[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]


 
      FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS
                    APPROPRIATIONS FOR 2004--Part 2


      FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS
                        APPROPRIATIONS FOR 2004

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED EIGHTH CONGRESS
                              FIRST SESSION
                                ________

   SUBCOMMITTEE ON FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED 
                                PROGRAMS

                      JIM KOLBE, Arizona, Chairman
 JOE KNOLLENBERG, Michigan        NITA M. LOWEY, New York
 JERRY LEWIS, California          JESSE L. JACKSON, Jr., Illinois
 ROGER F. WICKER, Mississippi     CAROLYN C. KILPATRICK, Michigan
 HENRY BONILLA, Texas             STEVEN R. ROTHMAN, New Jersey
 DAVID VITTER, Louisiana          MARCY KAPTUR, Ohio               
 MARK STEVEN KIRK, Illinois
 ANDER CRENSHAW, Florida

 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, Alice Grant, and Scott Gudes, Staff Assistants,
                     Lori Maes, Administrative Aide
                                ________
                                 PART 2

                                                                   Page
 Department of State..............................................    1
 Export Financing and Related Programs............................  109
 U.S. Agency for International Development........................  201
 Department of the Treasury.......................................  251

                                   S

                                ________

         Printed for the use of the Committee on Appropriations
                                ________
                     U.S. GOVERNMENT PRINTING OFFICE
 89-141                     WASHINGTON : 2003

                        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
 FRANK R. WOLF, Virginia             MARTIN OLAV SABO, Minnesota
 JIM KOLBE, Arizona                  STENY H. HOYER, Maryland
 JAMES T. WALSH, New York            ALAN B. MOLLOHAN, West Virginia
 CHARLES H. TAYLOR, North Carolina   MARCY KAPTUR, Ohio
 DAVID L. HOBSON, Ohio               PETER J. VISCLOSKY, Indiana
 ERNEST J. ISTOOK, Jr., Oklahoma     NITA M. LOWEY, New York
 HENRY BONILLA, Texas                JOSE E. SERRANO, New York
 JOE KNOLLENBERG, Michigan           ROSA L. DeLAURO, Connecticut
 JACK KINGSTON, Georgia              JAMES P. MORAN, Virginia
 RODNEY P. FRELINGHUYSEN, New Jersey JOHN W. OLVER, Massachusetts
 ROGER F. WICKER, Mississippi        ED PASTOR, Arizona
 GEORGE R. NETHERCUTT, Jr.,          DAVID E. PRICE, North Carolina
Washington                           CHET EDWARDS, Texas
 RANDY ``DUKE'' CUNNINGHAM,          ROBERT E. ``BUD'' CRAMER, Jr., 
California                           Alabama
 TODD TIAHRT, Kansas                 PATRICK J. KENNEDY, Rhode Island
 ZACH WAMP, Tennessee                JAMES E. CLYBURN, South Carolina
 TOM LATHAM, Iowa                    MAURICE D. HINCHEY, New York
 ANNE M. NORTHUP, Kentucky           LUCILLE ROYBAL-ALLARD, California
 ROBERT B. ADERHOLT, Alabama         SAM FARR, California
 JO ANN EMERSON, Missouri            JESSE L. JACKSON, Jr., Illinois
 KAY GRANGER, Texas                  CAROLYN C. KILPATRICK, Michigan
 JOHN E. PETERSON, Pennsylvania      ALLEN BOYD, Florida
 VIRGIL H. GOODE, Jr., Virginia      CHAKA FATTAH, Pennsylvania
 JOHN T. DOOLITTLE, California       STEVEN R. ROTHMAN, New Jersey
 RAY LaHOOD, Illinois                SANFORD D. BISHOP, Jr., Georgia
 JOHN E. SWEENEY, New York           MARION BERRY, Arkansas              
 DAVID VITTER, Louisiana
 DON SHERWOOD, Pennsylvania
 DAVE WELDON, Florida
 MICHAEL K. SIMPSON, Idaho
 JOHN ABNEY CULBERSON, Texas
 MARK STEVEN KIRK, Illinois
 ANDER CRENSHAW, Florida

                 James W. Dyer, Clerk and Staff Director

                                  (ii)


       FOREIGN OPERATIONS, EXPORT FINANCING AND RELATED PROGRAMS 
                        APPROPRIATIONS FOR 2004

                              ----------                              

                                          Thursday, March 13, 2003.

                          DEPARTMENT OF STATE

                                WITNESS

COLIN L. POWELL, SECRETARY OF STATE

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe [presiding]. The Subcommittee on Foreign 
Operations, Export Financing and Related Programs will come to 
order.
    Mr. Secretary, it is my pleasure to welcome you here this 
morning. Before I do, let me also welcome our new members who 
are here and old members returning. Ms. Kaptur has been on this 
subcommittee before and we welcome her back----
    Ms. Kaptur. Mr. Chairman, if I could ask the gentleman to 
yield, I hope you don't say ``old,'' but ``former.''
    Mr. Kolbe. Former member. Thank you. Thank you. I stand 
corrected, definitely.
    And members that are on the subcommittee for the first time 
and on the full committee for the first time include Mr. Kirk 
at the end there. We also have Mr. Vitter and Mr. Crenshaw, who 
I believe will be with us here shortly. So we welcome them as 
members of this subcommittee.
    Mr. Secretary, your country and certainly this committee 
hold you in very high esteem as the primary foreign policy 
adviser to the President in what I think are clearly very 
challenging times.
    I know that all the members are very anxious to ask 
questions and exchange views with you, so I am going to make my 
remarks brief.
    The topic of today's hearing is the fiscal year 2004 
budget, but with a showdown looming with Iraq and a costly 
supplemental expected, I have to say that it is not always easy 
to focus on the 2004 budget. I am going to try anyhow.
    The President's request for fiscal year 2004 is $18.8 
billion. That is a 15 percent increase over last year. Mr. 
Secretary, this is a bold and ambitious request. And as one who 
has consistently argued that we must see our foreign assistance 
budget as part of a larger national security strategy, I 
applaud you.
    But I do have many questions about the details. And in the 
end, of course, it will be the details that will determine the 
levels this subcommittee recommends to the committee and the 
committee recommends to the House.
    We will need vigorous support by the President if we are 
going to see this increase materialize at the end of the 
appropriations cycle.
    It will be difficult to secure the requested increase 
unless our members are shown effective executive branch 
management of international programs. The budget contains three 
new presidential initiatives, all of which raise management 
concerns. There is a $100 million request for a complex 
contingency fund; a $200 million request for a famine fund; and 
there is a $450 million request for an emergency plan for AIDS 
relief.
    I confess that I find myself a bit perplexed as to which 
agency is going to administer the funds for each of these and 
who will be answerable to this committee in regards to its 
implementation.
    Consider for a moment the proposed $450 million Emergency 
Plan for AIDS Relief. It is still unclear what roles the 
President contemplates for USAID, for the State Department and 
for the Department of Health and Human Services in the 
implementation of this third AIDS initiative.
    Funds for complex emergencies and famine relief would be 
under the President's direct control. Hence, they will largely 
be managed by the Office of Management and Budget, which raises 
some real concerns for us since they are outside our reach to 
talk to and to call to testify before us.
    The Millennium Challenge Account, the multi-billion-dollar 
proposal first unveiled a year ago, provides another case in 
point that raises organizational questions. The President 
requested a new Millennium Challenge Corporation that would 
reside outside of both the State Department and USAID.
    Let me be clear: I support this Millennium Challenge 
Account. I was very enthusiastic to be with the President in 
Monterey, Mexico, when he announced the 50 percent increase in 
development assistance, and I am a very strong supporter. In 
fact, I wanted to include a pilot program in the 2003 omnibus 
bill. Unfortunately, we did not have the details worked out at 
that time to make it possible for the administration to have an 
implementation and marketing strategy for this program.
    Mr. Secretary, your role, as well as the roles of USAID and 
the Department of Treasury, is not clear in all of these 
initiatives. I do not understand why the Secretary of the 
Treasury would be on the board of this new MCA corporation but 
not the Administrator of USAID.
    Maybe the tone in my voice reflects some anxiety about the 
future of foreign aid without USAID and the State Department at 
the center, but it presents a challenge for you and 
Administrator Natsios to convince the President that your 
agencies can do the job and that your officials can live up to 
his vision of effective delivery of foreign assistance. The 
very fact that I express this anxiety suggests that I have that 
confidence in you, and I know that the President does as well.
    Let me be very blunt. To my thinking, many of these 
initiatives appear to challenge the primacy of the Secretary of 
State as the President's primary adviser and chief executive 
officer for foreign affairs.
    At a time when the respective roles for the Department of 
State and USAID are undefined and often overlapping, a vacuum 
has emerged that encourages the Executive Office of the 
President and domestic Cabinet agencies, such as Departments of 
Health and Human Services and the Treasury, to seizeimportant 
roles in managing international assistance programs. Perhaps U.S. 
national security and foreign policy challenges are so great that some 
of this mission creep is inevitable.
    Finally, let me turn to Iraq. The committee has not been 
consulted in depth about the overall requirements for Iraq 
between now and the enactment of the promised supplemental. We 
are aware that 2003 funds appropriated for other programs are 
being reprogrammed, but that approach likely will not be 
sufficient to meet the requirements for reconstruction and 
relief that will be needed during the next several months.
    This cavalier approach to Congress by the Executive Office 
of the President follows the pattern we encountered while 
seeking to identify funding requirements for Afghanistan.
    I want to make it clear, as I did just a moment ago, Mr. 
Secretary, my remarks are not aimed at the Department of State. 
I not only have great confidence in you, but I want to 
personally thank you and Deputy Secretary Armitage, Assistant 
Secretary Paul Kelly, for your efforts to keep the committee 
fully informed. Your team, frankly, I think, could serve as a 
model for superb executive-legislative branch relations.
    I am going to do something just a little bit out of the 
ordinary at this point. Before I turn to the ranking member for 
her statement and then to the other opening statements, I am 
going to exercise my prerogative as chairman to address one 
issue that I think deserves special attention today, and that 
is the co-relationship between the issues of Iraq and Israel.
    Recently, the discussion of our policy in Iraq has included 
considerable speculation about the extent to which the state of 
Israel and its American supporters drive that policy.
    Last week, columnist Robert Novak questioned the wisdom of 
our policy because, in his view, many current members of the 
Bush administration have in the past publicly linked the 
removal of Saddam Hussein with support for Israel.
    Yesterday The Washington Post, in an editorial entitled, 
``Blaming the Jews,'' that stated it would not necessarily be 
anti-Semitic, just demonstrably wrong to argue that Mr. Bush's 
Iraq policy is motivated primary by a desire to protect Israel.
    I am hesitant to raise this issue, but I think it is a 
timely opportunity for you as Secretary of State and the chief 
foreign policy spokesman for the United States to remind all of 
us of the actual origins of our Iraq policy.
    You can help end any speculation that our policy was 
developed and is being pushed by some kind of conspiratorial 
manner by supporters of Israel, Saudi Arabia or any other 
national, ethnic, or other group that attempts to influence the 
workings of our government.
    And so before I proceed to the other opening statements I 
would like you to respond to that last point, if you would, Mr. 
Secretary.

                  Secretary Powell's Opening Statement

    Secretary Powell. Thank you very much, Mr. Chairman. I am 
very pleased to be here with you. And let me respond to that 
last point.
    U.S. policy with respect to Iraq is not just something that 
has been developed in the last month or so. One can go back 
many years to the end of the Gulf War. When that war ended, 
resolutions were passed that said Iraq should disarm itself of 
its weapons of mass destruction. And you well know the history 
of the last 12 years of continued Iraqi defiance of those 
resolutions, a total of 16 resolutions.
    And finally the whole international community came together 
to pass 1441 in United Nations. Arab nations, European nations, 
nations in this hemisphere came together and said Iraq must be 
disarmed. And it has been U.S. policy for many years that Iraq 
should be disarmed.
    In 1998, when there seemed to be no progress toward the 
disarmament of Iraq, the administration at that time put in 
place what was called regime change policy. This seemed to be 
the only way to get this regime to disarm. And that policy was 
also put in place by the United States Congress, which passed 
legislation in 1998 to support efforts, as may be necessary, to 
get a change in the regime.
    When this administration came in, the President examined 
very carefully our policy with respect to all the nations of 
concern to us, whether it was Iraq, Iran, North Korea, or other 
nations, and he continued the policy of regime change, in the 
expectation that there was no other way to disarm Iraq.
    But the President took one last chance for peace, and that 
was when he went to the United Nations to see whether or not 
this regime would change itself in the presence of massive 
international policy pressure, as well as the buildup of 
military forces to support diplomacy or to change militarily 
the regime.
    This is a policy that was developed over two 
administrations, over many years, and it remains our policy 
today. It is driven by our own national interest. It is driven 
by our trying to help the United Nations do its job. It is 
driven by our concern for the people of Iraq.
    Of course we have a concern for the state of Israel. We 
have been one of Israel's strongest supporters, if not its 
strongest supporter for many years, 50 years, and we will 
continue to do so. But we have other friends in the region as 
well. All across that part of the world we have close 
alliances, whether it is Saudi Arabia, whether it is Egypt. 
These are nations that have been friends of ours for many 
years.
    We also have a commitment to trying to help the people in 
the occupied territories, to create a Palestinian state, and 
President Bush is committed to that.
    We have a comprehensive policy for the region. The strategy 
with respect to Iraq has derived from our interest in the 
region and our support of U.N. resolutions over time. It is not 
driven by any small cabal that is buried away somewhere that is 
telling President Bush or me or Vice President Cheney or Condi 
Rice or other members of our administration what our policies 
should be.
    I would also point out that this past fall the Congress of 
the United States passed another resolution supporting the 
President's efforts to cause Saddam Hussein to come into 
compliance. And the joint resolution passed by the Congress 
said we should do it through the U.N., and if that does not 
succeed then we should be prepared to use United States armed 
forces in a willing coalition.
    This is not just the result of a few individuals who are 
running loose, as some suggest, but it is a comprehensive 
policy developed over the years and over several 
administrations with the support of the United States Congress 
as reflected in last fall's joint resolution and theaction that 
Congress took in 1998.
    Mr. Kolbe. Thank you, Mr. Secretary. I think it is 
important to have that response on the record.
    Ms. Lowey, I will turn to you for your opening statement.

                     Mrs. Lowey's Opening Statement

    Mrs. Lowey. Thank you, Mr. Chairman.
    And welcome, Secretary Powell.
    I know you are extremely busy with other national security 
matters, and please be assured that we are especially grateful 
that you have taken time to be with us today. And I personally 
want to tell you how much I appreciate, and I know the chairman 
does, as well, the continuous briefings that you and Deputy 
Armitage provide, and I thank you very much.
    I intend to take a few minutes as we open this hearing to 
express some concerns I have not only about world events, but 
also about the fiscal year 2004 request.
    Anticipating that we are about to commence a campaign to 
disarm Iraq and bring about a regime change, I would first 
commend you, Mr. Secretary, for your continued efforts to 
secure the support of our allies in this endeavor. As you may 
know, I supported the congressional resolution on Iraq last 
fall and I continue to support efforts to disarm Saddam 
Hussein.
    However, I do have several concerns.
    I am most concerned about the manner in which the United 
States has approached the U.N. and our allies during the 
diplomatic process of determining how best to disarm Iraq. 
Constant public declarations from the highest ranking 
administration officials that what our allies believe and what 
the U.N. does have no bearing on U.S. policy have, in my 
judgment, eroded our legitimacy as an honest participant in 
global diplomacy. I believe we have approached this process 
cloaked in hubris rather than humility, refusing to adequately 
and patiently justify the legitimate need for action to the 
international community.
    Whether we go to war or not, and even now I sincerely hope 
we do not, I believe it will take years to rebuild our 
relationships with many of our major allies and our stature in 
the global community.
    I am not saying that it is fair or that our actions justify 
such loss of standing, but the simple fact is that it appears 
to me it is just happening and it could curtail our ability to 
achieve a wide array of foreign policy and international 
development goals as time goes on.
    Turning to the budget. I commend the administration for 
including significant increases in the fiscal year 2004 budget 
request for foreign assistance. It is gratifying that there 
finally seems to be broad recognition of the strategic 
importance of foreign aid.
    Unfortunately, however, if you look beneath the surface of 
this request you will find that virtually the entire $2 billion 
increase has gone into new initiatives which are to be 
administered by new entities tasked with taking the corporate 
approach to problem solving. This new framework results from a 
push to package new funding in the context of presidential 
initiatives rather than reforming and improving the delivery of 
aid through the Agency for International Development.
    This demonstrates to me a high degree of dysfunction and 
dislocation within the administration's overall foreign aid 
strategy, and I fear it will adversely affect the good work we 
do around the world.
    Virtually the entire $2 billion increase above the fiscal 
year 2003 level is devoted either to the Millennium Challenge 
Account, the HIV/AIDS initiative, the complex emergency fund or 
the famine fund. The primary accounts providing for other 
health, education, child survival, environment, trade capacity 
building, agriculture and democracy programs have either been 
straightlined or cut from last year.
    This translates into cuts in country level funding in most 
of the countries in Africa, Asia and Latin America, again with 
the exception of HIV programs. OMB made a unilateral decision 
that our aid programs in Russia and Ukraine should be shut down 
within two years and have cut USAID's programs there almost in 
half in 2004.
    The uncertainty surrounding Iraq reconstruction, for which 
$150 million has already been borrowed from 2003 resources, 
also threatens to disrupt ongoing assistance programs.
    With respect to the Millennium Challenge Account and the 
HIV/AIDS strategy, I do applaud their broad purposes and 
welcome the new resources being allocated to these initiatives.
    However, the proposal to create a new corporation in the 
case of the MCA and a new State Department coordinator in the 
case of HIV/AIDS initiatives will needlessly delay and 
complicate the process of reaching people in need. I am not 
convinced that the corporate approach or the use of the venture 
capital model with either the MCA or the HIV/AIDS initiative 
will lead to more effective programs.
    While I do not question the motive of those who have 
adopted this conceptual approach, I do question their range of 
experience in actual program implementation. The assumption on 
their part that innovative solutions to perennial development 
challenges will emerge magically from this top-down approach is 
simply, in my judgment, wrong and hopelessly naive. The 
creation of a new HIV coordinator, with all the attendant 
bureaucratic and policy shifts, will needlessly slow 
implementation of badly needed HIV programs and is completely 
unnecessary in light of the excellent resources already 
available within the U.S. government.
    Again, I never hesitate to say we should improve these 
programs, make them better, make them more efficient, change 
them around. But to delay, delay to create a whole new process 
is really questionable in my judgment.
    We, thus, find ourselves in a position of confronting cuts 
to many country programs in 2004, while devoting resources 
instead to presidential initiatives, the structure and 
potential impact of which remain unclear.
    Moreover, the budget request reveals a cavalier attitude on 
the part of many administration officials who are willing to 
sacrifice progress in developing countries to make way for 
these untested presidential initiatives.
    USAID, meanwhile, has been left out of the strategic 
planning loop in a position of uncertainty.
    So at a time when we should hail increased resources for 
foreign aid, we, instead, must focus on proposed cuts in 
existing programs and unnecessary delays with new resources 
while new top-heavy bureaucracies are created.
    I do hope, Mr. Secretary, Congress will intervene to save 
the administration from itself and will recommend changes to 
the request that will maximize the effectiveness of ongoing aid 
programs.
    I also should add that there are some bright spots, 
particularly the administration's willingness to reexamine our 
assistance programs in the Middle East in response to the war 
on terrorism, and I am confident that Congress will find ways 
to spend the additional requested resources wisely and 
efficiently. We just do not need, in my judgment, to reinvent 
the wheel to do so.
    Finally, I have some final thoughts which I hope to expand 
upon during the question and answer period.
    Despite a clear mandate from Congress, the administration 
has cut funds for basic education which, frankly, Mr. 
Secretary, simply confounds me. The administration has also 
signaled its intention to expand the reach of the Mexico City 
policy to HIV/AIDS funding and possibly to assistance disbursed 
through the State Department, a move which could severely 
damage foreign aid programs. There is nothing in the request 
which would help countries on the cusp of qualifying for MCA 
funds to solve the health and education sector problems that 
have caused them to miss the mark.
    And finally, Mr. Secretary, as we plunge into the Iraq 
conflict, we take on the huge task of reconstruction, which 
will cost in the tens of billions of dollars, with no prospect 
for any significant help from our allies. I sincerely hope the 
institutional commitment exists to take on this effort 
ourselves, as it appears we have to do.
    Thank you, again, Mr. Secretary. I look forward to a 
productive exchange of views.
    Mr. Kolbe. Thank you, Ms. Lowey.
    Chairman Young.
    Mr. Young. Mr. Chairman----
    Mr. Kolbe. Would you like me to call on you first after the 
secretary's opening statement?
    Mr. Young. I think that would be appropriate.
    Mr. Kolbe. Mr. Secretary.

                             BUDGET PROCESS

    Secretary Powell. Thank you very much, Mr. Chairman and 
Congresswoman Lowey, for your opening remarks. And thank you 
for your compliments with respect to how we have been trying to 
run the department and the level of cooperation we have 
achieved between the department and the Congress. We do work 
hard at this.
    Assistant Secretary Paul Kelly, all of my budget people and 
especially my deputy, Rich Armitage, view being good stewards 
of the taxpayers' money, as one of our principal 
responsibilities, and that you are also stewards of the 
taxpayers' money. And we owe you our best answers and all the 
information you need to do your job so that you can support us 
in doing our job. And I view that as something we have done 
successfully over the last few years, including opening up the 
new office that we have here on Capitol Hill to serve you 
better with respect to your needs from the State Department. 
And I thank you for your support.
    Mr. Chairman, I do have a prepared statement for the 
record, which I would like to submit.
    Mr. Kolbe. The entire statement will be put in the record.
    Secretary Powell. And I would like to shorten that 
statement. And then, after going through my shortened 
statement, I will deal with the specific questions that have 
been raised by you, sir, and by Mrs. Lowey.
    Mr. Chairman, members of the subcommittee, I am pleased to 
appear before you to testify in support of the President's 
international affairs budget for fiscal year 2004. Funding 
requested for 2004 for the Department of State, USAID and other 
foreign affairs agencies is $28.5 billion.
    I have given you a great deal of detail on this request in 
my formal written statement, and let me just highlight a few of 
those items.
    Mr. Chairman, the president's budget will allow the United 
States to target security and economic assistance to sustain 
key countries supporting us in the war on terrorism and help us 
stem the proliferation of weapons of mass destruction.
    It will allow us to launch the Millennium Challenge 
Account, a new partnership generating support to countries that 
rule justly, invest in their people and encourage economic 
freedom.
    It will allow us to strengthen the United States global 
commitment to fighting HIV/AIDS and alleviating humanitarian 
hardships.
    It allows us to combat illegal drugs in the Andean region 
of South America as well as bolster democracy in one of that 
region's most important countries, Colombia.
    And finally, it will allow us to reinforce America's world-
class diplomatic force, focusing on the people, places and 
tools needed to promote our foreign policies around the world.
    I am particularly proud of that last goal, ladies and 
gentlemen, because for the past two years I have concentrated 
on each of my jobs, primary foreign policy adviser to the 
president and chief executive and chief operating officer of 
the State Department.
    Under that CEO hat, we are asking for $8.5 billion. Let me 
just touch on that request for a moment or two, because I think 
it really is vitally important to the success of our efforts.
    First, we have been reinforcing our diplomatic troops for 
the last two years, and we will continue to do so in 2004. We 
will hire 399 more professionals to help the President carry 
out the nation's foreign policy. These hires will bring us to 
1,100-plus new foreign and civil service officers that we set 
out to hire three years ago to bring the department's personnel 
back in line with its diplomatic workload.
    I cannot tell you what a joy it is, Mr. Chairman, to go to 
one of our swearing-in ceremonies now that you have approved 
these numbers over the last two years and to see 100 or 150 
brand new FSOs or civil servants. And either Rich Armitage or I 
swear in every single class. To see the look in their eyes as, 
with pride, they take their oath of office to the foreign or 
civil service and go forth to places around the world to serve 
this nation, they are going out in the front lines of American 
diplomacy, out on the offense, putting their lives in danger, 
just as surely as the young men and women in uniform put their 
lives in danger. We should be very proud of these youngsters.
    Completion of the hiring program we have put in place will 
also give us the flexibility to train and educate all of our 
officers as they should be trained and educated. I am proud of 
what we have been able to do, and I thank you for that.
    I also promised the Congress that I would bring state-of-
the-art communications and management capability to the 
department. If we cannot communicate rapidly, if we cannot run 
our business rapidly in this globalizing world, then we will 
not be able to conduct foreign policy in an effective way.
    We are approaching our goal in that regard, as well, in 
both unclassified and classified communications capability. I 
am going to make sure that every single man and woman at the 
Department of State anywhere in the world has access to the 
Internet, access to instantaneous communications, and the $157 
million budget request will put us there.
    Finally, with respect to my CEO role, I just wanted to 
sweep the slate clean and completely revamp the way we 
construct our embassies and other overseas buildings as well as 
the way we secure them in order to secure the men and women who 
occupy those buildings.
    This last task is a long-term, almost never-ending one, 
particularly in this time of heightened terrorist activities. 
But we are well on our way to implementing both the 
construction and the security task in a better way, in a less 
expensive way, and in a much more efficient way.
    I need your continued support for the $1.5 billion for 
embassy security construction and the $646 million in D&CP 
funding for worldwide security upgrades.
    Now, Mr. Chairman, let me turn to that part of the budget 
request for which this subcommittee has the primary oversight 
responsibility.
    The 2004 budget proposes several initiatives to advance 
U.S. national security interests and preserve American 
leadership. The 2004 foreign operations budget that funds 
programs for the Department of States, USAID and other foreign 
affairs agencies is $18.8 billion.
    Our number one priority is to fight and win the global war 
on terrorism. The budget furthers this goal by providing 
economic, military and democracy assistance to key foreign 
partners and allies, including $4.7 billion for countries that 
have joined us in the war on terrorism.
    Of this amount, the President's budget provides $657 
million for Afghanistan, $460 million for Jordan, $395 million 
for Pakistan, $255 million for Turkey, $136 million for 
Indonesia and $87 million for the Philippines.
    In Afghanistan, the funding will be used to fulfill our 
commitment to rebuild Afghanistan's road network. In addition, 
it will help establish security through a national military and 
national police force. Our assistance will establish broad-
based and accountable governance through democratic 
institutions in an active civil society. Moreover, these funds 
will ensure a peace dividend for the Afghan people through 
economic reconstruction and provide humanitarian assistance to 
sustain returning refugees and displaced persons.
    People often talk about how things are going in 
Afghanistan: Is it going well? Is it not going well? Or what? 
But when you look at what we have accomplished in less than a 
year and a half, it is quite remarkable. We have put in place a 
new government that is representative of its people. We have 
put in place a system where people are selecting their own 
leaders, women are returning to the business place, the 
workplace, the educational system. It is a tremendous success 
story. The economy is slowly starting to get started again. 
Nations around the world are assisting us in this effort.
    One of the key indicators of whether or not the glass is 
half full or the glass is half empty: 2 million Afghans have 
returned home. In the last year and a half, 2 million refugees 
have crossed the borders from Pakistan and Iran back to 
Afghanistan because they see hope, they see a future, they see 
what the United States with its coalition partners have done 
with the new Afghan authority to make a promising future, build 
a promising future for the people of Afghanistan. And no critic 
can take away from the simple fact that 2 million people have 
voted with their feet to return to this country that they had 
fled from over the last 15 or 20 years.
    I also want to emphasize our efforts to decrease the 
threats posed by terrorist groups, rogue states and other non-
state actors with regard to weapons of mass destruction and 
related technology.
    To achieve this goal, we must strengthen partnerships with 
countries that share our views in dealing with the threat of 
terrorism and resolving regional conflicts.
    The 2004 budget request supports the nonproliferation and 
disarmament fund, increases funding for overseas export 
controls and border security, and supports additional funding 
for science centers and bio-chem redirection programs.
    Funding increases requested for these programs will help us 
prevent weapons of mass destruction from falling into the hands 
of terrorist groups or various other states by preventing their 
movement across borders and by destroying or safeguarding known 
quantities of weapons or source material.
    The budget also promotes international peace and prosperity 
by launching the most innovative approach to U.S. foreign 
assistance in more than 40 years. The new Millennium Challenge 
Account, which has already been mentioned, an independent 
government corporation funded at $1.3 billion, will redefine 
development aid, and I will talk more about that in a moment or 
two.
    The foreign operations budget also provides more than $1.3 
billion to combat the global HIV/AIDS epidemic. The President's 
total budget for HIV/AIDS is over $2 billion, which includes 
the first year's funding for the new emergency plan for HIV/
AIDS relief announced by the President in his State of the 
Union address. These funds will target 14 of the hardest hit 
countries in Africa and the Caribbean.
    The budget also includes half a billion dollars for 
Colombia. This funding will support Colombian President Uribe's 
unified campaign against terrorists and the drug trade that 
fuels this terrorist activity. The aim is to secure democracy, 
extend security and restore economic prosperity to Colombia and 
prevent the narco-terrorists from spreading instability to the 
broader Andean region.
    To accomplish this goal requires more than simply funding 
for Colombia. Therefore, our total Andean counter-drug 
initiative is $731 million for Colombia and for other nations 
in the region. Critical components of this effort will include 
resumption of the Airbridge Denial Program, stepped up 
eradication and alternative development efforts and technical 
assistance to strengthen Colombia's police and judicial 
institutions.
    Mr. Chairman, to advance America's interests around the 
world, we need the dollars in the President's budget for 2004. 
We need the dollars under both of my hats: principal foreign 
policy adviser to the President and CEO/COO of the Department 
of State.
    Mr. Chairman, before turning myself over to your 
questioning, let me touch on a few of the points that have been 
raised in the course of the opening remarks.
    With respect to the concerns that you raised, Mr. Chairman, 
about some of the new initiatives, let me say that, first, with 
respect to the complex contingency fund, the fund is currently 
being set up to allow us to respond to those crises that come 
along in the course of a year--funded at $100 million--where we 
need funds on an immediate basis.
    Someone will come in to me and say, ``Mr. Secretary, 
something just happened in a particular country. A crisis has 
broken out somewhere. There is an immediate need for funding.'' 
Rather than going around constantly robbing Peter to pay Paul 
or looking for pigeonholes of money that might be available, 
this will give the President and will give the Secretary of 
State enormous flexibility to respond without disrupting other 
efforts and programs.
    Who is responsible for it? The State Department. Who will 
answer your questions? The State Department.
    Obviously, how the money is placed is a question for the 
administration to work out with the Congress, but who will 
answer to you as to how it has been used, whether it has been 
used in accordance with the intent and will of the Congress, it 
will be the Secretary of State and the State Department.
    With respect to the famine fund, it will be administered by 
USAID under the foreign policy direction of the State 
Department and the Secretary of State. And who is answerable to 
the committee on the use of these funds? It will be USAID and 
the State Department.
    With respect to the emergency plan for AIDS relief, there 
will be various federal agencies under the direction of a new 
AIDS coordinator who will work directly for the Secretary of 
State.
    On this initiative, as well, it is the State Department and 
the Secretary of State who will hire this individual, supervise 
this individual. Obviously, there will be other departments of 
government and there will be obvious interest from the White 
House.
    But I can assure you there is always that interest in every 
account that I have, as there should be. I am not a free agent 
running freely through the woods. My responsibility is to make 
sure that I am following the President's priorities, and I 
would expect that the White House would work closely with the 
State Department, and I would work closely with them as we use 
these monies.
    But who is answerable to the committee, and who you should 
come to if floggings are appropriate, it is the Secretary of 
State and the Department of State, and I will carry out those 
responsibilities in the manner I try to carry out all the 
responsibilities that I have.
    With respect to the general question of, are we 
undercutting USAID when we create new programs such as the 
Millennium Challenge Account or the emergency fund for HIV/
AIDS, I do not think we are. I think what we are trying to do 
is find new and innovative ways to deliver services.
    I have the greatest respect for USAID, and I work very 
closely with its distinguished administrator, Andrew Natsios, 
and all the other terrific people at AID. Andrew is at my staff 
meeting every single morning. I am with AID every single 
morning at 8:30. And we are doing everything we can, building 
on Andrew's initiatives, to make AID more responsive, to do a 
better job of using the resources that have been made available 
to them, to fight as best we can to get them increases in their 
budget.
    And less the new initiatives, HIV/AIDS and the Millennium 
Challenge Account, we have been able to provide some additional 
increase for AID programs this year. Not as much as I would 
like, but it is an increase. Because what AID does is extremely 
valuable, and it is in no way, at least in my mind, in conflict 
or is competing with the Millennium Challenge Account or with 
the emergency fund for HIV/AIDS. It is just that we are looking 
for new ways of delivering assistance.
    To dismiss the the Millennium Challenge Account as sort of 
a corporate approach and, therefore, it is somehow fatally 
flawed because it is a corporate approach, I do not think is 
quite the right characterization.
    The President wanted it to be a separate, 
independentcorporation because he wanted it to be seen as something new 
and different, something that will focus on, those developing nations 
that have made a firm commitment to democracy, to transparency, to the 
rule of law, to economic freedom, to empowering men and women and are 
prepared now to make investments in the infrastructure that then can 
make these countries more competitive in a globalizing world.
    That is the purpose of the Millennium Challenge Account. 
And it will help other AID programs that might be under way in 
those countries as well. But we wanted to show a different face 
to the manner in which we provide support to countries.
    Similarly, and as you know, Mrs. Lowey and others, the 
independent corporation is under a board of directors 
consisting of the Secretary of State, the Director of OMB and 
the Secretary of the Treasury. It is the Secretary of State who 
will be the chairman of that board and will be providing direct 
oversight and supervision to the independent corporation. But 
as an independent corporation, it is also directly answerable 
to the Congress as well as answerable and reporting to the 
President through the board, which I chair.
    A lot of this will come up in questioning, so I will not 
belabor it, but one final point if I may, Mr. Chairman.
    Mrs. Lowey, you made reference to the constant public 
declarations dissing our allies and the United Nations. The 
President took this problem to the United Nations, and he 
sought a solution from the United Nations. He did that last 
September in a very powerful speech, and that powerful speech 
resulted seven weeks later in a powerful resolution that was 
endorsed by every single member of the Security Council at that 
time; 15-0 in favor of Resolution 1441.
    Now, there has been enormous debate since then because some 
of the members of the Security Council, who signed on at that 
time, did not understand that the United States of America was 
deadly serious. We were going to disarm Saddam Hussein 
peacefully or, if not peacefully, through the use of force of 
arms.
    In the months that have passed, we have seen four more 
months of continued violation, continued ignoring of the past 
obligations and current obligations that Saddam Hussein has.
    Some members of the Security Council would like to say, 
``Just keep inspections going. Just wait and see what he will 
do. Put the burden on the inspectors.''
    The burden is not on the inspectors. The burden is on 
Saddam Hussein. What 1441 required was for him to comply and 
cooperate fully. He has not complied, he has not cooperated 
fully, and we believe the case is clear. There are some members 
of the council who will veto any resolution that comes along 
that might require that Saddam Hussein comply or face the use 
of force.
    We have found that there is a great deal of disagreement 
over this issue, and I am not unmindful of the public 
disagreement that exists in Europe and elsewhere.
    But there is also a great deal of support. The United 
States is not isolated politically on this issue, countries are 
supporting us. I can point to the strong efforts of Prime 
Minister Blair of the United Kingdom. I can point to the speech 
that Prime Minister Howard of Australia gave yesterday to the 
people of Australia. I just left a meeting in the Oval Office 
with the prime minister of Ireland. A small country that stood 
up strongly on the Security Council last fall and voted with us 
and continues to support us. Even though they have difficulties 
at home, they know what has to be done to disarm this nation.
    I can point to Bulgaria, Italy, Spain, the Vilnius Ten, the 
Group of Eight, and Japan. The United States is not in this 
alone.
    One thing is clear: The whole world recognizes that Saddam 
Hussein must be disarmed. The debate we are having, the 
disagreement we are having: how best to accomplish that.
    We have tried to accomplish it peacefully for 12 long 
years. Saddam Hussein is the one who is guilty. Saddam Hussein 
is the one who is not responding. It is he who is not 
complying. The only reason he is doing anything now is a result 
of the threat of force.
    Remember, when the President gave his speech on the 12th of 
September, within three days Saddam Hussein was suddenly 
starting to say ``let the inspectors in,'' but not really. 
Everything he has done since the President's speech has been an 
effort to try to avoid the day of reckoning.
    Well, the day of reckoning is fast approaching. We still 
hope for a peaceful solution. We hope a peaceful, diplomatic 
way can be found. But the one thing that we have made clear to 
the world since the very beginning of this crisis is that the 
United States is committed to the disarmament of the Iraqi 
regime. We hope it will be done peacefully. But if it is not 
done peacefully, the United States is prepared to lead a 
coalition of the willing that will do it.
    And when it is done, there will be bills, as mentioned here 
this morning. There will be the need for reconstruction. But in 
that effort, the Iraqi people will be better off. The United 
States has a track record over the past 60 years of leaving 
places a lot better than we found them.
    Mr. Chairman, in the interest of time, I will stop there, 
because I think we will repeat a lot of this in questioning.
    [The written statement of Secretary Powell follows:]

GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT

    
    Mr. Kolbe. I suspect a good deal of this will come again in 
questions.
    Chairman Young.
    Mr. Young. Well, Mr. Chairman, thank you very much.
    And Secretary Powell, thank you for joining with us this 
morning.

                                 TURKEY

    I am going to start with a specific question, but it is 
going to open up a topic: the issue of aid to Turkey, a 
longtime ally and a longtime friend and a very strong supporter 
any time that we needed them. We are talking about $6 billion 
package for Turkey. At least that is the conversation that we 
have heard. But in the 2004 request, there is only $253 million 
for Turkey. Where do we get the $6 billion from?
    Secretary Powell. This will require another request to be 
placed before the Congress. It was not in the budget because it 
simply was not something that had been developed at the time of 
the budget submission. But, clearly, through supplemental 
action and other action, the funds can be found.
    Right now, because of political difficulties that the 
Turkish government has had, even though they want to support us 
and took it to their parliament, they were unable to get that 
support that we need at this time. At the moment, that package 
is not before us. It is not on the table.
    Mr. Young. Speaker Hastert and I met with the Turkish 
delegation when they were here, and they visited with you and 
visited with President Bush. And our commitment to them was 
that whatever the president agreed to do for them, that we 
would make sure that that commitment was met. And that is our 
commitment.
    Let me just to get you to speculate a little bit. Would we 
see a budget amendment for the 2004 budget? Or would we see a 
supplemental request along with the 2003 supplemental for 
Turkey? And I think there will be others that will follow along 
with additional demands.
    Secretary Powell. Mr. Young, I am afraid I cannot answer 
that. It is not just a matter of what Turkey might need. There 
are other countries that have to be considered, and there are 
other departments besides mine that would have to be 
considered. I would have to yield to my colleagues in OMB and 
in the West Wing as to how they would bring forward these 
requests in the form of budget amendments, supplementals or 
things of that nature.
    Mr. Young. Well, I know some of the other countries that 
you are thinking about, because most of them have been to see 
us also----
    Secretary Powell. And me.
    Mr. Young [continuing]. Looking for a substantial increased 
request here. And, you know, we will deal with that. The real 
world is the real world and you are doing a really good job in 
trying to manage that real world, and sometimes it is like 
trying to hold Jello in your hand, I know that. But you have 
done a very good job at representing President Bush and 
representing our national interest.
    But the reason I started with Turkey, I wanted to get into 
the subject of supplemental. I am getting considerable pressure 
from a lot of agencies now saying, ``Hey, when are you going to 
get us a supplemental?'' And my response to them is, ``Soon as 
I get a request from the administration I will move a 
supplemental through the committee quickly,'' because I 
understand the importance of it, especially to the Department 
of Defense and the effort that has already taken place in 
building up in preparations for a war if that is necessary.
    Do you have any time constraints? Are you in a hurry for a 
supplemental? Or does it make any difference? [Laughter.]
    Secretary Powell. Mr. Young, I am always in a hurry for a 
supplemental. But lots of things, of course, have to be 
considered. And I really must yield to my good colleague, Mitch 
Daniels: I do not let him negotiate at the U.N., and he does 
not let me play with supplementals.
    Mr. Young. Okay. [Laughter.]
    A lot of commitments are going to have to be made. You 
know, we are the big kid on the block. And we have a lot of 
responsibility in the world, a lot of obligation, and I know 
that we are taking on additional obligations. You just 
mentioned there will be a lot of bills and reconstruction.
    Secretary Powell. Can I make one point?
    Mr. Young. Please.

