No.
    Mr. Kolbe. Thank you.
    Mr. Grossman. But if we were to reprogram, it is not our 
intention to change the way we do it.
    Mr. Kolbe. Mrs. Lowey.
    Mrs. Lowey. Thank you, Mr. Chairman.
    I want to follow up on my statement, Mr. Secretary. And I 
would like to ask you to comment on the extent to which the 
administration is willing to re-examine all the elements of our 
Colombian policy in the context of the standing current 
authorities to allow use of United States resources to support 
military operations in Colombia. There are a couple of points 
that I want to mention that I would like you to address.
    First of all, your statement indicates that Colombians have 
committed to an increase of 10,000 in the size of their army 
and an increase of 110 million in their military budget. Even 
with that, the Colombians only devote about 3.5 percent of 
their GDP to anti-narcotics operations. Specifically, what are 
the Colombians willing to do to increase their military and 
police budgets to fight the war? And what is your understanding 
about the leading presidential candidates' positions with 
respect to the question of more resources and increasing the 
size of the army?
    Two--maybe I will just lay these three items out and then 
you can just comment. What are the Colombian armed forces doing 
to take effective measures to sever links, including by 
``denying access to military intelligence, vehicles and other 
equipment or supplies, and ceasing other forms of active or 
tacit cooperation at the command, battalion and brigade levels 
with paramilitary groups and to execute standing orders for 
capture for members of such groups,'' as required by United 
States law as a condition of receiving assistance?
    And when can we expect a decision of the fiscal year 2002 
budget funding with respect to the certification?
    And, three, given the failure of the alternate development 
plans for southern Colombia and the failure of spraying to 
decrease coca cultivation, why shouldn't we stop aerial 
spraying until the Colombian government, with our help and 
direct input from regional and local authorities, has developed 
an effective means of weaning farmers from coca cultivation 
with real economic alternatives?
    If you could just comment on those three areas, I would be 
appreciative.
    Mr. Grossman. Sure. I would be glad to, Mrs. Lowey.
    If I could just take one other point out of your statement, 
you rightly said this support for Plan Colombia was supposed to 
come from us, from the Europeans and from the Colombians. I 
would say that the Europeans, in this case, certainly still 
need to do more. We are doing our part. I think it is fair to 
say the Colombians are doing their part. We need to focus in on 
the third part. I wanted you to know that we were listening to 
that.
    Let me take you through the points in turn.
    First of all, I think it is clear in all of our 
conversations with Colombians that Colombia knows it needs to 
do more militarily to help itself. As I said in my statement, 
you know, this is a Colombian problem for which the United 
States, for all the reasons that we have said, needs to be 
involved.
    You said in your statement that you were concerned about 
U.S. military deployments. One of the things that I would say 
is that not a single person here has ever talked about U.S. 
combat troops ever going to Colombia. This is a Colombian 
problem. The Colombians need to solve it.
    They need to do more. And I think we ought to have a 
conversation with them about increasing this level of GDP and 
also making some other changes in their military, so that not 
so many people, for example, are exempted from conscription, 
but more people go fight, so that they show they have the 
social willpower to take this on.
    In terms of the leading presidential candidates, I had the 
good fortune, actually with a couple of my colleagues here, to 
meet all three of the leading presidential candidates when I 
was in Colombia last February. My position to them was pretty 
straightforward, which was that we will continue, I hope, to 
support Plan Colombia, but they need to do a lot more to 
support themselves and certainly to do more in the area of 
human rights. I think all three of them recognized that 
Colombia needs real armed forces.
    I was telling you during the break, I had a chance to meet 
with a number of human rights groups there, and to a person 
each one of them said that one of the most important things for 
Colombia right now would be a professional, trained military. 
We are the people who can help them do that.
    On your third point, in terms of certification, we have 
not, Mrs. Lowey, made a recommendation to Secretary Powell 
about that certification, but we intend to do that soon. But 
the reason we have not so far is we want the Colombians to 
recognize that they have to meet the standards of the law. And 
to meet the standards of the law, we have asked for four or 
five very specific things. We hope that we will get those 
things and we hope we will get them soon.
    I myself wanted to have the benefit of hearing this 
committee before we made a recommendation to Secretary Powell, 
but I can tell you that we intend to make it when we are 
convinced that we have got what we need from the Colombians and 
certainly when we have consulted with the Congress.
    Finally--although perhaps Mr. Franco--Assistant Secretary 
Franco will help me a little bit here--I think this question of 
alternative development, why shouldn't we stop until the 
Colombians do more, is, kind of, a larger question in all the 
things we are doing.
    You in your statement said, ``You know, maybe we should 
just wait until there is an election, see who is the next 
president.'' Our challenge in all of this is that the FARC, the 
AUC, the ELN, do not stop their attacks waiting for an 
election. They are attacking today and tomorrow and yesterday. 
Coca continues to grow and it continues to come into the United 
States.
    I think the assistant secretary said we have got some big 
adjustments to make in that program.
    But I, in my travel there, and as much as I have been able 
to learn about it, am convinced, as he is, I think, that 
without some spraying, without some real penalty for growing 
this stuff, alternative development will not work and we will 
not get our way through this.
    Mrs. Lowey. My time is up, so I--we will have a chance, I 
guess, to get to it later.
    Mr. Kolbe. We will.
    Mrs. Lowey. Thank you.
    Mr. Kolbe. Mr. Obey is next.
    Mr. Obey. Thank you, Mr. Chairman.
    First of all, Mr. Chairman, let me simply say I want to 
congratulate you personally for your performance on your trip 
to South Africa. Everyone I have talked to on both sides of the 
aisle indicated what a spectacular job you did in driving home 
the message that needed to be driven home with respect to the 
AIDS problem in that country, and I congratulate you for it.
    Let me simply say, gentlemen, I know you have a tough job, 
but you will pardon me if I do not approach this issue as 
though I am the permanent president of an optimist club. 
[Laughter.]
    You ever hear of Leo Durocher? There is the old story about 
Leo Durocher when he was managing the Giants and he was hitting 
ground balls to Eddie Stanky in practice--infield practice--and 
Eddie Stanky at second base kept dropping the ball. And so, 
Durocher said, ``Stanky, give me the glove. Let me show you how 
you do it.'' And the very first ball that was hit to Durocher, 
Durocher dropped and Durocher turned to Stanky and said, 
``Stanky, you have got second base so screwed up, nobody can 
play it.''
    I, sort of, think that is the way the Colombian power elite 
is behaving on this issue. To me--and this is not a question, 
it is just an observation--to me, the question is not whether 
or not it is theoretically desirable to engage in order to try 
to deal with the FARC and others who are destroying that 
country. Obviously, if conditions are right, it would be a good 
idea.
    The question to me is whether Colombia has the capacity as 
a society, as a government and as an economic and political 
elite to actually do what is necessary in order to give us a 
decent chance of winning. And frankly, I think our chances of 
seeing Colombia produce on that score are less than our chances 
of seeing the Chicago Cubs win the pennant this year. I wish I 
thought otherwise, but I do not based on my almost 40 years of 
observation of that society. And Ijust want to reiterate my 
specific concerns.
    When we fought World War II, almost 90 percent of the 
federal budget was the military budget. When we fought World 
War II, we had about $46 billion in total revenue in this 
country, in 1944, and we spent more than twice that amount just 
on the war. I do not see that kind of effort coming from 
Colombia. They are providing for their military budget only 
about 3.5 of GDP. You might be able to beat Grenada with that 
kind of a budget, but I do not see them handling their own 
military problems.
    They still, as you know, have loopholes in their military 
draft big enough to drive a 65-foot truck through, and their 
attorney general is sleepwalking. In addition to that, while 
one of you--I have forgotten whom--said that our alternative 
crop program is not a failure, if it is not, I certainly would 
hate to see what one looks like.
    And I do not say that in order to imply that I am 
criticizing you or the administration. You did not start this. 
We got into this under the previous administration at the 
request of the White House and the speaker.
    So there is plenty of responsibility for our being 
involved, and I think you have got an impossible job.
    But I guess I am old-fashioned enough to think that if we 
are going to commit American prestige and American money and 
other American resources, and if we are going to get into a 
job, we at least need to the tools to do the job. And I do not 
think that Colombia is providing us with the tools. You can all 
do your job perfectly, and if the Colombian government and the 
Colombian political elite does not step up and do theirs, this 
is futile.
    And so I do not want to be a naysayer, but in my view there 
is nothing that I have heard here today that does not remind me 
of what I have heard many times in the past; lots of individual 
items that can be pointed to to show minuscule progress here 
and there, but overall, when you put the picture together, 
there is nothing that comes into focus that is worth looking 
at, in my view.
    So I simply want to say that I remain a skeptic. I would 
like to know what chance you think we have of seeing Colombia 
double or more its percentage of GDP that goes into military 
spending. And I certainly would like to know when you think 
they are going to fix the draft problems. I would certainly 
like to know when you think they are really going to show the 
kind of self-sacrifice that the power elite in that country 
needs to demonstrate in order to have a chance of a snowball in 
Hades of winning this argument with the FARC, who I regard as 
nothing but thugs and useless terrorists.
    Mr. Kolbe. Would one or more of you wish to comment 
briefly? Secretary Grossman.
    Mr. Grossman. Sure.
    Congressman Obey, I cannot compete either with 40 years of 
experience or with a good Durocher quote, so I will just give 
that a pass.
    But, I think it is a good thing to be a skeptic in all of 
this. One of the reasons that we have come here to have this 
conversation with you is that all of us are taxpayers and all 
of us have a responsibility, and we ought to ask all of these 
questions. I mean, the chairman started this hearing by saying 
we ought to be honest about all of these things, and that is 
what we are trying to be. I hope you appreciate that, because 
we do have a hard job, and we are trying to move our way 
through this in a way that is sensible for you and sensible for 
us.
    You asked me three questions. First of all, when did I 
think the Colombians would double spending on their military? 
Only the Colombians can answer that question. I hope somebody 
has heard it from you here today.
    But one of the things that I would say, and I do not mean 
to, sort of, press this point, but I will take my chance when I 
have it, is that if we could get this pipeline back into 
business and if we could get $500 million, $600 million a year 
of revenue back to the Colombian government, I think it might 
be a start on some of the things that they might be able to do.
    Second, you asked me about the draft. As I tried to answer 
Mrs. Lowey, we think in our conversation with the Colombians 
that they do need to do something to slim down some of these 
exemptions so that more people in Colombia take responsibility 
for fighting. That is something that I know I have talked to 
the Colombian ambassador about. We will continue to do so. And 
we would like to see that happen as well.
    Third, the question of self-sacrifice, I cannot speak on 
behalf of the Colombian power elite, Lord knows, but what I can 
tell you, sir, is that there was a very big difference in 
attitude between my trip to Colombia in August of 2001 and my 
trip to Colombia in February of last year, and that attitude 
changed, I think, over September 11.
    I do not know how this is going to come out, and I do not 
know whether, you know, all of these things will happen on the 
right timetable. But when I went there last August everybody 
thought I was the enemy, everybody had questions for me, 
everybody was focused in all the things we were doing wrong.
    But I must say, when I was there in February, people were 
much more purposeful in the need to deal with the terrorism 
problem, deal with the human rights problem, and deal with 
their economic problem.
    So, as I say, you know, our job, all of us, it seems to me, 
is to spend the taxpayers' money sensibly, and I do not want to 
get in an argument with you here, but I give you my perspective 
back on your questions.
    Mr. Obey. My time is up, but let me simply respond by 
saying this. A few years ago, after another round of 
reapportionment, I inherited a new county and a new city, and I 
met with the chamber of commerce and the president of the 
chamber of commerce said to me, ``Obey, what are you going to 
do for the city of Superior?'' I said, ``I am not going to do a 
blessed thing for the city of Superior until Superior figures 
out what it wants to do for itself, what it wants to be.''
    And I pointed out that they were sitting there trying to 
compete with Duluth. Duluth had 18 planners in the mayor's 
office; Superior one half-time planner. I said, ``To me, it 
does not look like a real effort.'' That has changed somewhat 
since then.
    But all I have got to say is, if we are going to commit our 
resources and our effort and our prestige, then we ought to do 
it after Colombia has demonstrated it is willing to toe to the 
line, not before hand. I do not believe in buying the meal 
until after I know what it is going to be and whether the other 
guy has got a decent chance of picking up the check.
    Mr. Kolbe. Thank you, Mr. Obey.
    Let me just say, as a Cubs fan, this just might be the 
year. [Laughter.]
    Mr. Lewis.
    Mr. Lewis. Thank you very much, Mr. Chairman.
    Gentlemen, we very much appreciate your presence here 
today.
    I would like to begin, Mr. Secretary, by getting some 
general response. The Plan Colombia dollars involve $7.4 
billion of capital that flows--or is in the process of flowing 
from the United States. Some of it--a good part of it spent 
here in the United States for equipment, et cetera.
    But could you break that out in gross numbers for me as to 
how that money is being or has been spent? What percentages go 
to the helicopters and equipment here in the United States?
    I am interested in getting a sense for what kind of 
oversight we have relative to the way that money is being used, 
that is, delivered in Colombia.
    And I presume, Secretary Grossman, we should start with 
you.
    Mr. Grossman. If I could, Mr. Lewis, I will be glad to 
start out and maybe ask General Speer to help me on the 
military side.
    Let me take on the first and third of your points. Plan 
Colombia, of course, is a $7.4 billion plan initiated by the 
Colombians to which we have pledged our support and over the 
years, as I have said, you and the Congress have appropriated 
the money. Right now what we have done, just to give you the 
gross figures, in 2001 we had in the counternarcotics area, 
$154 million enacted overall; $48 million for Colombia. Fiscal 
year 2002, $731 million, of which $398 million is proposed to 
Colombia. I am sorry that was the proposed. The enacted was 
$645 million, as the chairman said, and $380 million--I 
apologize.
    Then we have come to you with the supplemental request of 
$35 million, which is $25 million for NADR, $6 million in FMF 
and $4 million in CLE.
    Then, our proposal for 2003 is $731 million in the Andean 
Counternarcotics Initiative and $439 million of that would go 
to Colombia. Also, $98 million in FMF is proposed for the Cano 
Limon pipeline.
    There are two questions here. One is, is whether we want to 
sustain our effort, and I think we do. And two, whether the 
Colombians, as Congressman Obey said, are prepared to sustain 
their effort.
    Two points I would make on the Colombians' behalf--they 
really should speak for themselves. But up until now, they have 
now spent--if I can get this number right--$426.5 million on 
social and institutional development, and $2.6 billion since 
the beginning of Plan Colombia on infrastructure projects and 
increasing their own military capacity. That is not a small 
amount of money, and I believe that they are on track to meet 
their commitment to what they signed up to do in Plan Colombia 
as well.
    Let me take the third point, which is, how do we look after 
all this money? First thing is we rely very much on the 
outstanding people we have who serve in the United States 
embassy in Bogota; Anne Patterson and her crowd, whether it is 
her military assistance, or the people who work for USAID. The 
other thing is we have any number of reporting requirements, 
and properly so, to the Congress about the number of people we 
have, the way we are spending the money, plus the 
certification, as Congresswoman Lowey said. And we, in 
Washington, obviously, are trying to spend as much time and 
effort as possible to make sure that taxpayers' money is spent 
properly in Colombia. So it is a combination of those things.
    I will ask Gary Speer to talk a little bit about the 
military side.
    Major General Speer. Thank you, sir.
    It is important to point out, first of all, there is a 
great misconception that the $1.3 billion of the 2000 
supplemental was a military program. In reality, the Colombian 
military directly benefited from only $183 million out of that 
$1.3 billion.
    Now, what we did with that money, the fundamental capstone, 
was the training and equipping of the counter-drug brigade, 
which included training and equipping three infantry battalions 
and a brigade headquarters. They became operational in December 
of 2000. The third battalion completed training in May of 2001. 
And it is that ground force that provided security for the 
spraying operations, in Caqueta and Putumayo departments, of 
59,000 hectares of coca. Then that was Department of State 
contract spraying.
    Additionally, the helicopters are a big part of the 
program. The total helicopter package in Plan Colombia was $328 
million. Where we are on that: All 33 UH-1Ns, which are being 
managed by the Department of State, were operational as of 
December of 2000; all 14 of the Black Hawk helicopters for the 
Colombian army have been delivered. We delivered between July 
and December of last year. The training for that continues and 
will be concluded in July of this year. And we just delivered 
last month the first six of 25 Huey-2 helicopters. There is a 
parallel training program for that aircraft as well.
    Additionally, $180 million of that $1.3 billion went into--
let's call it U.S. military support to Colombia. And this 
provided for the ISR aircraft that flew intelligence collection 
missions in support of counter-drug operations in Colombia. And 
then there was another $160 million for FOL upgrades 
predominantly in Manta, Ecuador, but also Curacao, and design 
work in Comalapa.
    Mr. Lewis. General, first I want you to know for the public 
record that I am very proud of Southern Command and the job 
that you are doing within the region. Specifically, however, 
within this area there is a request for new authority that 
involves activity in terms of the narcotics problem we have in 
Colombia. With the spreading-thin of proposed funding so far, 
where do you anticipate the money is going to come from to 
carry forward activity regarding this broadened request for 
authority?
    Major General Speer. Thank you, Congressman. At least as I 
understand the language in the 2002 supplemental proposal, the 
authority transition does not come with a bill to you. In other 
words, what it means to me, in addition to what Secretary 
Grossman said about the ability for the Colombians to use 
Colombian helicopters not just for counter-drug missions, but 
for any tactical mission or the Colombian's ability--Colombian 
military to use the counter-drug brigade in the Putumayo 
department, which is the best trained and equipped brigade in 
the Colombian army, for any mission and not just a mission that 
starts out with a counter-drug linkage. So that is what it 
means to them.
    What it means to me is that right now any 
intelligencecollection mission I fly with counter-drug-funded assets 
must be tied to an intelligence requirement that is counter-drug 
specific or force protection for those participating in counter-drug 
operations. So without any additional funding, what the authority would 
give us is the ability not to look at Colombia through a soda straw 
that defines counter-drug, but to look at the FARC not only as a drug 
trafficker, but to look at the FARC as a terrorist and to look at the 
FARC as an insurgent across the board.
    It also means from a maritime interdiction standpoint--
again with the assets already provided--instead of just trying 
to interdict drugs leaving Colombia, we can look for the 
weapons going in that are fueling the FARC.
    Those are just examples, sir.
    Mr. Lewis. I have used my time. Thank you.
    Mr. Kolbe. We will come back for another round of 
questioning.
    Next, Ms. Kilpatrick?
    Ms. Kilpatrick. Thank you, Mr. Chairman.
    And gentlemen, I am continuing with Chairman Lewis' 
thought.
    This expanded authority gives me real queasiness for a lot 
of reasons that Congressman Obey already mentioned and some of 
the things that have been discussed today.
    General, you just went over--and in your own everyday 
language, I am sure all you understood what you just said. As a 
former school teacher and now a Congressperson who knows a 
whole lot about--I should put that around--knows a little about 
a whole lot of subjects, this is not one of my great ones. You 
are going to have to break that down for me.
    But the expanded authority that you are asking for in the 
legislation--and Mr. Grossman, I was going to ask you until I 
heard what he just said--because you said you want to use the 
helicopters. Oh, hell, I want you to use the helicopters. I am 
just not sure I want to give you expanded authority. And I want 
to know if I could, is there such a way that we can do what you 
just did, General, and allow you to that.
    Expanding authority means a whole lot of things. Expanding 
almost means no oversight from the Congress, number one, and 
that you can do anything you need to do to get to what you got 
to get to or what you deem necessary to get to.
    Is there a way to craft that better than the language that 
is in front of me, which gives you carte blanche everything? 
And there may not be, you know. Somewhere for letting you use 
the helicopters to doing what the general said, is this the 
only way that we can get to that?
    Mr. Grossman. Let me start an answer, and then I think it 
would also be good if General Speer talked a little bit. As you 
said, in plain, everyday language--I did too, but we are sick 
people. [Laughter.]
    So far, the answer to your question is no, that the law is 
tightly drawn. And you drew the law very tightly----
    Ms. Kilpatrick. To be tight.
    Mr. Grossman. And you did it for a reason.
    Ms. Kilpatrick. That was the intent.
    Mr. Grossman. Exactly right. Absolutely right.
    We have lived by the law, and the law says, 
``counternarcotics, counternarcotics, counternarcotics, nothing 
else but counternarcotics,'' and we have lived by the law. And 
so we have looked at this any which way from Sunday, and we 
cannot find a way other than breaking the law or, as you all 
told us not to do, to stretch the law to get this job done.
    All of us have been sitting in the situation room at the 
White House talking about this pipeline way before September 
11, and we made a promise to ourselves that we were not going 
to fool around; we were not going to stretch the law. We were 
going to come up to Congress and say, ``Here it is. Let's 
debate it. Let's see whether people are prepared to do 
something different.''
    I would say, Congresswoman, that our objective here is not 
to get carte blanche, nor is our objective to throw off all of 
the restrictions. I think if we were interested in doing that, 
we would have come up to get rid of the Leahy restrictions, and 
we do not want to do that.
    Ms. Kilpatrick. Okay, hold it, hold it, because we have 
only got five minutes. See that sand running.
    Mr. Grossman. Okay. [Laughter.]
    Ms. Kilpatrick. ``The provision would allow broader 
authority to provide assistance to Colombia to counter the 
unified cross-cutting,'' and then it goes on.
    Mr. Grossman. Right.
    Ms. Kilpatrick. Tell me what broader authority you need. 
Why can't we do that, rather than say ``broader authority''? I 
mean, you know this better than I. I am trying to give it to 
you, but without having you trample everyone's civil rights in 
this country and that.
    Mr. Grossman. Well, I am certainly not interested in 
trampling anybody's civil rights. As you say, you wrote the law 
in a very strict manner, and we are trying to live up to the 
law. Moreover, we will continue to live up to the law until the 
law is different.
    If we wanted broader authority, we would have asked to get 
rid of the caps, we would have asked to get rid of the 
certifications, we would have asked to get rid of the vetting 
of units. But we do not want to do any of that. Vetting is one 
of the most useful and important things going.
    Ms. Kilpatrick. We agree. And we thank you for not asking 
for that. That would have been a little bit----
    Mr. Grossman. So the idea somehow that we, kind of, want to 
run rampage and skirt the Congress and not listen to anybody 
anymore I think is not right.
    Ms. Kilpatrick. So you are saying the only way you can get 
to where you need to be to combat the violence and terrorism 
that you see is to give it to you like I have read it here, the 
broad stroke?
    Mr. Grossman. That is our conclusion and our proposition to 
you.
    Ms. Kilpatrick. I would like to talk to you more on it as 
the supplemental goes through.
    Mr. Grossman. Anytime.
    Ms. Kilpatrick. There has got to be a better way.
    Mr. Grossman. Anytime.
    Ms. Kilpatrick. Over 12 million Colombians are African-
Colombian. Many feel that their crops have been taken and 
fumigated, some livestock have been affected, some people have 
been affected, not just with the African-Colombians but with 
the people throughout the country.
    Is the State Department using their own guidelines and law 
in this regard, as well, as they fumigate crops and move them 
across the country? Are there problems? Are you aware of them, 
or am I the only one getting them?
    Mr. Grossman. No, no, we hear lots of reports of problems. 
We hear lots of reports of people who feel that they have been 
hurt in some way. I can tell you that our embassy in Bogota, 
and Anne Patterson in particular, has done all that she can to 
make sure that we investigate all those things.
    For example, last year she contracted with Colombia's, sort 
of, leading doctor in this area to review all of these cases. 
They came up with not one case of where the stuff we spray hurt 
any individuals.
    But there are reports; we try to follow them up.
    And one of the things that I promised to do, Congresswoman, 
when I was in Colombia in August, was I said, ``Look, let's 
just get to the bottom of this. Let's see if we can find a 
third party to go out and look at all of these controversies 
and see what we are doing.'' And we are about to ask the 
Organization of American States to do this. We think that they 
will have credibility in Colombia, they will have credibility 
in the United States, and we look forward to their report.
    But we are very confident that this is a safe program----
    Ms. Kilpatrick. Okay, I have got some real concern there 
too. I would like to work with you there.
    And then, finally, Mr. Chairman, the 3.5 percent GDP that 
Colombia now puts in is not enough. You know, you are asking us 
to put in more dollars, and America is in a recession, although 
many say we are coming out of it. If 16 percent of production 
in drugs is still increasing, if 90 percent of the cocaine 
still comes from there--I live in Detroit, urban America.
    Mr. Grossman. Right.
    Ms. Kilpatrick. We have problems where we cannot get 
treatment on demand, and all the other money shifting away and 
to the war on terrorism, which is taking everything, it is hard 
to--I hope you can understand, it is hard to continue to do 
this when what we see is a failing effort, as it relates to the 
people that we represent at home.
    You have a job to do, but so do we. We have to represent to 
the very best of our ability. And somehow this is getting--you 
know, not only taking more dollars than we can afford from our 
own treasury, but at the same time many of us feel that 
Colombia is doing their part in their military, which is lax, 
as well as using more of their own dollars to combat the 
problem.
    Mr. Grossman. Well, that is a very important message that 
comes from you and it is also a very important message that 
comes from us to Colombia. We appreciate it.
    Ms. Kilpatrick. Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you.
    Mr. Bonilla?
    Mr. Bonilla. Thank you, Mr. Chairman.
    Mr. Secretary, I want to talk about demand reduction 
efforts for just a second. I want to quote something from the 
March 2002 strategy report from the INL. It says, ``The need 
for demand reduction is a fundamental and critical part of 
controlling the illicit drug trade. Escalating drug use and 
abuse continue to take a devastating toll on the health, 
welfare, security and economic stability of all nations. As a 
result, foreign countries increasingly request technical and 
other assistance. Our response has been a comprehensive, 
balanced and coordinated approach, in which supply, control and 
demand reduction reinforce each other.''
    I read that because I want to point out that the budget for 
2002 was $842 million, but only $5 million was allocated to 
drug demand reduction programs. This seems to be an obviously 
great disparity and does not comply with the goal of the 
strategy report of a comprehensive, balanced and coordinated 
approach.
    The demand reduction program is one of few, if not the only 
program, at INL that directly fosters the development of civil 
societies. We have seen firsthand how effective drug demand 
reduction initiatives have been for the NGOs. As a matter of 
fact, INL evaluations have validated the success of positive 
outcomes of the program, yet demand reduction receives less 
than 0.5 percent of the INL budget.
    My question is, this is an obvious imbalance in allocating 
funds; why is this such a disparity between the two goals?
    Mr. Grossman. Sir, let me, first of all, commit to get a 
fuller response to you in writing. But I think the answer to 
your question is that, the INL budget, of course, is basically 
focused on interdiction and eradication overseas. If I was here 
from the Office of National Drug Control Policy, I think I 
would tell you we spend billions of dollars a year in the 
United States on demand reduction. John Walters, who I think is 
doing a wonderful job as the new head of ONDCP, has talked 
about demand reduction. He has talked about treatment and 
interdiction. So this is all part of one whole.
    So I hope you will not consider that because you look at 
this small part of our budget that we are not interested in 
demand reduction. In fact, President Bush, every time he talks 
to a foreign leader, especially in Colombia, says the first 
thing we have to do is dampen the demand in the United States, 
because it just sucks in all the things that we are doing.
    So there is a huge amount of money being spent in the 
United States on demand reduction. Perhaps it is not in Randy 
Beers' budget.
    Mr. Bonilla. This has been drawn to my attention. And I am 
going to work very hard to try to create a more balanced 
approach in these dollars. Because unless we discover 
something--and we have researched this quite a bit--otherwise 
this is a great imbalance here in the way these funds are 
allocated. But we will be working on that.
    I want to ask just a couple of other quick related 
questions on drug certification. Last year, when the secretary 
appeared before us, I talked about--and I put some language in 
a bill, because I raised concerns that the drug certification 
process was not exactly reflecting true reforms and what 
countries are actually doing to combat drugs in their 
particular countries. So are there any efforts now planned for 
the near future to replace this ineffective certification 
process with a system of true accountability? I have talked 
about this for some time now. I put some report language in the 
bill last year and hope that we can see some progress on that.
    Mr. Grossman. Would the chairman mind if I just asked 
Assistant Secretary Beers to answer that question, so we can 
get an answer, Mr. Chairman? I do not know what the protocol is 
here, but I am sure Randy can answer that question if the 
congressman allows you.
    Mr. Kolbe. Yes, we would. He needs to step up to the 
microphone and identify himself here, so that we have him for 
the record.
    Mr. Beers. Sir, we----
    Mr. Kolbe. For the record, please identity yourself.
    Mr. Beers. Oh, I am sorry. I am Rand Beers, the Assistant 
Secretary of State for the Bureau of International Narcotics 
and Law Enforcement Affairs at the State Department.
    With respect to the annual drug certification process, yes, 
sir, we did comply with the revised legislation this year. We 
did find it to be useful and an improvement over the previous 
legislation.
    We are in the process of putting together a final proposal 
to come back to you all with respect to where we ought to be 
going in the future. You all gave us only one year worth of 
this process, so we owe you, and the Secretary took a question 
in that regard in an earlier hearing.
    Mr. Bonilla. What is your projection for the time that----
    Mr. Beers. In the very near future, sir. We have been 
deliberating on that since the Secretary took the question at 
the earlier hearing, so I anticipate in the next couple----
    Mr. Bonilla. Just to give me a----
    Mr. Beers [continuing]. Next couple of weeks--two to four 
weeks, sir, we will get back to you by then, to the Committee.
    Mr. Bonilla. Thank you very much. Thank you. Thank you, 
Secretary Beers.
    And finally, I just have a question that might seem like it 
has an obvious answer, but I just want to state for the record 
the tie-in in trying to promote trade pacts and how this can 
help the whole drug effort.
    One of the main focuses in our plan for Colombia is a 
fumigation of coca areas, a sustainable reduction of drug crop 
production through alternative development. The U.S. is already 
engaged in about $9 billion bilateral trade with Colombia.
    However, would it not be an effective tool for President 
Bush to have trade promotion authority and the Andean Trade 
Preference Act? Wouldn't this allow the president to move more 
effectively and quickly to offer Colombia and other countries 
in the region some alternative means of income for their 
farmers? And wouldn't that authority expedite USAID's five-year 
goal of eliminating the production of over 7 million acres of 
illicit crops?
    Again, I think there is an obvious answer here, but this is 
very important, very important in tying it into this problem.
    Mr. Kolbe. That was a real hardball. [Laughter.]
    Mr. Grossman. And I am going to take the advantage of 
taking it. Actually, I made a----
    Mr. Kolbe. We do need to make it quick.
    Mr. Grossman. No, I made a mistake. You will see in my 
prepared statement, Congressman, a very strong endorsement of 
ATPA, a thank you to this Committee and to the House for 
passing ATPA, and a call on the Senate to do the same. I 
apologize, I took it out of my spoken statement to get the time 
down; I should have left it in there. We agree with you 
completely.
    Mr. Bonilla. Thank you.
    Mr. Kolbe. Mr. Rothman.
    Mr. Rothman. Thank you, Mr. Chairman. I will be brief. I 
want to catch the director's testimony before another 
subcommittee that I have the pleasure of serving on.
    But I would be interested to know what the Colombian 
officials say to you when you express to them, which I am sure 
you have, that it is the view of many in this country that 
Colombia is not expending enough of its own resources to defend 
itself and its people from FARC. What do they say to you as to 
why they are not spending more?
    Mr. Grossman. The reason I hesitate is that I think I would 
have gotten a different answer last year than I got this year. 
Last year I think I would have heard more, ``Well, we are in a 
peace process with the FARC. Maybe it will work out. This is 
not so bad. We can handle this along with your support.''
    But I must say, sir, as I tried to say previously, 
September 11 had a big impact on Colombia and their psyche. I 
believe that what happened on September 11 made it more 
possible for President Pastrana to take the decision he did on 
the 20th of February. I found people in Colombia much more 
purposeful the second time I was there. I believe now that they 
are much more open to the kinds of conversation we have been 
having here that they need to do more.
    Mr. Rothman. Forgive me, and if you covered this already I 
apologize, but what evidence do you have, or can you tell us, 
the subcommittee, that would demonstrate your belief that they 
now have a new attitude about the necessity to spend a greater 
portion of their resources on their--on the threats that they 
face?
    Mr. Grossman. Yes, sir. I think the most important evidence 
of that was the decision President Pastrana took to end the 
zone. To say finally that he was not getting anywhere with the 
FARC, that the peace process would end, and that he was going 
to take the expense, not just in terms of money, but effort and 
possibly also lives, to go in there and clean it up.
    Mr. Rothman. Did he come up with a specific sum of money or 
increase in percentage?
    Mr. Grossman. Again, the Colombians should obviously speak 
for themselves. But I know that President Pastrana has recently 
proposed a considerable increase not only in the number of 
people who should be in the Colombian military, but also an 
extra $100 million in spending on the Colombian military.
    Mr. Rothman. And how does that boost their percentage of 
spending relative to the GDP on defense?
    Mr. Grossman. How it would raise the 3.5 percent, I am not 
sure. I will be glad to get back to you, Mr. Rothman.
    Mr. Rothman. It cannot be a heck of a lot.
    Mr. Grossman. No. I mean, I do not think $100 million would 
raise it that much.
    Mr. Rothman. Therefore, from what you have told me today, I 
am not overwhelmed with the sense that they yet feel the need 
to do much more than they are presently doing. And until I am 
presented with evidence to the contrary, I am going to be 
reluctant to want to do more from the U.S. taxpayers.
    Not withstanding the fact that I am otherwise 
extraordinarily sympathetic to your requests to allow us not to 
look at them through--as the general said, through the straw, 
but in our own self-interest to put these terrorists out of 
business for our own self-interest, as well as for the 
interests of the people of that region.
    I would be otherwise extraordinarily sympathetic to 
expanding the authority--your authority. But in terms of 
additional dollars, I am concerned that expanding our authority 
or allowing you to expand your authority might of its own 
nature require additional expenditures or additional requests 
for greater expenditures. And I do not want to go down that 
road if Colombia is playing us for some suckers or they are 
being irresponsible. I feel badly for the Colombian people if 
their own leaders are being so apparently--I will not use that 
word--their own leaders are not doing what they should to 
address the magnitude of this problem.
    Mr. Grossman. Mr. Rothman, part of the challenge, I think, 
that we both have is--I do not mean to be colloquial here--but, 
kind of, who goes first. If you consider, for example, the 
report that General Speer gave you, we spent money training 
what is now the best military unit in Colombia. They go out and 
they knock over over 800 narcotics labs in the last year.
    Does that show that they want to do more? I think it does. 
Would they have done this by themselves had we not had this 
training for them? Probably not. The Cano Limon pipeline, for 
example, they would like to have the $500 million a year that 
now dribbles away because that pipeline is closed 226 days a 
year. But they cannot do that, they cannot make that extra 
effort that you seek until they have got a trained and sensible 
armed forces, which Gary Speer is going to do if you give him 
the money.
    So, you know, as someone said before, this is a complicated 
problem and we have----
    Mr. Rothman. But frankly, if it--maybe I am wrong, but if 
it were my country and I did not have America to look to, I 
would spend, as Congressman Obey said, a far greater percentage 
than the three-point-whatever they are presently spending and 
not look to anybody else. Initially, I would spend whatever it 
took, 100 percent or 200 percent, of the budget to protect--
with all these kidnappings and murders of government officials 
and regular folks on the street.
    So it does not compute to me that they would withhold from 
making that effort saying, ``Well, we will not do it until 
America coughs up more money.'' It does not ring true to me. 
And so, I am left with questions that, until they are answered, 
are going to prevent me from doing what I would otherwise be 
very sympathetic in allowing you folks to do.
    Again, I may ultimately end up supporting you because I 
want to support our efforts in that region for America's 
interest, as well as for the interests of the Colombian people, 
and damn the Colombian elected officials if they cannot do 
their job right. But it does inform me about how I want to 
treat and relate to the present Colombian leadership in the 
future.
    Mr. Grossman. Just for the record. I just want to be clear 
that I do not want to be in a position of saying that the 
Colombians will not do anything until we pony up. I think our 
objective here is to make sure that the lines intersect in the 
right way. So that Pastrana comes out, he proposes Plan 
Colombia; the United States supports it. Colombians identify a 
military unit to train; Gary Speer does a great job training 
them. They go out and knock over----
    Mr. Rothman. Mr. Secretary, Colombian people are very smart 
people. I do not think they need us to tell them--to suggest to 
them that they need to defend themselves, and that they 
probably could come up with their own ideas about how to 
protect their men, women and children who they are supposed to 
be protecting.
    Anyway, I am going to go, and I will thank you.
    Mr. Kolbe. Mr. Kingston.
    Mr. Kingston. Thank you, Mr. Chairman. I do want to say for 
the record that I believe that our military spending is about 3 
percent of GDP, and we are at war. So they are not, at 3.5 
percent, exactly taking it lightly. I believe that is 
approximately right, I am, you know, a little loose with the 
numbers.
    My question, though, General Speer, you had testified to 
the Senate Armed Services Committee in March--March 5, made a 
number of interesting statements about Ecuador, and I am just 
going to quote here and there.
    ``Ecuador remains the country most vulnerable to any 
spillover effects from the narco-terrorism.'' You made big 
points about Ecuador's soldiers are inadequate, ``7,000 
Ecuadorian soldiers on the border, but they need about 
10,000.'' Their ration is 12 saltines and 15 grams of tuna--a 
can of tuna a day. They are paid the equivalent of $280 a 
month, which is actually less than the monthly wage to members 
of FARC. So a lot of concerns here about Ecuador.
    And also you made some very good points about during 2000, 
12,000 Colombians fled to Ecuador; in 2000, 4,600 Colombians 
requested refuge status there.
    My question is, how would you assess the threat to Ecuador 
and what can the United States do to help Ecuador?
    Major General Speer. Thank you, Congressman. I got to be 
honest and tell you, I cannot take credit for all of that, but 
it sounds right.
    I still remain convinced that, of the neighbors, Ecuador is 
probably the most susceptible to spillover from Colombia. We 
already see the FARC operating at will across the border into 
Ecuador. The Ecuadorians are taking steps in terms of 
reorganizing the army, specifically the 19th Jungle Brigade and 
the division they have located in the north, to try to focus on 
that area.
    As is the case throughout the Andean ridge, the Ecuadorian 
military is under-resourced to do the security job that needs 
to be done to protect its borders from external threats--these 
transnational threats that move back and forth.
    In the Plan Colombia 2000 supplemental, it did include $20 
million for Ecuador, of which $6 million of the $20 million 
will actually go to the military. That will buy--in fact, it 
will deliver a combination of communications equipment and some 
vehicles to give them some mobility. The fundamental problem, 
again, is a lack of mobility to really patrol the area.
    There has recently been a change in military leadership in 
Ecuador, each of the services and the chairman and joint chiefs 
of staff equivalent. I am very optimistic with the leadership 
change. They have still got the, shall I say, the gap in terms 
of being able to resource, whether it be from Ecuadorian 
sources or external support, the security force requirements 
they need for that northern border.
    Mr. Kingston. Mr. Franco, I have a question for you. I 
understand that Ecuador, under the ARI, did not receive the 
funds that they expected, and they got a disproportionate 
reduction--or a proportionate reduction in the level of USAID 
monies as compared to other Andean countries. Can you explain 
that?
    Mr. Franco. Mr. Kingston, we are in the process currently 
of conducting a review of our program in Ecuador. In fact, just 
to tie on to what General Speer said, we are looking at the 
projects that we are carrying on along the border with the 
Putumayo River. We are concerned, obviously, just as the 
general had said about the spillover effect; our program has 
been concentrated in that area precisely for that reason.
    However, there is a distinction, and I alluded to this in 
my testimony, and that is that, unlike Putumayo, on the other 
side of the river, where we see--and I have tried to highlight 
this--security and other significant problems from a 
development standpoint--really from every standpoint, 
governance, rule of law issues and so forth--on the Ecuadorian 
side of the border, which is a very similar terrain in every 
respect, including a lack of access to markets--it is very 
difficult in Putumayo and Colombia to access other markets--in 
Ecuador the northern part of the country is also isolated. So 
they share similarities in almost every regard.
    The only difference, I would say, from the standpoint--the 
development standpoint, is that we are able to carry out 
programs in Ecuador in a fashion that we are not able to do so 
in Putumayo.
    That does not mean we are not concerned about, as the 
general has pointed out, the spillover effect in that area. 
That has led us, in terms of priorities--and I am not punting 
here. I am new to the job. I have been on the job 60 days. But 
we are conducting a review of the program. But initiallyI can 
tell you that our priorities were largely driven by the need to put 
resources in those areas where we saw the greatest needs for 
alternative development assistance.
    And in northern Ecuador, where our program is concentrated, 
from a development standpoint, the news is fairly good. In 
fact, I might add that the successful productive activities and 
infrastructure programs in northern Ecuador are things that we 
look to replicate in Putumayo in Colombia. So I will review 
that aspect of it.
    Mr. Kingston. I appreciate that, and I see I am out of 
time. But given the general's testimony in March to Senate 
Armed Services, it does appear that it is a dire situation. And 
it would be in our interests for you to review it.
    Mr. Franco. We are in the process of reviewing that, sir, 
and we will get back to you on that.
    [The information follows:]

