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



 
      FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS 
                    APPROPRIATIONS FOR 2004--Part 3



      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 3

                                                                   Page
 Supplemental Request for Iraq and the Global War on Terrorism....    1
 International Education Issues...................................   59
 Global Health Issues.............................................  135
 Millennium Challenge Account.....................................  221

                                   S

                                ________

         Printed for the use of the Committee on Appropriations
                                ________
                     U.S. GOVERNMENT PRINTING OFFICE
 89-225 O                   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 27, 2003.

     SUPPLEMENTAL REQUEST FOR IRAQ AND THE GLOBAL WAR ON TERRORISM

                               WITNESSES

RICHARD ARMITAGE, DEPUTY SECRETARY OF STATE
ANDREW NATSIOS, ADMINISTRATOR, U.S. AGENCY FOR INTERNATIONAL 
    DEVELOPMENT

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe. The Subcommittee on Foreign Operations will come 
to order. We have very limited time today, therefore I want to 
get started. I know that Administrator Natsios is in the 
building, and will be coming through the door in a moment.
    We welcome Deputy Secretary of State Richard Armitage and 
USAID Administrator Andrew Natsios. I appreciate the fact they 
have agreed to appear on very short notice to help the 
committee promptly consider the President's March 25th request 
for supplemental funding.
    This subcommittee's part of that supplemental for Iraq and 
the war against terrorism amounts to no less than 
$7,573,400,000, almost half of what is requested in our regular 
appropriation bill for 2004.
    It is important to take note of the fact that only one-
third of this supplemental request for foreign operations is 
for relief and reconstruction in Iraq. The remaining two-thirds 
would go to countries supporting Operation Iraqi Freedom, to 
Afghanistan or to the broader war against terrorism.
    If the executive branch in Congress can work cooperatively 
as we proceed through this conflict in Iraq and the global 
struggle against terrorism, then all Americans, especially our 
men and women in uniform, will benefit. Now that the President 
has undertaken the campaign in Iraq with full authorization 
from Congress, we owe them no less than our full support.
    However, in my view, it is not appropriate to use the Iraq 
supplemental as a cover to assert agency jurisdiction or to 
implement untried concepts. It should be our goal to provide 
the resources needed to ensure that after the conflict ends, 
the Iraqi people are better off than they were under Saddam 
Hussein.
    It is appropriate to assist the countries that stood with 
the United States at some risk. Other matters, however, ought 
to be put aside until we consider the fiscal year 2004 request.
    I also want to express my view that the requested general 
provisions would give the Executive Office of the President 
unprecedented authority to override current law and to allocate 
funds without any role for Congress.
    I am confident that the committee will recommend most of 
the funding requested by the President and will provide 
flexible conditions for its use, but I am determined that 
Congress not abdicate its own constitutional responsibilities 
with regard to spending.
    Some changes to the recommendation are needed, and I am 
confident they will be made during our consideration of the 
request.
    I understand that both witnesses have very brief opening 
statements. The value of this hearing is the exchange between 
our members and our witnesses. We all have numerous questions 
for them. We all have little time to get the information we 
need to mark up the bill next week. I might just add that any 
material for the record needs to be provided by tomorrow.
    Although neither of our witnesses is directly responsible 
for the package drafted by the Office of Management and Budget 
for the President, they are the officials who have to implement 
the bulk of the request before this subcommittee.
    Without expecting them to depart from the President's 
policy decisions, we do expect them to do their best to explain 
how the funds would be used and to help us perfect the request 
as we proceed to mark up next week. I would recommend that 
questions about the details of Iraq relief and reconstruction 
be directed to Mr. Natsios, and that the political questions be 
directed at Deputy Secretary Armitage.
    Before I turn to our witnesses for their opening 
statements, which of course will be put in the record, first 
let me welcome Administrator Natsios. We decided we could get 
started with these opening statements, as we knew you were 
proceeding to the room here.
    And let me call on my distinguished ranking democratic 
member, the gentlelady from New York, for her opening 
statement.

                     Mrs. Lowey's Opening Statement

    Mrs. Lowey. Thank you, Mr. Chairman. I want to begin by 
expressing once again my support and gratitude to the brave men 
and women in our Armed Forces whose dedication and valor make 
us all proud, and I also express my sincere condolences to 
those families whose loved ones have been lost or captured. And 
I am very pleased to welcome Deputy Secretary Armitage today, 
and I know that you be as forthcoming and frank with us about 
this request as you have been in the past. Frankness is 
especially important in this instance because of the expansive 
nature of this request and the extremely broad flexibility that 
has been requested to implement not only Iraqi relief and 
construction, but a broad range of ongoing foreign assistance 
programs.
    I am also pleased to welcome USAID Administrator Natsios 
who has been intimately involved in crafting plans for post-war 
relief and reconstruction.
    At this critical moment, I feel we must be united in 
support of our troops and give the President the resources he 
needs to finish this campaign. In that regard, I will support 
any expenditure that is necessary to end this conflict and to 
rebuild Iraq. I will not, however, support providing large sums 
to new accounts with broad authority and no Congressional 
oversight. This request continues anunfortunate pattern for 
this administration of requesting large sums of money and 
notwithstanding authorities for evolving conflicts with the explicit 
intention of making Congressional oversight more difficult.
    A careful examination of this subcommittee's record when it 
comes to providing necessary flexibility for evolving crises 
with the appropriate degree of oversight will show that we have 
been 100 percent responsive when the need has clearly been 
demonstrated.
    At this moment when unity in our government is so crucial 
and when there is broad consensus to give you what you need, it 
hurts our cause when the administration insists on attempting 
to rewrite the constitution. I intend to address a number of 
specific concerns in my statement and in my questions, but 
initially I hope you will be able to give us some context for 
this $7.5 billion request. What portion of the reconstruction 
needs does this address? This package clearly does not provide 
enough to fund the President's vision for post-war Iraq where 
there is universal health care and education, electricity and 
water have been restored and ports and highways have been 
rebuilt.
    While I appreciate these intentions, we are creating the 
expectation that this will be accomplished with no clue of how 
much it will cost and no allies willing to help with the cost. 
Clearly, it will take more than the $2.5 billion requested in 
this package.
    With respect to other elements of the package, it appears 
that being a member of the coalition entitles you to some form 
of assistance, whether you have any direct involvement in the 
conflict or not. I would cite Colombia and the Philippines as 
examples. And with respect to Turkey, it is my hope that we 
will get the degree of military cooperation that we desire and 
the assurances that have apparently been made by their military 
to cooperate with the United States forces in northern Iraq are 
real. I think at this point in the conflict, it is too early to 
tell.
    I am pleased that you have finally requested funds for 
Afghanistan, but I have to say that the problems and shortfalls 
in funding we are now experiencing are not due to lack of 
Congressional support for this priority, as you well know. 
Instead, they stem primarily from the fact that until now, the 
administration has refused to request funds for Afghan 
reconstruction for 2003. It is no wonder to me that you are 
strapped for cash.
    Finally, I do intend to address the issue of governance of 
post-war Iraq. While I have mixed opinions about the role the 
U.N. might play in that task, I have great doubts about 
empowering the Iraqi opposition groups that have been operating 
in exile for far too long. This will be a complicated and long-
term effort. We all know that. It serves no one to present the 
vision that this will be easy or that the Iraqi people will all 
applaud our occupation. We have a difficult road ahead, and we 
will work with you, but we have to do it as partners and be 
frank with one another and the American people. I look forward 
to your testimony.
    Mr. Kolbe. Thank you, Mrs. Lowey.
    Chairman Young, do you have a statement?
    Mr. Young. Mr. Chairman, thank you very much, and I would 
resist an opening statement, other than to welcome Secretary 
Armitage, who has always been very open and frank and tough and 
very effective, and we appreciate the work that you do for our 
country. And to welcome also Mr. Natsios. I have not had the 
privilege of meeting before. But we welcome you here and look 
forward to your testimony. Mr. Chairman, thank you.
    Mr. Kolbe. Mr. Obey.
    Mr. Obey. Mr. Chairman, I know you have a plane to catch, 
so I will forego an opening statement and just confine to 
questions.
    Mr. Kolbe. Thank you. We will begin our questions. I don't 
see my timer here. I am going to try to stick to our 5-minute 
rule here.
    Let me begin with a question that is a broad question. I 
think this really--this definitely goes to Secretary Armitage.
    I would like you to talk for just a little bit about the 
decision to make two-thirds of this request that is in this 
foreign assistance a supplemental for countries, other than 
Iraq and one-third--about $2.4, a little less than $2.5 billion 
is for relief and reconstruction, and of that, I might add, 
$500 million is to replenish accounts that have already been 
drawn on in USAID is not relief and reconstruction in Iraq the 
main challenge, especially with few signs that the United 
Nations is not going to allow us to use Iraqi oil for 
reconstruction any time soon, or at least it looks like we have 
a serious debate and challenge in getting that kind of 
resolution through the United Nations.
    And would our relief and reconstruction likely require more 
than the $2.4 billion over the coming year? So I guess my 
question is, could we expected an additional supplemental or an 
amendment to the 2004 budget for this, especially, again, if 
the U.N. Security Council continues to balk at making the food 
and money paid for by the Oil for Food program immediately 
available?
    I know $2.4 billion is certainly, in the context of our 
budget of this subcommittee, is not a small amount of money, 
but it is less than what we--half of what we provided the Camp 
David countries during each of the past 2 years, and I would 
like you to talk about it in terms of the needs, whether the 
needs are going to be met in this supplemental and what you 
foresee the United Nations doing and how that is going to play 
out the U.S.-U.N. role.
    Mr. Armitage. Thank you, Mr. Chairman, Mrs. Lowey. I will 
be as direct as possible.
    Mr. Kolbe. Excuse me. I am sorry. I forgot to call on you 
for your opening statements.
    Mr. Armitage. I am smart enough to know when you are not 
making opening statements, I shouldn't make one.
    Mr. Kolbe. But we did make brief ones. I----
    Mr. Armitage. No, but one thing, if I may. You had my boss 
up here, and you were very kind to him. I want to reciprocate, 
but I want to do it a different way by just saying one other 
thing. We have enjoyed, for the last 2 years, a pretty good 
relationship with this subcommittee, and I am very often 
dealing with different members. But I have never taken the 
public time to say anything about your staff, and I want to say 
you have got a tough bunch. Whether it is Charlie or Alice 
Grant or Sean, Lori Maes, who I see every morning, Mr. 
Chairman, Mark Murray, Beth, or the recently departed John 
Shank. They are tough, but from this citizen's point of view, 
awfully fair. So that is----
    Mr. Young. You clear up that recently departed----
    Mr. Kolbe. I just moved over to the----
    Mr. Armitage. I apologize to John--my apology to you 
andJohn.
    Mr. Kolbe. Let me just ask. Obviously the whole statement 
will be put in the record.
    [The statement of Mr. Armitage follows:]

GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT

    Mr. Kolbe. Mr. Natsios, did you have a statement that you 
would like to make, or would you just like to put it in the 
record?
    Mr. Natsios. I will put my statement in the record.
    [The statement of Mr. Natsios follows:]

GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT
    
    Mr. Kolbe. We will go directly to questions. Thank you very 
much. That helps all of us.
    Assume the question is repeated there about the United 
Nations and about the sufficiency of this request. Thank you.

                             IRAQI PIPELINE

    Mr. Armitage. This is not Afghanistan, and that is the 
basic thought that went into our mind. When we approached the 
question of Iraq, we realized here is a country that has a 
resource, and it is, of course, oil, and it does bring in a 
certain amount of revenue each year--$10, $15, even $18 
billion. It has a pipeline which is almost $15 billion in the 
OFF account, of which $2.5 billion in contracts which are 
coming in for food, humanitarian food and about $500 million is 
for medicine. And the other $7 million are contracts that have 
been let for pipeline repair, spare parts, things of that 
nature that are allowed under the existing UN resolution. This 
is not a poor country, first of all.
    Second of all, we don't know what it is going to cost. I 
have read the Brookings estimates and other estimates that talk 
$20, $40, $60 billion. Nobody knows. But here is what we do 
know: that your U.S. military is conducting a campaign of 
enormous skill and precision, precisely, among other things, so 
we won't take out infrastructure. The infrastructure that has 
been damaged, by and large, has been the infrastructure that 
Saddam Hussein has damaged deliberately as he tries to 
disenfranchise particularly the Shiha' in the south. That is 
part of the thinking that goes into that.

                             UNITED NATIONS

    Now, on the United Nations, there are two separate elements 
that are going on. First of all, is the Oil-for-Food program. 
We want to work a U.N. Security Council resolution and are 
making, I am informed, great progress in New York in doing so, 
which would allow the Secretary General to take over the 
administration of the Oil-for-Food program. This would be 
great. This would allow him to use the 55,000 distribution 
points throughout Iraq to distribute food, et cetera, which 
would take a big load off the British and the United States and 
the coalition partners.
    The second resolution is the one that Mr. Blair and Mr. 
Bush were talking about today at Camp David, and that, for lack 
of a better term, is probably a more omnibus resolution which 
will define the role of the U.N. as we go forward.
    Now, why is the U.N. important? Are we going to, after 
having completed the military mission, walk away? No. We are 
not going to do that. We are going to make sure that we 
accomplish the elimination of WMD, that we bring about a 
modicum of stability to that country and get things stabilized.
    However, we--and you know better than anyone--don't have 
the deepest pockets in the world. We may have pockets, but they 
are not unlimited. And in order to get full use and access to 
the IFIs, the International Financial Institutions, it will be 
very beneficial to have an appropriate role cut out for the 
U.N. as we move forward. That is part of the discussion that 
the President and the Prime Minister are having today.
    Finally, the rationale for the countries who are supporting 
us is quite obvious. I want to take one head on in particular, 
because I know it is a neuralgic point with many members, and 
that is the question of Turkey.
    We have asked for a billion dollars in ESF for Turkey that 
we would--when we have had discussions with the Turks about 
their ability to leverage that into about $8 or $8.5 billion 
worth of loan guarantees. If we respect democracy, then we have 
to respect the outcome of a democratic process. A brand new 
government in Turkey tried to get something through their 
parliament and didn't make it. It is not to say that we haven't 
had a lot of cooperation with Turkey. It is not a state secret 
any longer that there are certain U.S. military units and other 
government employees that have been in northern Iraq for some 
time. That was done with the assistance of Turkey. We have had 
meetings with the opposition where we, my colleagues and 
others, haveparticipated in northern Iraq in Salahadeen because 
Turkey has helped.
    It would be the greatest of ironies if we spend all this 
time and energy, blood and treasure, and we are successful in 
Iraq, only to turn around and see a longtime ally, Turkey, go 
bottoms up because of economic weakness. I will stop there, 
sir.
    Mr. Kolbe. Thank you. It is only fair that since I made the 
mistake of not calling you for your opening statements, that 
some of it got taken up by your brief comments, and we will go 
to Mrs. Lowey.

                                FUNDING

    Mrs. Lowey. Thank you Mr. Chairman. I did want to pursue 
the issue of the funding, but I think my chairman covered it.
    I just wanted to add, the President recently announced the 
seizure of over a billion dollars in nondiplomatic Iraqi 
assets. These funds, I understand, are sitting at the Treasury 
waiting for use in post-war Iraq. Why are they not available 
now?
    Mr. Armitage. Mrs. Lowey, there are approximately $1.74 
billion which was vested.
    Mrs. Lowey. I am glad that there is more than a billion.
    Mr. Armitage. There is, but a portion of that has not been 
totally taken by the President, because there are victims of 
terrorism, of claims against a certain amount of it, and we are 
setting that aside for them. They deserve to have access to it. 
The remaining money--the remainder of the money is ours. Our 
thinking is that--and we don't know the answer to how much--but 
a certain amount of that is going to have to be available for 
the government of Turkey right off the bat, whether it is----
    Mr. Kolbe. Did you say Turkey?
    Mr. Armitage. I meant Iraq. I am sorry. I am a little 
tired. I apologize. For the government of Iraq, they are going 
to need money right away, and that would be a good source of 
it. It was seized from the illegal empire of Saddam Hussein, 
and we believe if it went towards the legitimate government of 
Iraq in the future, that would be not only a great irony, but 
also the right thing to do. That is not to say that certain 
projects could not be funded out of it. They could, but we have 
not made the decision and determination of how much.
    Mrs. Lowey. And just for clarification, the President is 
talking about rebuilding 6,000 schools within 1 year, providing 
student kits to 4.2 million children in 12,500 newly-opened 
schools, rebuilding up to 100 hospitals, providing 12 new 
berths at the port of Umm Qasr. Does the $2.4 billion pay for 
all of these items?
    Now, I know you were talking about the oil and the chairman 
mentioned the difficulty with that. Where is this money going 
to come from?
    Mr. Armitage. No. It would not pay for all of that, Mrs. 
Lowey. There are unaccounted for yet--or yet unobligated, $5 
billion left in the OFF, Oil-for-Food program, which contracts 
haven't been let against. That is a potential source of some 
money. There are the international financial institutions, and 
we have had a number of countries already step up and publicly 
say they want to participate with money, not just to 
participate in terms of getting contracts, in the post-Saddam 
Iraq. Taiwan, Japan and others. The EU just indicated a certain 
amount of money to go forward in humanitarian affairs right 
away. And that could be hospitals.
    It is not possible to pay for all of that out of $2.4 
billion.
    Mr. Natsios. Could I just add something to that? It does 
not cost a lot of money to rehabilitate an existing hospital or 
school. It costs a lot to build a new school. This is not an 
underdeveloped country. It is a country that has had a 
predatory and tyrannical regime in charge for several decades. 
But there is infrastructure. It is a very developed country in 
terms of the infrastructure. There are 250 water filtration 
plants. We don't need to build water purification plants, but 
the equipment in the plants has not been maintained in many 
cases at all. Half of Basra, for example, the city where there 
is a lot of public attention right now because of the water 
situation, has potable water. The ICRC turned it back on by 
repairing some of the systems.
    But what the media has not mentioned is the other half of 
the city is drinking sewer water, because open sewage goes into 
the Tigris and Euphrates River, and it is untreated when it 
gets pumped out for half the city. It is brackish water. It is 
sewage there. And that is why the child mortality rate is 131 
per thousand. It is an extraordinarily high rate for a country 
of that wealth.
    That was the case, however, before the war. It has been the 
case for 12 years. It has nothing to do with the war. The fact 
is that Saddam has not repaired the infrastructure or 
maintained it in the Shia areas of the country, because he has 
not wanted to lower those child mortality rates. In fact, there 
has been a deliberate discrimination against certain 
populations within the country. This money will go a long way 
towards rehabilitation as opposed to constructing whole new 
structures. We don't need to do that.
    Mrs. Lowey. I just think it is very important that we be 
straight, that the American people understand what we are 
getting into and that we understand where this money is coming 
from. And to continue that line of questioning, I remember our 
discussion that all the borrowings from the 2003 bill for Iraq 
would be restored in the supplemental. The administration 
restores, as far as I know, only $420 million of the $506 
million borrowed so far. Could you explain that? That would be 
for Mr. Natsios.
    Mr. Natsios. The account is written for the $2.4 billion, 
which is the State and USAID part of the budget. It is written 
in such a way that allows OMB to reimburse us for the 
expenditure money. You actually precisely gave us the amount 
that we will have spent by the latter part of April, just over 
$500 million from the existing 2003 appropriation. So we can 
get it back. It allows OMB to do that. The budget is written in 
such a way in terms of the $2.4 billion so that the accounts 
are fungible. You can move the money around. It is not 
allocated in precise small amounts by one subsector versus 
another. So there is language that allows us to be reimbursed.
    Mrs. Lowey. I know that--oh, my time is up, but I would 
think you would be upset that the committee is adjusting your 
budget, reflecting those changes. I guess we don't have time to 
respond further, but I think I would be upset if I were you if 
I lost that much money in my current program. But I will turn 
it over to the next person. We will come back to that one.
    Mr. Kolbe. Mr. Young.