                                  IRAQ

    Secretary Powell. There will be requirements. One thing 
that makes Iraq, should it come to a conflict, somewhat 
different than, say, Afghanistan is that this is a country that 
will have a rather significant revenue stream. They should be 
able to receive $20 billion a year in revenues as a result of 
oil sales once the situation stabilizes. They can take care to 
a large extent of their own reconstruction and needs.
    Mr. Young. No, I understand that. And the situation I know 
is very much different than it was with Iraq back in 1991 when 
you and then-Secretary Cheney did such a tremendous job in 
Desert Storm.
    I think my question is, because we were presented a budget 
yesterday in our conference that non-defense discretionary 
spending is going to be reduced rather than have increases, 
which occasionally happened because of inflation. And 
fortunately, there is not much inflation. But we are going to 
be faced with a really tight non-defense discretionary budget.
    I am wondering how much consultation that there will be 
between the administration and the Congress in the amount of 
commitments that we actually make before sending the bills up 
here?
    Secretary Powell. I can speak for my department, Mr. Young, 
and we will consult fully. I think we do a pretty good job of 
consulting with the appropriate committees and staff directors 
and others who have an interest. That is the case for the State 
Department.
    I think I can speak for my other Cabinet colleagues, as 
well. We understand the importance of sharing with the Congress 
what our requirements and needs are going to be as best we can 
determine them.
    Some of it is simply hard to know right now. The actual 
needs in Iraq, if that comes to pass, are really a function of 
how the operation goes and what one finds when you finally get 
in there. What the immediate humanitarian needs are. How fast 
can you reestablish the flow of funds out of the oil-for-food 
program escrow accounts, and how fast you can get the revenue 
stream going. Has there been damage done to the oil facilities 
that would cut off the revenue stream for some period of time?
    A lot of it is really hard to know at this point, and the 
best you could do is make estimates of it. And I know that is 
what the administration is working on.
    Mr. Young. And we understand that.

                              THE BALKANS

    Mr. Chairman, can we have just one more minute here?
    I read your statement, Mr. Secretary, on the assassination 
of Prime Minister Djindjic. And I know that you knew him well 
and had spent considerable time with him.
    I had known him before he was elected and discussed with 
him numerous issues not only with Serbia and the Milosevic 
thing, but my concern with Montenegro, because he had become a 
very stabilizing factor. When the Djukanovic government was out 
barreling down toward an independence vote Djindjic brought 
some stability and, I think, calmed the issue down there.
    What do you see happening in the Balkans now, especially 
Serbia and Montenegro, with this tragedy of the assassination 
of what I think was a good reformer, leader?
    Secretary Powell. Thank you, Mr. Young, for bringing it up 
because it allows me, once again, to express my condolences in 
this more public setting to Serbs for the loss of this rather 
unique individual.
    I got to know him well. He sat in my office many times over 
the last two years, and we have been on the phone many times 
over the last two years as I went through certification issues 
with him, that you all know well, and turning over of criminals 
and how he managed the Milosevic period aftermath.
    He was as committed a public servant to his people and to 
his nation as I have ever known. His loss will be felt deeply.
    As soon as this hearing is over, I will be going to their 
embassy to sign the condolence book on behalf of the United 
States. And I spoke to the foreign minister yesterday.
    We are entering a fragile period. The Serbs have had to 
take some emergency steps right now to stabilize the 
situation--to go after the assassins and the criminal 
organizations these assassins belong to.
    My staff is hard at work now working with our friends in 
Europe to stand ready to help Serbia in any way we can as they 
try to regroup and put in place a government that can deal with 
this fragile situation.
    I do not know where it is going to lead, but I think a new 
element of fragility and vulnerability has been put back into a 
region where we thought we were getting on top of the 
situation. We are watching it very closely.
    Mr. Young. Mr. Secretary, thank you very much.
    Mr. Chairman, thank you for the generous allocation of 
time.
    Mr. Kolbe. Mr. Young, you always have that allocation with 
this subcommittee.
    I am, however, going to be very strict since we have every 
member here except one right now, on the five-minute rule, 
starting with myself. In fact, I am going to only ask one 
question. I want to make sure that everybody has a chance to 
get at least one round. I know the Secretary has to leave no 
later than 1:00.

                           DIVISION OF LABOR

    I want to return, Mr. Secretary, to the division of labor 
within the foreign operations budget.
    It seems that both the President and Congress--I include 
both of us in this--appear equally attracted to having new 
foreign policy objectives and broad strategies, but sometimes 
we are not so good on the implementation and the oversight. I 
think we are facing some really fundamental management 
decisions regarding the core competencies of the various 
agencies that are responsible for making grants and loans in 
support of American foreign policy. I have addressed that in my 
remarks while talking about the MCA account and the new famine 
account.
    You said that the State Department and USAID are in charge, 
but I would like to get a little bit below the surface of that 
regarding the implementation of the new HIV/AIDS initiative. 
How is this new coordinating office going to integrate it with 
the previous presidential AIDS initiatives, such as the Global 
Fund, which was basically a creation of this administration, 
the mother-to-child HIV prevention program, and the MCA? How 
would we expect the role of USAID in the MCA to evolve over 
time?
    And, finally, what additional capabilities will the new 
funds for complex emergencies and famine relief, add to the 
management of the similar 150 accounts that already exist? I am 
really not clear on that last one.
    So all three of those all together.

                                HIV/AIDS

    Secretary Powell. With respect to the HIV/AIDS initiative 
that the President launched in the State of the Union address, 
the organizational setup is still being studied, but it will be 
within state Department, I am going to be creating it: a 
special coordinator reporting to me and answerable to the 
President. I am still examining the exact structure with my 
staff.
    It is important. It is going to have quite a bit of money 
to work with. And, I want to make sure that we put in place a 
solid organization with oversight of it. We are still examining 
how best to do this, Mr. Chairman.
    Mr. Kolbe. Following up on that, is the money for this new 
coordinating council, which we understand is going to have 
maybe 100 employees, in the budget request?
    Secretary Powell. What, sir?
    Mr. Kolbe. Is the money for the staff for the special 
coordinator in the budget request?
    Secretary Powell. I will have to find that for the record. 
If not, it will be in the next budget request, but I do not 
know if we have actually programmed for it. I do not even know 
yet how large the office will be. But there will be a 
requirement for additional personnel.
    Mr. Kolbe. If the programs are in the 2004 budget, is their 
implementation and the staff to handle it, in the 2004 budget?
    Secretary Powell. I do not think it is in there in any 
specific fashion, but since the funds are in there I think the 
funds, to some extent, will be available to at least set up the 
organizational structure for it. Any program needs an 
organizational structure.
    But at the time that the budget went in, we did not yet 
have the details of the organization; is it a bureau, is it an 
office, how many people will it require, how should it report 
directly in a way that shows that I have direct supervision 
over it? All of those issues I am trying to work out now, and 
we are working them out.
    Mr. Kolbe. How do the new complex emergencies and famine 
relief funds add to the tools that you have now to manage those 
kinds of problems?
    Secretary Powell. I do not know that I can add much more to 
what I said earlier in that we often find ourselves with these 
unfinanced requirements that I cannot meet out of existing 
funds. A contingency account, which is a solid, sound 
management practice, should be available to a Secretary of 
State or to my Deputy Secretary to deal with these kinds of 
crises as they come along. I do not think it is a terribly 
complicated concept, and I think it will be just like any other 
account that we manage on a regular basis.
    With respect to the famine fund, it was set up by OMB and 
the White House in a manner that allowed us to have some degree 
of flexibility as to how it would be used. AID and State and, 
of course, the White House would have an opportunity to see and 
have oversight of this account. But I would like to provide an 
answer for the record on the specifics of how the famine fund 
would be managed.
    Mr. Kolbe. Thank you.
    Ms. Lowey.

                            IRAQI COMPLIANCE

    Mrs. Lowey. Thank you, Mr. Chairman.
    Mr. Secretary, the British are working on an altered U.N. 
resolution which sets up four broad categories for Iraqi 
compliance.
    First of all, can you clarify for us what the U.S. position 
is on the British proposal; and what forms the basis of the 
March 21 deadline for meeting these standards? Does the U.S. 
agree that the British proposal now under consideration would 
form a basis for determining Iraqi compliance on disarming?
    Two, will the U.N. Security Council vote at all if we 
expect to lose; if a simple majority vote of nine members of 
the council were to be achieved, what would the next step be 
and who will judge Iraqi compliance; and do you anticipate 
another report to the Security Council from the U.N. 
inspectors; and how much past March 21 are we willing to wait.
    And lastly, what specifically does Iraq have to do to 
demonstrate compliance with these demands?
    Sorry to give it to you all at once, but I know the votes 
are going to go off.
    Secretary Powell. No. And I will try to be very brief.
    Mrs. Lowey. Thank you.
    Secretary Powell. The resolution that is before the council 
is a resolution that the British put down last Friday with 
cosponsorship from the United States and Spain. We put down 
that resolution as a way to give those nations who wanted to 
see whether there is one last chance for Iraq to comply 
something that they could support. It was pretty 
straightforward. Unless this council has decided by the 17th of 
March that Iraq has met the kinds of tests that have been out 
there for Iraq to meet all along, then they have lost their 
last chance.
    Over the past several days, the British, in an effort to 
even be more specific as to what Iraq can do to get out of the 
box that they have put themselves in, came up with this list of 
six tests as a way to see whether more nations could find this 
way forward. We watched and helped the British with this 
effort. We are in a period of consultation on the six tests. 
Not all of us have bought all of the various elements of the 
six tests language, but we are certainly working closely with 
the British, with the Spanish and many others.
    The British put it down yesterday as a way to be helpful, 
to see if there was a way to move forward. Instantly, one 
member of the council, one of the permanent members, dismissed 
it out of hand and said they will veto anyway. They are going 
to veto any language. Anything that comes along, they said they 
would veto.
    Shortly thereafter, Iraq rejected it. Iraq is not looking 
for a solution. They know the tests. The tests have been out 
there forever. When Dr. Blix put down his unresolved key tasks 
last Friday, it was once again an inventory, a list of all the 
things and all the questions that Iraq has not responded to 
over the years.
    This was a British effort to go one last step and, 
unfortunately, one member of the council, with veto authority, 
dismissed it out of hand, joined shortly thereafter by Iraq, 
who also dismissed it out of hand.
    The final point is we are still talking to the members of 
the council to see what is possible with respect to coalescing 
around a position that would not draw a veto, but the options 
remain: go for a vote and see what members say or do not go for 
a vote. But all the options that you can imagine are before us, 
and we will be examining them today, tomorrow and into the 
weekend.
    Mrs. Lowey. So at this point, you have not decided whether 
you will go for a vote?
    Secretary Powell. We are working hard to see if we can take 
this to a vote that would be a vote that would help unify the 
council, but we have not excluded any of the other obvious 
options that are out there.
    Mrs. Lowey. I guess I have, what, about a half of something 
or other? Okay.
    With regard to Iraq reconstruction, while the committee 
staff has been briefed on initial planning for post-war Iraq, 
Congress does remain largely in the dark about the planning.
    No one is apparently willing to address what it will cost. 
We read about the $20 billion in the news. Can you tell me how 
much it will ultimately cost? Do you have any earthly idea? And 
will we be briefed or will we be kept in the dark?
    Secretary Powell. I think increasingly the briefings are 
coming forward. We have done a heck of a lot of work over the 
last several weeks in determining what will be needed once we 
get in there under a certain set of assumptions. And I think 
with the public briefings, as you saw from the Pentagon earlier 
this week, the office that is running this, as well as 
briefings with Congress, that will become clearer. It is not 
our intent to keep you in the dark. Some of it is unknowable. I 
cannot give you an estimate of the cost, ma'am.
    Mrs. Lowey. Thank you very much.
    Mr. Kolbe. We have two votes under way. We are going to go 
until six minutes, no later than six minutes left remaining in 
the two votes, in the first of the two votes. And then we will 
stop and quickly, as soon as the second vote is passed, we will 
come back and resume. Because they do not give us extra time as 
they used to on the floor, we have to stop right at six 
minutes. I may interrupt you right in mid-sentence, Mr. 
Secretary.
    Mr. Knollenberg?

                   MIDDLE EAST PARTNERSHIP INITIATIVE

    Mr. Knollenberg. Thank you, Mr. Chairman.
    Welcome, Secretary Powell. I wanted to commend you and the 
administration for initiating and funding the MEPI, that is the 
Middle East Partnership Initiative, because I do believe it is 
something that this committee should embrace.
    Everything right now seems to be viewed through the lens of 
Iraq. But whatever happens to Iraq, the challenge is still 
going to be there. And I think post-war Iraq provides us an 
opportunity.
    I want to just very quickly quote something that I think is 
very telling. This is something that was a part of one of your 
recent speeches. Fifty million more Arab young people will 
enter the already crowded job market over the next eight years. 
But economies are not creating enough jobs. Growth is weak. And 
this is important: The GDP of 260 million Arabs is already less 
than that of 40 million Spaniards and falling even further 
behind. And if you add in the 67 million in Iran, the total is 
still only about two thirds of Italy's.
    I know how important this work is to you. I know Mr. 
Armitage, Deputy Secretary Armitage is involved in this as 
well. And you are going to be reviewing a lot of these 
programs. But here is one that I believe is important. And I 
think it reflects this publication, the United Nations 
Development Program's and Human Development Report, which 
started the whole thing. I think within this book is plenty of 
information for us to look at.
    What I would like to know from you, in your view, how 
important is this issue of demographics and jobs?
    And I have heard it said that it is the men, it is the 
people, it is the men, women, children who are the real wealth 
and hope for the Arab countries.
    So my question is, is it possible that these human 
resources can turn out to be an asset for Arab economies? What 
role does the U.S. play in this issue? And then, how has this 
program been accepted by the Arab governments? Has anybody said 
no? And how can the U.S. pursue this program with a positive 
message?
    Secretary Powell. Mr. Knollenberg, thank you for your 
support of MEPI. I think it is a key program. It goes right to 
the heart of the problem you described. The document you held 
up was written by Arab thinkers and intellectuals and officials 
and not by the United States government.
    And what it is says is we have to get our act together. We 
have a young population. We have a young population that has to 
be educated and trained for the jobs that are going to be there 
in the 21st century. They have to get the kind of quality 
education that will contribute to their economies. Their 
economies are not growing. Two hundred sixty million Arabs 
should not have a GDP that is so far below that of, say, just 
one country, Spain.
    I think more and more Arab leaders are coming to the 
realization that there has to be a transformation in their 
countries. Each will have to do it in their own way. We are not 
asking them all to do it the Jeffersonian American way. But 
each of them have to understand, and I think they are 
understanding, you know, more and more with each passing day as 
they look at those kinds of statistics, that they have to start 
changing.
    MEPI, Middle East Partnership Initiative, is a way to help 
them educate teachers and fix their educational systems. The 
response we have gotten has been mixed. Some people are 
suspicious of change. How dare the United States come in here 
and try to help us in this way. Others quietly say, ``Come on 
in.'' And others have been outspoken in saying, ``Come in and 
help us.'' It is mixed.
    I think once we get this Iraq situation behind us, one way 
or the other, there will be a far more favorable climate for 
this kind of initiative.
    Mr. Knollenberg. I do appreciate that. And I think that you 
are reviewing all the assistance programs now, as I understand 
it?
    Secretary Powell. Yes, sir.
    Mr. Knollenberg. And this one is one I think that, as I 
have mentioned, is one that you will be looking at very closely 
to augment whatever else you are doing.
    So I do think that this is on the right track. And again I 
would appeal to the chairman to--I know my sand is running 
down--but I think that if people on this committee will look at 
this program, I think they are going to get an understanding of 
what the dilemma is and what we may be able to do about it. And 
again, I salute you.
    Secretary Powell. Thank you, Mr. Knollenberg.
    Mr. Knollenberg. Thank you.
    Mr. Kolbe. Thank you. I think we have seven minutes. In the 
interest of time, rather than start another round, we had 
better go and vote. The moment I get back, whoever is here, 
Mrs. Kilpatrick is next, we will call on her and whoever else 
is here, and get started with the next round.
    Secretary Powell. Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you, Mr. Secretary.
    The subcommittee will stand in recess.
    [Recess.]
    Mr. Kolbe. The subcommittee will resume.
    We will go to Ms. Kilpatrick for her questions.
    Ms. Kilpatrick. Thank you, Mr. Chairman.
    Mr. Secretary, always good to see you. And thank you for 
your courageous leadership as we do what we do. Thank you very 
much.

                      MILLENNIUM CHALLENGE ACCOUNT

    I want to first start with my five minutes with the new 
initiative, the Millennium Challenge Account. It is my 
understanding it will be a quasi-public corporation, 
government-sponsored, $1.3 billion, with the board of directors 
being secretaries. You will be the lead on that. And the chief 
executive officer, I am assuming, will be someone other than a 
secretary.
    Secretary Powell. Yes.
    Ms. Kilpatrick. What type of person are you looking for? 
What would their salary be? Have we gotten that far with what 
that would be?
    Secretary Powell. I think we have gotten that far, although 
I cannot tell you specifically what the salary would be. We are 
looking at candidates now. We are looking at people who are 
proven leaders, who have a record of managing fairly complex 
and large organizations, and who are committed to the 
principles that are embedded in the Millennium Challenge 
Account approach.
    We are looking for somebody, but it will not be anybody 
from government. It might be somebody who has had government 
experiment, but we are looking for a private sector individual 
to come in and run what is an independent corporation.
    Ms. Kilpatrick. And where would that person who believes 
they have the qualifications for such a venture apply or 
contact or what is the process?
    Secretary Powell. I am looking at candidates. The White 
House is looking at candidates. It will be a collective search 
just as it is for most of our presidential-level appointments.
    Ms. Kilpatrick. And what would be the relationship with 
USAID? I have heard all the questions and I do not want to 
reiterate those that have already been asked as it relates to 
the issue.
    Yes, something new and challenging is always good. What I 
do not want to see, and I am a little bit concerned, with, is 
that I do not want it to be political. One thing about the 
civil service system and the director and a couple of 
appointees are--and I respect Mr. Natsios and his work and the 
others who have come before them--is that it is an agency of 
civil servants who do not have any personal politics. I am 
concerned that this new initiative, with $1.3 billion of 
taxpayers' dollars, will be a political appointment, that it is 
a new venture and may become too partisan. Should I be worried 
at all?
    Secretary Powell. Well, I think any organization of 
government at that level should reflect the philosophy of the 
President at that time, and that is why we are all called 
political appointees. I do not think that is necessarily a 
derogatory term. It should not, at the same time, be overly 
partisan to the extent that it shuts out all points ofview and 
it only goes down one track.
    We have tried to design the Millennium Challenge Account 
system in a way that the countries that will get funding from 
the Millennium Challenge Account will have met certain 
objective criteria.
    Ms. Kilpatrick. Which are outlined. I did want to go over 
those just briefly. And that is what you mean, the 16-indicator 
plan that you will be using to assess whether countries can 
quality or not, right?
    Secretary Powell. Right. There will have to be some, but we 
do not want to make it so objective that it is like an SAT 
score. There has to be a certain level of poverty, a clear 
commitment to democracy, and it has to meet these criteria. But 
we also want to leave sufficient judgment in there, and not to 
make rash partisan, political calls.
    Ms. Kilpatrick. It can't be that. If it is going to do its 
mission, as I understand it, though it is a political 
appointment, and usually the secretaries are from various 
persuasions, I want to make sure that that does not happen, 
that we do not lose before we start. That is going to be very 
important.
    Secretary Powell. I could also make the case, if I may, 
ma'am, that I have seen situations in my career of senior 
government service over the last 15, 20 years and being an 
observer at a lower level for many years before that, where 
even funds that are supposed to be totally objective in their 
distribution have been used to serve foreign policy objectives 
and, some might say, partisan objectives.
    Ms. Kilpatrick. Yes, I am not saying it cannot be done. It 
definitely can be done. I want you as the leader of this new 
agency, as it comes together, and the president to know that we 
all want it to be a bipartisan initiative. If it is going to 
help it has to be bipartisan.
    Secretary Powell. Yes, ma'am.
    Ms. Kilpatrick. With the criteria set up right now, today, 
if it were instituted, would South Africa meet the 
qualifications?
    Secretary Powell. I want to provide an answer for the 
record. My initial reaction would be probably not.
    Ms. Kilpatrick. Would Uganda?
    Secretary Powell. I cannot start going down country by 
country. But let me say this about South Africa and Uganda, 
however.
    Without having in my head the GDP and per capita income and 
all the other statistics, what both of them are trying to do is 
put in place the kind of system that rests on the rule of law 
and trust and openness. If they are meeting those criteria, 
then they met that first test. Then we will see about other 
tests with respect to are they more needy than other countries 
with respect to their GDP and their health and educational 
needs, and can they absorb the funds, can they use these funds 
in an efficient way?
    Ms. Kilpatrick. Right. Mr. Secretary, you know that in most 
Third World countries that are developing from whatever stage 
they are in, the need for education, take education for 
example, is paramount and devastating and very, very low-level 
in many of the countries, both on the Asian and African 
continent. I am concerned that with what we have set up, we may 
be leaving out some of the poorest of the poor countries who 
may not meet this Millennium Challenge Account criteria. But, 
in fact, they need the assistance that USAID and others provide 
and, I would hope, the Millennium Account is able to give them 
the assistance they need.
    Secretary Powell. Well, USAID is always there.
    Ms. Kilpatrick. But it is with less funding.
    Secretary Powell. No, it has as much funding as it had 
before. We have had long discussions about this. One of the 
real challenges is that if you have a country that is very, 
very poor and the people are desperately in need of funds, they 
may be getting those funds from AID. But if we are not 
confident in the government, if we are not confident that the 
rule of law is in place, then we are not sure we want to invest 
in a country where the money might not be effectively used, 
even if they are the poorest of the poor.
    Ms. Kilpatrick. I totally agree. I see my sand is gone. I 
totally agree with that.
    Just one second, Mr. Chairman.
    If we are not confident, I want it to be objective rather 
than subjective, the confidence that this new millennium board 
has and uses, that it be objective and not subjective.
    Secretary Powell. We are trying to design a system that is 
objective, but not to the point of allowing any subjective 
judgment to be used.
    Ms. Kilpatrick. Thank you, Mr. Secretary.
    Secretary Powell. Yes, and I am not dissembling. We could 
make a parallel with college admissions.
    Ms. Kilpatrick. He is cutting me off.
    Mr. Kolbe. Let me just say to the gentlelady that we are 
going to be holding an entire hearing on the MCA in May.
    Ms. Kilpatrick. Very good, very good.
    Mr. Kolbe. And, Mr. Secretary, you could be helpful to us 
when we have that if you could help us get some of the people 
from the administration who normally do not testify before this 
committee but who helped design the program to come up to 
testify. Otherwise it will be not as fruitful a hearing.
    Secretary Powell. You have it, Mr. Chairman.
    Mr. Kolbe. I appreciate that.
    Mr. Wicker.
    Mr. Wicker. Thank you, Mr. Chairman.

                                COLOMBIA

    And, Mr. Secretary, thank you for being with us again and 
for your patience with our questions.
    I would like to discuss Colombia with you, particularly the 
outrageous kidnapping last month of three United States 
civilians, along with the deplorable execution of two human 
beings, one a United States citizen and one Colombian citizen 
after their plane crashed in the jungles of Caqueta. I 
understand that the captives are being held by the FARC. I also 
understand that the caps on U.S. military personnel set at a 
level of 400 by this subcommittee had to be exceeded for the 
search-and-rescue operations. And the law allows you to do 
that.
    Could you give us an update on the search-and-rescue 
mission for these three captive Americans?
    Secretary Powell. Yes, sir. I appreciate that the law did 
permit us to exceed the Byrd cap for this kind of unfortunate 
contingency of looking for three Americans who have been 
kidnapped by the FARC.
    We are working very closely with the Colombian government. 
We are trying to provide all the assistance that we can. They, 
of course, are in the lead. It is their country, and they know 
more about this area than we do. Unfortunately I cannot give 
you any progress report today. We do not know where they are. 
We do not know exactly which group of the FARC is holding them. 
We have not made a great deal of progress in securing their 
release.
    Mr. Wicker. You know for a fact that some group, sub-group 
of the FARC is responsible?
    Secretary Powell. It is my best information that the FARC 
are the captors.
    Mr. Wicker. Well, how will this kidnapping change U.S. 
policy towards Colombia and our anti-drug efforts there? Could 
you comment on that?
    Secretary Powell. It will not. It is sad that it happened, 
but it is a risk that we must run in order to try to defeat 
terrorists and these narco-traffickers and to help President 
Uribe.
    I visited Colombia not too long ago and had a long day's 
worth of meetings with President Uribe and all of his other 
cabinet officials. I am impressed by his total commitment to 
ridding Colombia of narco-terrorists and narco-traffickers and 
all the others who are trying to destroy Colombian democracy. 
Colombia has paid a price as a result of this commitment. They 
have seen a number of bombings recently. Many lives have been 
lost. But President Uribe is determined and committed, and we 
owe him our full support.
    Mr. Wicker. Thank you, Mr. Secretary.
    Let me shift, then, briefly to the topic of information 
dissemination worldwide and mention to you specifically the 
fact that when we began to feed Afghans, many of them gave the 
food to animals at first, because they did not have confidence 
that the food they were receiving would be safe for them.
    This is going to be a long-term process of winning the 
hearts and minds and overcoming the embedded hatred that begins 
at the very earliest stages among people worldwide. Could you 
comment on that? And how can we ever tackle this huge problem 
of overcoming the anti-American sentiment, which is 
unjustified, certainly?
    Secretary Powell. I think you have to separate this into 
parts. We are seeing a lot on the world stage now that could be 
characterized as anti-Americanism.
    When you probe deeply into it, though, you find out very 
often it is anti-a particular American policy at a particular 
point in time. And when you get past that policy issue, whether 
it is Iraq or the Middle East, you still find solid 
appreciation of America, solid understanding of what America is 
all about, and there is residual support for America. It is, I 
believe, more policy-driven than it is some innate hatred of 
America and all things American.
    If I believed it was America and all things American, then 
I would close all of our consular offices, which are busy 
issuing visas, with long lines of people lined up in all of 
these countries that are so-called anti-American, to come here, 
to go to our schools, to go to our entertainment centers, to go 
to our health care facilities.
    When you look at the vibrant Muslim community that exists 
in the United States, it still shows that we are looked upon 
with favor. Go to any community you wish in Washington, and you 
will see people who have come from all of these hotbeds, so-
called, of anti-Americanism, throughout the world to become 
part of America and to share with their families back home and 
for some of them to gain an education or to get their health 
care, or to earn some money and go back to their homelands.
    I think, therefore, that this is a problem that we have to 
work on constantly, and not just be put off by the current 
crisis, whether it is Iraq or the Middle East.
    In our public diplomacy efforts, led so ably by 
Undersecretary Charlotte Beers, who unfortunately will have to 
be leaving because of a health problem, I have constantly said 
to her and the other members of the team that they should not 
worry about the current problem. Build for the future. Start 
putting out a message of our value system not as a value system 
to be imposed on others, but a value system that is there to be 
looked to see whether it applies to others. Let others make 
that judgment. But don't get so wrapped up in the crisis that 
we are not helping people understand America in the long-term 
and for the long haul.
    I think that when Iraq is dealt with and when people see 
how committed the President is to finding a solution in the 
Middle East, or see progress, anyway, toward that solution, 
then some of this anti-Americanism will fade away and you will 
see that there is still residual understanding and respect for 
America.
    It is also one of the consequences of being the most 
powerful nation on Earth that there is an element of resentment 
in that. While there is admiration, you will also find on the 
other side of that coin resentment for the position that we 
occupy in the world.
    We could end anti-Americanism, as it is sometimes 
described, by simply coming home and not paying any attention 
to anyone. You do not like us? We will just come home. We will 
stick between the Atlantic and the Pacific, the left coast and 
the right coast, and we will not play a leadership role in the 
world. We will not mix it up in the U.N., we will not go to 
foreign countries and use our young men and women to bring 
freedom to an Afghanistan or to Kuwait because we are going to 
be unappreciated.
    That is not what the world expects from us. We will have to 
play our role in the world and hope that if we do play that 
role well, accomplish the tasks that are out there to be 
accomplished, people will understand.
    Mr. Wicker. Thank you, Mr. Secretary. And let us know how 
this subcommittee can be helpful to you in that regard.
    Secretary Powell. Thank you, Mr. Wicker.
    Mr. Kolbe. Thank you.
    Mr. Rothman.
    Mr. Rothman. Mr. Secretary, it is always a pleasure to see 
you and have you testify before us.
    I want to talk first about Iran. There are reports in the 
press that Iran has introduced uranium hexafluoride into some 
centrifuges to test their functionality. If this is in fact 
true, would this be a violation of the Non-Proliferation 
Treaty, and what would be the course of action for the United 
States?
    And regardless of whether that report is true or not, what 
is your view as to the present danger to the region and 
America's interests now presented by Iran, not only in its 
nuclear program, but also in its active support of Hezbollah in 
Lebanon.
    Secretary Powell. With respect to the specific question 
about the hexafluoride, we are deeply concerned about some new 
information that has been found about Iran's nuclear programs, 
and we are waiting to see the final judgment made by Dr. Blix 
and the IAEA.
    I spoke to Dr. ElBaradei and the IAEA about it last Friday 
and look forward to a definitive statement.
    The United States has been saying for some time that we are 
deeply concerned about Iran's efforts to have nuclear power and 
to use that nuclear power infrastructure to develop the 
capability to produce nuclear weapons.
    We have raised this issue repeatedly. We have talked about 
the axis of evil and been criticized for it, and lo and behold, 
we discover they had a far more robust nuclear infrastructure 
that could be used for weapons development than people had 
thought or wanted us to believe. We were seen as suspicious and 
we should not be moving in this direction, but now we have a 
real concern.
    When you marry that up with their continued support for 
terrorist organizations that foment terror in Lebanon and other 
places throughout the Middle East, I believe that our concerns 
with respect to Iran were well-founded. The President's 
willingness to point this out directly in the course of his 
two-plus years of leadership have been proven correct.
    Mr. Rothman. Well, I applaud the President for identifying 
Iran as one of the members of the axis of evil. I just want to 
get a better handle on what the administration is doing about 
it, and, for example, what steps the administration is taking 
to support what I believe are the vast majority of Iranian 
citizens who no longer wish to be oppressed by the handful of 
religious fanatics now ruling that country, despite the fact 
that the people twice now have chosen overwhelmingly reform 
candidates.
    Secretary Powell. With respect to the nuclear programs, we 
have been in close touch with IAEA and with Russia and other 
providers of this kind of technology and infrastructure to the 
Iranian government.
    With respect to the basic issue that you raised, though, 
the young people of Iran, and all the people of Iran believe a 
better life is ahead of them if they could somehow get their 
leaders to understand this. And right now you have a battle 
taking place between the forces under the political leadership 
of Mr. Khatami and the religious leadership under Mr. Khamenei. 
We continue to put out a message to the Iranian young people 
and to the Iranian people that the United States supports them 
in their efforts.
    Mr. Rothman. Mr. Secretary, just one last question, it is a 
two-part question.
    Has the United States made it clear to the Iranian 
government what we would be prepared to do should Iran take 
further steps to create nuclear missiles, to create nuclear 
bombs, and then the vehicles to deliver them?
    And the other part of the question has to do with Syria and 
how the administration believes Syria is complying with the 
TAIF Agreement, and whether you are optimistic about the 
continual withdrawl of Syrian forces from Lebanon from 20,000 
down to 16,000 troops? Can you envision the day when the Syrian 
occupiers will leave Lebanon to the people of Lebanon?
    Secretary Powell. Have we given the Iranians some ultimatum 
of some kind of what we would do if they continued moving down 
this road, no. But we have made it clear to the Iranians and to 
those who support Iranian nuclear efforts and missile 
developments that we find this to be irresponsible action in 
their part.
    The Iranians know what our views are with respect to these 
sorts of efforts without us telling them exactly what options 
we might take if we found ourselves threatened.
    With respect to Syria, I hope it is the beginning of a 
longer drawdown that would go to nothing. But I cannot be 
optimistic about that. We are pleased to note that there has 
been a reduction of the kind you suggested. But I have seen ups 
and downs in the number of Syrian troops in Lebanon over the 
years. I cannot tell you whether this is on a path to get down 
to zero and let Lebanon be ruled by the Lebanese people without 
the presence of an occupation army.
    Mr. Rothman. But that is our objective? That is our 
national policy?
    Secretary Powell. Been our objective.
    Mr. Rothman. Thank you.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you, Mr. Rothman.
    Mr. Kirk.
    Mr. Kirk. Mr. Secretary, I wonder if you feel the 
diplomatic dance is so tiresome that you long back for your old 
job running the 5th Corp?
    Secretary Powell. Ah, the good old days. [Laughter.]
    Mr. Kirk. Regarding North Korea, as you know, the 
government of Japan owns more plutonium than anyone else. And 
people have said that Japan could become a nuclear power in a 
long weekend, have a much larger arsenal than China could 
possibly have. Should this happen, other nations in the region 
would also considering acquiring nuclear weapons, even Taiwan.
    Given such a scenario, that Japan would have to look at a 
rising, possibly irresponsible nuclear threat from North Korea 
and her national security options, it would seem to me that the 
government of China would be very, very interested in not 
having other Asian nations take the nuclear option. Have we 
discussed this scenario with the Chinese at all?
    Secretary Powell. Extensively. President Bush and President 
Jiang Zemin discussed it at Crawford, the President's ranch, 
last fall. You may recall after that meeting that President 
Jiang Zemin reaffirmed that Chinese policy is a denuclearized 
Korean Peninsula.
    I have discussed it regularly with my foreign minister 
colleague, Mr. Tang. And, in fact, because we have been meeting 
at the U.N. in New York every week for the last several weeks, 
and I was in Beijing two weeks ago, we have discussed this at 
least five times in the last two months.
    The Chinese are very concerned about this issue, sensitive 
to this issue. And I am working very closely with the Chinese 
to see if we cannot find a way forward to bring this matter 
under control and convince the North Koreans that a better 
future awaits them without nuclear weapons than one which 
awaits them with nuclear weapons.
    Mr. Kirk. In 1994 we signed the agreed framework. When 
North Korea said that they were pulling out of the Nuclear Non-
Proliferation Treaty, we promised them free oil and free 
nuclear reactors in return for a commitment not to produce 
fissile material.
    I believe in 1998 the U.S. government learned that North 
Korea was violating that agreement. But that was closely held. 
And then Assistant Secretary Jim Kelly, during his visit last 
year, got an admission from the North Koreans that they were 
producing fissile material.
    You have wisely reviewed our agreed framework commitment. 
But regarding continued food assistance to North Korea, it is 
my understanding that North Korea is the largest food aid 
recipient of the United States, and that the United States 
feeds every child in North Korea under the age of 15. Can you 
talk about your continuing aid commitment to North Korea that 
you have made?
    Secretary Powell. Yes, sir.
    With respect to the first part of your statement, though, 
you are quite correct. When the agreed framework was signed in 
1994, it was yet another agreement that North Korea made 
pledging not to have a nuclear capability. They had signed a 
couple years earlier a North-South agreement with South Korea 
not to have nuclear weapons in the peninsula. And they made 
many other commitments over the years.
    The previous administration succeeded in capping that 
particular program at Yongbyon. And I have always given credit 
to my colleagues in the Clinton administration for having done 
that.
    What they did not know, and what we did not know for the 
first year and a half of this administration is that the North 
Koreans had pocketed that and were now doing it a different 
way, through enriched uranium. That is what Jim Kelly called to 
their attention. They admitted it.
    The agreed framework capped something but did not cap 
everything, and also left in place material at the plutonium 
facility that could be uncapped at some point in the future. 
Now the North Koreans got caught in the other program and they 
are uncapping program one and their demand on us, ``Okay, come 
talk to us again because we know how this negotiation goes. You 
will pay us something to cap all this stuff again.''
    Well, we are not going to do quite that. We believe this is 
now a problem for the region for the very reason you mentioned, 
sir; and that is, it should be a concern to Japan and to South 
Korea and to Russia and to China and to the rest of the world, 
and not just a bilateral U.S.-North Korean problem.
    With respect to food, it has always been the United States 
policy that a child in need is a child in need, whether it is 
in a democracy or in a dictatorship. Our policy this year is to 
try to meet our obligations to the World Food Programme call 
for food for North Korea, and we have committed 40,000 metric 
tons of food in a first tranche. We are also considering up to 
100,000 tons.
    But we do have concerns. We are not absolutely sure that we 
are feeding all of the children, and that all the food is going 
to people who are truly needy, or whether is it going somewhere 
into the system to feed their army and to feed their elite.The 
first 40,000 tons we have given over, but we are anxious to see whether 
we can make any improvements in the system by which the food is 
monitored so we know where it is going, and that it is truly going to 
people in need.
    Mr. Kirk. Thank you for that.
    One last question very briefly. We will have a Middle East 
peace conference, I would expect, after any conflict is 
resolved. I am concerned that the point of the conference not 
be adjusting Israel's borders, which, I think, probably leads 
to some sort of de facto division of Jerusalem; but, instead, 
is talking about the lack of democracy in the Middle East. 
Because I think if we had democratic countries, they would 
represent much less of a threat to the other democracies in the 
region, Turkey and Israel. And I would just lay that out.
    Thank you.
    Secretary Powell. Thank you, sir.
    Mr. Kolbe. As is the normal courtesy, we always go to the 
chairman and the ranking member when they are here. And so, I 
would call on Mr. Obey.
    Mr. Obey. Let everybody else go first.
    Mr. Kolbe. All right.
    Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman, very much.
    Mr. Secretary, welcome, and first let me thank you for who 
you are and the respect that you have earned among the American 
people, this Congress and, indeed, the people of the world.
    And the questions that I have relate to the difference 
between the words occupation and liberation, and I will build 
on those.
    Throughout modern history no Western power has been 
ultimately successful in occupying nations in the Muslim world. 
France, from the time of Bonaparte through World War II, was 
not successful in Egypt, nor in Algeria.
    If we think about the British in Saudi Arabia, Lawrence 
went home. If we think about Iran and the U.S. support even of 
the shah, including CIA support for the SAVAK, ultimately the 
shah was deposed internally and a theocratic regime took hold.
    And finally, Russia met its Waterloo in Afghanistan and we 
are not out of Afghanistan yet.
    My first question: How does the administration propose to 
conduct this Iraq occupation so as not become a regional enemy 
in our attempts to liberate that nation?
    And my second question builds on that and the motivations 
of the terrorists. Khalid Sheik Mohammed, the number three 
operative for Al Qaida who was apprehended in Pakistan, was 
born in the nation of Kuwait. He attended a Karachi mosque 
noted for its radical teachings, and there are thousands of 
such mosques throughout the Muslim world.
    When you appeared before the U.N. in February this year you 
stated that Abu Musab Zarqawi, a Palestinian from Jordan was 
the Al Qaida operative inside of Iraq. And we all know that the 
majority of hijackers on September 11 were from Saudi Arabia.
    Now, we know that there are over 5,000 madrasas that are 
luring young boys and teaching a twisted version of the Koran 
throughout that region. And in Palestinian camps in several 
countries you have over a million individuals living in abysmal 
conditions which are spawning grounds for terrorists.
    How can we win a war on terrorism when fervent recruits to 
the cause are being recruited every day far beyond the borders 
of Iraq?
    And finally, Saddam Hussein has nationalized the oil fields 
in Iraq. There is no submission in your budget to pay for the 
war, nor what will follow. Is it the administration's intent to 
provide for an ownership structure for the oil fields and some 
type of transactions that would occur that would ultimately pay 
for the engagement that we are involved in now?
    Secretary Powell. On the third question about the oil 
fields and the oil, the answer is that the oil belongs to the 
Iraq people under international law, and we have a moral 
obligation, I think. It will be our policy that systems will be 
put in place where that oil would be made available to the 
world market and the revenues would be used to sustain and 
support the Iraqi people.
    The humanitarian efforts that we might conduct and other 
reconstruction activities that we might perform would certainly 
seem to be for the Iraqi people and would be consistent with 
the use of that revenue flow.
    The military action that we are taking and any recovery of 
costs for our military action, at least in my judgment and I 
believe the judgment of my colleagues in the administration, 
paying for that directly out of those funds would not be 
consistent with our obligations under international law.
    We have an obligation to protect the assets of the nation 
for the nation and to use those assets for the nation. That 
would be my answer to the first question.
    With respect to occupation versus liberation, the examples 
you gave were not only occupation, they were colonization. We 
do not create colonies or obtain colonies.
    To characterize it as an occupation, I think, would be 
inaccurate. Obviously if there is a military operation, there 
has to be a period where the military that has gone in and 
removed the previous regime has an obligation to protect the 
people, to stabilize the situation, and to begin immediately 
the transition to some other form of authority within the 
country.
    We would immediately be seeking international support for 
the effort, which is, of course, our hope. And that 
international support would include U.N. resolutions that would 
give us access to funds of the Iraqi people that can then be 
used for the Iraqi people. And we would internationalize it 
quickly and not try to make it an American colony or leave in 
place an occupation army for some indefinite period of time.
    We would try quickly to pass off responsibility to civilian 
administrators. We would very quickly begin to put in place 
Iraqis who would begin to exert political influence and then 
ultimately political control as we transition the whole thing 
to responsible Iraqi leadership.
    We would not destroy the country so that the whole place 
had to be reconstructed, nor would we rip apart every single 
ministry in the country.
    There are Iraqis who are waiting there to help put in 
place, we believe, a responsible new form of government. These 
people have been oppressed by a dictator for years; some of 
them are part and parcel of the dictatorship. But there are 
others who, I think, would like to see a new form of government 
that would use the wealth of the country to benefit the 
country, not develop weapons of massdestruction to threaten 
neighbors.
    I think we can do this in a way that will provide an 
example to the rest of the region that the United States comes 
as liberators, not as occupiers, not as colonialists. And that 
example I think would help with the second point you made with 
respect to removing some of the motivation for terrorist 
activity.
    There are still madrasas all over. And the kinds of 
programs that we talked about earlier, such as the Middle East 
Partnership Initiative, and trying to persuade our friends in 
the Arab region that they have to do something about 
transforming their societies and transforming their economic 
systems to start training these youngsters, not in madrasas for 
violent futures, but to train them for the skills and to train 
them for jobs that they are going to have to create in order to 
develop 21st century economies. This is a challenge that we can 
help our Arab friends meet.
    Mr. Kolbe. We have three more people. We are going to try 
to get them all in before the secretary has to leave here.
    Mr. Crenshaw.
    Mr. Crenshaw. Mr. Secretary, thank you for all your 
service. A couple of quick questions.
    One, kind of back to Colombia a little bit. I think up 
until September 11 our involvement was more in the 
counternarcotics. A lot of people did not want to go too far. 
And I think we saw after September 11 that terrorism is 
terrorism and we are a target, whether it is narco-terrorism or 
terrorism. And I am encouraged to see the Administration take a 
more engaging role in helping train Colombians in terms of 
anti-terrorism.
    But from time to time I hear complaints in terms of 
intelligence sharing. I want to ask you about that. Are we 
working together with the Colombian government? And more 
importantly, are we training them in terms of intelligence 
gathering to teach them, as opposed to just doing it for them. 
Could you comment on those?
    Secretary Powell. I think we are doing a much better job on 
intelligence sharing and giving them the capability to generate 
their own intelligence.
    When we realized after 9/11 that a terrorist is a terrorist 
is a terrorist, and we came to the Congress and asked for 
permission to start removing some of those barriers that 
existed between counternarcotics work and counter-terrorist 
work, and obtained that permission, we have been able to do 
quite a bit more.
    I saw evidence of this when I was there earlier this year, 
a few months ago, of close cooperation with our embassy team 
and the Colombians and with specialized organizations of the 
United States government and their parallel organizations in 
Colombia.
    Mr. Crenshaw. Thank you.
    And one last question, about Iraq. Obviously Saddam Hussein 
is a threat to the world, a threat to the Middle East, but 
other than Kuwait, the neighborhood is relatively quiet in 
terms of military action. And I wonder what your take on that 
silence is of the countries there in the Middle East, that they 
are obviously threatened certainly as much as the rest of the 
world.
    Secretary Powell. We are getting quite a bit of cooperation 
from almost every country in the region. Sometimes it is 
silently. Some nations are able to speak out more openly about 
the level of cooperation.
    But I believe they do see the danger, and there is not any 
one of them who comes here and says, ``Gee, he is a great guy, 
he is not bothering us.'' Quite the contrary. They will all 
breathe a sigh of relief when his weapons of mass destruction 
are under control and then an even deeper sigh of relief if he 
were not there.
    Mr. Crenshaw. Thank you, sir.
    Yield back.
    Mr. Kolbe. Mr. Jackson.
    Mr. Jackson. Thank you, Mr. Chairman, Mr. Secretary.
    Mr. Secretary, last week Defense Secretary Rumsfeld was 
interviewed by the BBC. The interviewer asked Secretary 
Rumsfeld if he thought that the U.S. position regarding Iraq 
would have more credibility, and if the U.S. would win more 
backing from the rest of the world, and I quote, he said, ``You 
have spent a fraction of the time on the Israeli-Palestinian 
problem as you have spent on Iraq.''
    Secretary Rumsfeld replied, and again I quote, ``well, 
probably.''
    He went on to talk about the efforts the administration has 
made, including the President's speeches, your own efforts and 
other envoys, et cetera. And with all of this he agreed that, 
and I quote, ``had there been success there, there would have 
been possibly greater support.''
    Mr. Secretary, it seems to me that out of everyone in this 
administration you probably better than anyone understand how 
important U.S. credibility on the Israeli-Palestinian track is 
to U.S. credibility on other issues in the Middle East, 
including Iraq.
    So as someone who understands this so well, could you 
please tell this committee how this administration plans to 
build some credibility on this issue now and as we get ready, I 
assume, to attack Iraq and after the U.S. undertakes what will 
be an entirely new and obviously a complicated role on the 
ground and as a player on the ground in the Middle East?
    Secretary Powell. I certainly agree with Don Rumsfeld that 
if we had been able to achieve greater progress in the Middle 
East with respect to the crisis between the Israelis and the 
Palestinians, it would improve our overall situation in that 
part of the world. And it would garner greater support with 
respect to whatever efforts we may have to take with respect to 
Iraq.
    We have worked very hard on this. I have been engaged in it 
since the first week of my service as Secretary of State. I 
have been through the Mitchell plan, the Tenet plan, sent 
General Zinni over. We have given statements and speeches. I 
gave a Louisville speech.
    The President has been deeply engaged. The President gave 
major addresses on this. And he gave a definitive address 
before the United Nations, the first President of the United 
States to do so. He called for the creation of a Palestinian 
state, the name of Palestine, he said to the U.N., living side-
by-side in peace with Israel.
    His 24 June speech of last year is a combination of his 
views, but it also incorporated the views of Crown Prince 
Abdullah of Saudi Arabia and many other Arab leaders, the Arab 
League.
    We have worked very hard. But we have not been anywhere 
near as successful or as successful as I would have hoped or 
imagined at the very beginning.
    The principal problem has been the continuing violenceand 
terrorism that has come from the Palestinian side directed against the 
state of Israel. In response, the state of Israel has not been able to 
do some of the things that I would have liked to see Israel do to move 
the process along.
    Nevertheless, we are engaged, deeply engaged. We worked 
with the quartet, the United States, Russian Federation, the 
European Union and the United Nations to come up with 
approaches to the problem, developing a work plan which is near 
completion in terms of its actual drafting. And we are looking 
for the right time to put it into play, to release it.
    We have made it clear to the Palestinian side that they 
needed to bring up new leadership. The old leadership was not 
getting the violence under control and was not coming forward 
with initiatives or ideas that would help us build a dialogue 
with Israel.
    In the last several months, we have seen a new Israeli 
election. Prime Minister Sharon is back in office. His cabinet 
is now in place.
    And in the last week we have seen the emergence of a 
gentleman who is going to be the next--or the first, however 
you want to characterize it--prime minister of the Palestinian 
Authority, the Palestinian people, in the person of Abu Mazen.
    We have a new dynamic in play. And I hope that new dynamic 
of a prime minister with authority, real authority, will allow 
us to move forward. But it is through no lack of engagement.
    But Don Rumsfeld was quite correct when he said if we could 
have improvement in this area it would help us throughout the 
region.
    Mr. Jackson. Mr. Secretary, the President has been talking 
a lot about democracy, about how bringing down Saddam Hussein 
will lead to a wave of democratic reform throughout the Middle 
East.
    I want to be clear: We all believe in democracy. We all 
believe that individuals everywhere, be they in the United 
States, Europe, Africa, Latin America or the Middle East, 
deserve democracy. They deserve to be represented by leaders 
who have been chosen through free and fair elections. They 
deserve all the rights and freedoms that we as Americans have 
fought for and continue to fight for.
    An op-ed published Monday in the L.A. Times, Professor 
Shibley Telhami of the Brookings Institute argued that, 
whatever the intent, a war with Iraq is likely to perpetuate 
repression in the Middle East, not spread democracy, at least 
in the short-term.
    The pattern is clear, as we pursue policies that are highly 
unpopular in the Middle East, we ask, indeed insist that 
governments support these policies. To accomplish this, those 
governments unleash their security forces to prevent dissent, 
to contain public demonstrations, to limit freedom of speech, 
to disrupt any potential organization from undermining their 
stability.
    In the case of war with Iraq, the regimes fear that 
passions could be inflamed if there are many civilian 
casualties, so they plan ahead with particular ruthlessness.
    My question, Mr. Secretary, is not whether democracy is a 
worthy goal, but rather whether this administration has taken 
into consideration the possibility that war in Iraq could not 
only fail to bring about democracy to the region, but could 
undermine the growing democratic movements in places like 
Jordan, Lebanon, Iran and even the Palestinian Authority, and 
perpetuate repression throughout the region.
    I am very concerned that the administration is taking it as 
an article of faith that whatever changes this war wreaks upon 
the region, of course, the potential of war, the result will be 
an improvement in the present situation. And I have to tell 
you, Mr. Secretary, that seems like a very risky assumption.
    I welcome your comments and your reassurances.
    Secretary Powell. If a dictator is removed from Iraq and if 
this country of 24 million skilled people, with a significant 
revenue flow, turns away from threatening and invading its 
neighbors and becomes in its place a place of stability that is 
not threatening its neighbors, is using its oil for useful 
purposes, it seems to me that helps the region overall.
    Nothing we are doing, it seems to me, undercuts any of the 
liberalizing or democratic movements that are taking place in 
countries such as Jordan or Bahrain or Qatar or Kuwait.
    We have seen changes in these countries, and take note of 
this, Mr. Jackson, we have seen changes take place in these 
countries in recent years where their legislatures are starting 
to function and where women are being allowed to participate 
more fully in civic society.
    It is a mixed picture, country by country, but we have seen 
some movement, and I see no reason why suddenly having a nation 
that is not there any longer under that leadership would not be 
anything but a stabilizing influence.
    And also, I think that with that leadership out of the way, 
we have opportunity to work more fully on the Israeli-
Palestinian issue. I do not find the thesis in that article 
necessarily the correct thesis.
    We will continue to encourage all of these nations to start 
moving on a road toward democracy, not that it is a panacea, 
but when we look at the kinds of problems discussed here 
earlier with respect to young people not being educated for the 
21st century, with denial of opportunity to 50 percent of the 
population because they are women, this is not going to be a 
way into the future.
    I think we are making a case repeatedly with all of our 
friends, to include those that you might characterize as the 
least democratic, but I am telling you, we are making that case 
to them and telling them, ``You have to figure out your 
transformation, how you are going to do it in the future. We 
are not going to do Iraq so that we can come and impose 
democracy on you. It is going to have to grow up, it is going 
to have to come out of your experience.''
    Mr. Kolbe. The Secretary has to leave in five minutes, so 
Mr. Obey gets the last question.
    Mr. Obey. Thank you Mr. Chairman.
    Mr. Secretary, I have profound respect for you, and one 
thing I have always appreciated about you is that I did not 
think you approached life as though you were viewing everything 
through the prism of being a permanent president of an 
optimists club. You have a, I think, a more balanced view of 
the world.
    And I also do not detect in you the same kind of arrogance 
that is so often associated with so many people in this town.
    I am not going to ask any Iraqi questions. The Iraq issue 
has become almost theological, so I would like to talk about 
something else. Three things, really.
    First of all, did you know Shlomo Argov? He was the Israeli 
ambassador to London who was turned into a paralytic by Abu 
Nidal's group in a terrorist attack almost 20 years ago, and he 
spent the last 20 years as a paralytic. And he has just died.
    He was, in my view, a tremendous public servant, and he is 
just an example of what happens to good people in a region 
where it seems that we are running out of wise men before we 
run out of fools.
    But I am concerned about the hiatus in American deep 
involvement in the Middle East. I agreed with the 
administration in sort of laying off the peace process for a 
while after you came into the White House because I thought 
that Mr. Arafat needed a cold shower after he threw away the 
chance for peace in the region. But I have considerable 
disquiet about how long that lack of deep involvement has 
occurred.
    And I appreciate what you said to Mr. Jackson today, but 
especially in the context of what apparently is going to happen 
in Iraq, I would still urge that we elevate very, very quickly 
our focus on the renewal of the peace process, especially after 
you have a new opportunity with Abu Mazen, as you indicate, 
apparently becoming the new prime minister.
    I just believe it is foolhardy for us to be doing something 
to the Arab world if at the same time we are not doing 
something for them and for the Israelis at the same time, 
because, as you know, there is never any progress in the Middle 
East unless we are deeply involved.
    And I just think we are making a profound mistake in not 
being more aggressive in seeking out contacts with people other 
than Arafat. If an alternative is what you want, we should do 
this just to make clear that we are not just going to abandon 
the Middle East to the violence that is shown on Al Jazeera 
television every night in its own biased way.
    Secondly, I would say that I am tremendously disturbed by 
our lack of immediate focus on and direct contact with North 
Korea. I respect the fact it is a terrible problem.
    But it almost appears to me that the administration is 
acquiescing in North Korea's becoming a permanent member of the 
nuclear club. I know they already are a member. But I am not 
convinced that if we draw the line just at their ability or 
their willingness to sell, that we are ever going to be able to 
tie that down tightly enough to be in our own interest.
    And then thirdly, I just have one question which I think 
that you may not want to answer and may not be able to answer, 
but nonetheless, I have to ask the question.
    The Washington Post this morning carried a story, ``The FBI 
probes fake evidence of Iraqi nuclear plans. The FBI is looking 
into the forgery of a piece of evidence linking Iraq to a 
nuclear weapons program, including the possibility that a 
foreign government is using a deception campaign to foster 
support for military action against Iraq.''
    I feel that I need to ask, do you know or can you tell us 
what that country is?
    Secretary Powell. I cannot with confidence. Information 
that was made available to the inspectors did not come from the 
United States. It came from other sources. At the time the 
United States provided it, but we were aware of this piece of 
evidence and it was provided in good faith to the inspectors. 
Our agency received it in good faith, not participating, if 
that is the suggestion of your question, in any way in any 
falsification.
    Mr. Obey. Well, I am certain that you would not in any way 
be involved in anything like that. But I do think it is 
important that the Congress and the people of the United States 
know if it is in fact the case that they know which country 
supplied that and whether or not they supplied it knowing that 
it was false information or whether something else happened.
    Secretary Powell. I cannot answer that, Mr. Obey. I would 
have to yield to others.
    Mr. Obey. Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you, Mr. Obey.
    And, Mr. Secretary, I know I speak on behalf of all the 
members that we are frustrated not to be able to get to a 
second round of questions. We know how busy your schedule is 
and we do appreciate very much your taking the time to be with 
us today.
    I know I also speak for all the members in saying, no 
matter where we are on some of these issues, how much we admire 
your dedication and your service to our country and the job 
that you are doing. We very much appreciate your coming and 
testifying today and answering the questions as forthrightly 
and candidly as you have.
    Secretary Powell. Thank you, Mr. Chairman. Let me conclude 
by once again thanking the members present for all the support 
that you have given to the State Department over the last two-
plus years. It means a lot, not to just me, but to the 
wonderful young men and women out doing that job, doing that 
great job for the American people.
    Thank you, sir.
    Mr. Kolbe. Thank you very much.
    The subcommittee stands adjourned.
    [Questions and Answers for the record follow:]

GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT
    
                                         Wednesday, March 26, 2003.

   FISCAL YEAR 2004 BUDGET REQUEST FOR EXPORT FINANCING AND RELATED 
                                PROGRAMS

                               WITNESSES

PHILIP MERRILL, CHAIRMAN, EXPORT-IMPORT BANK
THELMA ASKEY, DIRECTOR, TRADE AND DEVELOPMENT AGENCY
PETER WATSON, PRESIDENT, OVERSEAS PRIVATE INVESTMENT CORPORATION

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe. I call the Appropriations Subcommittee on 
Foreign Operations to order here.
    First of all, let me apologize for the small room. I 
apologize to those of you that are inside, and those who didn't 
get in and are outside. It is a sign of the very busy season 
that we are in that there is no other hearing room available 
this afternoon to use. So we are in our assigned room, which is 
great for conferences, but a very small room.
    But in any event, I thank you all for coming. I welcome 
this afternoon our witnesses who are part of our second hearing 
on the President's Fiscal Year 2004 Budget Request. We are 
going to be hearing this afternoon from three export assistance 
and trade promotion agencies that come under the jurisdiction 
of this committee: The Export-Import Bank; the Trade 
Development Agency; and the Overseas Private Investment 
Corporation.
    The three witnesses that we have today represent 
independent U.S. Government agencies charged with promoting the 
exports of goods and services from the United States and for 
promoting U.S. investments overseas. But I must point out that 
in today's dismal international investment climate, meeting 
these responsibilities is going to take some creative and very 
proactive approaches.
    In addition to increasing trade and investment overseas, 
which thereby supports U.S. jobs and economic growth here at 
home, I need to point out that these agencies are an integral 
part of our nation's foreign policy. They contribute to the 
global integration of capital markets. They advance the spread 
of best practices and corporate governance, accounting rules, 
the rule of law in less developed countries; therefore, these 
agencies hold a great deal of potential to influence the 
investment conditions throughout the developing world and 
influence economic growth and job creation in the United 
States.
    As our military forces--our men and women in uniform--
fight, as we speak here, in Iraq to liberate the Iraqi people 
from Saddam Hussein's tyranny, it is important that we remember 
that we support our agencies each and every day on the economic 
frontlines, supporting U.S. businesses internationally.
    Today's hearing is, of course, a budget hearing. And 
therefore I hope that the witnesses will speak about the 
details and nuances of their 2004 budget request. The 
administration's request for these three agencies totals $203 
million, which provides over $16.9 billion in credit guarantees 
and insurance to promote U.S. businesses abroad.
    OPIC's request for its credit programs in 2004 is straight 
lined from 2003, while the administration's request for 
administrative expense increases for OPIC by about $2.8 
million, or a 7 percent increase over the 2003 level.
    Of all of the export promotion agencies, the Trade and 
Development Agency's request includes the largest increase in 
funding for fiscal year 2004. In 2003 this subcommittee 
provided $46.7 million for TDA, and this year the 
administration is requesting $60 million. That is a 28 percent 
increase. TDA helps U.S. companies pursue overseas business 
opportunities through funding feasibility studies and other 
forms of technical assistance.
    Finally, the President's request for the Export-Import Bank 
appears to us to be a little bit puzzling. The President 
requested no new funds for the Export-Import Bank's loan 
program account because of what I understand are significant 
carryover balances from previous years. My understanding is 
that even though there is no request, that Ex-Im's program 
level would still be able to operate at increased levels in 
fiscal year 2004.
    We will have some questions on this issue. But accompanying 
the cut in the loan program account is requested an increase of 
$7.5 million, or 11 percent, for Ex-Im's administrative 
expenses.
    Additionally, for the first time, the administration has 
requested $1.2 million for a new Office of Inspector General. I 
will ask you about these funding issues during my allotted 
questioning time.
    I will begin by welcoming today Mr. Philip Merrill, the 
newly confirmed Chairman of the Export-Import Bank. Prior to 
joining Ex-Im Bank, Mr. Merrill was best known as the publisher 
of the Washingtonian Magazine. I know that is only a small part 
of your corporate life. We welcome you on your first appearance 
before this subcommittee.
    We will also hear from Dr. Peter Watson, the President of 
OPIC; and, finally, from Ms. Thelma Askey, the Director of the 
Trade Development Agency, both of whom have testified before 
this subcommittee.
    So before I ask them for any brief opening statements, let 
me call on my ranking member, Mrs. Lowey, for any comments.

                     Mrs. Lowey's Opening Statement

    Mrs. Lowey. I thank you, Mr. Chairman, and good afternoon. 
I welcome our witnesses to the fiscal year 2004 hearing on 
export financing programs in the foreign operations bill.
    Sometimes it seems we are operating in a vacuum, and before 
I begin my remarks, I do want to make mention and commend our 
forces currently engaged in conflict in Iraq. We all recognize 
and deeply appreciate their dedication and sacrifice, and our 
hearts and our prayers are with them and those who have lost 
their loved ones.
    Now, while I have been a consistent supporter of our export 
programs and recognize their potential to promote investment 
abroad and job growth here at home, I do remain concerned about 
several aspects of this program.
    First, the degree of autonomy enjoyed by all three 
agencies, not only from congressional oversight, but also from 
within the executive branch, is extensive. These agencies have 
a special responsibility to be transparent and forthcoming.
    Second, the dual responsibilities of promoting American 
business opportunities and maintaining a focused development 
mission at times conflict with each other. Clearly the most 
lucrative business opportunities are rarely to be found in 
developing countries where business risks remain high.
    However, the successful promotion of U.S. investment, in 
developing countries accelerates economic growth and ultimately 
is the key to the achievement of a self-sustaining economy. I 
believe your record on balancing the priorities and working as 
team members with other executive agencies in emerging 
democracies is quite mixed. There is a selection process, and 
due diligence procedures within these agencies are 
confidential, as they should be. But when a corporation such as 
Enron is able to secure over half a million dollars in 
financing through your procedures, it begs the question: How 
can that happen? Why should we continue to accept a degree of 
confidentiality that results in one corporation obtaining 
repeated projects and financing approval at a time when they 
were engaged in a massive deception of their stockholders?
    I mention these concerns because each of the three agencies 
before us today has requested significant increases in 
operating budgets that expand their loan and grant authority. 
While your record on these defaults and insurance premium 
payouts is relatively good, you have forgiven and are being 
asked to continue to forgive bad debts of many countries that 
include loans from these agencies.
    The fallout from the financing of Enron's project also 
remains unclear, and I intend to request an update from each 
affected agency this afternoon on the status of Enron related 
projects. My guess is that no actual losses have occurred. The 
question is what the eventual impact will be.
    Having said all of that, the need for your programs remains 
a high priority and provides a sense of security for American 
business and, hopefully, American jobs. I look forward to your 
testimony and to continuing our work together in the coming 
year.
    Mr. Kolbe. Thank you. Now, I would like to ask for the 
opening statements of our three persons that are witnesses here 
today, and let me just say that, as you know, the full 
statement will be put in the record. Since we have three of 
you, if you can summarize them as briefly as possible, that 
would be helpful.
    Mr. Merrill. Mr. Chairman, Chairman Kolbe, Ranking Member 
Lowey, Members of the Subcommittee, I am happy to testify in 
support of the Administration's fiscal year 2004 budget request 
for Export-Import Bank. I will summarize my testimony in this 
presentation and ask to have my written statement submitted to 
the record.
    Mr. Kolbe. The full statement will be in the record.

                    Mr. Merrill's Opening Statement

    Mr. Merrill. Before I get into the numbers, I want to 
reiterate the Bank's new commitment to our mission and our 
requirements following the 2002 reauthorization of Ex-Im Bank. 
That means, one, supporting U.S. exports, thereby helping 
create and maintain U.S. jobs; two, leveling the playing field 
abroad for U.S. business; three, maintaining our statutory 
requirement to find a reasonable assurance of repayment.
    For almost 70 years, Ex-Im Bank has supported more than 
$400 billion in U.S. exports. The customers for our services 
are the exporters as well as those who are employed producing 
the exports. As a businessman who has once again, for the 
seventh, eighth time returned to government service as a public 
servant, I can tell you, customer service is a primary goal.
    In this statement, I would like to focus on two points: 
First, the Administration's fiscal year 2004 budget request for 
Ex-Im Bank. Secondly, Ex-Im Bank's ability and plans to use 
that budget to implement the authority and guidance given to us 
by Congress.
    Let me approach the description of the Bank's 2004 budget 
request by defining four important terms: program budget, 
administrative budget, carryover, and risk reserve. For each 
fiscal year, Ex-Im Bank has two parts to the budget request: 
Program budget provides the reserve to cover defaults or any 
losses we might incur. And the administrative budget provides 
us with operating funds to keep the doors open, pay our 
employees, upgrade information systems, and reach out and 
inform U.S. exporters of our products.
    There are two other important terms used in discussing the 
Bank's budget. ``Carryover'' refers to program budget authority 
that was available but not used in a given fiscal year. In Ex-
Im Bank's case, the carryover is available for up to 4 years. 
And ``risk reserve'' refers to the amount that Ex-Im Bank is 
required to set aside to cover losses. This is determined by an 
Office of Management and Budget formula. It is a practical 
equivalent for what commercial banks would call the loan loss 
reserve.
    These terms fit together to form this year's budget request 
for the Bank. I refer you to the chart attached to my testimony 
noted as Appendix 1.
    For 2004, Ex-Im Bank is requesting no new budget authority 
because we were able to carry over unutilized funds from the 
four previous fiscal years. That carryover is sufficient to 
authorize the entire $14.2 billion export credit demand we 
anticipate for 2004.
    This anticipated demand is a significant increase over the 
levels of export credit authorized by the Bank in fiscal year 
2002, which was $10.1 billion; and anticipated demand for 2003, 
or this year, $12.8 billion.
    The amount of program budget we need to meet this 
anticipated demand is determined by the risk reserve, which is 
the amount of money that the Bank is required to set aside for 
losses. Risk rates for individual countries are set through a 
13-member inter-agency process called the Inter-agency Credit 
Risk Assessment System, or ``ICRAS,'' one more acronym. We take 
this country risk rating and apply a formula established by OMB 
to determine the risk reserve.
    The point I make is that we cannot easily cook the books in 
any way alone since this inter-agency process involves 13 
agencies.
    In 2002, Ex-Im Bank's average risk reserve charge was 7.3 
percent of the amount of the credit authorized; $10.1 billion, 
7.3 percent. It fell to 1.29 percent for fiscal year 2003. It 
is estimated to be 3.3 percent for fiscal year 2004. Over the 
last decade, the amount of actual losses has averaged about 2.2 
percent. Repeat, 2.2 percent.
    The Bank's calculations are based on anticipated demand of 
$14.6 billion, carryover of $680 million, and a risk reserve of 
3.3 percent. As a result, we have sufficient funds to support 
U.S. exporter needs without additional appropriations of 
program funds in 2004.
    So much for the program budget. The second portion of our 
budget request, the administrative budget, funds the vital 
functions of running the bank and fulfilling the goals set 
forth in our reauthorization. The administration has requested 
$75.4 million, an increase of $7.5 million. Ex-Im Bank was 
provided $67.9 million in the recently enacted 2003 
apropriations.
    Approximately three-quarters of the administrative budget 
represents relatively fixed costs for the running of the Bank. 
The remaining quarter is available to broaden our efforts to 
better meet the needs of U.S. exporters. To meet the needs of 
our customers, we need to bring our efforts up to the 21st 
century. This means continuing to upgrade our electronic 
communications systems to help us achieve the following 
objectives. Better user-friendly access for interested 
exporters through the Internet and otherwise. We need to 
respond to requests for information quickly. So we need to 
standardize forms so the average exporter can make sense of 
them and submit them electronically.
    We are also taking steps to improve our cycle time; that 
is, the response time to process applications. In addition, we 
need to increase our outreach to small- and medium-sized 
businesses, minority- and women-owned businesses, and renewable 
energy efforts. We believe these efforts are important, a 
belief that was reinforced by congressional guidance.
    We cannot set aside the importance of face-to-face meetings 
with exporters, but outreach through electronic means is 
increasingly important. Administrative budget funding is 
particularly essential for our support of small business. There 
are two different measures of Ex-Im Bank support for small 
business, number of transactions we support and dollar amount 
for support.
    In 2002, 86 percent of the total number of Ex-Im Bank 
transactions--the actual number is 2,154--directly benefitted 
small businesses. In the 2002 reauthorization bill, Congress 
increased from 10 to 20 percent the amount of the Bank's 
authority that shall be made available to finance exports 
directly by small business. I note that in 2002, 18 percent of 
the dollar amount of Ex-Im Bank's authorizations went directly 
to small business. We are on our way to getting to the 20 
percent.
    These numbers do not include numerous small business 
subsuppliers supported through larger transactions. As the 
chairman of the Ex-Im Bank, my job is to support U.S. exporters 
and thereby maintain and create jobs. I take seriously the 
intention of Congress to ensure that the Bank focuss as much as 
possible on small- and medium-sized exporters.
    There are approximately 240,000 small- and medium-sized 
exporters in the U.S. and an Ex-Im Bank staff of only 400 
people. It is a truism that 10 percent of the fisherman catch 
90 percent of the fish. That is because they go where the fish 
are.
    U.S. exporters reside in every state, in every 
congressional district throughout the U.S. These exporters can 
best be reached with banks or financial institutions that are 
staffed by trade finance specialists who understand export 
finance. They know how to guide exporters through the initial 
stages of the export financing process.
    For this we need improved electronic systems, as well as 
sustained personal contact. That is what the increase in our 
administrative budget will address.
    Mr. Chairman, Congresswoman Lowey, in some aspects the 
mandate of the Bank remains constant, the same today as it was 
5 years ago or 20 years ago. Our mission is to support the 
maintenance and creation of jobs here in the United States, by 
financing exports that would not otherwise go forward, and help 
level the playing field for U.S. companies when they are up 
against foreign competitors.
    While the Bank's mission remains essentially the same, we 
also need to be fast on our feet to address specific needs and 
shifts in the global economy. With your continued support, Ex-
Im Bank will adapt to those changes and needs, as we support 
U.S. exporters and U.S. jobs.
    That concludes my testimony, I am pleased to answer any 
questions you may have.
    Mr. Kolbe. Thank you very much.
    [The information follows:]

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    Mr. Kolbe. Ms. Askey.

                     Ms. Askey's Opening Statement

    Ms. Askey. Thank you, Chairman Kolbe, Congresswoman Lowey. 
The challenges faced by many Federal agencies today is how to 
position themselves to respond rapidly to the changing world.
    At USTDA our strength comes from putting specific 
implementation behind U.S. Foreign policy objectives. In the 
immediate future, USTDA is designed to provide product 
solutions to help advance infrastructure and development needs.
    Looking forward, our agency provides U.S. expertise in the 
development of targeted sectors such as energy and 
transportation. And I would at this point note for Ms. Lowey, 
that of the three agencies here, USTDA is only a grant-making 
agency; we don't lend any money.
    One of the hallmarks of USTDA is our ability to forge 
effective public-private partnerships. Through this means, we 
seek to support projects that are developed on a commercially 
viable basis and thereby increase the likelihood of their 
success.
    As we work to bring commercial discipline to development 
projects, this effort includes ensuring that a funding 
mechanism is likely to support implementation. Financing can 
come from a variety of sources, including Ex-Im, OPIC, and the 
World Bank and others. And I am pleased that more than 30 
percent of the U.S. Exporters associated with USTDA-supported 
projects receive funding from the Export-Import Bank.
    During the Bush administration, USTDA has established 
programs that support important U.S. Government objectives. To 
maintain USTDA's highly effective programs, the administration 
is requesting a budget of 60 million. While this represents a 
substantial percentage increase, it is a relatively small 
amount in absolute dollars, particularly given the significant 
returns those dollars will bring.
    Based on our export multiplier, $35 in exports for every 
dollar in the program funds is invested. This increase has the 
potential for supporting more than 350 million in additional 
U.S. Exports.
    While the bulk of our returns on investment take on average 
3 to 5 years to be realized, because we operate very early in 
the process, we have already recognized 118 million in exports 
from projects funded in fiscal year 2002. In fact, USTDA has 
logged in fiscal year 2002 over 409 million in U.S. exports 
from first-time exporters associated with projects that began 
over the last 5 years. And, of course, the 118 million that was 
realized from projects in fiscal year 2002 will multiply 
potentially in the next 3- to 5-year period. So we have a lot 
more exports to come with projects funded in 2002.
    At this time, Mr. Chairman, I would like to submit for the 
record, as you said, our current and proposed activities, in 
addition to my testimony, which will give you a better idea of 
our priorities for fiscal year 2004.
    In early 2002, USDA launched an aggressive program in 
Afghanistan in civil aviation, telecommunications, oil and gas, 
electrical power and other sectors. Moreover, we have moved 
quickly to build on existing programs in other frontline states 
and have opened our country's global impact to them.
    In Africa, the agency has focused on sub-Saharan Africa, 
with particular emphasis on activities related to the AGOA 
framework, and Congressman Kolbe has been involved in some of 
those activities and is an AGOA supporter.
    As a part of our focus on trade capacity building, USTDA is 
working closely with USTR on activities related to ongoing 
trade negotiations, including the FTAA negotiations, with U.S.-
Mexico, the U.S.-Morocoo FTA, as well as the South African 
Customs Union FTA negotiations.
    Last week the agency sponsored a study tour for SACU 
officials involved in Negotiations with the U.S. I am pleased, 
Mr. Chairman, that you had a chance to be involved in that 
program, and meet the members of this important delegation 
during that visit.
    Currently USTDA is exploring areas for support related to 
U.S.-Chile FTA in the environmental sector. We have also begun 
to use the 2.5 million appropriated in our fiscal year 2003 
budget for capacity building to program important projects. The 
first use of these funds, which was notified to the committee 2 
weeks ago, is related to the CAFTA negotiations in Latin 
America.
    Specifically, USTDA will assist Costa Rica, El Salvador, 
Guatemala, Honduras, and Nicaragua in advancing information 
technology projects.
    We have a number of additional trade proposals currently 
under review, and I have no doubt that we will be able to 
program more than the 2.5 million in fiscal year 2003. It is 
important to keep in mind that in the earlier part of 2003, 
fiscal year 2003, prior to the passage of the appropriations 
bill containing the 2.5 million allocation, we had already 
programmed funds for trade capacity building, as we have done 
in prior years. This is not a new activity for us.
    Highlights include a customs telecommunications project, an 
Internet portal for government procurement in Russia, and a 
secure trade or STAR Initiative Conference in Thailand, which 
focused on transportation security and trade facilitation.
    Identifying potential transportation security projects is 
another USTDA priority, given its importance to trade. As I 
just mentioned, USTDA cosponsored a major conference on the 
STAR Initiative last month. This focused on enhancing security 
and efficiency in the region's seaports, airports and other 
entry points.
    In fiscal year 2002, transportation was the largest sector 
for USTDA activity and the agency is poised to follow through 
by identifying specific projects for implementation.
    Asia is the largest USTDA region in terms of funding and is 
home to the agency's 2002 Country of the Year, China. Last 
year, USTDA launched a number of new initiatives in the Asian 
region, including the reestablishment activities in Indonesia, 
Sri Lanka, and the launching of the agency's program in East 
Timor.
    Our Latin American and Caribbean region has funded several 
activities supporting the Partnership for Prosperity with 
Mexico. Among them are master grant agreements, that were 
signed last year with two Mexican development banks, the first 
for USTDA using development banks that were not--that were 
international.
    For several years, USTDA has maintained a strong program in 
Central and Eastern Europe, including early reconstruction 
efforts in Bosnia and other former Yugoslavian states. The 
focus of USTDA activities in this region is on environmental 
investments that can be financed on commercial terms, 
particularly in the waste-to-energy and renewable energy 
sectors.
    Another aspect of the USTDA story are our partnerships with 
other U.S. Government agencies to bring their particular 
expertise and resources to a development priority: the 
Department of Transportation, the USTR, the Agriculture 
Department, and Foreign Commercial Service and Commerce.
    We also receive tremendous support from the U.S. trade 
community, and the U.S. private sector involved in development 
and capacity building projects. As we look to the future, we 
anticipate continued high demand for USTDA programs, and I 
believe the agency's record demonstrates our capacity to 
respond to that need.
    In fiscal year 2002, USTDA obligated a record 75 million in 
program funds, including transfers from other agencies. 
Moreover the fastest growing part of our budget are the 
agency's obligations for technical assistance, which more than 
doubled last year.
    USTDA has demonstrated an ability to support U.S. 
development and trade capacity priorities. The administration's 
fiscal year 2004 budget request will provide USTDA with the 
resources to meet the growing demand for our program in a very 
changed world.
    We will respond to future foreign policy priorities and 
continue a high level of service to our clients. I will be 
happy to answer questions.
    Mr. Kolbe. Thank you.
    [The information follows:]

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    Mr. Kolbe. Mr. Watson.

                     Mr. Watson's Opening Statement

    Mr. Watson. Mr. Chairman, Ranking Member Lowey, members of 
the committee, I will be brief and just highlight some of the 
aspects of our FY 2004 budget submission. Before I begin, let 
me say that I am very pleased to be joining my colleagues from 
the Export-Import Bank and Trade and Development Agency with 
whom we have worked very closely together in complementing each 
other's objectives.
    Appearing before you last year, I discussed our efforts to 
refocus OPIC on its historical development mission and to 
mobilize investment for the neediest countries. Those promises 
made, are now promises kept.
    This year, I wish to share with you the delivery and 
results of last year's commitment. Simply put, in the post-9/11 
world it is clear that OPIC's mission is more important than 
ever.
    In 2002, despite heightened perceptions of risk and 
possibly, in very real sense, because of them, OPIC committed 
$1.2 billion in loans, guarantees, and/or insurance to support 
45 developmental projects around the world. This has included 
major efforts in investments in vital regions such as sub-
Saharan Africa and nations such as Pakistan and Afghanistan.
    The activities of these projects are diverse and they 
include support for housing initiatives, support for HIV/AIDS 
programs, and providing water to communities currently without 
access to potable water.
    Very briefly, let me report on sub-Saharan Africa. Our 
efforts and results in sub-Saharan Africa have been 
substantial. For the first time in the agency's history, we 
have appointed a director of African affairs. From a modest 
investment of only $85 million in fiscal year 2001, OPIC has 
since approved more than $737 million in projects for sub-
Saharan Africa, including $573 million this current year alone. 
And there are 6 months yet to go.
    Commitment to sub-Saharan Africa is from the top down. As 
my family will be able to verify, I have traveled to the region 
four times in the past year. I am planning to leave again this 
weekend for a trip to Sierra Leone, Garbon, Angola, and Kenya, 
having just returned from Mozambique and South Africa.
    The approved transactions for sub-Saharan Africa include 
projects that will provide 90,000 homes for up to 500,000 low-
income South Africans and to provide clean water to communities 
in Ghana and Kenya through support for well water drilling.
    In a most innovative project approved recently, OPIC 
financing will help stabilize the South African housing market, 
while also addressing the HIV/AIDS pandemic, by providing a 
bank guarantee that links home mortgages to HIV/AIDS treatment, 
and will protect up to 350,000 mortgages.
    Finally, let me mention Ethiopia. Helping the AIDS epidemic 
and the opening of the first diagnostic testing laboratories, a 
$500,000 OPIC loan is supporting the purchase of medical 
equipment that will open up patient services and other major 
services.
    Very quickly, I want to report on Afghanistan. We have made 
a similar commitment to this nation, and other countries on the 
frontlines of our war on terrorism. OPIC was at the forefront 
of helping U.S. investors participate in identifying investment 
opportunities. And OPIC recently approved its first insurance 
contract for Afghanistan that will enable a U.S. manufacturer 
to provide for the construction of schools.
    Further, during President Karzai's visit, OPIC and the 
Government of Afghanistan concluded a memorandum of support for 
construction of an international hotel managed by Hyatt 
International. The Hyatt hotel will be the first of its kind in 
Afghanistan, and will be the largest private investment in the 
country since the defeat of the Taliban; somewhere for you to 
stay when you get there, and not in bunkers.
    In meeting with President Karzai a few weeks ago, OPIC 
increased its support facility from $50 million to $100 million 
based on our flow of projects.
    Small business. As we heard today, small business is a 
crucial component of the U.S. economy, and OPIC has been a 
steadfast supporter of small business. In the past year, 32 of 
OPIC's 45 projects were sponsored by small business. And 
building on that commitment. I am pleased to report that OPIC 
has opened a Small Business Center which will coordinate OPIC's 
activities to develop small business deals for companies who 
are at revenues $35 million and below, incorporating a new 
streamlined approval process, 60 days cycle time and with lower 
costs Awk. small businesses.
    The Small Business Center complements our initiative with 
the Small Business Administration announced last year to 
coordinate and leverage our mutual expertise to promote small 
business internationally for developing investment.
     Let me quickly close by addressing the issue of measuring 
the impact of OPIC projects. Approving projects is only part of 
the story. Investment by itself does not necessarily mean 
development. In pursuing more developmental projects, OPIC is 
putting in place measurable criteria for evaluating the 
development and contribution of its projects as well as 
measuring the overall success of the agency for implementing 
its development mission.
    The development of these criteria has been a critical 
element in our strategy to make OPIC more relevant and more 
faithful to its original mission, and providing evidence of 
OPIC's values to the taxpayer. As you know, OPIC accomplishes 
this mission at no net cost to the American taxpayer. On the 
contrary, we have a significant amount of funds that are 
returned after deducting our administrative budget.
    In conclusion, Mr. Chairman and Ms. Lowey, let me note this 
year Congress will have the opportunity to review OPIC and its 
new agenda as it considers reauthorization of OPIC programs.
    We look forward to working with the Congress in securing 
favorable legislative action before the current one expires on 
September 30, 2003.
    I hope we can get your support. Looking ahead, OPIC will 
stay true to its promise to provide investment in the most 
needed countries, complementing the private sector and 
qualified NGOs, to maximize our developmental impacts and 
continue to explore new and innovative approaches to support 
sustained growth, both at home and abroad.
    Working with the guidance and support of this subcommittee 
and staff, OPIC can continue its unique role as a catalyst for 
development in the future. Like my colleagues, I would be very 
pleased to answer your questions. Thank you.
    [The information follows:]

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    -AMr. Kolbe. Thank you, all three of you, very much for 
your statements.
    Let me begin the first round of questioning and we will try 
to keep to the 5-minute rule. But we will come back for another 
round. Let me begin with a question for Mr. Merrill.
    You have no request for funding in fiscal year 2004 for 
your subsidy account, Mr. Merrill, but by looking at your 
budget justification data, no funds for the subsidy accounts 
allows you to still have an increase in the EX-IM program level 
from about 12.8 billion in fiscal year 2003 to about 14.6 
billion in 2004.
    Mr. Merrill. That is correct.