                    Report on Assistance to Ecuador

    USAID provided $8 million for alternative development 
programs in northern Ecuador with Plan Colombia funds in FY 
2000 and FY 2001. These resources are being used to support 
local community infrastructure projects that strengthen local 
governments, make rural communities more cohesive, and help 
communities resist pressures to produce drug crops. We are 
currently providing an additional $10 million of alternative 
development assistance for northern Ecuador with FY 2002 funds. 
We are continuously monitoring the progress of the alternative 
development program in northern Ecuador and will make 
additional adjustments as necessary to support achievement of 
United States Government objectives.

    Mr. Kingston. Thank you.
    Mr. Kolbe. Thank you, Mr. Kingston.
    We are joined today on the subcommittee dais by a member of 
the full committee, Mr. Sam Farr, who has a great deal of 
expertise in Colombia, having spent some years there himself in 
the Peace Corps.
    We are pleased you are with us today, Mr. Farr, for your 
questions.
    Mr. Farr. Thank you very much, Mr. Chairman. I appreciate 
the invitation to sit on this panel. I am not a member of this 
subcommittee, but I am really keenly interested in Colombia. As 
you said, I lived there as a member of the Peace Corps. And 
while I was there, my younger sister was killed in an accident. 
And I have, sort of, been really involved in Colombia 
emotionally and politically ever since. And some of my best 
Colombian friends have all been killed in this ongoing 
violence.
    I came here today--and it is in my written testimony--to, 
sort of, talk about the issues that I think committees like 
this always get into which is the edges. We have already talked 
about campesinos, and spraying, and pipelines, and human 
rights, and fair trade coffee. But after hearing Mr. Obey and 
thinking of what we really need to do in Colombia, I have 
changed it. And I am going to say some things and then ask just 
a general question, or I have three questions I want to ask, 
and I will just put them in my remarks.
    I think we are going to hear a lot about the issues that I 
came here to talk about, because in nine days there are going 
to be thousands and thousands of people descending on 
Washington in a thing called Mobilization Colombia--Colombia 
Mobilization--to essentially petition our government to get out 
of Colombia. And we are going to be sitting here defending all 
these pieces of why we ought not to get out. I think what the 
American public believes is that we are not having any effect 
there.
    And I think the American public think we are not having an 
effect there, because we as political leaders in the 
administration have not been very effective in communicating 
that the problem is not Colombia. The problem is an America 
problem. It is drugs in North America, and now drugs in Brazil, 
and it is really a lack of leadership in the Americas.
    And I would not say that it is a lack of leadership on the 
American president's side. It is a lack of leadership by the 
presidents of Central American, Latin American countries to 
really recognize that this problem is a Latin American problem 
and Colombia is where it is focused.
    And I think we need to insist that all the resources that 
we put in Latin America and any country ought to be tied to 
those countries helping upgrade the democratic institutions in 
Colombia. If Colombia does not make it, they are not going to 
make it.
    And I disagree with you: Ecuador is so poor and so rural 
that if the pressures that Ecuador had--that Colombia has, they 
do not have the infrastructure. They do not have the government 
infrastructure. They do not have the way to respond as 
sophisticatedly as Colombia has been able to. It is just a 
matter of time before it squeezes into Ecuador, squeezes into 
Venezuela, or squeezes into any area.
    All of you on this panel, your titles of undersecretary of 
state, secretary of defense, of U.S. Southern Command and 
administrator of Latin America are all about that region. And 
my plea is that we need to make the entire region supportive of 
what we need to do to upgrade democratic institutions and 
eradicate poverty and eradicate the drugs.
    I do not think we are going to do it by just coming here, 
which I would have done like everybody else in Colombia, to 
raise more revenue and commit to that. This is an election year 
in Colombia; no politician in America is going out and 
campaigning, saying, ``I am going to get elected on raising 
more taxes.'' Neither should we suspect that anybody in 
Colombia is going to do that.
    But if we do not support whomever is going to get elected, 
if that next government has to come here and beg for support, 
and start all over again, we have lost this thing.
    So we have got to institutionalize the upgrading of these 
institutions which is greater than just trying to figure out 
whether we need to, you know, do crop eradication differently.
    I think we need to--here is what I suggest needs to be 
done. I think that Latin America needs to show its support of 
Colombia, and this administration needs to provide the 
leadership in doing that. And I suggest that this 
administration very strongly indicate that all of the aid to 
Latin America will be tied to the success of all of those 
countries helping upgrade those institutions within Colombia.
    I think you need to reschedule Secretary Powell's visit to 
Colombia, the visit that was canceled after 9/11. I think 
Secretary Powell has to make it very, very clear to the 
Colombians that they have got to see institutionalized a 
firewall between them and the paramilitaries. This idea that we 
put in our legislation, which is I think what ties us to just 
using all our equipment for narco-suppression and not allowing 
the Colombian military to use this for other purposes which may 
be justified now. But nobody is going to buy it here in 
America, nor are they going to buy it, until we see the 
Colombians being able to create a firewall that will really, in 
that country, work.
    Because I think they give--I mean, we read the polls. The 
Colombians are--we would do it in this country, if we had a 
crime spree in any community or in any state that was like 
Colombia, all you would have to do is run on, ``I will use 
every force I can, I will bring back the vigilante,'' and 
people would support that. So I can understand why the 
popularity for the paramilitaries is going up, because all 
these other institutions are failing.
    I think you need to take the money that we are doing for 
spraying and put it in economic development. The campesinas 
that I talked to in Putumayo--and I speak their language--told 
me, ``If we sign those contracts, our lives are threatened.'' 
What the hell kind of an offer is that? You are going to offer 
them some money so that they can grow an alternative crop 
versus somebody offering, ``You sign the contract and you are 
dead''? We do not back it up. We cannot protect those 
campesinas after they sign the contract; the Colombians cannot. 
And we do not have any economic incentive. Why would you want 
to go with the government's Plan Colombia? Where are the 
schools? Where are the roads? Where is the infrastructure?
    People in America do not care just about the economics of 
our community or their jobs. They care about the ability to 
have a quality of life, to send their kids to school, to get 
health care when they need it. That is the same for any 
campesina anywhere in the world. And we do not do enough to, 
sort of, develop that governance ability there.
    So I think that, you know, you are not going to find a 
great infrastructure in the jungles of Colombia in Putumayo, 
but until we start improving the ability for Colombians to 
develop and deliver their institutions of democracy, which we 
all praise and why we are there in the first place, I do not 
think we are going to win this plan. I think David Obey is 
right; we are rearranging the chairs on the Titanic.
    So my suggestion to you--and you said you wanted to listen 
to members of Congress--is, one, engage all of Latin America in 
this, and find some Latin American leadership outside of just 
Colombia itself. It is in their self-interest to ask for Plan 
Colombia, but it ought to be in the interest of all Latin 
Americans.
    Secondly, send Secretary Powell down there with very strong 
statements that this paramilitary process, this suspicion that 
there is collusion in all the reports that come back from all 
the human rights groups--they are the ones that come back and 
report to members of Congress.
    So you can sell this committee that, you know, all of these 
details may be necessary, but you cannot sell it to the whole 
body out there. You cannot even get them to come to a meeting 
on it. And in 10 days, they are going to be listening to their 
constituents who are going to be here by the thousands, telling 
them not to do any of the things you are asking today.
    So I think we have a real credibility problem that we have 
got to correct immediately. And that is going to be done by 
addressing this as a Latin American issue, not just as a 
Colombian issue.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Well, I think we will just allow a couple of 
brief comments, if you want to respond to that, and then we 
will go back to asking questions.
    Mr. Grossman. Sure.
    Mr. Farr, thank you very much. I do not know if I really 
want to respond so much as to say that I agree with practically 
everything that you said. And I appreciate----
    Mr. Farr. Well, what are you going to do about it?
    Mr. Grossman. Well, let me--I was just trying to be polite. 
Let me try to answer your questions.
    First, I think in terms of bringing the hemisphere 
together, that is absolutely right. One of the things that 
President Bush tried to do when he was in Quebec and put out 
this theme, as I tried to elaborate on in my testimony, of 
democracy, the rule of law, human rights, prosperity and 
security is now a goal of the entire hemisphere.
    I agree with you completely, that we need to do more in the 
countries around the hemisphere. We have had some success--
actually, a lot of success--with getting Mexico and its new 
government more involved in Colombia. In addition I was in 
Brazil a few weeks ago, and they are also, I think, coming to 
recognize that how Colombia is going to go the whole area for 
10 or 15 years will go.
    Second, I think that Secretary Powell would like to 
reschedule his visit. As you know, we have, kind of, set this 
up. We designated the AUC as a foreign terrorist organizations 
on the 9 of September, and we wanted them to go there on the 11 
of September to give that message precisely.
    I have tried to give it, General Shinseki, General Speer 
tried to give it, but I know Secretary Powell would like to go 
back--not to go back--I think he needs to go, because I take 
your point that we need to do a better job in making this 
point.
    If I could just turn to Secretary Franco for a minute maybe 
on alternative development.
    Mr. Franco. Thank you, Mr. Secretary.
    Mr. Farr, I know about your Peace Corps experience in 
Colombia, your commitment to it. I know your staff was just 
recently in Colombia, so I know you are an expert in these 
issues.
    I have to say, you have laid out a lot of challenges before 
us. There is no disagreement that law enforcement and building 
institutions is a critical component. And we talk a lot about 
alternative development and it is a key component, but our 
democracy program and good governance program is a large part 
of our program in Colombia and elsewhere in the Andean region, 
including Putumayo.
    Mr. Farr. How much are you putting into the rural economic 
development?
    Mr. Franco. Rural economic development is $56.5 million of 
that.
    Mr. Farr. How much is the entire Plan Colombia commitment?
    Mr. Franco. You are talking about the USAID portion?
    Mr. Farr. Yes. Well, what about----
    Mr. Franco. $104 million, of which $24 million is dedicated 
to the democracy programs in the 2002 money.
    Mr. Farr. But my point is that of the $1.3 billion, that is 
a very small amount.
    Mr. Franco. Well, I wanted to get to another component 
where--I am being candid with you about the crop substitution. 
You made a lot of points. I just wanted to start out with the 
law enforcement and the good governance.
    We agree. And we are helping the government of Colombia in 
that regard. We are going to be in Putumayo. The secretary 
referenced the 18 casas de justicia that we have supported, and 
we are going to go to 40 by 2005.
    Working with communities; we agree in an integrated 
development approach. Two things: You mentioned Congressman 
Obey and Mrs. Lowey. Mrs. Lowey said this can not be achieved 
in the short term. We agree. There is just--this will take some 
time. It is a critical component.
    But on alternative development, and you know this, there is 
not a crop--and this is not crop substitution, there is not a 
crop that can compete with coca. There is just not. Therefore 
we need to have that law enforcement, we need to have good 
governance, we need to work on that, in a situation, in a 
country in which security is just not present throughout the 
country. That is our challenge.
    Mr. Farr. You could just buy Colombian coffee at a higher 
price and be better off.
    Mr. Kolbe. Thank you. We have long exceeded the time here. 
We will come back if you would like to ask some more questions. 
Mr. Callahan has rejoined us.
    Mr. Callahan.
    Mr. Callahan. Thank you, Mr. Chairman, Mr. Ambassador. Good 
evening. I am sorry I missed most of the testimony and 
questions. Some of it will be repetitive and I apologize to you 
for that, but I had another hearing in my subcommittee.
    But I did have jurisdiction over this committee when the 
president came to the Congress, and asked me to spearhead the 
effort to participate in Plan Colombia. Originally it was 
proposed to Congress that our contribution of $1.3 billion was 
part of a $7 billion world contribution, including $2 billion 
from Colombia toward this effort. So I guess my first question 
is how much--we put up our entire $1.3 billion, how much has 
the rest of the world provided on their commitment?
    Mr. Grossman. Sir, as I answered the question before, we 
have put up our commitment, and thank you very much. I think 
the Europeans and others have put up practically nothing, and 
we need to do more to get them there.
    But the Colombians themselves have spent $426.5 million on 
social and institutional development and $2.6 billion on Plan 
Colombia-related infrastructure projects and improving their 
military. We think that is a substantial commitment. And we 
think they are well on their way to meeting their part of the 
$7.4 billion.
    Mr. Callahan. Why has the European community not 
contributed? They are complaining that these drugs are now 
moving toward the European community. Why are they not 
participating?
    Mr. Grossman. We have made the point to them again and 
again that they need to participate. A little bit like I was 
trying to answer Mr. Rothman's question, I have really seen a 
change, Mr. Chairman, in European attitude since the 11th of 
September. Before the 11th of September it was hard to get some 
of our colleagues in Europe to even accept that the FARC and 
the AUC and the ELN were narco-terrorist organizations. That 
has really changed since the 11th of September. I do not tell 
you we do not have some work to do, but I think we can use this 
change in attitude to get it done.
    Mr. Callahan. What nations, other than European nations, 
were part of the coalition to raise the $5 billion that was in 
addition to what the United States was putting up--$4 billion, 
I guess?
    Mr. Grossman. Well, there were a large number of countries. 
I represented the United State about two weeks after I took 
this job at a conference in Brussels to try to raise some of 
that money. I said that time that if we took the salaries and 
all the money that was spent to bring that conference together 
and applied it to Plan Colombia we would have been better off, 
because we did not get any extra money out of that.
    What I am hoping is, and I commit to you, is that we have 
to use the change in attitude after the 11th of September to 
build that money up. The truth is, though, that it is only the 
European Union that has money. And they need to be involved in 
this in a much bigger way.
    Mr. Callahan. How about Japan?
    Mr. Grossman. I know the Japanese were represented at that 
conference. I will tell you the truth, we have not been back to 
the Japanese since that time. They are not on this list, I will 
be glad to check with them.
    Mr. Callahan. Well, you know, I am just concerned. It was 
my philosophy when I chaired this committee, and certainly it 
is the philosophy of most of the members including the 
chairman, that we understand the constitutional role of the 
administration to engage in foreign policy. And that the least 
interference you have from Congress, the better off you are, 
and you are able to perform that function effectively. And I 
certainly do not want, at this stage of my life to start now 
saying, I am not going to agree to give this administration 
total support for their foreign policy, because I intend to do 
that.
    But I do not want Colombia to turn into the Middle East of 
our contributions for foreign aid. And I am afraid that is what 
is happening. We have provided Colombia with more money than 
any other nation in this hemisphere. Now, we are proposing 
another half a billion dollars toward that effort to resolve a 
problem that really, as Nancy Pelosi used to say, is our own 
problem. Because we keep buying these drugs and creating the 
market and we have a big problem here. But I do not want to 
turn this into a Middle East dependency, which I am afraid that 
that is where we are heading.
    I am also concerned about the fact that the administration 
is not showing due respect and appreciation to Bolivia for the 
efforts they have made in the total eradication of this problem 
in Bolivia. The very idea that we are going to tell Bolivia, 
``You are doing a good job, so we are cutting you off and we 
are going to reward the countries that are not making any 
progress whatsoever,'' according to the figures--and I have 
seen conflicting figures as to how many hectares have been 
reduced. And the same thing with Ecuador, and we do not want to 
just push this problem into Peru and Ecuador, and back into 
Colombia, or even over to Africa.
    But here we are today saying, ``Look, the $1.3 billion did 
not work. Or what you told the Congress or what the Japanese 
and the Europeans told the Congress three or four years ago, 
they did not keep their word. Therefore, come up with another 
$500 million and we will go to work now trying to get them to 
fulfill the commitment they have already given.''
    I do not know what I am going to do, Mr. Secretary, at this 
point, with respect to the committee and floor funding level. 
But I will tell you that I am not at all satisfied with the 
progress that has been made, with the commitments that have 
been broken, with respect to world involvement, with the 
commitments that Colombia has not kept, with the progress that 
has been made. And simply pouring another half a billion 
dollars in there, in my opinion, is not the correct solution.
    Maybe I am wrong, and probably I might be. Because you all 
are professionals, and I respect that. I certainly respect you 
and your ability to negotiate and your mission. I respect that, 
and I respect the president. But we are talking about a lot of 
money going to a very small area that is making zero progress, 
that can show me nothing has been accomplished with the $1.3 
billion that I spearheaded when I was chairman of this 
committee.
    So I apologize if my view is different from yours, but I do 
respect your position. And I certainly do not question your 
motive or your aims, nor do I question anyone in the 
administration.
    But I just think we are turning Colombia into the new 
recipient of aid for this hemisphere, when we have such 
tremendous needs for assistance to other nations in this 
hemisphere that we are totally neglecting. Not necessarily in 
drug interdiction, but in economic situations. That we are 
totally eliminating all of our--not all of them, but most of 
our efforts for human rights, for quality-of-life improvement, 
for educational opportunities, for trade opportunities. We are 
neglecting, and putting all of our monies into a country such 
as Colombia that is not showing me any strong indication of 
being able to make any improvement in the problem that they are 
creating for us.
    Mr. Grossman. Mr. Chairman, I would just like to respond in 
a couple of ways. One, Mr. Callahan, and I made a mistake. 
Luckily, there are smarter people behind me. And so I want to 
apologize for misspeaking. The Japanese actually have pledged 
$175 million into the general international fund, Spain $100 
million, European Union $95 million, falls off from there.
    Maybe you would allow me to send you this as an answer for 
the record, so you can get the whole thing and I would like to 
then see how, kind of, people have met the pledge----
    Mr. Callahan. Excuse me, pledged. That is what they 
pledged?
    Mr. Grossman. Exactly.
    Mr. Callahan. What has shown up?
    Mr. Grossman. Well, that is what I have got to find out. 
See, I have all the pledges, and then I have got to make sure--
--
    Mr. Callahan. That was my point. I know what the pledges 
are. The pledges total $4-plus billion.
    Mr. Grossman. Exactly.
    Mr. Callahan. Which is----
    Mr. Kolbe. I will make a pledge of a billion dollars to the 
United Way this year. I do not think I will be able to fulfill 
it. [Laughter.]
    Mr. Grossman. Fair enough. But I think we ought to get the 
facts here. We ought to answer this question.
    Mr. Callahan. Well, I think I need the facts, because I do 
not want to go to the floor and fight the administration on 
something that I believe your heart is in the right place. And 
certainly your aims are correct. Your goals are absolutely 
noble. I do not question that at all. But we are talking about 
a half a billion dollars.
    Mr. Grossman. Right.
    Mr. Callahan. You know, I had the same problem with the 
Clinton administration with Haiti. Finally, they gave up on 
Haiti, when they saw there was no way to make any progress in 
that country. They stopped pumping money into Haiti.
    And I think it is time that we look at the possibility--if 
we are talking about $500 million--of diverting this to some 
countries that are showing progress, and that do have true 
economic and social needs that we could really make some 
improvements in these countries. And then at the same time, 
beef up the Coast Guard, and beef up the DEA and all of these 
agencies which I visited this weekend, that are fighting this 
battle, this war of drugs departing Colombia, both on the 
Pacific side and on the Atlantic or the Gulf side coming to the 
United States.
    But in any event, Mr. Ambassador, I hope that you do not 
think this is any criticism of you. Because I have great 
respect for you and all of you, and what you are doing. But at 
the same time, we do have an obligation that we must look at 
how we are going to distribute the money. So the question is 
not whether or not we are willing to give you the $500 million, 
but whether some of it ought to be spent in Ecuador, some in 
Bolivia, some in other South American nations to help them in 
real crisis situations.
    Mr. Grossman. Well, I appreciate what you say in terms of 
motivation, because I think we all have the same motivation. I 
would say--and I know Chairman Kolbe would like to finish--it 
is a longer conversation. But I tried in my statement, and I 
would like to come talk to you about it some more.
    I think actually we can demonstrate some real progress in 
July of 2000 in Plan Colombia. As much as we would all like? 
No, but I think there is real progress to be demonstrated, and 
I would like to someday come and visit with you about that.
    The other point I would like to pick up is your point about 
human rights and trade. I think that is exactly right, but one 
of the things--and perhaps Congressman Farr is right, that we 
have not done nearly a good enough job is making people 
understand that your vote for Plan Colombia, and all of the 
support we give for Plan Colombia, is not just military. We do 
have a trade component. There is a human rights component. In a 
way, of the 11 things I listed here today in terms of things 
that I think we have got done, the majority of those are on the 
democracy side. The majority of those are on the human rights 
side, and I think we have got some things to be proud of.
    On the trade side, I could not agree more with Congressman 
Bonilla. We really appreciate the fact that the House has 
passed ATPA, and we call on the Senate to do so.
    Mr. Callahan. Well, once again, no reflection on the 
professionalism of any of you guys. Because I think you are new 
on the job. I know that you are not real new on the job, but--
--
    Mr. Grossman. I am guilty.
    Mr. Callahan. You are new in this administration, and this 
administration is a new administration.
    And I want to help. But at the same time, I want to give 
you constructive advice. I do not want to just block it, not 
that I could, but I could certainly stand on the floor and 
suggest to my colleagues that maybe this money is not spent 
wisely. But I hope we do not reach that position.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you.
    Mr. Lewis has been waiting patient for a second round of 
questions here. Mr. Lewis.
    Mr. Lewis. Mr. Chairman, thank you for your courtesy very 
much.
    September 11th did an awful lot here at home, in terms of 
Americans' resolve. A totally nonpartisan response to the fact 
that we need to be together fighting a thing called terrorism. 
Even if it includes going to Afghanistan and other places and 
identifying leadership people, especially within a thing called 
Al Qaeda, and either making efforts to capture or kill sizable 
numbers of people, something that is almost beyond the former 
psyche of the American public's view of the way we should 
operate in the world.
    In Colombia, where you have a combination of $500 million 
lost with the pipeline and the capital of the world in terms of 
people who have been kidnapped--I am not sure how many 
kidnapped and killed--but nevertheless, its almost like a 9/11, 
certainly for that country's circumstance. I would like to know 
what I do not know about Colombia's policies regarding what 
they are doing to coordinate intelligence activities with 
information activities, with military activities and otherwise, 
to identify the leadership--it is hard for me to separate 
narcotics development, trade, et cetera, from terrorism.
    What are they doing about identifying who the leaders are 
in the three organizations, but mostly the FARC, and either 
capturing or killing them in sizable numbers?
    If you send a serious enough message and then you combine 
that with saying to the farmers, ``We are sorry, we are going 
to eliminate one way or another this growth in narcotics; even 
if we have not been able to substitute crops, we are going to 
eliminate this growth''--I am talking about some very hard 
lines here. What is the thinking in Colombia about that kind of 
hard line?
    Mr. Grossman. Let me start, and then maybe General Speer 
can help me as well.
    I think 9/11, as I tried to tell some of my other 
colleagues, had a big impact on Colombia, as well. I believe, 
Congressman Lewis, that, had there not been 9/11, I doubt 
President Pastrana would have taken what I consider to be a 
courageous decision that he took on the 20th of February to end 
the peace process and deal in his own way with the FARC. I 
think that is a product of his own frustration, but also a 
product of 9/11.
    Both General Speer and I have talked a lot to the 
Colombians about the need for them to bring together, in an 
integrated way, a real plan that has to do with their security, 
their information activities, their intelligence activities, 
all of these things, to, kind of, get on top of this program. 
And when we were there together, we had dinner with President 
Pastrana in February, and I think that is something that he 
understands that they need to do, and there is work going on to 
do it.
    We also took the occasion, General Speer and I, to make 
those same points to the three leading presidential candidates, 
as well.
    Maybe I will just let Gary Speer talk for a moment about 
his perspective on this.
    Major General Speer. Thank you, sir.
    One of the things that probably has not hit the press that 
I can report to you, first of all, I think the Colombian 
military and the Colombian police leadership, through their 
intelligence efforts, have pretty good visibility on who the 
leaders are in each of the three organizations and, at least 
within the FARC, a pretty good idea as to the general areas 
that they are located in.
    Now, in terms of, that sounds real simple, why do you not 
go out and do something about it, kind of, which is the next 
question, I am talking about general areas, as opposed to 
specifically where now the results since 20 February there have 
been several and--unfortunately, in this forum--I would be 
happy to provide you something for the record--several FARC 
leaders that have been either killed or captured, based on 
focusing on leadership of FARC fronts.
    What the Colombian military did on 20 February is, the 
first thing, the air force attacked known FARC infrastructure 
inside the despeje, where there were no civilian population 
centers. The second thing that they did is, they moved in very 
deliberately to secure the five major cities within the despeje 
as an effort to minimize the chance of civilian casualties.
    And now, I think their focus is shifted toward trying to 
get at the leadership. Because what the FARC has done in the 
meantime, is avoid contact with the Colombian military. They 
have broken into small groups and, kind of, gone back in the 
jungles. And instead of focusing on the Colombian military, 
they are using explosive tactics and, in essence, trying to 
interdict the power pylons, telephone towers and things of that 
nature. So I think there is some progress in that area.
    Mr. Lewis. Well, it certainly strikes me that we have 
identified 2,000 people within Al Qaeda that we want to capture 
or kill because of the international threat of terrorism, and 
if someone did that in Colombia and did it aggressively--then 
when you get rid of about the top three levels, pretty soon 
things are going to change without any question. So I would 
hope, Mr. Ambassador and General, you can come and maybe talk 
to me in circumstances where we can talk off the record about 
this.
    Mr. Chairman, I was going to ask a question about building 
a balanced and talented capable military in Colombia, and 
extending it over time, and ask for comments about FMF and 
IMET, but I am afraid the audience I was going to ask the 
question about that is missing from the room. So, in the 
meantime, anything you want to add to the record, by way of my 
questions or otherwise, I appreciate.
    Did I make that point clear enough or was it too esoteric?
    Mr. Grossman. I think we understand.
    Mr. Kolbe. Mr. Callahan has one more question.
    Mr. Callahan. Sounds like a Department of Defense 
appropriation problem to me.
    Two questions, I think they have already been asked, I 
think, Mr. Franco and General Speer, with respect to the ARI 
and Ecuador. And that has already been asked, I think, and I 
will leave that for the record. And also, your assessment of 
the threat to Ecuador. If that has already been asked and you 
will provide, I will read it in the record.
    But let me just forewarn you and the chairman and the 
members of this subcommittee of something else, and also to the 
Colombian officials that might be present here today. What I 
ran into when I went to Colombia and I talked about this $1.3 
billion for Colombia, I got all of the heads of all of the 
agencies that were on our side. I got the navy there, the army 
there, the police chief there and the president in one room. 
And we had a sit-down agreement that this was what they needed, 
$1.3 billion, and there was not going to be any independent 
lobbying to Congress from these branches of government in 
Colombia.
    Only to find out two weeks later that the police chief and 
the head of the navy were up here in Washington lobbying for 
funds for their own jurisdiction. And President Pastrana has 
got to realize and got to emphasize to those people that he is 
the president and he is the one that we are responding to, if 
we respond. And that we cannot tolerate them going behind the 
president's back individually lobbying members of Congress to 
try to disrupt what the president of Colombia is trying to do.
    So let me forewarn you to tell President Pastrana that 
heought to make certain that he re-emphasizes. Tell him last time it 
lasted for two weeks.
    Tell them to reemphasize it a little stronger, and maybe he 
will keep the chairman from having a lot of problems when 
members who are being lobbied by these people start saying this 
money ought to be earmarked accordingly. So that is something 
that is very important.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you, Mr. Callahan.
    I realize we have gone beyond the time that we thought we 
would go. And I have some questions I think we will probably 
put on the record, but I am just going to ask a couple here 
very quickly.
    One, Mr. Franco, about the Gersony Report that I spoke of 
in my opening remarks about the deals with eradication 
alternative developments; a pretty bleak picture that it paints 
in the Putumayo region. I know this is classified as a 
confidential, so I am referring to findings that have already 
been reported to the press, specifically the L.A. Times and the 
New York Times.
    Basically the conclusion is that, based on the last two 
years, the security is really the key, and you are not going to 
have alternative developments that is going to work in an area 
where the AUC or the FARC are in control. So my question to you 
is what impact has the security situation or the deteriorated--
or at least not improved security situation, had on USAID 
alternative development programs in Colombia?
    Mr. Franco. Thank you, Mr. Chairman. You are absolutely 
right. We did commission a report. It is classified. And I 
wanted to say at the outset it is one of many sources that we 
use and that it is not the only source we rely upon as we 
assess the situation in Putumayo and elsewhere in Colombia.
    The situation there has deteriorated. Our program, as I 
mentioned in my testimony, is only nine months old. And that is 
why I at the outset want to make very clear that I think it is 
important for all of us to understand that development is a 
very long-term commitment. That does not mean that when you run 
into obstacles, as we have in Putumayo, because of the security 
situation that has deteriorated, that we do not, irrespective 
of a long-term process involved, take stock on this and make 
adjustments accordingly.
    So what we have done--and we are in an ongoing process on 
this--is to look at alternatives that address some of Mr. 
Farr's concerns that has to do with good governance and rule of 
law in areas where we can work in Putumayo and other places in 
Colombia, turn to alternatives beyond the small farmer focus of 
the initial program--not abandoning that though. We are working 
with farmers currently in the region, irrespective of the 
security problems, to do voluntary eradication. And we had some 
success in this regard.
    But we are looking for infrastructure development and other 
alternatives that are non-agricultural in nature, and I will 
say security is at the top of the list, but there are other 
concerns, marketing concerns.
    I brought a little prop. It is a can of hearts of palms 
that is being produced in Putumayo currently, with our 
assistance, and marketed in Bogota. So there are things we can 
do and are doing and will continue to do.
    Mr. Kolbe. I got a can of that last year when I was down 
there. [Laughter.]
    Mr. Franco, though, to follow that up, I think, as I 
understand it, you have, kind of, revised your strategy so that 
your alternative development strategy now relies not on 
individual farmers, but more on getting the entire community 
involved. But the question still is the security situation. How 
is that going to be any more effective?
    Mr. Franco. Well, the security situation is a problem, but 
we are able--I want to make this very clear: We are not 
abandoning Putumayo, we are working in Putumayo, we intend to 
continue to work there. We need to assess the degree and the 
types of projects and the areas in which we work, and that is 
an ongoing process.
    But we are not abandoning Putumayo, we just want to 
underscore that, as the security situation, if it were to 
worsen, then we would take stock, but at the current time we do 
not think it is an impediment to carry out projects such as the 
hearts of palm projects and other infrastructure projects that 
we have planned in Putumayo and elsewhere in southern Colombia.
    Mr. Kolbe. Well, I just hope that the security situation 
allows you to carry this out. I guess that is the big problem 
and the big question.
    Mr. Franco. It is the big question. It is something that we 
look at repeatedly. And my assessment, in conversations with 
the mission, with the embassy--of course, we coordinate, we do 
not dictate from Washington--and people on the ground is that 
we can carry out some of these infrastructure projects. We are 
looking to establish a casa de justicia in Puerto Asis in 
Putumayo. So there are things we can do. We do not want to 
abandon the region.
    And it is an issue. I do not want to minimize it. I just 
think it is important to put it in the context of expectations 
of very rapid developments in light of the security problems 
are going to be something that is going to take some time for 
us to see the fruits of our investments.
    Mr. Kolbe. A final question for Secretary Grossman. Of the 
president's 2003 budget request of $537 million for Colombia, 
$98 million of which is for Colombian military assistance, the 
language in the supplemental request specifically includes 2003 
funds, which is interesting since it includes funds that have 
not been appropriated.
    My question is, does this supplemental change the 2003 
request in any way? Specifically, is there going to be a change 
in the amount that is requested in the allocation of those 
funds for counternarcotics, for alternative development, for 
counterterrorism, for Colombian national security purposes? 
None of that has changed? I see Mr. Beers shaking his head. 
None of that is being changed in the 2003 budget request by 
this supplemental; is that right?
    Mr. Grossman. That is correct.
    Mr. Kolbe. So you have a supplemental that has been 
transmitted but a 2003 budget request that was prepared months 
before, earlier----
    Mr. Grossman. Right.
    Mr. Kolbe [continuing]. And that is not being altered by 
the changed circumstances.
    Mr. Grossman. The way I want to answer your question is is 
that a supplemental, in this case, from our perspective, really 
was not supplemental. I mean, that $35 million was not money we 
were able to get into the budget the first time around. For 
example, the $4 million on building police stations or the $6 
million for the pipeline to move forward or the $25 million for 
kidnapping were not thingsthat made the cut the first time 
around inside the administration, did not make it up to the Congress.
    When there was an opportunity to have a supplemental, I 
think all the people who were working on it----
    Mr. Kolbe. But my point is, the language you have got in 
the proposed supplemental says, ``in fiscal year 2002 and 2003 
funds shall be made available.'' And you have just told me you 
are not making any change, though, to 2003.
    Mr. Grossman. Not in the levels, no. Not in the levels.
    Mr. Kolbe. Not in the levels. You just told me also not in 
the uses.
    Mr. Grossman. Right. That is correct.
    Mr. Kolbe. Or the distribution.
    Mr. Grossman. Yes, sir.
    Mr. Kolbe. So why bother to have 2003 included in the 
supplemental? Why not just say, ``in fiscal year 2002 funds 
available''?
    I think I hear a chorus, a Greek chorus back there.
    Mr. Grossman. I actually can answer this question. 
[Laughter.]
    That is because--it is because, the helicopters that are on 
the ground now, if there were helicopters, for example, in the 
Cano Limon pipeline project, which there are, and if you all 
decide that we can go ahead with that in FMF, and if there is a 
terrorist threat, we would like to be able to use those 
helicopters as well.
    Mr. Kolbe. Okay, but that is not going to change the 
allocation.
    Mr. Grossman. No, sir. No, sir.
    Mr. Kolbe. Okay. I want to thank all of our participants 
for their statements and for their participation today. We will 
leave the record open. If there are any subsequent statements 
that need to be made in response to questions or other 
questions that will be submitted by the members of the 
Committee, we will do so.
    I thank you. I think this has been very enlightening, and I 
think it is the first step in a very long process of 
considering how we proceed in considering funding for Colombia 
in the fiscal year 2002 emergency supplemental and in the 
regular fiscal year 2003 appropriations process. We thank you 
all very much.
    The subcommittee will stand adjourned.
    [Questions and answers for the record follows:]

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                                           Thursday, June 27, 2002.