                                 TURKEY

    Mr. Young. Mr. Chairman, just briefly, I want to thank the 
Secretary for bringing up the subject of Turkey. Since I have 
been in the Congress a lot of years, I have been involved in 
national defense issues, and I know that as we closed out the 
Vietnam War as we went through the Cold War, that Turkey was 
always there in support of the United States. And when 
difficulties came up in NATO on occasion, Turkey was always 
there on the side of the United States.
    And I do know--I have been a little disappointed by the 
fact that we were not able to bring our fourth division in 
through Turkey, and it has created difficulties for us in this 
war effort, but I have talked with some very high-ranking 
military, U.S. military officers who are dealing every day with 
Turkey and the Turkish military, and they tell me that that 
cooperation is back full up, that there is no question, there 
is no hesitation that everything is there that we need, even if 
we haven't asked for it yet, it will be if we do ask for it.
    So I am glad you brought that up. And I don't have a lot of 
questions about how you would--are you planning to use the 
money? You all know a lot better about that than I do, but I do 
know that we are recognizing some of the countries that are 
being very, very helpful to us right now, and I think that is 
very appropriate that we do show our appreciation. So I am 
prepared to support your request. I am prepared to try to keep 
this bill as close to the President's request as possible.
    As I announced at several other hearings today, today is 
the last day of hearings. We have had 5 hearings today. Now you 
are the fifth hearing. We are planning to--the plan is to mark 
up this bill on Tuesday morning and have it on the floor next 
week sometime. And Senator Stevens and I have discussed how 
closely we can keep our bills together so that we can 
conference them quickly, because I know that some of these 
funds in all of the accounts, the war account, your account, 
really are very timely. So I give you my commitment to try to 
make that happen.
    Mr. Young. I appreciate both of you and the work that you 
are doing here.
    Mr. Armitage. Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you very much, Chairman Young. You are so 
diligent with your time here.
    Mr. Obey.
    Mr. Obey. Thank you, Mr. Chairman. No questions, just four 
points. First of all, I think for the reason cited by the 
chairman, I think it is obvious that this request is just the 
beginning. We are going to see undoubtedly more money requested 
to help finance these operations. Secondly, I want to 
congratulate AID. It has already been noted that the 
administration's plan is to provide some basic health care 
assistance to some 25 million Iraqis, refurbish 100 hospitals 
and refurbish 6,000 schools. I am delighted to hear that. I 
just wish that we could use a good portion of the projected tax 
cuts in this country to provide the health care for 25 million 
Americans here as well. I think it would be highly appreciated.
    Thirdly, I want to get to what I consider to be a serious 
long-term problem and that is these loan guarantees. This is 
the second time that we have had roughly $9 billion in loan 
guarantees considered for Israel, as you know, Mr. Secretary. 
Last time it happened was in 1991, I believe, under the prior 
President Bush, and at that time there were three facts 
associated with those loan guarantees. First of all, there was 
an understanding that the money would not be used beyond the 
Green Line. Secondly, there was an understanding that there was 
dollar for dollar deduction for any money that was spent in the 
territories. And, thirdly, and most importantly, there was a 
determination on the part of the Rabin government that there 
would be no new settlements undertaken in the West Bank. As I 
recall, that wasn't necessarily true in the Golan, but it was 
in the West Bank. This time around, as I understand it, we have 
the first two conditions applying in the language that you sent 
down but we don't have the third understanding on the part of 
the Sharon government. I think that creates a long-term problem 
for us because it seems to me that our enemies in the Arab 
world can try to use the war against Iraq in combination with 
the loan guarantees to Israel and therefore allege that we are, 
quote, anti-Arab.
    Obviously it is Mr. Arafat's fault that we don't have an 
opportunity to try to get that kind of agreement out of Mr. 
Sharon because Arafat blew it. I understand that. But it seems 
to me that it makes all the more urgent and imperative that we 
move rapidly to try to restart a genuine peace process between 
the Palestinians and Israel because otherwise I think we will 
unnecessarily build enemies in that region. And I would hope 
that the administration would move rapidly with real commitment 
into that area.
    Lastly, with respect to the various authorities that you 
are asking, I would simply say that when I look--and I raised 
this with Secretary Rumsfeld--when I look at all of the various 
authorities that are being asked for by the administration, it 
really winds up pretty much meaning that if Congress were to 
provide all of them, you would have the authority and resources 
to put U.S. resources and U.S. troops into almost any country 
in the world at any time and in any capacity without the 
participation of the U.S. Congress.
    That is probably not what you intend to do, but 
nonetheless, having seen past administrations abuse even narrow 
authority, I think you can understand why we believe that in 
deference to Article I of the Constitution we should not go 
nearly as far as the administration is asking. And I would say 
I think that that is going to be one of the key areas in 
determining whether we are going to have bipartisan support for 
this bill, because I am certainly willing to provide every dime 
you need to fight the war but I am not willing to abrogate 
Article I of the Constitution.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Would you like to respond, Mr. Armitage?
    Mr. Armitage. With Mr. Obey's permission. It was a 
statement, and I understand that, and just on the last two 
points. We are in the process of working out, in meetings held 
at the White House, the economic and the political requirements 
for those loan guarantees. There was a 1991 agreement, just as 
you spelled out. There was also a 1994 agreement, which 
loosened those restrictions. But we need both economic and 
political requirements to be met by Israel. We haven't totally 
settled on those ourselves, but I take your words very 
seriously.
    I do want to say the comment about getting something 
started and really working hard, and rigorously and robustly on 
the question of a peace process is one we do take seriously. 
The President spoke about it, Mr. Blair today in the joint 
press conference spoke about it. He had a good chat with the 
President about the road map. It is our intention, as Secretary 
Powell indicated in recent interviews, that as soon as the 
Prime Minister Abu Mazen has a government which is confirmed, 
to go ahead and present the road map and work rigorously with 
the Quartet to lower the terror so Israel can live in peace and 
security, and then the Palestinians will be able to realize a 
state, an independent state, living side by side.
    Finally, the question of Article I of the Constitution. We 
understand very well both Article I and who does what. We were 
trying in some of the authorities to show that we wanted to 
limit--I will give you an example, for instance, what I call 
the DEF, the Defense Emergency Fund, $50 million. We tried to 
make it very clear that the authorities went away at the end of 
September of this year, that we weren't trying to have 
something open ended. We are just in sort of a terra incognito 
situation in this war on terror and in the war on Iraq. We 
wanted to be able to handle all contingencies. But your 
comments about the Constitution are understood, sir.
    Mr. Kolbe. Thank you. Mr. Knollenberg.
    Mr. Knollenberg. Thank you, Mr. Chairman. Mr. Secretary, 
welcome. And Mr. Natsios, glad to have you here. I wanted to 
very briefly thank you and the administration for including the 
$10 billion in loan guarantees. And also the $1 billion in 
emergency assistance to Israel. They have had some economic 
challenges, they have had some security challenges. And I think 
that is a step in the right direction. So I applaud your work 
on that.
    The other thing I would say to you is that you and I had a 
conversation last year regarding some money that was ultimately 
appropriated but was never actually provided. That happens in 
this business because the President had to sign off that it was 
an emergency situation and ultimately when that time came he 
chose not to. And so that is his prerogative.
    I want to raise an issue with you. In no way do I have any 
reason to challenge what the administration is doing with 
respect to Turkey because I know the history, the long time 
that they have been an ally and they have been a friend. What I 
am wondering about, though, we might put something, insert some 
language in the supplemental requiring the President to confirm 
that Turkey is cooperating with us before we make any money 
available.
    Would you comment on that approach and what perhaps would 
be in order; what would be in line regarding any funds? And I 
recognize all the subtleties and the sensitivities of the 
situation.
    Mr. Armitage. Mr. Knollenberg, you really make it tough for 
an administration witness who spends most of his time trying to 
make sure there are no, in my words, shackles on the executive 
branch's hands.
    I think it is perfectly appropriate for Congress to write 
legislation any way you deem fit. I would hope that if there 
are these kind of criteria you could make it a matter of report 
language. This would be my personal view, and let us know very 
clearly the will of the Congress rather than add more 
requirements on the President. But, as I say, I am generally in 
the business of trying to fight off any sort of thing that 
inhibits the power of the executive branch, notwithstanding my 
full understanding of Mr. Obey's comments about Article I of 
the Constitution.
    On the question of Turkey, I think the answer is we saw in 
our televisions yesterday whether or not they are cooperating. 
The 173rd jumped in valiantly and well last night and more 
today. It is over Turkey. Missiles are flying into Iraq and 
airplanes over Turkey. And, as I have already mentioned, 
special forces and other activities which have been ongoing. 
And, I think, this is not in any way to be confused with the $1 
billion request of the administration, but we all understand 
very well the history of the Kurds in northern Iraq and the 
Turks, the Turkish fear of refugees, the desire of the Turks to 
go in and have a cordon sanitaire, if you will, to make sure 
they don't have refugees bumping up against their territory. As 
yet they have restrained themselves for, I believe, two 
reasons: One, there are not refugees in large numbers, and two, 
I believe we have engaged them very well, and we are trying to 
engage them with the Kurds to make sure that the temperature 
stays very low. It is a complicated equation but at least thus 
far I think it has been relatively successful. Chairman Young's 
comments, and I wrote them down, express disappointment with 
Turkey, particularly with the 4th ID, are also exactly what 
anyone in the administration would say.

                        MULTILATERAL ASSISTANCE

    Mr. Knollenberg. What about multilateral assistance? And I 
don't know how much of that there is, you could comment on that 
if you like, but would that in any way be a challenge or 
thwarted by virtue of our decision?
    Mr. Armitage. If you are talking about World Bank and IMF, 
yes. I think even the administration's announcement that we 
were going to request of the Congress a billion for Turkey had 
a positive effect on the markets. That gives you an idea that 
just the suggestion stabilizes their markets. This doesn't in 
large measure affect our approach to the IMF and World Bank and 
our need to work with both of those organizations to make sure 
that Turkey does what they need to do in terms of structural 
reforms so their economy can be worthy of IFI support.

                           IRAQI WATER PLANTS

    Mr. Knollenberg. Just a final question for Mr. Natsios. 
Thank you very much, Mr. Secretary. You mentioned what Iraq 
does not need is water filtration plants. They have got plenty 
of those. Is there anything else in the way of assets that Iraq 
has in your judgment that perhaps we don't have to worry about 
or rebuild? They have 250 water filtration plants. Is that even 
enough? Apparently it is not.
    Mr. Natsios. They have them but they don't work. Thatis the 
point. They don't need to be constructed from scratch. They need to be 
rehabilitated very badly. That is not the reason the child mortality 
rates are higher in Iraq than they are in India, which has more poor 
people in it than Africa does. The reason is because they have had a 
deliberate policy of not investing in replacing equipment on those 
existing plants. Those plants go back 20 years. The equipment in some 
plants does not work at all. Half of Basra has been drinking sewer 
water for 12 years. That is why kids are dying. UNICEF estimates 70 
percent of the kids who die are dying from communicable disease or from 
dysentery from bad water. 70 percent. More than a 100,000 kids in Iraq 
died needlessly last year from these causes. These are kids who die 
before they are 5. We have 10 per thousand die in the United States. In 
Jordan it is 34. In India it is just over a hundred. In Iraq it is 131. 
It is an extremely high rate.
    Mr. Knollenberg. Who is the highest?
    Mr. Natsios. Afghanistan, at 25. 25 percent of the kids die 
before they are 5 in Afghanistan. Angola, Sierra Leone, those 
countries.
    Mr. Knollenberg. Thank you very much.
    Mr. Kolbe. Mr. Rothman.
    Mr. Rothman. Thank you, Mr. Chairman. Mr. Secretary, it is 
always a pleasure to see you, Ambassador Natsios. Thank you for 
being here. First I want to say that I did support the 
resolution in the Congress to authorize the President to disarm 
Saddam Hussein of his weapons of mass destruction and to see 
about regime change in Iraq to liberate the people of Iraq. I 
believe, though, there may be in the future plenty of time for 
Monday morning quarterbacking with regards to strategy and 
sufficiency of troop strength and the like. But for the moment 
I believe everyone in Congress, whether they voted for the war 
resolution or not, is 100 percent behind the President, 100 
percent behind this administration, 100 percent behind our 
brave troops for what they are trying to accomplish and what 
they will accomplish.
    I did want to say that I generally support the requests set 
forth before us, although I do have the same concerns about 
Article I of the Constitution whereby we don't want Congress to 
give up any of its authority of oversight and as a check and 
balance to the executive branch, but we do want to provide the 
money needed and I am sure we will be able to work those things 
out.
    A comment has been made about Israel--and it is odd that 
Israel and the Palestinians come up when we are talking about 
the Iraq supplemental and lack of democracy in the Arab world. 
But nonetheless, I understand why it has come up and I think 
that there should be continued administration attention on 
bringing a just and lasting peace to the Israel-Palestinian 
situation. However, as we know, the Palestinians were offered 
their own state on 97 percent of the land they asked for by 
Clinton and Barak, and the Palestinians rejected their own 
state, the implication being they wanted Israel's land too. The 
Palestinians walked off and did not even provide a counteroffer 
and restarted the Intifada. Nonetheless, we have to continue 
the process, but I don't think we can take our eye off the 
ball.
    Israel has been our friend for 50 years, our strategic 
military partner. They are the ones, Israel, who took out in 
the Iraqi nuclear reactor in 1981. God forbid, if the Israelis 
hadn't have done that, we would be in one heck of a situation 
today facing a nuclear armed Saddam Hussein. Plus, I think 
Israel has exhibited extraordinary restraint with citizens 
walking around with gas masks, for God's sake, in not getting 
involved at the request of our government in this war against 
Iraq. They would love to participate in the war, as you well 
know, with of course many in the Palestinian Authority 
literally cheering the deaths of American soldiers, today, 
literally displaying Saddam Hussein's picture prominently even 
above Arafat's. So there should be no doubt who our friends are 
in the Israeli-Palestinian situation.
    However, as a human being, I want for the Palestinians what 
I want for everyone: Prosperity, peace and security. But they 
first have to be willing to live in peace with Israel, their 
neighbor and our dearest and most important strategic ally in 
the region. The burden is upon the Palestinians to have a 
leadership that will stop the terror, and there is only one 
constituency for the Palestinians to persuade. The Palestinians 
must persuade the Israeli people that they don't want to kill 
them, and then Israel will make peace with them as they did 
with Jordan and Egypt and a cold peace with Syria and Lebanon.
    I am looking for the Palestinian leadership to do what it 
needs to do. In that regard, I wanted to add my voice to the 
debate. I would like to ask you about the $200 million in the 
supplemental request for the Middle East Partnership Initiative 
to bring about greater democratic reforms in the various 
regimes in the Middle East who are not democracies like Israel. 
What countries are you talking about spending that $200 million 
on and give me an idea of some the projects, specifically will 
they include the education of the girls and the women in these 
countries? Fifty percent of the populations in these Arab lands 
have been kept out of education.
    Mr. Armitage. Thank you, Mr. Rothman. I am pleased, and, I 
am sure, Andrew is pleased to be part of an administration 
which our Israeli friends have said developed the finest 
relationship with Israel since President Truman had the courage 
of his convictions.
    Second of all, we see the problem as you do. That is why 
the President made the comments he made about the need to stop 
terror so Israel can live safely and securely, and then we will 
move forward.

                                  MEPI

    On the question of the $200 million, we call it the MEPI, 
Middle East Partnership Initiative. The $200 million request is 
actually in two tranches, or two different segments, $175 
million for the Middle East, which includes the Magreb, it 
includes Egypt. And for women's issues particularly, it 
includes areas that are not normally eligible for U.S. 
assistance, some of the Gulf states, to try to get more access 
to women to education and things of that nature. $25 million, 
in our hope, in our desire, is for something we call Muslim 
Outreach, because I have to tell you we always have said that 
we realize that Indonesia is the largest Muslim nation in the 
world, and we said it and we said it and we never realized what 
was going on. We didn't pay any attention to what was going on 
there, and we have since had the Bali bombing. We have learned; 
having been burnt once. I think we are a lot smarter. The other 
$25 million is primarily for outreach in Malaysia and Indonesia 
and somewhat in Bangladesh and places like that.
    It is divided--clearly we have done a lot in the Middle 
East, but what we have done historically hasn't always worked 
the way we want it to. We found that out in 9/11, I think,and 
through no fault of our own. But we needed, we felt, to be more 
innovative. This in no way, in our view, eliminates or has any hint of 
criticism for the unbelievable efforts of USAID. We think their efforts 
are absolutely needed. In fact, as we move forward, hopefully, with the 
Congress's blessing on MEPI, AID will be a big part of that. We think 
there is a lot of need and a lot of ways to go about this business to 
try to empower women, to try to make sure that education reaches to all 
segments of society, to try to get structural reform in the economic 
areas so that people can be engaged in micro lending, sort of borrowing 
from the ideas and the writings of Hernando DeSoto, and he taught us a 
lesson in the mid-1980s with his work The Other Path.
    Mr. Rothman. Thank you. I look forward to working with you.
    Mr. Kolbe. Mr. Lewis.
    Mr. Lewis. Thank you, Mr. Chairman. Mr. Natsios, we are 
going to have an opportunity to spend some time together as we 
go forward with the 2004 process. I will be dwelling a lot on 
your testimony as well as some of the comments you made 
relative to the conditions of the water that are affecting 
children, et cetera, in this country. It is another reflection 
of the kind of monstrous regime that we are attempting to 
change in that country, and there are ways USAID can be of 
great assistance in creating a new life of hope as well as 
freedom for the people of Iraq. Your comments caused me to go 
back and read your testimony which I hadn't had a chance to 
before I got here, so I am very anxious for to us spend that 
time together.
    In the meantime, Mr. Secretary, there is any number of 
items that you and I could talk about but one specific question 
involves the roughly $150 million that is available to support 
indigenous forces in the defense part of this supplemental. 
Could you share with us what we are talking about in terms of 
indigenous sources? I note the length of time, the moneys 
available, et cetera.
    Mr. Armitage. That is an important part of it. The other 
part is that a new appropriation is not needed. The idea would 
be that the Department of Defense, with the concurrence of the 
Secretary of State, could make those monies available. The 
idea--we don't--as I said, we don't know what we are getting 
into fully in Iraq. We think this is going to be a matter of 
weeks and not months, and that is our hope. That is what our 
valiant coalition is trying to do. But as a hedge, we don't 
know what we will be doing with the Kurdish forces and others. 
And this gives us the ability, should it be necessary, to arm, 
equip, outfit train to a higher degree the Kurds or the 
Peshmerga if that were necessary.
    Again, as I tried to respond to Mr. Obey, the distinct 
limitation on the money through September was our attempt, 
perhaps feeble, to indicate that we are not trying to trample 
on the prerogatives of the Congress. We have a situation in 
this war, and we want to make sure we are covered on all sides 
as we move forward.
    Mr. Lewis. I will repeat some of Mr. Obey's concerns as 
well as the chairman's concern for--in doing so, I would 
mention for the record on my part that this is a 2003 
supplemental, and because of that there are certain limitations 
on the money. But most importantly, I find in emergency 
circumstances often administrations, without label on 
administrations, do reach for transfer of authority as well as 
serious responsibility. We are concerned that we maintain the 
balance that is pretty obvious to people who are students of 
our government, but in the meantime there are shifts to and 
fro. And this committee is responsible for initiating 
appropriations, and I can tell you that Mr. Obey is going to 
see to it that his voice is heard in connection with that. So 
is my chairman in this subcommittee as well as the full 
committee chairman. We don't take these things lightly. And 
while we do feel strongly about the need for flexibility, we 
intend to develop guidelines that are not dissimilar from 
guidelines developed during the Desert Storm process. We will 
be talking with each other in a very short time frame, for this 
bill is going to be moving very quickly.
    Mr. Chairman, I was planning to talk with you a bit about 
the Turkey question, however that exchange has taken place. So 
let me say this, it seems to me in the purview of this 
subcommittee that as we get beyond these days and perhaps weeks 
and hopefully not months ahead, as we go about changing the 
regime that is in Iraq, we need to have some open door 
discussions, some closed door discussions between friends of 
this changing world who are involved in defense, who are 
involved in foreign affairs matters and AID matters, et cetera. 
We need to talk through what this last year has done to that 
scene, what some of our friends have done to NATO, and what 
they may very well have done to the U.N. America must exercise 
itself by way of reflection upon America's interests first and 
then go about playing the role and responsibility we have in 
the world.
    Mr. Armitage. Mr. Lewis, thank you very much. I don't think 
that there are very many, if any, people in this administration 
who don't have a full understanding of the absolute need for 
checks and balances. It is what has kept our system vibrant. 
And unlike every great power that ever went before us, that is 
the very system that keeps power from being consolidated in the 
hands of any one person, or any one branch. We will obviously 
discuss this in any manner you want, but you will find us open 
to better suggestions but fully cognizant of Article I and the 
absolute need for checks and balances.
    Mr. Lewis. Mr. Chairman, thank you for the time.
    Mr. Kolbe. Thank you. Ms. Kilpatrick.

             U.S. EMERGENCY FUND FOR COMPLEX FOREIGN CRISIS

    Ms. Kilpatrick. Thank you, Mr. Chairman. Mr. Secretary, Mr. 
Natsios, good to see you again under these difficult 
circumstances for the world. But thank you for the work and 
service you provide. I know in the 2004 budget that was 
presented there is a new account, the U.S. Emergency Fund for 
Complex Foreign Crisis. I see it has also arisen in the 
supplemental at $150 million, which is an account that has very 
little Congressional oversight but will allow the President to 
give money when he sees fit, how much, and to whom without 
oversight from the Congress. The fund now used for that is an 
international disaster assistance account, and to my knowledge 
the Congress may always be a little slow but we always give the 
President what he wants when it comes to this committee. So I 
was surprised to see the new fund set up with $150 million in 
it. What is the need for it, one, and what is a complex foreign 
crisis? Has that been defined? Why is the Congress taken out of 
the loop other than appropriating the money?
    Mr. Armitage. Thank you, ma'am. The complex foreign crisis 
at $150 million is something, first of all, that is not for 
natural disasters. It could be, but it is generally not. 
Manmade famine; that is, one inflicted upon a society by 
deliberate governance, that could be. But it wouldn't be a 
famine, normal famine or a flood. There are, as you suggest, 
other accounts for that.
    We are looking at crises that come upon us because of 
perhaps terrorist events, terrorist attacks, things of that 
nature. You are quite correct. Our hope would be that the 
President would have this money that any branch of government, 
whether it was Commerce or Treasury or AID or State Department, 
could come to and apply and hopefully have it dispersed. But 
that is as I understand it.
    Ms. Kilpatrick. Well, is there a problem with the 
international disaster assistance account we have been using? 
Is there a reason why we need to implement a new initiative?
    Mr. Natsios. The concept behind this was based on the 
refugee count that the President, any President has control 
over in the White House. And when there is a major emergency--
it is like a savings account. You, the Congress, put the money 
in the account. And when the President needs it for a refugee 
emergency, the PRM office in the State Department asks for 
presidential determination that this is beyond the normal 
appropriation and the amount of money is drawn down. We 
actually put something like this in our budget, and it wasn't 
approved. And I was very pleased the President announced it one 
Saturday in his radio address. This is actually more money than 
he announced, so we are very pleased. There are certain 
emergencies, when they are stacked on top of each other, we 
don't have enough money in the account.
    Ms. Kilpatrick. You know, Secretary, and Mr. Natsios, I 
think this Congress would agree that those would occur, 
certainly in the climate that we live in today. I think the 
problem this Member has is that the Congress has no monitoring 
and oversight, no knowledge, no notification. It is really just 
something given to the executive office. It has always worked 
better when we work together. I too agree it may be necessary 
but I am very opposed to the Congress not having some 
notification in that. I hope we can work that.