                               CARRYOVER

    Mr. Kolbe. My question is, how much carryover do you expect 
to have in 2004 from 2003? Why is it such a high level?
    Mr. Merrill. Well, let me read from my own chart. We have a 
$296 million carryover from last year to this year. We had $90 
million in cancellations. With the appropriated $509 million 
from 2003, we have got $895 million. Our estimated use next 
year is only $216 million, so we don't need the $895 million.
    The reason for this is twofold. The first reason is that 
the loan, the net loss--what a bank would call a net loss 
ratio--is essentially 2.4 percent. We went down to 1.69 
percent, less than 2.4. As the result of this 13 interagency 
process, essentially our loans were paid. Our credit we 
provided has been repaid.
    And the estimation of what will be repaid, that is estimate 
for future years, is very low. To put it another way, we are 
making sound credit available. When you combine the carryover 
and the reduction from 7 percent to 1.6 percent, that leaves 
you with a large amount in between. And that large amount will 
support our estimated business next year. So in short form, we 
can do more business. We have a lower support ratio; and since 
we have a lower support ratio from last year, we have carried 
forward the leftover amount so there is no point in asking for 
money that we can't use.
    Mr. Kolbe. Let me approach this from the other side of the 
equation. In 2003, your carryover from 2002 is higher than the 
amount of subsidy expected to be used for your programs this 
year. You have a carryover of $296 million dollars. But the 
subsidy expected to be used is only about $216 million; 
therefore, this subcommittee, in 2003 did not need to 
appropriate any money at all. If we then had more up-to-date 
estimates of your carryover and your needs for subsidy 
requirement, that could have helped us in a lot of things we 
were trying to do to squeeze into the 2003 budget if we had 
known.
    I am just kind of curious as to why the estimates for 2003 
were so far off from what you actually used, either on the 
amount of carryover or the amount of subsidy that you were 
going to use.
    Mr. Merrill. The easy answer is that I wasn't here. But 
that is cheating. That is not fair. The basic point is this: 
Given the Administration's budget cycle, each 18 to 24 months 
ahead--this estimate is a genuine estimate. You guess how much 
business you are going to get, and you wait and see what 
happens.
    Well, a couple of things happened during the last couple of 
years. One was an Asian collapse. The second was a Latin 
American collapse. So we did a little less business than we 
anticipated. But the business that we did do was also a lot 
sounder than the interagency agency process, and the 
combination of the two left us with a substantial overrun.
    I can't imagine you would want us to come back and ask for 
more money.
    Mr. Kolbe. My time is up and I haven't even gotten to the 
others yet, but I will come back to them in my next round.
    But my last question on that line will be, so to what 
degree of confidence are you telling us you are not going to 
need a subsidy for this, if your time line is so far out 
unknowns are so great? Other than the fact that you are there 
now, of course.
    Mr. Merrill. I tell you it is not often in my life that I 
have come up to the Congress asking for nothing.
    Mr. Kolbe. What confidence do we have that the 2004 
estimate is any better?
    Mr. Merrill. You know, I can't really answer that question 
adequately. It seems to me that I can't answer the question. 
What has happened over about a decade, as I listened to this, 
is that essentially a very high reserve of allowance was made 
for what we call bad loans. That has been consistently the case 
over the past years. And this year a more realistic assessment 
was made.
    When I went back, the reason I used the 2.4 percent number, 
is we went back and checked ourselves this decade and found out 
that 2.4 was about accurate. The average subsidy rate was 
roughly 7 percent over a number of years. Now the average is 
1.69 percent in FY 2003 and 3.3 percent next year. That seems 
to me to be roughly in the ball park with 2.4 percent. So we 
think that is going to be about right.
    Mr. Kolbe. Okay. Mrs. Lowey.
    Mrs. Lowey. Thank you, Mr. Chairman. And thank you all for 
your testimony.
    I would like to know, Mr. Watson and OPIC, you intend to 
commit $70 million to the new Russian fund. Based on the 
results of this new model for investment funds, OPIC intends to 
capitalize a number of new funds in 2004. OPIC claims to have 
enhanced the completive process and improved the financial 
structure and oversight of existing funds.
    Let me go through a couple of questions, because I know how 
fast this sand goes down.
    Number one, it is my understanding that the new Russian 
fund is just underway, and the new model in use for this fund 
requires $2 from private sources for every $1 coming from OPIC 
sources. It is also my understanding that Russian partners have 
yet to move forward to implementation, despite receiving this 
award 5 months ago.
    Can you tell us the status of the fund? Have they been able 
to secure private financing in this ratio? If not, why not? 
Maybe I will try and go fast. Give short answers.
    Mr. Watson. Indeed we have been reinvigorating these 
programs, in large part, to meet the request of the Congress. 
In short, it is a transparent fund manager selection process 
that has gone on. And this Russia fund is the first award under 
this new improved process.
    The Russia fund manager is moving forward with its fund-
raising, and OPIC does not anticipate providing more than one-
third of the total capital of the fund, which is consistent 
with the original call for proposals to reduce OPIC's exposure 
to the reconstituted funds program. In terms of the total 
percentage, it is important to point out that while the OPIC 
call for proposals did envision approximately 66 percent of the 
total capital to be provided from non-OPIC money, this was not 
a factor in the selection process. The candidates were not 
either selected or eliminated on the basis of their 
contribution.
    In terms of time for fund-raising by a fund manager, 5 
months is actually a very small amount of time in terms of the 
life of the investment fund. We still have, for example, an 
Africa fund that has been fund raising for nearly two years in 
a very difficult and challenging market. We hope however, they 
will be able to complete their fund-raising process towards the 
end of this year.
    Mrs. Lowey. Can you tell me how many funds you expect to 
initiate in 2004? What will your financial commitment be to 
those funds?
    Mr. Watson. The commitment to the investment funds is 
contained in our asset allocation plan. And if I recall 
correctly, we will be having two funds for a total not to 
exceed 250 million next year, Ms. Lowey.
    Mrs. Lowey. Could you please--I think it would be helpful 
if you submitted to us a complete list of anticipated 
investments in these funds for 2003 and 2004 for OPIC.
    [The information follows:]

    For FY2004, OPIC anticipates that in accordance with the 
Investment Funds Department Asset Allocation Plan presented to 
Congress, OPIC will undertake 4 to 6 new investment funds with 
an aggregate capitalization for all new funds combined not to 
exceed $250 million.

                      U.S.-RUSSIA INVESTMENT FUND

    Mrs. Lowey. Are you aware of the proposal from the U.S.-
Russia investment fund to seek OPIC guarantees for a portion of 
private investment in a new investment fund?
    Mr. Watson. Certainly. We have, myself and particularly my 
Executive Vice President, worked extensively with the fund you 
are referring to. Unfortunately, the request continued to be 
made of OPIC reverts back to the model which Congress 
specifically advised us that we were not to pursue, which is to 
say a noncompetitive, noncompeted fund.
    So even though they have reduced the amount that they have 
requested from us, it is like saying, we can't give you 10, but 
can you please give us 5?
    Under the old rules, the Congress said you have got to stop 
doing those noncompetitive, nontransparent funds. So the fact 
that they keep coming back to the old model, even at lower 
requests, doesn't allow us to help them.
    They were a candidate for the new Russia fund. They were 
unsuccessful in that regard. We had outside consultants, one of 
the best gatekeepers, Cambridge Associates was assisting. They 
were fairly evaluated with everybody else.
    I am very concerned that there is the impression that we 
are not going to give help. And our Executive Vice President, 
Mr. Connolly has spent a number of hours, most recently seeking 
to accommodate their capitalization. They have not been able 
to, in fact, come to some arrangement where they can do that.
    Mrs. Lowey. I think we have to continue the discussion 
another time, since my sand is quickly disappearing.
    Thank you, Mr. Chairman.
    Mr. Lewis. Mr. Chairman, I have a series of questions for 
the record I would like to submit.
    Mr. Kolbe. Thank you.
    Mr. Kolbe. Go ahead, Mr. Lewis.
    Mr. Lewis. Thank you. By way of perhaps taking a different 
approach to all of you, in this shrinking world, the tendency 
of the Congress and for lots and lots of members is to focus on 
the Middle East, and indeed upon Asia and Africa, but 
relatively few focus on Latin America. There is little question 
that we are going to need to be competing effectively with the 
world in the decades ahead.
    One way or another, America has got to combine with all of 
America--South, Latin, Canada--to impact the EU and the like.

                             LATIN AMERICA

    Mr. Lewis. I would be interested in knowing what each of 
you think is your effective role in impacting our positive 
relations with Latin America, maybe starting with Ms. Askey or 
wherever you want to start and you probably will have to take 
all my time.
    Ms. Askey. Thank you, Congressman Lewis. This is very 
important, particularly Mexico and NAFTA. But also, Central 
America is emerging as a very strong and commercially-oriented 
and democratically oriented group of countries and USTR has 
responded to that by negotiations with what is called the CAFTA 
countries. Since capacity building is an important element of 
that negotiation and other negotiations we will work with them 
to see what is most effective for them. We are of course host 
country driven and want to make sure that it is based on how 
they see themselves and their needs, and they have gone through 
with USTR a self-evaluation and they have presented these to us 
country by country and we are looking through them. My agency 
and other agencies are looking through them to see where we can 
best deliver services.
    With respect to Mexico, we have tried to operate in a 
context of the Partnership for Prosperity in Mexico, and in the 
case of Mexico and NAFTA members we want to make sure that that 
is a true partnership. They don't want us to tell them, you 
know, what they need. They want to work with us as to what they 
need and to have a public-private, equal type of relationship. 
So we are working through their two primary national funding 
banks and they help identify and support projects along with 
us, and we hope thereby that they will be more successful and 
sustainable. We are also looking at some sensitive areas in the 
border area to be helpful with in order to facilitate trade.
    We are also looking at Brazil, Venezuela and a couple of 
other countries. It is pretty difficult now, but we are not 
giving up on their economies. We are looking at where the 
private sector might be the most interested and trying to 
support those activities.
    So we agree with you, we have about the equivalent amount 
of money to spend in Latin America. I think only Asia is 
greater, it is a larger country. But we want, particularly with 
Mexico, for that to be more of a partnership. We also want to 
bring a lot of private sector money to the table with us and we 
are very committed to Latin America and we believe that trade 
between the two countries, Mexico and the U.S., as well as 
other countries, are going to be as key to us any region in the 
world.
    Mr. Watson. Congressman Lewis, I will be very brief. I have 
the total breakdown of the support by region. SouthAmerica is 
by far our largest area of support. It has 37 percent of our combined 
finance and insurance exposure. And if you add Central America and the 
Caribbean for another 7 percent, it comes up to over 45 percent.
    We would like to continue seeing improvement certainly in 
Mexico as well. We do not have a bilateral agreement with them. 
We are trying to procure that by helping small business in 
Mexico, which is an aggressive part of our activities. We have 
joined Secretary Evans in Chile and Peru earlier this year. So 
I think we are doing our best to support the region.
    Mr. Merrill. Sir, Congressman Lewis, Latin America is our 
backyard. We are exposed in Latin America for $11.7 billion. By 
comparison, we are exposed in Asia about $13 billion. The 
problem right now is Latin America, Brazil, Venezuela and 
Argentina.
    Mr. Lewis. Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you, Mr. Lewis. Ms. Kilpatrick.

                        INTERAGENCY RELATIONSHIP

    Ms. Kilpatrick. Thank you, Mr. Chairman, and thank you to 
the three of our presenters this afternoon. I would like to 
discuss the Millennium Challenge Account, one of the 
initiatives that the President has proposed--and we are going 
to have a hearing on that soon. I know, Mr. Watson, you alluded 
to it just a moment ago--what OPIC's relation might to be that. 
This member is not yet convinced of that $1.3 billion that he 
proposed. With the House budget resolution changes, I am not 
quite sure what the number is going to be. But it takes money 
from some of the other well-funded operating programs that are 
international that I have some concerns about.
    Ms. Askey, what is TDA's relationship, if any, with the new 
initiative?
    Ms. Askey. Well, we are certainly part of the interagency 
process that develops work on that account. But in any case, we 
think it is the way to go and it is commercially warranted, 
host country driven type of activity that we think will be more 
effective over the long run.
    Ms. Kilpatrick. What will be your role?
    Ms. Askey. We see that project identification and 
development will be part of the contribution that will be made. 
And also responding if they intend to give money to the 
countries for particular projects that are very much in our 
area, like transportation security, information technology, et 
cetera. We will help them develop projects.
    Ms. Kilpatrick. That is a good example of what you will do. 
This is good to know since Congress' role in this initiative is 
actually nothing. Right now we have a role with TDA. Once MCA 
is set up after appropriating the billion or whatever the 
amount is, then Congress pretty much, is taken out of it and 
this member has a problem with that because now I have a 
relation with TDA and what you do.
    Ms. Askey. We don't see it as a zero sum game. We see MCA 
as enhancing the role that the others will play in the context 
of delivering foreign assistance dollars.
    Ms. Kilpatrick. No. That is it because my time--and, Mr. 
Watson, what about OPIC's relationship?
    Mr. Watson. Certainly we are interested in that. We have 
yet to see what the delivery mechanisms are going to be, what 
the characteristics are going to be in terms of how the MCA is 
going to actually disperse in support.
    Ms. Kilpatrick. Okay.
    Mr. Watson. It is a little unclear at this point precisely 
what our relationship is.
    Ms. Kilpatrick. I see.
    Mr. Watson. Having said that, what we believe is that it is 
important for the administration and the MCA to have platforms 
and have delivery mechanisms which they can use if they wish to 
in fact utilize our agencies or others. And so what we would be 
interested in doing in the interim, because it is going to take 
a while to get funded and get it going and we want to see 
results.
    Ms. Kilpatrick. There is a lot of work yet to be done. The 
announcement is one thing. Getting it through is totally 
another thing.
    Mr. Watson. We want to assist the administration as best we 
can and I think the best way we can is to identify projects in 
those countries generally that are going to participate.
    Ms. Kilpatrick. I am also worried about the qualifications 
that are being proposed. There are many poor countries all over 
the world, many of whom will not be able to participate in the 
MCA as currently drafted. OPIC, any comment?
    Mr. Merrill. I think you mean EX-IM Bank.
    Ms. Kilpatrick. EX-IM, excuse me, not OPIC. EX-IM, I am 
looking at you.
    Mr. Merrill. No, really I don't have any comment. I am 
familiar with the initiative, I think, but it doesn't seem to 
me that is our mission.
    Ms. Kilpatrick. It would be more OPIC's and our expectation 
is that that agency's role will be extended. Let me commend 
you, Mr. Watson, on your input in building for homes and 
working with the African continent. I think that is very 
important. I appreciate that. In regards to the home mortgage 
program that will require that a mortgage and HIV treatment be 
paralleled, does that mean that you can't get the mortgage 
unless you are in treatment or unless tested? How does that 
work?
    Mr. Watson. That is in fact a very good starting point to 
understand what we are seeking to achieve here. What we are 
seeking to achieve is the protection of families and children 
who have parents that are HIV positive.
    Ms. Kilpatrick. Or orphaned children?
    Mr. Watson. That is exactly true. The way that we want to 
do that is encourage and facilitate both screening and testing 
and work and treatment, and the idea is to in fact give 
positive incentive to have them continue doing that. And our 
program will in fact provide treatment, provide the ability to 
have treatment and work.
    Ms. Kilpatrick. It is like being qualified financially?
    Mr. Watson. That is right.
    Ms. Kilpatrick. I commend you on that. I think that is 
excellent.
    Mr. Chairman, I am going to yield back the rest of my time 
and say that I have some questions to submit for the record.
    Mr. Kolbe. Thank you very much, Ms. Kilpatrick. Mr. 
Crenshaw.

                       SMALL BUSINESS INVOLVEMENT

    Mr. Crenshaw. Thank you, Mr. Chairman. Thank you all for 
being here. I just have a couple of quick questions for Mr. 
Merrill. In your testimony you talked about small business and 
how important that is, and it is my understanding that you are 
making an effort to involve more small businesses, but the 
numbers I was looking at, the number is increasing but the 
dollar amount still remainsfairly low. I think it was like 80 
percent of the deals are small business, but that only represents 40 
percent of the funds. And so I guess my question is, is that correct? 
And you know, are you making efforts to increase not just the number of 
deals affecting small business but actually trying to flow more dollars 
into those kind of transactions?
    Mr. Merrill. Yes, we are. As I indicated in my testimony, 
with an agency of 400 people you will recall, you know, it 
takes us a hundred years to call on 240,000 exporters, so we 
have to do this.
    Mr. Kolbe. Excuse me. Mr. Merrill, I know you are having a 
conversation there, but the stenographer needs to be able to 
hear you. So you need to speak up a little bit.
    Mr. Merrill. Anyway, the first initiative is we are trying 
to work out something with the Small Business Administration 
where we can layer on top of them. In other words, if the 
transfer credit is up to 500,000 there is no reason in the 
world why we cannot--I would like to see a situation where we 
can use their capabilities, if you will, and layer ourselves on 
top of that so it is not a double process. That is number one.
    Number two, we have identified that 75 of the 2,300 largest 
banks, financial institutions in the country have export 
finance specialists. We are sending somebody to call on every 
single one of them personally to see what small businesses go 
through there.
    The third initiative is I picked two states to broaden EX-
IM Bank's small business outreach efforts. I happen to know the 
governors of Colorado and Arizona, both of whom are friends, 
and each of which has roughly half a dozen financial 
institutions that dominate that state and which are, how would 
I put it, measurable. They are small enough so we can analyze. 
It is not like dealing with New York or California or even 
Maryland. And in both cases we have sent people out to talk to 
the banks and work with the governor. In each case, the names 
are different but the secretaries of economic development 
ensure that every exporter in those states is aware of what we 
have to offer.
    Fourth point, I would ask you to keep in mind that we are 
not in the business of competing with existing banks. We only 
come in when private capital doesn't do it on its own. So in a 
certain sense we can say here we are, we are available. But we 
don't want to go in and say here we are, we can do the job 
better than the local bank. So we have to work with them and we 
are doing that.
    Mr. Crenshaw. And last, real quick, I was going to ask you 
what countries benefit most. I guess you are talking about 
Latin America. Is that the case? I mean, if you look at 
countries where your most exposure is, I guess it would be in 
Latin America. But the other part is what country do you see as 
an emerging market that you might want to kind of give 
assistance and direct business that way?
    Mr. Merrill. Well, Congressman, our business is not to 
assist countries. Our business is to create and promote 
American jobs, and the question is where do the American 
exporters want to go and then we will go where they want to go. 
I think an accurate answer to your question is that the object 
of the United States at the moment is to integrate Russia and 
China more fully into the community of civilized nations. We 
now have $5 billion worth of exposure in China. We are 
financing or interested in financing several pipelines and 
other things in Russia and our exporters are interested in 
going to both places. Now, there are some interested in going 
to a lot of other places besides. But when you asked the 
question, what other countries that our exporters are most 
interested in, as individual countries, I would have to answer 
that their interest seems to be Russia and China.
    Mr. Crenshaw. Thank you. Thank you, Mr. Chairman.
    Mr. Kolbe. Ms. Kaptur.
    Ms. Kaptur. Yes, thank you, Mr. Chairman. I wanted to 
follow on Mr. Crenshaw's comments about small business. I 
happen to be a member who 21 years ago, as a member of then the 
Banking Committee, wrote the legislation with former 
Congressman Buddy Roemer to have a 10 percent set-aside for 
small business and EX-IM, and I find this testimony almost 
laughable on page 10. Mr. Crenshaw was very polite. It is 
always interesting to me how EX-IM masks what it isn't doing. 
And so I just want to say that even though we have increased 
the set-aside to 20 percent, effectively there is as little 
interest as there was 20 years ago in what you are doing in the 
small business arena.
    So I just wanted to put that on the table. I don't think 
you are really serious about it, and you never have been, and 
so I am very disappointed in the testimony and I hope somebody 
can come up and see me and tell me that my reading of the 
numbers is wrong. But there has always been a prejudice against 
small and medium sized businesses in EX-IM and the vast 
majority of the sources are the same old people and, frankly, I 
think what you are doing is setting up our competition around 
the world. When I look at the steel industry in South America 
or I look at the textile industry, you are not interested in 
creating jobs in this country. If you were, we wouldn't have 
the growing trade deficits that we do.
    And so if I look at the history of each of your agencies 
and I look over the last 125 years, we now have over $400 
billion in trade deficits. If we had it right in this country, 
we wouldn't have that kind of hemorrhage going on and we are 
losing jobs. We lost 300,000 more jobs in February, and 2 
million in the last 2 years--well, actually a year and a half. 
And so we all have our work cut out for us, and my basic 
question for each of you is what type of measure do you have 
internally within your agency in order to make sure that you 
are actually creating exports and not more imports by what you 
are financing? Over a time line? How do we know that?
    Ms. Askey. I will be happy to respond. With respect to 
small business, about 70 percent of our activity is in the 
small business sector. All of our definitional missions and 
desk studies are done by small business. It is difficult, as 
you must know, for a small business to sustain itself in very 
risky markets and we are trying to help that along. And a good 
example is in the environmental sector where a lot of U.S. 
technology is at the highest level. We have good solid 
environmental technology within U.S. companies. Most of those 
companies are small. It is difficult for those companies to 
sustain themselves in international markets, so we are trying 
to provide technical assistance that enhances the ability of 
State and local governments to finance environmental projects 
so that they can use small business over and over again.
    Ms. Kaptur. Ms. Askey, my question was how do youmeasure in 
fact whether you have created jobs in this country in your effort to 
try to do this financing versus more imports coming in here from 
wherever you are making your investment?
    Ms. Askey. I am sorry, I was going to get to that. I 
thought you had also asked a question about small business. We 
do, as I talked about our multiplier, have about 35 dollars in 
exports for every dollar we spend in our agency. We also have 
an evaluation with every project on whether import activity, I 
mean imports, domestic industry would be adversely affected by 
imports in that process. So we have that evaluation in every 
project that we do. We look at the data to see what that effect 
would be. It keeps us out of a lot of the manufacturing sector, 
but we do look at that with every project.
    Ms. Kaptur. There is probably not time for every one to 
respond, Mr. Chairman, but I would be very interested in the 
economic profiles that you use in each of your 
instrumentalities to actually measure job creation versus 
import displacement jobs in this country, and I would love it 
if your econometric specialist would come up and see me on 
that, and then we will submit it for the record.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Mr. Bonilla.
    Mr. Bonilla. Thank you, Chairman. Over the years we have 
had issues come to the floor and have had to support or go 
against efforts to try to cut funding for OPIC's trade 
development, and EX-IM Bank, and folks back home, except for 
the business leaders, look at us and say what is that about. It 
would be interesting to hear some thoughts on how you stress to 
the grass roots level the importance of what you all do. You 
are a distant operation to a lot of Americans and they just 
don't even know you exist. So what do we say, what are some 
good things that we can say back home to folks about what you 
do?
    Mr. Watson. May I start?
    Mr. Bonilla. Sure. Absolutely.
    Mr. Watson. OPIC is a very small agency as is TDA, in terms 
of the staff. We only have two hundred people and we have no 
domestic offices. So recognizing that we in fact do need to 
have a greater degree of outreach, we have in the last year 
concluded a joint memorandum with the Small Business 
Administration, which you know has a whole range of 
relationships in agency and offices around the United States. 
They in fact are a generator of qualified leads and eligible 
companies to us or a feeder to us. So they are sort of a force 
multiplier, if you will. We have a similar memorandum with the 
Foreign Commercial Service whereby they are also trained in 
what we do and how they can best serve their constituencies by 
using our programs.
    So in addition to trying to do better in terms of 
information technology, we are also with the Small Business 
Center identifying, as EX-IM Bank has over the years, private 
sector groups that will in fact do business with us by bringing 
leads and the like. So we have very aggressively now built up 
what we call our force multipliers precisely to reach 
constituencies that may not have been with us before, 
particularly small business.
    Mr. Bonilla. And that resonates with these small business 
issues. I know people are bringing up points here for different 
reasons, but some of us have worked closely with small 
businesses on the ground back home, and they watch our voting 
record very closely and they know who supports small business 
initiatives in this country. The small business set-aside was 
scheduled to go from 10 to 20 percent, for OPIC, in the last 
budget, was that more driven by the feeling of reality that you 
could get there or was that more politically driven just to try 
to say that you are doing more for small business?
    Mr. Watson. I think that might be EX-IM----
    Mr. Merrill. That is--you said OPIC.
    Mr. Bonilla. I meant to say EX-IM.
    Mr. Merrill. Well, I wasn't here for the authorization 
process, but my general sense and what I have heard since I 
have been on this job is that the Bank originally was mandated 
to do 6 percent with a gradual increase to 8 percent and then 
to 10 percent direct small business. EX-IM Bank exceeded the 
goal of 10 percent and supported 14 percent, then 16 percent, 
and then in the last couple of years 18 percent. When the 
authorization process took place last year, Congress rounded it 
off to 20 percent and said, well, we asked you to do 10 
percent. It was kind of friendly. I mean that there was a sense 
that a real effort had been made and that it had been 
successful. However, we want you to do better. And we are 
trying to do better.
    I would add to that EX-IM Bank authorized 2,154 small 
business transactions. These transactions were directly to 
small business. They did not include the thousands and 
thousands, hundreds of thousands, small businesses that are 
subcontractors, so to speak, for large businesses, that are for 
GE or what not. So we are really doing more than 20 percent.
    You talk about small business in general, and frankly I am 
a small business; I am not quite sure I am a small businessman. 
I mean in my private life we haven't got 500 employees, and so 
we are kind of on the line of small business. But I have been a 
small businessman, very small, and I am very sympathetic to the 
difficulties of being an entrepreneur or being a small 
businessman in the United States. So whatever anybody else 
says, I am going to pay attention to small business.
    Mr. Bonilla. Then again that does give us an avenue to toot 
your horn more particularly those of us who have enjoyed 
supporting what you all do over the years.
    Mr. Merrill. Well, let me just say that the Coalition of 
Employment Through Exports and staff and three or four other 
associations, including two different small business export 
associations. I have met with all of them, or I should say they 
met with me. I am speaking to several of them. The best form of 
promotion or advertising is testimonials and we have got a lot 
of people there who are very satisfied with the service they 
have gotten from EX-IM Bank as small business people.
    Ms. Askey. Congressman, we use the U.S. Export Assistance 
Center offices throughout the United States, which are with 
Commerce. We are a very small agency so we can do that, I hope, 
around the country. We are a rather specialized grant making 
agency so we do have to keep our programs out there for those 
that are interested in, you know, pursuing opportunities in 
pretty risky export markets. But there are many who do, and on 
April 30, in fact, we are joining with the Small 
BusinessAdministration and having a day long seminar where we talk 
about small business outreach and we showcase our activities for those 
businesses. As I said; already about 70 percent of our activity is with 
small businesses; they are the ones that deliver our services, and so 
we expect that to continue. We continue to do outreach through our 
website and with these events like the one on April 30 and through 
using other agencies' offices that are out there, like the U.S. Export 
Assistance Center offices to make sure our programs are out there and 
visible.
    Mr. Merrill. Let me add to that as well, if I may. We have 
six offices, regional offices, around the United States 
virtually totally focused on seeking and helping the small 
business operators, in good faith.
    Mr. Bonilla. Very good. Thank you for your testimony and 
for being here. Thank you, Chairman.
    Mr. Kolbe. Thank you very much, Mr. Bonilla. Let me advise 
our witnesses and guests that in about 4 minutes here, at 3:30, 
there will be a test of the annunciator system here in the 
Capitol. It is not an evacuation drill. You do not need to 
leave, but it will be very loud so we will suspend until the 
test is over.
    Let me begin our second round of questions. Let me turn to 
Ms. Askey and the budget for TDA. Last year we provided you 
with $47 million and this year you have a $60 million request 
coming from the administration as it comes up to us. When you 
came and talked to me about some of the important work that you 
were doing, my advice to you was to go to the administration 
and convince them of it. Well, you did your spade work. You did 
your spade work and you hit pay dirt with it, with the 28 
percent increase. Having said that, I still think that the 
committee wants to have justification of course for the 
increase that you have and, frankly, the tables in the 
attachment do not give an awful lot of information in any 
specificity with how the increase would be spent.
    So could you elaborate for the record here today why such a 
large increase is needed and, specifically, how you expect to 
see those funds spent in this next year?
    Ms. Askey. Thank you, Mr. Chairman. I appreciate the 
question and we definitely want you to have those specifics and 
would be happy to provide them. I would like for you to keep in 
mind that although a very large percentage increase, a $12 
million increase is not a huge amount. We did work very hard 
with the administration, OMB in particular, in showing them 
that we have a new direction at the agency that will be more 
policy oriented and we will try to more effectively deliver our 
services in the context both economic and foreign policy 
objectives. When you look at the numbers as they progress over 
the years, in fiscal year 2001 there was about $60 million in 
program funding for the agency. Unfortunately, it wasn't 
delivered effectively, I think, and that is what they looked at 
in formulating the 2003 budget numbers early in this 
President's administration and therefore, unfortunately, pretty 
perfunctorily brought us down to a lower level. We think we 
have demonstrated in 2002, using some carryover money from 
2001, that our programs can be very effectively delivered and 
we believe that our 2004 levels reflect more accurately what we 
have actually demonstrated in that period of time.
    Now, also, we have high demands on our agency based on the 
post-9/11 period. The frontline states are very active with the 
U.S. We have some reconstruction efforts under way. 
Transportation enhancements and security has become a very 
strong focus of our agency. And we have AGOA; we want to 
continue to put money in that context and in trade capacity 
building, which of course emerged in the post-Doha Round period 
where development became a new focus for developing countries.
    So we will continue to respond to this, and the new world 
in which we live in. I will just break down briefly for you how 
we expect to use that money, and I will provide some more 
details for you.
    We think there would be about 4 million in new 
transportation, both port and airport and other entry points. 
This will not just be for direct security but also enhancement 
at those ports that help facilitate trade and thereby security 
and then also direct security efforts, which will make it 
easier for trade to flow.
    We expect an additional 2 million on AGOA-related 
activities in Africa, and some of that will be for North Africa 
as well. About 2 million on capacity building in addition to 
the 2.5 million that you had given us and earmarked. We of 
course hope to have additional money for capacity building both 
in our core money, but in the additional 12 million that we 
will get we will supplement our core money with about an 
additional 2 million on capacity building.
    About 2 million will go to Afghan reconstruction and Iraq 
reconstruction. Iraq will materialize as we proceed, but we had 
expected that in 2004 we can do some additional business there, 
based on what has happened in our Afghan program and what has 
happened in earlier reconstruction efforts, and looking at Iraq 
and its own natural resources and its own economy in the pre-
war period.
    We expect to spend about another 1.5 million in high 
priority areas for Asia, other than China, such as Vietnam, Sri 
Lanka, East Timor, Pakistan, Philippines. Those are areas where 
I think we have both economic and strategic interests and that 
moving the economies forward in these countries will be 
important.
    So I think that takes us to about 12 million. I think we 
have .5 million left over which we expect to use in additional 
environmental projects, waste, energy and clean water, clean 
air. But we will be happy to provide for the record the 
specifics. We worked on them over a lengthy period with OMB and 
with the National Security Council to make sure that the 
priorities that we saw for the agency in the future were ones 
that supported U.S. government policy and could be effectively 
delivered in the context of commercially oriented and 
commercially-disciplined activities so that it could be 
sustained over time. And it really brings us in 2004 back up 60 
million. It will be less than the activity we did in 2002, but 
I think it will be a good critical mass for an agency such as 
ours that basically works early in the process, responds to 
changing environment quickly. We have a lot of flexibility in 
the agency to construct projects and deliver them quickly as 
needs emerge.
    So I think this breakdown is what we are looking at we 
certainly want to give you as much detail in everything and 
elaborate on those priorities that you want. We will be happy 
to work over the coming months to answer any of your questions 
in that regard.
    Mr. Kolbe. Thank you. Once again my time is up. I have 
still got some more questions. We will go to Mrs. Lowey.

                             CHINA PROGRAM

    Mrs. Lowey. Thank you, Mr. Chairman. If I may continue with 
Ms. Askey. TDA reactivated the China program in July of 2001 
and spent over $10 million, or about 20 percent of the budget, 
on China-related projects in 2002. Projects would include, as 
we discussed, aviation safety, rural infrastructure, WTO 
accession, energy efficiency.
    I have three questions. One, what were the conditions that 
warranted reactivation of the China program and why is China 
such a priority for you? Two, how much from both your 2003 and 
2004 budgets will be devoted to projects in China? And three, 
why are TDA advisers in China working on WTO accession issues 
and what is the nature of their working relationship with the 
Chinese government?
    Ms. Askey. Thank you very much, Mrs. Lowey. We opened in 
China in the post-sanctions period. We were not permitted to 
operate there prior to that. That is why the full market is 
open now. The dollar amounts add up very quickly in China 
because the economy is large and the commercial interest is 
high. The U.S. commercial interest participating in development 
projects in the face of strong subsidized competition for our 
European, Japanese and other allies makes requests to TDA for 
our support through our normal programs very high, and so we 
try to respond to that. There are indeed a lot of WTO-oriented 
requests coming in and we are trying to respond to those so 
that China can more effectively participate as a member of the 
WTO and move towards a liberalization and can eliminate 
barriers to trade that are bureaucratic and regulatory. So we 
feel like we can offer technical assistance to them that will 
basically help match their system to the pre-competitive forces 
and not follow some of the more restricted practices that the 
Japanese engage in and sometimes the Europeans engage in. So we 
hope that our participation with the Chinese helps them move 
more towards a liberalized economy and less a beaucratic and 
regulatory economy.
    I also think that China has some programs that are very 
important for us and the U.S. Government in the development 
sense, particularly in the Western provinces, so that we can 
continue to work in China to raise the standards of living of 
all the average Chinese citizens, particularly in those areas 
that are more remote and more difficult.
    We have also had some very interesting programs with China 
that are decentralized. For example, we have a project under 
consideration for mortgage financing technical assistance so 
that environmental projects can--I mean, excuse me, not 
mortgage financing but municipal bond financing or similar type 
financing systems, that can be used to finance environmental 
projects over the long term. Because China is a more 
centralized system it makes it very difficult to get approval 
for a lot of these projects, and if we can work on municipal 
bond or some other type of financing in localities that 
normally fund environmental programs, such as clean air, clean 
water, waste disposal, et cetera, that will facilitate U.S. 
participation, namely by small buinesses this very difficult 
market.
    So I think it is a combination of things that makes China a 
big part of our portfolio. We expect that to continue. I don't 
know that it will be as large as it was in our first year of 
operation. We are trying to emphasize other parts of Asia that 
are very important to us as well, such as Vietnam, Sri Lanka, 
Pakistan, India. India is a very difficult market. We are 
having some great successes there, and I will be happy to talk 
about that further.
    Mrs. Lowey. I probably have 2 seconds left, but could you 
further discuss the working relationship with the government?
    Ms. Askey. Well, we do work with them. We also work with 
the private sector in China. We work with their Civil Aviation 
Authority on a lot of airport security and airport enhancement 
projects. We find the working relationship good. Obviously, 
there are bureaucracy and problems that occur with the 
centralized system, but we think we have established a good 
relationship with them. Because they understand our projects 
and what can be done under our programs, and that has improved 
over the last couple of years, we think it will continue to 
improve. But we have to continue to talk with them and with 
private sector entities within China about their key priority 
development issues such as whether they are going to have 
funding for the projects. For example are they going to put 
their muscle and money behind it or will it be financed on 
other terms?
    So we find that relationship is now a relatively good one. 
They are not resisting us or throwing up too many barricades, 
or roadblocks to decision making with respect to building 
public and private partnerships within China.
    Mr. Kolbe. Mr. Bonilla.