       THE ADMINISTRATION'S PROPOSED MILLENNIUM CHALLENGE ACCOUNT

                               WITNESSES

HERNANDO de SOTO, PRESIDENT OF THE INSTITUTE FOR LIBERTY AND DEMOCRACY, 
    LIMA, PERU
MARY McCLYMONT, PRESIDENT AND CEO, INTERACTION
BRET D. SCHAEFER, JAY KINGHAM FELLOW IN INTERNATIONAL REGULATORY 
    AFFAIRS, HERITAGE FOUNDATION

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe [presiding]. Subcommittee on Foreign Operations 
will come to order.
    And first of all, I apologize for the delay in getting 
started, and I am going to apologize in advance for what it 
appears will be fairly continuous interruptions here for 
procedural votes. We do have a very important hearing this 
morning, one I am very delighted, I have been looking forward 
to for a long time.
    It is the first hearing that we have had on the subject of 
the administration's proposed Millennium Challenge Account. I 
was with the president in Monterrey, Mexico, in March of this 
year when he challenged the United States and other wealthy 
nations to demonstrate that increases in the amount of foreign 
aid can actually make a measurable difference.
    But the president made it clear at that time that he is 
seeking a new approach that provides incentives for countries 
to improve their governance, to invest in more health and 
education, to support sound economic policies that promote 
entrepreneurship. And I agree with what he has proposed.
    I think the hearing today is going to give us an 
opportunity to learn from a diverse group of experts about the 
shortcomings that we have in the current approach to foreign 
assistance, the opportunities that are offered by a radically 
improved approach to economic development assistance.
    As we work through the fiscal 2003 appropriations process--
and just a few months later we will begin consideration of the 
2004 requests--our subcommittee is going to have a major role 
to play in shaping the Millennium Challenge proposal.
    Although the president's desire for flexibility has to be 
balanced with the congressional responsibility, under the 
Constitution, to appropriate funds and to oversee programs, I 
believe we can move forward with the Millennium Challenge 
proposal. And I hope even that we can do so with a pilot 
program later this year.
    It is important to note that the ongoing USAID programs 
would not be reduced in order to start this initiative.
    Before hearing from our witnesses, let me make just a few 
more comments about the historic development conference that 
took place in Monterrey earlier this year.
    Leading up to this conference there was a very important 
debate that took place about resource transfers from the 
wealthier countries to less wealthy countries. Former president 
of Mexico Ernesto Zedillo, U.S. Secretary of Treasury Rubin, 
issued a report saying that the success of meeting the 
Millennium objectives meant the donor countries would have to 
transfer at least $50 billion more per year over the next 
several years, until at least the year 2015.
    Gordon Brown, a member of Parliament and chancellor of the 
exchequer for the United Kingdom, announced--proposed his idea 
for a Marshall plan for an extra $50 billion each year. Claire 
Short, the development minister, also in the United Kingdom, 
and Jim Wolfensohn, president of the World Bank, worked openly 
and behind the scenes to kill, frankly, a U.S. proposal to 
convert half of IDA loans to grants, an idea that has long been 
advocated by many members of this subcommittee.
    During these calls for additional resources, which were 
largely a concerted effort to gang up on the United States, 
Secretary O'Neil assumed the very positive role of playing 
devil's advocate, to focus attention on the importance of 
evaluating performance, questioned the overemphasis on donor 
resources as a policy prescription.
    Certainly, some debate about additional resources is 
legitimate, was legitimate, will be legitimate, but the 
opportunistic anti-American sentiment that accompanied it was 
not, I think. Had this entitlement transfer debate not turned 
to a focus on performance, Monterrey, I think, would have just 
been marked down as another expensive and quite unproductive 
gab-fest.
    Why was the singular focus on resource transfer so far off 
the mark? The answer, I think, is not too difficult to grasp. 
The obsessive focus on resource transfers is rooted in two 
assumptions that come largely from a bygone era: The first is 
that foreign aid is the primary source of capital flows. The 
second is that aid is perceived to be the driving force of 
development.
    In the 1960s, we could easily hold to these assumptions. At 
that time, over 70 percent of all financial flows from the U.S. 
to developing countries were in the form of development 
assistance. Today, neither of those assumptions are true. 
Today, 80 percent of U.S. financial flows to developing 
countries are private, including investment, philanthropy and 
remittances. Foreign investment flows to development countries 
and among developing countries amount to $180 billion to $200 
billion a year.
    Official development assistance amounts to about $50 
billion, annually. And remittances are rapidly approaching the 
amount of ODA, or official development assistance. Some foreign 
leaders are actually more interested in sustaining the 
remittance flow than they are in getting the foreign aid today.
    Our challenge is to get a better grasp of why some 
countries attract and effectively use investment and trade 
opportunities, and while others stagnate while receiving large 
amounts of foreign aid.
    And this is what the president is challenging us to accept 
as a point of departure for increases in the amount of aid, 
which he has proposed as part of the Millennium Challenge. So I 
think the Monterrey conference was a step in the right 
direction for modernizing our approach to development 
assistance, to making it a more two-sided transaction with 
motivated and cooperating countries.
    How did it do this? Well, the consensus document promotes 
good governance, combined with capitalism as the best path to 
economic development. It calls for deepening the practice of 
capitalism within countries, expanding participation in the 
global trading system, complementing those changes with 
investments in human capital and a strengthened rule of law.
    If we are going to achieve the goals of the Millennium 
Development Declaration, we will have to live up to the spirit 
of Monterrey--that is, the philosophy behind the president's 
new development assistance initiative. We have to help 
developing countries leverage the power of capital as it fits 
the peculiar situation in each country. We have to expand 
opportunities for participation in the global trading system.
    To reinforce and accelerate the benefits of these, there 
is, of course, still a vital role that will be played by 
development assistance, development assistance that is provided 
by this subcommittee, to co-finance greater domestic, social, 
and infrastructure investments. For countries that reject this 
approach, we will still provide our share of humanitarian 
assistance.
    This morning, to begin our discussion of what I think is 
perhaps the most important philosophical change in development 
assistance in the last half-century in this country, we have, 
to lead off, Hernando de Soto. Mr. de Soto is the president of 
the Institute for Liberty and Democracy in Lima, Peru. His two 
seminal books, ``The Other Path'' and ``The Mystery of 
Capital,'' have been bestsellers worldwide. They have wide 
appeal among members of congress who recognize that capitalism 
has failed in much of the developing world and are trying to 
understand why that is so. His institute in Lima has worked to 
put his theories into practice in places as diverse as Haiti 
and in Egypt, and his circle of admirers extend from such 
people as Milton Friedman to President Aristide of Haiti.
    Second and third witnesses, who will appear together as a 
panel after Mr. de Soto, include Mary McClymont, who is the new 
president and chief executive officer of InterAction, a major 
organization that we work with very closely that represents 
dozens of the non-governmental organizations, or NGOs, here in 
the United States, that promote development and relief efforts 
overseas. Her organization has produced a very useful paper on 
the Millennium Challenge Fund.
    Brett Schaefer is the Jay Kingham Fellow in international 
regulatory affairs at the Heritage Foundation. He is a 
principal author of the backgrounder that Heritage produced, 
entitled ``America's International Development Agenda.''
    Both organizations have gone to some length to consult 
widely with a wide range of interested parties before drafting 
the documents they have prepared for us here today. And we 
appreciate both of them appearing here on relatively short 
notice.
    Let me, before I turn to Mr. de Soto for his opening 
statement, let me call on Ms. Lowey for her remarks.
    Ms. Lowey.

                     Mrs. Lowey's Opening Statement

    Mrs. Lowey. Thank you, Mr. Chairman.
    I join Chairman Kolbe in welcoming our distinguished 
witnesses to our hearing today to discuss the president's 
proposal to create a Millennium Challenge Account. It is my 
hope that this hearing will begin a thoughtful and deliberative 
process to shape the parameters of the new initiative and 
ensure that whatever structure is ultimately agreed upon, the 
additional funding effectively addresses poverty alleviation.
    While the president's announcement in March at Monterrey 
that the United States would increase resources for developing 
countries by $5 billion over three years took some by surprise, 
I view it as the culmination of the efforts of many of us who 
have been working for an increased United States commitment to 
poverty alleviation throughout the world for a very long time.
    As I have indicated before, I initially felt that we should 
not wait until 2004 to increase resources for developing 
nations because this would translate into at least a two-year 
delay in the funds having any effect on the ground. This 
position was based on the assumption that this new account 
would use existing bilateral aid delivery mechanisms, and would 
largely provide additional funding to deserving countries for 
basic needs in health education, food security, and governance.
    However, the administration has only recently briefed 
Congress on the outlines of their plan for the Millennium 
Challenge Account. The information provided so far has created 
significant uncertainty about both the structure for aid 
delivery and the purposes for which these extra billions are 
intended.
    The administration will not submit implementing legislation 
until September at the earliest, and is not represented here 
today, in part, because critical decisions on structure and 
purpose have not been made.
    Given these uncertainties, I do not favor rushing into 
providing funds for a pilot program in fiscal year 2003. If we 
come upon additional resources for the bill, they should be 
used, in my judgment, for existing critical health and 
education needs or to help countries get into a position where 
they will qualify for Millennium Challenge Account funding in 
fiscal year 2004.
    I will spell out some of my initial concerns about MCA and 
will encourage any of our witnesses to comment, if they choose.
    First, I am uncomfortable with the concept of creating a 
fund which sets up an elaborate process to declare winners and 
losers among developing nations. Out of a possible 116 eligible 
countries, perhaps 20 to 25 will receive assistance initially. 
This puts the United States in too prominent a role as judge 
and jury of economic progress and can harm our foreign policy 
interests more than it helps.
    I believe that the community of interested parties who 
follow foreign assistance issues are so grateful to finally 
achieve a commitment for more resources that no one dares 
question the administration's fundamental premise.
    Second, I am concerned that the administration will end up 
creating a new advisory board or Enterprise Fund-like structure 
to develop criteria for the program which will make eligibility 
and grant decisions. The material provided to Congress also 
postulates any number of potential implementors of this 
funding, including private corporations, international banks, 
multi-donor international trust funds and non-governmental 
organizations.
    My primary concern is that we seem to be headed toward the 
creation of a new structure which takes control of this account 
away from traditional implementing agencies, namely State and 
AID, and takes Congress largely out of the loop when it comes 
to directing funding to specific purposes or even specific 
countries when that is necessary.
    Finally, I also have the strong impression that the 
intellectual authors of this MCA concept lack a fundamental 
understanding of the simple fact that sound development is not 
possible without committed and competent staff on the ground to 
implement and monitor AID programs. There seems to be a feeling 
that we can write large grants to NGOs or even private 
corporations that will achieve miraculous development results 
in developing nations. We cannot expect this additional funding 
to achieve results without a commitment to provide sufficient 
human capacity for implementation.
    I will be overjoyed if my concerns are unfounded or 
addressed as we move to implementing legislation for the 
Millennium Challenge Account. However, we cannot rush this 
fundamental shift in our foreign aid programs, and this hearing 
begins what I hope will be a series of discussions on the 
topic.
    Mr. Chairman, I just would like to conclude with just a 
couple of quotes from the front page of the New York Times, and 
I would welcome to hear your comments:
    ``U.S. businesses dim as models for foreigners. It was not 
just WorldCom that took a beating today, it was also the United 
States itself and the American Gospel about how business should 
be done. After years of pumping millions of dollars into the 
United States because it seemed the land of opportunity, 
foreign investors are pulling back. And people around the 
world, who, for decades, have looked to the United States as 
the model for openness and accountability in business, have 
been sorely disillusioned by the mounting waves of scandal.''
    I would be interested in hearing your comment on the 
impacts of what is happening in the United States, and how we 
can address them. I know from the traveling I have done with 
the chairman and my past visits to other countries, we talk 
about transparency, transparency: ``Why do you not have a 
judicial system? Why is it so corrupt? Not like the United 
States.'' I certainly would be interested in your comments.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you very much, Ms. Lowey.
    Mr. de Soto, we will proceed with your remarks. We 
understand we have some information from you, and I know we 
just asked you to kind of talk about it, summarize it, rather 
than have a prepared statement. So we are interested in hearing 
from you for a few minutes, and then we would like to take 
questions from members so we can develop a dialogue on this.
    Mr. de Soto.

                    Mr. de Soto's Opening Statement

    Mr. de Soto. Thank you very much, Mr. Chairman and Ms. 
Lowey, the distinguished ranking member, and the members of the 
subcommittee, for giving us an opportunity to make a statement 
on the Millennium Challenge Account.
    I see there that it is got it right in terms of economic 
growth. I see at least things I very much agree with, according 
to our experience on the field. That of sound policy environ 
being crucial to growth.
    Item one, which refers to good governance and the need to 
do away with corruption, to strengthen human rights and to 
establish the rule of law, is right on. Item three, which are 
sound policies and the need for open markets and individual 
entrepreneurship, are all right.
    What I would like to get into, since you have asked me for 
my opinion, is the causal chain; how did this begin, and how 
did it start? Where is the grandfather, where is the father, 
where is the son?
    And in that connection, I have put in your hands the 
following document, which may be useful to look at. It is 
entitled ``Dead Capital and the Poor in Egypt,'' which is one 
of the countries in which we are now working with, as a matter 
of fact, U.S. resources.
    We are called in my heads of state of different countries. 
We are now in six countries, and we have been called in by 
another 15 additional heads of state to, as a matter of fact, 
talk about the rule of law. The question there, first of all, 
that interests them and the reason they call is and they have 
not called anybody else is because we have developed a certain 
ability to be able to distinguish, in terms of business, in 
terms of economic production, what part of the country works 
under the rule of law and what part of the country does not.
    The first thing you will see from this chart, and we take 
the case of Egypt--which is not much different from the other 
developing countries--is that when it comes to real estate 
assets, which are the majority of the holdings of any poor 
people in the world, only 8 percent of them are held according 
to law and 92 percent are held outside the law.
    When it comes to the businesses that effective employ most 
of the Egyptians, only 12 percent of Egyptians operate their 
businesses inside the rule of law, and 88 percent do it outside 
the rule of law.
    Now, what this document also indicates is on the basis of 
very precise maps and the work of over 100 Egyptians and 10 
Peruvians on the field, we have been able to find out how much 
it is that is held outside the law. And we start finding out 
that these poor, which represent 90 percent of the population 
of Egypt, own at a replacement value, not at market value, 
replacement value, about $245 billion worth of assets.
    Now, why is that extraordinary? Because $245 billion worth 
of assets means that what the poor own already, thanks to their 
enterprise, thanks to their initiative in Egypt, is 55 times 
greater than all foreign direct investments in the country over 
the last 200 years, including the Suez Canal and the Aswan Dam.
    So, Mr. Chairman, when you were saying, you know, where is 
wealth? Wealth is already among the poor. It does not really 
come from foreign assistance.
    It is also about 30 times bigger than all the value of all 
the Cairo Stock Exchange. And it is at least 60 times bigger 
than all bilateral aid and world bank loans to Egypt. In other 
words, the majority of resources are already in the hands of 
the poor.
    So, what we--what you will also see at the end is that we 
start measuring the effects of the law. And you will see that 
at the end of the document, for example, it has been shown that 
it takes--if you want to legally own a home and use it as 
collateral, it takes about 17 years of red tape.
    If you want to open a business, and all of this working 
with--a little, small, private enterprise that belongs to 
thepoor. If you want to open a bakery in Egypt legally, it takes 549 
days, and all of these are the legal documents they have to go through.
    So the first thing that I would like to point out as a 
conclusion is you are right on when you say about the rule of 
law. So first conclusion, only 10 percent of Egyptians work 
within the rule of law.
    Second conclusion, the rule of law in most developing 
countries is, in effect, not a sound environment for the 
development of an enterprise, in spite of the fact that the 
people in developing countries that are poor own, actually, 
most of the assets in those countries.
    That means also that most of the resources for development 
are not in the hands of development, they are not in the hands 
of the rich, are not foreign direct investments, but are the 
people themselves. And they are not recognized and they cannot 
be leveraged and they are outside the law.
    As a matter of fact, when we have done the calculation 
worldwide, it turns out that the poor would have $10 trillion 
worth of assets, from Russia to Egypt, all the way down to 
Peru. These $10 trillion worth of assets are 90 times the value 
of all bilateral foreign aid received in the last 30 years. 
They are 40 times of the value of all world bank loans to 
developing countries. And it is 20 times the size of all the 
other stock markets, which does not make them rich, it just 
shows their enormous potential.
    They are, at the same time, the major source of corruption. 
You can either go down the Samuel Huntington idea that, somehow 
or other, we people who are not so pink or not so Protestant 
are just more adept at corruption. But the other way of looking 
at it is, if you are facing 449 days, you are facing 17 years 
of obstacles. You are going to be corrupt because it is the 
only way you are going to get into the law. You will have to 
buy your way through laws like this. And so, when you deal with 
a rule of law, you are also dealing with corruption.
    And also, as you will see, at the end of this sheet that I 
gave you, you have two deeds that we found in Egypt. One is a 
deed for land, and the other one is a deed for business. Now, 
what was interesting, we presented this to Egyptian cabinet who 
asked us, why do we present them; these are legal 
authorizations. And we pointed out that none of them were 
issued by the Egyptian government. They were issued by ground, 
informal organizations at the grassroots level.
    Which means that people that are poor already want to come 
under the rule of the law. You do not have to educate them. You 
do not have to force them to be in the rule of law. Since the 
legal system does not welcome them, then they have created 
their own rule of law. And what you have to basically do then, 
if you want to create an open, free market, is essentially 
bring in the rule of law to integrate poor people in.
    Now, this should, of course, not at all be something new 
for the United States. This is what you did throughout the 18th 
and 19th centuries. It took you, as a matter of fact, this very 
U.S. Congress, over 32 preemption acts throughout the 19th 
century to start bringing in all the 800 different rules of law 
you had in California up until 1860. There were--every city, 
every town in the United States did not have a standard time. 
We had different time zones. The sheriff basically decided. You 
had 700 currencies, and there were a thousand ways to recognize 
property. What you did in the 19th century is you integrated 
everybody under the rule of law.
    This is to then say that the task of bringing the rule of 
law into developing and former communist nations is not the 
task of telling them how they should obey the law but, 
essentially, how they should integrate the poor.
    If your objectives, therefore, are put in the following 
sequence, I think that they will be useful.
    First of all, for somebody who is poor to understand the 
value of the rule of law, he better understand it--he or she 
better understand it, first of all, as a rule that allows them 
to preserve their enormous amount of assets and to keep them 
safe and to be able to leverage them. But they own their homes, 
but they own our land and what they own are businesses. And if 
the rule of law impedes them from coming in, they will not come 
in to the rule of law.
    So, the first place that one should start for creating the 
rule of law is what you did in the 18th and 19th centuries, 
which is you start off with property rights. When you put the 
property rights in place, then the rest of the rule of law will 
follow, because poor people will feel identified to it, will 
understand that it serves them.
    The second thing is that once you bring in the rule of law, 
then all of a sudden everybody that has got assets will already 
find out that they are represented by titles, by deeds. That 
means that they can then start using their assets as 
collateral, as a guarantee against loans.
    It will also mean that their companies can start issuing 
papers. You are talking about investments. Who would invest in 
any country where against the investment you can not issue a 
share or you can not issue a bond? Now, if you are outside the 
law, which is the case of 90 percent of Egyptians, or 80 
percent of the people outside the world, or 78 percent of 
Mexico, and you can not therefore issue shares, who is going to 
invest in you if you do not have the shares?
    Therefore, your biggest constituency are actually the poor 
in developing countries. And I think that is also important to 
put into place.
    Last but not least, it is also the basic tool to fight 
terrorism. One of the things, of course, that one can see, for 
example, after this most regrettable and dramatic event of the 
bombing of the Twin Towers and the Pentagon is that, here in 
the United States, you were able to say about three days 
afterward who it is, who had done it and where they had lived 
over the last month. You were able to trace it.
    But you still cannot find Osama bin Laden, because Osama 
bin Laden lives in a country, or lives in some countries, that 
do not have property rights and therefore do not have 
addresses. You cannot fight crime without addresses. You cannot 
fight crime in a civilized manner, respecting human rights in 
any country if it is not based on a property system.
    So what I am trying to basically tell you is that, in the 
Millennium Challenge Account your policies are right. But the 
order in which they have to be followed is, first of all, 
property rights for the poor, then you will get the rule of 
law. And if you get the rule of law, you will get basically--
you will destroy the obstacles that are the cause of 
corruption, the absolute need to corrupt your way through the 
system. And you will then end up with human rights and you will 
end up with credit and you will end up with investment and all 
the good things that lead eventually to economic growth.
    [The information follows:]