                               CONTRACTS

    My other question, Mr. Natsios, is to you. As we begin 
contracting and rebuilding Iraq I am really concerned about the 
contracts we will award, the grants and the like. I want to 
make sure that small, disadvantaged as well as minority 
businesses are able to participate in that grant process and 
the bidding process. I have heard a lot of the money has 
already been allotted through a no bidding process. Is that 
true? So that is two parts in that. Is that true? Can we get 
more minority and disadvantaged business into that?
    Mr. Natsios. We have not issued any no-bid contracts. There 
will be grants made to some NGOs and some U.N. Agencies. We 
don't normally have U.N. Agencies bid on contracts. We give 
them grants for appeals that they make.
    Ms. Kilpatrick. I was more speaking of U.S. companies, 
large grants.
    Mr. Natsios. Right. So I just want to make a distinction, 
because some of the other part of the humanitarian work [stuff] 
is done without a bidding process, [but] that is the case for 
all emergency grants that we give to NGOs and U.N. Agencies. I 
want to make a distinction. In terms of the contracts none of 
them are no-bid. The normal bidding process takes from the time 
you advertise to the time you award about 6 months under 
Federal procurement law. This is not just for USAID, this is 
for any Federal agency. Some people think it takes too long. I 
get impatient myself because I want to get stuff done. There is 
a provision in the law when there is the impairment of foreign 
aid in a national emergency, like this, where I can waive the 
procurement law. We have done it three times. Brian Atwood did 
it in Bosnia for the reconstruction of Bosnia because it was 
important to rebuild, we did it in Afghanistan so we could move 
quickly, and we have done it in Iraq. That was signed in mid-
January. That allows for a 2-month process. It still has to be 
competitively bid but it is to a smaller group of companies 
that have done work before with USAID, has no legal or IG 
rulings against it, no evidence of previous abuse or problems, 
knows the Federal accounting system and the Federal procurement 
law.
    Ms. Kilpatrick. So there have been no large grants or 
contracts given?
    Mr. Natsios. Contracts. Grants are different. I was trying 
to draw the distinction.
    Ms. Kilpatrick. Are grants at a certain level? When you 
identify grant as----
    Mr. Natsios. We gave a grant to CARE yesterday for several 
million dollars. We did not competitively bid that.
    Ms. Kilpatrick. Do you give any grants that are in the $100 
million range and over?
    Mr. Natsios. Oh, absolutely not.
    Ms. Kilpatrick. Okay. So there is a ceiling on what grants 
there are, that are given----
    Mr. Natsios. We don't give grants of $100 million. I mean, 
they are smaller.
    Ms. Kilpatrick. Do you have any idea what the highest might 
be?
    Mr. Natsios. You mean humanitarian organizations?
    Ms. Kilpatrick. Yes, uh-huh.
    Mr. Natsios. Typically they are a million, $2 million, $3 
million. OFDA, the Office of Foreign Disaster Assistance, never 
bids grants for humanitarian agencies. We are not talking about 
private businesses now, these are humanitarian agencies and 
U.N. Agencies.
    Ms. Kilpatrick. And NGOs and the like?
    Mr. Natsios. That is right. That is different. Contracts--
sometimes we extend the contracts for a year or two or 
something like that.
    Ms. Kilpatrick. If they are working somewhere else can they 
now be extended to work in Iraq?
    Mr. Natsios. No, no, no, only in the country under the 
contract. For this set of contracts, for this country, we are 
competitively bidding them under this shorter process. They 
were competitively bid. They were done. All companies also have 
to have security clearances because when they bid they had to 
look at national security information. Some of it is top secret 
in nature.
    Ms. Kilpatrick. Sure. That makes sense.
    Mr. Natsios. That is one of the reasons we did not use 
companies from all over the world. They don't have security 
clearances. That is why all the prime contractors are American. 
The subcontractors--we signed a waiver in January to allow us 
to bid with subcontracts any country in the worldother than 
those on the terrorist list. Libyan and Cuban countries are not going 
to be bidding for subcontracts. They will have to conform to Federal 
procurement law, and many of those contracts will be open to smaller 
companies, women-owned companies, minority-owned companies, in the 
United States, and in the region and in other countries.
    Ms. Kilpatrick. Mr. Natsios, how much do you think would be 
required to rebuild Iraq?
    Mr. Natsios. We do not know because the country is not an 
authoritarian society, it is totalitarian. It is more like 
Stalinist Russia or North Korea. The government controls 
everything. So until the government is gone and we can go in 
with our teams which are in the region now to do assessments, 
we don't know for sure. We have based our estimates on 
intelligence briefings, on scholarly literature, and on 
briefing the expatriate community who are Iraqis.
    Mr. Kolbe. I neglected to start it for about 2 minutes. So 
your time is up.
    Ms. Kilpatrick. Thank you, Mr. Chairman. Thank you, Mr. 
Natsios. I saw you hitting my time over there.
    Mr. Kolbe. Mr. Wicker.
    Mr. Wicker. I just assumed we had moved to the 7-minute 
rule. Let me just ask a couple of cleanup questions from Mrs. 
Lowey. We have a request for 2.44 billion for Iraq relief and 
reconstruction. There is $1.7 billion that the Secretary of the 
Treasury has frozen, but that all may be spoken for.
    Mr. Armitage. Not all of it but a fair amount. A portion, 
$200 or $300 million for sure.
    Mr. Wicker. Do you think any of the frozen money will be 
available in 2003, Mr. Secretary?
    Mr. Armitage. Our hope would be if we could get an interim 
Iraqi authority standing up quickly in a recognizable path to a 
more representative, transparently representative government 
that some of that money could be made available. But I think it 
would take some coalition oversight until we have an absolute 
democratic government, or elected government. Let me put it 
that way. That is in theory, Mr. Wicker, it is available.
    Mr. Wicker. I understand. For either of you, we talk about 
oil revenues and that they belong to the Iraqi people and I 
think we all support that. What is the amount of annual oil 
revenues for Iraq?
    Mr. Armitage. I understand it, don't think my numbers are 
wildly off, it is relatively efficient oil because some of the 
Oil-for-Food Program monies over the last 10 years have been 
able, legitimately and legally in terms of the U.N. Security 
Council resolution, to go into repair of pipelines and things 
of that nature. And I believe I am right that the estimate is 
anywhere between $12-, $15- and even $18 billion, as I 
understand it.
    Mr. Wicker. All right. But none of that will go to this 
$2.44 billion in Iraq reconstruction; that comes from the 
American taxpayers?
    Mr. Armitage. That is correct.
    Mr. Wicker. My general question is this: We win the war, 
hostilities cease. What are the scenarios for who controls the 
country of Iraq immediately after that? Does a U.N. 
Administrator come in? Do we have a United States military 
governor? Will the Iraqi resistance be put in place 
immediately? At what levels are these decisions being made and 
when do you think we might know something?
    Mr. Armitage. These are decisions being made by our 
President with the advice of Mr. Rumsfeld and Mr. Powell and 
Dr. Rice and others, such as John Snow. Second, we are not 
going to have a U.S. military generalship. It is not going to 
be Governor Tommy Franks. He has other jobs and other things to 
do. We have envisioned, and it is enshrined in a national 
security presidential directive, that we will have an interim 
civilian authority. We have within the State Department, for 
instance, eight officers out there now, another eight ready to 
go to be senior advisers in various ministries.
    Mr. Wicker. Iraqis.
    Mr. Armitage. No, these are U.S. There are Treasury 
advisers, Commerce, all the members of our bureaucracy, various 
homes in our bureaucracy have provided membership. This is Jay 
Garner's team. Our intention is as rapidly as possible to put 
into place and help bring into being an interim Iraqi 
authority. The word ``interim'' is very important here. Mrs. 
Lowey asked in her opening comments or made a comment about the 
role of the opposition. And clearly the Diaspora opposition, 
who are now in the main, and Salahuddin and Dahuk in northern 
Iraq have a big role in the future. They for 20 years fought 
against this regime from outside. Equally there are opposition 
leaders and tribal leaders internally who have fought for 20 
years under the regime of Saddam Hussein. And there has to be a 
role for both of those, the external and internal opposition. 
My gut only tells me that probably those who have lived under 
the brutal regime probably will ultimately find their way to 
some positions of leadership.
    It is our desire to turn over certain of the ministries as 
rapidly as possible to Iraqis. Now, that is not going to mean 
that the Ministry of Defense is turned over to Iraqis in the 
near future. I suspect the Ministry of Intelligence will 
disappear. It has to be torn out root and branch as a Ministry 
of Interior. But other ministries could have Iraqis. Not 
everyone who works in a ministry is a member of the Ba'ath 
Party necessarily and is certainly not necessarily a bad 
person. It will take some time to sort out who is wheat, and 
who is chaff. This is one of the things that the coalition will 
do.
    But all of this leads, Mr. Wicker, as rapidly, again, as 
possible, to some sort of transparent process which allows 
representatives from all 18 provinces of Iraq to choose who 
they want to lead. It has to, in our view, have some 
representation from not only Sunni and Shia, but Turkman, 
Caldeans, the Syrians, all groups in Iraq. And this is not 
beyond the ken of man. We did this in enormously rapid time 
with Afghanistan. This is not the same situation, but perhaps a 
similar process could be employed.
    Mr. Wicker. Thank you.
    Mr. Kolbe. Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman. Gentlemen, welcome. I 
would like to ask a question about the roots of unrest that 
result in terrorism. I am particularly interested in the 
Palestinian refugee camps and the Saudi-funded madrassas 
throughout that region. Now, as I read history, September 11th, 
1922, marks the date of the mandate by the League of Nations to 
create a homeland for the Jewish people in Palestine. And every 
member of this committee with our voting record demonstratesa 
contemporary affirmation of that decision to sustain a modern Israel. 
But we have never been able to deal with the Palestinian question 
effectively. I am concerned about the million Palestinians that still 
remain in refugee camps in Lebanon, Syria, the West Bank, Gaza, Jordan, 
et cetera. I would like to know what in this supplemental proposal 
addresses that issue.
    And, secondly, we know that the majority of hijackers on 9/
11 came from Saudi Arabia. What are we doing to try to address 
the Saudi-funded madrassas throughout that region? Right after 
9/11 I brought a physician from my district over to the State 
Department, who over the last 10 years, long before 9/11, had 
been trying to create schools in Pakistan to counter what he 
saw as a growing threat. I would hate to tell you the 
difficulty we have had in working with the government of the 
United States to try to give legs to that effort in that region 
of the world.
    So, those are my first two questions on the roots of 
terrorism. The Palestinians, who are in refugee camps and also 
the madrassas, face a great crisis in terms of education and 
cultural understanding. We obviously have a pretty bad problem 
here or we wouldn't be at war, and the problem isn't only with 
Iraq. And I would like to know what in this budget relates to 
education, particularly greater support of our institutions, 
the American University in Beirut, Lebanese American 
University, the American University in Cairo, in order to try 
to help to rebuild from the underfunding of those institutions 
over the last several years.
    Mr. Armitage. Thank you, Ms. Kaptur. The money envisioned 
in this supplemental, $50 million, is for West Bank and Gaza, 
Palestinians to be--should the Congress see fit to vote the 
money, to be administered through NGOs for two specific general 
aspects. One is to try to increase the economic activity and 
benefits to the Palestinian people. Their economy has 
contracted minus 27 percent since the Intifada began. And 
secondly, to continue to try to wean them away from dependence 
on terrorism directed against Israel. This money, specifically, 
ma'am, does not go for the camps in Lebanon to my knowledge. I 
think that is correct.
    On the question of the Saudi madrassas----
    Ms. Kaptur. Would the gentleman yield for a moment on that? 
I think there are over 400- to 500,000 Palestinian refugees in 
Lebanon, is that correct?
    Mr. Armitage. I am not sure of the number. There is quite a 
number. Andrew, do you want to respond?
    Mr. Natsios. Just on the question of--I don't know which 
madrassas are funded by Saudi Arabia. It is not clear to 
anyone. But let me just make a comment on the madrassas though. 
In Pakistan the public education system basically completely 
collapsed in the last decade. Our first initiative there is to 
spend $100 million over the next 5 years on rebuilding the 
education system. That was the request of the Pakistani 
government so that parents have an alternative. Many parents 
have sent their kids in Pakistan to those madrassas because 
there is no other alternative.
    So it is very important we do that. The Minister of 
Education has told us that she is very pleased with the effort 
we are doing. In fact, she wants to expand it more rapidly, the 
work we are doing to rebuild those schools. We have done the 
same thing in Alexandria, Egypt in a new curriculum, a new 
reform effort in Alexandria, Egypt that the Egyptian government 
liked so much, particularly the First Lady of Egypt, that we 
are now extending that into central Egypt, which is, by the 
way, where a number of the terrorists also came from, and to 
upper Egypt to the poor areas. But it has worked in one place. 
We believe it will be widely and enthusiastically accepted in 
other areas. It is a curriculum that encourages debate and not 
rote learning. It is a curriculum where parents are involved in 
their kids' education. It is a decentralized approach. We have 
done the same thing in Jordan and same thing in Morocco and it 
has worked very well.
    So in terms of education reform that has been attempted 
very successfully in a number of these countries, just a matter 
of scale.
    In terms of the refugee camps, the Palestinian refugees, in 
terms of the amounts of money spent is much more per capita 
than any other refugee population in the world by a factor of 
10. It is a very large amount of money. The problem is it is 
not a good place to be, in a refugee camp, no matter how much 
you spend. The answer ultimately is to resettle people in 
communities and have jobs and a private market that creates 
hope for the future.
    We have a program in southern Lebanon in many of the 
Palestinian communities in which we have the communities decide 
which projects to undertake through American-based NGOs. These 
are American-based NGOs, but they decide whether they are going 
to rebuild wells or the schools or micro enterprise projects. 
But they are run by Western NGOs so we maintain accountability 
and there is no problem with it. Those areas we do have these 
projects that we have undertaken and they are quite successful 
actually.
    Ms. Kaptur. Mr. Chairman, I didn't get an answer on the 
institutions of higher learning.
    Mr. Natsios. Oh, you mean American universities? We have 
continued through ASHA to provide funding to the American 
University in Beirut and the one in Cairo. I am not aware that 
we have cut the funding in those accounts in the last decade, 
but I will look it up. When I was in charge of those programs 
in the first Bush administration I recall seeing that those 
accounts----
    Ms. Kaptur. Scholarship programs have not been administered 
in the way Congress had asked.
    Mr. Kolbe. Mr. Kirk.
    Mr. Kirk. Thank you, Mr. Chairman. Mr. Secretary and Mr. 
Administrator, I support this package and I am going to make 
sure that you have what you need. I was particularly impressed 
in the budget documents you submitted. You have lined up eight 
nations to join the UK and U.S. on peacekeeping; according to 
your documents, Poland, Hungary, Czech Republic, Estonia, 
Latvia, Romania, Lithuania and Bulgaria. We have a total aid 
package here for 24 countries as I count it, and you have 
talked about a national security directive outlining your view 
for postwar Iraq. Can we see that?
    Mr. Armitage. I think it is classified. I know it is not a 
public document.
    Mr. Kirk. Can you transmit that in classified form to the 
committee?
    Mr. Armitage. I will refer it to the White House. I just 
don't know the answer.
    Mr. Kirk. Okay. I think that would be helpful.
    Mr. Armitage. Let me be clear. It is not sort of our whole 
vision of postwar Iraq. It is the immediate mechanism for 
postwar Iraq.
    Mr. Kirk. Great.
    Mr. Lewis. If you would yield for a moment, I believe if 
nothing else could you transfer it to the intelligence 
committee?
    Mr. Armitage. Absolutely.
    Mr. Lewis. A Member could see it there if he wished.
    Mr. Kirk. That would be great. On the complex emergency 
fund, the budget justification, $150 million, is four lines 
long that were given to us here. And I am worried. This is 
unforeseen complex emergencies pursuant to the national 
interest making allocations to any other Federal agency 
notwithstanding any other law. Sounds pretty much like it is 
waiving Article I.
    Mr. Armitage. For peace and humanitarian intervention 
operations. That is what we require. The point does not change 
by what I just said.
    Mr. Kirk. You don't mind if we delete those provisions.
    Mr. Armitage. I expect it.
    Mr. Kirk. Right. Good. I want to go on to some other things 
I hope we delete. A transfer authority of $200 million but it 
is written that we can transfer $200 million but I don't know 
if we transfer from international programs to Department of 
State, international--is that $200 million per incident, $200 
million for this package, $200 million total?
    Mr. Armitage. It is total. You are not talking about the 
general provision, Mr. Kirk, you are talking----
    Mr. Kirk. Correct. Any appropriation made available. This 
is very inartfully worded.
    Mr. Armitage. Just the general provision. We are talking 
about the three State accounts. And what we are--and $200 
million total could be transferred among those three. What we 
are talking about there is we have a certain idea of how much 
money it will cost for us to, for instance, set up an embassy 
in Baghdad. But we may be wrong. That is the kind of thing we 
had in mind, and we may need access to some funds.
    Mr. Kirk. You have a request for the embassy in Baghdad 
already in another part of this?
    Mr. Armitage. That is correct.
    Mr. Kolbe. I think there is money in a separate account 
under the Commerce-Justice-State for the embassy in Baghdad.
    Mr. Armitage. That is correct.
    Mr. Kirk. For the Iraq relief and reconstruction project it 
is for necessary expenses in and around Iraq. What is around 
Iraq?
    Mr. Natsios. Oh, okay.
    Mr. Kirk. Do we say neighboring Iraq?
    Mr. Natsios. We want to be able to say, for example, if 
there is a food shortage in a village and we have to go over 
the border in Turkey to buy some of the food to bring it back 
to the village in northern Iraq.
    Mr. Kirk. Can we say neighboring Iraq? Because around Iraq 
I want to make sure that we are not going to a totally 
unauthorized event that this committee has not approved in 
this, Malawi.
    Mr. Natsios. No, not the intention. But we might want to go 
to Oman, let's say, or something like that. So it shouldn't 
necessarily be contiguous.
    Mr. Kirk. A transfer authority made available to any 
government activity to meet any such cost. That sounds really 
broad. Okay. So we will delete that. And then except----
    Mr. Armitage. I hope we will be able to discuss deleting 
that.
    Mr. Kolbe. Done.
    Mr. Kirk. Except from any person, foreign government, or 
any contribution for such purposes. But that of course would be 
subject to the conditions of U.S. law and the Appropriations 
Committee, correct?
    Mr. Armitage. That is correct.
    Mr. Kirk. Which is not how that provision is written. So I 
hope you don't mind that I would like this to be a deal where 
we provide you with the cash in a way that you can account to 
the taxpayer for. Because the way this was written I would say 
to the State Department and AID lawyers, nice try. But I think 
there are a lot of precedents that we do not want to set here 
because above everything else the Constitution is what you and 
I both swore an oath to protect and I think we are going to 
need to do that here.
    Thank you, Mr. Chairman.
    Mr. Natsios. Could I add, I talked with the Inspector 
General of USAID and I encouraged him to set up an office in 
Iraq from the beginning to make sure everything is done exactly 
according to Federal law and so it is completely transparent 
for everyone. He had the same idea himself. And I said Everett, 
do it. We need your oversight and we will work with you, from 
the beginning, not after it is all over.
    Mr. Kirk. But remember the language you sent us said 
notwithstanding any other Federal law. So I want to make sure 
that doesn't appear in the final legislation.
    Mr. Kolbe. You see, Secretary Armitage, Mr. Natsios and all 
the ladies and gentlemen sitting behind there, that is what 
happens when you allow a former staffer to become a Member 
here. Sometimes just get caught on----
    Mr. Armitage. No, instead he is a naval officer, sir.
    Mr. Kolbe. Mr. Jackson.
    Mr. Jackson. Thank you, Mr. Chairman. Let me first begin by 
associating myself and the remarks with the thoughts of the 
former staffer who is now an extraordinary Member of Congress 
from the State of Illinois. The parts of this bill, Mr. 
Chairman, that bypass Congress' responsibility for oversight I 
would hope would appear in a manager's amendment to whatever 
supplemental we consider, so that we can assure that our----
    Mr. Kolbe. Would the gentleman yield? You can be surethere 
is going to be a manager's amendment.
    Mr. Jackson. Appreciate that, Mr. Chairman. Let me thank 
you, Deputy Secretary Armitage, for being here. Deputy 
Secretary, after reading the supplemental request I have become 
very concerned over the direction our government is going in 
both its foreign policy and its military policy. I understand 
the supplemental request has contingency funds for the Pentagon 
but does not replenish all development funds that have been 
reprogrammed for Iraq, short-changing Africa and Latin America. 
I also understand that this supplemental is based on 30 days of 
war and 6 months of occupation. After looking at the 
administration's request it appears, though, you want unlimited 
flexibility with the taxpayers' money and that spending 
decisions will be made at the discretion of the administration, 
yet the details of those decisions are a bit unclear, which is 
what I believe my colleague from Illinois was essentially 
getting to.
    From outside the administration it appears that this war is 
going to take a little longer than 30 days and 6 months of 
occupation. The President has said that we will be in Iraq as 
long as it takes to win the war. What I am asking you, Deputy 
Secretary Armitage, is will we be in Iraq as long as it takes 
to win the peace?
    Congressman Wicker brought out the concept and the idea 
that there are a lot of interests within Iraq, outside of Iraq, 
opposition forces, opposition groups that have concerns and 
have an interest in a restructured Iraq. In other words, since 
we are not going to have General Franks as the Governor of 
Iraq, what is our commitment to Iraq after the military 
campaign is over? And if we are there to win the peace, is it 
your opinion that gunpoint democracy will work in Iraq in a 
post-Saddam Iraq?
    Mr. Armitage. A point--just so I would make sure we 
understand--I would not agree with the term 6 months 
occupation, 6 months presence. Our whole coalition's desire is 
to remove ourselves militarily as soon as possible. But the 
budget is built on a presence after a 30-day war, sir, of 6 
months, you are correct.
    On the question of how are we going to stay to win the 
peace, my view is it would be folly to ask young men and women 
to sacrifice themselves if we weren't totally dedicated to 
winning the peace. And the President has spoken about it. 
Everyone in his administration is four-square behind that. My 
answer to you, sir, is, ``yes'', we will stick with it. And I 
hope we are open enough and credible enough with the U.S. 
Congress and members of this subcommittee and others to be able 
to win the support to stay for the long haul. I don't know, by 
the way, that that necessarily means tremendous amounts of 
money 10 years out from here. I am not talking about that. But 
to stay, to have the political will to stay involved so we 
don't have to engage in gunpoint diplomacy. And it won't work. 
If we can't develop a society which sees a way to resolve 
their, whether it is religious differences, ethnic, or tribal 
differences, other than at gunpoint, then we will fail, and we 
are not inclined to fail, we are not doing this to fail. We are 
aware of the dangers, and there are plenty. You know them as 
well as I.
    Mr. Jackson. Administrator Natsios, I understand that you 
have been reprogramming substantial funds from core development 
programs to fund Iraq, Afghanistan and other crises. I am 
deeply concerned that $110 million has been reprogrammed and 
would not be replenished under the supplemental and an 
additional $100 million will be reprogrammed in the coming 
weeks for use in Iraq for a total of $200 million of 
development resources for Iraq. Furthermore, in your 2004 
budget request you have identified $150 million in development 
resources to go towards Afghanistan that comes at the expense 
of existing developing programs in Africa and Latin America. 
The trend that seems to be emerging is that we are spending 
more and more of our development resources on emergencies. Are 
you sacrificing the development needs and mandates of your 
agency?
    In other words, we seem to be providing the pound of cure 
but not the ounce of prevention. Perhaps we need to be 
providing sufficient resources to allow you to meet both the 
critical humanitarian and development needs of your agency.
    And while this is directed directly at you, Administrator, 
I would like a comment from Secretary Armitage in that, as you 
know, this committee, particularly the subcommittee, functions 
under unusual constraints, foreign operations, in terms of its 
decreasing amount of the part of the overall Federal budget. 
But increasingly, as some of us on the committee fight for more 
resources in other developing parts of the world, these 
emergency crises will begin to drag and draw more from an 
already devastated foreign operations budget. And I would like 
your thoughts on that, please.
    Mr. Natsios. First, let me say that we made a decision, 
Secretary Powell and I and Secretary Armitage and the 
President, to increase the amount of money going to Africa 
which had been steady for 15 years. If you look carefully at 
the account, it has been around $800 million. This doesn't 
include the emergencies. This is the development assistance 
accounts with the health accounts. We made a decision to go to 
a billion dollars. That is what we have done as of this year. 
If you look at the appropriations bill, I think it is actually 
higher than for this year, although I haven't looked at the 
latest OYB. But you approved what we asked for plus some. So 
the budget for Africa has gone up 25 percent in this 
administration over 2 years, first time in 15 years that has 
happened through four administrations. So we have a good record 
in Africa.
    I am an Africanist, I love Africa, I have spent a lot of 
time there. We are committed to it. On the development side, on 
the health side, on the HIV side, the President has made an 
announcement of a massive increase of funding for HIV/AIDS, 
which is in the 2004 budget. You have to include that, too, 
because that is part of development assistance, is the account 
for stopping the HIV pandemic in Africa as well as other areas 
of the world, although Africa is the most severely affected.
    On the relief side, we are facing two massive crises at the 
same time, the Southern African drought and East African 
drought. We have provided 660,000 tons for the Horn of Africa, 
more than anybody else in the world combined, to deal with that 
famine. And in Southern Africa we provided another 500,000 tons 
of food.
    You have given us another $250 million for food aid for 
this year over what we requested. So I want to thank the 
committee for doing that. It is very important we have that 
extra food. But the point is we got to do both the emergencies. 
We can't let people die in a famine because there has been a 
massive weather problem or whether we have a problem in a 
country like Zimbabwe, where the government is responsible for 
the crisis. So we are doing both at the same time, but we are 
increasing the development assistance account in Africa.
    We are committed to do that. The commitment from OMB and 
from the President and from the Secretary and myself is to 
restore all of the money we have borrowed. Now, I have heard 
different, the figure that you gave was $200 million. 
Congresswoman Lowey mentioned $85 million, I believe, that was 
not refunded. So there is a debate.
    I think the numbers we have to go over carefully perhaps 
with staff to ensure that what we have committed is in fact 
happening. I went over the figures last night with our staff, 
and the language of the bill does allow us to be reimbursed. 
But we would be glad to work with you to ensure. I do not want, 
nor does Secretary Powell nor Rich Armitage, want our accounts 
cut for this year. We did these transfers to meet the major 
security threat we are facing with Iraq with the money we had, 
but we want those accounts restored now and we want to work 
with the committee to ensure that happens in this bill.
    Mr. Armitage. I did want to make the comment I am quite 
proud of our record in Africa. I am not an Africanist, as my 
colleague is, but, like Secretary Powell, I am a humanist. We 
have tried to attack, with the help of the committee, HIV/AIDS, 
which is decimating the continent. We are working hard on the 
Millennium Challenge Account, which will benefit certainly 
African countries, and I think our record in face of this 
famine and our record in standing up against people like Robert 
Mugabe is a great testimony, not to the administration, but to 
this Nation.
    Mr. Kolbe. Thank you. Let me just add, Mr. Natsios, that if 
the Agency intends to have additional borrowing next week from 
accounts while we are marking up this bill, you need to let us 
know that before this weekend.
    Mr. Crenshaw.
    Mr. Crenshaw. Thank you, Mr. Chairman. I have a question 
about the reconstruction effort. You talked a little bit about 
that. The $2.4 billion of American taxpayers' money that is 
going to go into that, while we do not know the exact costs, we 
know that is what is in the bill. And I certainly fully support 
that. But the question becomes, this last week the French 
Government said that even though they do not support the war, 
they would like to participate in the reconstruction effort. I 
think Germany and Russia had similar sentiments. And, as I 
understand it, in Afghanistan some of the other countries have 
participated in terms of their economic assistance, and some of 
the businesses in those countries were awarded some of the 
contracts.
    Can you talk about how that works, and are there 
circumstances under which contracts, subcontracts, might be let 
to businesses in countries that did not support our effort and 
our allies' efforts? Could you talk a little bit about that and 
under what circumstances, if any, that might happen?
    Mr. Armitage. Yes, sir. If I may, I think that you were 
very diplomatic, but I think you are pointing sort of in the 
direction of France, particularly with the recent comments. I 
think the human response is ``hell, no.'' I think the more 
thoughtful response is, if it is in our interest, we will do 
it. Secretary Powell once described the U.S./French 
relationship as one of 210 years' duration spent entirely in 
marriage counseling. And I think that is probably not a bad 
analysis. And from our point of view, if France has something 
to bring to the table, then we will take a good look at it, 
although I think the natural desire for most of us is to push 
away.
    Look, allies or people who shoulder the burden in any terms 
should be allowed some of the benefit. But let us keep our eye 
on the main benefit, which is the benefit to the region, by 
having an Iraq which can fully participate in the life of the 
region rather than a pariah which has sucked the life out of 
the region.
    Andrew, you can talk about contracting.
    Mr. Natsios. Our two major objectives in all contracting 
that are competitively bid is to get the lowest price for best 
quality and that is in any business and any government agency. 
That is our objective here. All of the prime contracts were 
given to American companies. They have not been yet, but they 
will. Why is that? Because of security clearance requirements 
as I said earlier. The bidding was done quietly a couple of 
months ago, because it was a national security question, and 
there were top secret documents that our contractors had to 
read in order to bid on these documents. And so we chose 
American companies that had a history of doing work for the 
U.S. Government, knew our accounting requirements, our IG 
requirements, and who had no claims against them for court 
rulings that something had been done improperly, there were no 
IG findings of abuse or anything of that sort.
    So we went through a careful process. Let me just say, it 
was career Foreign Service officers. I gave them instructions: 
There will be no political influence on the way in which those 
companies were chosen. It was done entirely on the merits. And 