                        INFRASTRUCTURE PROJECTS

    Mr. Bonilla. Ms. Askey, I was just looking over some of the 
special initiatives that you are all are working on and I guess 
it is more of a general question. I look at some of the 
infrastructure projects. $3 million for support activities, 
Department of Commerce, and USTDA doing a conference in Chicago 
to talk about rebuilding the Afghani infrastructure, the 2.5 
million for civil aviation and all that, and we know we have to 
do this. We all understand this. I don't think there is an 
American out there that wouldn't think that we absolutely need 
to help them have a decent life so that they can keep the bad 
guys out. But at this point, and the level that country is 
developed, can they sustain these infrastructures as we help 
them? Or are we going to get involved in helping build some 
nice shiny new structures and can we walk away from it thinking 
that they can actually sustain this or not? And the other part 
of my question is how much help are we getting for projects 
like this from some of our, quote, allies around the world that 
need to be concerned about this, too?
    Ms. Askey. Right. I very much appreciate those questions. 
Clearly Afghanistan is a very, very difficult market. They need 
everything and we are a very small agency. So we try to 
position our money so that it matches private sector interests; 
i.e., the private sector will bring some money as well, 
although that is not as much the case in Afghanistan for the 
reasons you state. But we send either contractors who have 
specialties, say in information technology and 
telecommunications, to Afghanistan to talk with the government 
officials and help understand their needs. We very much want 
this to be host country driven, and we are taking small steps 
with them. For example, in telecommunications, the first thing 
they asked us to do is help structure their ministry so that 
they could look at telecom bids. They knew that they didn't 
have the wherewithal to support the regulatory mechanisms 
necessary tocontrol bandwidths, for example, and establish it.
    Mr. Bonilla. You have got to start from scratch then, 
right?
    Ms. Askey. Exactly. In that case we did. Then the next step 
was to help them evaluate the bids that they were getting in 
telecom, and we did that. Unfortunately, there were no U.S. 
bidders, but there were other bidders, including Afghan 
bidders, and we helped them evaluate those bids on commercial 
terms. So it is a process of doing with them what they can 
absorb and trying to build up the infrastructure so that can be 
sustained.
    We are a small agency, so we look for targeted projects 
that can be done in some sustained period of time. We hope 
private sector money will be brought to the table with it, 
although in Afghanistan the private sector interest is not as 
high as in other areas. And we just take these steps with the 
country.
    In the case of the conference that we are going to be 
supporting with Commerce in Chicago. We want to bring those in 
the ministries and in the private sector here, so that we can 
more easily showcase to our companies that might be interested 
in that market what Afghan needs are. And for the Afghanis, to 
show what is available to them in the U.S. so that they can 
draw on that resource of technical expertise and products; 
i.e., through exports or services provided rather than through 
our competitors.
    Mr. Bonilla. What about other countries? Are they doing 
their parts, or our alleged allies that are sitting on their 
tails a lot these days?
    Ms. Askey. Well, I know the State Department has had people 
in the region basically to help direct donor assistance, as you 
say, and I would have to refer you to them about how successful 
they have been and what the actual distribution is. I know they 
have built some roadways where it has been divided up, the 
donor money. Say you have this part, you have this part, you 
have this part. But I really need to refer you to the State 
Department about how donor money is distributed. We want to be 
very focused and targeted on what is meaningful under our 
programs and our mission and target both the U.S. industry that 
may be interested in those markets so we can put the two 
together. We don't want importers and importers together. We 
want importers and exporters together, so that we can actually 
deliver the services.
    Mr. Bonilla. Thank you.
    Ms. Askey. Deliver the product or deliver the technology.
    Mr. Bonilla. Thank you, Chairman.
    Mr. Kolbe. Thank you, Mr. Bonilla.
    Dr. Watson, finally a chance to question you. First of all, 
let me say I appreciated the opportunity to visit with you and 
your management team the other day on your turf. It was a very 
useful visit for me and I appreciated it very much. At that 
time you told us and you have told us before that the demand 
for OPIC insurance is declining, partly as a result of the 
slowdown in the economy, also because the private sector is 
providing insurance, which is good news. It is good news that 
OPIC is not competing with the private market, and that the 
private sector is doing the job that we would like it to do.
    That being said, I think it is part of a larger overall 
challenge that OPIC faces to try and figure out exactly what is 
its mission. Traditionally your agency has been perceived as a 
generator of trade and commerce more than as an agency focused 
on generating development as the core mission provided, as 
defined in the law. But I think, as I understand from what you 
have been telling me, you are proposing to change this in a 
fairly dramatic and programmatic way. So my questions relate to 
what is OPIC's mission in this development debate. What is the 
comparative advantage that you have in helping developing 
countries achieve economic growth, job creation and profit 
production and how is this different from other agencies, other 
agencies and institutions, perhaps U.S. institutions but also 
maybe some multilateral ones?
    Mr. Watson. Thank you, Mr. Chairman and committee staff, 
for coming to OPIC the other day.
    Suffice it to say that this isn't a new mission that the 
present CEO of OPIC has dreamed up on an otherwise dull day. It 
was really a sense in many quarters that OPIC had seen 
progressive mission drift and we basically have two guidelines 
that direct us to a refocusing of the agency traditional 
historic development.
    The first, for a starting point, as a recovering lawyer, I 
always have to go back to what our DNA was, what is our 
statute, what is the enabling framework. The OPIC mission 
statement is included in the Foreign Assistance Act. It is very 
subtle, but it is important. It says our mission is to mobilize 
and facilitate the participation of the United States capital 
and skills in the economic and social development of developing 
countries and areas of countries in transition, thereby 
complementing development assistance objectives of the United 
States. So we very much follow, our statute, the charter if you 
will, for our mandate derives from that.
    This on one end was reinforced by the FY 2002 President's 
budget guidance which we inherited. It came up to Congress in 
April 2001. We came to the agency in June 2001. It stated that 
OPIC's activity should focus more closely on companies and 
countries that cannot access private financing or insurance, 
and these efforts should be more complementary, not competitive 
with the private market, which is very consistent with the 
original statutory mandate for OPIC.
    What this does is to present or to provide OPIC in fact 
with a mandate to assist economic development by facilitating 
private sector support in these markets to encourage them, to 
facilitate them to come into the market overseas where 
otherwise they would not. In that sense we have an 
extraordinary comparative advantage because OPIC is really the 
only entity within the United States Government that has that 
as its dedicated mission. Over the years we have managed to 
attract extraordinarily competent professionals to the agency, 
many of whom come from the private sector, insurance and 
banking background, and I think we have attracted a tremendous 
amount of deep skill sets there. And we do, in fact, receive a 
tremendous number of entities overseas looking to us to see how 
in fact we go about doing business.
    Many of the multilaterals who we deal with, EBRD, IFC and 
others, are constantly in touch with us to see where we are 
doing business, how we are doing business and we are really the 
mechanism within the United States Government to link up 
economic development in emerging economies with the private 
sector.
    So having said that, we do this in a synergistic way. EX-IM 
Bank, TDA, within the interagency process have complementary 
programs and activities to support the economic growth both abroad and 
in the United States. AID has an important complementary role to our 
programs, and I will just give you a quick example in that sense.
    We have just completed an approval to privatize a port and 
railway involving Mozambique, Mulawi and Zambia that is going 
to allow food aid to go in there and exports to come out of 
there. AID is going to work with us to provide the 
privatization capacity and skills for those economies to effect 
this implementation. AID is also working with us on some 
projects to facilitate activities in relation to our HIV/AIDS 
relationship with HLGC in South Africa. So there is real 
synergy on what we are doing. But collectively we are able to 
provide real economic growth in these emerging markets, Mr. 
Chairman.
    Mr. Kolbe. Thank you very much. My questions are much too 
broad. I never got to follow up to them. Hopefully we will 
finish in a round because we do have a briefing with Secretary 
Rumsfeld upstairs.
    Mrs. Lowey.
    Mrs. Lowey. Why don't I end with a little bit of discussion 
on Enron? Last year the committee spent much of our hearing 
discussing the extent of financing granted by the EX-IM Bank 
and OPIC to the Enron Corporation. OPIC has supported over 1.7 
billion in foreign deals involving Enron since 1992 while EX-IM 
spent around 700 billion on Enron-related projects, according 
to information provided to Congress by OPIC. As of September 
30, 2001, outstanding exposure to project company borrowing for 
the Enron Corporation was $464 million. Neither OPIC or EX-IM 
were able to answer specific questions at that time because the 
entire matter had been referred to the Justice Department.
    Both OPIC and EX-IM, would you please update the committee 
on the status of that?
    Mr. Watson. Thank you. First, I want to just state that the 
Justice Department investigation continues. It shouldn't 
prevent us from being responsive to you. OPIC does not do 
corporate finance. OPIC therefore has not a single dollar of 
support for Enron as a corporation. We provided financing for 
projects abroad and funded projects. And most of the projects 
we do support that Enron as a shareholder also has a number of 
other companies that are shareholders; for example, GE and 
Bechtel, with the group that we are trying to deal with. Let me 
just quickly say that there are currently 10 projects with 
Enron involvement which were approved under the time period of 
1992 to 2000. That would be prior to my arrival. There are 
currently seven ongoing political risk contracts with Enron-led 
projects and four finance projects involving Enron as a 
shareholder. With the exception of the Dabhol project, all of 
these continue to remain on course for payments. There are no 
defaults, and we continue to receive disbursements and payments 
on a regularly scheduled basis.
    I would just close by saying in terms of real exposure, in 
our contracts, insurance liability is capped at $204 million, 
total, for all projects at Enron. And we have been repaid $127 
million of the $544 million that we have provided to finance 
them. I will just close by saying that this administration, 
this management withdrew financing of two projects from Enron 
and approved none.
    Mrs. Lowey. Would you like to respond?
    Mr. Merrill. Yes. Well, first thank you for the question 
because we have had no losses with respect to Enron. There are 
about half a dozen projects, actually six, in which Enron was a 
participant. However, Ex-Im Bank had no loans, credits, 
insurance whatever to Enron. But we do have some projects in 
which Enron was involved. Those projects at the moment, we have 
no reason to believe any unusual or extraordinary----
    Mr. Kolbe. Would you speak up just a little bit?
    Mr. Merrill [continuing]. Thank you.
    Extraordinary and short term at least, no losses, no. We 
continue to watch it.
    Ms. Lowey. Was there any awareness of the corporate 
problems at Enron on behalf of perhaps OPIC or EX-IM; was 
anyone aware or you just thought they were a great corporation 
doing their work?
    Mr. Watson. Let me just say, I don't want to stand on the 
answer as not an acceptable answer to say these loans have been 
within other preceding administrations.
    Mrs. Lowey. That would be the same for you as well, right?
    Mr. Merrill. But I am going to stand on that answer.
    Mr. Watson. Mrs. Lowey, we were not prepared to take at 
face value the assertion that in fact, these loans were made in 
good faith, and that is precisely why we did ask the Department 
of Justice to advise us, to investigate, to advise us if there 
is any basis for disbelieving or if there was any reason that 
OPIC was misled in its decision making by Enron. We continue to 
provide information to the Department of Justice on an ongoing 
basis, and the matter continues to be under investigation and 
we would be very glad to advise you should we get any 
information on that. But at this point I should close by saying 
we have not discerned that there was any false information that 
we could have understood as being false that was given at the 
time. That would be my understanding, but we are not going to 
be prepared to rest there and the Department of Justice 
investigation continues as to what they were doing.
    Mr. Merrill. I mean, the answers I got and the ones that I 
just gave, I have no reason to believe that anybody--however, I 
cannot resist saying that an awful lot of the corporations 
are----
    Mrs. Lowey. We are out of time. We have a briefing. But I 
would be interested to know, do you expect any criminal 
prosecutions as a result of their clear deception?
    Mr. Merrill. I think the answer to that is I don't know. I 
can't get into that, because I don't know.
    Mr. Kolbe. Let me go, I think I can get about a 30-second 
answer from each of you to a couple of questions I have on the 
budget that I didn't get a chance to ask. Ms. Askey if you 
could provide us a detailed budget justification of the 
transfers you received from other agencies in the past, and how 
much do you expect to see in 2004?
    Ms. Askey. I appreciate that. You are talking about the 
SEED and the FSA money. We get that money. Last fiscal year we 
received 7.6 million. We will get somewhat less than that 
fiscal year 2003. It is not decided yet.
    We generally don't get it until very late in the year, like 
September. They decide on it in spring here sometime. We expect 
as long as there is SEED money available we want to compete for 
that money. In the face of falling SEED dollars, the SEED 
office generally maintains TDA programs. They like them. They 
think they are effective to deliver and efficiently delivered. 
So in the face of their own falling dollars, they continue to 
distribute money at a consistent level to our agency. And we 
hope that that continues in 2004. The amount of money that we 
have asked for is an increase and that OMB has given us is not 
associated with that particular transfer money. It is 
associated with the priorities that I have outlined for you.
    Mr. Kolbe. One last question. I have asked this every year. 
How many feasibility studies did TDA conduct last year? And of 
those conducted, have you been able to track how many 
successfully resulted in a U.S. Company winning a procurement 
or other export contract?
    Ms. Askey. Well, we had about 500 activities at USTDA, and 
139 were feasibility studies, for a total value of 45 million. 
And in addition, we conducted about----
    Mr. Kolbe. Forty-five million in dollar value of the 
procurement or exports?
    Ms. Askey. For the projects themselves.
    Mr. Kolbe. For the projects themselves.
    Ms. Askey. As I stated earlier, we recognized about 118 
million in exports in fiscal year 2003 from fiscal year 2002 
activity. And, of course, from earlier projects we logged in 
about 409 million in first time U.S. exports. About 77 of those 
500 actually was technical assistance; and capacity building, 
which had about an $18 million value.
    In answer to an earlier question, we are working on 
measurement tools for the development side of the equation in 
our agency, which is a lot more difficult to measure than 
exports which are obviously more concrete to measure. But it is 
about 60 percent, 65 percent, still are feasibility studies. We 
expect that to continue. It has operated at about a 10 percent 
band as far as movement.
    Mr. Kolbe. I want to thank all of our witnesses today for 
staying with us here and for your answers to our questions, and 
my colleagues on the committee for their questions.
    Thank you very much. The subcommittee stands adjourned.
    [Questions and answers for the record follows:]

GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT
    
                                          Wednesday, April 9, 2003.

               U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT

                                WITNESS

ANDREW NATSIOS, ADMINISTRATOR, USAID

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe [presiding]. The Subcommittee on Foreign 
Operations will come to order. Before I begin my statement and 
ask Ms. Lowey for hers, let me just advise the assembled group 
here that we expect four votes in 25 minutes. I hope the 
administrator will be able to stay, because I will come back, 
and we will have some questions.
    I hope your timetable will permit you to stay.
    We will get started and get as far as we can before the 
votes begin. This afternoon, we are pleased to have the 
administrator of the Agency for International Development, 
Andrew Natsios.
    Since the last regular hearing that we had, about 13 months 
ago, Mr. Natsios has faced a lot of challenges, as his agency 
participates in the president's national response to global 
terrorism, begins the relief and reconstruction efforts in 
Iraq, and struggles to hold its own in an administration that 
is proposing numerous alternative vehicles for delivering 
foreign assistance.
    Mr. Natsios, I want this hearing to complement the hearing 
we had a week ago with you and the deputy secretary of state. 
The discussion between Secretary Armitage and the committee I 
think was direct and productive. We recognize that the major 
policy decisions are made by the president and his cabinet and 
Undersecretary Armitage, but we also know that the men and 
women of the USAID have a critical role in implementing those 
policies.
    We owe each of them our special thanks for the work that 
they do, often in the face of significant hardships and even 
physical dangers.
    Two years ago, when I assumed the chairmanship of the 
subcommittee, I identified my three priorities as chairman. One 
was global health; second, effective management of the agencies 
that are funded by our bill; and, third, export promotion and 
trade.
    These are still priorities of mine, but the agency's human 
resources to address them are limited by the requirements to 
increase programs in front line countries in the war against 
global terrorists who threaten our way of life.
    Unlike last year in the case of Afghanistan, the short-term 
requirements for Iraq appear to be adequately reflected in the 
supplemental budget request that is now in conference. We hope 
we will be finishing that up this week and expect we will be.
    We know that the supplemental funds for Iraq is not going 
to carry the reconstruction very far in the fiscal year 2004. 
Without a budget amendment for Iraq reconstruction within the 
next few months, USAID will once again, just as it has been 
doing, be asked to borrow funds from other assistance levels, 
from other accounts, to fund requirements in Iraq. There will 
be more discussion, I am sure, of the front line states later, 
as we go through this hearing.
    Before returning to my original three priorities, let me 
revisit an issue from last year, involving taxation of our West 
Bank/Gaza assistance program--taxation that was levied by the 
Palestinian Authority.
    It took an inordinate amount of time for USAID to provide 
us with the information about that matter and similar cases 
worldwide; but, once we learned about it, we took some action. 
The 2003 Foreign Assistance Appropriations Act--it was part of 
the omnibus bill--includes some very strict requirements to 
limit the taxation of U.S. assistance for beneficiary 
countries. I would hope you would comment on the implementation 
of the no-tax provisions.
    With regard to the priorities that I mentioned a moment 
ago, I will limit my remarks on global health. Taking note that 
while the African AIDS crisis remains the focus of our 
attention, we have to continue also to be focused on other 
major infectious diseases, such as tuberculosis and malaria, 
which still kill so many people around the world, and on 
emerging HIV pandemics in Asia.
    Maternal health, too, remains a priority for us, and I do 
not think that the committee is going to agree to any 
reductions that are proposed for these programs.
    I mentioned the second priority was the management of 
USAID, and the division of labor between it and the State 
Department. The new Iraq relief and reconstruction fund will 
have little impact and little chance of medium- or long-term 
success unless the roles and responsibilities of executive 
branch agencies are worked out quickly and in a very clear 
fashion.
    Current procedures for making economic support funds 
available for program implementation continue to be very time 
consuming, very cumbersome, very bureaucratic. USAID and the 
State Department must work together more efficiently, or the 
president's going to continue to propose new foreign aid work-
around mechanisms, such as the Millennium Challenge 
corporation, in an effort to avoid the bureaucratic traffic jam 
between State and USAID.
    This year, we are considering proposals for a new, complex 
emergency account and yet another new HIV/AIDS initiative, both 
of which would be managed elsewhere, outside of USAID.
    My final priority--it is an issue that has been one of high 
priority for me for a long time--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.
    I am encouraged that your budget indicates additional 
support for trade and export promotion, but I will continue to 
view the substance of the individual programs under that label.
    I know there are many other matters of concern and I have 
some questions on a number of those, but let me ask Mrs. Lowey 
for her opening statement.

                     Mrs. Lowey's Opening Statement

    Mrs. Lowey. Thank you, Mr. Chairman, and good afternoon and 
welcome, Administrator Natsios. We are very pleased to have you 
back for our hearing on the Fiscal Year 2004 request for 
programs administered by the Agency for International 
Development.
    I intend to address those programs, but also to deal with 
the looming issue of Iraq reconstruction and other 2004 
requests, the new accounts and programs which are not part of 
USAID.
    I have to say at the outset that despite the large and 
welcome increase in the request for foreign aid resources in 
Fiscal Year 2004, I believe that the request lacks coherence 
and continuity with respect to existing programs. As I 
indicated to the secretary of state in an earlier hearing, 
virtually the entire $2.4 billion increase in the request is 
devoted to new initiatives, to be administered by new entities 
outside of USAID.
    There seems to be a high premium within the administration 
for packaging programs into presidential initiatives and 
putting forward new and untested administrative mechanisms to 
implement them--and I dare say additional bureaucracy to 
implement.
    Fully $2.2 billion of the $2.4 billion increase above the 
Fiscal Year 2003 levels of foreign assistance is devoted either 
to the Millennium Challenge account, the State Department's 
HIV/AIDS initiative, the Complex Foreign Crises Fund, the 
Middle East Partnership initiative or the Famine Fund.
    With the exception of HIV programs, the primary USAID 
accounts for health, education, child survival, environment, 
trade capacity building, agriculture and democracy building 
have been either cut or straight-lined from last year. Many of 
us in Congress have waged the uphill battle for years to secure 
additional resources to the myriad of health and educational 
needs of the severely impoverished nations of the world.
    But now that we have reached that consensus, we have run up 
against an administration fixation on either the venture 
capital model or on creating State Department coordinators with 
their own bureaucracies.
    Your statement indicates that you believe the 
administration has taken development off the backburner and 
placed it squarely on the forefront of our foreign policy. New 
resources have been requested with all good intention, but we 
have before us, in my judgment, a bureaucratic maze, which 
exposes the interagency conflict currently plaguing our foreign 
aid policy.
    Unfortunately, the outcome could be unnecessary and harmful 
delays in alleviating excruciating poverty and suffering in the 
world. With regard to Iraq, both the House and Senate have 
indicated their preference that the secretary of state oversees 
relief and reconstruction. USAID has already awarded several 
contracts and will soon announce the awards of many other major 
contracts to begin this work.
    I must admit that my colleagues and I are confused about 
how precisely this will work, mainly because we have not been 
able to get any concrete information from DOD about its plans 
for post-war Iraq, although we have heard general guidelines on 
the Sunday news shows. I hope you can provide us with detailed 
information today.
    I also have serious concerns about whether NGOs and 
international relief organizations, who have never taken DOD 
funds, and on whom we have no choice but to depend, will 
participate in post-war efforts.
    Will these NGOs be able to activate their local staff in 
Iraq in the face of the potential difficulties created for them 
by accepting DOD funds?
    If you could comment on these sensitivities on the nature 
of your discussion with DOD on this issue, I would be 
appreciative.
    With respect to the Millennium Challenge account, while I 
certainly commend the administration and support the push to 
ensure effectiveness and accountability in our foreign 
assistance programs, I believe the proposal in its current form 
is severely flawed.
    The creation of a new corporate entity to administer these 
funds, completely independent from USAID, with its own brand-
new set of procurement rules and contracting guidelines, will 
significantly delay the impact of these new resources. By the 
way, when we come to the questions, I would be interested to 
know the number of new bureaucrats, shall we say, that will be 
part of that initiative.
    In addition, under the current proposal there is no 
mechanism to help those countries on the verge of qualifying 
for MCA, nor is there any recognition of countries where 
regimes have recently changed but performance indicators have 
not had time to do so.
    With respect to the proposal to create a new State 
Department coordinator for HIV/AIDS, my fundamental question is 
``Why?''
    USAID has met the challenge of designing and implementing 
these programs reasonably well. This proposal is either a 
clumsy attempt to solve the disputes of the past year between 
HHS and USAID, or it is a sign that the president is not 
pleased with USAID's programs.
    Whatever its intent, its effect will be more delay, more 
bureaucracy, less attention to getting badly needed AIDS 
treatment and prevention programs in place.
    Neither the Complex Foreign Crisis Fund, nor the Middle 
East Partnership Initiative are to be under USAID's 
jurisdiction either. Congress has been given little information 
to indicate what these funds are for, how they will interact 
with and enhance the effectiveness of current accounts. Thus, 
we have a request for yet a new pot of money with another new 
set of masters.
    Mr. Natsios, while I certainly support the significant 
increases requested for foreign assistance in Fiscal Year 2004, 
I feel the structure of this request has served to push USAID 
out of the strategic planning loop, and has certainly made your 
job more difficult.
    At a time when we should be congratulating ourselves for 
finally achieving a broad consensus to increase foreign aid, we 
are facing cuts in most countries' aid programs for next year, 
while the administration engages in interagency contests about 
which bold new initiative will save the world first.
    I admire efforts to think out of the box, and I do not want 
you to think I am not encouraged by people who are truly trying 
to be creative. But we cannot, in my judgment, take our eye off 
the ball. The mission of foreign assistance is simply too 
important.
    I look forward to your comments.
    Mr. Kolbe. Thank you, Mrs. Lowey.
    Administrator Natsios, of course your full statement has 
been put in the record. If you would like to summarize. And the 
floor is yours.

                     Mr. Natsios' Opening Statement

    Mr. Natsios. Thank you very much, Mr. Chairman.
    I would like to first thank the committee, and you Mr. 
Chairman and the ranking minority member and the committee 
members for their very strong support for foreign assistance, 
for our programs and for our staff. I think this committee more 
than any in the House understands the complexities we face, the 
dangers our staff faces. And because many of you travel and you 
study these issues, you know the successes we have had, which 
are not generally known. We do not advertise well, but we do a 
lot of very good work.
    I am very proud of the agency, for the progress we have 
made and for the improvements that have taken place over the 
last couple of years.
    We do have the testimony, so I am not going to give a long 
statement, or even written statement in a summarized form. Let 
me just say that several things have happened thisyear which 
are very profound.
    The first is, we issued a report called Foreign Aid in the 
National Interest. We have sent it out. I have given a number 
of speeches around the country. I have met with staff members 
and members of Congress that are interested in this.
    It is written by six scholars, four of whom were outside of 
USAID, some of them are very prominent, Larry Diamond wrote the 
chapter on democracy; he is at Stanford University. Peter 
Timmer at the the University of California and Michael Porter 
at the Harvard Business School wrote the second chapter on 
economic development and trade.
    It is a set of documents and research on where we believe 
aid is going in the next 10 years. We are now reformulating 
what we do and how we do it to conform to this research. The 
research is very much consistent with and underscores the 
initiatives that the President announced in the Millennium 
Challenge Account early last year.
    Actually, we started our research on this in the summer of 
2001, and the scholars worked on it. I read the document nine 
times and then re-read it again and re-wrote it, so that it is 
a USAID document. It has not been cleared by the entire 
interagency, but there are a lot of support within all 
departments and the administration and we are moving toward 
implementation in terms of our programming.
    We have, in the same year, had to deal with reconstruction 
of Afghanistan, which we have ratcheted up to a very high level 
now. We have planned the reconstruction of Iraq, and a large 
portion of the money that is before your committee, we believe, 
will go through the contracts and the grants and the 
cooperative agreements that we have been designing since last 
September--not all of it, but a good portion of it.
    We have also designed a reconstruction program for Sudan, 
because we believe that there will be a peace settlement, 
perhaps by the end of June. And we want to be in place to begin 
the reconstruction of the country, because one of the 
incentives we offered to the negotiators on both sides, was 
that the United States would help rebuild Sudan, particularly 
in the south, and in the marginal areas and between.
    And we have put money, $66 million in this budget for 2004, 
for the reconstruction of Sudan following the war. That does 
not include the money we are spending on humanitarian 
assistance and rehabilitation, which is in addition to that 
amount.
    We have announced a new trade capacity-building strategy. I 
have just sent letters yesterday to the committee. And a new 
strategy on human trafficking, which we were mandated by the 
Congress to focus on, which you have generously provided 
funding for. It is a very aggressive strategy.
    In terms of management, let me just mention to you that we 
have done our second annual report on the opinions of the 
agency staff--all categories of staff, 8,000 people--two-
thousand are direct hires, the rest are foreign service 
nationals: and various categories of secondees from other 
federal agencies. We do an anonymous poll once a year. This is 
the second one. The first one was the baseline.
    And, ultimately, the management reforms will not work 
unless the employees who use the systems tell us that they 
work. In the area of human services and financial management, 
there was a 20 percent increase in the employees' view of the 
quality of the services provided. In the procurement area, 
there was a 37 percent increase.
    In the area of IT, there was another 37 percent increase. 
There was a profound improvement in the way in which our 
employees viewed the management services being provided. So 
that is a test. I told staff, this is the test that I am going 
to use to determine whether you are succeeding or not. If you 
are not succeeding and satisfying the people who use the 
systems, then the improvements are not working.
    This is an anonymous poll. About the same number of people 
have responded--3,400 people in both cases. So I think we are 
making incremental progress improving customer service and 
responsiveness for these management systems. We also had our 
best audit that we have had since audits were done of USAID. I 
think for six years there was no auditable financial statement, 
and so there was no opinion rendered. The year before last, we 
had a qualified opinion on our accounts.
    There are five opinions you have to render, and for fiscal 
2002, we have four unqualified opinions and one qualified 
opinion. OMB mentioned us and one other department as showing 
the best progress of any federal department in terms of the 
improvement of our financial management.
    So I think we are making progress. It is not as fast as we 
would like, but it is a large ship and it is moving and, 
changing direction takes time. I think the career service are 
responding well and are being very creative. We are 
accommodating ourselves to the initiatives of the president in 
terms of the MCA and the HIV/AIDS programs, which are huge 
initiatives which we will play a role in, and we need to be 
prepared for that.
    Anyway, that is what I would like to present to you 
generally, and then I would certainly be glad to answer 
questions. Thank you, Mr. Chairman.
    [The information follows:]

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                              AFGHANISTAN

    Mr. Kolbe. Thank you very much, Mr. Natsios.
    Let me begin my questions with one that just occurred to me 
from having read an article this morning that suggested that 
things are slipping backwards in Afghanistan; that the security 
situation outside of Kabul has deteriorated significantly; and 
that a number of NGOs operating in those areas have removed 
themselves.
    Could you comment on that?
    Mr. Natsios. There are three areas of insecurity in 
Afghanistan, and they have been insecure since the terror war 
started, if not before. One of them is the greater Kandahar 
area in the southwestern area of the country, and there is a 
reason for that.
    There are four Pushtun--which is the largest ethnic group 
in Afghanistan--sub-tribes, one of which was the base of ethnic 
support for the Taliban and were intimately related to Al 
Qaida. That is where they live. That is their center of power. 
Kandahar is the center power of this one sub-tribe of the 
Pushtuns.
    It is going to be a problem for a while. There is no 
denying it. It is a problem now. That is where the NGOs have 
withdrawn from.
    The second area is up in the northwestern corner. It is a 
relatively small area. There is an area just south of the 
central part of the Hazarajat, which is the alpine plain in the 
center of the country.
    They remain insecure. For me to sit here and tell you 
everything is fine all over the country is simply inaccurate. 
It is also inaccurate to suggest that the whole country is in 
dispute or is not secure and that we are not able to function.
    Much of the western part of the country is very secure. 
Public services are being restored. The Hazarajat, for the most 
part--the Hazaras were bitter enemies of the Al Qaida and 
Taliban. The northern section of the country and the 
northeastern section of the country are also very stable. So 
there are large portions of the country where we can operate 
without any trouble that we are making progress in.
    There are areas of instability; I suspect they will last 
for a while, until gradually as they see the rest of the 
country progressing--because they know that we cannot do work 
in those areas of the country if there is fighting going on. We 
have told them that. If you want to reconstruct, you want our 
help, you have got to secure your areas.
    Mr. Kolbe. Well, I appreciate that.
    We could pursue that further, but it is a little bit off 
the direct topic that I want to use my time with you to talk 
about today.
    In your prepared statement, not in what you have discussed 
verbally here, but in your prepared statement, you talk about 
your process of developing a comprehensive human capital 
strategic plan. I wanted to ask a couple of questions on that, 
because we understand that last year you had to cut back on 
training for contracting officials.

                        CONTRACTING REQUIREMENTS

    With the tremendous challenges that are presented by the 
contracting requirements you are going to have in Iraq, what 
are your current plans to make sure that you are going to have 
enough properly trained contracting officials and engineers--
because I understand that you have only two engineers in the 
whole staff or something--some very small number--but how are 
you going to make sure you have enough contracting officials 
and those that support them?
    Mr. Natsios. We have far more than two engineers, but it 
does appear we are going to be much more involved in 
infrastructure than just in Egypt, Jordan, West Bank and Gaza, 
which were where the three large infrastructure projects we are 
working on. We are involved in Afghanistan. We will be involved 
in a big way in Iraq.
    We are designing a long-term strategy for human resource 
development. We stopped this fiscal year for the first time, 
the hemorrhaging of the total number of direct hires in the 
agency. We have been actually in decline for six or seven years 
now. That has stopped and has leveled, which is to say we did 
not lose, net, any staff this current fiscal year, and I think 
last fiscal year.
    What we have proposed in this budget is an increase of 
between 30 and 50 Foreign Service officers. Our plan is to put 
more people in the field, fewer in Washington. And we have been 
fairly disciplined in trying to carry out that discipline in 
the process.
    In terms of the money for training, I am a very strong 
advocate in the eight institutions I have run on training, 
because I think it is one way of upgrading the skill levels of 
the people in the agency that you are running; it helps to 
improve quality control and management and better use of 
taxpayer resources.
    You know, actually, it was not a cut. I asked Rosemarie 
Depp--this morning what we did with CTO training, which is one 
of the elements, not the only element of contracting, it is one 
element of contract training. It had been a three-week course. 
I believe we cut it down to two weeks. She said that there was 
duplication in the course; and there was not a consistent 
curriculum being used.
    We have now done three or four things to improve the 
quality of that curriculum. We believe two weeks is more than 
enough time to do the training we need to do. That is number 
one.
    Two, we have eliminated duplication in the training. Three, 
we have created a standardized curriculum that everybody who is 
a CTO who goes to that course must master in order to get 
through the course.
    We have created a set of distance learning tools that can 
be used over the Internet to train people who may be Foreign 
Service Nationals (FSNs) in our missions abroad and who for a 
very modest amount of money can go through the training course 
just on their computers. Distance learning is a way in which 
many corporations are now moving in terms of improving the 
skill levels of their staff. We are moving in the same 
direction, at this level.
    We think there has been a substantial improvement in the 
quality of training since Rosemarie Depp came on board and has 
applied her good management skills.
    Mr. Kolbe. Well, I may have some others in this area, but 
my time has run out. We will have time I think to get through 
one line of questioning--the first line of question from Ms. 
Lowey--before we break and then we will have this first vote 
and then three five-minute votes following that and we will 
come back.
    And whoever gets back first will get the first line of 
questioning. Two--just two votes?
    Mrs. Lowey. I will begin.
    Mr. Kolbe. Yes, please.
    Mrs. Lowey. Thank you, Mr. Chairman. I will speak quickly.

                           IRAQI CONSTRUCTION

    USAID has awarded or has issued notices to proceed on most 
of the 17 Requests for Proposals for Iraq that have been on the 
street since February. USAID has proceeded with these awards 
and notices despite the fact that only mobilization costs will 
be covered by funding currently available.
    You have also taken these actions without a clear 
understanding of how funds will ultimately be made available.
    Will funding for these contracts go through DOD? Does USAID 
envision controlling the issuance of specific task orders for 
construction? Or will DOD be responsible?
    Do you have any notion how much of the $2.4 billion 
requested for Iraqi construction you will get? What portion of 
the work envisioned by these contracts will it pay for?
    Also, news articles indicate that significant planning has 
been done in Kuwait by General Garner and his staff, which 
includes a sizable USAID contingent.
    What role will USAID personnel play?
    How will they interact with the DOD-appointed officials who 
will serve as the interim government? Are these people 
responsible to you or are they responsible to Garner? Are they 
responsible to both?
    Perhaps you can clarify?
    I have other backup questions--I do not know if I should 
give them all to you--should I give them all to you and then 
you can respond to them?
    Mr. Natsios. I think you have given me quite enough, 
Congresswoman, myself.
    Well, I am not sure I got every single one of those 
questions down, but let me----
    Mrs. Lowey. I have more, but let me----
    Mr. Natsios. I am sure you do, but let me take a stab at 
this.
    Mrs. Lowey. Oh, excuse me, I always listen to the majority. 
Why don't I give you the rest of the questions and then you can 
go on while we----
    Mr. Natsios. You do not have those in writing so while you 
vote I can look at them?
    Mrs. Lowey. Sure. Sure.
    Mr. Natsios. It would be very helpful, thank you.
    Mr. Kolbe. Turns out there is only one vote, apparently, 
and this was something that was not expected. So we need to 
call and find out if there is going to be other votes 
immediately following this. I am not sure.
    Mr. Natsios. We do not know, one, how much money is going 
to be appropriated. But let us assume for a minute that with 
respect to Iraq reconstruction the amount was 2.4 billion, 
which was what was requested. That is divided basically between 
humanitarian relief----
    Mrs. Lowey. You know what, since the sand is going down, I 
am dying to know, perhaps you can answer the second part of the 
question.
    Mr. Natsios. What was the second part of the question?
    Mrs. Lowey. It dealt with General Garner, the U.S.----
    Mr. Natsios. Well, that is what I was going to get to.
    Mrs. Lowey. Okay. I just do not want to run out of time.
    Mr. Natsios. The president's budget has in it a proposal to 
put the money in OMB in a fund, and OMB will allocate the money 
to the agency, whether it be the State Department, USAID, DOD, 
or the Treasury Department or other federal departments--but 
those are the major actors at this point--depending on what we 
are doing.
    We worked very closely with OMB and the National Security 
Council staff, beginning in September, on designing the scopes 
of work for all of these contracts and for the grant programs 
and for the relief programs.
    This is not just USAID program we did in isolation at all--
it has been intimately connected to the interagency process in 
a very elaborate way. That was transferred, lock, stock and 
barrel, to General Garner's group, the ORHA group on the 
executive order that the President signed that empowered ORHA 
and created it within DOD, and then Jay Garner was appointed to 
head it.
    We need to make a distinction between humanitarian relief 
and reconstruction. Much, but not all, of reconstruction will 
be done under contracts in the business community, because they 
involve infrastructure and engineering and public services that 
are very tangible.
    The reconstruction is separate, because it is being run out 
of the USAID mission and Lou, who is the USAID mission 
director, is the deputy to Jay Garner. The DART team reports to 
me, and I report to Colin Powell. That reporting line remains 
intact, and that will conduct the relief operation.
    The relief operation is food, water and sanitation, shelter 
and emergency medical care--that is what relief is in any 
situation. The DART team has 62 people in it. They are spread 
out over the southern part of the country--Qatar, Kuwait City 
is the headquarters. We have people at the U.N. headquarters in 
Cyprus and in Jordan and in Ankara, Turkey, because we are 
working parts of the relief program from the border countries 
of Iraq.
    Our DART team leader Michael Marx sits with Jay Garner in 
his meetings twice a day, but the reporting lines are very 
clear because there is an understanding that there are a set of 
international conventions that have been in existence for some 
time separating military operations from relief operations 
during combat and the immediate aftermath. Those remain intact.
    The traditional DART team reporting lines that existed in 
Afghanistan, in Kosovo, in Bosnia and Ethiopia, in Mozambique 
and Liberia and Angola, where we have had DART teams, remain in 
place here. The doctrines remain in place. We have what is 
called the regional management team here in Washington. It is 
around 24 hours a day, seven days a week, that is a response 
mechanism in Washington. When the DART team needs something, 
that team responds to them.
    And so I think the reporting lines for the NGOs, the U.N. 
agencies that do humanitarian work, and the Red Cross movement, 
are designed because we understand the sensitivities in terms 
of the codes of conduct. So I, having been in that community, 
having written articles and books on this subject, I am very 
familiar with the need for neutrality in terms of the provision 
of humanitarian assistance.
    Humanitarian assistance is provided based on assessed need, 
humanitarian need. And that is how we are going to provide it. 
I can go into the details of how the food system is going to 
work and all the rest if you are interested, but in terms of 
reporting lines, that is how it is working.
    The mission is in a little different position, because it 
is doing a different kind of work. It is long-term 
reconstruction, because this is not a poor country. It is an 
oppressed country. It is a country with a barbaric, tyrannical 
regime that appears to be collapsing as we speak. But it is not 
a Third World country in the sense that Afghanistan was.
    You and I talked, Congresswoman, in the last hearing about 
the child mortality rates. I looked at them over 20 years. The 
rates steadily declined during the 1980s, and then beginning in 
the late 1980s, all the way up until now, the rates began to 
climb back up again. They went down to 50 kids per 1,000 who 
would die before they are five. It is now 131. It is shameful 
that that has been allowed to happen.
    Mr. Kolbe. Ms----
    Mrs. Lowey. We have to vote.
    Mr. Kolbe. Yes, we have to vote.
    Mrs. Lowey. But you have clarified everything.
    Mr. Kolbe. Thank you. We will stand in recess. And the 
first person back will get the first line of questioning here. 
We will stand in recess.
    [Recess.]
    Mr. Wicker. I have permission of the chair to open the 
hearing again.
    Let me just ask you about the Millennium Challenge account, 
Mr. Natsios. In our 2003 appropriation bill language, we 
included support of the work of Hernando de Soto, and the 
International Real Property Foundation, and the work they are 
doing to promote ownership of private property.