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    Mr. Kolbe. Thank you very much for that very concise lead-
in to all of this.
    I have a couple of simple questions here. Ms. Lowey can 
ask--she asked this in her opening remarks, so I am going to 
ask you to comment on it right at the start.
    Does what is happening with WorldCom and things here in the 
United States change any of this?
    Mr. de Soto. Well, I--one of the--the capitalist system is 
obviously not a perfect system. And it has--and I believe that 
Marx, to a great extent, was right--a tendency to concentrate 
wealth and to be abusive. And the reason why when this system, 
the capitalist system started out, for example, in Europe, the 
Europeans made a successful go of it, like you Americans did, 
like the Japanese and the East Europeans, and what is now the 
former Soviet Union did not, is because you had democratic 
systems which allowed you to correct your errors. You are 
always able, gradually, thanks to the democracy that comes 
together with the capitalism, able to correct the excesses of 
capitalism.
    What I see, personally see from the outside looking in, is 
that you are already making a company like Arthur Andersen pay 
by a total collapse. You are already making Enron pay. So what 
I am trying to say is, you, in a way, you are a model, because 
you seem to be able to detect abuses in time and correct them 
and punish them.
    In other words, your image has definitely been soiled. I 
mean, a scandal on the one hand is not a nice thing to have. 
But on the other hand, what is interesting about your country 
versus my country is that you do get scandals, and that those 
scandals allow you to correct on the way.
    The capitalist system is an ongoing system. It is not an 
ideal. Nobody gets into a plaza shouting, ``Viva capitalism.'' 
[Laughter.]
    That is not the way it happens. It is just simply the best 
corrective system we know about, and it is not very romantic at 
all, and it is very hard on virtues and morals.
    Mr. Kolbe. Thank you. I appreciate that response.
    Let me turn a little bit now to the Millennium Challenge 
Account and bring some of the stuff you have discussed in your 
book and you discussed here this morning down to how we proceed 
if we are going to do a Millennium Challenge Account.
    I think a lot of the time has been spent talking about some 
very esoteric criteria for country selection under the 
Millennium Challenge Account, some pretty general discussion 
since Monterrey on that. Let's talk a couple of concrete 
examples, a couple of countries that you use and talk about in 
your book quite a bit, Haiti and Peru--a country that is your 
home country.
    I would like to ask you, what kind of criteria would you 
use to determine economic freedoms? What is a country that 
would qualify for the kind of thing we are looking at doing? 
How would you measure the economic freedom?
    And would you rate Peru and Haiti in comparison with other 
Latin American countries under the same criteria? How would you 
determine good governance? Well, what kind of criterias would 
you use for that, and would you rate them similarly under the 
same criteria?
    Mr. de Soto. Well, the first criteria I would use for 
understanding whether the rule of law or the objective of the 
Millennium Challenge Account are actually viable is whether 
they reach the poor or not.
    If you look at the laws in the Venezuela, if you look at 
them in Peru, if you look at them Mexico, per se they talk 
about freedom. But in fact, because, as I tried to show with 
those 40 meters of obstacles that you get in Egypt, in fact, 
the poor cannot access to them.
    So my first criteria would be not only if you have good 
laws, but essentially the question is whether those laws are 
accessible to the poor. That would be my first criteria. 
Because it has been now 50 years that we have been doing 
everything that we have been told to do. We have been told to 
balance our budgets. We have been told to get our fiscal 
situation in order. We have been told to do the macroeconomic 
balance. And all of that, in many cases, actually works, but it 
has not reached poor people.
    Let me give you an idea of how these systems sometimes 
work. For example, in the case of Peru, we were told--and it 
was a good idea--to privatize the telephone company, and we 
did. And this company, what we found out is that when even kids 
from our team, who worked for the government, went out with the 
Peruvian title for the telephone company, which had a value in 
1990 of $53 million on the Lima Stock Exchange, that nobody 
would buy it.
    And so, the Peruvian government actually spent $18 million 
and three years to make a good title within the law and set up 
a new legal environment for privatizing the company, until it 
got to the point that the documents that were sent to Bell 
South and AT&T were recognizable by foreigners. In other words, 
we inserted the Peruvian Telephone Company inside the 
international rule of law, the order of the global system.
    And the company was sold at $2 billion. It was worth $53 
million in 1990 on the Lima Stock Exchange and three years 
later was sold at $2 billion, 37 times its value. That is what 
a good legal environment can do.
    But that which we have done to have favor the investment of 
the rich in Peru, we have not done for the poor themselves.
    So what I am trying to tell you is that, I think the first, 
number-one criteria is we know that good laws and good 
institutions help develop. The question is, are they accessible 
to the poor? And unfortunately, the reply from Haiti to Peru is 
that, though some progress have done in the case of Peru, where 
we started working from 1990, not sufficient has been done, and 
the poor are really outside the system.
    Mr. Kolbe. I will come back with some more questions.
    Ms. Lowey.
    Mrs. Lowey. Well, let me just say I appreciate your 
comments. I agree with what you are saying, but in order for 
your theory to really work, you have to get the rich and 
powerful in this society to agree to change the laws that make 
them rich and devalue the property of the poor.
    It seems to me, what was it, in the 1980s, when we tried to 
establish property rights for the poor in El Salvador, and what 
is it, 15 or more years later, and there is very little 
success.
    And if you look throughout the Third World, the rich and 
the powerful are not ready to have laws that make them pay 
taxes, make them provide for the poor.
    And it is not only Egypt, you could go through India, where 
you are having such an extraordinary economic success among the 
higher end of the population and yet there is no impact on the 
poor. India is probably a dreadful example. You can give 
examples all over Africa.
    Your theories are fine, but how do you get the rich and the 
powerful to acknowledge and respect your theories and move 
toward some rights for the poor?
    Mr. de Soto. Thank you for your comments, Ms. Lowey.
    In effect, the theory holds together. The problem is the 
practice. And I think that there are many reasons for that 
aside from the fact that there may be resistance from the rich. 
Which gradually I have found, by the way, diminishing, at least 
in every country we go to, because essentially they who call us 
in to bring everybody in. You know, they are only 10 percent of 
the economy and 15 percent of the economy, the writing is on 
the wall, that cannot last, keep on lasting----
    Mrs. Lowey. Excuse me, could you just, before you go 
further, explain that? The wealthy and the rich and the 
powerful bring you in to have you help them give more property 
rights to the poor?
    Mr. de Soto. Oh, absolutely. You see, what I am trying to 
explain by these charts that I showed you. If we have these 
charts, these pie circles, and we started seeing, for example, 
where was Egypt 50 years ago, 50 years ago most of the poor 
people did not own any of these assets which they have today.
    Over the last 35 years, for example, since you have been 
mentioning Haiti, the size of Port-au-Prince has increased 15 
times, like most concentrations of people in Haiti. The size of 
Guayaquil in Ecuador has increased about 11 times. The size of 
Cairo and Lima have increased seven to eight times.
    In order words, over the last 35 years, the poor have 
squatted, invaded the lands of the rich and actually 
appropriated them. And what we are talking about is that, 
instead of resisting that, they should bring them under the 
rule of law so that, actually, perfect market transactions can 
take place instead of all the violence that actually comes.
    So the poor have obtained an enormous amount of wealth over 
the last 35 years that they did not have before. Before, what 
we knew about the poor was through the Discovery Channel and 
the National Geographic magazine. That has radically changed in 
the last 35 to 40 years. They have come in.
    So, one of the reasons we suspect that we are called in by 
governments, which have very close connections to the local 
money class, is because they now only have about 10 percent of 
the national wealth in their hands, and it is decreasing. And 
they have not been able to get the message of private 
enterprise over to the poor because they have not actually 
focused on the law.
    Mrs. Lowey. With all great respect, it seems to me that 
this is a great theory, but maybe you could give me an 
example----
    Mr. de Soto. Sure.
    Mrs. Lowey [continuing]. Of a country where the rich have 
decided now we are going to pay income taxes, and we are going 
to take the poor in the country and give them their farm, or 
get them to their job, and our income taxes are going to help 
lift them up. I am totally puzzled.
    Mr. de Soto. Yes, I will tell you. First of all, mine is 
not a defense of the rich. If you read my first book, ``The 
Other Path,'' I even call the rich in a country like mine not a 
capitalist class but a mercantilist class that lives from 
government favors.
    So, if the discussion is whether we think that the rich 
have got the best intentions of the world in the Third World, 
my reply, my suspicions are along with yours--not even 
suspicions. I absolutely document the fact that they are 
essentially a mercantilist class that governs through 
privileges.
    But what I do point out is that in all developing countries 
they are reaching such a degree of crisis that there are 
chances that changes. And the reason we get called in by 
governments, and most of them with very good connections to the 
local private sector, is because they see that writing on the 
wall.
    Why, for example, has not it really worked out in El 
Salvador and other places? Because, unfortunately, our message, 
which was ``You have to change the law,'' was boiled down to, 
in practice, ``You have to have to do land titling.''
    And so, your hundreds of millions of dollars that have gone 
to the World Bank, to the Inter-American Development Bank and 
direct assistance, have not gone in to change the law. They 
have come in to put in new computers, new types of mapping 
which serve your private companies as much as they serve our 
private companies.
    But the real reform of property law has not taken place, 
and it is a defeat for the kind of programs that we were trying 
to go for and the ones that we think should take place.
    But we also think that the crisis in the Third World and in 
the former Soviet Union is getting to a position that most of 
these things will be possible.
    Where have there been successes of this sort? Well, let me 
tell you, because I think that most of the successes can be 
actually attributed to the--Japan, South Korea and Taiwan. And 
they are very poorly documented. And you have forgotten about 
them, the world has forgotten about them.
    We, as a matter of fact, to find out about them, managed to 
get a loan from Europe to bring together the seven surviving 
octogenarians who did the Japanese property reform program 
under MacArthur. MacArthur, all he did was write a three-page 
edict. In this three-page edict he said you have to destroy the 
feudal class and give the property to the poor in a commercial 
manner. That is what he said. And the reason for that is 
because, of course, he wanted to fight what he considered were 
the causes of Japanese military expansion, which was a 
financing by the feudal class.
    He also had another problem, which was that Mao Zedong was 
coming down from Manchuria to the south of China, and as he 
moved, he was changing property law and passing it from the 
feudal class, in the form of collectives, of course, to the 
poor.
    So, MacArthur had to have a reply. And he did. And he gave 
it to the Japanese, and he gave it to the joint commission on 
rural reconstruction in Taiwan, and he gave it the Korean 
government.
    And in a matter of five years--and that is the other 
document I have left with you, it is just simply Japanese 
posters of 1946. It shows how, under your occupation, the 
Japanese in effect destroyed the feudal class, gave the poor 
people their property systems, and created one of the most 
powerful capitalist systems in the world.
    With all the problems it is got, Japan only had a GNP per 
capita--it was 10 percent above Peru's in 1945, and now it is 
about 20 times our GNP. You actually did cause miracles in 
three countries, because you changed the property system and 
allowed the poor to come in.
    So these are three countries--Japan, Korea and Taiwan--
where you did produce a very major revolution.
    Which you forgot about, by the way, when you fought the war 
in Vietnam, because in Vietnam, the person who titled the poor 
before you did was Ho Chi Minh. As he advanced down from north 
Vietnam to south Vietnam, he did titling. So, it is crucial.
    Now, it is not an easy revolution, because you are talking 
about changing the law. And we are simply on our way there. We 
do not have a total success on our hands. We have got a theory, 
that the acceptance of which increases, of which many steps 
have taken place in the case of Peru. The poor did not have 
titles. It had about 10 percent of them; 75 percent of them 
have them now.
    In the coca regions, you know, Peru was responsible for 70 
percent of the production of the coca leaf, from which cocaine 
is derived. We now have only about 25--we only now produce 25 
percent of the coca leaf, because we went in there, we brought 
them within law and we titled.
    Did we produce all those big enterprises we would have 
liked to see the coca farms at? No, not yet. But we did beat 
the shining path, and we did lower the production of coca in 
the country.
    So we only have partial successes in the right direction, 
and we have the same distress of the rich classes that do you. 
We just think that they are up against the wall in every 
developing country. And what you have to sell them is the 
change of the law.
    Mrs. Lowey. Thank you, Mr. Chairman.
    Mr. Kolbe. Mr. Knollenberg.
    Mr. Knollenberg. Thank you, Mr. Chairman.
    Mr. de Soto, thank you.
    The Millennium Challenge Account, I think, has the 
potential to be the most important thing that we have done when 
it comes to foreign assistance. And I think it has--is, in 
fact, potentially the best we have done since WWII. And I 
commend the president for his leadership on this issue.
    I have only read just a touch of your book, so I do not 
claim to be anybody who is an authority on the book, but some 
things did come to mind.
    One was, for example, the real challenge we face is how to 
change our thinking--I am talking about the U.S. and all the 
rest of the countries of the world--change our thinking from 
transferring resources, which is exactly what we do with 
foreign aid, to unlocking the resources of developing 
countries.
    And there are a couple of references in your book that I 
just wanted to make mention of. You may have covered part of 
this. But one of things that is very astounding to me is that 
the value of savings, and I am quoting from your book, ``the 
value of savings among the poor is in fact immense, 40 times 
all foreign aid received throughout the world since 1945.''
    You also say if the U.S. were to hike its foreign aid 
budget to the level recommended by the U.N., it would take the 
richest country--us--the richest country on earth more than 150 
years to transfer to the world's poor resources equal to what 
they already had.
    The question, I think, that comes to my mind is their 
assets, though, are sterile. If they cannot leverage them, if 
they cannot use them for credit purposes, if they cannot divide 
them up into shares and have them marketed it in some way or 
sold in some way, it seems to me it is just a dead asset. It is 
a sterile asset.
    So, being a strong supporter of foreign aid and being a 
strong supporter of assistance that has to be used effectively 
all over the world, I think the Millennium Account could put us 
in that direction. We have the potential to take a big step in 
lifting the world out of poverty.
    But my question to you, as we talk about international 
development and foreign assistance, how do we change all of our 
thinking about moving from transferring resources to unlocking 
resources? Because you point out, as one example, Egypt and 
other countries that have a huge amount of assetsbut they are 
extralegal, they are not leveragable, they are not within the property 
rights system.
    So how do we start changing our thinking from that to the 
new thinking, which would be to unlock those resources?
    Mr. de Soto. Right, sir. Thank you very much for your 
question.
    You know, recently, as a matter of fact at the conference 
of Monterrey, I was one of the 12 members of the so-called 
private sector that had a chance to talk to the world leaders. 
And I was in a committee that was chaired by President Aznar. 
And we now have a meeting that is going to take place in Spain 
as a result of what I said. Let me tell you what I said, 
because it is relevant to your question.
    I reminded him that, up until 1979, his country was 
receiving foreign aid and that, today, it is giving foreign 
aid. And the question then was, why? Now, there are a lot of 
theoretical answers, but I dared to advance my own. I said 
because they made accessions to the European Union. What did 
the European Union do, send a lot of aid to them? Some of it of 
course was very, very important. But they have especially 
focused their aid on legal reform. Essentially, accession to 
the European Union meant that the French, the Germans, the 
Belgians, in twinning procedures, went to Madrid and said we 
want to know that when a businessman or some investment has got 
to take place in Madrid, it will take place in the same terms 
that they would occur in Paris and Frankfurt and Brussels.
    And that process of legal reform to create going from a 
recantless system to a market reform system where small to 
large enterprises could also prosper, in the case of Spain, 
took 10 to 15 years.
    So I told him, is not it very interesting, Mr. Aznar, 
President Aznar, that when you decide to talk to other 
Europeans, you talk about the reform of law and the rule of 
law--that is what accession procedures mean. But when you talk 
to us that are outside Europe, then you talk about how much 
nickels and dimes you can send in our direction.
    So basically what I am trying to tell you is that whenever 
you want to deal seriously with development, you have to deal, 
first of all, with the rule of law, and understand that.
    And what I tried to explain when I mentioned the example of 
Japan, where you essentially produced a large legal revolution 
that actually favored the poor, for maybe military and 
strategic reasons, is that you got into the right, sort of--the 
right mode of mind.
    Assets, as you say, are, in effect, sterile. I came into 
your country, for example, at this time, and I was remembering 
a conversation of mine with Francis Fukuyama, who said, ``You 
know what the big difference is between countries like ours,'' 
he said, ``the United States and, yours, like Peru? Trust.''
    And, in effect, you know, there was a recent interesting 
international study that indicates that 65 percent of 
Scandinavians trust each other. You know, it is done on a 
worldwide scale. Fifty percent of North Americans trust each 
other.
    But when it comes to Brazil and Peru, 7 percent and 5 
percent, respectively. Forget about Argentina; somewhere around 
4 or 3 percent. We do not trust each other.
    So I came in through migrations yesterday, and I said, ``I 
am so glad to be in country that is so trusting.'' And as I 
came in through the Immigration Service, I said, ``I am glad to 
be here. My name is Hernando de Soto. I am the son of Alberto--
my mother is Rosa, who comes from the area of--'' and the man 
said, ``Will you wait a second? Just show me your passport.''
    And as I showed him my passport, I started then to 
understand that identity is not in me, identity travels in a 
document.
    I go to the same hotel in Washington for the last 15 years, 
and when I went in I said, ``I am going to try Francis 
Fukuyama's theory about trust.'' And when he asked me, ``How 
are you going to pay this time around, Mr. de Soto?'' I said, 
``Herb, as usual: promptly.''
    And he said, ``Will you show me your credit card?''
    Okay. [Laughter.]
    Capitalism travels on paper and it travels on legal paper, 
so if I have an apple, there are only so many things I can do 
with it, but if I have a title on this asset, I can do a 
hundred things more with it that can be seen.
    You go down the street in Mexico City, or you go down the 
street in Washington, and the buildings are the same. Or they 
might not look the same, but they are essentially good solid 
buildings, and you go down and you see agricultural land, and 
in the buildings people are living and in the buildings are, at 
the same time, working and prospering.
    But, in the case of Washington, D.C., I can name you, if 
required, a hundred functions that your buildings have, thanks 
to law, that they do not have in Mexico.
    They can be used as mortgage, they can be use as 
collateral, they can be used as an address where you can 
collect bills effectively. And therefore you can supply them 
with electricity and therefore you can supply them with water. 
I can give you a hundred things that a building does thanks to 
law.
    There are two realities. There is a reality of physical 
assets, the sterile assets we were talking about, sir; and 
there is the reality of capitalism, whether it helps the poor 
or not, which is essentially a property system. Essentially it 
comes from property law. That is what really organizes all of 
your capitalist system.
    In effect, you know, it is a little bit like football 
games. Now most of the world except you are, of course, 
interested in soccer. And the reason we are all interested in 
soccer is because we all play by the same rules. If you took 
away those rules, and you did not have this, there would be no 
soccer game.
    Capitalism is a system of rules. And what I am trying to 
point out to you is that 90 percent of the world does not have 
them.
    And I am not trying to say that that means that you should 
not do what Mrs. Lowey is talking about, be sensitive to the 
poor, help them if they are sick. I do not deny that. I do not 
deny that poverty relief is human, and it will save a lot of 
lives.
    All I am trying to point out is that the amount of 
resources required--as you were quoting from the book, sir, the 
amount of resources required to get development going, you do 
not have. But what I am trying put here is that the poor have 
it as a potential.
    And yes, Mrs. Lowey, it is theory, but it is damned solid 
theory, and it goes into the history of your own nation.
    And I am not saying it is the only thing you want to do, 
but I am saying it is a crucial thing if you want to count with 
more resources than even the Millennium Challenge account.
    Mr. Knollenberg. Let me just--I know my time is probably 
expired----
    Mr. Kolbe. It is definitely expired,
    Mr. Knollenberg [continuing]. But the only thing I would 
ask you is this, and this is a very short question, if you 
would allow me just one second,
    Mr. Kolbe. Very, very quick one----
    Mr. Knollenberg. Did Japan stumble into this thing or was 
there some magic, some knowledge beforehand that they knew that 
kept them from the abyss?
    Mr. de Soto. Let me tell you what I think. What I think is 
the following thing.
    First of all, MacArthur did not implement these reforms; 
the Japanese did. Who of the Japanese? A group of Japanese 
people who believed basically in liberal democracy and who had 
been behind the over 170 peasant revolts that occurred between 
the Meiji restoration and the end of the Second World War, 
where you won.
    Now, what made it possible for Japan to make such a radical 
turnaround? And this is the unfortunate and horrible message 
that comes with it: Nobody changes, or rarely do people change, 
unless they are in a crisis.
    The Germans created a property system and destroyed the 
feudal system that kept the riches of their country in few 
hands only when they were defeated--that is to say Prussia was 
defeated in 1806 by Napoleon, and they were not able to raise 
troops to fight Napoleon back. Then they changed the property 
system.
    And it goes with other countries. And what I am saying that 
is, unfortunately, all of these crises that occur today in 
developing countries are an opportunity for change. In some 
countries more than others.
    But unfortunately, it always comes with a crisis, and Japan 
was in a hell of a crisis. Two A bombs and they lost the war, 
so they were ready to change.
    Mr. Kolbe. Thank you.
    Ms. Kilpatrick.
    Ms. Kilpatrick. Thank you, Mr. Chairman.
    Thank you, sir. It has been very intriguing sitting here 
following your thoughts. Thank you for the work that you have 
done.
    As we discuss this new account, Millennium Challenge 
account, as some of your--and it is got to be a professor--I 
was just about to ask you, what exactly does the Institute for 
Liberty and Democracy do? What is your mission?
    Mr. de Soto. We were, first of all, working in Peru until 
1996, and then we got kicked out by Fujimori. And then, we 
started to get calls from heads of state of other countries to 
do the following things.
    First of all, to measure how big their underground economy 
was, or their gray economy, or black market, or whatever you 
want to call it. We call it extralegal.
    Ms. Kilpatrick. From the outside?
    Mr. de Soto. From the outside.
    So we got calls, we are now working for Gloria Macapagal-
Arrroyo of the Philippines, for example, for President Vicente 
Fox of Mexico, President Aristide, whether we are all satisfied 
or not----
    Ms. Kilpatrick. If he is the elected representative, I am 
satisfied.
    Mr. de Soto. That is about the only way to look at it. And 
then--and for President Mubarak, and we have just been called 
in by President Putin.
    What happens with these leaders, let me tell you, it is 
very clear to them that the rule of law does not work, and they 
know it. And they are the first ones to suffer the 
consequences, because, you know, take the case of Egypt, their 
laws are only obeyed and applied by 10 percent of the 
population. So the first thing they ask us is, ``Can you 
measure how big it is?'' We have become very good at measuring.
    Ms. Kilpatrick. Okay, stop, because I am not going to let 
you use all my five minutes.
    Mr. de Soto. Sorry. [Laughter.]
    Ms. Kilpatrick. And you are good, you are good at it. 
[Laughter.]
    Mr. de Soto. We measure and then we help design the 
reforms. I am so sorry: I am a Latin American; I have a 
cultural disposition to talk too much.
    Ms. Kilpatrick. I know. This is the U.S., the chairman 
gives us five minutes, I do not care where you come from in 
this committee. [Laughter.]
    So, you know, I am intrigued by your theory and your 
thoughts. So I was really trying to get to it because the 
account that we are establishing, this new $5 billion, a couple 
of principles that you may--and I wanted to talk about your 
institute but you, kind of, hit on that a little bit.
    One thing that intrigued me, you said, ``Property rights 
for the poor have to be considered if and when a Millennium 
Account is established.'' And I thought you said, ``If the 
Millennium Account is going to be successful,'' and your charts 
show that 88 percent of the wealth is really controlled by poor 
people, although they are not documented as poor people, 
because they have this wealth and on and on--suggest to me how 
this Millennium Account can be successful. The criteria--the 
three criteria that are already set out, yes, whether or not 
property rights for the poor was not one of them.
    Are you saying that, if the poor are not included, the 
wonderful, most best thing that we can do will never reach 
them, as witnessed by some of the graphs that you showed us 
today? What ought we be doing?
    Mr. de Soto. Well, but yes. What I am trying to say--I am 
sorry for having taken up so much of your time.
    Ms. Kilpatrick. No, you were fine, we just do not--we do 
not have time, that is all.
    Mr. de Soto. What I am trying to say is that I really do 
think that the single most important thing you can do--and I am 
not saying that it is necessarily the Millennium Challenge 
account. I know very little about how you organize yourself in 
the United States and how you intend to organize that money 
versus the one that is being funneled by USAID versus the one 
that you are going to the World Bank. I do not know about that. 
Nor do I think it may be wise for me to intervene.
    But what I am trying to tell you is that I am trying to 
take advantage of your own crisis, the one that has come up 
with international terrorism, to go back and make you think 
about all the successes you have had, starting with your own 
nation.
    Your own nation was essentially a large legal revolution 
that took place in the 18th and 19th centuries that empowered 
and enfranchised people. And it was not because you inherited 
the common law from the Brits. Because when California was 
taken up by about----
    Ms. Kilpatrick. Okay, stop.
    Mr. de Soto. Yes. Sorry.
    Ms. Kilpatrick. I have got two minutes left.
    And I know you are going to give me a history lesson. I 
know a little bit about it, but you have got to tell me, I want 
you to light to what kinds of things ought this account--and 
you do not have to know--you know, we are--we do have a little 
struggle here in terms of what is now in State and what is now 
in USA, with this USAID account. This new account will take a 
loose challenge.
    What is the relationship to the--with the property rights 
for the poor, and what we want our account to be to reach the 
poor to make the struggling countries who are coming to 
democracy better?
    Mr. de Soto. I think, first of all, you know what the 
trauma of towards this is that I would love to point out and 
say, ``You know, there are these people that are already 
helping install property rights in developing and former Soviet 
Union countries.'' No. That does not exist.
    The trouble with what I am saying is that what you wantto 
do is you have got a big tradition of law in your country, and you do 
not have the vehicles to deliver to developing and former Soviet Union. 
Because every time you deliver them, you basically deliver mapping and 
computers, but not the change of property law.
    And you are going to have to be required, I would say, to 
think a little bit more about what it would mean delivering the 
good sides of your law to developing countries who actually 
wanted it. The proof is that since they cannot get them from 
you, they have got to buy them from a puny little institute 
like mine.
    Ms. Kilpatrick. Thank you, Mr. Chairman.
    But thank you, sir. And I did not want to be rude here, I 
am just really trying to decipher and sort out. But thank you 
for your testimony.
    Mr. Kolbe. Okay, Mr. Rothman.
    Mr. Rothman. Thank you, Mr. Chairman.
    Forgive me. This is my first time being exposed to your 
theory and I look forward to reading your book. So I am not 
going to, with great comprehensiveness, address your theory 
but, sort of, scratch off the sides of it to see how it holds 
up.
    You did mention that both Ho Chi Minh and the Shining Path 
were engaged in effectuating your theory or were on the way--
were in the process of doing so. I do not regard either of 
those two individuals, entities, as particularly great 
democrats, but maybe I do not see them clearly enough. Is there 
something we should be concerned about in the connection 
between this theory and its attractiveness to Ho Chi Minh and 
the Shining Path?
    Mr. de Soto. Well, first of all, what I pointed out was not 
that Ho Chi Minh and Mao Zedong were applying shall we say my 
theory or our theory, but rather that they understood that for 
military purposes, what you want in a guerrilla war and in a 
terrorist system is to win the allegiance of the poor, because 
the poor basically are you armies. And that they found that the 
best way to do it was to give legal title, in a collective form 
of course, to the majority of the poor they encountered.
    Mr. Rothman. Forgive me, I am going to follow Ms. 
Kilpatrick's model. Could not that simply be described as--and 
I am being a devil's advocate because I am, on the face of it, 
very sympathetic to your theory. Could not one simply say that 
that is a redistribution of the wealth, and, of course, the 
poor would be--would love that, and you can engender their 
support by redistributing the wealth to them?
    Mr. de Soto. Yes, of course. All I am trying to say is the 
following thing, which is probably the hidden message in your--
and I thank you for trying to bring it out, is the following 
thing. That I think we have reached such a time of crisis today 
in the third world, with all of these flourishing guerrilla and 
terrorist movements, that if developing elites do not go out 
and actually give the poor, in the legal form, what is already 
their own, people like the Ho Chi Minhs of this world and the--
of the world, who is certainly not on my favorite person list--
he has throw over 500 kilos of dynamite at my institute and 
tried to blow us up. We do not like him at all--they will do 
that task. Because essentially what we are now finding out is 
that the poor own large amounts of land.
    Mr. Rothman. Okay, so but that was, and you did list that 
as one of the benefits of your theory. There is a World Bank 
study that shows that investing in the education of women is a 
very effective tool for alleviating poverty and improving the 
economies. How do you view the results of that statement?
    Mr. de Soto. Oh, absolutely. I think education is crucial. 
And I think the role of women in development is indispensable.
    And let me tell you how, with property, we strengthen that. 
One of the things that we include in our property law is a 
mechanism to facilitate marriages.
    Because let me tell you what happens in our part of the 
world. Since the procedures for getting married, for example, 
in my country, Peru, require in all about 170 hours of red 
tape, most people live together and do not get married. So when 
it comes to administering the material resources of the family, 
it is only the man who decides.
    So what we did is part of the property law includes, I 
repeat, not only the access of the poor, but the access of 
women to the property rights, and that means that we have 
brought down marriage licenses from about 170 hours down to 
about 10, so that women could have that access.
    Mr. Rothman. Excuse me. That makes sense.
    Are there any models in the world, including your own 
institute's work, that we could adopt in our millennium 
project, whatever it is called--Millennium Challenge grants, 
literally a photocopy, adopt on a worldwide basis, or is this 
country-by-country different basis?
    Mr. de Soto. Country by country. Country by country. You 
will have a large theoretical model, which is probably your 
own, the United States. You grew up from being a country of 
poor immigrants, that they were basically land grabbers, that 
squatted all the way from Texas all the way to California in 
the gold rush system, and you gradually legalized them. You 
have got that model.
    But you have to go country per country, because you have 
got to hook into the local law the way it is organized.
    For example, when you had to legalize all the legal tenures 
of land--and there were 800 systems in California after the 
gold rush--you did not use the common law. You acted--and that 
was what I was referring to--the 32 preemption acts by the U.S. 
Congress, you adjusted to every case. You adjusted the Little 
Miami River law. You adjusted to the gold rush claims. You 
adjusted to the Oklahoma land rush. You adjusted to what was 
happening in Arkansas.
    Country by country. You have to bring out the statistics to 
find out where the poor are. And do not forget that I showed 
you that they were already issuing titles, and how they issued 
these titles. And so that is the way that the law will work, if 
you hook it into the grassroots.
    Mr. Rothman. Thank you very much. Very interesting.
    Mr. Kolbe. Mr. Callahan.
    Okay. In the interests of time, because we started so late, 
we have our other two witnesses here, I am going to ask Mr. de 
Soto to step down. If we have time, we will come back and do 
that. But I want to ask Ms. McClymont and Mr. Schaefer to go up 
as a panel here.
    Thank you very much, Mr. de Soto. We appreciate that. As I 
said, I hope we can have a chance to come back and do some more 
questions.
    I do not know that we have an order for either of you. Who 
is going to go first here?
    Mr. Schaefer and Ms. McClymont.
    Ms. McClymont. It does not matter to me.
    Mr. Kolbe. Go ahead.
    Ms. McClymont. Happy to start.
    Mr. Kolbe. All right, fine. Thank you.
    We do have written testimony, I think, from you, Ms. 
McClymont, and of course the full testimony will be placed in 
the record, if you would like to summarize it.
                              ----------                              