I said, have technical teams review the engineering documents 
and that sort of thing. We did that exactly as the Federal 
procurement law requires. This was done in accordance with 
Federal procurement law. We are very aggressive about pursuing 
that. I do not even know the companies that were chosen to bid, 
the seven companies, for example. I did not want to know. I am 
not supposed to know under Federal procurement law.
    On the subcontracts, maybe 50 percent of these contracts 
will be subcontracted. We will not bring every single 
construction company from the United States to do a local road 
somewhere. We will hire a local company or a company in a 
neighboring country. We have an Afghan construction company 
that is doing subcontracting on this big road we are building 
in Afghanistan, but the prime contractor is an American 
engineering and construction company. So some local work will 
have to be done by subcontractors, and maybe they will be 
competitively bid, but these two standards will be met: low 
price and high quality.
    Mr. Crenshaw. Thank you. One quick question on the frozen 
assets, the $1.7 billion. Did you take into consideration, as I 
understand it nobody knows, there may be another $3 or $4 
billion out there that we are trying to freeze. Tell me again; 
I know $300 million was going to be used and then that left 
$1.4 billion. Where do you see that going and how much is left 
to possibly use in this reconstruction effort? And then is 
there any kind of anticipation for looking in terms of freezing 
additional assets?
    Mr. Armitage. Yes, sir. We have gone out to other countries 
and asked them to explore the possibility offreezing assets in 
their nation which might be held by the Saddam Hussein regime, with 
mixed results. It is a matter of classification, and I will be glad to 
share it with you privately. Ultimately there may be some more money 
out there. The $1.74 billion, I think it is, approximately $200 to $300 
million we have set aside because there will be claimants, as I have 
suggested, who suffered from terrorism because of Saddam Hussein. The 
rest on the money in theory could be available for any number of 
things.
    We have not come down on a final answer of whether it 
should be used for the Government of Iraq, but we do feel the 
new Government of Iraq will need some access to money. There 
will be salaries to pay and bureaucrats to pay, and all of 
that. Also there will be reconstruction costs. Our plan is once 
we get a better handle and our arms are somewhat more around 
whatever reconstruction costs might be, to make decisions on 
how that money should be allocated. Ultimately our view is the 
President has vested it but in fact he has vested it on behalf 
of the future Government of Iraq.
    Mr. Crenshaw. Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you. We will begin a second round of 
questioning. It is my understanding that the Secretary has 
until about 5:45. At that point we will have to adjourn the 
hearing. I will try to be as quick as I can.
    I want to try and touch on something that really has not 
been explored that much and that is the nature of the loan 
guarantees that are in here for the different countries, $9 
billion for Israel; $8.5 billion for Turkey; $2 billion for 
Egypt. The authority is permissive and of course it is 
positioned, in a way, as a request to Congress. It will require 
zero additional appropriations for the subsidy cost because the 
countries pay that down themselves. It is set a bit differently 
under this request. The countries can exercise the choice of 
whether or not they wish to pursue the loan guarantees. They do 
not have to do that, and if they do, they would pay back the 
equivalent subsidy cost to the U.S. Government as a set-aside 
in case of default, and they can do that using their ESF funds, 
in the case of Turkey and Egypt, and, in the case of Israel, 
using its own fiscal resources.
    I have a couple questions about this. I know you have been 
in consultation negotiations for months with these countries 
and the packages differed during a run up to this conflict, so 
I know these discussions have been very intense and very 
detailed.
    First, Mr. Secretary, why was the decision made not to 
explicitly request loan guarantees? I ask this because the 
permissive request and the potential use of ESF funds simply 
looks like a complete circumvention of congressional 
consideration of what the appropriate subsidy costs would be 
for these three countries. Why was it not made explicitly?
    Mr. Armitage. I think they are a little different for each 
one. On Turkey, when we originally discussed this, these 
discussions were primarily held by Treasury, sir. We were 
looking at a huge--and still are--economic problem in Turkey. 
They had desires of a certain amount of money if they were to 
participate fully with the United States in the Iraqi Freedom 
Operation. Those desires from our fiscal point of view were 
unrealizable, they were unrealistic.
    One way to do it was to use the monies that might be 
available as leverage, if I can use the term, against loans. 
That is where we started. We entered into the discussion with 
Turkey. We are talking about $6 billion, sir. Now we have a 
billion-dollar package. It is, we believe, possible if that is 
what they desire, to use that to leverage $8.5 billion in 
loans. Alternatively, there may be another use of the money, 
whether it is budget support or something else, and we felt it 
was better to have something to be able to negotiate with them 
as we moved forward that best meets their and our needs.
    Egypt is a little different. It is another $300 million 
appropriation, loan guarantees for 2 years for $2 billion. The 
Egyptians were extraordinarily helpful and have been in this 
recent activity. As well as, I might add--and this is not 
related to this request--their activities in the search for 
peace more broadly between Israel and the Palestinians. And, 
again, we want to give them some say in their future and we 
want to be able to negotiate with them on this whether they 
want to use the ESF for something other than leverage or the 
subsidy cost, if I may, the loan guarantees. And Israel came to 
us with their request and wanted, as I understand it, the loan 
guarantees in this form.
    Mr. Kolbe. Can you discuss with us what conditions the 
President might seek to negotiate with regard to these loan 
guarantees? If Congress were to provide this authority and the 
countries were to seek them, what specifically kinds of----
    Mr. Armitage. On the question of Israel, Mr. Chairman, we 
are having, as I indicated, that meeting today and tomorrow at 
the White House to find out what we feel is appropriate and, as 
I said, is both economic in terms of structural reform and 
political reform. And the discussions, I do not know where we 
will come out on them, but the political elements have to do 
with the 1991 agreement that Mr. Obey mentioned as a starting 
point. That is, if there were new settlements, it would be a 
one-for-one deduction, but that has not been decided.
    On the question of Turkey, I am not confident. I am just 
not, but I will supply it.
    Mr. Kolbe. I assume whatever the outcome of the discussions 
with these countries, the question would be if there are loan 
guarantees, that would be discussed, shared with the committee, 
the subcommittee.
    Mr. Armitage. I will so commit.
    Mr. Kolbe. Thank you. Let me turn in my brief time that I 
have got remaining back to the issue I started out in my first 
line of questioning. That is the United Nations and its role. 
It seems to me we have got ourselves in a little bit of a box 
here. We are not happy with the role that the Security Council 
played, and yet we recognize its importance in this. We really, 
as I suggested earlier, cannot go much further without a 
resolution from the United Nations on the Food for Oil plan, 
and I understand that United Nations organizations cannot 
operate in Iraq under U.S. Jurisdiction. That is, they have to 
have a resolution. And I believe I saw in the paper today that 
UNICEF has said they cannot accept any contract, they cannot do 
anything at this point. Is that correct, Mr. Natsios?
    Mr. Natsios. That is true, as I understand it, on the 
reconstruction side. It is not true on the emergency side. U.N. 
Agencies do not require a Security Council resolution to work 
in emergencies, World Food Program, UNICEF. But in the 
reconstruction effort, as I understand it, they would require a 
Security Council resolution.
    Mr. Kolbe. When, then, does relief turn into 
reconstruction? I am not sure I understand. Is there a time 
frame on that?
    Mr. Natsios. There is not a legal time frame, but generally 
we look at a shorter time frame for the efforts that we do 3 
months, 4 months. And what you do is you do the minimal amount 
needed to reduce human suffering and save human lives. That is 
what relief is. You do not do long-term reconstruction.
    For example, if a water filtration system broke down that 
had been working before, we would repair it as a relief 
intervention. We would not, however, take all the old equipment 
out and replace it with new equipment and do that because that 
would be beyond immediate relief requirements.
    WFP does 90 percent of its work now in humanitarian relief, 
so they are the emergency food agency of the United Nations. 
The U.S. Government is their largest donor. We give 50 to 60 
percent of their food each year. It comes from America to the 
World Food Program for some time now, and they are going to be 
in charge of running the food system of Iraq, this public 
distribution system.
    Mr. Kolbe. But they would require a resolution.
    Mr. Natsios. No, they do not require a resolution.
    Mr. Kolbe. Not this relief part?
    Mr. Natsios. No.
    Mr. Kolbe. Thank you very much.
    Mr. Natsios. As I understand it. I am not a lawyer. But my 
understanding is they do not require one.
    Mr. Kolbe. Okay. I thought they did.
    Mrs. Lowey.
    Mrs. Lowey. Thank you, Mr. Chairman.
    Mr. Secretary, I am not a former staffer, but in the 
justification documents you submitted, it indicates that the 50 
million in ESF requested to the West Bank and Gaza will be used 
to directly support the goal of ``development of the Middle 
East peace where two states, Israel and Palestine, live side by 
side.'' the funds will apparently be used to support 
Palestinian civil reforms and to create credible institutions 
of a Palestinian state free from the taint of corruption and 
terrorism, as well as other initiatives.
    As you know, the fiscal year 2003 Omnibus Appropriations 
Act included a provision prohibiting a Palestinian state from 
receiving funds until certain conditions were met and 
maintaining restrictions on funding to the Palestinian 
Authority. Have you evaluated the proposed uses of this $50 
million for compliance with these provisions?
    Mr. Armitage. Yes, we wrote that, and I want to be clear. I 
tried to clear it up when I reread this submission. I tried to 
clear it up in my own testimony. The $50 million is going to 
support ongoing humanitarian and development activities in the 
West Bank and Gaza, the point being the money is not going to 
the Palestinian Authority. It is going to the NGOs. And I think 
you can read it in either way in our submission, and I 
clarified it, I think--I hope--in my statement, ma'am.
    Mrs. Lowey. So does that mean we will have a clarification?
    Mr. Armitage. I think the language itself, now that I have 
reread it, I think it could be read either way, and I tried to 
clarify that here. That is it. It is on the record. If you ask 
me that tomorrow, I will say the same thing. Remarkable 
consistency.
    Mrs. Lowey. Thank you very much. Just following up on 
questions that several of us asked but I would like to pursue 
it for a moment, and that concerns post-war. Again, from your 
perspective, how will we involve Iraqi opposition groups and 
specifically the Iraqi National Congress in postwar Iraq and 
what do you think the U.N. Role war in postwar Iraq governance 
ought to be?
    Mr. Armitage. The Iraqi opposition and the INC is one of 
the major elements of the diaspora opposition, will have a very 
important role. It has not been defined. They will clearly have 
to be part of the Interim Iraqi Authority; as will, as I have 
suggested, tribal chieftains, opposition leaders who have 
remained in the country. I did say to the members of 
subcommittee that my gut tells me that ultimately people who 
have been inside for 20 or more years, suffering under Saddam 
Hussein's regime, may have a slight lead in terms of bragging 
rights and whatnot in terms of a post-Iraq. That is only a 
human feeling on my part. It is not a judgment of the 
administration.
    It is clear that we will have to have, if we are going to 
try to develop an Iraq which, to use Mr. Jackson's phrase, is 
not one that lives by gun-point democracy, that all who have a 
stake in that Iraq are going to have to be represented--
Caldean, Turkman, Syrians, Sunni, Shia--all. Beyond that, we 
have not determined on the proper mix. This is something that I 
think is very important for the coalition to be seen in 
consultation with the Iraqis, both the diaspora and internal 
opposition. With the diaspora, it is easy to do. Dr. Khalilzad 
and some of my state colleagues are even with them now. And I 
received a call from Zal today on this subject.
    I should have added when I said about the opposition, the 
Kurds will be a major part of Iraq, and I did not mean not to 
include them. Of course, both major Kurdish parties. But it 
is--even the developing IIA, if you will allow me to use the 
term, is going to have to be something that is transparent. 
Even though it is interim and temporary, that people see that 
there is some process and some sense, some logic, if you will, 
to the development of this Interim authority.
    Mrs. Lowey. I thank you, Mr. Chairman, I know you are 
moving along here. Thank you, Mr. Secretary.
    Mr. Kolbe. Mr. Knollenberg is next.
    Mr. Knollenberg. Thank you, Mr. Chairman.
    Mr. Secretary, Mr. Natsios, thank you. This question would 
apply to both of you because I know you are involved in MEPI. I 
happen to have a strong feeling about MEPI. And obviously just 
before I get into that, I wanted to thank you also for upping 
the number on Jordan. I think there is $1 billion that Jordan 
will receive. They are in a rough neighborhood. In fact, the 
Trade Minister from Jordan met with me. He said, ``Yes,'' ``we 
are in a difficult situation. We are between Iraq and a hard 
place.'' You have probably heard that many, many times. I 
believe that is attributed to the king. I appreciate that.
    But then on to the question of the supplemental as it 
applies to MEPI. MEPI, we just talked about that in terms of 
the 04 budget and now we are looking at a supplemental--I 
believe the 2004 request is $145 million, the supplemental 
request is $200 million. And my question is simply this: As 
much as I have strongly supported MEPI, I am wondering why the 
infusion of $200 million--why the additional money? It is not 
that I question why you are doing it, except that I would like 
to have you justify why now? Why in this supplemental?
    Mr. Armitage. First, on the first question on Jordan. The 
submission was $700 million in ESF and $406 million in FMF that 
we have proposed to the Congress. The direct answer to the MEPI 
question, sir, is that we are in a hurry. We are in a race. And 
what we have done heretofore has benefitted some people. It 
certainly has not been sufficient to increase our own stock, if 
you will allow me to use that term, in the Middle East or in 
the Arab world, nor was it sufficient to keep very, very 
discordant voices which turned into discordant actions and 
terrorism from developing from the Middle East.
    We feel we need to do things differently, in addition to 
what we have done, and I think quite well actually, but it was 
not fast enough and it was not broad enough. I am reminded 
humorously, and I do not mean this facetiously at all, Mark 
Twain said that even though you are on the right track, you can 
get run over if you are not going fast enough. And that is the 
feeling we have.
    We have not done enough with education. We have not done 
enough with political openness, and we clearly have not done 
enough to open the economies of these nations, and we want to 
really get out and see what works. We experimented to some 
degree with the pilot program of a little over $20 million.Most 
of the money, although not all, has been allocated. There is some left 
and now we feel we are ready, in the words of our hero onboard the 
Pennsylvania aircraft, we are ``ready to roll''. And that is what we 
want to do. That is the straight answer. We are in a hurry.
    Mr. Knollenberg. Are you using the review that you are 
doing of all the foreign aid, is MEPI a tool to allow you to 
take another look at just how foreign aid is currently being 
spent?
    Mr. Armitage. I will defer to Andrew here. We did this in 
Egypt, my understanding is, with the US AID director in Cairo, 
and with Miss Cheney of our staff, had a rigorous scrub. We 
came out delighted, I ought to admit. Andrew can say if he was 
equally delighted.
    Mr. Natsios. If I could, we did a report which we sent to 
Members of Congress, though I know since you get so many 
reports you may not have seen it, called Foreign Aid in the 
National Interest, and it was written by some of the great 
scholars in the country in development assistance. It looks to 
the next 10 years. Where is aid going generally, not USAID, but 
foreign assistance going? There is a chapter in democracy 
written by Larry Dunn, one of the great democracy scholars in 
America. It is the second chapter in Economic Growth, the third 
in Global Health, and it goes on.
    We are changing the direction of USAID because some things 
that were appropriate in the past are not appropriate now. And 
some things we are not doing now we need to do in the future. 
It is very clear that democracy and good governance has a 
profound effect on the development potential of a society. And 
the places we have done a lot of good programming and that have 
not reformed their governance systems and have not moved to 
more democratic systems of governance are not progressing.
    So we are going through our program now, we are making some 
fairly profound shifts. I gave some testimony before the Senate 
and the House on the authorization side on the Millennium 
Challenge Account, because that is what stimulated USAID to 
review what it is going to be doing differently in the future. 
This is not the place to describe that generally, but I would 
commend to you what we call the FAINI Report, the Foreign Aid 
in the National Interest. There was a report called the Woods 
Report, done by Alan Woods, who was an administrator under late 
Reagan, early Bush I. He died of cancer. And this is the second 
attempt to do the same thing Alan did. We call it the Woods II 
report. It is a very important piece, because we are looking at 
it as a foundation for directing aid in the future. It does 
many of the things, Congressman, I think you would be very 
pleased with.
    Mr. Knollenberg. My time is up but I think you are also 
doing some things with MEPI that you would not be doing with 
current programs. I applaud that and I appreciate the response. 
Thanks to both of you. Thank you very much.
    Mr. Wicker [presiding]. Mr. Jackson.
    Mr. Jackson. Thank you, Mr. Chairman, I just have two brief 
questions for Secretary Armitage. It is somewhat philosophical 
but for the committee's purposes it gives us some idea of just 
how long our commitment and budget process ultimately is going 
to affect the emergencies that are before the committee. Our 
Declaration of Independence, 1776; Constitution, 1789; Bill of 
Rights, 1791. It is about 15 years to move our country from 
independence to the idea of democracy and fundamental rights 
for all of the American people.
    I am wondering why should we assume in Iraq, if indeed our 
goal is to establish a democratic form of government, that we 
would not have some presence, some forces, who would be present 
not only in Baghdad, but obviously in civil society as well, to 
ensure that a new democracy in its infancy would not be 
shepherded through turbulent elections.
    I run, as members of this committee do, for office every 2 
years; and I would imagine in a democratic Iraq republic that 
some such process for running for public office would be part 
of our goal in the establishment of their democracy. Is there 
any indication just how long we may very well be in Iraq?
    Mr. Armitage. Mr. Jackson, when you started your comments, 
I was thinking it took us a lot longer than the 15 years. Women 
did not get to vote.
    Mr. Jackson. Oh, the 19th amendment. I am clear.
    Mr. Armitage. And civil rights.
    Mr. Jackson. Absolutely. You are certainly not suggesting 
we are going to be there 100 years, are you?
    Mr. Armitage. No, I am not. I hesitated to raise it, but we 
have to face up. We are very proud of our democracy. I could 
not be prouder. But let us be clear, it was 140-odd years into 
our Nation before there were equal rights and women's rights 
slightly before that. So these are not easy things. They are 
really tough.
    But when you talk about being in Iraq, the question is 
whether you are there, I think, militarily or whether you are 
there with all the great institutions which are represented by 
embassies and corporations and NGOs, et cetera. And I think in 
those terms we will be, and we plan to be in Iraq for the long 
term, sir. And I have no idea how long that is.
    But in terms of military--and I bristle at the term 
``occupation,'' because it is a presence--just as long as it 
takes us to get rid of WMD and to bring about a stability in 
the country. That is why we have been so encouraged by the 
nations that have indicated they are willing to provide 
stability forces, including some Muslim states--Albania, for 
instance, which is a Muslim nation, non-Arab--who are willing 
to go in and, for instance, help guard the holy places and keep 
them stable, move them in and extricate ourselves from the 
military end of the equation, but certainly not from trying to 
be a very vibrant part of the life of a new Iraq.
    Mr. Natsios. Could I just add something to that? People 
think of Iraq in the context of the South, of the developing 
world. This is much more like Eastern Europe or the former 
Soviet states. Poland went from being a terribly oppressed 
dysfunctional society under the Soviet Union in 1990 to in 1998 
we shut down the aid mission. They now have their own foreign 
aid program.
    With the Czech Republic and Hungary, a spectacular success 
story. I think we are dealing not with a poor underdeveloped 
society, but a brutalized, tyrannized, traumatized society. 
Iraq had the best education system in the Arab world 15, 20 
years ago. It had universal primary education and high school 
education. Now, only a third of the kids are in high school who 
are eligible to be there. The whole system over a 15 year 
period under Saddam Hussein has gradually slid into chaos.
    What we are doing now is not redeveloping the country. It 
is simply putting the country back to--and it will take years 
to do, but it is not going to take decades. This wasan educated 
society. It is an urban society. Urban societies are already much 
easier to modernize because they are already modernized. Tribal lines 
broke down a long time ago. It is 70 percent urban.
    Mr. Jackson. Mr. Natsios, thank you for responding to my 
question, because I think we are moving toward an answer. You 
already said that it would quite possibly take years to do 
this, and that is important to the committee, because obviously 
with the present supplemental before the committee, there is 
some concern about how long this obviously can last and what 
the role of the United States will be and this Congress and 
this committee will be, particularly the Foreign Operations 
Committee in a postwar Iraq.
    So when you say it could quite possibly take years, that is 
obviously a consideration that the Chairman and the Ranking 
Member of this committee have to factor in as we make requests 
before the full committee and before this Congress every year.
    So what does a postwar, conservatively, a postwar Iraq 
obligate this committee to as we factor in budget processes in 
the future?
    Mr. Natsios. There is one thing that Iraq has and Eastern 
Europe did not have and most developing countries do not have; 
they have a huge amount of oil. Their oil reserves are massive. 
If they have a democratically elected government with an 
educated elite running it, that is democratically elected, that 
protects their citizens, that serves their citizens, that is 
relatively free of corruption, and they use those revenues, 
they can rebuild the rest of their society. We do not have to 
do it, because they have the money. They do not even have to 
borrow the money from the bank because they have the oil 
revenues.
    Most of the countries we deal with do not have revenues. 
They have nothing. So we do not have to be there ourselves. All 
we have to do is help the Iraqi people lay the foundation for 
them to rebuild their own society. We want to in the first year 
create a firm foundation for that to happen and I think this 
budget provides that.
    Mr. Jackson. Mr. Chairman, out of respect, if I might just 
have one brief follow-up. Respectfully.
    Mr. Wicker. Since you are doing it out of respect.
    Mr. Jackson. I appreciate that, Mr. Chairman. Mr. Natsios 
indicated we are obviously going to put some educated elite in 
charge.
    Mr. Natsios. No, no. We will not put in them there. They 
will develop themselves and their own society.
    Mr. Jackson. So they will run for office and get voted on 
in some regular democratic process. Thank you, Mr. Chairman.
    Mr. Wicker. Mr. Kirk.
    Mr. Kirk. Mr. Secretary, I am a little confused by the 
position of the Government of Turkey right now, a place where 
they invented the word Byzantine. In the critical position of 
the operation of the Incirlik Air Base where I served--it was 
the base for Operation Northern Watch--to your knowledge, is 
the Northern Watch air operations continuing in this 
environment?
    Mr. Armitage. No, sir.
    Mr. Kirk. The Government of Turkey right now is not 
allowing us to use Incirlik to support our operations.
    Mr. Armitage. I believe that they are, in a way. I believe 
they caught two or three of our aircraft the other day, sir, 
who were coming back. I believe that. I will have to check it, 
but I think that is correct.
    Mr. Kirk. Would it be okay with you or not if we 
conditioned the billion dollars on the full implementation of 
Incirlik in this operation?
    Mr. Armitage. No, it would not be okay with me. I do not 
have the final say, Mr. Kirk. I understand that. No, it would 
not. I tried to make the point that right now I think we are 
fairly pleased with where we are with Turkey, particularly with 
the jump in last night. Operation Northern Watch is over. We 
will not have another Northern Watch nor will we have a 
Southern Watch. There is no need for it. We have accommodated, 
we are moving on. I think in a way it would be conditioning 
Turkey for something that has already passed and we have moved 
on, sir.
    Mr. Kirk. We often think about the resources just in the 
U.S. Government's control, forgetting that we are the number 
one owner of the World Bank that would provide substantial 
amount of reconstruction authority. Have we factored in via 
Treasury, et cetera, to get the multilateral development banks 
setting up with a pipeline stream for Iraq, which, by the way, 
is a founding member of the World Bank?
    Mr. Armitage. We have had discussions, I know with the 
Fund, and I believe with the Bank, and these will be affected 
in some measure, notwithstanding the fact that we are the 
largest shareholder, by what sort of U.N. role comes out in the 
future. It is a very important consideration.
    Mr. Kirk. Just to get this thing rolling, I will give you a 
radical proposal and I know you may have talked about this 
option with Zal. If we were to recognize another liberation 
government in Iraq for interim purposes, that would then allow 
a request to move forward from this liberation government to 
the World Bank, that starts the whole machinery rolling. Since 
it is the declared policy of the allies to remove the 
government of Saddam, having this Interim Authority recognized 
by us gets the whole slow but massive MDB process rolling, and 
since this committee also provides substantial resources to the 
MDBs.
    Mr. Armitage. Exactly. I do not think it is such a 
revolutionary idea. It is one we have discussed, but there are 
two aspects to it. To have an Interim Iraqi Authority, which is 
chosen in some manner, which has transparency to it, with the 
clear understanding there is another process that will develop 
in the longer term governance is one thing. To declare a 
provisional government, when you do not quite know just what 
you have in your hands, is another. We thought about suggesting 
that a provisional government should be--I do not know another 
word for it--installed. And it was the word ``installed'' that 
bothered us.
    Although I am certainly not an expert in matters Iraqi, I 
have gotten smarter. I have only been there once in my life. 
But I must say that I think that imposition from the outside is 
probably not the way to go with this. That is why we have been 
reluctant to declare provisional governments, for fear we do 
not understand the dynamic internally with the internal 
opposition.
    Mr. Kirk. But it would unlock serious resources.
    Mr. Armitage. You are absolutely right.
    Mr. Kirk. I just want to close by saying you have had 
enormous experience on the front line. You know what a REMF is.
    Mr. Armitage. I sure do.
    Mr. Kirk. I want to just say that I do not regard theteams 
you represent as in any way like that, because the public diplomacy 
that you are doing is visibly disheartening the other side. And the 
provision of resources and relief materials your team is providing is 
showing that if you just cross the line of battle, you get food, you 
get fuel, you get care; and so both of you and the State Department and 
the ID teams you represent are visibly helping the battlefield. We 
recognize that.
    Thank your teams for that, and we need to provide the 
resources to you next week to make sure things keep rolling. 
Thank you very much, Mr. Chairman.
    Mr. Armitage. Mr. Kirk, if I may, I brought some ``show and 
tell'' for you. I had a conversation yesterday. I think you 
will be heartened by what you see, but I thank you for your 
comments.
    Mr. Wicker. Thank you, Mr. Kirk.
    Mrs. Lowey has a final question.
    Mrs. Lowey. Thank you, and I appreciate the time you have 
spent with us. I just wanted to continue and clarify for a 
moment the questions regarding Afghanistan, because as we have 
discussed, it is not a mystery to me that we are short of funds 
because the administration actually rebuffed our request for 
funds for Afghanistan.
    So two quick questions. You indicate that you require 
emergency ESF funding for infrastructure because fiscal year 04 
funding will arrive too late to make a difference in time for 
the prospective June 2004 elections, and I understand the time 
line for elections is way behind schedule and that June 2004 is 
an overly ambitious target. Do you have any reason to believe 
this target will be achieved?
    Mr. Armitage. We are still acting on the supposition that 
that is the target. I was under the impression, and I will have 
to refresh my own knowledge, that the development of the 
constitution might have lagged a little bit. In fact, we asked 
Dr. Khalilzad, not too far in the distant past, to go out to 
Kabul and kind of put some energy into that. That was what was 
lagging, but I will have to refresh my knowledge.
    Mrs. Lowey. Okay. And the second request, the requests for 
FMF, indicates that funds are needed in part because of 
increased construction costs due to increasing competition for 
scarce Afghan construction capacity. Since we and our allies 
are in fact funding the majority of construction in the 
country, are we competing with ourselves to drive up the cost?
    Mr. Armitage. What I think we are competing for is 
everything from aid agencies, et cetera, who suck up the 
manpower, the available manpower, and that has driven up the 
cost. It is not just a matter of resources. It is a matter of 
the available people to do different jobs.
    Mr. Natsios. When we started the road, no one else was 
building any big roads. The bank is now. The EU is. But 
different pools at different rates. Now many people are 
plugging in to do other parts of the infrastructure.
    Mrs. Lowey. But it is primarily us, right?
    Mr. Armitage. No, no. The Japanese have had a big stake. 
The Saudis have come up with money. This is anecdotal. The 
numbers are not exact, but about 6 months ago or so when we 
were talking about this ring road, and we were talking about 
the cost of hiring Afghan firms, et cetera, we ran into the 
phenomenon in talking with members of the bureaucracy where 
drivers for NGOs were making $200 and $300 a month and, of 
course, the Minister makes $40.
    We have started something, but I am not sure we know what 
we started with all these programs in Afghanistan, but we are 
bumping up against it now.
    Mrs. Lowey. I thank you very much for your request for 
funds for Afghanistan. As you know, the Chair and I feel very 
strongly about that.
    Let me thank you again for being here today. And we do have 
many other questions about the supplemental which we have 
discussed. And I know we will work them out between now and 
Monday or Tuesday.
    Mr. Armitage. Thank you very much.
    Mr. Natsios. Thank you, Congressman.
    Mr. Wicker. Finally, let me follow up on Mr. Knollenberg's 
question about MEPI. Do we understand correctly that a master 
plan is being developed?
    Mr. Armitage. That is my understanding.
    Mr. Natsios. Yes.
    Mr. Wicker. When can this subcommittee expect to have 
delivery of that? By the end of business tomorrow perhaps?
    Mr. Armitage. I am surprised at the answer. COB tomorrow.
    Mr. Wicker. That is the answer I was hoping for.
    Mr. Armitage. I have never had an answer like that.
    Mr. Wicker. So we are not the only people who have really, 
really good staffs. Gentlemen, thank you very much.
    Thus ends our final hearing on the administration 
supplemental bill, and we very much appreciate your candor and 
your hard work on behalf of American people.
    The hearing is adjourned.
    [Questions and answers for the record follow:]