                            PROPERTY RIGHTS

    Can you tell me how USAID plans to incorporate these 
initiatives into your agency; and further, there are several of 
us who believe that specific measurements for developing an 
efficient system to recognize and protect private property 
rights should be a part of the MCA criteria.
    Could you comment on this idea? Also, in the booklet, 
Foreign Aid and the National Interest, do you have a chapter on 
private property rights?
    Mr. Natsios. Mr. Chairman. First let me make some comments 
with respect to Hernando de Soto. His book, ``The Other Path,'' 
which was published I think in 1988 or 1989, and then his 
newest book on the mystery of capitalism, are seminal works in 
our understanding of Third World economies of informal sector 
and that sort of thing.
    We have given Hernando de Soto's institute over the last 20 
years, $40 million. $40 million. We are 95 percent of his 
funding for 20 years. Okay.
    We are essentially the sole source of his funds. He has 
gotten a little bit of money from the Inter-American Bank, and 
a couple of other sources. The great bulk of his funding for 20 
years has come from USAID and it is a substantial amount of 
money. So I do not want to suggest that we, you know, helped 
fund the book, but we did, in the sense that we funded his 
institute in Peru, which we not only stand behind but we are 
very enthusiastic about.
    Mr. Wicker. Was our language in the 2003 bill superfluous?
    Mr. Natsios. Well, it was not superfluous. It was just--
something has changed, though, and I am not sure Hernando 
entirely understands that. Many other people have read his 
books and I agree with them and many other groups are doing the 
kind of work that he does. He is not alone anymore. Twenty 
years ago, he was the pioneer; in fact, 10 years ago he was the 
pioneer in understanding the importance of this.
    There is important research in his latest book on the way 
America developed. The perception was that the Homestead Act 
basically settled the West. That is not the case. The fights 
that are going on in the developing world over ownership of 
property and on squatter settlements took place in the United 
States before the Homestead Act passed, according to de Soto's 
research in that wonderful book that he published.
    In the 1830s and 1840s this stuff was going on. The same 
things that are going on in the developing world now went on in 
the United States until it was basically settled by Abraham 
Lincoln and by the Congress when the Homestead Act was passed 
during--I think it was during the civil war.
    The point here is that there is a connection between the 
research that Hernando de Soto has done in our development in 
the developing world and it is very important research. What we 
need to do, though, is not just to have one institute doing it, 
but many groups doing it.
    We need to have law schools in the developing world, 
indigenous institutions working on this across the world, not 
just one institute in one country. And so, one of the things we 
need to start doing is to build the capacity indigenously in 
these societies to be a continuous lobby.
    I mean, having a Peruvian go to Egypt, even though he is a 
very famous one, may not be the best way necessarily of doing 
it in Egypt. Maybe, the better thing would be to build this 
into the curriculum of the law schools in Egypt, which we have 
done in other cases.
    Many schools around the world have MBA programs, because 
USAID introduced those over the last 10 or 15 years in their 
curriculum in the university. And so, I think we need to take 
the extraordinary research and the intellectual ferment that 
Hernando de Soto began and extend it to many other 
institutions.
    And so, we are going to fund the $6 million that the 
committee requested for his institute, but it seems to me that 
if we had more discretionary money what I would do is build 
more indigenous institutional capacities within countries 
around the world.
    You asked a question about property rights. Now, the second 
chapter of the report, ``Foreign Aid and International 
Interest'', which is on economic growth----
    Mr. Wicker. Economic development and trade.
    Mr. Natsios. Right, but it is all around the question of 
economics--the only way poor countries become prosperous is 
through economic growth; that is it, there no other way we know 
it can be done. You can have a very well educated country, 100 
percent literacy, very low child mortality rate, a democracy, 
and everybody can be poor--in fact, they can die in famine. And 
there are countries like that.
    Sri Lanka had a socialist economy, wonderful social service 
sector, a functioning democracy--they had a civil war going 
on--but they had a functioning democracy and people were poor. 
The economy steadily declined. They have a new prime minister, 
who has been in to see me a couple of times now, who is a 
visionary figure. He is moving to a market-based economy. The 
economy is already beginning to move. And we are helping him 
design that new system.
    It is not sufficient just to protect private property 
rights. You have to look at the tax system.
    Is the tax system confiscatory? Does it encourage savings 
and growth? Does it tax income, or does it tax consumption?
    What does it do in terms of investment policy?
    Are the regulatory systems in the country make it hard to 
start a new business and to function?
    Are the regulatory systems basically a disguised way of 
looting private sector businesses that are successful.
    Michael Porter looks at this issue in the second chapter of 
our report and he has written whole books on this. We focus too 
much in the international community on macro-economic reform, 
which is eliminating budget deficits, having an exchangeable 
currency and having a stable currency in terms of inflation 
rates and that sort of thing.
    What Michael Porter says is we should have focused, in 
addition, to micro-economic reform, which are tax policy, 
regulatory policy, local markets, trade capacity, all of the 
smaller issues that when you add them up together will be the 
engine for economic growth. What counts, Porter says, is the 
productivity of firms and of agriculture.
    If you do not improve productivity, the economy is not 
going to grow. The question is: What policies in a developing 
country will in fact encourage entreperneurialism, productivity 
and economic growth at the micro-economic level. That is a new 
focus for us and has been a dramatic improvement.
    I had Porter speak to our entire senior staff. We tape 
recorded it for two hours. By the way, Michael Porter was the 
President's professor at the Harvard Business School, when the 
President went there many years ago. They are old friends.
    I asked the President is the rumor true? The President 
said, yes, sir, ``I like his research. I like his work a lot. 
He is an old friend of mine.''
    Mr. Wicker. How about the issue of whether----
    Mr. Natsios. I would just mention this one last thing.
    Mr. Wicker [continuing]. It should be a criterion, one of 
the criterion under the----
    Mr. Kolbe. A one sentence answer, please, we are going to 
have to really move here.
    Mr. Natsios. Yes, sure.
    The one sentence answer is it is already in the Millennium 
Challenge account under ``Starting New Businesses,'' because 
one of the conditions in that formula is whether there are 
protections for property rights as well as other things that 
are important in starting a business.
    Mr. Wicker. Thank you.
    Mr. Kolbe. Thank you.
    We are going to try to get through as many of the people 
here as possible. We will have more votes in about 30 minutes 
and I do not know that we are going to be able to get back 
after that because of the series of votes that we are going to 
have.
    Mr. Natsios. I will give one word answers.
    Mr. Kolbe. So you--it would be helpful if you would give us 
succinct answers as possible.
    Mr. Natsios. I will try.
    Mr. Kolbe. Ms. Kilpatrick.
    Ms. Kilpatrick. Thank you, Mr. Chairman. I would like to 
submit questions for the record, because I know we are limited 
on time.
    On December 9, January 16 and April 2, the Congressional 
Black Caucus sent letters to you asking for a meeting with you, 
Mr. Administrator.
    Will you meet with us?
    Mr. Natsios. Well, Congresswoman, this is the first time I 
heard this.
    Ms. Kilpatrick. Somebody is holding up your mail then.
    Mr. Natsios. Well, apparently they are.
    Ms. Kilpatrick. Will you meet with us?
    Mr. Natsios. I would meet with you any time you want to. 
Anytime a congressman or senator asks to meet with me, I meet 
with them.
    Ms. Kilpatrick. All right. There are 39 of us who would 
like to meet with you and I appreciate that. We will follow up.
    Mr. Natsios. Okay. Three times you requested it?
    Ms. Kilpatrick. Find out--I have the dates and I have the 
letters, but please find out who is holding up your mail, okay.
    Mr. Natsios. Okay.
    Ms. Kilpatrick. When you were here last week, Mr. 
Administrator, with Secretary Armitage, I think it was----
    Mr. Natsios. Yes.

                              CONTRACTING

    Ms. Kilpatrick [continuing]. I tried to get into the 
contracting discussion with you because I have been reading 
clips, and people are asking me questions on this issue because 
I am on the subcommittee. I have since done some research and 
find that there has been eight solicitations between January, 
February and four or five companies have been selected to do 
some of the work--companies that have seen cleared and have 
security clearances already.
    My concern regards language in the supplemental that 
relates to small, minority and disadvantaged business 
contracting opportunities to help in the rebuilding with some 
of the tax dollars that we are going to spend.
    Is there anything at all--you have not shown anything in 
regards to the contracting procedure. Today, in the New York 
Times, two of our colleagues are asking that an investigation 
be made of the administration's contracting process relating to 
awards already made, and examining the process and asking for a 
response in terms of the procurement that USAID is putting out.
    Are you confident, number one, that the procedure you are 
using will meet the federal criteria?
    Even in the light of difficult times, I know you have 
accelerated access in many cases.
    Mr. Natsios. Right.
    Ms. Kilpatrick. And will you include small, minority, 
disadvantaged businesses as an opportunity to bid? Can we get 
in?
    Mr. Natsios. The answer to the first question is, we very 
carefully designed this process exactly according to the 
federal procurement law, the FAR, the Federal Acquisition 
Regulations and Statutes.
    There is an accelerated process when the national security 
is at risk. We used that process when we rebuilt Bosnia under 
the last administration. We used it in Afghanistan, and we are 
using it here.
    It is, however, according to the statutes. There has been 
no political influence whatsoever in choosing anyone. It was 
done according to standard procedure within the Procurement 
Office.
    I told the director of the office to tell me, if there is 
any attempt to politically influence either the choice of the 
limited contractors. In the case of the construction contracts, 
I believe there was seven or eight companies that were chosen. 
I have no idea what the countries are--companies are--none of 
the political appointees in the agency do, one; and, two, there 
is no influence on who was chosen.
    It is done according to formula by a team of technical 
experts. In terms of your question about smaller, 
disadvantaged, Black, women-owned and minority businesses, 
these contracts, in many cases, are very large contracts.
    Ms. Kilpatrick. Going out now, yes?
    Mr. Natsios. Right. These smaller contracts are those that 
will be subcontracts, and the subcontracts come after the prime 
contract that was selected.
    Ms. Kilpatrick. Are there any more prime contracts to be 
let?
    Mr. Natsios. There will be, at this point, I believe, there 
are three more that will be let.
    Ms. Kilpatrick. That are not now in the process waiting 
for----
    Mr. Natsios. That have not been advertised yet. One is in 
agriculture, one is in economic governance, and my memory is 
failing me, I cannot remember the third one.
    Ms. Kilpatrick. I do have the list here, that is okay. I 
want to make sure that on those that have yet to be bid, that 
it is an open, fair, federal process----
    Mr. Natsios. It is.
    Ms. Kilpatrick [continuing]. Even that is accelerated. Then 
my last one is on the----
    Mr. Natsios. Let me just assure you that I have told the 
director of procurement to put specific language in, in terms 
of the contracts for bidding, on the issue you raised when you 
brought it up with me at the last hearing.
    Ms. Kilpatrick. Thank you, Mr. Natsios. And, again, I 
appreciate that.
    The MCA account, I know in the 2004 budget it is back 
again. It really takes USAID out, but more than that, or just 
as important, it takes out the Congress in terms of monitoring, 
in terms of even advising us.
    Do you support that?
    Mr. Natsios. I support the president's bill as it was 
submitted.
    Ms. Kilpatrick. I know you have to say that. Okay, thank 
you, Mr. Chairman.
    Mr. Natsios. I support the president's bill as it was 
submitted.
    Ms. Kilpatrick. It is bad for your agency, but thank you, 
Mr. Chairman.
    Mr. Kolbe. Thank you very much.
    Mr. Lewis.

                         IRAQI CHILD MORTALITY

    Mr. Lewis. Thank you, Mr. Chairman. Mr. Natsios, I was 
struck by that part of your discussion last week when you were 
with us relative to child mortality in Iraq.
    If we had, if you had free rein, what budget would be 
required, what kind of time frame would be needed to have AID 
make a direct impact upon clean water for children in Iraq now?
    Mr. Natsios. Much of our research was based on second-hand 
information from expatriates, who have been to the country but 
who were not technical experts, in various sectors like 
electricity, education----
    Mr. Lewis. Just take a look at child mortality and the 
importance of water and I think----
    Mr. Natsios. We know, but we do not know the condition of 
each one of the individual 250 treatment plants, and we are 
going to send teams out the minute that the security situation 
allows.
    We will look at the buildings that already exist, the 
equipment that is there. In some cases, the plants work fine 
and the water is fine. In other areas it appears they do not 
work at all.
    All you do is pump water out of the river untreated. We 
need to distinguish which are in which category. For the ones 
that need new equipment, we are going to install new equipment 
in fairly quickly, and the second thing we are going to do is 
train the people who run the plant.
    Many of them, from what we have been able to tell, do not 
really know how to maintain these pieces of equipment.
    Mr. Lewis. Do we have teams of experts ready to go in?
    Mr. Natsios. Yes, they are in Umm Qasr, right now.
    Mr. Lewis. I mean, it is telling to see women out catching 
water in bowls.
    Mr. Natsios. Yes, it is. It is very disturbing.
    Mr. Lewis. All right. I would appreciate your keeping me 
highly informed?
    Mr. Natsios. Yes.
    Mr. Lewis. How we can help with that?
    Mr. Natsios. I will, sir.
    Mr. Lewis. Warlords and AID in Afghanistan? We are 
interested----
    Mr. Natsios. We do not deal with warlords, to the extent 
that we can avoid it.
    Mr. Lewis. But we understand from news reports that at the 
borders there are AID resources diverted to warlords, or being 
diverted to warlords, perhaps draining money or capital or 
value that should be available to Karzai and helping stabilize 
Afghanistan?
    Mr. Natsios. Not from USAID, sir, because our resources do 
not go across the border. The resources, I am trying to think 
now--the only thing we do is we do bring some food across the 
borders.
    The medical supplies are flown in, the equipment that is 
used in the road, for example, that we are building was brought 
in by a Turkish-Afghan subcontractor to the prime contractor.
    And the equipment already was from Turkey and they brought 
it in across the border. I do not know if they had to pay 
something, but we specifically did not have to pay any money to 
the contractor to do that.
    They gave us a fixed fee and they are doing the work that 
they promised to do within the budget we gave them--the prime 
contractor gave them.
    So, do you have a specific report?
    Mr. Lewis. There are reports out there, but, frankly, my 
concern is that as we shift our attention to Iraq with 
intensity, and we have been present in Afghanistan for some 
time, that it does not take our lack of attention very long 
before these things happen among the tribes.
    And I would really appreciate it if AID was at a high 
priority focusing on that, as well.
    Mr. Natsios. I should tell you this is a personal priority 
for me, because this is one of the poorest countries in the 
world. I mean, apart from our geostrategic interests, there is 
a humanitarian reason to be there.
    It has the highest maternal mortality rate in the world 
along with Sierra Leone, one of the highest child mortality 
rates. My next meeting after this hearing is my weekly two-hour 
meeting on Afghanistan.
    I will continue to have those. I have had them since the 
terror wars started in September of 2001. I am friends with 
many of the cabinet friends, even though we do not always agree 
on everything.
    And my deputy, Fred Shieck, has taken a direct personal 
interest. He works on this everyday. And either he or I go to 
the weekly meetings in the White House on Afghanistan that have 
been taking place continuously since the terror war started. 
There has been no reduction of our focus on Afghanistan, and 
there will not be.
    Mr. Lewis. Focusing for a moment upon a program known as 
CRSP, C-R-S-P, that involves adding small amounts of protein to 
the diet of children in countries, like Africa. I gather there 
are some studies being done by major universities, like UCLA, 
that indicate that we can have an impact by AID programs by 
adding or raising the level of protein in foods available to 
these youngsters. Two ounces of protein a day, for example, can 
radically change their pattern of growth and opportunity.
    Mr. Natsios. The CRSP program is actually a broad program 
for all aspects of agricultural development through state land 
grant colleges and universities in the United States. It is an 
excellent program. We just re-bid it, I think, late last year 
for another 10 years.
    One of the projects they are doing is introducing into the 
food chain--in other words not through food aid, but through 
the agriculture system, micronutrients and proteins that are 
not in the diet.
    For example, I will give you a quick example. We have 
introduced beta carotene, which is a vitamin A source, through 
sweet potatoes in Mozambique. There are high child mortality 
rates there. This should drop the child mortality rate 
dramatically in Mozambique. Five hundred thousand farm families 
now cover about 3 or 4 million people, which is a quarter of 
the country, now are growing sweet potatoes. They have a 
dramatic increase in vitamin A which will cut the infection 
rate.
    We know vitamin A dramatically reduces child mortality 
rates. And these kids will not have to get a pill every six 
months or every day, they will eat it as a normal part of their 
diet.
    Mr. Lewis. Your continued focus on this program is very 
much appreciated.
    Mr. Natsios. Absolutely. It is one of my most important 
priorities, sir.
    Mr. Lewis. There is a $50 million decrease in your budget 
allocation for Latin American 2003 versus 2004. Can you explain 
that to us.
    Mr. Kolbe. This will have to be the last.
    Mr. Lewis. The last.
    Mr. Natsios. Which account?
    Mr. Lewis. 2004, 2003 program----
    Mr. Natsios. Well, my figures show a $24 million reduction.
    Mr. Lewis. Can you explain why the $24 million decrease.
    Mr. Natsios. Well, we have to make allocations based on how 
much we are given as a total budget. We did not just cut the 
whole region. We moved money from one area to another.
    The president has a series of new initiatives. There is an 
education issue. There is a Central American initiative. There 
is a trade capacity building initiative. We had to fund those, 
and that is how we did it. These new initiatives have not been 
broken down by region, but once initiated could dramatically 
change LAC, Africa or other regional levels.
    Mr. Kolbe. Let me just note for the record, the other 
questions on the water that the president's request on the Iraq 
reconstruction relief fund, had that down as the fifth item 
listed, that we have moved that. At particularly of the 
suggestion of the gentleman from California, it is a first 
priority.
    Mr. Jackson.
    Mr. Jackson. Thank you, Mr. Chairman.
    I have two questions, Mr. Natsios. One concerns the 
Millennium Challenge Account and the other concerns Africa.
    Mr. Natsios, you have described your new vision of USAID as 
using the MCA lens for providing development assistance. Under 
your construct, there are MCA countries which would get 
assistance from the MCA. Remaining U.S. assistance would focus 
on near-miss countries, failed or failing states and 
strategically important countries.
    What happens to those countries that are not failed or 
fragile states, but cannot be classified as near-miss or 
potential MCA countries, either because of governance issues or 
lack of government commitment to the host of indicators the 
administration has outlined as criteria for eligibility?
    In light of the development assistance resource trends for 
Africa and their declining status in Asia and Latin America, is 
your new strategy to do sustainable development only in 
countries that meet or almost meet MCA criteria and do only 
humanitarian health programs in the remaining countries?
    Because I want to get my second question in, I would like 
to read it, then let you answer both of them.
    Administrator Natsios, while I appreciate the overall 
increase for Africa and the substantial increase in fiscal year 
2004 requests in health programs, particularly child survival, 
HIV and AIDS programs, other proposed cuts in fiscal year 2004 
requests are very disturbing. They are disturbing since they go 
to the long-term development issues that aggravated the health 
care crisis in the first place.
    The rising need for health assistance is driven in large 
part by the deteriorating economic conditions of the average 
African household. African children are weaker and sicker 
because their families lack food and security and cannot 
sustain daily caloric intake needed to rear a healthy child. We 
need to continue support for these basic health needs, but 
address the underlying and aggravating cause for the child's 
sickness and poor health.
    Africans are poorer today than anytime in post-colonial 
history. African countries have been sluggish in adopting 
appropriate agricultural and economic reform policies that 
would stimulate the agricultural sector, including water 
management, development and use of appropriate biotechnology, 
land reform, new market strategies that stimulate and promote 
regional trade between countries.
    Lastly, there is no doubt that conflicts in Africa not only 
displace and further impoverish local citizens, they tend to 
spill over into the sub-regions and further destabilize their 
neighbors.
    According to CRS, in fiscal year 2003 USAID requested $142 
million for agricultural development, and in fiscal year 2004 
you are requesting $134.1 million. Business trade and 
investment had a fiscal year 2003 request of $116 million, 
fiscal year 2004 has a request of $89.2 million.
    Democracy, conflict and humanitarian aid requests decreased 
from $92.5 million in fiscal year 2003 to $67.8 million in 
fiscal year 2004.
    Sir, aren't we robbing Peter to pay Paul?
    I am supportive of the overall funding for Africa and the 
increase in child survival, but how effective can our health 
care dollars be if these countries are starving? And how can 
these countries move forward without business and trade 
investment?
    Thank you, Mr. Chairman.
    Thank you, Administrator Natsios.
    Mr. Natsios. Thank you very much. Let me answer your second 
question first, which is on the Africa account.
    The aggregated development accounts, which is child 
survival--in other words, the health account, plus the 
development assistant account, not including humanitarian 
assistance--let's put that aside for a minute--for Africa, in 
2001, was under $800 million. It will be well-over $1 billion 
in 2004, so it is gone up 25 percent.
    It has been stuck at $800 million for 15 years. We have 
increased it dramatically. The first time that has happened 
since the mid-1980s. You go back to the budget for Africa--the 
Africa program in the late and mid-1980s, you will see it was 
stuck at the same number, and with inflation that means it was 
actually in decline. So we have increased it substantially.
    I have to tell you, in 2004 we took a lot of that increase 
and we put it into the reconstruction of Sudan. We believe we 
are close, but not there yet--to a negotiated settlement 
between the north and the south.
    We put $66 million in development assistance money, not 
humanitarian assistance, to rebuild Sudan along with $15 
million in Economic Support Security Fund, which adds up to $81 
million for fiscal 2004.
    Now, some people could question our judgment in that. I 
think given the instability that Sudan has caused in its entire 
region of the Horn of Africa, the 2.5 million people that have 
died in the civil war, the untold human suffering--Connie 
Newman and I, and Fred Schieck and our leadership, along with 
the White House and the Secretary of State, made a decision to 
allocate the increases to Sudan to ensure there is money to 
reconstruct the country so we do not slow down the peace 
process.
    If we sign a peace agreement and we do not have money in 
place, beginning very quickly thereafter, the peace settlement 
could slow down. It happened in Angola. Twice, it collapsed in 
Angola. We cannot let that happen in Sudan. I am very devoted 
to Sudan.
    So some of the increases that we have put through, I have 
to tell you, did go to Sudan and I made the decision and I 
convinced other people we needed to go along with it. In terms 
of your general proposition that we need to invest in those 
other sectors, we were given a fixed budget ceiling that we 
were to spend and we allocated resources in it. Whenever you do 
that, you make policy choices. We made a policy choice.
    There was a huge increase in Africa for HIV/AIDS, which 
is--I thought the Congress was telling us in their budget for 
2003, as I examined it very carefully--in terms of letters we 
have received, in terms of pressure from interest groups, in 
terms of media, in terms of everybody in the country saying, 
``Focus on HIV/AIDS.'' So we focused on HIV/AIDS.
    My own view is it needed to be balanced. But the view of 
everyone else was, ``Put the money in HIV/AIDS.''
    Mr. Lewis. Mr. Natsios, the increase that Congress was 
asking for in HIV and AIDS and in global health on the 
continent was not to come at the expense of agriculture, down 
from 142 to 134, or business trade and development.
    The Congress also made a commitment to an Africa Growth and 
Opportunity Act, from 116 to 89.2 and we also made a commitment 
to democracy and conflict resolution on the continent.
    Now, I understand that my time has exhausted, but I raised 
a question about the overall accounts for the entire continent 
and you spent most of the answer talking about Sudan----
    Mr. Natsios. Well, that is why we made a decision, 
Congressman. You were asking me for an answer to the question. 
I have answered the question. We made a policy decision.
    Mr. Lewis. Mr. Chairman--I am sorry.
    Mr. Kolbe. Yes. We have gone quite a bit over the five 
minutes, but if you want to just quickly follow that up----
    Mr. Lewis. Well, I appreciate that, Mr. Chairman. Well, the 
policy decision is the equivalent of when a home is flooding, 
we just constantly change the carpet as opposed to resolving 
the flooding issues. And the economic growth and trade 
accounts, the democracy, conflict and humanitarian accounts, 
were not to be threatened at the expense of the global HIV 
efforts.
    But clearly there is a shift, even though there is an 
overall increase in economic assistance for Africa, it comes at 
the expense of other critical programs, and I hope this 
committee and the full committee would see as an important 
element in reconstructing democracy on the entire continent.
    I thank you, Mr. Chairman.
    Thank you, Mr. Natsios.
    Mr. Kolbe. Thank you.
    Mr. Knollenberg.
    Mr. Knollenberg. Mr. Chairman, thank you very much.
    And Mr. Natsios, welcome again.
    Mr. Natsios. Thank you, sir.
    Mr. Knollenberg. I am glad to see that the administration 
is now looking at incorporating development assistance into our 
national security strategy. I have always said that foreign aid 
is a part of our foreign policy and I think now this 
crystallizes it--and it is that third pillar, I think, as you 
pointed out.
    Before I go into a question here, I did hear you in your 
conversation with Mr. Lewis mention an extravagant death rate 
for children under five in Iraq. If you recall a week or so ago 
when you testified here, I remember you also saying, was it 
Afghanistan that is the worst in the world?
    Mr. Natsios. Yes.
    Mr. Knollenberg. But Iraq is actually worse than India?
    Mr. Natsios. Yes.
    Mr. Knollenberg. And those filtration plants that are maybe 
working, maybe not working, probably contribute to that 
problem.
    Mr. Natsios. They are the principal problem.
    Mr. Knollenberg. And that is something I am sure you are 
going to nail down, because that would be, I would think, a 
very, very good way to proceed in terms of improving life for 
the Iraqi people--it is a bad statistic.
    Mr. Natsios. It certainly is.
    Mr. Knollenberg. Terrible.
    I know that there are no easy answers on the work that you 
are doing in terms of what has to be done to make foreign aid 
effective. In most cases, the recipient government itself has 
to do the work. It is not what we can do. They have got to 
help, particularly when it applies to some of the things like 
reinforcing trade policy, expanding trade, free markets, free 
trade, that whole connection.
    I know you are reviewing how to expand trade, and 
particularly with respect to our assistance programs in five 
countries. One is Egypt, another Jordan, Lebanon, Morocco and 
Yemen.
    Can you tell me what, briefly, is working there and what 
isn't working?
    Mr. Natsios. Not briefly, but I will try to do it quickly. 
The Yemen program is relatively new. Our first foreign service 
officer in years will be leaving in just a matter of weeks to 
go out and take his assignment in Yemen to run the program. It 
is an accelerated program. It is almost $10 million in 2003, 
but the 2004 request has gone up to $15 million. It was $1.7 
million the first year, and it has gone up because Congress 
generously provided us with more money.
    The same thing has happened in Morocco. It is a modest 
program. It was $8 million last year, and then I think it went 
up this year, but not dramatically including some regional 
funds. The big programs, of course, are Egypt and Jordan.
    Jordan, in my view, is the model country in terms 
ofaccelerated democratic and economic development in the Middle East, 
of any Arab country. They are having elections in June, a very brave 
thing for the king to do under the circumstances. They have had 4 
percent growth for two years in a row now. They have the fastest 
accession to WTO in the world, of any country in history.
    The king rammed through 28 really powerful economic reforms 
to stimulate trade. We have a free trade agreement with Jordan. 
They are moving very rapidly to try to create more jobs in 
order to deal with the high unemployment rate among young men, 
which is a destabilizing thing in any country in the world.
    And they know what they are doing, they have highly 
competent ministers who know what they are doing.
    Egypt is a little bit different. Egypt is a program that 
has been in existence for a long time. And $200 million of the 
$600 million goes to budget support, $200 million in a 
commodity program, and then $200 million in a development 
program.
    There is a review going on of that program now and there 
may be some changes. Our staff has looked at it, we have done a 
review, State Department is, and the Egyptian government. We 
are working together on reviewing what the new directions need 
to be.
    We need to look at those changes in the context of MEPI, 
the president's new initiative for Arab countries.
    With respect to Lebanon, our program again is not huge 
there, but at the grassroots community level it is very 
successful in rebuilding from the civil war and beginning 
smaller industry. There is an agriculture program there. The 
mission director is doing an excellent job under difficult 
circumstances.
    Mr. Knollenberg. In Lebanon, just very quickly. I know that 
that has been a problem area. Haven't you been very careful 
about the NGOs that you pick?
    Mr. Natsios. Yes, we have been.
    Mr. Knollenberg. And in fact you have to be because of the 
difficulty with some of the other people in that community. 
That is still working, in your judgment?
    Mr. Natsios. It is still working, and I have gotten reports 
recently that it is actually improving.
    Mr. Knollenberg. Thank you. Thank you, Mr. Natsios.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you.
    Mr. Crenshaw.
    Mr. Crenshaw. Thank you.
    Let me first ask you a couple of questions about BTEC. I 
know about a year ago you formed I think six new subcommittees. 
I want you to talk a little bit about what kind of progress is 
being made, are they meeting their goals, have they set goals, 
is this kind of a new way of doing business?
    But just could you talk a little about how that is working 
out, what the philosophy there is?
    Mr. Natsios. Yes, Congressman. A very good question.
    BTEC is the Council of Career Officers, chaired by my 
deputy, Fred Schieck, that makes management decisions for 
reforming the USAID management system. It has been in existence 
for about 14 months now. We increased its authority and 
increased the speed with which it could make decisions last 
fall, I think in October or November.
    The purpose of it is this. There were attempts at 
management reform in the 1990s that were well intentioned--some 
of them maybe not so well intentioned; some of them were 
disastrous--but none of them worked particularly well, for one 
reason: they were never accepted by the agency staff.
    And what we learned is, if you do not get the buy-in of the 
people running the system, when you leave--that means when I 
leave--the systems will collapse or they will not work, or 
there would be fighting, infighting implementation and that 
would slow everything down.
    The purpose of BTEC is to get change on the agenda, to 
require decisions to be made, to get a consensus and to get 
bureaus that will be using these systems and managing these 
systems to agree on what needs to be done, how to get there, 
instead of having an autocratic approach where one or two 
people decide and then impose it on everyone else.
    And I have learned--and this is my eighth management job--
if you do it that way the chances for success are a great deal 
greater. It takes longer, but what you do have is--when there 
are problems with it, people will say, ``If you do this, you 
know we are going to have this consequence that you may not 
intend.''
    We are working through that, and it is very helpful to 
avoid the kind of mistakes that were made in the mid-1990s. We 
cannot afford to have that happen again.
    I think it is a success, and increasingly I think the 
career officers in USAID believe this is the way we are going 
to reform over time the management systems for the agency.
    Mr. Crenshaw. Thank you.
    And one quick question, just about--talk some about 
property rights. More specifically, home ownership and real 
estate. I think the United States realtors have worked with you 
all, kind of a public-private partnership.
    How is it working in some of the areas like Afghanistan, or 
is that something that you are going to try to work in Iraq?
    I mean, that is one step down from just having rule of law 
and property rights, et cetera.
    But is that something that is on your agenda, working with 
them, is that valuable assistance?
    Mr. Natsios. It is very important. It depends on the 
country you are in. For example, in many countries in Africa 
land is held in common through the tribe, and the tribal chief 
gives it out and people live on it and use it agriculturally.
    And the notion of a deed to own land is something, they do 
not understand what that means. If you explain it to them, they 
will say, ``That is very odd. Our tribal tradition here is to 
do it in the traditional manner.'' And it does work.
    In other systems that are very oppressive, where there is 
one landowner that might own half of a province and they gouge 
the peasants and take extractive rents from their production--
my grandfather was a tenant farmer and the guy who owned the 
village kept trying to take two weeks rent instead of one week.
    He said there were constant fights with him because he was 
just trying to constantly take too much money from the 
peasants. They did not make much to begin with.
    So it depends on the social structure of the system.
    In the case of most countries, you do not have home 
ownership in the sense we do. There are no mortgages. These 
houses cost about $100 to build, they are made of mud bricks in 
most cases.
    The only thing that costs money are the tin roofs and the 
windows, if they have windows, or a front door. They build them 
themselves and they just take bricks, made them out of mud, and 
dry them in the sun and they make their houses that way.
    And so the notion of, you know, of borrowing money from a 
bank to build a house is a Western notion. In most of these 
countries that is not the case.
    In Central America a house might cost, let's say, $2,000 
and borrowing money does count. So we have built a series with 
the World Council of Credit Unions, which is located actually 
out of Wisconsin, an extraordinary system of hundreds and 
hundreds of credit unions in rural areas of Latin America, of 
Asia, where people will borrow money to build their own homes 
that are a little nicer homes. You know, $1,000 homes, $1,500 
homes.
    And they will also learn how to save money. So one of the 
big things we encourage is savings from household income as a 
way of increasing the amount of money that is available for 
loaning in the society.
    But in terms of tenure, the land tenure--the kind of thing 
Hernando de Soto talks about--that is mostly in urbanareas in 
the squatter settlements around cities, and it is a problem in many 
Third World countries that are rapidly urbanizing.
    I know Hernando's had conversations with President Mubarak 
of Egypt and they are very interested in Egypt in seeing if 
they cannot move toward a system like what Hernando de Soto has 
advocated in Peru.
    Mr. Crenshaw. Thank you.
    Mr. Kolbe. Let's see if we can get through our last two 
questioners here. I think we can.
    Okay, Mr. Kirk.
    Mr. Kirk. In Bosnia we had a real struggle between AID and 
DOD over who would control the early AID funding, whether that 
would be long-term development goals, or that would be a key 
project list developed by Task Force Eagle to support civil 
military relations. You have got the same dilemma in Iraq.
    Can you talk about--I think we are going to quickly see, 
DOD civil military projects list emerge very quickly.
    How do you think you are going to handle this?
    Mr. Natsios. We have one assessment tool being used by the 
DART team. It is a standard USAID assessment tool. As you know, 
I was a former civil affairs officer, I served in the Gulf War. 
I know the Civil Affairs discipline. There are thousands of 
civil affairs officers in the Gulf right now. They are the 
principal means by which the military will assess the situation 
on the ground on the civil side.
    We have trained all the Civil Affairs units now in the 
assessment tool that we use to make judgments on what we need 
to do. We now have one format, one set of training, one set of 
standards for a common approach across all federal departments.
    The State Department is using it. AID is using it, as is 
DOD and the 14 Treasury offices that are out there. So we do 
have a common approach with one standard. So when we collect 
data, it will be common among all the departments.
    The way in which this has been set up, should the budget go 
through as the president proposed it, is that OMB will have a 
pool of flexible money. Task orders will come up to the 
contractors.
    We own the--I mean, AID did the contracting, so we will 
have to prepare the task orders, but they will have to be 
approved by Jay Garner and ORHA, and OMB will have to--before 
they can approve the allocation of money. And they will 
allocate money in large chunks. The task orders will have to 
have been signed off by our people and by Jay Garner's group. I 
think there is a system set up for doing this that does seem to 
me it will work.
    Mr. Kirk. When you say an order is signed by both, of 
course then the next question is, what happens if they 
disagree?
    Mr. Natsios. Well, the process is, it will work up to a 
more senior level and then we will end the dispute. But Jay 
Garner has the authority on the reconstruction side to make 
decisions for priorities in the field.
    Mr. Kolbe. If the gentlemen yield, you also described a 
system that sounds extremely tedious and cumbersome and lengthy 
to get decisions done.
    Mr. Natsios. I do not think it is going to be as cumbersome 
as it may appear. I am told in the field--a lot of this has to 
do with temperament, personality, where the people are located, 
how close they are, how they work together. A team of 30 
people, which is the AID mission, is physically right where Jay 
Garner is. They work together all day long and they are very 
close, and the staffs are working very close together on the 
reconstruction side.
    There has been a different set of issues with respect to 
the DART team and the humanitarian reconstruction effort, which 
involves the NGOs, the U.N. agencies like UNICEF and WFP and 
the ICRC.
    That is a different set of issues and there is more 
independence there in terms of the DART team's reporting line, 
because the DART team reports to me, as I mentioned earlier in 
this hearing, through me to Colin Powell. We needed that 
independence because of the nature of humanitarian relief.
    Mr. Kirk. Last quick question. Your august predecessor 
built a $100 million computer system and software that 
completely collapsed.
    Mr. Natsios. It did not collapse, it never functioned. They 
turned it on and it did not work.
    Mr. Kirk. How have you extracted the agency from this and 
where are you going with it?
    Mr. Natsios. Well, we are being very careful. There are 
three things that were done this year, since we last talked in 
front of this committee hearing. We have put the Phoenix system 
in place in Washington. It is functional in Washington. The 
question is now extending it out to the 79 AID missions.
    There are 38 accounting platforms, because many missions 
double up. And it became apparent when we looked at the cost of 
putting that mission structure in place, to redo 38 mission 
systems would cost probably $60 million, which I thought was 
outrageously expensive.
    So we have now done an analysis of what it would take, with 
a plan, to collapse those 38 accounting stations to seven. 
These are in the field. So that there will be seven and 38. 
That is the first set of research we did with an analysis and a 
plan to carry that out.
    The second is, we decided to change fairly dramatically the 
system that we are using, the system architecture. All the 
federal government uses a network-based system, which means 
every time you make a change in one element of the system, you 
have to change it in every discreet element of the system.
    We are going to a Web-based system, which means you will go 
to the Internet and you use that system, and we do not have to 
change each system every time we make an improvement in 
software. The State Department has made a decision to do the 
same thing. And so we made that decision through a set of 
studies that we have done.
    The third decision we have made is we will have a unified 
Phoenix accounting system. The State Department calls it 
something else, but it is the same off-the-shelf software 
package for accounting, for financial management.
    OMB asked us, or required us, to look at a unified system. 
We had different requirements than the State Department that we 
worked out over the last six months. They asked us to do it 
over the last six months--research on how we can unify our 
system to save taxpayer funds. The third set of decisions we 
have made is to have a unified system. It will take a couple of 
years to do that. We have made that decision.
    The next step is now to move toward the pilot programs 
between now and the end of this year, and then into 2004, and 
then 2005 we will deploy worldwide. That is the current state 
of play.
    Mr. Kirk. With an emphasis on COTS?
    Mr. Natsios. With an emphasis on----
    Mr. Kirk. Commercial, Off-The-Shelf Architecture?
    Mr. Natsios. Well, that is the system we installed in 
Washington, the Phoenix system. The reason the old system 
collapsed or never worked is because they try to design their 
own system.
    Mr. Kolbe. Thank you. And I will have some follow-up 
questions on Phoenix. I wish we had time to go into that. But 
some very specific ones to follow-up on Phoenix, which has had 
the longest gestation period of any program I have been around.
    But, unfortunately, because of our time, we are going to 
have to adjourn the meeting because we have a series of votes 
followed by a briefing by Secretary Rumsfeld.
    We thank you very much, Mr. Natsios, for appearing and 
sorry for the somewhat abbreviated and the interrupted 
schedule. But I think you have been around Congress long enough 
to know that is often what happens.
    Thank you very much.
    The subcommittee stands adjourned.
    [Questions and answers for the record follow:]

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                                         Wednesday, April 30, 2003.

                       DEPARTMENT OF THE TREASURY

                               WITNESSES

JOHN W. SNOW, SECRETARY, DEPARTMENT OF THE TREASURY
JOHN B. TAYLOR, UNDER SECRETARY FOR INTERNATIONAL AFFAIRS, DEPARTMENT 
    OF THE TREASURY

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe. The Subcommittee on Foreign Operations of the 
House Appropriations Committee will come to order. This morning 
I am delighted to welcome for his first visit before this 
subcommittee Secretary of the Treasury John Snow. We will be 
talking about the President's request for fiscal year 2004 for 
the international programs of the Department of Treasury.
    We extend a warm welcome to you, Mr. Secretary, and also, 
of course, to Under Secretary John Taylor who has appeared many 
times before us here. The subcommittee certainly had a lot of 
respect for your predecessor, Secretary O'Neill, and we look 
forward to working with you as well, Secretary Snow. You have 
arrived at Treasury at a time of great change and uncertainty 
for international programs in your Department. Some of it is 
good, and then some of it may not be entirely ideal either.
    First, the multilateral development banks are becoming 
increasingly marginalized and less relevant to U.S. interests 
and U.S. foreign policy goals. This is an observation I have 
gained from 2 years' experience as chairman of this 
subcommittee. Members of Congress and administration officials 
do not see the multilateral development banks as agents of 
change or as furthering U.S. development goals in most 
instances.
    Yet concurrently, the U.S. Treasury is playing an 
increasingly more significant role in U.S. foreign policy. For 
example, the President and Congress certainly are looking to 
you to help lead the development and implementation of the 
Millennium Challenge Account. The U.S. Treasury is the lead 
agency in formulating our economic policy to our ally, Turkey. 
I understand that Treasury is for the first time administering 
Turkey's assistance from the Economic Support Fund. And 
finally, the Treasury technical assistance program is being 
asked to do more and more each year, including setting up at 
the moment economic ministries in Iraq and paying civil 
servants of the new or fledgling Iraq Government.
    So these are dynamic times for your department, Mr. 
Secretary. And yet we might have predicted that Treasury would 
have an increasing role in foreign policy given the economic 
growth and prosperity are the keys to lifting countries out of 
poverty. Indeed, economic growth is the most valuable export we 
can provide to the developing world.
    Before I yield to my Ranking Member, let me just 
acknowledge a couple of the numbers that are in the President's 
request. President's request of the subcommittee for fiscal 
year 2004 is $1.6 billion to fund U.S. contributions to the 
different multilateral development banks, $395 million to fund 
the bilateral and multilateral debt forgiveness, and $14 
million for the Treasury's international technical assistance 
program, for a total request of just about $2 billion for 
fiscal year 2004. The request for 2004 is $657 million higher 
than last year's enacted level, but that includes $259 million 
more for the MDBs and $395 million for debt relief that we 
didn't have in 2003.
    In the interest of time, let me stop and yield to my 
Ranking Member, Mrs. Lowey.