                                            Thursday, June 27, 2002

                              INTERACTION


                          HERITAGE FOUNDATION


                               WITNESSES

MARY McCLYMONT, PRESIDENT AND CEO, INTERACTION
BRET D. SCHAEFER, JAY KINGHAM FELLOW IN INTERNATIONAL REGULATORY 
    AFFAIRS, HERITAGE FOUNDATION

                   Ms. McClymont's Opening Statement

    Ms. McClymont. Thank you very much, Mr. Chairman, Mrs. 
Lowey and distinguished members of the subcommittee, for the 
opportunity to testify before you today.
    It is an honor to testimony on behalf of InterAction, which 
is the nation's largest alliance of U.S.-based relief and 
development organizations, with 160 members.
    The announcement by President Bush of a new Millennium 
Challenge Account can fundamentally change the international 
landscape and mark a turning point for U.S. development policy. 
The president has made clear the new resources, $5 billion by 
2006, if appropriated, would be used to fight world poverty and 
bring hope and opportunity to the world's poorest people.
    In announcing this pledge, the president endorsed 
internationally agreed targets for cutting in half poverty 
around the world and for substantial improvements in health and 
education in developing countries by 2015. These are known, as 
you well know, as the Millennium Development Goals.
    These goals--among them to educate children, help mothers 
and children stay alive, advance the status of women and girls, 
access clean water and reduce hunger--are all concrete concerns 
that Americans believe we should support through our assistance 
programs.
    The Millennium Challenge Account, or the MCA, presents a 
unique moment to fundamentally transform U.S. development 
policy. This opportunity can not be squandered, which is why, 
as alluded to earlier, the shaping of the Millennium Challenge 
Account in the months ahead is such a crucial task. The stakes 
are high. This hearing is a very important first step in that 
process.
    We very much hope the Congress will work in full 
partnership with the administration and with us, the NGO 
community, to fashion an innovative and effective fund. To that 
end, as you note, Mr. Chairman, we have submitted some 
recommendations in our paper and have submitted them to the 
record.
    I will touch on those specific recommendations shortly, but 
if I might, I will set this account in a broader assessment of 
U.S. development assistance in foreign policy very briefly.
    The MCA, we believe, must be seen as just one tool to 
stimulate broad-based economic growth and prosperity in 
developing countries. To leverage it, a comprehensive U.S. 
development strategy should be designed. This strategy should 
include clear goals, realistic timetables and sufficient 
resources for reducing poverty and meeting these Millennium 
Development Goals through programs of assistance, trade and 
economic policies, debt relief and private investment flows.
    To be successful, the MCA, we believe, must be seen within 
this larger strategy for development.
    In short, it cannot be considered in a vacuum, if the 
advance of development, which the president has called a 
``central commitment of American foreign policy'', is truly to 
be realized.
    The fulfillment of the promise of the president's new MCA 
proposal has the potential to be one critical new instrument to 
fight poverty. Yet it envisions funding for a limited number of 
qualifying countries. This approach does not address the basic 
needs of poor people in many other nations that will not 
qualify.
    We know, however, that countries in which people's basic 
needs are met are more stable and are less likely to become 
breeding grounds for extremism.
    The initiative also does not take into account humanitarian 
concerns or areas that may need a global or regional strategy, 
such as HIV/AIDS. That is why we will be urging that policy 
makers must see it as a part of the overall aid strategy and 
increase the seven existing bilateral aid accounts which we 
have targeted in the foreign operations budget, which we 
believe help build self-sufficiency in people through basic 
education, health care, job skills, advancing women and girls 
and so on.
    In short, the programs funded under these accounts, if 
carried out effectively, can build the capacity in people and 
lay the groundwork for their nations to qualify for the MCA. 
The accounts must not become an afterthought, but must work 
together with the MCA to meet these important international 
goals.
    If we do it right, the MCA can serve as the anchor for a 
comprehensive new aid policy that recognizes progress and 
encourages change.
    With this broader context in mind, Mr. Chairman, I will 
make seven points highlighting several of the 12 key principles 
from our policy paper which I would be happy to elaborate on 
later. We hope these can be kept in mind in the months ahead as 
this MCA is designed.
    Number 1: Funds from the new account, we believe, must be 
specifically targeted for poverty-focused development advancing 
the Millennium Development Goals in the poorest nations.
    Second: The eligibility criteria. While it makes sense to 
focus on countries that fully meet these criteria, which the 
president has set out--the three categories you know well--
setting the bar too high could further alienate those facing 
the greatest challenges. If only the best performers are 
eligible to receive assistance, then aid will go to those who 
least need it. At the same time, if eligibility criteria are 
not sufficiently rigorous, there is a danger that recipients 
will be chosen for other reasons, such as political reasons.
    Number 3: To assure maximum impact, the number of countries 
that receive funding from the MCA should be limited and be 
carefully matched to the available level of resources. Nothing 
will diminish the support for the MCA as quickly as weak 
diffused programs that do not show results.
    Number 4: Developing nations should be partners in the 
formation and implementation of the new account, and broad 
participation of the private sector and civil society should be 
evident throughout. We envision a two-step process: Once 
nations have been found eligible pursuant to this criteria, 
allocations from the MCA should be made in response to 
comprehensive national plans or proposals from the developing 
countries. A proposal should be based on a country's own 
national development strategy should it exist.
    A recipient's proposal should identify programs and 
projects for which it seeks assistance, describe specific 
development goals it expects to target and achieve and provide 
measurable indicators of success. The proposal should detail 
the involvement and participation of other donors, local and 
national governments, private business, civil society groups 
and nongovernmental organizations. We hope in this way we can 
assure accountability, local ownership and donor coordination.
    Number 5: Assistance under the new account should not 
beprovided exclusively to national governments. Other channels, we 
believe, should be used to implement the MCA.
    Number 6: To determine the effectiveness and to ensure 
accountability, clear benchmarks or indicators of success need 
to be established in the proposal and in the grants. Because 
broad-based economic growth and social development take time, 
the selection of indicators and measures should be realistic 
and thought of as intermediate steps. Technical assistance 
should be available to help countries devise these indicators 
and do a good job at measuring their results.
    And finally, number 7: We believe interagency coordination 
throughout the U.S. government will be critical to the success 
of the MCA and actually suggest a lead agency should be 
designated to administer the distribution of the funds. Given 
the mission of the MCA, the current structure of the U.S. 
government and the bureaucratic difficulties of building a new 
entity entirely to manage this piece of development, the U.S. 
Agency for International Development is in a well positioned 
place to administer the program. However, the agency will need 
procedures and practices that support creativity, innovation, 
flexibility and quick response to ensure funds are programmed 
effectively and expeditiously.
    As many have noted, there is no time to lose with the 
Millennium Challenge Account and we must be very diligent and 
careful in its development.
    Mr. Chairman, we greatly appreciate your continuing 
leadership in addressing so many issues I just raised. I want 
to thank you and all the members of the committee for your 
willingness to work with the NGO community on matters of 
foreign aid generally and of development, and now the MCA. Many 
more questions remain to be addressed on the MCA and we welcome 
the chance to think these through with you in the weeks and 
months ahead.
    Thank you very much.
    [The information follows:]

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    Mr. Kolbe. Thank you.
    We very much appreciate your testimony, and we very much 
appreciate the work your organization has done. You are a vital 
part of our effort to develop this Millennium Challenge 
Account, and we look forward to working with you, Mr. Schaefer.
    Thank you.
    Mr. Schaefer. Thank you very much.
    Mr. Chairman and Ms. Lowey, members of the subcommittee, 
thank you very much for providing this opportunity to speak 
here today.
    With permission I would like my statement and paper be 
submitted for the record.
    Mr. Kolbe. The entire paper will be submitted for the 
record.