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                                           Wednesday, May 14, 2003.

                     INTERNATIONAL EDUCATION ISSUES

                              ----------                              


    THE CENTER FOR UNIVERSAL EDUCATION, COUNCIL ON FOREIGN RELATIONS

                                WITNESS

GENE SPERLING, DIRECTOR

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe [presiding]. The Subcommittee on Foreign 
Operations, Export Financing and Related Programs will come to 
order.
    Today we have a hearing which covers a very significant 
part of the work of our subcommittee and of USAID. We are here 
to talk about international education issues. I think that all 
of us recognize that ultimately international development, 
growth and progress in the world depends a great deal on how 
well we do in the area of education, how well are we providing 
primary education, and how well are we providing literacy in 
the world.
    These are the issues that ultimately determine whether we 
can succeed in other areas of international development, that 
all of us believe are essential to the continued progress of 
bringing nations out of poverty.
    We have three very distinguished individuals here who will 
discuss these issues, one whom we have seen around the Congress 
for many years in a different capacity. Gene Sperling is the 
director of the Center for Universal Education at the Council 
on Foreign Relations.
    We also have Steve Moseley, President of the Academy for 
Educational Development and chairman of the Basic Education 
Coalition, an umbrella group for many organizations.
    Cream Wright is the chief of the Education Division of 
UNICEF.
    We welcome the three of you here today for what I think 
will be a very interesting and enlightening discussion of these 
issues.
    Before I call on each of you for statements, and then we go 
to questions, let me call on Ms. Lowey, the ranking member, for 
her statement.
    Mrs. Lowey. I would like to begin by thanking Chairman 
Kolbe for agreeing to hold this hearing.
    And, of course, by thanking all of our witnesses for 
agreeing to appear today and for adjusting your busy schedules 
so you could be here.
    I welcome Gene Sperling, who is currently the director of 
the Center for Universal Education at the Council on Foreign 
Relations; Steven Moseley, president and CEO at the Academy for 
Educational Development and chairman of the Basic Education 
Coalition; and Cream Wright, the chief of education for UNICEF.
    As we all know, foreign aid is a broad category of 
commitments and initiatives encompassing everything from AIDS 
prevention in Africa to financing U.S. exports, to increasing 
business opportunities for poor women, to sending children to 
school, to developing government institutions in post-conflict 
societies and more. And as I have said many times before, I 
view foreign aid as the third pillar of U.S. foreign policy; 
defense and diplomacy, of course, are the other two.
    And in the world after September 11th, 2001, I think this 
view is beginning to gain credence among more of my colleagues. 
As the attacks on the World Trade Center and the Pentagon 
demonstrated, social movements and ideologies based half a 
world away can and do have a direct and tangible impact on the 
lives of ordinary Americans.
    The problems of the world are our problems as well, and we 
must help solve them. And that is why foreign aid is not mere 
charity, it is a national security imperative.
    And as we continue to reevaluate our foreign aid policy in 
light of current events, one thing stands out to me more 
clearly than anything else: We as a nation have failed to 
recognize the appalling state of basic education for the 
world's children.
    A failure, which we share with the rest of the 
international donor community, has contributed to growing 
intolerance and hatred, a rampant worldwide infectious disease 
crisis, the continuous poor state of child and maternal health 
and an absence of sustained economic growth in most of the 
Third World.
    Can all of these problems be corrected with a greater 
investment in education? Perhaps it is not the only solution, 
but it is certainly one of the most needed solutions. And I am 
not here to place blame on one administration or agency, 
instead I hope to make the case for intensifying our focus on 
the overwhelming need for a greater commitment and 
substantially more resources for basic education in all parts 
of the world.
    We have reached a critical point. The need to do more has 
been vividly illustrated to us, and there is a general 
consensus that we must do more. Unfortunately, our response and 
that of other donors and the World Bank so far has been tepid, 
slow, scattered and unfocused.
    Unfortunately, the administration's foreign policy contains 
no overarching policy or guidelines for education. The results, 
therefore, are fragmented. The disastrous impact of poor, 
deteriorated education systems in Afghanistan and Iraq is now 
clear.
    The United States is now scrambling to respond with 
significant resources and the promises of a long-term 
commitment. Yet, we do not see that same urgency or commitment 
in any other country in the Muslim world, nor do we see a clear 
recognition that more resources for education broadly are 
necessary.
    In the case of Africa, the President announced an 
initiative over a year ago. Just within the past few months 
funds have finally gone to the countries involved, and the 
amount is minimal; $22 million in 2003. Similarly, the goals 
identified for the Middle East Partnership Initiative involve 
some focus on education, but it is in the form of small grants 
for a wide variety of individual programs with no real 
strategic focus.
    The benefits of basic education are well documented, and 
will be addressed, I am sure, by all of our witnesses today. I 
would like to emphasize, however, a few simple realities.
    Education fosters democracy, tolerance and peace by giving 
children the tools to think critically and to be aware of the 
values of other cultures. Educating young girls leads to women 
having fewer and healthier children and better prenatal care. 
Education is the key goal in preventing HIV infection. 
Education prevents abusive child labor, trafficking in children 
and conscription as child soldiers.
    Achieving high basic education rates leads to economic 
growth, and specifically to countries graduating from 
dependence on U.S. assistance programs.
    These are just a few examples of the potential effects of 
universal basic education, and I am confident our witnesses 
will elaborate on others.
    I remain concerned that the goals set out by the global 
community to achieve education for all by 2015 will not be met, 
unless we act now to mobilize the resources necessary and bring 
into focus an emphasis on education that will amplify the 
effects of our aid dollars.
    USAID's emphasis on education has gradually eroded since 
the 1970s. There are many reasons for this, but my current 
concern is that despite the recent congressionally mandated 
increases in basic education, AID's professional capacity to 
program these dollars has effectively diminished.
    In addition, there is still no strategic focus on education 
in the agency, and no commitment to deal with the full spectrum 
of education problems in any country over the long term.
    Many have looked to the promise of billions from the 
Millennium Challenge Account as the answer for education, but 
without further direction from Congress there is no guarantee 
that any of those billions will go for education.
    The U.N. has set an ambitious goal of devoting $5.6 billion 
a year to education by 2006. The United States portion of that 
would be $1 billion, and is achievable given the recent 
increases in foreign aid dollars.
    It will not be achieved, however, unless we act to raise 
consciousness, and mandate that a substantial redirection of 
our assistance takes place.
    In that context, I welcome the statements of our witnesses 
today. I am certain they will all agree on the points I have 
made in my statement. It is my hope that we can spend our time 
together today discussing constructive ways to achieve the 
goals of education for all, and I thank you and I thank the 
chairman for your important leadership.
    Mr. Kolbe. Thank you very much, Ms. Lowey.
    I would like to take the statements of the three witnesses. 
As always, of course, the full statements will be placed in the 
record.
    It would leave us more time for dialogue and discussion if 
you can summarize your statements and then we will get to the 
questions. I think we will just go, unless there is a desire on 
the part of the witness team out there, in the order that I 
have them on my sheet here, beginning with Gene Sperling, then 
Steve Moseley, and then Cream Wright, if that is all right?

                    Mr. Sperlings Opening Statement

    Mr. Sperling. Thank you, Mr. Chairman, and the entire 
committee for your commitment to this issue, both in holding 
these hearings and, more importantly, in the increases for this 
important issue that you have pushed through since 9/11.
    I am not known for style, but I do want to say that I am 
actually wearing a few different hats here. Besides being 
director of the Center for Universal Education, I also serve as 
coordinator for the Global Campaign for Education, and as the 
co-chairman with Tom Kean of the Advisory Board for the Basic 
Education Coalition, which has been an enormously effective 
organization, thanks very much due to the excellent leadership 
of George Ingram, who is here today.
    I am also honored to be here with Cream Wright and Steve 
Moseley. Steve is one of the inspirations for me going into 
this issue.
    Mr. Chairman, education is the silent crisis of the 
developing world.
    There is never a single moment where cameras will show 
people dying, contracting AIDS, starving, or living in poverty 
because their children were not going to school that year. But 
make no mistake about it, people do die, they do starve, they 
do live in poverty, they do have worse health, and they do 
contract AIDS because the world allows 115 million 6- to 11-
year-olds not to go to school, and 150 million more who are in 
school now to drop out before they even complete primary 
education.
    More than half of girls in Africa, and in some parts 80 to 
90 percent, will not get a primary education.
    The evidence is overwhelming, as Ranking Member Lowey 
stated, that education increases income, reduces child and 
maternal mortality and we are seeing more, too, the connection 
between education and AIDS prevention.
    In rural Uganda, girls who are in secondary education were 
seven times less likely to have AIDS. I know you have been 
through debates on abstinence: in Kenya, a girl who is at 17 
years old who is still in school is three times more likely to 
be abstinent and still a virgin.
    You could have no more successful policy than to get all 
girls in school the top social vaccine for AIDS.
    While our country was riveted by the sight of the Taliban 
banning girls from going to school, it is worth noting that the 
main obstacles to children going to school are neither legal 
nor violent threats.
    It is the obstacle of poverty, overwhelmingly, and it is 
parents in countries that do not have free and mandatory 
education deciding that they cannot afford to send their child 
to school because of the direct cost, the opportunity costs of 
them not working or helping around the house, fear of their 
girls being abused on long walks, or cultural norms that 
suggest that educating a girl will only benefit the family she 
marries into. This is a classic public good with significant 
under-investment.
    The good news is that this is a disease with a known cure. 
This is not one of the issues in the world like Mideast peace 
in which nobody knows quite what the right answer is.
    We know what the cures are. When countries take ownership 
and have plans that make parents feel that it is in their 
interest to send their children to school, it works in almost 
all cultures in all countries.
    Free mandatory education has led to a dramatic in-flow of 
children going to school in Uganda, in Tanzania, in Kenya; 
Stipend programs in the Muslim world and other places that 
encourage parents to send their girls to school and to make 
sure they attend have worked and worked effectively; having 
schools nearby with flexible schedules--all of these, together 
with trained teachers, have been shown over and over again to 
be successful.
    So we know that there is a dramatic problem. We know what 
works. And the question we have to ask is, what can we as a 
people do to best address this?
    I believe that we need a new compact, a global compact on 
universal education. There has been a new consensus on the form 
of effective aid, and you can see it from debt relief to 
President Bush's Millennium Challenge Account.
    It really has three principles. One, that poor nations have 
to take national ownership and make political commitment first 
and foremost. Second, that that must include good governance 
and strong efforts on accountability and monitoring and 
corruption prevention. And third, is that the richer countries 
of the world will put forward a strong commitment to help those 
countries who are willing to help their children.
    There is no place where a global compact is more important 
than education. There has never been a strong global compact in 
education. In 1990, the world committed to universal education, 
but there was never a structure that said to a poor country 
that if you take the difficult political steps to get all your 
children in school, if you marshal your resources to do the 
right thing, that there is a clear commitment by the donor 
countries to help you.
    Right now is a critical moment in poor countries as to 
whether they will believe that there really is a new compact or 
only another false promise.
    I have had the opportunity to go to the African Education 
Ministers Conference in Dakar and Tanzania in the last year. 
And I can tell you, the skepticism among ministers of education 
is enormous. We need to show that there is a clear commitment.
    Let me tell you a couple of things I think are important. 
One is to have strong contingent funding. The debate about 
whether money is the answer or not the answer is a false 
choice. Clearly, the resources are woefully inadequate for 
basic education. But it is also clear that throwing money into 
countries where there is rampant corruption and no means to 
monitor performance is also unproductive.
    Contingent funding means that we would, together with the 
rest of the world, say, ``Here is a significant fund that is 
available to help countries who have strong national education 
plans.'' If no countries come forward, the spigot never gets 
turned on, and no American taxpayer money is spent.
    But the importance of contingent funding is it says clearly 
to those countries: if you take these difficult and strong 
efforts, the world will reward you.
    I think for this to happen there needs to be a clear global 
initiative, which the United States should play a strong role 
in.
    I believe everything this committee and others have done to 
increase basic education funding, the Millennium Challenge 
Account, the AIDS initiatives, are all good. But listen to a 
minister of education in a poor country; it is like navigating 
through a myriad of bilateral programs in the different 
countries with different standards.
    We should try to take our efforts and pool them together. 
We can still control our own resources, but let's try to do 
that by sending a clear commitment to the developing world that 
if they take the right steps, we will support them.
    And let's create a positive competition. Let's have 10 
countries being funded and another 10 or another 10 after that 
competing to know what they have to do to be next in line. That 
is the kind of positive competition that took place in debt 
relief. That is the kind of positive competition we should be 
creating right now.
    If not, Mr. Chairman, we run the risk that the whole is 
less than the sum of the parts, that all of the efforts we are 
doing individually do not have the big bang and the big 
incentives that we want.
    I believe when you look at the $5.6 billion per year that 
is estimated for external resource needs, it is probably on the 
low side. It is about just getting kids into primary education. 
All of the research on education preventing AIDS shows the 
benefit of getting children, particularly girls, into secondary 
school.
    We have not even begun to cost this amount. For the U.S. to 
do its share, 20 or 25 percent, it could be anywhere from $1 
billion to $3 billion per year. But if we do that as contingent 
funding, it does not necessarily mean there will be new outlays 
in the deficit. It means that that money would only be 
available, pooled with other developed countries' and G-8 
countries' money to go out when countries come forward. I 
believe that type of global compact is what we truly need to 
work toward.
    I realize that much of this is not within the ability of 
this committee, which has given a certain amount of funds. But 
I do believe if you want to make major progress, we have to 
work toward a system of incentivising countries to come forward 
with their own national education plans.
    I will just say in closing, Mr. Chairman, that when 
Americans saw the Taliban banning girls in Afghanistan from 
going to school, they did not need any of the evidence that we 
bring up here, they did not need any of the statistics or any 
of the studies. Americans instinctively believe in the value of 
education. When they saw those little girls, they instinctively 
believed that is the right of all God's children to have a 
chance to learn and grow.
    I believe this is an area where, at the moment, our 
financial commitment does not match the heart and the passion 
of the American people, who, I believe, if they saw more of the 
little girls and little boys who go without the chance to go to 
school, would gladly open their hearts and their wallets to 
support those countries if they saw a strong national 
commitment and strong assurances that the money would be used 
for those children and not wasted. Thank you.
    [The statement of Mr. Sperling follows:]

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    Mr. Kolbe. Thank you very much, Mr. Sperling, for that very 
eloquent statement.
    Mr. Moseley.
                              ----------                              

                                           Wednesday, May 14, 2003.