                     Mrs. Lowey's Opening Statement

    Mrs. Lowey. Thank you, Mr. Chairman. And I join Chairman 
Kolbe in welcoming Secretary Snow to your first hearing with 
the Foreign Operations Subcommittee. We are delighted to have 
you before us.
    The fiscal year 2004 request for resources for the 
international financial institutions along with the funds 
requested for debt reduction programs totals $1.96 billion, 
which is a substantial increase over the amount provided in 
fiscal year 2004. I intend to address several concerns about 
these programs in my statement this morning and also to address 
several other concerns, including: the proposed structure of 
the Millennium Challenge Account, who will pay for construction 
in Iraq, and potential funding shortfalls in debt relief 
funding.
    With respect to the fiscal year 2004 request for the 
international financial institutions, I share the frustrations 
of the administration about the lack of measurable results MDB 
lending has achieved in the past decade on health, education 
and private sector goals. And I applaud the concept of 
establishing incentive contributions to the International 
Development Association in this context. I have questions, 
however, about how you intend to make those determinations and 
what will trigger the release of this incentive fund. I am 
interested to hear how the vested interests within the World 
Bank are responding to this concept and if they are moving to 
implement the recent agreement on grants as well.
    As we all acknowledge, however, the basic issue is how we 
can marshal the resources of the MDBs with our own bilateral 
resources to close the growing divide between wealth and 
poverty in the world. The administration's fiscal year 2004 
request increases foreign aid resources by almost $3 billion 
above fiscal year 2003. Unfortunately, almost all of that 
increase is devoted to new initiatives to be administered by 
new and untested mechanisms.
    The proposal to set up a new corporate entity to administer 
funds for the Millennium Challenge Account will, if approved by 
Congress, significantly delay the impact of these new 
resources. The proposal to create a new HIV/AIDS coordinator at 
the State Department along with a myriad of other new proposals 
coming from AID/State, and even the Department of Health and 
Human Services leaves us awash ininitiatives that lack 
coherence and coordination. These initiatives are layered on top of 
ongoing programs and again mostly rely on new bureaucratic structures 
that do not yet exist.
    I fear, Mr. Secretary, that the long-sought consensus to 
increase overall resources for foreign aid in furtherance of 
our national security goals is in danger of eroding here in 
Congress. As we move to meet the challenges of rebuilding Iraq 
and Afghanistan while hearing the administration's demands 
about the appropriate size of the tax cut, we are also being 
asked to package virtually all new resources for foreign aid 
into these new initiatives. The committee is facing critical 
decisions on 302(b) allocations as we speak. So the fate of 
these programs, which I will also note have been requested with 
extremely broad legislative authority, is very much in doubt as 
they are considered against compelling needs for domestic 
programs. Estimates for the cost of reconstruction of Iraq run 
into the tens of billions. While there was broad consensus to 
provide the initial resources to begin the process, everyone 
hopes or assumes that Iraqi oil revenues will pay for much of 
the remaining cost.
    The U.S. has withheld at least $1.7 billion in Iraqi assets 
whose ultimate use is uncertain. In any case, we will have to 
seek the cooperation of the U.N. to get access to the oil 
revenues. Under normal circumstances it would not be unusual to 
expect international financial institutions to pay for some 
Iraq reconstruction. In fact, the MDBs have provided nearly $1 
billion in post-conflict assistance to countries such as 
Ethiopia, Eritrea, Rwanda, East Timor, and the Balkans since 
1998. Under present circumstances, however, it is hard to 
imagine MDB participation in Iraq reconstruction anytime soon. 
For the moment it appears that the United States is simply 
stuck with the bill.
    I sincerely hope we have a plan to use Iraq's withheld 
assets to enlist the support of the MDBs in this enterprise and 
to get U.N. Cooperation on oil revenues.
    Mr. Secretary, I will address other concerns in my 
questions, and welcome your testimony. I just want to be sure I 
welcomed Mr. Taylor as well. Thank you so much for being here.
    Mr. Kolbe. Mr. Secretary, we will take your statement at 
this time. As you know, of course, your full statement will be 
placed in the record, if you would like to summarize it for us, 
and then we will go to questions. But again, welcome, Mr. 
Secretary. The floor is yours.

                   Secretary Snow's Opening Statement

    Secretary Snow. Thank you very much, Mr. Chairman and 
Ranking Member Lowey. I appreciate this opportunity to testify 
before you on the President's fiscal year 2004 budget request 
for the Treasury Department's international programs. I agree, 
Mr. Chairman, with your opening statement with respect to the 
role of Treasury here, the expanded role of Treasury, the range 
of issues that are coming our way and the uncertain times we 
face. And Mrs. Lowey, I hope as we go through this discussion 
this morning with you, we will be able to dispel some of those 
concerns that you raised in your opening statement.
    I propose to just make a brief opening statement and submit 
my longer formal statement for the record if that is acceptable 
to you.
    Mr. Kolbe. Absolutely.
    Secretary Snow. I think you know that the President is 
deeply committed to promoting economic growth and stability 
worldwide; worldwide, especially in large parts of the globe 
where poverty is really endemic. I agree, Mr. Chairman, with 
your opening comment to the effect that maybe the best export 
that the United States can have is ideas on economic growth; 
ideas to raise productivity; ideas to raise real standards of 
living around the world. I think we all need to be deeply 
committed to that. That has been a theme that John Taylor and I 
have taken to the G-7, to the G-20, to the IMF, and to the 
World Bank.
    The President stated it well, I think, when he said that 
persistent poverty and oppression lead to hopelessness and 
despair. We have too much of that. He also said that when 
governments fail to meet the most basic needs of their people, 
these failed states can become havens for terror. We see too 
much of that today as well.
    Last year President Bush set a goal of doubling the size of 
the world's poorest economies within a decade. That is clearly 
a stretch goal. But he has followed up with what he proposed 
doing by advancing several programs to move us towards those 
goals: the Millennium Challenge Account, Mrs. Lowey, which you 
mentioned in your opening comments, as well as the President's 
emergency plan for AIDS relief. To make a point of this, they 
are not part of our direct request for you today. It is 
probably appropriate to mention these two programs because of 
their importance and because of the interest that the committee 
has taken in them.
    The President's proposal to establish the Millennium 
Challenge Account, I hope we can persuade you, is an 
innovative, creative, and promising development assistance 
program which holds out enormous promise for the future. It is 
an effort to do economic development the right way. It is an 
effort to do economic development in a way that really focuses 
on results and rewards results. It creates real incentives for 
nations to govern justly, to invest in their people, and to 
encourage economic freedom and the foundations for long-term 
economic success. Secretary Powell and I look forward to 
working with you on this critically important initiative.
    And then, more recently, the President announced the 
emergency plan for AIDS relief, an effort that goes well beyond 
existing initiatives to help countries in Africa and the 
Caribbean regions, particularly, wage and win the war against 
HIV/AIDS; again, with a focus on accountability and real bottom 
line results.
    The Treasury Department is closely involved, as I think you 
know, with both of these programs as well as with the 
President's new economic growth agenda for the multilateral 
development banks. Just as we seek to create jobs and growth in 
America, we want to see jobs and growth on a global scale, 
prosperity on a global scale. The President's agenda for these 
multilateral development institutions focuses on raising 
productivity growth and measurable results by channeling more 
funds to countries that follow pro-growth strategies and by 
structuring our contributions to create incentives for growth, 
jobs, and prosperity. The President has called on the 
development banks to increase the use of grants as opposed to 
loans to the poorest countries. And I am pleased to say that 
the banks seem to be responding very well to the President's 
call to substitute grants for loans.
    The Treasury Department's international programs are 
crucial instruments in promoting the Administration's 
international economic agenda. And again, Mr. Chairman, I agree 
with your opening comments that the economic side of 
international policy is becoming increasingly central, 
increasingly important to achieving our objectives and the 
objectives for a better, more prosperous, and more peaceful 
world. These programs also help pursue specific U.S. foreign 
policy objectives, supporting economic assistance to key 
countries in the world as we wage the war on terrorism, 
combatting money laundering and terrorist finance, all 
important objectives of the United States.
    Similarly, the Treasury Department's international debt 
programs help to support good policies in reforming countries 
while the Department's technical assistance programs, again, 
help reforming countries put in place sound budgets and 
financial systems that are needed for growth.
    Treasury is also a key participant in the urgent 
reconstruction efforts in both Iraq and Afghanistan. For Iraq 
we formed a task force which has broad representation from the 
U.S. Government agencies to help address the financial and 
economic aspects of Iraq's reconstruction. And I look forward 
to addressing your questions on that subject, questions I fully 
anticipate.
    We will also focus on restoring essential operations in 
Iraq for the Finance Ministry, the central bank, the commercial 
banks, the stock market, and putting in place a sound currency 
system and a sound payment system.
    In Afghanistan, Treasury is also playing an important role. 
In addition to sending technical advisors to the country, Under 
Secretary Taylor has marshaled international financial support 
for the Afghan Government's day-to-day expenses through the 
World Bank-administered Afghan Reconstruction Trust Fund.
    We turn now to this year's request. We are asking for a 
billion, as you said Mr. Chairman, 1.96 billion; 1.4 billion in 
funding for the annual contributions to the multilateral 
development banks; 196 million towards clearing a portion of 
our arrears to these institutions, the unfunded commitments we 
have made to these institutions; 395 million towards debt 
reduction programs, and 14 million for the important 
international technical assistance activities.
    It includes funding increases for several of the key 
institutions linked to progress in our efforts for real reform.
    At Treasury and in the administration generally, we are 
committed to using the U.S. taxpayer resources efficiently and 
effectively. We are committed to putting the taxpayers' 
resources that go into these programs to good use. Treasury 
will continue to press the pro-growth agenda in the MDBs. We 
will seek to hold those institutions accountable for achieving 
real measurable and sustainable improvements that will be 
visible in the daily lives of people in these poor and 
developing countries. I think we have made good progress in the 
past year, but our work must continue until the objective is 
fully achieved. I very much ask for your support as we seek to 
strengthen these institutions in an effort to increase world 
prosperity, global economic growth, reduce poverty in the 
world's poorest countries, and support the key U.S. foreign 
policy objectives.
    Thank you very much. Under Secretary Taylor and I look 
forward to responding to your questions. Thank you.
    [The statement of Secretary Snow follows:]

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                                  IDA

    Mr. Kolbe. Thank you very much, Mr. Secretary. I have some 
more juicy, substantive questions I want to get to, but I will 
start off with some of those kind of mundane questions that 
probably won't otherwise get asked and I think for the record 
we need to have them answered.
    I want to start with the International Development 
Association, the concessional arm of the World Bank. The U.S. 
committed an additional $300 million over 2 years to IDA, with 
the first $100 million installment being made available in 
fiscal year 2004, contingent on IDA creating a new measurable 
results system. And just a couple weeks ago you announced that 
IDA had met the conditions and that the U.S. was prepared to 
commit $100 million more from this Congress in 2004.
    Who evaluates and decides that IDA has met the performance 
results? This was Treasury's idea that they should have this 
system. I think it is a good idea. But who does evaluation, and 
do you intend to share that analysis or results of your 
performance tests with Congress?
    Secretary Snow. Well, there are a set of performance 
targets dealing with things like advances in education and 
health care. I would be delighted to share those criteria with 
you generally. The evaluation is really done by Mr. Taylor and 
his experts who follow these subjects very, very closely.
    [The information follows:]

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    So, John, you may want to elaborate on those criteria.
    Mr. Taylor. Well, I would be certainly happy to share all 
of it with you, but just as the Secretary is saying, the setup 
is to look for things in education, such as completion rates in 
primary education which can be measured; immunization rates for 
measles, which are a broad indicator of improvement in the 
health area. Another indicator is time to start up a business. 
And so the first step was to set up the measurement system for 
these, and that was the first 100 million incentive. And as the 
Secretary indicated, we are ready to go ahead with that. So the 
next funding request is therefore 950 million as in the 
President's budget. And then the second 200 million, if things 
go well in actually achieving those goals, we would ask for as 
well.
    Mr. Kolbe. One hundred million dollars is a big chunk of 
change in this subcommittee. And I think that there is some 
convincing of members that needs to be done that this $100 
million is a worthwhile expenditure by this subcommittee for 
additional taxpayers' funds. So I do think we would like to see 
some more evidence from you about how IDA has met these 
conditions, how well they have done on this, before we are 
willing to go ahead with additional funding on it.
    Secretary Snow. We would be delighted to do this. This is 
really part of an initiative that John Taylor and the 
international team at Treasury have worked hard on, to change 
the way funding for the MDBs works so that there is much more 
focus on measurable results. We are making progress in that, I 
think. And the targets, the health targets and the education 
targets and the business development targets and these other 
things, are examples of the sort of results you want to see 
when you make development aid available.
    Mr. Kolbe. Thank you. I appreciate that. If there is some 
report or something you could share with us, I don't know 
whether you have an internal report that you might share, but I 
do think that members would like to see some additional 
evidence.

                              DEBT RELIEF

    I only have time for one more question here in my first 
round, so let me turn to the issue of debt relief, particularly 
the Congo. The President is requesting $300 million for 
bilateral debt relief for the Republic of Congo. I find this, 
frankly, fairly astonishing. This is a country that is just 
barely beginning a peace process and is facing a tremendous 
humanitarian disaster. Is debt relief really the best use of 
$300 million of funds here?
    Secretary Snow. Well----
    Mr. Kolbe. I mean, what it does is buy down part of the 
debt to the Ex-Im Bank.
    Secretary Snow. The DRC has made a lot of progress here 
according to our assessments of what they have been doing. They 
have liberalized their exchange rate, they have brought down 
inflation from triple digits now into the teens. They have 
developed a pretty good interim poverty reduction strategy 
plan, and they have met the HIPC criteria.
    Mr. Kolbe. But Mr. Secretary, if I might, in result, the 
point of HIPC was to make resources available to poor countries 
for health education and social services, but the Congo hasn't 
made a payment on debt for over 10 years. So what is the 
foreign policy objective that we achieve with this?
    Secretary Snow. It is very much like the debt issue in 
Iraq. They haven't made those payments either. It is to put 
them in a position that they can be viewed as having 
sustainable debt levels by the international community.
    Mr. Kolbe. Okay. I will have some more questions. Mrs. 
Lowey.
    Mrs. Lowey. Thank you, Mr. Chairman.

                                  MCA

    Mr. Secretary, with respect to the Millennium Challenge 
Account, my remarks in my statement should not be construed as 
opposition to the concepts embodied in the MCA proposal. I do, 
however, as you know, have serious doubts about the proposed 
new structure for the MCA. I just don't understand what role 
the administration expects Congress to play in its 
implementation. There is no doubt that the creation of a new 
corporate entity will delay the impacts on the ground. I have 
other concerns about how funds will be spent, coordinated, and 
monitored, but my primary concern today is the role that the 
administration feels Congress should play.
    And I have several questions with regard to that. First of 
all, if you could explain to me why the new corporate model 
makes more sense than using the existing mechanisms at USAID 
under an independent entity within the agency, I would be 
appreciative.
    Secretary Snow. Well, of course, USAID will be involved in 
the new model. The chairman of the MCA under our proposal is 
the Secretary of State. The other board members are the 
Secretary of the Treasury and the Administrator of OMB.
    USAID, of course, reports to the Secretary of State, so the 
USAID point of view will be well reflected.
    The idea here is to set up an institution, a public 
corporation that will focus on development in a more 
prioritized way. And USAID has lots of objectives. This 
organization will have a primary objective of taking poor 
countries and giving them the boost they need, where they meet 
the criteria, to really make genuine progress towards 
eliminating poverty. So it is an effort to bring a highly 
focused, highly energized point of view to the question of 
development,with an intense focus on measurable results.
    Mrs. Lowey. I think perhaps I will go on with other 
questions because of limited time, but I still can't understand 
why there has to be a new bureaucracy created and why the MCA 
couldn't be incorporated into the current bureaucracy and 
function according to your goals and those of the 
administration. But we can continue that.
    If you can give me your thoughts on proposals to create a 
second tier of MCA funding which would help countries missing 
eligibility by one or two indicators to achieve the benchmarks 
necessary to participate in the MCA program, because of the 23 
countries currently approved for the World Bank's fast-track 
education initiative, 9 are potentially eligible for MCA 
funding under the proposed criteria. And recognizing the 
planning that has already gone into developing credible 
education plans in these countries, do you, for example, do you 
foresee MCA funding being devoted to especially this purpose? 
How do you get the countries to get from one level to another 
without creating a second tier?
    Secretary Snow. Well, go back to the first question and 
then I am going to come right back to this. The core idea, I 
think, of the MCA is to create greater flexibility in 
approaching these important issues. USAID will still be there 
to deal with the countries that don't qualify.
    Mrs. Lowey. If I can just ask you, because I see my sand is 
going quickly, when you are saying greater flexibility, in fact 
the criteria are even tougher. So my question is how do you get 
from one tier to another tier to be qualified?
    Secretary Snow. Well, hopefully, the second set of 
programs, the aid programs will continue to support countries 
in their objectives. We won't forget about those countries. But 
we do want to pay particular attention to those countries that 
are doing the right things and reward the countries that are 
doing the right things, because that is the best way to 
eradicate poverty and that is the best way to move out of 
poverty to a higher level of prosperity. So it is an effort to 
bring a more focused attention on the poverty reduction 
question, but not forgetting the countries that don't qualify. 
They will continue to be subject to the USAID programs.
    Mrs. Lowey. However, as you well know, with the 
extraordinary needs around the world, the new dollars are not 
going to supplement the current programs dealing with poverty. 
And I am still not sure how you are moving people; if there is 
no second tier, how are you focusing on those countries who 
haven't quite met the various criteria? How do you intend to do 
that?
    Secretary Snow. Well, the Secretary of State, of course, is 
both over USAID and over the MCA. So he'll be able to make 
those judgments and coordinate between the two programs.
    Mrs. Lowey. I see my time is out, but I would appreciate 
perhaps at another time your further explanation, because you 
will play a key role in these programs and we all agree that 
the objectives are very noble. But how you move people, given 
the tremendous challenges that some of these poorer countries 
have, to that level where they can qualify is an important 
issue in my judgment.
    Secretary Snow. We will have an agreement. If you let me, 
we will come see you and have a good discussion on that.
    [The information follows:]

    For countries that just miss qualifying for the MCA, USAID 
and other relevant agencies will concentrate on the specific 
areas needed to help the country become eligible for MCC funds. 
For example, if a country just missed on the investing in 
people area, USAID could concentrate its programs in that area. 
In countries that are unlikely MCA candidates in the near term, 
USAID will need to assess the commitment to political and 
economic reform. Where such a commitment exists, USAID 
envisages focusing on building local capacity an institutions 
that can support the foundation of MCA assistance: (1) ruling 
justly, (2) promoting economic freedom, (3) and investing in 
people. For those countries that lack such a commitment, we 
will continue programs that address global issues such as HIV/
AIDS and environmental degradation, but will need to review 
broader development assistance. USAID has already begun this 
process of applying an MCA lens to their country programs, 
informing resource decisions with analysis of democratic 
principles and sound governance.

    Mr. Kolbe. I think we will have a number of questions on 
the Millennium Challenge Account before the day is over. We 
will go to the end of the line down there, Mr. Crenshaw.
    Mr. Crenshaw. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for being here today. I want to 
ask a question about the Millennium Challenge Account, but just 
want to as an aside express my appreciation and support for the 
work you are doing with the President. I think the MCA is going 
to revolutionize the way we deliver development assistance. It 
really has the right kind of incentives that you talked about: 
economic freedom, letting people invest, encourage people to 
govern. It is result oriented. I want you to know I think it is 
a great idea.

                              IRAQI MONIES

    My question is about the monies that we see that have been 
seized. The 1.6 billion has been frozen, then you read $650 
million is found lying around somewhere in Baghdad, maybe 
another billion dollars frozen by the Brits. Saddam maybe has 
$2 to $10 billion hidden away somewhere. What has been the role 
of the Treasury in trying to track down those funds, number 
one? And number two, have any of those dollars been spent and, 
if so, how have they been spent and what are the plans for 
those dollars as they come in, because it is a sizable amount 
of money?
    Secretary Snow. The United States Government, through an 
Executive order of the President, vested the Iraqi funds that 
were in the U.S. banking system, and that amounted to something 
close to 1.7 billion. At the same time, Mr. Taylor and I 
contacted a number of the finance ministers around the world 
and asked them to do the same, and a number of them have 
followed suit. We also asked them to assist in efforts to 
identify, trace, track, seize funds on a global basis, and we 
have gotten a good response from that so far.
    We view all of those funds as really belonging to the Iraqi 
people and would like to see those funds being used for the 
benefit of the Iraqi people through the reconstruction efforts 
and beyond. Our 1.7 billion is probably matched by another 1 
billion to 2 billion from other sources. Secretary Taylor is 
following this subject very closely and has the lead in the 
administration on this subject. So, John, would you supplement 
what I had to say and answer the Congressman's question?
    Mr. Taylor. The other part of your question was how the 
funds are being used, as the Secretary is saying, they are for 
the Iraqi people. So far there has been payments to people in 
Iraq using those funds, dollars have been delivered to the 
region, to the south into Baghdad, and actually some payments 
are being made to government workers to get on with the 
reconstruction, and that will proceed. Again, that is an 
example of how the funds are used for the Iraqi people.
    Secretary Snow. With respect to the other part of the 
question, which is the U.S. currency that was found in Iraq, 
that is in a little different category, as I understand it. 
Under the laws of occupation, which would apply, those funds 
will go into the custody of the DOD. And that is, I think, 
about 760 million, something like that. And I think the Defense 
Department can probably speak more authoritatively with respect 
to how those funds will be deployed.
    Mr. Crenshaw. I think Chairman Lewis will help to work with 
you on that. A little extra in his basket.
    Last question is the whole question of democracy. We talk 
about how that is going to happen in Iraq, and obviously a big 
part of democracy is kind of a free market economy. It is my 
understanding that Iraq, decades ago, had a pretty modern 
banking system, obviously was corrupted, and kind of used as a 
personal bank account for Saddam Hussein.
    But my question is what are the ways that the Treasury is 
going to be working to help create a central bank, try to help 
create a free market economy, which is obviously very, very 
critical in terms of any kind of democratic system being 
established.
    Secretary Snow. Well, you are absolutely right. What we are 
dealing with here is not the two weeks of the conflict but the 
two decades-plus of mismanagement and misgovernance and misrule 
of a country that is inherently prosperous, and that ought to 
be prosperous, and that has the prospect to be prosperous. But 
to be prosperous we need a fundamental change, or they need a 
fundamental change in the institutions, because this has to be 
ultimately led by the Iraqi people. Our role as technical 
advisors will be to help put in place and advise about how to 
put in place a well-structured banking system, a well-
structured central bank, a monetary system, a payment system, a 
national account system, none of which exists today. The 
central bank did not serve the purposes of the central bank in 
most places. And the banking system was not a private sector 
banking system, it was a command-and-control banking system 
used primarily to serve the purposes of the regime.
    We have some 15 or 16 advisors over there now, headed up by 
a very able fellow named Peter McPherson who is a former Deputy 
Secretary of Treasury, the former head of the USAID, and the 
current president at Michigan State University, a well-
respected person in financial circles who will coordinate our 
efforts. But our objective is to have a modern-day institution 
with the private sector banking system that will serve the 
purpose that an effective banking and financial system does. 
That is a foundation block for the country's future prosperity.
    Mr. Crenshaw. Thank you. Thank you, Mr. Chairman.
    Mr. Kolbe. Ms. Kilpatrick.
    Ms. Kilpatrick. Thank you, Mr. Chairman.

                                  MCA

    Mr. Secretary Snow, it is certainly good to meet you, good 
to have you here this morning. I want to go back to the 
Millennium Challenge Account again because this member still 
has trouble in trying to understand it better. You mention in 
your words today it is a public account, a public corporation 
with public dollars, very limited access, and no oversight from 
the Congress who appropriates this public money. That is one of 
my concerns, the oversight responsibility of the Congress which 
is subrogated under the present configuration of how MCA is set 
up. I am also concerned with the eligibility criteria that is 
being used to identify the countries. Many of the poorest of 
the poorest are going to be left out. How do you justify both 
of those?
    Secretary Snow. Well, we haven't selected any countries 
yet, of course.
    Ms. Kilpatrick. Eligibility criteria will select them. And 
given what I have seen, and I think the Secretary of State 
responded as well, some countries that are definitely poor will 
be left out. Maybe some of it is politics, and certainly I 
don't support corruption nor would I ask our public dollars to 
do that. I am very concerned that many of the countries in sub-
Saharan Africa particularly will be left out.
    Secretary Snow. My understanding is that the data that will 
underlie the selection process is publicly available, and we 
would be pleased to share that with you. We haven't made a 
selection of the countries, but the selection criteria and the 
data processes that will ultimately determine this are, of 
course, well advanced today. And we would be delighted to spend 
time talking with you about the criteria and the data.
    [The information follows:]

    The MCA does not displace other assistance and, in fact, 
the President has made clear that the MCA is in addition to 
current assistance and is only one part of a larger global 
development strategy. We have recently seen this commitment 
deepen through the newly pledge $10 billion increase in HIV/
AIDS funding, the additional $200 million pledged for famine 
relief, the $100 million requested to address complex 
emergencies, and the 9.4 percent increase in overall 
development assistance funding in the 2004 budget sent to the 
Hill in February.
    The MCA's role in this strategy will be to focus narrowly 
on those poor countries that have demonstrated a strong 
commitment to pro-growth policies because development 
assistance is much more effective in such an environment. 
However, for other countries that are mid-range performers we 
will need to assess the commitment to political and economic 
reform and build capacity in areas where such a commitment 
exists. In poor performing, failed and failing states, we will 
continue programs that address humanitarian concerns, and 
global issues such as HIV/AIDS and environmental degradation.

    Ms. Kilpatrick. I am kind of familiar with it; we spent 
some time with it in working with the International Relations 
Committee as well. Some members in Congress are still 
concerned, and I do want to continue working with you as we get 
to whatever this is going to look like in the final analysis. 
So I accept your offer, sir.
    Secretary Snow. Thank you.

                                 HAITI

    Ms. Kilpatrick. I want to talk a bit about the 
InterAmerican Development Bank and its $140 million-plus they 
are holding from Haiti; Haiti, the poorest country in the 
hemisphere, this money could be used for health care and 
infrastructure needs and education and all of that. The 
Organization of American States passed unanimously in September 
of last year a verbal commitment that all international 
financial institutions should reengage with Haiti and the 
United States also was a part of that. Why are they not now yet 
able to receive the appropriation?
    Secretary Snow. I am going to ask Mr. Taylor, because he 
has taken a special interest in this issue, to respond. But 
Haiti's status, as I understand it, is currently in a 
nonaccrual basis with both IDB and the World Bank. We are 
working with them to see that they can clear up this arrearage 
problem and get back into an accrual status where they would be 
eligible for the funding. But, Under Secretary----
    Ms. Kilpatrick. That is an oxymoron what you just said, 
which I agree, the $40 million, that that will be there will 
not begin to address the economic and social challenge that 
they face. If in fact they do have an appropriation that is due 
them and the IDB is not giving them, it would help the 
position.
    Mr. Taylor. Just briefly, the IDB and the other 
institutions are ready to go and there is a process to clear 
the arrears. The donors will be helping with that. The 
important thing now is for the government to put together an 
overall economic program, working with the IMF, so that their 
budget is consistent with the aid package that is going to be 
provided. That is close. Their process is going well, the IMF 
is engaged. We have met with the authorities and with the IMF 
to smooth that process out. And I think at that point the 
program will go through, assuming the budget is put in order 
and it is a reasonable budget, it has to be done in order for 
the funds to be used.
    Ms. Kilpatrick. Absolutely. There has to be a plan. You 
cannot implement or give the money without the plan. That has 
to be there. That some Organization of American States 
Agreement, also said that the elections of 2000, those people 
had to resign and new people had to be elected--I am not sure 
if that includes President Aristide--is it a political problem 
in addition to what you said, Mr. Taylor?
    Mr. Taylor. No. These are issues which are the economic 
budget financing issues which I indicated. At this point there 
is not a political issue.
    Ms. Kilpatrick. How soon can we get that done? How soon can 
we get this plan and program implemented?
    Mr. Taylor. We never set a time, Congresswoman, but we are 
working on it to try to move it fast and try to expeditethe 
information flow so there is no misunderstanding. We are making sure 
that nobody raises the bar or changes the rules of the game. And I hope 
it is in the next few months. But it is one of these things you can't 
predict precisely, both sides have to get together and work it out, but 
I am optimistic it won't be too much longer.
    Ms. Kilpatrick. Thank you, Mr. Chairman.
    Mr. Kolbe. Mr. Lewis.
    Mr. Lewis. Thank you very much, Mr. Chairman. I would like 
to react just for a moment to that exchange relative to Haiti 
and other developing countries that have desperate 
circumstances. Before the job I have presently, I had a chance 
to chair a subcommittee that deals with our programs and 
involves lending for housing programs. And I found myself in 
the middle of an effort to go measure what happens in various 
urban centers around the country, where for years during my 
service we have been sending lots of money each year. New 
Orleans comes to mind. We went down and visited and could find 
almost no use of that funding effectively for new public 
housing. The question became, where did the money go?
    Frankly, I think we have a great interest in this shrinking 
world at motivating the development and opportunity in the 
developing world. I feel very strongly about that. But where 
there are governments that will not establish--responded to 
criteria--but establish processes whereby the money delivered 
never gets to the people we portend to want to help in the 
first place, that is unacceptable to me.
    Mr. Secretary, welcome. I am sorry about that but I feel 
very strongly about this. Mr. Secretary, in the early eighties 
several of us spent a good deal of time trying to deal with the 
multilateral development bank focusing upon these very kinds of 
questions. And one of the items of discussion constantly from 
the Congress during the Reagan years was how can we get these 
international development banks to play a role at exercising a 
great deal more of the pattern of private sector lending and 
private sector opportunity rather than government-to-government 
loans. Every one of the institutions we talked to paid lip 
service to responding. The Asian Development Bank was by far 
the best, but nonetheless we did have a sense, certainly a lot 
of promise, that we would be motivating avenues whereby the 
private sector could play a role, especially in the poorest of 
the poor countries.
    I would be very interested, Mr. Secretary, if you could 
tell me what evaluation has been made and what you think of the 
progress we have made relative to increasing percentages of our 
international bank lending, our contributions percentage that 
have gone to private sector nongovernment loans, the kind that 
I described. And whether you are--whether or not you have seen, 
a pattern of increases in private sector lending and also if we 
have seen a positive result from that policy.
    Secretary Snow. Not enough, for sure. But we are trying to 
push further along the path you think we should be going. I 
agree with you. And ultimately, the answer here is to create 
the foundations for private sector investing. Ultimately, what 
we need to see is much stronger, more vibrant private sectors 
in these developing countries. It is the only way to eliminate 
poverty, because it is the only way to get productivity high. 
Investment leads to higher productivity, which translates back 
into higher wage rates for the workers. That is the planning we 
need to do. Of course, if these countries were able to attract 
private capital on their own, we wouldn't need the World Bank 
and IMF. Secretary Taylor and I have talked about our real 
objectives for these institutions is that ultimately they are 
no longer necessary; that ultimately they get on a path where 
the private sector relative to the public sector expands so 
much, the conditions for investment are made so good, that the 
private sector drives future growth, that the private sector 
supplants the need for IMF and World Bank loans. We are a long 
way from there, but at least we know how to define success. And 
I think success is defined very much the way you are suggesting 
here.
    John, you probably want to add to that.
    Mr. Taylor. Just one brief thing. I think since the period 
you are referring to in the Reagan administration that there 
has been more movement towards private sector; the European 
Bank for Reconstruction and Development in particular that was 
set up in the 1990-92 period, has well over 50 percent of its 
support going to the private sector.
    They have also developed a very good small business loan 
program in Russia and other former parts of the Soviet Union, 
which we are trying to see if we could use similar small 
business loan programs in Africa and Latin America.
    Mr. Lewis. Well, I appreciate very much that response. I am 
particularly interested in the eastern Europe circumstance and 
would like to look much more closely at some of that data. I 
can't help but wonder, though, about what has happened with the 
InterAmerican Development Banks and loans that have been made, 
that are subsidized loans to some of those countries whose 
economies appear to be all but a disaster. I don't really know 
what kinds of percentages could be applied to the patterns 
there relative to private sector lending versus government 
lending, but clearly whatever they are doing with their capital 
availability by way of government activity is not doing very 
much for many of those countries in our hemisphere, and I see 
nothing but absolute disaster.
    Let me, Mr. Secretary, ask you to respond. But I also want 
to just touch on something the Chairman mentioned regarding the 
$300 million relative to the Congo. Governments don't do 
anything unless it is in their interest, usually; the exception 
is the United States. Beyond our economic interest we ofttimes 
put out our capital and, as well, as our talents simply because 
of humanitarian interest. But in so many of those countries in 
Africa where leadership needs to be shifted dramatically, we 
have circumstances where the Congo, for example, hasn't made a 
loan debt retirement for 10 years, and yet $300 million goes 
forward.
    Mr. Lewis. That causes me to wonder--you want to examine 
the government, what is the pattern there, et cetera? I have 
gone on for a while, but I would love to hear your response.

                                  HIPC

    Secretary Snow. Well, the Congo is part of the HIPC 
program, and that is why we are where we are with that. The 
Paris Club has met and determined they met the so-called Naples 
criteria to get the substantial debt reduction.
    Mr. Lewis. We had some ourselves. The Treasury plans to 
say, look, we have been involved in this kind of lending. HIPC 
has its criteria, but what have been the results? And if they 
are not getting results, why should we participate?
    Secretary Snow. That is a fair question. In the case of the 
Congo, the evidence I have seen suggests they have made some 
economic progress, and the progress is far less than it needs 
to be, but at least there has been some progress. As I 
understand the HIPC program, the debt reduction is only 
provided for where progress is made against these various 
criteria.
    Now, whether we have bought an awful lot for that at this 
point I would leave to my senior colleague here who follows 
this matter more closely than I do, but it is not as 
encouraging as it should be. I am going to be open with you 
about that. But the HIPC initiative grows out of this idea that 
if you are ever going to get anywhere, you have got to reward 
countries that do the right things, and we ought to recognize 
that at some levels this debt is not going to get repaid, and 
it just sits on top of these countries and becomes a barrier to 
getting where they need to get.
    So if they are making some progress, if they are doing the 
right things, there is a case here that says let's give you a 
fresh start on some of this debt. You are never going to pay it 
back anyway, let's recognize reality.
    Mr. Lewis. Mr. Chairman, thank you. I would like to say to 
the Secretary that I am leaving--it is not because I am not 
intrigued, but the President's personal office budget is being 
considered across the hall. I must go over there for 5 minutes, 
but I will be right back.
    Mr. Kolbe. Thank you, Mr. Lewis.
    Mr. Rothman.
    Mr. Rothman. Thank you, Mr. Chairman.

                               IRAQI DEBT

    Mr. Secretary, Mr. Taylor, thank you for being here. Mr. 
Secretary. We have seen estimates of $26 billion to $383 
billion in Iraqi debts owed to other governments, as well as 
individuals on companies. The United States has called for 
nations to cancel some of their debt and restructure some of 
the debt owed to them by Iraq. Can you bring the subcommittee 
up to date on our efforts in working with other nations and 
which nations are cooperating with us in these regards?
    Secretary Snow. The subject of the Iraqi debt levels was a 
matter for discussion at the recent G-7 meetings that were held 
in Washington, I think the week before last. I am not sure what 
the actual debt levels are. There is an assessment being done 
on that now. But one thing I think we do know is that those 
debt levels are sizable relative to the GDP of the country. We 
are trying to assess our own debt levels and have various 
estimates here. We haven't quantified it finally, but it is, I 
guess, somewhere in the 2-3 billion range maybe. Countries in 
the G-7 are assessing their debt levels, and they are in the 
same position we are. They are not absolutely certain what they 
are, and a lot depends on what you do with accrual status and 
not.
    We haven't made any definitive determination on the debt 
level question, except I think to recognize that these debt 
levels are not sustainable and that a Paris Club sort of 
process probably makes some sense. I sensed from the tenor of 
the discussions at the G-7 meetings here recently, that this is 
a view that is widely held among the G-7 countries.
    Mr. Rothman. Mr. Secretary, we will be obviously attentive 
and follow the progress in that regard--the determination of 
respective debt owed to these countries and their level of 
cooperation in either canceling or restructuring the debt once 
they have established what it is.
    But with regards to the issue of freezing Iraqi assets in 
various countries, which was required I believe by a United 
Nations resolution at some point, can you tell us which nations 
have not complied with the U.N. Requirement to freeze Iraqi 
assets in their countries?
    Secretary Snow. I am not sure I can--I can't. I can tell 
you that a number of countries have frozen those assets, or 
blocked those assets out of that 1990 U.N. Resolution. Those 
are the countries I referenced when I said we have asked them 
to now vest those assets, as we did in the United States, for 
the benefit of the Iraqi people to support the reconstruction 
efforts.
    Mr. Rothman. Mr. Secretary, with all due respect, you don't 
know of any country that has not cooperated in that regard?
    Secretary Snow. I am going to turn that one over to Mr. 
Taylor. I am saying that I am aware that a number of countries 
have responded to the initial U.N. Resolution. Now, the second 
issue is not compliance with that U.N. Resolution but rather--
--
    Mr. Rothman. Payout.
    Secretary Snow. The payout. We are now in the process of 
trying to get the actual payout, and we have had, I would say, 
overall a very good response to that in terms of an intention 
on the part of those countries to do that.
    A number of them have told us though, that they lack the 
sort of vesting authority that Congress conferred upon the 
President of the United States to take that action. So they are 
now saying we are looking at our authorities, and we are 
looking at the possibility of some higher legal authority that 
would give us the ability to do that.
    Mr. Rothman. That is good news. You know, what I would love 
to know is if there are any egregious or otherwise examples 
that would be of interest to the American people, certainly the 
members of this subcommittee, nations with whom we do business 
who either have not frozen those assets or who have not 
demonstrated the kind of good intentions that you have just 
talked about.
    Secretary Snow. Well, we have asked many, many, many 
countries to do that, and to my knowledge we have gotten no 
absolute rejections. Some countries though, say they have not 
identified funds in their country, but have agreed that they 
would do the inquiries and the searches through their banking 
system to see if those funds existed.

                               ARGENTINA

    Mr. Rothman. If I have one more moment, it would be to ask 
about Argentina. The situation in Argentina is a model of 
failure, perhaps, with regards to how the international system 
can appear to be helping a nation, considering the $6.6billion 
8-month standby agreement that was approved by the IMF late January of 
this year while Argentina's indebtedness to the IMF continues to grow.
    Is the United States providing technical assistance to 
Argentina to help it overcome its severe economic problems, and 
have we learned enough from the Argentina experience to help 
other nations around the world, especially in Latin America, 
avoid those problems?
    Secretary Snow. Argentina recently retained an outside 
financial adviser to help it deal with its private creditors, 
and I understand the dialogue has begun. It probably will not 
come to full fruition until the new government takes office 
after the runoff, some time later in May.
    I understand that they are current on their obligations to 
the official creditors, the IMF and the World Bank and the IDB, 
and is engaging in Paris Club discussions. The United States 
has tried to be supportive of Argentina, especially with this 
IMF subvention. Whether we have technical advisers there or not 
at this moment, John, you could respond.
    Mr. Taylor. Yes, we have provided technical assistance to 
Argentina in the last year or so in particular in the monetary 
policy area, and we would like to do that as much as we can. We 
have also been in very close contact with the officials, the 
central bank governor, the finance ministers, and talked with 
them about their program. It is one of the good things 
recently, as growth has picked up, the currency has been in 
better shape and the news on inflation is good. So there are 
some good signs in Argentina's economy right now.
    Mr. Rothman. Thank you very much.
    Mr. Kolbe. Our next questioner is Mr. Knollenberg.
    Mr. Knollenberg. Mr. Chairman, thank you very much. 
Welcome, Secretary Snow and Under Secretary Taylor. I 
appreciate having you here.
    One of the things you just mentioned about Peter McPherson 
being selected for this position I think is good. That is 
great. I am from Michigan. Obviously you know his Michigan 
connection, and also the fact that he is well-credentialed, as 
a former Deputy Secretary of the Treasury and also 
Administrator of USAID. I believe if anybody can do that job, I 
believe he can.
    The question I have is--of the 2\1/2\ billion that was 
appropriated for Iraq in the supplemental, how much of that is 
apportioned to Treasury, or do you know?
    Secretary Snow. Well, I know it is not a large part.