                    Mr. Schaefer's Opening Statement

    Mr. Schaefer. Thank you.
    This is a vital issue that could have important 
ramifications for the United States, but more importantly, for 
poor people around the world.
    As you know, President Bush has proposed quite a large 
increase in America's development assistance program. If this 
were simply an increase in development assistance, I could 
conclude my testimony right here with my opposition. Quite 
frankly, America's development assistance program has not been 
very successful. America has given over $167 billion, in 
constant 1999 dollars, in official development assistance, or 
ODA, to 156 countries, regions and territories since 1980. Per 
capita GDP data between 1980 and 2000 is available for 97 of 
those countries. These countries received over $144 billion in 
inflation-adjusted ODA. These 97 countries had a median 
inflation-adjusted per capita GDP of $1,076 in 1980, but only 
$994 in 2000. That was a decline in real terms.
    This failure is not due to a lack of resources. Between 
1980 and 2000, 23 recipients of U.S. ODA received amounts 
equivalent to one-quarter of their entire gross domestic 
product in 2000. This is just the United States, it does not 
include aid from other countries, it does not include aid from 
the IMF or the World Bank.
    Growth in per capita GDP for these countries was a negative 
0.16 percent over that time period. Twelve countries 
experienced negative growth, and only four experienced growth 
in per capita GDP over 1 percent.
    This just illustrates the findings of former World Bank 
economist William Eastely, who concluded, quote, among all low-
income countries, there is not a clear relationship between aid 
and growth, unquote.
    In other words, the focus on the amount of aid is 
misplaced. Policies matter far more than the amount of aid 
provided.
    By design, the president's MCA is more than an increase in 
development assistance. It identifies three specific criteria--
good governance, investment in health and education, and sound 
economic policy--in which countries must demonstrate progress 
before they would become eligible for funding.
    The president should be commended for his efforts to bring 
accountability to America's foreign aid program.
    By far the most important of these MCA criteria is sound 
economic policies, which includes the rule of law. A 1997 World 
Bank analysis of foreign aid found that, while assistance has a 
positive impact in countries with good policies, countries with 
poor economic policies do not experience sustained economic 
growth regardless of the amount of aid they receive.
    Economists Richard Roll and John Talbot of UCLA support 
this conclusion with evidence that the economic, legal and 
political institutions of a country explain more than 80 
percent of the international variation in real income per 
capita between 1995 and 1999.
    That is in more than 130 countries that that study found 
that relationship--each country bears primary responsibility 
for its economic success or failure. Aid may help. It may harm, 
but it cannot determine the outcome.
    Some would argue that rising literacy, increasing life 
spans and elimination of some diseases is proof of the 
effectiveness of development assistance, and it should be its 
focus; they are wrong. Assistance can have a tremendous effect, 
but without economic growth, these achievements are not self 
sustaining.
    In other words, the benefits that accrue are not the 
benefits of development. They are benefits of transfers or of 
charity. These achievements would result if countries adopted 
strong economic policies that lead to greater economic growth. 
Contrary to what you have heard, environmental and labor 
standards should not trump economic growth as an A priority. 
The evidence demonstrates that countries with higher per capita 
incomes invariably have higher education, health, labor and 
environmental standards.
    These trends hold because as the country's income 
increases, so does it is ability--so does the ability of its 
people and the government to dedicate resources toward these 
goals. In my opinion, this is the reason why the preeminence of 
economic growth should be--well, why economic growth should be 
a preeminent goal over other goals of development.
    The way to achieve that growth is for countries to adopt 
sound economic polices and the rule of law, which are measured 
by the index of economic freedom and a number of other indexes. 
As shown in the index, free countries have an average per 
capita income that is twice that of mostly freecountries. 
Mostly free countries have per capita income more than three times that 
of mostly unfree and repressed countries.
    This happens because countries that maintain policies that 
promote economic freedom, provide an environment that 
facilitates trade in its economic growth. In addition, sound 
economic policies attract potentially vast resources that dwarf 
the amounts of development assistance. Total foreign direct 
investment in 2000 around the world was $1.3 trillion, of which 
over $240 billion went to developing countries. That is an 
amount far greater than the $50 billion in global ODA last 
year.
    The poorest countries receiving only a small portion of a 
developing country's total investment because they lack the 
economic policies and the rule of law that would attract that 
investment. Economic growth must be the paramount goal of 
development. The average sub-Saharan African country had a per 
capital GDP of $564 in 2002. In order to reach middle income 
status of $1,500 per capita that country must average growth in 
GDP percent a year for the next 20 years. They must average 
that growth for 82 years to reach the current level of the 
United States' income. That is a fundamental. That is a 
phenomenal challenge to meet and that something that we have to 
address.
    To give you an idea of how difficult that rate of growth is 
to achieve, of the 97 recipients of USODA for which we have 
data, 37 achieved a growth in per capita GDP of zero or 
negative on an annual basis over from 1980 to 2000. Another 27 
averaged only marginal growth between zero and 1 percent 
annual. And only 33 countries averaged a growth in GDP in per 
capital over 1 percent from 1980 to 2000. And only three of 
those over 5 percent, which is the goal, what we would be 
hoping to achieve.
    Given these facts, it is hardly surprising that few 
developing countries are closing the gap with the developed 
world. But such growth is possible. It is not an unobtainable 
goal as proven by the remarkable success of Hong Kong, 
Singapore and Taiwan. Not surprisingly, these countries adopted 
economic freedom early and they have reaped the benefits.
    If the average African nation in 1980 had grown at the rate 
of USODA recipients that are considered free by the index, they 
would nearly be middle income countries today. The bottom line 
is that the impact of development assistance is far away by 
sound economic policies. Creating an environment that attracts 
these resources and allows them to be used for economic growth 
should be the goal. Aid that capitalizes these policy changes, 
can help the process, but it cannot substitute for it. The 
focus should be on economic freedom and should be the essence 
of the development and the reason MCA funds should be allocated 
based on improvements in economic freedom.
    As research has shown, development aid can contribute to 
economic growth only when a country embraces economic freedom. 
Rewarding poor performance with aid is wasting money that 
another country could use more effectively. And worse, it 
provides very little incentive for countries with poor policies 
to adopt sound policies.
    MCA should also be administered through performance-based 
grants rather than loans. The grants should be dispersed only 
if their country has demonstrated its commitment to economic 
freedom and should support products that advance the goals of 
the MCA. This would increase the coherence of the purpose for 
the MCA by reinforcing its criteria for dispersing funds and 
would not burden underdeveloped countries with large debt 
payments.
    Once the administration chooses a measure of economic 
freedom, the standard for granting development assistance would 
be very easy to determine that the aid is being administered to 
the proper recipients. Countries that are making improvements 
in economic freedom should receive development assistant. Those 
that are not, should not.
    Mr. Chairman, I understand the worth of maintaining 
traditional aid until the Millennium Challenge account proves 
its effectiveness. I believe that is why the president has 
announced that he will seek additional funding for traditional 
development assistance in conjunction with his request for the 
MCA. However, the MCA must not be weighed down with the 
earmarks, prohibitions and priorities that while based on noble 
intentions, are not contributing to the effectiveness of 
America's development efforts. Instead, the agency that is 
chosen to oversee the MCA, should have the discretion to target 
a small number of countries with proven track records in 
embracing economic freedom and policies that lead to economic 
growth, including the rule of law.
    These decisions should be based on simple, transparent, 
replicable and largely quantifiable data. Failure to do so will 
only ensure that the MCA funds, however well intentioned, will 
only follow in the footsteps of yesterday's aid failure.
    Thank you very much for allowing me to speak here today, 
and I look forward to your questions.
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    Mr. Kolbe. Thank you. I think both of these statements are 
very provocative and interesting.
    Ms. Lowey has to leave, and I will let her go first.
    Mrs. Lowey. Thank you very much, Mr. Chairman, and I will 
be brief because clearly for those of us who are committed to 
foreign aid, foreign assistance, both from a humanitarian 
perspective and from, frankly the United States' self interest, 
I think this is a conversation that needs hours rather than a 
couple of minutes of a question.
    So I will just ask one question and I appreciate your 
comments for interaction. I appreciate all of the good work you 
have done, and I agree with so much of what you said. I just 
have to ask the gentleman when everything should be measured in 
terms of economic freedom, does that mean, sir, that we should 
not provide foreign assistance to those who are suffering from 
illnesses. What about the HIV-AIDS programs? What about 
investments in education?
    Now, I will grant you--and I am sure my respected chairman 
will grant you and all of the members of the committee--that as 
we look back upon the utilization of foreign aid, we could do 
better. We should have done better. So could have our 
corporations here in the United States. We clearly have to put 
together a better delivery system for foreign aid so that we 
can be more effective in lifting people up.
    But my question to you is, HIV-AIDS assistance, health 
issues, TB, malaria, education--unless that country is being 
measured on their success in achieving economic freedom--and I 
will even grant you through economic freedom, through a better 
functioning system, through better functioning courts--the 
governments themselves would be able to deliver these services 
more effectively. But should we cut off foreign aid to a 
country that desperately needs that kind of assistance if they 
are not making progress towards economic freedom?
    Mr. Schaefer. I think it might be a different definition of 
what we are talking about here. I am talking about development 
assistance. No, assistance----
    Mrs. Lowey. Well, development--excuse me.
    Mr. Schaefer. I am sorry.
    Mrs. Lowey. No. I just want to say that in my judgment, and 
I have always been a strong advocate for education. And as I 
have said, my colleague and I have increased dollars for 
education, because we believe that by lifting people up and 
educating not just--I mean, women and girls and families, that 
they will be able to progress along the economic ladder and 
achieve greater success. So I am sorry for cutting you off. But 
we feel this very strongly.
    Mr. Schaefer. No. I understand. And I agree with you. I 
think education is very important and it does contribute to 
economic prosperity in the long run. But things like HIV-AIDS 
and other--tuberculosis medicines and things like that, that is 
more along the lines of humanitarian assistance, in my mind. 
And if you are going to provide it, it does not contribute to 
long-term economic growth. It is necessary and it helps, but it 
is not a catalyst in development.
    But it is far more important in the economic countries----
    Mrs. Lowey. Therefore, you would recommend that we continue 
to invest in health----
    Mr. Schaefer. Humanitarian assistance.
    Mrs. Lowey [continuing]. And education, such as primary 
school education for girls and humanitarian--as part of our 
foreign aid program?
    Mr. Schaefer. Well, I think that is very important for 
countries to do. I think that is something that they themselves 
can invest in and provide, as well. I think it is far more 
important for countries to adopt economic policy that will lead 
to economic growth and increase the resources that they 
themselves have domestically to invest in those projects and 
those goals. And so, be focused on economic growth.
    Mrs. Lowey. As my colleague said, we are so short of time 
here. But if they do not do that and people are dying of HIV-
AIDS and they need tremendous help in their whole health 
delivery system, do we have a responsibility to provide that, 
even though the countries are not working as effectively as 
they can toward economic freedom?
    Mr. Schaefer. The United States has an extensive 
humanitarian assistance program. And it provides HIV-AIDS 
medicine, provides medicine for tuberculosis immunizations. And 
that is a very appropriate task for the United States to do, 
but is not the essential task of development assistance. 
Development assistance should be focused on catalyzing economic 
growth, in my opinion.
    And I agree that that is an important component of U.S. 
foreign assistance. But development should focus on encouraging 
countries to adopt policies that are going to improve the lives 
of their people, increase their wealth and allow them to 
increase the number of resources that they can devote of their 
own to their greater education for themselves, for their 
children, invest in their homes, and make their own lives 
better, to make themselves better off and to increase their 
opportunities as far as environmental sustainability if the 
government chooses to engage in that, labor standards, if the 
government chooses to engage in that. And the record shows that 
that does happen.
    As countries increase in wealth, they willingly and eagerly 
adopt to increase labor standards. They willingly and eagerly 
adopt greater and stronger environmental protections. They 
invest in education. They invest in other standards that are 
desirable and increase the lifestyles and welfare of their 
people.
    And so, this is, economic growth, leads to these results in 
the longer term any way. They are desirable. But in my term, 
economic growth, if it provides it anyway should be the first 
and primary goal of the U.S. development policy.
    Mrs. Lowey. Let me thank you very much. And I look forward 
to continuing this dialogue.
    Mr. Kolbe. Ms. Lowey, before you leave, if I might? With 
regard to your last question. If we were two lawyers here in a 
courtroom, I would say to you, Ms. Lowey, let us stipulate. And 
I think that that is what we are saying here today. Let's 
stipulate that we are not talking about the role of 
humanitarian aid. That is necessary, and that certainly will 
continue.
    What I understand, as I read Mr. Schafer's remarks, that 
you were commenting on development assistance. In the 
conclusion there, he says that the MCA must not be weighed down 
with earmarks. The Millennium Challenge Account funds should 
have flexibility. And if we fail to provide it, the new 
initiative will follow in the footsteps of other aid failures. 
So we are talking about, what I understand the administration 
to be suggesting is, we create a new approach to development 
assistance. We are not talking about changing the level of 
humanitarian aid that we give.
    Mrs. Lowey. Let me just say this is obviously a longer 
conversation.
    Mr. Kolbe. And we are going to need a lot more of it.
    Mrs. Lowey. And with great respect to my distinguished 
chairman--for my distinguished chairman, I look forward to the 
dialogue, because I think we both agree there are tremendous 
needs in the world and we really have not seen, going back to 
the professor's discussion regarding property rights, et 
cetera, we have not seen success in real transformation in many 
places of the world. And if we can make our foreign aid more 
successful with your guidance and with additional dialogue, I 
look forward to it.
    Thank you very much.
    Mr. Kolbe. Thank you very much.
    I would, again, just say, in my view, the Millennium 
Challenge Account will fail if we simply deduct it from other 
funds. If we do not add it on, then it is clearly going to be a 
failure. So it only succeeds to the extent that this is a new 
program that augments what we are already doing in economic 
development assistance but in new, different, innovative ways.
    Mr. McClymont, in your statement, both written statement 
and your remarks, you referred to the president's proposal, MCA 
proposal, which we advocate for in our campaign, has the 
potential to be a critical new instrument of policy. And you 
say--then you have a couple of provisions. Yet, it envisions 
funding for a limited number of qualifying countries.
    You also say it does not take into account humanitarian 
concerns, the issue that Ms. Lowey was just talking about, such 
as disaster response or refugees. In your seven points, though, 
you say that the number of countries should be limited and 
carefully matched to the level of available resources.
    I am a little bit unclear. Are you unhappy that it is going 
to be limited? Are you unhappy that--or do you think it should 
include humanitarian concerns? And if we spread it over all the 
countries, and if it includes all the humanitarian stuff, how 
is it different from what we are doing today?
    Ms. McClymont. Thank you, Mr. Chairman. I will try to 
clarify that if I can.
    I think what I was emphasizing in the first point, what I 
was stressing so much that it has got to be seen as a 
comprehensive strategy. We have got to think about, I believe 
and our members believe, the MCA in conjunction with the 
existing development and humanitarian accounts we have now. 
That is what we were trying to say.
    If the MCA is to be targeted on a set of limited countries, 
we have got to be sure that we are getting other countries 
ready to enable them to receive that larger assistance once 
they sort of graduate, if you will, into the MCA.
    What the hope is, is if certain countries meet the MCA 
criteria, they will benefit from rather large-scale aid, which 
we believe fundamentally needs to be directed to what I call--
what I have said was the Millennium development goals--
education and health care, all the things that people need to 
advance and come out of poverty, we believe.
    So, I was trying to tie the two together and emphasize that 
we just cannot forget about the current bilateral aid programs 
and say, ``Oh yes, that is just, you know, that other stuff.'' 
Because that is--those are our monies and resources that are 
going to be going to many, many other poor people in poor 
nations. And we have got to help bring those countries up and 
build self-sufficiency in their people, so that they too can 
benefit and get to a point where they are able to meet criteria 
in the MCA. We are just trying to tie them together.
    And I would emphasize, I think we should be careful if we 
are serious about the MCA, if we are really going to take this 
on and learn from it and experiment with it and identify 
countries that we really think do have sound, strong both 
economic and other kinds of policies and are the poorest 
nations, which our research has told us is the way to get 
someplace, then let's target them with some money. Let's try to 
learn lessons, but let's not just say, ``All those countries, 
oh, they are just the good guys, that is where we will put all 
the big money.'' But rather, let's tie it to the--let's think 
hard about the other bilateral aid and how we fit those 
together. I think that is what we were trying to emphasize.
    Mr. Kolbe. Okay. Let me ask you both two technical 
questions dealing with the MCA here. Neither of you really 
focused on the issue in terms of the criteria. And I do not 
think we should get too hung up on the criteria, but it is 
important, the criteria for the selection of the countries.
    Should it be based or should one of the major criteria be 
based on income--per capita income of the countries? And if so, 
it is dubious data that we have got. How would you measure 
that, or should we just use the generally accepted standards 
that the World Bank uses? And should there be some--and where 
would you put the cut off for that? That is the first question.
    The second is, would a country's proposals--their 
involvement in developing, which Ms. McClymont referred to, 
that countries need to be involved in this process, would they 
need to be developing the proposals before they are selected, 
or would that be after their selection as an eligible country?
    Let Mr. Schaefer go first.
    Mr. Schaefer. My feeling is that poverty alone is not a 
virtue on this issue. You have developing countries and you 
have poor people in every developing country. You want to have 
economic growth occur in all of the developing countries.
    Obviously, all else being equal, I would rather see a 
poorer country receive the assistance. But simply to cut off 
the eligible countries at 79, which is the number of countries 
eligible for International Development Association loans, I 
think that is unreasonable. That is a relatively low amount of 
money per capita.
    And if a country has $1,500 per capita, is performing well, 
is enacting good policies and is most likely to get the most 
benefit out of this money, then they should be a country that 
is eligible for this assistance.
    Especially if they are showing what you alluded to, which 
is an ownership issue, which is a common word thrown about 
foreign aid these days. But the best ownership is a country 
that does and enacts policies that are good and conducive to 
economic growth on their own, without being forced or coerced 
into doing so by an outside agent--the United States, the IMF 
or the World Bank. That is the essence of ownership.
    If the countries are already showing a demonstrable record 
in adopting sound economic policies, implementing the rule of 
law and then enforcing that law once it is implemented, then 
those countries are the ones that are going to benefit most 
from this assistance, and they should receive priority.
    And I do agree that we should focus on a finite number of 
countries. There is no sense spreading this out so that it has 
no impact--discernible impact, or as an incentive. We need to 
focus it on a few good reformers. And I think that is the way 
that the United States Millennium Challenge Account can have 
the most impact and the most effect on developing countries.
    Mr. Kolbe. Thank you.
    Ms. McClymont.
    Ms. McClymont. Mr. Kolbe, with respect to your question 
about income per capita, we have indicated in our paper that we 
believe we should focus on, we said, the IDA-eligible 
countries, the 80 or so, as you well know. And I do not mean to 
rule out entirely--and we would be happy to continue these 
conversations--a larger country which has a tremendously large 
pocket of poverty.
    And so, I think what we have got to really be mindful of--
--
    Mr. Kolbe. If I may interrupt, would you use that as the 
only criteria?
    Ms. McClymont. The per capita income? No, sir.
    Mr. Kolbe. Okay.
    Ms. McClymont. What I--also, the criteria----
    Mr. Kolbe. I only asked about that, so you are answer was a 
response to that. But I just wanted to make sure that is not 
the only criteria.
    Ms. McClymont. Absolutely not. The president has designated 
those three categories. I think the question is, how do you 
interpret those and what do you do with them. But absolutely, 
that would be part of the criteria as we understand it and 
believe, because it is both good policies and good 
institutional practices in a country, but it is also the 
poorest countries, as we understand the literature. So let's 
focus the money in the right way, on those.
    The second question, Mr. Kolbe, I believe was about the 
proposals. What we envision is a two-step process, that 
countries would come into the pool of eligibility--is that 15? 
Is that 20? Is that 30 or 40? It is unclear. If they meet the 
criteria, we again would be flexible about that.
    Then countries would be asked, we believe, to submit a 
proposal and to say in that proposal--or however it is 
fashioned, the developing country would come forward with a 
proposal, a plan, in which there had been broad consultation, 
involvement of others, including civil society and theprivate 
sector. We would also urge that the proposals include very clear, 
realistic timetables and goals for what they are trying to achieve.
    I think if we have clear objectives--and that is why we 
singled out those Millennium Development goals. We know 
countries are going to do many things to reduce poverty, and as 
you well know, Mr. Chairman, that one of the key goals of the 
Millennium Development goals is to reduce poverty and cut it in 
half. It is also to get universal education and cut maternal 
and child mortality and so forth.
    We think that is why it is wise to have those objectives. 
But then to say to a country, ``How are you going to get there; 
what do you propose to get there?'' and show the U.S. 
government exactly what they are going to do to get there. And 
they would put forward their proposal and would or would not be 
selected.
    We actually believe, though, Mr. Chairman, it may be wise 
to have, in this pool of eligible countries, countries 
submitting proposals pretty sure that they are going to be able 
to get money. We do not think it is wise to have clear winners 
and losers. I think it should be clear that countries, they 
will be staggered in, presumably, to this pool of eligibility, 
and they submit their proposal and are pretty assured they are 
going to get money because they have negotiated this with our 
government, and they have put forward what they have done to 
comply.
    So that if it is framed that way, then maybe you can have 
other countries in the eligible pool who are getting ready to 
receive the larger dollars. I am just suggesting this as a 
possible option. And they are getting technical assistance to 
help them get to a place so that they can. So that would be our 
thought about that generally.
    Mr. Kolbe. Thank you. That is very helpful.
    Mr. Callahan.
    Mr. Callahan. Following up on the chairman's questions 
about the conclusions in your statement, you infer that what we 
should do, and take the chairman's suggestion, and put this in 
a separate account, but to have no earmarks or no suggestions, 
and yet leave all of the responsibility of distribution of 
these monies to the agency in charge of the programs. You infer 
later on in your conclusions that if we do not do that, then we 
will simply fall back into the failed policies of the past.
    Are you saying that the Congress is wrong--or is it the 
position of the Heritage Foundation that we, as members of 
Congress, and especially the Appropriations Committee, should 
not earmark any monies with respect to monies going to State 
Department for foreign assistance?
    Mr. Schaefer. Well, that is up to the discretion of 
Congress, of course, but----
    Mr. Callahan. Well, I know what you are saying to the 
Congress, but you do not think we ought to----
    Mr. Schaefer. I think that in many cases the earmarks do 
inhibit the ability and the judgment of the agencies and the 
people on the ground to make policy decisions----
    Mr. Callahan. Would not it be best, in your opinion, just 
to have the Congress not earmark? I may be a secretary of state 
some day. And I certainly would totally agree with you if I 
were. [Laughter.]
    I might be president, and I might need that flexibility in 
order to determine foreign policy. But you are talking about--
on the one hand, you are talking about the future, with the new 
account. On the other hand, you are saying that the Congress 
has failed in its responsibilities of instructing the 
administration as to what they should do with some of the money 
that we appropriate to them.
    And I would just like to inform you that some of the 
instruction this Congress has given to the administration, even 
though one time I threatened just to pass a bill giving the 
administration total authority, but as you can imagine, since 
strong lobbies totally disagreed with that, said, no, we should 
earmark some of these monies.
    But nevertheless, you are saying that we have failed 
policies. But you give no credit to the successful policies--
the NGOs, as was mentioned earlier. Many of the direction 
through legislative language that we have given to the 
administration, various administrations, has been very 
beneficial. Rotary International, for example, because we 
directed the administration to become involved in this, has 
eradicated polio worldwide. That is a success story regardless 
of any economic programs in any country. The Child Survival 
Program that has saved the lives of so many children in this 
world, has been a successful direction of the administration.
    So I think maybe the Heritage Foundation ought to revisit, 
not their direction for this new pot of money, but their 
indication to the world that Congress has failed policies of 
the past. And maybe you ought to say to the world that some of 
the directions that Congress has given to the administration 
have been failed policies, but certainly not a carte blanch 
condemnation of all of the directions this Congress has given 
to the administration.
    And in most every case, Congress, and especially this 
committee, works with the administration to write the directive 
language to their satisfaction. And in many cases, they even 
request that we earmark some of the monies for certain 
accounts.
    So I think we ought to look--if we are going to testify on 
behalf of a future appropriation for a totally new account, 
that is one thing. But to say we ought not do it another way 
because of the failed policy of the past maybe ought to be 
revisited by the Heritage Foundation.
    Thank you.
    Mr. Schaefer. Thank you.
    Okay. Well, of course, the eradication of polio is a very 
significant achievement, there is no doubt about that. And 
there are wise decisions that are made by the administration 
and Congress despite, or because of, earmarks that are involved 
in that money--the foreign assistance program.
    But in my--my intent in my speech was that this MCA account 
is intended to promote economic development, development in 
poor countries. I do not think that attaching earmarks to a 
source of funding whose sole goal is to catalyze economic 
development and economic growth in poor nations would be served 
by having earmarks to the same extent that traditional 
development assistance has put down.
    And you do have traditional development assistance, which 
is an outlet for those earmarks and those other special 
programs that you were talking about.
    And then, what I am saying is that, given the failure of 
aid in the past to catalyze development, I think we should try 
something new.
    We should try and have an opportunity, a new source 
offunding, and explore new options in trying to catalyze growth and 
hopefully be more successful. If we just merely repeat what we have 
done in the past, then we are just ensuring that we are probably going 
to have a very similar outcome.
    Mr. Callahan. We do not need to belabor point. The chairman 
wants to get on with it. I think even the administration and 
you are suggesting that we earmark it regionally, that we spend 
a percentage of the money in this hemisphere, which I totally 
support--we should spend more--that we spend some of it in 
Africa, that we spend some of it in areas of the world that 
need it the most.
    So the administration is suggesting an earmark 
directionally, but nevertheless I get your point.
    Mr. Schaefer. Thank you.
    Mr. Callahan. Thank you, sir.
    Mr. Kolbe. Thank you.
    Might I suggest before I go to Mr. Knollenberg that Mr. de 
Soto rejoin the table since we have very limited time left--we 
will just put him right there in the middle there--and if 
anybody has questions for any of the three, we will do that.
    Mr. Knollenberg.
    Mr. Knollenberg. Chairman, thank you.
    Mr. Schaefer, you obviously are very familiar with the 
Index of Economic Freedom. And I know an index has to be--there 
are not many indexes out there. And we are doing something 
pretty arbitrary here, because if we use one index, then it 
gets to be, of course, a challenge. If we use a number of 
indexes, that also has some problems too.
    What would you say about your Index of Economic Freedom 
being prime, only, one of? What is your view of it as a value 
to those of us that need as much help as we can possibly get?
    Mr. Schaefer. We are obviously very proud of our index, and 
we would love to have it be incorporated into a decision-making 
process of this sort. It is up to the administration and 
Congress to decide whether they would want to do that or not.
    There are a number of other indices out there, as you 
mentioned. And perhaps not so surprisingly, there is a lot of 
correlation between those indices. Our index and, for instance, 
a couple of others--a person did a study finding out where our 
rankings ranked according to other indexes. And the correlation 
was something on the order of 80 to 90 percent.
    And so, you see a lot of similarity in where countries are 
ranked. And perhaps doing a correlation between our and other 
indexes is a way to maybe take some of the--put some 
objectivity in there, if there is a question about that. Though 
I think that we do quite a good job of instituting objectivity 
into our rankings, and we pride ourselves in trying to be as 
quantitatively oriented as possible.
    Mr. Knollenberg. Let me turn to Mrs. McClymont. On the same 