   ACADEMY FOR EDUCATIONAL DEVELOPMENT AND BASIC EDUCATION COALITION


                                WITNESS

STEPHEN F. MOSELEY, PRESIDENT

                    Mr. Moseley's Opening Statement

    Mr. Moseley. Thank you very much, Mr. Chairman, 
Congresswoman Lowey, and other members of the committee. Thank 
you very much for holding this hearing.
    I serve as the president of the Academy for Educational 
Development, which is a non-profit organization that works on 
these issues and problems around the world, as well as in the 
states and communities of this country.
    I am also here today as the voluntary chairman of the Basic 
Education Coalition, a group of 18 organizations, some of which 
are household words like CARE, Save the Children, World Vision, 
and Bread for the World, that works on a whole range of 
development issues.
    They are not only organizations that focus on education, 
and that is the point. They have come together because of their 
deep belief that education is the foundation, the bedrock 
around which and in which we must make greater investments in 
order to have the chance to make the improvements in economic 
development, health, HIV/AIDS, environmental change, family 
planning, food, nutrition, and certainly democracy-building, as 
Ms. Lowey has pointed out.
    I am glad Gene noted that he also serves as the co-chair of 
the Coalition advisory group, both in his formal role at the 
Brookings Institute and now currently. Since he left the White 
House, he has been an indefatigable volunteer and a regular 
visitor to Africa. He is joined on the advisory board by Dr. 
Tom Kean, who is currently serving as President Bush's special 
adviser in co-chairing the investigation into terrorism for the 
9/11 Commission. I am submitting a copy of his testimony for 
the record.
    He served previously as representative to the Jomtien 
Conference in 1990, representing former President Bush, as Gene 
represented President Clinton at the Dakar Conference.
    We have been very fortunate to have both presidential 
representatives from the two key conferences on Education For 
All join us in this coalition.
    It is important that you are holding this hearing, I think, 
at this particular point in time. Several statistics have been 
already noted, but I wanted to add that it is not just 115 
million children who are out of school, but there are 150 
million who drop out of school, as well. They may have entered 
school and lasted through the first two or three grades, but 
never completed primary education, never completed a sixth- or 
seventh-grade education.
    And there are at least 200 million children who are in very 
poor learning environments; that is, they may be in school but 
they are not really receiving a full and adequate quality 
education.
    Despite these terrible statistics and concerns, I have to 
say that I think the goals of achieving education for all are 
within our grasp within the 15 years ahead.
    I am really optimistic, simply because the presidents of 
most of the countries who were represented in the EFA 
conferences, including former President Bush, and more 
recently, the leaders of all the development agencies, 
including the president of the World Bank, the director of 
UNICEF, secretary-general of the U.N., the leaders of the other 
G-8 countries as they have demonstrated in the last three G-8 
meetings, and many, many members of Congress now fully agree 
that education is, indeed, the cornerstone for making 
investments and for achieving many of our other development 
objectives.
    The U.S. has also recognized the importance of education in 
our foreign policy and security objectives. I was very pleased 
to see that this committee made major commitments in education 
in the process of considering what to do for the reconstruction 
of Afghanistan, as well as made commitments to Pakistan and, 
most recently, to Iraq.
    Those are controversial matters, and I am sure there are 
lots of opportunities to debate how best to bring them about. 
But the very fact that they are high on the agenda and part of 
a major investment demonstrates that commitment to education.
    But I have to say that, relative to the whole world 
picture, as Ms. Lowey pointed out, the reality is that the 
funding levels do not come anywhere near to matching the 
rhetoric of these leaders, both in Congress and in the 
administrations and the leadership around the world.
    The actual level of bilateral foreign aid and multilateral 
assistance hovers around only 5 percent of donor budgets, and 
often is only 2 to 3 percent in many cases.
    Successful development hinges on people who can read, 
write, do basic math, and have basic problem-solving skills. We 
cannot build successful development programs, as you know, 
without a strong foundation in education.
    I am here today, though, to suggest that the U.S. can lead 
a bold initiative that will cause others to join us to provide 
the necessary resources needed to reach the EFA goals.
    We believe the U.S. should commit $2 to $3 for every one of 
the more than 400 million children who are either out of 
school, drop out before they complete a primary education, or 
suffer from a poor education.
    That investment totals $1 billion a year. One billion 
dollars a year would make all the difference in those 
children's lives and enable developing countries to move toward 
economic growth.
    We believe that other countries would follow our lead. We 
have seen that when the U.S. announces significant new 
investments, as it did at the Monterrey Conference, other 
donors respond accordingly.
    The level of funding would represent a U.S. fair share of 
the estimated $6 to $8 billion needed. Gene alluded to this. It 
may be a low estimate, but it is an important estimate 
carefully calculated by the World Bank, confirmed by others, 
and reviewed by quite a number of policy leaders. I would like 
to share with you three things, though, in talking about 
support for this.
    First, assistance for basic education does work. There is a 
lot of evidence, and I want to point to some of it.
    Second, if we do not take strong action today, that is, in 
the year 2003, it is very clear that we will not be able to 
meet our promises for reaching the goal of universal primary 
education and the related EFA goals by the year 2015. We must 
start this year. We must continue what has gone before.
    And third, we must devote a significant part of the new 
resources to sub-Saharan Africa and other countries where there 
is the greatest need.
    First, let me talk about the progress so far. Literacy 
rates have nearly doubled since 1970. Primary school enrollment 
has tripled since the 1950s and 1960s. Over the last 30 years, 
we have seen many countries that have been able to reform their 
education systems with help from the U.S. and others, but 
significantly from the United States.
    Today, these countries are some of the best examples of 
developing countries that have graduated from aid. They include 
South Korea, Botswana, Chile, and Costa Rica, among others. And 
not surprisingly, you can see that the countries that succeed 
in having quality education and access, including for girls, 
are also the countries that succeed economically.
    Today, we see a number of other countries that have made 
remarkable progress in getting more kids into school and 
improving their quality of education. They have a lot more to 
do, I recognize that. But they are clearly on the right track.
    In Latin America, the list includes Nicaragua, El Salvador, 
Honduras, Guatemala, Bolivia, Ecuador, and Brazil.
    In Africa, this includes significant progress in Ghana, 
Uganda, South Africa, Namibia, and Ethiopia, among others.
    In Asia, progress is being made in Indonesia, the 
Philippines, Bangladesh, and some parts of Pakistan and India.
    In the Middle East and North Africa, Egypt, Morocco, 
Jordan, and Tunisia have all made significant strides, I would 
say, in achieving movement toward universal basic education and 
the Education for All goals.
    And in these countries, the U.S. has played a key role over 
the past 15 to 25 years. I will just cite very briefly three 
examples. I had a long list of examples, which is included in 
my written testimony, but I would like to focus on just three.
    In Ghana, where I was last year, USAID has focused on 
introducing new teaching methods promoting sustained community 
involvement in children's education. The research there shows a 
dramatic increase in children continuing through the primary 
education grades--and going into secondary education as well--
with impressive gains in achievement test scores in the 
participating schools.
    USAID started out by supporting this on a pilot basis. The 
program is now in several hundred schools, in each of the 
districts in Ghana. And now the new president, elected two 
years ago, and the minister of education have committed to 
mainstreaming this model and making it the national model for 
all schools. It went from pilot to scale with support of USAID.
    In Nicaragua, we have helped to introduce a new school 
management approach, which engages parents in the actual 
management of schools. It builds on the traditional PTA model 
but goes beyond it to actually have management committees that 
help make the schools that much more effective. And by their 
involvement, it encourages their children to stay in school, 
and parents are supportive of the school, drawing on resources 
from the community as well as from national investments.
    Completion rates in Nicaragua are up by 20 percent as a 
result of this kind of investment. It is my expectation the 
Nicaraguan government will plan to expand this model much as 
Ghana has done in terms of expanding it from pilot to scale.
    In Ethiopia, where I had the pleasure of visiting last 
year, there is a really extraordinary example of what happens 
when you invest in basic education reform. There in the north 
and the south, the two largest regions of the country, and with 
American help, actual enrollment has increased from 20 percent 
to 55 percent over the past six-and-a-half to seven years. In 
the northern region, Tigray, school participation rates 
actually rose from 12 percent to 75 percent, with 72 percent 
participation rates for girls.
    This is not done simply. It is not just about money. It was 
the investment in the whole range of activities that make it 
possible to improve the quality of education in Ethiopia. It 
involved the training of thousands of teachers and the 
mobilization of leadership in communities to participate in 
managing the schools.
    Only a few years ago, none of you, I suspect, would have 
expected it could be possible to invest in Ethiopia, which many 
considered beyond help in terms of massive formal education 
change. This is an outstanding example, which I think can give 
us a lot of confidence about future investments in Africa.
    But we must focus consistently on quality, not just access 
to education. Just having children attend school is not enough. 
It is through quality education where children have the 
opportunity to actually learn while they are in school. 
Therefore, assistance needs to include a combination of 
resources, outside ideas, and expertise.
    We can draw those resources from neighboring countries or 
from non-governmental organizations. The business sector has 
many ideas that can engage, and increasingly we are finding 
that, by encouragement and advocacy, we are engaging them in 
the education sector. And, of course, there are academics.
    The best programs, I would argue, promote comprehensive 
reform targeting multiple components of the education system 
concurrently with a particular emphasis on making sure that the 
policy setting is right in the first place.
    Getting parents and communities involved is key, as we have 
mentioned, just as it is in this country. Wherever we work, 
community members, teachers, and parents are willing to make 
tremendous sacrifices to make sure their children get a decent 
education.
    In Ethiopia, which I mentioned earlier, teachers are so 
eager to improve their practices, they will walk four to six 
hours for weekend training without any additional compensation. 
They hardly miss a session when they are invited to attend.
    Students walk long distances, and you can see children 
walking at 4 o'clock, 5 o'clock in the morning to get to school 
by 8 o'clock. They are so eager, and their parents are willing 
and support them to attend school.
    Parents can build schools. They often provide housing for 
the teachers. They cook school meals. Even the poorest families 
contribute to schools.
    At the same time, we must be very careful not to let school 
fees and other costs get in the way of the ability of children 
to attend school. Sometimes many fees are unnecessary. But we 
do not want to discourage the kind of parental and community 
commitment that makes it possible to partner with government 
and business to accomplish schooling.
    Despite this success, though, we cannot really continue to 
operate as we have been operating. If we do, that will mean 
that even by 2050, 47 years from now, we will still only have 
60 percent of the kids in Africa accomplishing a primary 
education.
    The same, more or less, will be true in the Middle East and 
South Asia. Even continuing current straight line investments, 
we would not be able to fully reach the EFA goals until 2020 or 
2030 in the Middle East.
    The need, therefore, is to significantly expand our support 
for basic education and make sure our aid programs reach those 
countries most in need. What we are calling for is about $1 
billion. This is a lot of money and is different from the level 
of funding today, but, thanks to your committee, current 
funding is twice as much as it was two years ago.
    Funding has been extraordinarily low, as Ms. Lowey pointed 
out, compared to the 1960s and 1970s, when education was 
recognized as a hallmark for aid investment. It has waned 
consistently over the years until very recently, due to the 
change by this committee.
    If you think about the potential of the MCA, it is focused 
on relatively few countries. We are not proposing that one 
earmark the MCA, but rather we do hope that the Congress will 
encourage countries to see education as a prime vehicle for MCA 
investment.
    We think there is the opportunity for 10 to 20 percent of 
MCA funds to be invested in education because we believe that 
countries desire it and their own plans will call for it. MCA 
will help us to achieve a level of funding that will tackle 
education issues in those countries.
    But, frankly, the need is to make sure that our basic 
foreign aid programs have substantial increases over the next 
several years. Coupled with those other resources, this will 
allow us to achieve the $1 billion level, the U.S. share that 
we think is fair to achieve the EFA goals by the timetable that 
we have promised.
    People often ask me, can the poorest countries we are 
talking about actually absorb this kind of investment?
    I think if you look very carefully at Ethiopia, Ghana, 
Nicaragua, and many other countries that have preceded them, 
you will find that in education, countries can make these 
investments soundly. And when funds are invested in quality 
improvement together with access, they are invested in ways 
that you can track the dollars. You can see the return on 
investment, and it is measurable.
    This sector is a place where you can measure the change and 
see the change. Indeed, the investment that you make, that 
Americans make in foreign aid for education, leverages 95 to 98 
cents for every dollar that is invested because country budgets 
for education are significant.
    But they often lack the stimulus and the encouragement that 
foreign aid provides to bring about innovation and turn those 
investments to focus on the improvement of quality as well as 
access.
    We need to make these investments in some very specific 
areas, such as teacher training, specifically focused on child-
centered teaching methods; materials development; and learning 
technologies.
    We need to help communities realize and mobilize their 
power to build and maintain schools. We need to create greater 
accountability, so the community can see whether the money is 
actually flowing to their communities.
    Finally, we are going to need to invest in building 
leadership. We are going to need to ensure that the education 
programs are of sufficient size, duration and scope so they 
actually go to national scale. And we need to ensure that an 
added investment is now made in HIV/AIDS prevention.
    We need to ensure that USAID programs make a special effort 
to reach countries that are most in need and make sure that 
USAID has the staff, the resources, and the technical capacity 
to design the kinds of programs described here.
    I really do believe, and our coalition believes, that 
America's strong leadership on education will be the investment 
that makes the difference in these lives and, frankly, in all 
of our lives, for a more peaceful, healthy, tolerant world. It 
really is the best investment the U.S. can make.
    Thank you, Mr. Chairman.
    [The statement of Stephen F. Moseley follows:]

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    Mr. Kolbe. Thank you very much, Mr. Moseley.
    We will go to Mr. Wright's statement and then hopefully 
some questions.
                              ----------                              

                                           Wednesday, May 14, 2003.

                                 UNICEF


                                WITNESS

CREAM WRIGHT, CHIEF, EDUCATION DIVISION

                     Mr. Wright's Opening Statement

    Mr. Wright. Thank you, Mr. Chairman. It is a pleasure to 
appear before the subcommittee today on behalf of UNICEF. We 
are trying to help children around the world who are seeking 
education. I congratulate you and Ms. Lowey and members of the 
committee for conducting a separate hearing on education and 
thus highlighting the critical importance that education plays 
in preventing poverty.
    Closing the gap, especially for girls, between children in 
school and those who have no access to education is a primary 
goal of UNICEF. In testifying before your committee today as 
the head of education for UNICEF worldwide, I believe I 
symbolize the transforming power of education, having had all 
my own initial education up to first university degree in 
Sierra Leone in West Africa before venturing out to the world.
    For us in UNICEF these are exciting times, they are also 
challenging times.
    Exciting, because in recent years the pivotal role of 
education in nation building and human development has been 
strongly endorsed through a number of important agreements 
reached and commitments made by the international community.
    These are also challenging times, because there is so much 
at stake. First, the role of education as a source of hope is 
at stake if we fail to deliver on these promises.
    Secondly, the prospects for orderly pursuit of development 
in the world is at stake if we fail to deliver on these 
promises.
    Thirdly, there are real lives at stake, in terms of the 
estimated well over 100 million children who do not have any 
access to basic education, and may be destined to swell the 
ranks of the almost 900 million adults who are illiterate in 
this world today.
    These disadvantaged populations and their communities offer 
fertile breeding ground for spreading all forms of 
indoctrination, hatred and intolerance, as we have witnessed in 
recent times.
    Fourthly, the credibility of the whole international 
community is at stake. There is a moral imperative to keep the 
promises made in global commitments and declarations if people 
are to believe that we have a world order that works.
    The final issue at stake, and of great importance today, is 
that of allowing some regions of the world to become permanent 
development ghettos, with persistent lack of progress in 
education and other development indicators.
    The Global Education for All Monitoring Report estimates 
that sub-Saharan Africa and southern and West Asia account for 
over 70 percent of the more than 100 million children out of 
school.
    These regions together have over three-quarters of all 
girls out of school in the world today. Other regions with such 
high numbers of children out of school are the Middle East and 
North Africa.
    At a time when steady progress is being achieved in many 
countries, we need to put special efforts into boosting 
education in these regions to avoid further widening of the 
development gulf that now exists between countries and regions 
of the world.
    So how are we responding?
    Given what is at stake and the ambitious goals set for 
education as part of development, UNICEF and many other 
bilateral agencies have responded with enhanced partnerships, 
increased flow of resources, and strategic deployment of 
knowledge and experience gained over the years in order to 
increase and accelerate progress toward achieving these goals.
    The UNICEF strategy for accelerating progress in girls' 
education is based on lessons learned over the years in dealing 
with gender and education.
    There is a rich vein of work in this area, including 
pioneering programs and projects by USAID, such as GABLE. SAGE, 
work by the World Bank and UNICEF's own African Girls' 
Education Initiative in 34 countries, using major support 
provided by the government of Norway.
    This strategy draws on what has worked in the past for 
getting girls to school and making sure they complete and 
achieve basic competences to make them productive citizens.
    Under this plan, UNICEF is working with countries and 
partner agencies to help increase access and completion rates, 
as well as to improve the quality of education and learning 
achievement for all children.
    This takes place with a special emphasis on girls as a 
disadvantaged group in most countries. Reasonable progress is 
being made, so we should not pretend that it is all doom and 
gloom.
    Reasonable progress is being made with providing quality 
basic education for a steadily increasing number of children, 
and the gap between girls and boys is indeed closing in most 
countries.
    However, the Global Monitoring Report on Education For All 
indicates that the world is not on track for the goal of 
achieving quality basic education for all by 2015.
    It is also clear that for many countries, the goal of 
eliminating gender disparities in primary and secondary 
education by 2005 is rapidly slipping out of reach.
    The risk, then, is that if we fail with the gender parity 
goal, which is the first before June 2005, we lose credibility 
and the longer-term goals set for 2015 would be further 
jeopardized.
    UNICEF has, therefore, taken special steps to meet this 
challenge by designing its acceleration strategy to give 
special attention to helping 25 of the most at-risk countries 
achieve the goal of eliminating gender disparity by 2005.
    Mr. Chairman, because UNICEF has a wide range of 
competences across several disciplines, and posts in over 160 
countries in every region of the world, it is uniquely capable 
of accompanying countries as they strive to achieve quality 
basic education for all.
    The acceleration strategy capitalizes on this, and promotes 
programs that are inter-disciplinary in nature, that are strong 
in partnership and effective in addressing problems that affect 
the education of all children in the world.
    Through such programs, UNICEF has contributed to increasing 
enrollment for girls in countries like Comoros, Morocco, 
Ethiopia, Cambodia, Pakistan, Benin, Burkina Faso, Egypt and 
Southern Sudan.
    These and many other countries registered increased 
enrollment and a closing gender gap with strong support from 
UNICEF and other partners.
    In special cases, such as in Afghanistan, spectacular 
success was achieved in enrollment under very difficult 
conditions of national reconstruction after the war.
    UNICEF played a key leadership role in this process of 
education for reconstruction.
    Strategies using UNICEF programs include provision of non-
formal education for those out of school, inputs into 
policymaking, advocating decision-makers, massive back-to-
school campaigns in emergency situations, mobilization of local 
communities, training of female teachers, improved school 
improvement, school environment, use of incentive programs and 
scholarship, provision of basic school supplies, targeting 
excluded groups and strengthening partnerships at all levels.
    Through these kinds of efforts, we are now providing 
packaged solutions, which make learning successful in all 
conditions. And I invite you to share some of our experiences 
that in the poorest communities in Pakistan, when you look at 
the photograph and you can see the joy of learning, even in 
poor conditions where teachers have been trained, where pupils 
have been divided into small groups and materials are provided.
    Just as in richer communities in Namibia, children have an 
abundance of resources and share and learn the business of 
tolerance as part of education.
    And, finally, in India transformation from child labor on 
to education; picture, incidentally, provided by Mr. Peel for 
your information.
    Mr. Chairman, members of the committee, an important lesson 
from the UNICEF experience is that successful intervention in--
education requires attention to inputs from various other 
sectors to make it work. Water and sanitation, for instance, 
can be essential for preventing drop-out, especially for older 
girls.
    Health and nutrition can help with attention span and 
learning. Life skills are critical for empowering girls to deal 
with HIV-AIDS and other threats.
    Child protection efforts are vital for safety and security 
as well as for combating child exploitation. Early child 
interventions are critical for ensuring that children have the 
best possible start in life and they are ready for school at 
the right age.
    Interventions to improve the quality of education include 
classrooms that promote effective learning in safe gender-
sensitive environments.
    UNICEF has helped some countries like Madagascar, Malawi, 
Mozambique, South Africa, India, Uganda, Zambia and Zimbabwe to 
develop standards for this type of child-friendly classroom in 
the school system.
    As part of the drive to improve quality, UNICEF promoted 
school sanitation and hygiene, including construction of 
separate toilet facilities for girls in some 47 countries.
    UNICEF has also engaged in policy dialogue with governments 
in an effort to influence major investment decisions in favor 
of girls' education, as a means of leveraging quality basic 
education for all children.
    What are some of the challenges and barriers that remain?
    We continue to work with governments and partners, 
including NGOs and the private sector, to address the main 
barriers and challenges that need to be overcome for success in 
2005, as well as 2015.
    One of the most important of these challenges is that of 
partnership itself. No program to expand good quality education 
has yet succeeded without strong partnerships at all levels.
    Everyone from governments and local authorities to school 
principals and teachers, parents and pupils as well as NGOs, 
international communities and bilaterals, need to work together 
for success. Taking successful innovations to scale and main-
streaming them in an education system remains one of the most 
daunting tasks that partners need to learn how to do well 
together.
    A second major challenge is the need to address quality 
issues along side efforts to expand access to education. How 
children learn, what they learn are just as important and even 
more critical than the business of getting them into schools.
    Through the curriculum and textbooks, as well as through 
trained teachers, we need to ensure that education serves, not 
only to anchor children to the norms and values of their own 
society, but also to help them soar to a world beyond that 
embraces elements of our common humanity.
    Experience has taught us that the world is not a steady-
state entity. So we need to plan for emergencies and other 
eventualities. Societies can be volatile and hard-won gains can 
be lost through civil violence and natural disasters.
    UNICEF has proved to be a leading agency when it comes to 
dealing with education in emergencies. This remains a key 
challenge in the current world climate.
    Despite much progress, many of the old challenges still 
haunt our efforts to promote quality education for all 
children, especially girls. In many countries, girls still face 
persistent patterns of discrimination and disadvantage. Among 
the poor in particular, girls' education is affected by both 
the direct cost of schooling, as well as the opportunity costs 
to families for whom a daughter's attendance at school 
represents a loss of domestic labor or household income.
    Also, many girls are increasingly caught up in forms of 
exploitation, such as child labor, early marriage, sexual 
harassment and abuse, trafficking and other harmful practices.
    Much work needs to be done in advocacy with community 
leaders and parents as well as with legal authorities to 
address these issues.
    What needs to be done now, we know a lot of what works. We 
have a lot of the answers. We now need to build on these known 
successes and promising signs.
    External support of the right type and in sufficient 
measure can help ensure that the goals of quality basic 
education for all are achieved in the time frame set.
    Our first litmus test, however, is to get to the goal of 
eliminating gender disparity in primary and secondary education 
by 2005. In practical terms, external partners like the United 
States, should support developing countries and multilateral 
agencies like UNICEF by helping to finance the scaling up of 
successful innovations as well as by providing funds for the 
national reform processes that will result in self-sustaining 
basic education assistance.
    Mr. Chairman, Ms. Lowey, committee members, I submit that 
this type of investment, especially in girls education, is 
essential for human development, for poverty reduction and 
economic growth, for promoting peace and cultural development, 
for empowerment of women, reduction of child mortality and for 
much else that resonates with the values and principles of this 
great nation.
    Thank you very much.
    [The statement of Mr. Wright follows:]