                                  IRAQ

    Mr. Knollenberg. With the $20 provided to 3,100 people, 
that amounts to $62,000. So that is not going to do a lot of 
good for the country overall. This money is being provided to 
former and potential new civil servants. Is that correct?
    Secretary Snow. Yes. I have talked to Mitch Daniels as our 
role has expanded over there. I have indicated, to the Director 
of OMB, that some financial assistance with these positions and 
with Mr. McPherson's role would be appropriate, and he and I 
and Mr. Taylor are going to be meeting soon to try and make 
sure that the resources are available to support these 
important activities.
    Mr. Knollenberg. Is there a way that we will get the 
information on exactly how much of that is----
    Secretary Snow. We would be pleased to make it available as 
soon as we get a better fix on what it will be.
    [The information follows:]

    There may be some confusion between Treasury activities in 
Iraq that will be funded through the Iraqi Supplemental and 
those funded through the Vested Assets, whose original source 
was ``frozen'' Iraqi financial assets in the United States at 
the time of the first Gulf War.
    A Treasury Department budget request for $7 million to come 
from the Iraq Supplemental is currently working its way through 
the system. This request includes $6.0 million for the Treasury 
technical assistance effort in Iraq through the end of the 
fiscal year, and $1.0 million to begin operation and monitoring 
of the loan program for Turkey that was contained in the 
Supplemental.
    The funding for the initial ``Emergency Payments'' in Iraq, 
and the subsequent salary and pension payments, comes from the 
$1.7 million of ``Vested Assets'' held at the New York Fed. 
Treasury representatives, in close cooperation with the 
Department of Defense, arranged the delivery of $199 million 
out of this to the region, where the currency is being used to 
make payments to Iraqis. A proposed fourth shipment is 
currently under review.
    Treasury advisors working in Iraq quickly established a 
mechanism for making payments, so that ``Emergency Payments'' 
could commence for dock workers, rail workers, power plant 
workers, and others needed to get the Iraqi economy functioning 
and keep civil order. At the same time, our advisors conducted 
an assessment of the existing payroll system for salaries and 
pensions and found that adequate, functional procedures already 
existed. While this system will have to be updated over time, 
it provides the basic infrastructure for making salary and 
pension payments, and such payments replaced the Emergency 
Payments as soon as it was possible.
    Despite tremendous logistical challenges, the system of 
payments has been a success. To date, over 1.5 million 
pensioners and civil servants and workers crucial to the 
functioning of essential public services have received 
payments. Treasury advisors have played a key role, working 
closely with counterparts from the Defense Department and other 
agencies, in extending this initial financial life-line to the 
Iraqi people.

    Mr. Knollenberg. We know it has to be a lot more.
    One of the other questions I have, too, is--and I think Mr. 
Rothman was dwelling on this. Some figures I have heard about 
what Iraq owes are about $4 billion to the U.S. and more to 
Russia. It is well over that. They owe more than that to France 
as well. So there is indeed some great restructuring that is 
going to have to be done to address this. This is an early 
stage, and I know I have got you in my grip for the moment, 
asking questions that maybe you can't answer. But what kind of 
time frames do you have in mind to bring about some of the 
change? For example, I guess the currency they have over there 
is in Iraqi dinars, Swiss dinars from a prior time, and also 
U.S. currency. No surprise about U.S. currency. It seems to be 
part of everybody's financial base. And with Mr. McPherson 
suggesting that he might return by September, a lot of work in 
a short period of time will have to be done. Particularly with 
the conditions of buildings, computers, financial data, and 
also finding financial experts that you can trust in Iraq. We 
have to go through some kind of security check. What can you 
suggest might be realizable in the next 6 months?
    Secretary Snow. And, of course, Mr. McPherson will be 
bringing in Iraqi advisers.
    Mr. Knollenberg. Yes.
    Secretary Snow. We would like the Iraqis to increasingly 
take ownership of this whole process. I think we can accomplish 
a lot in that time frame. One of the crucial issues that has to 
get addressed is what is the currency. Currently there is the 
Swiss dinar, used primarily in the north, although becoming 
more widespread I understand. The Saddam dinars and dollars, we 
will be using dollars in the interim to pay civil servants, 
pensioners and others. Dollars are already, I am told, widely 
in circulation and are the preferred currency. One would 
imagine the Saddam dinar has depreciated very, very 
significantly.
    One of the early issues Mr. McPherson will have to face is 
advice on what is the appropriate currency to use. But 
ultimately, the Iraqi people really should make the decision on 
what their currency would be.
    With respect to the financial institutions, we need to do 
an assessment. It looks like Iraq has foregone national 
accounts and that a system of national accounts will have to be 
put in place. A budget, in other words, will have to be put in 
place. It appears that this central bank is not a real central 
bank that does what a central bank does in terms of 
accomplishing monetary supply and----
    Mr. Knollenberg. So it is damaged substantially in your 
judgment, the central bank?
    Secretary Snow. Pardon?
    Mr. Knollenberg. The central bank is damaged extensively?
    Secretary Snow. Absolutely. I don't think it has functioned 
as a real central bank. It has served other purposes. There is 
not a private sector banking system in the country, and it is a 
command-and-control system. So we will be able to make 
available a lot of technical advice on how these institutions 
should function, starting though with just a basic assessment 
of what the current conditions are. We hope that Mr. McPherson 
would bring in an Iraqi advisory council, they would work 
closely with the interim Iraqi authority, and that a lot of 
these decisions would end up getting made ultimately by the 
Iraqi authorities themselves.
    Mr. Knollenberg. I know my time has run out, but I know it 
is going to be difficult for Americans to manage this 
transition, at the same time trying to allow the Iraqis to 
emerge as leaders in their own government as well. But I do 
appreciate very much both gentlemen being here and your 
thoughts on this matter. Thank you.
    Mr. Kolbe. Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. I would like the record to show 
that Secretary Snow was born in Toledo, Ohio, where his mother 
devoted her life to the education of children in our public 
school system, and his father was an attorney, and I attended 
high school with his sister, Dr. Katherine Snow. I hope you 
will give her my regards. I have no idea where she is now.
    Secretary Snow. I didn't realize that. She has gone way 
beyond me. She holds the chair in linguistics at Harvard.
    Ms. Kaptur. Does she really? All right. Well, she was chair 
of our chess club in high school. I can see she has done well 
with her life. Please tell her I said hello.
    I want to know how many weeks have you been Secretary of 
Treasury now?
    Secretary Snow. It seems like 1200, but it is only 12.
    Ms. Kaptur. Twelve. Well, I am going to switch questioning 
to a matter concerning my continent. I know that in a mere 12 
weeks you wouldn't have had a chance to focus on this with 
everything else going on, but I am going to ask if you could 
use your considerable management talents to get a hold of 
something called the North American Development Bank. This has 
been an instrumentality that has existed in the form of a side 
agreement between the United States and Mexico since 1994.

                                NAD BANK

    One of the questions I will have of Treasury--and maybe one 
of the experts in the audience can tell us this--is what is the 
current capitalization level of what we call NAD Bank? It is 
very difficult to read information coming from Treasury on this 
instrumentality and make any sense of it, because the annual 
reports are not normal annual reports.
    Mr. Secretary, currently you chair that Bank, and NAD Bank 
has been designed to assist with environmental remediation 
along the U.S.-Mexico border. Ten percent of NAD Bank's funds 
were to be used to help communities across our country adjust 
to the enormous job losses that have resulted domestically from 
NAFTA's implementation. Ohio has lost over 135,000 jobs to 
NAFTA. Ohio has not had a single grant or loan related to 
economic investment to attempt to make up for that job loss.
    I am going to ask the administration to provide the 
assistance to States and localities through your loan and your 
grant authority. I can tell you, for example, in northwest Ohio 
in the last few months, we have lost an additional 2,000 jobs 
in Ottawa, Ohio, to Mexico from Philips. We lost hundreds of 
jobs recently at Dickson Ticonderoga in Sandusky, Ohio. 
Cleveland lost Mr. Coffee. There has been no attempt by NAD 
Bank, in my opinion, because it is not structured properly from 
a management standpoint to give life to the investment side of 
NAD Bank. NAD Bank was supposed to help communities and workers 
in our country readjust to this downdraft of jobs south of the 
border.
    So I realize you haven't had a chance to focus on that yet. 
I can tell you that NAFTA has existed almost a decade now. The 
community assistance investment program, according to the data 
I have, has only awarded 13.4 million dollars. Unbelievable.
    And that is why my first question to you is what is the 
capitalization level of NAD Bank? And in the coming fiscal 
year, what level of assistance are you intending to budget for 
the community assistance investment program? And I would 
strongly counsel you, if I could, to please do market review of 
this program and make the CAIP side of the bank function. It is 
a strange creature with relationships with USDA and EPA, and 
ultimately nobody takes responsibility. A few staff people are 
down there in Texas. Probably nobody up here at Treasury. It is 
kind of a set of horses that have run out of the gate 
separately, and nobody is really managing this, in my opinion.
    Ours is the one, two, three, four, five, six, seventh State 
in terms of job loss due to NAD Bank. We have received zero 
help. So does your staff have the capitalization level of NAD 
Bank, and what level of assistance are you intending to budget 
for CAIP in this coming fiscal year?
    Secretary Snow. John, do we have that answer? If we don't, 
we will be happy to provide it for the record. You properly 
surmised that you raised a question beyond my depth, but we 
will get on top of it and give you a full answer.
    [The Information follows:]

    No budget has been requested for fiscal 2004 because the 
NAFTA Implementation Act authorized the use of 10 percent of 
NADBank capital to carry out the CAIP loan programs without 
further appropriations. CAIP grants will be evaluated upon 
expiration of the respective grant periods before determining 
how, or whether, to proceed.
    The CAIP program partners with the loan guaranty programs 
of the Department of Agriculture and the Small Business 
Administration in order to maximize the impact of program 
dollars. A CAIP Program Director is located within the Office 
of Domestic Finance at the Department of the Treasury in 
Washington, DC. Direct loan origination is managed through a 
NADBank office in Los Angeles which has 2 staff persons (a 
director and office manager) funded by CAIP resources. The CAIP 
grant program is managed by 4 staff persons through NAD Bank's 
San Antonio office (grant program manager, 2 program analysts, 
1 office administrator), also funded through the CAIP.
    The CAIP Finance Committee approves the budget of the Los 
Angeles and San Antonio offices and all grants, loans and loan 
guarantees. The full CAIP Finance Committee (consisting of 
Senate confirmed presidential appointees from 4 cabinet-level 
agencies, including a Treasury representative, the Assistant 
Secretary for Financial Institutions, who is its permanent 
chairperson and has the discretion to add other agencies) meets 
on an as-needed basis, with Subcommittees meeting more 
frequently to consider loan guaranty requests and determine 
geographic regions' eligibility for CAIP loans and loan 
guarantees.

    Ms. Kaptur. Thank you. Thank you very much Mr. Secretary.
    I guess I would just have to say that I am very doubtful 
that the administration can be successful in expanding NAFTA to 
another 31 countries without repairing the catastrophic damage 
that is occurring at our border with Mexico, such as the 
environmental cesspool we are passing on to the next 
generation. How can we not address the job loss and the lack of 
instruments put in place to try to deal with that across our 
country.
    Looking down there at Mr. Lewis, I can tell you that in his 
State of California is number one in terms of job loss. They 
have lost a third of a million jobs to Mexico. I don't see that 
California is very much better than Ohio. If you could assign 
one of your top brains to this, somebody really needs to take a 
look at the way this is malfunctioning.
    Secretary Snow. We will take an in-depth look at it. For 
the meantime, I think Mr. Taylor has a brief response he wants 
to make.
    Mr. Taylor. In terms of the capitalization, it is about 
$450 million paid in capital from the U.S. for Mexico. The 
program that you are referring to is a small part of that bank. 
As you know, it is by legislative design.
    Ms. Kaptur. Let me just say, sir, I did not support that 
low level, but 10 percent is better than nothing.
    Mr. Taylor. Yes, it is. But just to be sure for the record, 
it is 10 percent. But more generally, what we have been doing 
under President Bush's leadership is trying to reform that bank 
so the whole thing works better, and that what we have found is 
its whole level of grant and loan making has been low. And so 
there is an effort underway to reform it. There is actually 
legislation in front of the Congress right now to do this. The 
Mexicans have passed their part of the legislation, and we very 
much hope that that reform is going to help, not just the 
program that you are referring to, which is very important, but 
the whole of the NADBank.
    Ms. Kaptur. If the gentleman would yield just for a second, 
Congress passed a bill on suspension a couple of weeks ago that 
expanded NAFTA's reach on the Mexican side of the border 
another 100 kilometers. It did nothing to expand the region in 
the U.S. What we can do to beef up what is in NAD Bank to help 
our communities readjust? So I would hope that there is 
something in this legislation that deals with that. Can the 
gentleman enlighten me on it?
    Secretary Snow. That will also have to be an answer we get 
for the record.
    Mr. Taylor. One part of the legislation was to move the 
region south of the border, but there were other parts in terms 
of trying to make the funds more usable to projects.
    With respect to the CAIP program itself, what I think we 
should do here is follow the Secretary's offer, is to provide 
more information from the domestic side of the program for you 
to see what could be done to speed it up if it is not working 
as----
    Ms. Kaptur. Thank you. I can assure the gentleman, little 
of what was in the legislation Congress passed had anything to 
do with helping domestically inside this country.

                                  DEBT

    Mr. Kolbe. Thank you very much.
    We will come back then to another round of questions here. 
I want to talk a little bit more about debt reduction. This 
subcommittee has appropriated $600 million to the HIPC debt 
relief program, and at that time, back in 2000 when that was 
done, we were told $600 million would complete the U.S. 
commitment to the multilateral HIPC trust fund. Now in the 2004 
budget we have a request for $75 million for an additional U.S. 
payment, first of two installments, and I understand there is a 
financing gap of about $650 million for the enhanced HIPC 
program.
    So we have committed another $150 million over 2 years, and 
yet I am told that there is nothing solid at all about the 
estimates on the cost of debt relief, anymore than they were 
when we pledged $600 million 5 years ago. So could you tell us, 
do you have any details about the shortfall, and can you tell 
us what other countries are pledging?
    Secretary Snow. The U.S. contribution of $600 million, I 
understand, has been matched by roughly $2 billion in pledges 
from other countries. The $150 million pledge is to fulfill the 
financing hole in the HIPC trust fund, and that is being 
matched by--roughly $500-600 million from other countries. We 
can provide you with more details as to why a financing hole 
has opened up.
    Then we made another pledge of $150 million, of which the 
$75 million is the 2004 request. Now, that is for the 
multilateral debt relief.
    On a bilateral basis, I ask Mr. Taylor to amplify on this. 
On a bilateral basis with the Congo, our request is $300 
million. I think we are pretty much through what we think will 
be the major drawdowns. There may be a couple of others, but we 
have pretty much resolved the major drawdowns on the bilateral 
basis, so I don't think we are going to be back to you for 
substantial funding there. But the multilateral request here is 
for FY 2004 is $75 million on the $150 million additional 
pledged.
    Mr. Kolbe. Do you have any idea how far into the future we 
are likely to have funding requests for HIPC? I mean, there 
doesn't seem to be any end to it.
    Secretary Snow. I will ask Mr. Taylor to tell us.

                               G-8 SUMMIT

    Mr. Taylor. The only thing I think I can offer at this 
point, Mr. Chairman, is that at last year's G-8 summit, there 
was an agreement that up to $1 billion would be supported or 
pledged for HIPC, depending on the costs involved. That was the 
number that was put out.
    At this point our estimate is less than that. It is $600 
million, and that is where the $150 million of our pledge comes 
in. But we need to be watching this closely, it is important 
money involved, but at this point that is a number that is out 
there. That doesn't mean we are going to go that far, but it is 
a number that is out there.
    Mr. Kolbe. Thank you. I would like to get into the 
Millennium Challenge Account, and I hope maybe I can come back 
to that, but it will take a little bit more time. There may be 
a vote shortly, so I am going to pass to Mrs. Lowey.
    Mrs. Lowey. Thank you, Mr. Chairman.
    Mr. Secretary, over the past 2 years the Word Bank has 
taken steps to increase its commitment to achieving universal 
basic education. Most notably, the bank released a well-
received strategy paper entitled ``Accelerating Progress Toward 
Education for All,'' EFA, and is working to galvanize the donor 
community behind the fast-track initiative which will channel 
additional resources to countries committed toEFA.
    As you know, an initial 18 countries with PRSPs in place 
and qualified national education plans have been approved for 
participation in the fast-track program, with another 5 
countries qualifying on the basis of their large populations.
    Last fall, proposals from seven of the qualifying countries 
were accepted for funding, totaling $400 million over the next 
3 years. While the United States was instrumental in developing 
the fast-track initiative, as far as I know we have failed to 
pledge serious money to support it. We have committed only $7 
million in USAID funds to help governments write their plans.
    While I commend the administration for its role in 
encouraging the World Bank to step in, it really is puzzling to 
me that we now seem to be turning our backs on what could be a 
very successful initiative. In fact, I just attended a briefing 
this morning where one of the experts in Islam/United States 
relationships, and Islam around the world, said that if we 
really want to accomplish our goals of better relationships, 
what we should be focusing on is a Marshal Plan in education 
and really investing in education.
    So, two questions. If you could discuss the current state 
of U.S. cooperation with the fast-track initiative. Are there 
any immediate plans to devote more resources to the program? 
And if not, I can't understand why not. Maybe you can explain.
    Secretary Snow. Since I don't have a detailed knowledge of 
that subject, I am going to ask Secretary Taylor if he does. 
And if not, we will give you an answer for the record.
    [The information follows:]

    The Administration has stood firmly behind President Bush's 
commitment to global education. Basic education funding to 
developing countries has more than doubled under President 
Bush, from $115 million in 2001 to $248 million in 2003, and is 
projected to reach a record $265 million in 2004. During this 
same period, the number of USAID-supported Basic Education 
programs increased from 25 to 39 countries.
    In keeping with this commitment to education, the U.S. is a 
major bilateral donor in the global UNESCO-led Education for 
All Initiative (EFA). In response to recommendations by the EFA 
High Level Group, the U.S. is working to strengthen UNESCO's 
ability to carry out its mandate through an infusion of 
additional U.S. expertise. Through a grant from USAID, the U.S. 
will fund American experts in EFA planning, basic education, 
HIV/AIDS, education quality and sustainable finance.
    The U.S. is also a central participant in the World Bank-
coordinated Fast Track Initiative (FTI), designed to accelerate 
action toward achieving EFA goals in countries with strong 
education policies that give high priority to education. While 
FTI is not a proven model for scaling up basic education, USAID 
and Treasury are actively engaged with the World Bank and other 
donors in carrying it forward in the belief that bridging 
policy, capacity and education data gaps in countries with 
strong education policies can help accelerate achievement of 
education goals. USAID is putting extra FTI funds into its 
programs in Guinea, Honduras, Yemen and Nicaragua (among the 
ten countries that donors have approved for FTI treatment), and 
will also be providing similar policy, capacity, and data 
support to the five large countries that are additional to the 
ten and are eligible due to large out-of-school populations: 
Nigeria, Pakistan, Bangladesh, Democratic Republic of the Congo 
and India. (USAID already has basic education programs in these 
five countries.) The total additional support from the U.S. for 
EFA/FTI is $20 million in FY03. Future budgets permitting, 
USAID intends to provide similar funding for EFA and FTI over 
the next 3-5 fiscal years.
    USAID represents the USG on the EFA High Level Group, and 
Administrator Andrew Natsios attended last November's meeting 
in Abuja, Nigeria. USAID is a member of the EFA Working Group, 
and represents USG technical interests on FTI, in consultation 
with the NSC, Treasury, State, Education, and Labor with FTI 
donor partners.
    In addition, there is the Millennium Challenge Account 
(MCA), which is designed to reward countries that are adopting 
and implementing sound policies. A significant part of the 
Administration's proposal on the MCA is to work in partnership 
with developing countries--where they will set their own 
priorities. It is easy to imagine that a significant 
development priority for some of the MCA countries would be 
education; it is also easy to imagine that some of these 
countries may also be FTI countries.

    Mr. Taylor. I think it is best to give a more detailed 
answer in the record. But it is a program that is under 
development in the United States, and President Bush is 
supportive of any good education program that can raise the 
skills and capability of people around the world.
    In fact, a big part of the Millennium Challenge Account is 
investing in people, and I think what USAID is going to do is 
assess various ways it can expand its funds in this direction 
and make the decision based on what is the best alternative. 
And the funds that you just suggested, the $7 million, I am not 
sure if that is official or if that is what they have done or 
it is more or less than that, but that at this point is where 
they are.
    The World Bank, of course, we are trying to encourage to do 
many other things in education through IDA as well. And as we 
just discussed a few minutes ago, we are talking about an extra 
$100 million to IDA, part of which is related to completion 
rates in schools. And so that is another way we are supporting 
the World Bank in this endeavor. So it doesn't all have to be 
through the education program.
    Mrs. Lowey. I agree, except this was an initiative of the 
administration, and as far as I am concerned it should be a top 
priority. So I would appreciate any additional information as 
to how those numbers can grow and really meet the need; $7 
million compared to $400 million, it is a tremendous 
differential.
    Okay, one other quick question. Congress just approved, as 
we know, $1 billion for Turkey to be used either as cash to 
subsidize a direct loan of $8.5 billion or to guarantee a loan 
of up to $8.5 billion. The approval of these funds was 
contingent on Turkey's continued cooperation in the war but was 
also approved with the explicit understanding that the United 
States would insist on Turkish adherence to conditions of the 
IMF plan now in place.
    Number one, when will the negotiation proceed? Which option 
do you anticipate the Turks will exercise? Will the United 
States insist on adherence to the IMF plan as a condition of 
the loans or loan guarantees? What will the term of repayment 
and the grace period be for this loan or guarantee? And how do 
you intend to inform Congress about decisions regarding this 
loan? If you could, either the Secretary or Mr. Taylor, 
respond.
    Secretary Snow. I will take a first cut at it. Mr. Taylor 
and I have had discussions with the Turkish authorities, going 
back sometime now. With respect to the IMF, we will insist that 
they stay on track with their IMF commitments. That is 
essential, and any aid that is made available to them will be 
done so on a conditionality basis, tied to this sort of IMF 
conditionality. So, yes, we will continue to insist on IMF 
conformity.
    With respect to the timing, we are prepared to get into 
discussions as soon as the legislation is clear, and anticipate 
getting into those soon.
    Mrs. Lowey. Thank you.
    Mr. Kolbe. Mr. Knollenberg has gone over to vote and he 
will come back and ask some questions. I will turn it over to 
Mr. Lewis, who will recess it after he finishes his questions. 
So we should have only a very short break here.
    Mr. Lewis. I think Joe may be back by then, but thank you 
very much, Mr. Chairman, for your courtesy.
    Mr. Secretary, at the time of his consideration, I heard 
suggested in more than one public forum that perhaps the most 
important action of the time I have been in Congress was that 
of the development of and the passage of NAFTA. It is an item 
that is designed to impact the capabilities of the North 
American countries to work together on behalf of all of our 
economies and hopefully, long term, have an impact on our 
ability to compete with other groups of countries that are 
coming together for their economic benefit and purpose.
    Having said that, the gentlelady from Ohio whosequestions I 
would hardly challenge, especially since I know more about her 
admiration for your sister, but in the meantime, out of those funds, 10 
percent of the funds that involved environmental--funds that were 
addressed to the border, 10 percent of the funds were designed to 
provide for some economic consideration for jobs problems on both sides 
of the border.
    Frankly, I must say that the suggestion that California has 
lost any significant number of jobs in terms of volume numbers 
due to NAFTA is to not understand the dynamics of economic 
change as well as economic growth, for California's economy 
indeed is not in great shape today, but that is largely a 
result of statewide policies that involve tax questions, 
environmental questions, and a lot of other questions.
    I do happen to know that the increased traffic at the 
Canadian side of this whole question would strongly evidence 
very, very dynamic growth in those economies relative to this 
very item. And why there would be any money for relief for job 
loss when there is growth and probably job increase, I don't 
know, but I would be interested if you would want to comment on 
that. But that is not really the question I want to get to.
    Within this package, 90 percent of the funds are for 
infrastructure development along the border relating to the 
environment, and those funds have not been delivered, as I 
understand it, in any significant volume at all. They are 
designed to be infrastructure loans, supposed to deal with the 
maquiladora, and on the Mexican side especially. I would like 
to have you look at and give me some specific information as to 
why lending has not taken place.
    Now, from there I really want to dwell upon Mexico in a 
different way and not get to that specific. Mexico's economy is 
in difficult straits as well. They are very sensitive about 
loans coming from the United States. The InterAmerican 
Development Bank kind of has a guarded relationship here, but 
nonetheless, the dynamics of that economy are very, very 
important to us. The administration has reached out to Mexico. 
Can you help us with commentary, your commentary, regarding 
their economic condition and the ways that we are being of 
assistance and can be more of assistance besides expanded 
trade?
    Secretary Snow. First, I agree with your view on NAFTA. 
NAFTA has been a tremendous boom to the United States, and I 
was surprised by those numbers. I don't think they are accurate 
representations of what has happened. I know from my own 
transportation business, we saw an explosion of trade 
opportunities between Canada and the United States and Mexico 
as a result of NAFTA, and I was proud to be associated with 
trying to get NAFTA enacted. I think it has created jobs on 
both sides and, more importantly, created good jobs on both 
sides and more wealth on both sides. So it is a real plus.
    On the question of the Mexican economy, trade has been a 
plus for them. I was down in Mexico recently and talked with a 
group of business leaders. They are deeply, deeply committed to 
the principles of NAFTA. They see it as essential to their own 
economic progress. We continue to take enormous interest in 
Mexico and in its economic success.
    I have not looked recently at the country risk spreads and 
performance of the debt levels and so on, but I think Secretary 
Taylor probably has, and can offer some thoughts on that.
    Mr. Taylor. With respect to NAFTA and why it hasn't been 
used as much as we would like, we think it has two or three 
problems. One is the degree of concessionality of the loans did 
not seem to be large enough relative to what was otherwise 
available that the municipalities were taking them up. So part 
of the reform was to actually create a low-interest loan fund 
which was larger than had been there before, but also to make 
more grants available where they were appropriate, and also as 
we discussed before, to move the area south of the border from 
100 kilometers to 300 kilometers, therefore picking up some 
areas where funds could be used funds more freely.
    With respect to our engagement with Mexico, there is a 
Partnership for Prosperity which I think is working quite well. 
We are looking at things on the financial side, and not just 
the trade and goods side, but also helping with the 
remittances. There are so many remittances. Actually, it is a 
large part of our support for Mexico is the remittances, and we 
want to make it cheaper for people to send money back home. And 
that is something we are working very much on.
    The Mexican economy was affected by the slowdown in the 
U.S. economy, and when the U.S. economy pulled out of the 
recession, Mexico picked up as well. And I think when the U.S. 
starts to grow more rapidly again, you will see some progress 
in Mexico as well. But the countries are integrated more; as 
you are saying, there are jobs being created, it is very 
dynamic, and our----
    Mr. Lewis. If I could just interrupt, I am afraid I will 
have to run. We will be recessing this hearing and hopefully 
Mr. Knollenberg will come back. He is here. That is great.
    But I must say you have been very helpful in another way, 
but you might let the SEC of Defense know you laid this out 
here. All that cash in the hands of the Secretary of Defense, 
is news to me. I can't tell you I have been looking for the tin 
box with my name on it, but in the meantime I do need to know 
what is happening with that money.
    Secretary Snow. Well, it is going to be used for the 
reconstruction, of course. That is the purpose of those funds.
    Mr. Lewis. Thanks.
    Mr. Knollenberg [presiding]. I will recognize myself as the 
chairman momentarily. I did want one final question here that 
concerns the Millennium Challenge Account. There seems to be a 
number of questions regarding the MCA that bothers people on 
this committee, and I think it bothers people beyond the 
committee, because there is not much information that--I 
shouldn't say there isn't. It isn't that you haven't tried, but 
I think more has to be done to really begin to provide 
information on what it does. I can understand some of the 
people having some questions about how does it work and how 
does it avoid doing something, ignoring some of the needs of 
some of those countries that are their concern. I understand 
this concern is real. That is a concern some have, and that is 
one that I think we all have to work at.
    What I was going to suggest is that in order to make the 
MCAs succeed--because I happen to support this initiative very 
strongly--but the only way we are going to get thisthing done I 
think is to have it authorized and it can't be done by this committee. 
This committee alone can't begin to do it. I think the administration 
has to weigh in, obviously, very heavily and respond to some of those 
questions that are coming up, and I know that takes a little bit of 
time. This program has to be authorized, and that authorization process 
probably isn't going to be easy either. So it is a new program. It is a 
new plan, a new idea. It deserves some attention. It deserves, 
obviously, the administration's full and active support, and it is 
going to take I think some pretty heavily lifting. It is going to take 
a variety of things to make the MCA a reality.
    Could you please give an update, either Under Secretary 
Taylor or Secretary Snow, an update on some of the other things 
that the administration is doing to put this through Congress 
or to press it through?
    Secretary Snow. That was a subject of continuing 
discussions, and is a matter of continuing discussions. 
Secretary Powell is taking the lead in making the case before 
the Congress and for it. It, of course, has the full support of 
the administration. We will be working it hard. Administrator 
Natsios will be working it hard. He is a major supporter of 
this. But I think you are absolutely right. We need to be more 
vigorous in making the case for the MCA. It is a new idea, and 
as with all new ideas, they need to be carefully laid out. And 
that takes time, and we just need to make sure there is time.
    I have talked to Secretary Powell, and he and I and Condi 
Rice and Administrator Natsios are all going to be taking a 
more engaged and active role in this.
    Mr. Knollenberg. Does the MCA with respect to our 
international development agenda, does that relate to the war 
on terrorism in your judgment? Either gentleman can respond.
    Secretary Snow. Well, I think there is a close tie between 
poverty elimination, economic growth, and terrorism. That was 
brought home to me very, very much last week when I was down in 
Colombia with President Uribe who talked to me and our 
delegation about his efforts to eradicate the narco groups, 
spray the fields, take out the narco crops. But as that is 
done, and it needs to be done, what happens to the people who 
work those fields? They need to be able to export. They need to 
be able to have jobs. And I think not only there but broadly.
    The same is true in Afghanistan today. There are close 
connections between higher standards of living and job 
opportunities and growth opportunities and the war on 
terrorism. I think we need to see them as working hand in glove 
with each other, absolutely.
    Mr. Knollenberg. I do think that is something that the 
administration's message has to include. I do think that 
linkage--and your experience--your own accounting of things 
does prove there is a connection there, a very close 
connection. So I do appreciate your responding to that. I just 
do believe that it is--the MCA is misunderstood by some 
members, and that goes back to my original point of saying this 
committee cannot do it alone. We can pass it only when the 
authorizers produce something that we can fund. And you all 
know that. But thank you very much. Appreciate it.
    Secretary Snow. Thank you for that counsel as well.
    Mr. Knollenberg. It is free.
    Mr. Kolbe [presiding]. Thank you, Mr. Knollenberg. Before 
you depart, the staff was just advising me of the line of 
questioning you were using and the things you were saying about 
the MCA, and I just want to thank you for it and also to tell 
you that I have been trying to deliver the same message to 
anybody in the administration that I could get to listen to me. 
You are absolutely right. It is going to require some real 
heavier lifting on the part of the administration if we are 
going to be successful with the MCA, certainly heavier lifting 
than we have seen so far. I personally--as Mr. Knollenberg just 
said, I think it is greatly misunderstood.
    I think Ms. Kilpatrick, for example, suggests that it is 
going to take away funds from other things that might be done 
in southern Africa, and of course the whole idea is it is a new 
paradigm of assistance. It is not going to take away from the 
things that we are doing now, and I don't think it will 
succeed, and it certainly won't get passed by Congress if it is 
seen as taking it away from current assistance, whether it is 
in health care, basic education, women's programs or whatever. 
The MCA is a new paradigm of assistance designed to go to 
countries that show the governments that they have the systems 
of governance that are needed, and it is designed to reward and 
to use growth really to make economic development occur, so 
that assistance won't be needed in the future.
    In fact, you have been very much involved in the process, 
Mr. Secretary, your Department has, Mr. Larson certainly has, 
and if one of you could just walk us through the interagency 
process that has been used to come up with the criteria for the 
MCA, of how countries would be selected and how the proposals 
would be reviewed.
    Secretary Snow. Well, you are absolutely right. This is a 
new program. It is additional monies. It is substantial 
additional monies. And the criteria that Treasury has had--John 
Taylor has had a big role in that, and I will ask him to talk 
to it--are designed to see that we really get results for the 
money that goes into the program. It is designed to see that 
the poorest countries are rewarded for taking steps to really 
address the root causes of poverty, and that there are 
measurable results.
    I think this owes a great deal to former Secretary O'Neill, 
who in looking at our development assistance programs, became 
convinced that the taxpayers weren't getting a fair shake, that 
we weren't getting a good enough return on the investment, and 
the only way to do that was to have fixed criteria, strong 
criteria, focused on the fundamentals of what makes growth and 
prosperity and poverty eradication possible, rather than on 
simply promises and commitments.
    So it is an effort to move to measurable results. Secretary 
Taylor has been in the middle of trying to develop those 
various criteria and, John, maybe you could lay out precisely 
what those criteria are.
    Mr. Taylor. Well, very much along the lines you said, the 
idea is to find objective criteria that measure good policy; 
the kind of policies that raise economic growth, and with 
experience in the field and experience in research 
organizations and think tanks, there is a lot more objective 
evidence, than there was 15 years ago.
    So the government, in I think a very candid interagency 
process, with lots of consultation from outside the government, 
selected some of these indicators and designed a robust 
procedure to use the indicators to provide guidance to the 
ultimate decisionmakers at the Millennium Challenge Account 
about which countries should be included. There are a total of 
16 indicators, and they are divided into 3 categories that 
President Bush originally put forward, and those are governing 
justly, investing in people, and encouraging economic freedom. 
And there is a lot of transparency. We emphasize that. All of 
these indicators can be found in publicly available places, 
many on the Internet. Many of them have been around for a 
while, such as the Freedom House and Heritage and some from the 
World Bank. And those are the ones that are going to be guiding 
the process.
    The robust method to use the indicators was to say that a 
country had to be above the median on half of the indicators in 
each category, and that was to allow for the possibility that 
some countries couldn't be extraordinary good performers in 
every category, basically to make the competition fair. There 
is also an effort to divide the countries up into the very poor 
and the middle-income countries, to have sort of two separate 
competitions.
    So to make a long story short, I think it is a process that 
is transparent. A lot of discussion has gone into it. But I 
think Congressman Knollenberg and you were right that more 
communication about that can be helpful, and we would like to 
do as much as we possibly can.
    Mr. Kolbe. Well, along those lines--first, it is a mix of 
criteria. It is a mix of qualitative and quantitative. Even 
some of those, for example, like corruption requires making 
some qualitative judgments, but then it is quantified so the 
countries can be ranked. And you said it is going to be 
transparent, but it is not going to be one single criteria, but 
a mix. But some criteria have as I understand, have a higher 
importance, gradations of importance than others. For example, 
the corruption criteria has a certain standard, level which has 
to be met.
    This subcommittee has a hearing planned on the 21st of May 
on the subject of the Millennium Challenge Account, and if you 
have any suggestions of witnesses that might testify, we would 
certainly like to have your suggestions. We want to spend an 
entire hearing getting into this in depth, so we appreciate 
very much your suggestions along those lines.
    Back to what we said at the outset, in the case of both the 
President's initiative on HIV/AIDS and the Millennium Challenge 
Account, it is going to take a good deal more effort on the 
part of the administration for moving these initiatives forward 
in Congress in an authorizing bill before we fund them. The 
administration's requested funding for both these initiatives 
in 2004, but we are not going to be providing appropriations 
unless we have authorization bills moving far enough along in 
the process.
    Secretary Snow. We understand, and we will go to work on 
it. I also think your point about explaining it well, while it 
is an effort to introduce analytical criteria, certainly that 
elevates the review process and tightens it up. There will 
always be some evaluative aspect to doing these things, but we 
have learned an awful lot over the last 30 years about what 
works and what doesn't work in economic development. And one 
thing I think we know now is that unless there is an 
appropriate regime of law, and as part of that appropriate 
regime of law there is minimization of corruption, you aren't 
setting the stage for economic prosperity; because economic 
prosperity requires investments, and investments don't occur 
where there is that risk premium, that huge risk premium 
associated with failure to protect property rights and legal 
rights. So that is why corruption, while it has some subjective 
element to it, has to be a fundamental criteria.
    Mr. Kolbe. We will look forward to getting into this in 
much more detail at our hearing on the MCA. It is going to be a 
very important hearing, but I hope the administration will put 
its shoulder to the wheel on this here in Congress, so that by 
the 21st of May we can see some glimmer of hope that we will 
have some authorizing legislation moving so that we can provide 
funding.
    I have one last final minor question, and it deals with the 
$5 million that was allocated in the 2003 appropriation to the 
State Department's Bureau of International Narcotics and Law 
Enforcement to be apportioned directly to Treasury technical 
assistance. It was done to facilitate the delivery of law 
enforcement technical assistance in a more expeditious manner 
than has occurred in the past. Can you tell me the status of 
those funds? Have they been apportioned yet to----
    Secretary Snow. I can't. Maybe Mr. Taylor can.
    Mr. Taylor. Well, they went originally to State, as you 
indicate, but are supposed to be coming to----
    Mr. Kolbe. So far, they have not been apportioned?
    Mr. Taylor. It is moving ahead. The actual literal 
apportionment I don't think is completed yet.
    Mr. Kolbe. We want to thank both of you very much for your 
participation today and for your answers. I think you have 
helped us gain a better understanding of some of the programs 
in your Department. We very much appreciate your appearance 
here, and I hope it wasn't too difficult an appearance, 
Secretary Snow, your first appearance before this subcommittee.
    We thank you very much. This subcommittee will stand 
adjourned.
    [Questions and answers for the record follow:]


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                               I N D E X

                          --------------------

                          Department of State

                                                                   Page
Budget Process...................................................     7
Chairman Kolbe's Opening Statement...............................     1
Colombia.........................................................    34
Division of Labor................................................    27
HIV/AIDS.........................................................    27
Iraq.............................................................    25
Iraqi Compliance.................................................    28
Middle East Partnership Initiative...............................    30
Millennium Challenge Account.....................................    32
Mrs. Lowey's Opening Statement...................................     5
Secretary Powell's Opening Statement.............................     4
Secretary Powell's Written Statement.............................    15
The Balkans......................................................    26
Turkey...........................................................    24
                 Export Financing and Related Programs

Chairman Kolbe's Opening Statement...............................   109
Mrs. Lowey's Opening Statement...................................   110
Mr. Merrill's Opening Statement..................................   112
Mr. Merrill's Written Statement..................................   115
Ms. Askey's Opening Statement....................................   129
Ms. Askey's Written Statement....................................   132
Mr. Watson's Opening Statement...................................   144
Mr. Watson's Written Statement...................................   147
Carryover........................................................   155
U.S. Russia Investment Fund......................................   157
Latin America....................................................   158
Interagency Relationship.........................................   159
Small Business Involvement.......................................   161
China Program....................................................   167
Infrastructure Projects..........................................   169
               U.S. Agency for International Development

Afghanistan......................................................   221
Chairman Kolbe's Opening Statement...............................   201
Contracting......................................................   229
Contracting Requirements.........................................   222
Iraqi Child Mortality............................................   230
Iraqi Construction...............................................   223
Mr. Natsios' Opening Statement...................................   205
Mr. Natsios' Written Statement...................................   208
Mrs. Lowey's Opening Statement...................................   202
Property Rights..................................................   225
                       Department of the Treasury

Argentina........................................................   278
Chairman Kolbe's Opening Statement...............................   251
Debt.............................................................   284
Debt Relief......................................................   268
G-8 Summit.......................................................   284
Haiti............................................................   273
HIPC.............................................................   276
IDA..............................................................   265
Iraq.............................................................   279
Iraqi Debt.......................................................   277
Iraqi Monies.....................................................   271
MCA..............................................................   269
MCA..............................................................   272
Mrs. Lowey's Opening Statement...................................   252
NAD Bank.........................................................   281
Secretary Snow's Opening Statement...............................   253
Secretary Snow's Written Statement...............................   257

                                
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