issue, do you favor a particular index? Do you favor several? 
Do you like the Heritage index as one? What is your thought?
    Ms. McClymont. Well, sir, I do not--have not studied 
carefully any and all of the indexes. We do set out in our 
paper some of the concepts that we believe are critical. We 
really do believe it is not just the economic policies and it 
is not just the good governance and not just the investing in 
health and education. It really is all those that need to come 
together in a thoughtful way.
    I think what is fundamental about these criteria--and we 
have set out several in our paper that we would recommend to 
you--but what is important is that they are all brought to bear 
together in a common-sense kind of way and fundamentally that 
it is as transparent as possible. When a country is selected, I 
think it would be a major defeat for the fund if we were not 
very, very transparent about this and enabled everybody to see 
what we were doing.
    Mr. Knollenberg. Thank you.
    Mr. de Soto, do you have any view about various indices 
that might be used to help us evaluate how we should make the 
criteria fit for the Millennium Challenge Account?
    Mr. de Soto. Yes. Well, I have read, for example, the 
freedom index of the Heritage Foundation, which I find 
extremely interesting and useful. I would simply add to it the 
following question: Does it actually get to reach poor people?
    You see, on the books, when you actually even study 
legislation in a country such as mine or those that we work in, 
our legislation looks as good as yours. And moreover, since it 
is organized by Roman law, it looks even better than yours. The 
issue is, does it actually get to poor people?
    So one very important issue is--and to actually echo what I 
think we Mrs. Lowey's concerns--is to make sure that whatever 
assistance you give for economic freedom, it really gets to the 
poor people.
    Because, I repeat--I gave you figures of Egypt. Just let me 
give you, to illustrate, the complete figures of Mexico. We 
went into Mexico in 1998 at the request of now-President Fox, 
then-governor of Guanajuato, who wanted to know, among other 
things, for his campaign just how many Mexicans were inside the 
legal economy. And let me just give the figures, so as to pass 
from Egypt to Mexico, your neighbor.
    The amount of people in Mexico who have to actually earn 
their living and hold their assets outside the law is 78 
percent of the population--78 percent, in spite of all the 
legal assistance and everything, 78 percent. That 78 percent 
owns $350 billion worth of assets, which is 29 times the size 
of all foreign direct investment since the beginning of the 
Mexican revolution, and is seven times the size of all known 
oil reserves in Mexico.
    So here is what I am trying to say. A huge--a very 
important index is, whatever you do on the side of policies, on 
the side of sound policies, on the side of the rule of law, 
does it get to poor people? I think that is a crucial thing.
    You see, in the United States, when you lived in the 19th 
century, it was not only a technicality: Is your juridical 
systems working well? Did you give assistance to the judges? Do 
your courtroom procedures work? The question is, do they reach 
the people? Because if they do not, then you get the class 
division that Marx talked about.
    Mr. Knollenberg. Yes, thank you.
    Let me just come back to Mrs. McClymont. On this--one of 
your seven points, you mentioned that the funds from this new 
account should be targeted specifically for poverty-focused 
development. I think that ties in with what I am hearing here.
    But I also know that you mentioned here that the 
eligibility criteria should serve as an incentive, not a reward 
for good performance. How do you do that?
    Ms. McClymont. Well, I think what we are trying to say, 
sir, is just that, you know, you have got to be somewhat 
flexible. You want to bring countries in, so you do not want to 
set the bar so high that they cannot make it in. It really is a 
balancing, and I do not pretend that it is easy, but that is 
what we are trying to suggest. Let's not go overboard with 
these strict, quantitative criteria that are going to be very 
difficult to meet. Let's----
    Mr. Knollenberg. The only other question, and this is a 
quickie. You mentioned that there will be pressure to use 
funding for special countries. What is a special country?
    Ms. McClymont. Maybe that was a bad use of the term. What 
we were really trying to say is we do think this needs to be 
focused on the poorest countries. That is what is going to make 
it work.
    Mr. Knollenberg. These countries would not meet the 
criteria, you say further. You mentioned that they do not meet 
the particular strict criteria, but nonetheless they are 
special in some way. What is special about them?
    Ms. McClymont. Well, I think what we are just trying to say 
is let's focus this money not for political reasons, but let's 
focus it to fight poverty, as the president has suggested. That 
is really what I was trying to say.
    Mr. Knollenberg. Thank you.
    Mr. Kolbe. Thank you, Mr. Kingston.
    Mr. Kingston. Thank you, Mr. Chairman.
    I wanted to talk to you, Mr. Schaefer. I am concerned, as a 
conservative, at the rate of money which this administration--
the rate that they seem to want to engage in new policies and 
new spending. It always seems to be something very dramatic. 
Tremendous increase in federal involvement in education last 
year. A lot more spending as kind of the proof that we are 
compassionate, I guess. We are seeing, I think, a deserved and 
justified increase in military, but then we augment that with 
homeland security, and the ripple effect seems to be tremendous 
into all agencies of the government.
    And here we are going on a 50 percent increase for three 
years. And I can say that with Chairman Callahan of this 
committee, one of the big fights we had to do was to reduce 
foreign aid. Very difficult.
    And I think, Mr. Chairman, was it not up to about an $18 
billion level? Very hard fought reductions. And maybe foreign 
aid should be increased to $30 billion level, and maybe DOD 
should be dropped out of $30 billion, or maybe something else.
    But I guess what I am concerned about is those who testify 
in front of appropriations committees never seem to worry about 
where the money is coming from. But the Heritage society is 
usually pretty good at that.
    So I will ask you, where is this money going to come from?
    Mr. Schaefer. As I said in my testimony, I could not agree 
with you more. If this were simply an increase in development 
assistance, I would voice my opposition, and I do. I do not 
think that the existing development assistance program is at 
all effective, and has proven to be more--worse than that, a 
counterproductive failure in most cases.
    So what I am hoping is through the MCA account, what we 
have here is a different type of foreign assistance that does 
not focus on the amount of monies dispersed to developing 
countries, but instead provides an incentive for countries to 
adopt policies that will generate domestic growth, growth that 
helps those countries, helps people in those countries, and 
eventually results in prices where foreign aid is no longer 
necessary.
    That is my hope. I may have some skepticism about whether 
that is actually going to be the case or not, but if--my hope 
is that that is the case. And that is why I am trying to make 
sure that this money actually goes toward countries that are 
good performers, countries that have already proven that they 
are going to adopt policies that will lead to growth.
    And I disagree respectfully with my co-panelist here. I do 
not think that--this should be an incentive for countries to 
adopt policies in the future. We cannot wait for them to do 
things after they receive the money. That is proven to be an 
abject failure.
    The IMF conditionality, World Bank conditionality has been 
a failure, quite frankly. The IMF and World Bank get money, 
give money to countries and in return, they receive promises 
that most likely and most often are not met. Then the World 
Bank and the IMF receive new promises, disperse new money. And 
therefore, we have this game of promises and get money in 
return for it, which result in very little fundamental change.
    That is why I think we should focus this money on tangible 
policies that have already been enacted, countries that have 
proven themselves to be good policy performers. And only then 
should they be eligible for it.
    We have to go back and analyze what they have already done, 
and only the countries that have already proven to be willing 
to adopt and to implement policies should be eligible for this 
program.
    Mr. Kingston. Well, why don't we go into the structure of 
foreign assistance now and this should be the rule for all 
foreign aid, and rather than put in a dollar amount, say ``This 
is the new policy.'' And then, if this policy works, we are 
going to put it into a dollar figure and at that point come 
back with the 50 percent increase.
    I mean, it just seems like such a quickie headline to go 
out on the world stage and say you are going to do this 
tremendous new spending program when we are spending the heck 
out of the domestic money already. And we know that whatever we 
do in the House, it is not going to be enough for the liberal 
Democrats in the Senate. It is going to be added to. And they 
will weaken the policy of it and increase the dollar end.
    So why do we not push for policy changes now and dollar 
amounts later?
    Mr. Schaefer. I have worked at Heritage for going on seven 
years now, and I have been fighting to reform the foreign aid 
program for most of that time. I have been very unsuccessful in 
doing that, quite frankly.
    And so while I would support reforming the current foreign 
aid program in to doing this sort of operation, that is not on 
the table from what I understand. And so what I am--while I 
would say, ``Yes, let's reform the current foreign aid 
program.'' And if it is not successful, I have even called for 
the elimination of the current development assistance.
    So I am all in favor of reforming the existing program, but 
this is about the MCA account, and that is why I am trying to 
focus that on being as effective as possible rather than trying 
to go after the current development assistance program.
    Mr. Kingston. But trying to fit this into a piece of 
puzzle, it might not be in the interest of this committee just 
to say, ``Okay, this administration is going to do this. We are 
going to go along with it.'' Maybe we should push more for the 
policy changes.
    Mr. Schaefer. I would love to see the policy changes apply 
to every amount of development assistance. Every amount of 
development assistance that the United States allocates or 
disperses, I would love to see that happen.
    Mr. Kingston. Let me ask, Mr. Chairman, if I have still 
time, the emerging Soviet countries are not listed on here as a 
targeted area. Am I correct on that? I see that Africa 30 
percent, Asia-Near East 39 percent, Latin America and the 
Caribbean 29 percent. But nothing for Uzbekistan, Kyrgyzstan or 
any of those countries. Is that something you folks feel 
comfortable about, or are they in there somewhere?
    Mr. Schaefer. I think it is appropriate to assign values 
for specific regions. Quite frankly, I think we should reform 
good performance--I mean, we should reward good performance, 
not specific regional areas of the world. And I think 
arbitrarily assigning a certain percentage of the money and 
challenge account to a certain region is not the proper way to 
go. But I was not consulted on that.
    Mr. Kingston. Okay. Let me ask Mr. de Soto one of the 
issues that we on this committee have taken up and also on the 
Agriculture Committee, where we do so much of the food aid, is 
America getting credit for what we are doing?
    And you know, we have in fact, across the hall in the Ag 
Committee, you might want to see a very nice poster of food aid 
being distributed. I am not sure where, but it has ``Made in 
the USA'' on the package.
    How, in your opinion, can we get more credit for what we 
are doing? You know the issue came up very poignantly when the 
folks from Afghanistan came out after 9/11--I think were 
receiving $174 million of foreign assistance a year, but most 
did not know that.
    Now some of that is certainly the Taliban's fault, but a 
lot of it is our fault that we were not getting the information 
out there.
    How, in your opinion, can we get that message out? That 
America is a good, helpful ally and this assistance comes from 
America. How do you think we can get that information out?
    Mr. de Soto. I have never--not being first an American 
citizen and looking at things from my own point of view----
    Mr. Kingston. That is why I am asking you.
    Mr. de Soto. I have never reflected upon it, but obviously 
if the word is not getting around, you may want to make sure 
that it does get around.
    You may want to make sure that it does get around.
    Mr. Kingston. Well, now, let me ask you this. I want to 
make sure that it does get around. But I guess what I am saying 
from your point of view, how do we get that word out there 
better? Because, you are an intelligent guy. You are a 
connected guy. You are kind of in a positive sense, an 
establishment guy. How could the people, you know, on the 
ground find that out?
    Mr. de Soto. I think it has to do really with publicity and 
how you get it there. For example, when the reform programs 
that we carried out at a certain moment, whether it was a Peru 
or any other country, we made sure that the information got to 
the grassroots.
    And the way you get information to the grassroots is very 
different than the way you get it to elites. In the grassroots 
for example, we would never think--at the grassroots level we 
would never think of using a mailing list among other things. 
Of course, people do not have addresses, so there is not much 
of a way of getting a mailing list. We would put banners on the 
streets or put a certain type of poster. There is a way of 
getting that message across--there is a way of getting out.
    You would actually have to target it. You would actually 
target it to poor people so that they actually understand it.
    For example, I would be delighted to participate because 
simply I am very curious on what changes would have to be done 
from what you are actually doing today.
    See, we use a lot of publicity. When we go out and we have 
a campaign, either to bring people inside the law, bring their 
businesses inside the laws, we prepare everything to radio 
jingles to television spots, to banners in the streets. And we 
study whether they are effective or not.
    You may want to do that as well. Maybe it is not getting 
out there. I just never reflected on whether it is getting out 
there or not. But you may want to do that.
    It is very different making--using publicity in Peru. You 
see, if a country such as mine, 80 percent of the people are 
poor. And most of the people just simply do not read a 
newspaper. And most of the people tune out of the news on 
television.
    So you have to access them in special ways. You may want to 
study that. That may be a very important component of your 
whole, I do not know, program.
    Mr. Kingston. That is something that this committee has 
been kicking around trying to figure it out. And it is not just 
the PR but there is a national security question too.
    Mr. de Soto. Oh, yes, definitely. The vision there--it is 
unfortunate or fortunate, but you are the most powerful nation 
in the world. And the tendency is to blame you for everything 
that is wrong. So you may want to find out who you get there.
    Mr. Kolbe. Mr. Kingston, I think you were reading from this 
White House--and the fact sheets, the key facts here. Just to 
clarify, one of the key facts is there where it talks about 
development assistance accounts increasing. And it talks about 
Africa, Asia and the Near East and Latin American and the 
Caribbean. I do not think that is meant to say that those are 
the only regions that would be qualified for the new MCA at 
all.
    That was just a fact under--information about aid.
    Mr. Kingston. Those ones would get a 22 percent increase 
though, I think. Is not that on there? Maybe I am----
    Mr. Kolbe. USAID's core development assistance account is 
expected to increase by 22 percent, and then it lists those 
three regions there. But it does not say that this MCA account 
and I want to make that very clear to anybody who will be 
listening to this today, that the central Asian countries, the 
Balkans and any others would also be eligible, Eastern Europe 
countries would also be eligible if they meet the basic 
criteria.
    Mr. Kingston. Because if they are--my concern is as you 
know, when we were over there earlier this year, they are 
making a lot of strides there. They have got a ways to go 
still. And we do want to encourage that and not penalize them 
because they are geographically not where they need to be or 
politically not as sexy as they need to be in order to get an 
arbitrary amount of assistance.
    Mr. Kolbe. Thank you.
    We are going to wrap here. But I am just going to take a 
moment to ask one or two quick questions here.
    Mr. de Soto, your comments about the titling are very 
intriguing and I think strike me as being on target, the 
importance of property rights and the titling. But it is a 
little discomforting also. And for this reason, that is, USAID 
spent a lot of money, put a lot of money into various programs 
for titling in different countries. I am not sure how much you 
are familiar with what has been done.
    But it would appear that we may not have been doing things 
right in that regard. Could you comment at all on that?
    Mr. de Soto. Sure, of course. The first thing I think, to 
understand is that before titling can take place, before people 
can be given a certificate of possession or of ownership, first 
of all the law has to be in place. The law means that there has 
to be a common understanding as to who owns what and who has a 
right to what.
    Now what happens is I think one of the big mistakes that 
has been done so far, is that it is taken granted in developing 
countries is that consensus, that social contract, is in place. 
And the black market is just simply considered. It may be 
considered like in the United States. You know, this is a place 
that is small and it is where the Sopranos reign. But no, in 
our country, it is 80 and 90 percent of the population.
    So what happens is that when your contracts are awarded, 
they are generally awarded for doing the very downstream stuff 
for which there is no--where the law has not been established.
    Let me give you a concrete example. We were very curious 
about this and asked the World Bank many years ago, and the 
Inter-American Development Bank to give us information as to 
how they went about doing property programs in developing 
countries. And we did not get any information.
    And we had a friend in the Secretary of the Treasury who 
told us, ``You know what you can do is look at their reports of 
these international financial institutions to the U.S. Congress 
because they are stored in the vaults of the Treasury. And we 
had access to them, and we consulted them for about 90 days. 
And we found out after a while that none of these programs had 
actually been successful.
    And the way to illustrate one of them is that the major 
program that had been funded I think by the World Bank and part 
of it by the Inter-American Development Bank, was a program, 
the purpose of which was to give poor people, and therefore 
avoid violence in the northeast of Brazil, a program which was 
earmarked for $360 million. And it started in 1980.
    Now what was interesting was the Brazilian Congress agreed 
to indebt itself for this amount of money to give its part of 
the money of course on the condition that was politically 
important. You remember there was a lot of unrest at that time 
in the northeast of Brazil.
    And so when you start reading the reports of the World 
Bank, they are very interesting. In the first years, they start 
saying it is important to deal with the issues of the poor. But 
as the reports continue to develop, there--what they started 
reporting was not how they were decreasing poverty, but how 
much mapping they were doing and how much recording systems 
they were putting into place.
    And by the time they had already spent $120 million of the 
$360 million I think it is that had been earmarked for that 
purpose, it was clear that they now knew where every house was, 
where every plot of land was because they used the money for 
photogrammetry, but they did not know who lived in the 
building. Because if in the building people have to voluntarily 
come in and record because they recognize that the source of 
the rights to the ownership comes from the law and not from a 
local arrangement.
    So what I think happens is this, is what developing 
countries actually require, and that is why I pointed out so 
much of what you did in the 19th century is what you did inthe 
19th century, which is first of all is the formation of law. Or what 
you did in Japan and Korea and Taiwan about 1945, which was the 
formation of law.
    And that is why I brought out these posters of Japan. The 
second one, these are posters of the national property reform 
program done under MacArthur. You will see in the first circle 
there, there is a tearing up of the restoration.
    The second one, there are consultations with the people to 
find out just whether they will accept the law or the law is 
sufficiently well crafted to actually define ownership among 
poor people. And as you will see, the third drawing here is the 
drafting up of a new law and the objective is an anti-poverty 
program because you see people with patches getting the title.
    What I am trying to say is all successful programs 
basically had to do was a restructuring of the law so that poor 
people came inside. But the way it is taken through most state 
agencies and by the World Bank is essentially without even 
touching the law is especially photographing people, 
photographing maps and setting up computer systems.
    It does not get to the root of the problem.
    Mr. Kolbe. And I can appreciate that. I think that answers 
the question I had very well.
    Ms. McClymount and Mr. Schaefer, would you make national 
security considerations a criteria at all in the selection of 
countries?
    Ms. McClymont. I think, Mr. Chairman, for the purposes of 
this account, we really need to focus on the poorest countries 
with those criteria in mind.
    Mr. Kolbe. I agree, but realistically, can you see us 
putting a country similar to Iraq on the list?
    Or would they just not meet it----
    Ms. McClymont. I do not think they would meet the criteria.
    Mr. Kolbe. They would not meet the criteria.
    Ms. McClymont. Right. I think that is what is so 
fundamental because good governance, human rights, investing in 
people, I think it would be impossible likely for them to meet 
the criteria.
    Mr. Kolbe. Do you ever see national security entering into 
the decision process? I do not want to state a position here.
    Ms. McClymont. Well, I think the concern is this. We are 
clearly not going to stop helping countries where they--needs 
are not being met and they can form the basis of breeding 
grounds for terrorism and so forth.
    Mr. Kolbe. Right.
    Ms. McClymont. And I think, Mr. Chairman, for purposes of 
our seven accounts. I mean separate out Iraq, but think of all 
the countries that are maybe not the good performers. That is 
why we are so conscious of needing to protect those interests 
in helping those people.
    Mr. Kolbe. It is probably going to become a bigger question 
once you develop the list of the eligible countries. Then you 
have got the second choice of who gets selected out of it. We 
cannot do programs in every single county that is on the list. 
So which ones do we select out of a list of countries that 
possess no similaritiews to Iraq? But which ones do we select?
    And I guess I am asking, is national security ever a 
consideration or how do we avoid it being a consideration? Mr. 
Schaefer?
    Mr. Schaefer. Well, if you are using our index of economic 
freedom, you find that most of the countries which are 
terrorist states, most of the countries which are considered 
the adversaries of the United States--not so coincidentally 
also have very little in the way of economic freedom, and very 
little in the rule of law. And they would not eligible. They 
would not even be close to being eligible for assistance if you 
used the criteria based on the index.
    Mr. Kolbe. But you would not use the index as the sole 
criteria. I mean, you are not suggesting that Hong Kong and 
Singapore should be our first two projects.
    Mr. Schaefer. Hong Kong and Singapore are not developing 
countries either. [Laughter.]
    And so what I would say is that it is very unlikely that 
they would be considered good performers if that were a 
criteria.
    The--now, one question that--are you talking about national 
security concerns and the allocation of it, or national 
security concerns and not allocating that, meaning that are we 
going to provide it to reward our allies, or are we going to 
not give it to our adversaries?
    Mr. Kolbe. While it is clear that no MCA Funds would go to 
bad actions, it is unclear if funds will be allocated devoid of 
national security considerations. On one side of the coin you 
have had bad actors, on the other side of the coin you have all 
other countries in the world many of whom with which the U.S. 
has profound national security interests.
    Mr. Schaefer. Well, the reason why I ask is because we 
provide substantial amounts of money for Israel and Egypt for 
what I would consider are mostly security reasons, though it is 
under the development assistance budget.
    Mr. Kolbe. Right, so should national security interests be 
intermixed with the MCK?
    Mr. Schaefer. I would not advocate that at all. I think 
that the MCA account should be focused on providing, on 
focusing on development. And so that we should not allocate it 
simply to support our security interests. That is what I am 
saying.
    Mr. Kolbe. It is a tough one. And I think we are going to 
be grappling with that as to what degree that could be in 
there.
    One last question that I have, Mr. Schaefer or Mr. de Soto, 
both. What would you say to a--given what is going on in the 
country today with Comcast and all of these things that are 
going on right now, Enron and everything else, what would you 
say to a country, an MCA-designated country, about economic 
freedom versus economic regulation? How much should a country--
they are trying to develop the right systems, the right rules 
of law. How much should they have of each?
    Mr. Schaefer. Well, I think you cannot have an economically 
free state without at least some oversight and some regulation. 
You have to.
    And the question is at what point does it become so 
burdensome that it defeats the purpose of having economically 
free. And actually repress economic activity rather than 
ensuring that reaped the rewards of it and you protected 
property rights and that sort of thing.
    And it is a fine line. You have to have some regulation but 
that regulation has to be enforced transparently and in an 
efficient manner and reliably. And then have a court system and 
a rule of law that is a secondary enforcer of that if it is 
applied unfairly.
    And so you have to have an appropriate system of 
regulation. And but you cannot have it be too burdensome. It is 
a fine line to draw. And unless you see a specific case, I do 
not know if I can get much clearer than that.
    Mr. Kolbe. Mr. de Soto.
    Mr. de Soto. Yes. I think that one of the reasons that your 
legislation and your regulation would seem to work as opposed 
to the way it does not work in countries like mine, has a lot 
to actually do with instead of deciding how much weight you are 
going to give to regulation, how much weight you are going to 
give to say non-regulation has a lot to do with democracy.
    What is interesting from my point of view about your 
country is that the very process through which you create 
legislation like for example, this very hearing, or the way you 
implement it, actually aims generally speaking towards more 
efficient outcomes than hours.
    You have for example, common due notice periods. So before 
your regulation is in place, people can look at it. You have 
the Office of Management and Budget doing cost-benefit 
analysis.
    The Swiss have the system of--the position of popular 
initiatives.
    The Japanese have--the press clubs systems where by all 
legislation and all regulation is actually well circulated 
beforehand. And therefore, you can see what it is affects are.
    Well, in a country for example, such a mine, let me show 
you--that is why I was saying it is so important to focus what 
actually happens in developing countries. And I am going to use 
the example of my country. I will not use example of client 
countries because they are kind of offensive.
    But for example in my country Peru, since the Second World 
War produces an average 28,000 laws a year, that makes about 
106 per day. There is no common due notice periods, nobody has 
seen the cost-benefit of the whole thing. And it does not work. 
And that is really about democracy. And it does not have to do 
with the big principles how much legislation you have got, how 
much goes to the municipalities, what is the power of the 
executive branch, it has to do with the fact that we have no 
elements with which to be able to calculate the affects of the 
law.
    So sometimes you can go to countries where it looks like 
there is a lot of regulation, but it is efficient, or there is 
less regulation, but it is efficient. And the real problem in 
developing nations and that may be one of the criteria you want 
to put for good governance is what is the process through which 
you actually create rules?
    In other words, when we elect, for example, a president, 
you are actually putting 28,000 blank checks in his pocket 
every year. He from then on, regulates as he wants to, and then 
he finds out after a year why he is so unpopular. Because he 
has no way of gauging the effects of those norms.
    So I think of lot of what you may want to put into sound 
policy environment has to be do with how you produce rules and 
regulations, how strong your democracy really is, not only 
whether you have elections, but once elected, what they do.
    Mr. Kolbe. Thank you.
    Mr. Kingston, do you have a final question?
    Mr. Kingston. No. I just find that fantastic statistic. One 
hundred and one laws a day.
    Mr. de Soto. One hundred and six.
    Mr. Kingston. One hundred and six. So tell me what happens 
after a five year period of time. I mean, how viable are these 
laws?
    Mr. de Soto. Well, what happens is that throughout every 
developing country, now the leader gets elected with a lot of 
celebration, and he goes out with a whimper. He has no affect 
of knowing what he is doing.
    You see you have enormous types of mechanisms.
    You know, let me give you an example. Once we were told, 
talking about this excessive regulation and non-regulation, 
well how about the Japanese? Everything happens within the 
bureaucracy. That is true. They have a very large bureaucracy. 
And the Diet, that is to say your equivalent of the Congress, 
actually delegates much of the decision making to the 
bureaucracy. But let me tell you what happens.
    So they decided something on the environment or an anti-
poverty law, then the first thing that the respective 
department, say the department of interior does, is it puts 
together--it goes around and looks at interaction. It looks at 
the Heritage Foundation. And it brings everybody who can 
possibly be interested in to a consultative committee that is 
going to draft the law together with them. They can be 100 
members, 150 members or 70 members.
    It just makes sure that all interested parties are there. 
At the same time, it assigns a press club to it, which is it 
provides a huge room for up to--you know, they have thousands 
of magazines in Japan, where all of the people who are writing 
on it have access to a press briefing during the session of 
the--which can last a year, a year-and-a-half, nine months, 
whatever it is. Every day at 7:00 p.m. they get a press 
briefing.
    Once the law is then in place, when you have read back what 
the readers have told their magazines, which have been fed back 
to the press club, to the members of the committee, then the 
Japanese organize, which is a public hearing in 38 different 
parts of Japan at least.
    This text is then brought back to congress, the Diet, and 
the congressman who come from different districts--that is also 
very important. Our congressmen in Latin America are not 
elected by district. They are Mr. Garcia's, Mr. Chavez's list, 
so they are not accountable to any specific population. They 
are accountable to the nation in general which means to no one 
whatsoever or the head of their political party.
    So it is an election, but it is not at all like yours 
because it does not have accountability.
    Going back, the Japanese are elected by districts. They 
then take the results of the law and they are given during the 
weekend, like the British have it also, the schools. And they 
open up shop at schools and they listen to people's complaints 
or comments on the rule they are bringing out.
    In other words, by the time a rule comes out, it is really 
rooted in the grassroots so to speak. And so what I am 
basically trying to say is that wherever you go and see 
successful nations, they have good law producing mechanisms. 
And countries like mine just do not.
    And so, whether you are regulated too much, or you are 
regulated too little, at the end nobody knows what it is about 
and most people just disobey the law, and it is unenforceable.
    Mr. Kolbe. Thank you. I was about to wrap up. Mr. 
Knollenberg, if you have another question.
    No.
    All right, I think we have kept our witnesses longer than 
anybody anticipated. But I do appreciate--we did get a late 
start. And I think this has been a fascinating hearing and one 
that is for me has been very enlightening and very helpful as 
we begin this process of thinking it through how we proceed 
with economic development assistance.
    I want to thank all three of our witnesses for being here 
today and taking the time to do this and to assist us in this 
process.
    Thank you very much.
    The subcommittee will stand adjourned.