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    Mr. Kolbe. Thank you very much, Mr. Wright.
    And I want to thank all of you for your very good 
statements, which I think help us to gain a better 
understanding of this issue.
    I have been advised that we expect to have votes in about 
30 minutes. We are going to try to make as much time here for 
questions as possible because we will have to conclude at that 
point.
    I will begin with a couple of quick questions before I turn 
it over to Ms. Lowey.
    Mr. Sperling, you talked a lot about nations taking 
ownership of their problems. You said that includes good 
governance and called for a global compact on education. I 
would say use the word contract rather than compact because I 
believe that there has to be contractual obligations between 
the two sides. And you talked about creating a competition. As 
I listened to you describe it, it sounded very much like you 
were talking about the Millennium Challenge account with 
education added.
    Would that be a fair assessment of what you are talking 
about? It seems you were saying let's reward those countries 
that are doing good governance--that are doing the right kinds 
of things. Let's make sure we do it in those places.
    Mr. Sperling. Yes.
    I mean, I think one of the points I wanted to make is I 
really think, when you look at the model that we saw with debt 
relief where countries had to meet certain standards, only when 
they met certain standards did they get the relief.
    If you look at the Dakar framework, it talks about 
countries having to have credible plans and getting support in 
that sense. So I believe that there is, when you look at these 
things, in a sense a new consensus on what a contract ought to 
be.
    But here is what I would say. In terms of the Millennium 
Challenge Account, I support the Millennium Challenge Account 
and its focus on getting governments to make this strong effort 
across the board. But when you talk to a minister of education, 
when you talk to education reformers in a lot of these 
countries, they see the Millennium Challenge Account as helping 
only a handful of countries. For many countries, they are too 
far away.
    So yes, I think if we should have, whether it was the 
second tier of the Millennium Challenge Account or a separate 
education initiative, to inspire countries to come forward with 
that national education plan.
    The other thing I would say, Chairman Kolbe, is that--
again, when you talk to the minister of education, it is a 
little bit like they are dialing for dollars, shopping, you 
know: which aid program do they go to? And you look now, with 
us, I think for all the good stuff we are doing with AIDS 
money, Challenge Account, AID, it becomes more confusing.
    I think that if we were trying to harmonize our efforts 
with other countries and have that clear compact, that clear 
incentive, you would do two things. You would be empowering the 
willing, the countries like Tanzania and Kenya that are going 
forward, telling them very precisely, what are the conditions 
for their getting funds.
    But you would also be empowering the education minister in 
a country that does not have the support of his head of state 
or finance minister to go and say, you know, look what 
happened. This country is already getting funding, because they 
put forward a good plan. If we marshalled enough of our 
resources, if we did a, b, or c, we could get funding as well. 
That is the incentive system.
    And I just do not think that it happens when we just wait 
until countries do things and then we say, okay, now we will 
fund them. I think if you had a clear commitment that there are 
these funds there for countries who do the right thing, then 
you do get that kind of more positive competition.
    So I guess I would say, I would like to see a little 
stronger effort to coordinate through this fast-track 
initiative, through other efforts to try to get a more 
harmonized clear global initiative.
    But I do agree that it is largely the structure and vision 
of the Millennium Challenge Account applied to education. I 
would like to see that applied more broadly so that we had a 
unified education initiative. I think that would be wonderful 
progress for our country to take a leadership role in that.
    Mr. Kolbe. Thank you.
    I appreciate your answer. Hopefully, we will have some 
other discussion of that, particularly as it relates to the 
Millennium Challenge Account, which, by the way, could easily 
include education programs.
    You just spoke about the minister of education in countries 
and the ministry of education. For all of you, maybe--I will 
begin with Mr. Wright here--who is best poised to deliver on 
these services of education?
    Is it international organizations like UNICEF? Is it 
bilateral programs? And within the country who is best poised 
to accept it?
    Would you all say in all cases it should be government-to-
government, through the Department or the Ministry of 
Education, or are there places where education ministries 
simply do not exist or are so corrupt that we have to find ways 
to go around them, to regional means or to NGOs to deliver 
these kinds of services?
    Mr. Wright. There is a bit of truth in each of those points 
you have made there. There are places where you would be ill-
advised to simply put money into the Ministry of Education, or 
for that matter into the government coffers.
    On the other hand, they are places where, in fact, many 
agencies are now doing what is called budget support, that is 
to say agree to a plan with a government and simply put money 
into their budget instead of finding specific projects.
    That reflects a degree of trust in the credibility of the 
government to do this.
    I think without a doubt governments need to take leadership 
in this, otherwise it is not sustainable, if people keep doing 
it for governments it is not sustainable.
    However, governments also need to be accompanied, that is 
the phrase we use in UNICEF, i.e., working with governments 
instead of providing money for them for a plan and then going 
five years or 10 years and evaluate and say, ``All the money 
has been wasted, they have done all the wrong things.''
    There are agencies, NGOs, from small NGOs to large 
organizations like UNICEF, to agencies like the World Bank, 
that can work with countries on a day-to-day basis to make sure 
costly mistakes are avoided, to make sure that good examples 
are copied and multiplied, to make sure that efficiencies are 
built into the system and that they get the best value for the 
money that is invested in them.
    So the answer is both with yes, sometimes directly to the 
country, but also almost by way of insurance, paying an 
insurance premium, and showing that those who can accompany the 
government are also funded adequately to work with governments 
to make sure that in 10-years time you do not find it has been 
a wasted investment, that you ensure now that there are those 
who can work with governments to make it happen.
    Mr. Kolbe. Well, my time is up, but I would like to ask the 
other two to comment briefly before I go to Ms. Lowey.
    Mr. Moseley. Thank you very much. Certainly, in many 
countries, I think we have to be investing in government 
ministries of education. The chance of going to scale and 
having sustainable, long-term delivery of education with 
quality depends upon improving the capacity of ministries of 
education and working with them.
    They may not all be in great shape at the beginning, but I 
think we have to invest in them and make them better. And we 
have seen good examples of that happening.
    In countries like Mali, where we were last year, the 
government does not have the wherewithal to deliver education 
on the national scale through a ministry of education. Creating 
and encouraging community schools with participation by NGOs is 
essential in order to reach down to the community level. That 
combination is essential.
    The other thing I was trying to stress in my testimony is 
that one of the areas in which the U.S. seems to be 
particularly capable is in delivering and helping make 
sustainable change on a qualitative basis by focusing on the 
quality of education.
    USAID, with relatively small sums compared to those of the 
World Bank, has been able to target that money in ways that 
entirely focus on quality change and improved access. The 
American approach is to ensure that teachers improved; that is 
what is needed to effect change in the classroom. If you invest 
there, you can see where the money goes and you can see that it 
is accountable.
    Whether it is in a government system or whether, as in 
Mali, it is within a classroom system, it is very important 
that we place our dollars in a way that can leverage additional 
dollars and make a difference for a lot more children in terms 
of the quality.
    What are they learning? What actually happens in the 
classroom? The main concerns are: do they learn, what do they 
learn, and how do they learn?
    I think we are all in agreement on those issues. But you do 
need to target dollars to ensure that it is not just a question 
of which bureaucracy, but how that bureaucracy then channels 
the money, then, you can make sure that when you appropriate 
funds they go to either an accountable ministry or if not 
accountable to a set of combined NGO community capacities that 
can utilize that money effectively.
    That is the difference, I would argue. Thank you.
    Mr. Kolbe. Thank you. Gene, do you want to add something to 
that quickly?
    Mr. Sperling. At the level of where the assistance comes 
from, I think that we do not need, we probably do not need to 
have one large fund. But what I think people have been trying 
to do with the World Bank organizing it in this fast-track 
initiative, and one could take it on different levels, is to 
say to all of these countries, ``If you come up with a plan, we 
want to make sure you are funded.''
    So you could have a structure where you make sure, you 
know, perhaps, the United States says, ``We are going to take 
this country, because it is qualified for our Millennium 
Challenge Account,'' maybe someone else takes another country. 
But I would look to the G-8, like we saw in debt relief.
    I think when the G-8 takes leadership, that tends to move 
the world, that tends to focus the multilateral institutions, 
and it makes the developing countries think: ``It is for 
real.'' There is a real, significant incentive, encouragement.
    Again, when I was at the African Ministers of Education 
Conference, I found myself trying to explain the Millennium 
Challenge Account. What happens for so many people is they 
think, ``It is only an incentive for countries that are at a 
certain level.''
    We could have something that provided that same level of 
encouragement, let's say for Ethiopia or Kenya, or a country 
that can make tremendous progress on education but may be a 
long ways away, hold them to rigorous standards on 
accountability on that education side, but have the G-8 
coordinate that kind of incentive structure, as opposed to the 
government ministry of education.
    Obviously, nothing substitutes for a national government 
committing its resources, its political capital and its wealth. 
Everything else is piecemeal compared to that. That should be, 
I think, our fundamental focus.
    I would say the following: Where a country you cannot trust 
just giving them the money, and there are many countries that 
would fit there, I do think one could have, I would say, kind 
of kind of an innovation model, where you would say, here is a 
country where the level of corruption or the level of budget 
transparency, just does not justify us giving them the money, 
but because we care about the children there, we are going to 
fund NGOs that can be accountable to at least get that country 
into a position so that hopefully when a better government 
comes along, they have something to build on.
    And I want to point out that the BRAC program of Bangladesh 
operated like that. NGOs created a program where they gave 
stipends to parents and girls who went to school. When a more 
enlightened government came in, that structure created a base 
from which the more enlightened government was able to expand 
that and make that a national program.
    Mr. Kolbe. Thank you.
    Obviously, the answer to this last question far exceeded my 
time. The remaining time will be with Ms. Lowey and Mr. Lewis.
    Mrs. Lowey. Thank you.
    I think our chairman is very gracious. And, obviously, we 
all care very much about this issue. A couple of points, we 
know that the fiscal year 2004 budget increases foreign aid by 
some $2.6 billion, or 15 percent over last year, but reduces 
funding for basic education from $250 million to $212 million.
    And while the promise of additional funds for education may 
be implied in the MCA initiative, we know there is no guarantee 
that countries that qualify for the MCA will spend the funds on 
education. And, in many cases, the qualified countries, as Mr. 
Sperling pointed out, are the ones that are in dire need of 
education resources.
    So I appreciate your comments, Mr. Sperling.
    A couple of points in following up. Mr. Moseley talked 
about resources at AID focused on education.
    How would you recommend that Congress mandate resources be 
set aside from the MCA for education?
    Would you agree that there should be a second tier? There 
was some discussion about that for countries attempting to 
qualify.
    Would you take resources from MCA and give them to AID to 
implement?
    And how can AID's efforts at basic education be improved 
beyond simply providing more resources?
    Do we need more operational resources to hire education 
experts?
    And maybe in talking about that whole issue, you talked 
about very positive things that were happening at AID. From 
what you have seen of USAID's programs, what do you consider 
that agency's particular strength among these types of 
programs?
    Could you suggest how to ensure that various donors play to 
their strengths?
    I did not mean to have you have to take notes. But I----
    Mr. Moseley. That is a wonderful list of questions, thank 
you.
    Mrs. Lowey [continuing]. But we are just trying to be 
realistic.
    Mr. Moseley. I will try not to take the entire time of the 
committee.
    First of all, with respect to the MCA, I have been very 
pleased to see that the administration proposed and encouraged 
the definition of MCA to include education. It certainly does 
not exclude it.
    I know the administration and a number of people are very 
concerned that MCA not be earmarked, per se, and I appreciate 
that. But it is very much my hope that those countries that 
will be eligible for MCA, whatever the final criteria are, will 
want to make education a priority and that education will be 
seen as a critical area for investment to achieve the kind of 
economic outcomes that they hope for.
    But I have to say, frankly, that, just as Gene was 
implying, sometimes one has to encourage the view that 
education is an area worth investing in. If it is seen from the 
congressional or administration standpoint as an area of 
priority for investment, countries will see this as an area 
they should consider and put forward in their plans.
    I do fully support the idea that there is an opportunity 
here for the MCA to be highly responsive to countries' own 
designs, plans, and recognition of what their needs are. I 
fully support working with them from that perspective.
    But ensuring that education is on their agenda, I think, is 
a role Congress could clearly identify. That is different from 
earmarking; it is making clear that education is a priority in 
which we hope that investments will be made by MCA.
    With respect to USAID, I know there are many criticisms, 
and nobody in this town would not be familiar with this subject 
without recognizing there are criticisms sometimes about its 
bureaucracies, procurement and so forth. But I must say, with 
respect to education, it has a pretty darned good record of 
making sure that its investments have the outcomes for which 
they were intended.
    As I mentioned earlier, USAID investments have gone 
primarily into qualitative changes in education. And they have 
been done through careful planning in partnership with a 
country. In order to effect change with respect to teacher 
resources, materials, methods, and policy.
    I do not think I mentioned earlier the importance of making 
sure that there are sound, electronic-based information systems 
to ensure that when you contract the money, you know where the 
priorities are, where the changes are coming about, and what 
effect they are having. AID has been very, very good at that. 
It has been very good at partnering on the ground, ultimately. 
I think a lot more attention, though, needs to focus on donor 
coordination.
    The idea of a compact that Gene mentioned is not so much 
fund, as I understand it, but it is so much more. There would 
be a compact, or contract, if you will, among those concerned 
with a particular country not to duplicate or leave out that 
which needs to be done. In that regard, I think that AID can be 
a very good player.
    Resources have been always been measured against whether 
changes were going to be sustainable by a country.
    There is a lot of debate now about whether the fast-track 
initiative, for instance, should provide more budget support. 
Should you pay for teachers' salaries or should you make sure 
you are just paying for the innovation that triggers and 
leverages, if you will, a country's resources?
    I think those debates need to go on, and there may be 
differences in particular countries. But where aid has been 
effective--and American aid has been very effective--is in 
leveraging those funds to bring innovation into the ministry.
    If a ministry's budget is spending $20 million a year or 20 
percent of its national resources on education, how can that 2 
to 5 percent that AID might provide trigger or leverage great 
change and innovation? How do you move the bureaucracy to 
change where the money is going, what children are served, and 
how it serves rural areas? How in particular do you reach 
girls, who tend to be underserved by as much as one-third to 
one-half, as you well know.
    AID has been very instrumental in focusing the education 
community and helping to initiate leadership. UNICEF is now 
chairing and providing leadership among U.N. agencies based on 
that. And AID has been very supportive and collaborative in 
making girls' education a priority.
    If I were to chose a priority, it is girls' education 
because with that comes education for boys as well. It is a 
change that we would all like to see for the long term because 
of its relation to a country's well being.
    That is an initial response to many good questions. Thank 
you.
    Mrs. Lowey. And I will save the----
    Mr. Kolbe. And I will come right back to you. I will let 
Mr. Lewis ask his questions.
    Let me just say before I do call on Chairman Lewis that I 
really appreciate that Chairman Lewis chairs the subcommittee 
that has the largest fiscal responsibility of any subcommittee 
in appropriations, and yet he is one of the most dedicated 
members of this subcommittee. He is always here, always 
listening and he always asks very thoughtful questions. I want 
you to know how much I appreciate your participation on this 
subcommittee.
    Chairman Lewis.
    Mr. Lewis. Well, thank you very much, Mr. Chairman. With 
that, I do not have any questions. [Laughter.]
    Thank you very much, Mr. Chairman and Ms. Lowey. This 
conversation is, I think, very important to all of us, 
especially those of us in this country, who recognize this 
shrinking world. We can either meet these challenges or we are 
going to have to face the other kinds of challenges that my 
subcommittee is facing at this very moment.
    I must say Mr. Sperling, I was struck by the passion of 
your remarks, and there is little question that all of you 
reflect deep concern about how we impact the world's ability to 
change the world starting with our children, their children, 
and so on.
    Each of you spoke in different ways about the way we might 
attack these things and each spoke about the numbers of 
children who either are not in school at all or have had no 
opportunity for education, and the impact of this on women 
particularly--and all of this goes to my heart.
    India. We are close to celebrating 55 years since India 
gained its independence. Education has always been in the 
government's--rhetoric at any rate--as a very, very high 
priority. And that is within, as you provided Mr. Moseley, one 
very interesting commentary here regarding efforts to impact at 
the village level, education opportunity.
    And the illustration itself talks about other rapid 
movement under H-5, 60 plus percent having some education 
opportunity at a higher level, and an effort to move towards 
100 percent.
    And, yet, that sometime in the 1990s there is an 
illustration that in all of these years, 55 years or so, we 
still have a long, long ways to go at the village level. We 
have spent a lot of money, that is American dollars, attempting 
to stimulate those processes.
    Remember in the mid-1960s that the Peace Corps had a very 
high percentage of their people worldwide in India. And their 
project was to try to impact education at the village level. So 
these are difficult tasks, not automatically accomplishable.
    I was struck by UNICEF's effort as well, and the reality 
that a very high percentage of our challenges of all Africa and 
West Asia, where those governments are not perfect governments. 
And how do we go about struggling with this fact that 70 
percent of the challenges that we might be talking about lie in 
those areas, that we have governments that are corrupt, 
governments that are very arbitrary, certainly in West Asia.
    How do we begin to impact that 70 percent and effectively 
use our dollars under those conditions? I would like to have 
you help us better know where we are we having success, where 
the money will really get results? Can we effectively measure 
where we ought to start first putting money? You know, that is 
a longest series of questions, if you would like to use the 
rest of the day, Mr. Chairman. [Laughter.]
    Mr. Moseley. I am sure my colleagues will want to join in. 
First of all, though, I think it is very important to recognize 
that----
    Mr. Kolbe. Let me just note that that buzzer indicated we 
have a vote. So we will have to conclude in a maximum of about 
nine minutes here. And so if we could keep some--quick succinct 
answers so Ms. Lowey can get another question in.
    Mr. Moseley. I will take three minutes. With respect to 
your comments, Mr. Congressman, I think they recognize the 
depth of our commitment.
    But one of the things that I think you can take some 
pleasure in, and comfort in, is the depth of the commitment of 
most of the countries that are very poor and are very 
concerned. Now their leadership recognizes that education is a 
place in which investment must be made.
    That is the extraordinary thing that has come about in the 
last decade. Before many leaders were not only perhaps corrupt 
on some occasions, but did not really see the strong connection 
between direct investment and accomplishing education goals.
    But now that long-term payoff for economic change and 
improvement in the country's well-being is recognized by the 
leaders of the poorest countries and countries that are in 
terrible shape, in many cases, in Africa.
    And they are committed to this compact, or at least to 
these objectives, and would like to see those investments. I 
think that is a big change from where we were 10, 20 and 30 
years ago.
    We also see that some of the countries that are in the 
worst shape, relative to their overall economy or their 
leadership, in fact are able to make improvements in education 
with relatively modest investments because they are putting 
very sizable parts of their national budget into education. The 
key is, can we invest modest amounts of money to leverage their 
funding into long-term change so they do move ahead and not get 
stuck in a position where a relatively few good performing 
countries end up, but rather perform better as a result of our 
investment? I think we should make those investments.
    We have to make sure that the 70 or 80 countries, that are 
not performing well now will get to the point where they have 
even a chance to be considered well-performing countries. And 
education gets them there. A little bit of money in education 
gets them there.
    Mr. Sperling. Thank you for those thoughtful remarks. I am 
both an idealist and a realist. And so when you ask about what 
do you do with so many governments who do not have transparent 
budgets, who still have corruption and yet so many children 
there? I guess I go back to the framework I mentioned.
    I am an idealist in that I believe that it would be the 
wisest investment we would ever make if this country said we 
are going to put in $2 or $3 billion a year in contingent 
funding, an challenge the G8 to match or exceed that. But I 
would be a realist in I would not give that money to countries 
if we did not know it was going to be well spent.
    And I think that you cannot just push the money. It will 
just--you know, it will be wasted. It will create more cynicism 
among American taxpayers. We will not help the children we 
want. But I do not think you can just wait around and say, 
well, let's hope countries do good and then we will reward 
them. You have to, I think, have that incentive.
    And you know, children do not go from the womb to running. 
They have to go through the crawl and the walk. And what Steve 
is saying is you have a country that has got a long way to go, 
but they could make progress in education, why would we not 
have that incentive out there for them, whether as part of the 
MCA or someone else, for them to show progress in education and 
transparency.
    So I guess I am into the mega carrot approach. Let's give 
the incentive. Let's be tough.
    The other thing I would just say and the last thing I will 
is, you know, I went through eight years of budgets. 
``Earmark'' was when somebody had a little money non-
competitively given for a project. It is wrong to call a global 
education initiative an earmark. It is not. It is a major 
priority that reflects very much the values of this country. 
And I think that more Americans would be supportive of helping 
education in poor countries than anything else.
    And if we lead on this--what a wonderful thing. You know, 
the president has a preemption policy. I think we should have 
preemption on education. Let's not just wait until we spend 
money to rebuild schools in Afghanistan and Iraq. How about a 
major investment up front? I think it would be the best thing 
for goodwill for the United States to show average Muslims, 
African people all over the world that we care about their 
interests. It is for us to take a leadership role in this area.
    Mr. Kolbe. Ms. Lowey.
    Mrs. Lowey. Well, we are quickly running out of time. But 
we all know about the World Bank FTI, and we also know that 
there has been a lack of donor interest in response to the last 
round of proposals as of March. The proposals totaled about 
$300 million. About $200 million was raised. If someone wants 
to respond, or we can talk later, in about a minute or less.
    Gene.
    Because I share--you know I share your commitment. And the 
question is, how do we--we have the president asking for less 
than we would like--how do we get this donor interest?
    Mr. Sperling. Right. You know, no disrespect to the World 
Bank or to Cream, but I think we talk about always supporting 
the UNESCO or UNICEF or World Bank initiative. That is not the 
way we should look at it.
    What should the United States and the G8 do to take a 
leadership role?
    And I think what the World Bank has tried to do is see if 
there is a way of coordinating. What are the standards, so each 
country does not have conflicting standards? What is the 
process where the donors could get together and decide who 
needs what? Who is going to fund what?
    I think the thing that concerns me is this fast-track 
initiative is seen by the rest of the world as the only real 
coordinated effort. And the fact that the United States and 
really the other G8 countries are not putting much money in 
there, I can tell you, just creates cynicism around the world. 
It just says there is not a real contract. We are supposed to 
come forward with these plans but the developed countries are 
not really coming through.
    So I think that if you do not like the fast-track 
initiative, I would say to the United States, make it stronger, 
take more ownership, do not turn it into a pilot process. And, 
again, U.S. commitment, particularly in the G8 process, 
leveraging the other countries, that is where we really have 
the biggest bang and biggest leadership opportunities.
    Mr. Moseley. Both the fast-track initiative and the MCA 
will be limited to a certain number of countries. They may very 
likely leave out a large range of countries. For the long term, 
we have to make sure we bring them along to the point where 
they qualify for long-term improvement or can take on long-term 
improvement.
    It would be terrible if the 80 countries or so in the 
greatest need--but beyond MCA--are left out, or if the fast-
track initiative is limited to the current 18 countries, 
leaving out the other 68 countries.
    That would be a great shame. We have an opportunity to make 
sure that a modest amount of funding, even though it seems like 
a large increase, would continue to bring all those countries 
along.
    I think Mr. Wright wanted to make a comment, and then that 
is going to be the last word.
    Mr. Wright. Thank you, Chair, I was just going to follow on 
and answer Congressman Lewis' question. I think really first it 
is a question of where do you strike the balance between needs 
and efficiency.
    Children do not deserve to be condemned to a dismal future 
simply because they have a bad government, a country has a bad 
government. In fact, it is all the more reason to assist those 
children.
    And that is perhaps, as Chairman Kolbe mentioned, that is 
where judgments have to be made about do you put money into the 
government or do you put money through NGOs and private sector 
and other organizations that can make things happen.
    Because the only hope for changing those societies, in 
fact, is in the next generation coming through, and if you do 
not invest in their education now you are condemning that 
society to perpetual state of bad governance.
    And also I think we, our perception on education has 
changed now, because when countries fall apart, typically the 
Bank or many other major agencies will withdraw from that 
country.
    Now we understand that one of the first things you need to 
do to kick start normalcy in a country is to provide education. 
In Iraq today we see just by getting children into school we 
begin to create a sense of return to normalcy amongst other 
things.
    So that I think it will be a bad choice to say because of 
bad governments we condemn the children to whatever future the 
governments lead them into.
    We need to show an interest and show our support for the 
next generation.
    Mr. Kolbe. Thank you very much, and I think on that note, 
which is a very good note to end this hearing, I want to thank 
again our people testifying today. Thank you very much for your 
very good contributions to our understanding of this issue.
    And with that the subcommittee will stand adjourned.
    [The written statement of Thomas H. Kean, President of Drew 
University and questions and answers for the record follow:]

GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT

                                            Wednesday, May 7, 2003.

                          GLOBAL HEALTH ISSUES

                                WITNESS

TOMMY G. THOMPSON, SECRETARY OF HEALTH AND HUMAN SERVICES

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe [presiding]. The Subcommittee on Foreign 
Operations will come to order.
    We have votes in less than 30 minutes, and so we need to 
not lose any more time than possible.
    It is my great pleasure today to welcome on behalf of the 
Subcommittee on Foreign Operations the Secretary of Health and 
Human Services.
    This is the first time you have appeared before this 
subcommittee, not the normal one that you would appear before. 
But you do so as chairman of the board of the Global Fund to 
Combat AIDS, Tuberculosis & Malaria, the ATM fund, and as an 
energetic Cabinet advocate of expanding international health 
programs. We appreciate your taking the time to discuss both 
the ATM fund, as well as the President's $15 billion multi-year 
emergency plan.
    As we all know, the Secretary of State has a keen interest 
in these issues, and the Administrator of USAID has a large 
Global Health Bureau with statutory operational policy 
responsibilities in many developing countries. Both have 
already discussed aspects of the fiscal year 2004 international 
health budget in earlier testimony.
    Mr. Secretary, the written testimony that you have 
indicates that you do understand the leadership role that this 
committee has held over many years with regard to international 
programs to fight HIV/AIDS, tuberculosis and malaria. In 
particular, we enthusiastically support the President's 
initiative to establish the Global Fund and provide start-up 
funds for it before it was formally organized. Last year, our 
appropriation for the fund was $250 million, compared with the 
request of $100 million that had been made by the 
administration from this subcommittee.
    Same time, we know that there are enormous challenges which 
face the Global Fund. We are aware of the vulnerability of any 
organization awarding large amounts of money in countries that 
are poorly organized and often lack transparency or suffer from 
corruption.
    I personally spend a good deal of time with Dr. Feachem and 
the Fund's staff, as well as being on site visits to countries 
where the Fund is active.
    The GAO report that is being released today and we are 
going to hear about and discuss today in this subcommittee is a 
tool to help our subcommittee and the Fund. It is a snapshot of 
Global Fund procedures and operations at the end of one year.
    We all need to work closely--as this hearing indicates, we 
already do--to make sure that the Fund operates properly.
    This subcommittee is considering requests for many hundreds 
of millions of dollars for ongoing and new bilateral programs 
to fight AIDS and other infectious diseases, and that is also 
part of what we want to try and sort out here today.
    It is evident that the President expects you and your 
department to participate with State and with USAID in the 
management and implementation of several of them, notably the 
proposed Emergency Plan for HIV/AIDS and the Mother and Child 
Initiative which is already under way.
    An objective of this hearing is for us to better understand 
the proposed roles and responsibilities of the federal agencies 
that seek to utilize appropriations for international health 
that fall under this subcommittee's jurisdiction.
    We would also like to better understand the role of the 
proposed coordinator of international HIV/AIDS programs that 
was incorporated in the authorization bill that the House 
approved just this last week.
    So your testimony to us on all of these accounts is very 
important as we begin our process of preparing for the markup 
next month.
    I know that members are anxious to ask questions and 
exchange views with you, but before I turn to Ms. Lowey for her 
opening statement and then your abbreviated statement, I want 
to just outline for everybody the order of what we are going to 
do here this afternoon.
    At the conclusion of the Secretary's testimony we will take 
one round of questions from those that are here, and then he 
will be excused.
    We then have two more witnesses who are very much at the 
heart of what we are talking about today: first, Dr. Gootnick 
of the General Accounting Office, who will outline the findings 
of the GAO study of the Global Fund that we requested some 
months ago; and then we will proceed to hear from Dr. Richard 
Feachem, the executive director of the Global Fund.
    And after he has concluded his testimony there will be a 
round of questions for both of them, for Dr. Feachem. And if 
there are some for Dr. Gootnick and the conclusions of the 
study, he will also be called for questions at that time.
    This committee room is reserved for another subcommittee at 
5 o'clock, so we have to conclude well before that time, and we 
have a minimum of three and a maximum of seven votes in about 
20 minutes here.
    With that, Ms. Lowey?