                           W I T N E S S E S

                              ----------                              
                                                                   Page
Armitage, R. L...................................................   167
de Soto, Hernando................................................   441
Franco, Adolfo...................................................   271
Grossman, Marc...................................................   271
McClymont, Mary..................................................   441
Natsios, Andrew..................................................     1
Rodman, Peter....................................................   271
Schaefer, B. D...................................................   441
Speer, Maj. Gen. Gary............................................   271


                               I N D E X

                              ----------                              

                  Agency for International Development
                   (Administrator Andrew S. Natsios)

                                                                   Page
Afghanistan......................................................    50
Africa...........................................................47, 51
Agriculture......................................................    62
Allocations......................................................    25
Basic Education..................................................    28
Budget...........................................................    61
Chairman Kolbe's Opening Statement...............................     1
Colombia.........................................................    65
Corruption.......................................................    65
Education Initiative.............................................    32
Global Health Accounts...........................................    52
Health Care Issues...............................................    57
International Family Planning....................................    60
Micro Credit Programs............................................    56
Middle East......................................................    30
Mr. Natsios' Opening Statement...................................     6
Mrs. Lowey's Opening Statement...................................     3
Nagorno-Karabakh.................................................    55
NGOs.............................................................    45
Oversight of USAID West Bank Programs............................    26
Pakistan.........................................................    46
Team Work........................................................    67
The Congo Volcano................................................    37
UN World Food Programme..........................................    46
West Bank Gaza Tax Issue.........................................    24
World Trade......................................................    55

               U.S. Assistance for the Front-Line States
                         (Richard L. Armitage)

Chairman Kolbe's Opening Statement...............................   167
Mr. Armitage's Opening Statement.................................   171
Mrs. Lowey's Opening Statement...................................   168

                      U.S. Assistance for Colombia

(Marc Grossman, Undersecretary for Public Affairs, Department of State)

  (Major General Gary Speer, Acting Commander in Chief, U.S. Southern 
                                Command)

(Adolfo Franco, Assistant Administrator of Latin American and Caribbean 
                                Affairs)

 (Peter Rodman, Assistant Secretary of Defense, International Security 
                                Affairs)

Chairman Kolbe's Opening Statement...............................   271
Mr. Grossman's Opening Statement.................................   273
Mrs. Lowey's Opening Statement...................................   292
Mr. Rodman's Opening Statement...................................   294
Mr. Franco's Opening Statement...................................   308
Mr. Speer's Opening Statement....................................   327

       The Administration's Proposed Millennium Challenge Account
(Hernando de Soto, President of the Institute for Liberty & Democracy, 
                              Lima, Peru)

             (Mary McClymont, President & CEO, InterAction)

   (Bret D. Schaefer, Jay Kingham Fellow in International Regulatory 
                     Affairs, Heritage Foundation)

Chairman Kolbe's Opening Statement...............................   441
Mr. de Soto's Opening Statement..................................   446
Ms. McClymont's Opening Statement................................   463

                                

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