                     Mrs. Lowey's Opening Statement

    Mrs. Lowey. Thank you very much, Mr. Chairman.
    I join Chairman Kolbe in welcoming our witnesses this 
afternoon. I look forward to your testimony.
    I want to particularly welcome Secretary Thompson to the 
Foreign Operations Subcommittee for your first appearance here.
    Last week the House passed a bill authorizing a total of 
$15 billion over five years to combat infectious disease 
globally, in particular HIV/AIDS, tuberculosis and malaria. The 
action was a response to the President's commitment announced 
earlier this year to devote new resources to these problems. 
And while I certainly applaud the President's initiative, I do 
have several concerns which I intend to address this afternoon.
    This includes, number one, the shortfall of over $1 billion 
in fiscal year 2004 between the $3 billion authorized and the 
$2 billion actually requested in the budget.
    Two, the new management structure mandated in the bill at 
the request of the White House, which requires that all HIV/
AIDS funding go through a new coordinator.
    Three, the requirement that 55 percent of HIV funding be 
devoted to treatment by 2006.
    Fourth, the shortfall in resources to the Global Fund.
    And lastly, White House support for a shift in emphasis 
toward abstinence-only programs and for unnecessary limitations 
on implementing organizations.
    Mr. Secretary, everybody wants to see more resources 
devoted to solving the global AIDS pandemic, and those of us 
who have struggled for many years to achieve consensus on this 
are very grateful for the President's initiative.
    However, the request for fiscal year 2003 from the 
President is at least $1 billion short of the authorization 
level in the House bill, which is $3 billion. The White House 
endorsed the bill and the House voted overwhelmingly for it.
    I will proceed with a few questions, and then we can get 
back to the real questions.
    I would appreciate if you can speculate as to where the 
extra $1 billion will come from. Does the president intend to 
send up a budget amendment? Is the Appropriation Committee's 
302A allocation going to be increased to accommodate this 
increase? And I look forward to your clarification of this, Mr. 
Secretary.
    The president has requested that $450 million be provided 
directly to a new HIV/AIDS coordinator, and the House bill 
contains a provision requiring that all HIV/AIDS funding, 
including AID and HHS funds, be run through this coordinator's 
operation. Is there something wrong with the current direction 
of either HHS or AID programs?
    I would appreciate it if you could address this in your 
remarks, how a new State Department coordinator will add value 
to our campaign against infectious diseases. My fear is that it 
will only slow down implementation of vital ongoing programs, 
while at the same time creating new, poorly-designed top-down 
programs put together by well-meaning non-experts. Instead of 
increasing the effectiveness of the HIV/AIDS assistance, I 
believe the impact of the new coordinator position will be to 
create confusion and lack of program coherence in affected 
countries.
    My distinct impression is that the different U.S. 
government agencies implementing HIV/AIDS programs overseas 
work well together and with other donors. It is here in 
Washington where various agendas clash. And this has resulted 
in the coordinator proposal.
    Virtually everyone supports the concept of using more 
resources for AIDS treatment, however the difficulties in 
achieving success in this field are most vividly demonstrated 
by the devastating statistics cited by the president himself in 
the State of the Union. Fewer than 1 percent of those infected 
with HIV overseas have access to the appropriate drugs for 
therapy.
    Of the $1.5 billion the United States currently spends on 
HIV/AIDS, only between 10 and 15 percent is spent on treatment. 
Yet the House bill mandates that 55 percent of all HIV/AIDS 
funds be spent on therapeutic treatment by 2006. It further 
mandates that 75 percent of those funds be spent on drugs for 
treatment.
    These requirements bring up a series of important questions 
which I hope the administration is considering as it continues 
to develop the president's proposal. How do we get to 55 
percent? What prevention programs will be scaled back to meet 
this target? With the White House mandate for greater emphasis 
on abstinence programs, are you going to cut programs aimed at 
high-risk target groups to achieve this percentage?
    The draft GAO report on the Global Fund to fight AIDS, TB 
and Malaria identifies a funding shortfall of $1.7 billion for 
2003 and $3.3 billion for 2004. These are based on projections 
of the number of technically sound proposals fund experts 
expect to receive for the third and fourth rounds of grants. We 
know these expectations are real because the fund has worked 
carefully with potential grantees to shape their proposals.
    The United States has been the most generous donor to the 
fund so far, thanks mostly to the efforts of this subcommittee, 
but the fiscal year 2004 requests stand at $200 million. The 
House bill authorizes up to $1 billion. The need has been 
demonstrated clearly. Where would the extra resources come 
from?
    Finally, and I promise Mr. Chairman it is finally, but I 
wanted to get this all in at the beginning, Mr. Secretary, I 
need to address what might be the most important aspect of our 
discussion today.
    Unfortunately there is a fundamental misunderstanding here 
in Washington about the harsh reality faced by African women. 
In many countries in Africa, contracting HIV, as you know, is a 
death sentence, because treatment is just not available. In 
many cultures, women are monogamous while men have multiple 
partners. Economic reality often forces men to leave home for 
months at a time, resulting in a high incidence of extramarital 
sex. This accelerates the spread of HIV among men, but also 
among women who are abstinent before marriage and monogamous in 
it, yet are doomed to waste away when they contract HIV from 
their husbands.
    If we allow the push to mandate an abstinence-only approach 
to HIV prevention programs to replace the balanced ABC 
approach, we will be taking away the slim hopes, in my 
judgment, of millions of women, married and unmarried, that 
they can avoid HIV infection. Our strategy must remain as it 
has been until now, promote and value abstinence, encourage 
monogamy in both men and women, teach the lifesaving use of 
condoms and work freely with high-risk groups.
    I reiterate, Mr. Secretary, that this approach is nothing 
new, as you know. It is the basis for the famous Uganda model. 
It is by and large the result of U.N.-and U.S.-funded research. 
It is working in some countries; it will work in others if we 
implement it. The push by some in Congress and the White House 
may be well intentioned, but it has the potential to devastate 
our HIV prevention programs.
    And I do want to ask forgiveness for my lengthy remarks, 
but I feel these issues are so vital. And I will save the 
detailed questions for later on. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Mr. Secretary, as always, of course, your full 
statement will be placed in the record. You are welcome to 
proceed with however you wish at this point.

                    Mr. Thompson's Opening Statement

    Mr. Thompson. Thank you very much, Mr. Chairman. And first, 
let me apologize to you for being five minutes late, but I was 
in the building waiting for an elevator and then it stopped and 
I got stuck in the elevator. So I want to apologize first for 
that.
    And, Ms. Lowey, I would like to also tell you that I agree 
with a lot what you have said. I know we have had this 
discussion before, but thank you so very much, members, for 
giving me this opportunity, as the secretary of the Department 
of Health and Human Services, the opportunity to talk with you 
this afternoon about our global response to the HIV/AIDS 
pandemic.
    As the first stage of an unprecedented commitment to fund 
this fight against the scourge, the president, in July of last 
year, announced his $500 million International Mother and Child 
HIV Prevention Initiative, which was put together by my 
department after my visit to Africa last April.
    Jointly implemented by HHS and our partners at the U.S. 
Agency for International Development, this program is a strong 
model of good government and demonstrates how quickly the 
United States can get much-needed resources out the door 
through our bilateral mechanisms.
    In consultation with our U.S. ambassadors, HHS and the 
USAID field staff, we have worked with host governments and 
non-governmental organizations in 14 countries of Africa and 
the Caribbean to develop for the first time, as you have 
indicated and really sponsored many times, Mr. Chairman, a 
unified U.S. government country-specific strategic plan for 
action.
    We expect that this initiative will target 1 million HIV-
infected women annually within five years or less, and reduce 
the mother-to-child HIV transmission by 40 percent in the 
targeted countries, and, if we are able to get the anti-
retroviral drugs to these women, we will be able to get that up 
to 99 percent.
    A second goal of this initiative is to improve health care 
systems that provide care and treatment, not only to mothers 
and babies, but to fathers, children and their communities.
    We began investing in this initiative even before Congress 
finished work on the fiscal year 2003 appropriations bill. We 
redirected $5.5 million of our own HHS Global AIDS Program 
fiscal year 2002 resources to permit our joint HHS and USAID 
country teams to conduct in-depth baseline assessments and 
draft the interim plans.
    A multi-agency steering committee, led by HHS and USAID, 
under the auspices of the Office of National AIDS Policy, have 
approved 10 plans in the amount of $54 million.
    So far, pending approval for the Office of Management and 
Budget, the first actual cash disbursements will go to Haiti 
this week, just over two months after the President signed the 
appropriations legislation.
    Approximately $4 million more went to a consortium of 
American universities to begin planning for training 
activities. A multi-agency steering committee which is led by 
HHS and USAID under the auspices of the National AIDS Policy, 
has approved 10 plans in the amount of $54 million so far. 
Further tranches of funding are awaiting clearance by OMB and 
congressional notification to the committee by USAID.
    Administrative expenses are remarkably low for this plan, 
and HHS and USAID are operating the program with our existing 
staff.
    The President has asked for an additional $300 million in 
fiscal year 2004 to complement his commitment to this 
initiative; $150 million each in the foreign operations budget, 
as well as $150 million in the Health and Human Services 
budget. Beginning in fiscal year 2005, this funding will be 
included in a single request to fund the program, all in the 
foreign operations 150 account.
    The Mother-To-Child HIV Prevention Initiative will provide 
the foundation for the implementation of the president's 
emergency plan for AIDS relief in the same 14 countries. These 
countries account for nearly 50 percent of all HIV infections 
in the world, and nearly 70 percent of the HIV infections in 
Africa and the Caribbean.
    The President's $15 billion, five-year plan, of which $10 
billion is new money, will virtually triple our commitment to 
international HIV/AIDS assistance, which now stands at a 
government-wide base of $1 billion a year.
    According to our goals, the effort will prevent 7 million 
new HIV infections; that is 60 percent of the projected new 
infections in the targeted countries. We will also treat 2 
million HIV-infected people with anti-retroviral drugs; up from 
less than 100,000 on those medicines today in the 14 targeted 
countries. And we will care for 10 million HIV-infected 
individuals and AIDS orphans.
    Implementation will be adapted to local circumstances and 
based on a network model which is being employed in countries 
such as Uganda. This model consists of a layered network of 
central medical centers that support satellite centers and 
mobile units with varying levels of medical expertise as 
treatment moves from urban areas to rural communities.
    It will build directly on clinics on the site, and the 
programs established through HHS, USAID, and non-governmental 
organizations, faith-based groups and willing host governments.
    Over 50 percent of the resources will directly support 
treatment, and more than a third will expand prevention 
activities. We will have the flexibility to adjust resource 
allocations based on scientific data as it becomes available.
    Since the impact of HIV/AIDS in the world is so severe, we 
need to be flexible, we need to be generous with this program.
    As an example, we have decided that while our projected 
figure for anti-retroviral treatment is 2 million people, all 
persons who receive HIV diagnostic testing through the 
President's plan and who meet the medical criteria for anti-
retroviral therapy will receive it.
    We expect that our joint HHS and USAID teams will follow a 
similar process in designing unified U.S. government strategic 
plans for each one of the 14 countries, again, in consultation 
with our partners, all oriented to the scientific and the 
specific measurable goals the President has set out for us.
    The President wants to make sure that taxpayers' dollars 
are making the maximum difference for the maximum number of 
people. A special AIDS coordinator with ambassadorial rank at 
the Department of State will oversee the budget and the 
implementation of the emergency plan. We look forward to 
working with that individual after his or her Senate 
confirmation to roll out this critical program.
    The Mother and Child Prevention Initiative will be fully 
subsumed and integrated into the larger plan during fiscal year 
2004. And we fully expect that the interagency cooperation we 
have seen so far in that effort will be the hallmark of the 
administration of the President's emergency plan. We at HHS are 
planning to take steps so that all of our international AIDS 
programs dovetail with the president's vision.
    The President has asked for $450 million in fiscal year 
2004 to begin the emergency plan all in the Foreign Operations 
Account. There is no request for emergency plan funding in the 
HHS budget for next year because all of the funding will flow 
first to the coordinator at the State Department who will then 
make allocations to HHS, USAID and the other partners based on 
their demonstrated ability to implement sections of the unified 
strategies in each of the countries.
    The President's plan is already building on the expertise 
of our HHS Global AIDS Program, and that of the rest of our 
agencies. We work directly with 25 countries in Africa, Asia 
and Latin America, as well as the Caribbean, in order to 
prevent new infections, provide care and treatment for those 
already infected, and to develop the capacity and the 
infrastructure needed to support these programs.
    As you know, Mr. Chairman, the President's emergency plan 
for AIDS relief includes both a pledge of support for a 
dramatic increase in our bilateral assistance, as well as a $1 
billion multi-year commitment to the Global Fund to fight HIV/
AIDS, Tuberculosis and Malaria.
    The United States is and always has been by far the largest 
donor to this fund. We are responsible today for more than 50 
percent of the total pledges.
    As you know, I was elected chairman of the fund this past 
January. As chair, I am happy to be able to report today that 
the fund has approved 156 projects in 92 countries and has 
committed more than $1.5 billion since April of 2002. The fund 
has disbursed approximately $20 million to grantees so far, and 
the pace of disbursements is accelerating rapidly.
    But with these successes come cautions. In my role as 
chair, I am working hard to ensure that the fund has the right 
management and the accountability systems in place in order to 
fulfill this subcommittee's vision, as well as mine and the 
President's.
    Both the President and I are committed to making the fund 
work and to coordinating the fund's grants with bilateral 
assistance. The fund's board has approved 36 grants to fight 
AIDS, tuberculosis and malaria in 13 of the 14 target countries 
included in the president's initiative. These grants will 
disburse a total of $609 million over two years. I am working 
both within the U.S. government and at the fund to ensure that 
our investments are complementary and not duplicative.
    Mr. Chairman and members of the subcommittee, I commend the 
leadership that you have shown for many years on this issue. 
And I commend the leadership that the entire House of 
Representatives has shown in taking action to stem the tide of 
the HIV/AIDS epidemic by passing this historic authorizing 
legislation last week. HHS stands ready to direct its expertise 
and help, as well as in HIV/AIDS to effectively implement the 
President's vision that the House of Representatives has 
already adopted.
    Thank you for allowing me, Mr. Chairman, to be with you 
this afternoon. I am delighted to be here and happy to answer 
your questions at this time.
    [The statement of Mr. Thompson follows:]

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    Mr. Kolbe. Thank you very much, Mr. Secretary.
    We are about to begin five votes, which will take us 
approximately 45 minutes. I doubt the Secretary can stay that 
long, so we will go as fast as we can. I am going to ask one 
question, and will ask each to ask a question so we can get 
through as many as possible. We will submit many, many, many 
questions for the record, I know.
    Mr. Thompson. Mr. Chairman, if you want to submit them, I 
will be happy to respond in writing to each and every one of 
them.
    Mr. Kolbe. I am sure that we will submit a lot of 
questions, I am sure. But let me just ask you for the record 
one here today dealing with the Global Fund.

                      OVERSIGHT AND ACCOUNTABILITY

    And I wonder if you would just take a little bit of time, 
in your capacity as present chairman of the board of this, to 
talk a little bit about your objectives with regard to the 
oversight and accountability of the Fund awards to developing 
countries.
    And we are very concerned about some of the things that we 
understand are happening with regard to procurement, and about 
the integrity of the local funding agents, the ones that have 
the oversight responsibility.
    And also that the country coordinating mechanisms, the 
CCMs, really are not capturing as much of the local interests 
as I think they need to, interests outside of the health 
ministries, in other words the private interests.
    Mr. Thompson. I agree with you.
    Mr. Kolbe. If you would discuss those a little bit, I would 
appreciate it.
    Mr. Thompson. Thank you very much, Mr. Chairman.
    First off, we wanted to make sure that we have this fund 
set up properly and that is one of the reasons why the funds 
have not been sent out as aggressively as some countries would 
like us to do. We want to make sure that we are successful.
    That is why we put in place several different kinds of 
mechanisms. The first one is the TPC, which is the one that 
actually looks at all of the initiatives, all of the programs, 
and makes suggestions and passes those on to us, the ones that 
are meritorious based upon scientific as well as other logical 
reasons that the committee takes into consideration.
    We also, at my request here in the Department of Health and 
Human Services, have another committee set up to look at what 
the committee itself did internationally, to make sure that 
they are absolutely the kind of programs that we should be 
funding.
    I am happy to be able to report that NIH and CDC have 
indicated that the programs that we are funding are absolutely 
the correct ones and the ones that should be receiving the 
funds.
    After that we set up the coordinating committee in the 
countries. And I agree with you, and as chairman I am going to 
try and get more NGOs involved, and that is one of the reasons 
the NGOs were so happy that I became chairman, because I think 
there needs to be just not only governmental ministries looking 
at and supervising this money. We need to get more involvement 
by the NGOs in-country to be able to do that.
    We are also spending approximately one-half of the 
administrative money that we spend to set up the secretariat, 
which is about $31 million--almost half of that is going to go 
into the financing committees to be able to oversee and to be 
independent of the committees and in-country so that they will 
make sure that the money is being well spent.
    They will be hired by the secretary, by the Global Fund 
board, in order to supervise the expenditure of the dollars so 
that we get the performance that we expect-on each and every 
program.
    We think it is a very sound method. We think it is one that 
is going to work extremely well. We need your help and input. 
We are working very hard to make sure that every program has 
the financial responsibility and the accountability that you 
would want and that I would want.
    Mrs. Lowey. Thank you, Mr. Chairman.

                              UGANDA MODEL

    Mr. Secretary, as you know, the success of the Uganda model 
is based on the ABC approach to HIV prevention, along with all-
out efforts by President Museveni to talk openly about the 
problem.
    Mr. Thompson. That is correct. And his wife.
    Mrs. Lowey. Correct. And they have talked with people in 
the gay community and, prostitutes, and they are still 
struggling with the epidemic but we have seen a tremendous 
decrease from 15 to 5 percent.
    As you know, the rules governing domestic abstinence until 
marriage programs prohibit those programs from mentioning 
contraception, except to discuss contraceptive failure rates. 
Is this the policy that you envision will govern U.S.-funded 
abstinence-only programs abroad?
    Mr. Thompson. We are going to be using the Uganda model 
pretty much in total, and try and get that adopted in some 
other countries.
    It will not be able to be successfully adopted in each and 
every country; each and every country is different. But we will 
be using the ABC model, as you have indicated, Ms. Lowey, and 
we will be using this to the best of our ability.
    Mrs. Lowey. I am delighted to hear that. And what will 
happen with the one third of the money that has been authorized 
by the House for abstinence only? Do you think it will change 
in the Senate?
    Mr. Thompson. We certainly will have to comply with what 
the Congress passes, there is no question about that.
    Mrs. Lowey. But do you intend to use the ABC model?
    Mr. Thompson. That is correct.
    Mrs. Lowey. Thank you.
    Mr. Kolbe. Mr. Wicker is next.
    Mr. Wicker. Thank you very much, and thank you, Mr. 
Chairman.
    Mr. Secretary, we appreciate your attendance and your 
testimony.
    Let me follow up about the Uganda model and ask this: You 
acknowledged that there are differences from country to 
country.
    Mr. Thompson. There are.
    Mr. Wicker. But as I understand it, in Uganda, there was a 
first-class university hospital, which served as the focal 
point, also adequate medical personnel to carry out the 
programs throughout the country. In how many of the 14 proposed 
target countries are we going to have that first-class 
university hospital and sufficient medical personnel?
    Mr. Thompson. It varies in all of the countries, 
Congressman. I cannot give you specifics, but I certainly can 
get that information for you. I do not know it off the top of 
my head at this point in time. But I know that there are some 
good regional hospitals in several of those countries, and 
there are some that do not have the adequate kind of coverage.
    But overall, throughout all sub-Saharan Africa, we have to 
do more in building the infrastructure. Every single country, 
including Uganda, needs more medical personnel, more nurses, 
more doctors and more health workers.
    We are also setting up, through a consortium of 
universities--and that is one part of the $4 million that we 
spent, in order to set up a way in which we can try and train 
more individuals. We are doing a great deal of setting up what 
we call twinning, in which we are trying to get hospitals in 
the United States to adopt a hospital in one of these 14 
countries. And they will then help supervise and help recruit 
and help monitor the kinds of programs that are needed.
    We are doing the same thing with trying to get state 
medical societies to send doctors into the region and try and 
give them the opportunity to spend two, three, four months. We 
are looking at ways in which that can be helpful, not only to 
help administer the medicine, but to help train other doctors.
    We are also setting up other programs in which we are 
trying to take a look at high school students and other 
individuals and teach them in regards to the supervision of and 
administering the drugs.
    The new drugs are much easier to administer than the old 
anti-retroviral drugs. And therefore it does not take--I should 
not in any way minimize the medical thing, but we think we can 
train high school graduates and some college graduates to do a 
lot of the monitoring, a lot of the questioning and finding out 
whether or not individuals are taking their medicine, go out 
and do the interviewing in the rural areas.
    And so we are looking at all these things, across the 
board, in order to fight this terrible epidemic.
    Mr. Kolbe. We will go until eight minutes and the vote, and 
then we will stop.
    Ms. Kilpatrick. Thank you, Mr. Secretary. I appreciate your 
comments Ms. Lowey on the ABC model, and it is effective and it 
has worked, proven by President and Mrs. Museveni, as you said.
    Mr. Thompson. She is coming to see me next week.
    Ms. Kilpatrick. Oh, please make sure she sees Congresswoman 
Kilpatrick when she is here.
    Mr. Thompson. Okay. I will tell her to come up and see you.
    Ms. Kilpatrick. For sure.
    I want to talk a minute about the coordinator.
    Mr. Thompson. The coordinator here or the coordinator in-
country?

                            AIDS COORDINATOR

    Ms. Kilpatrick. The AIDS coordinator, who I assume is going 
to be working where? That is a good question. Where will the 
AIDS coordinator be working?
    Mr. Thompson. Are you talking about the one the President 
is going to appoint and when is going to have ambassador rank?
    Ms. Kilpatrick. Yes.
    Mr. Thompson. That individual has to be Senate-confirmed, 
and that individual will be in the State Department.
    Ms. Kilpatrick. In the State Department. Why is there a 
need for a separate and a new entity, rather than going 
through----
    Mr. Thompson. The President's thinking on this is that he 
wants somebody that he can call up and say, ``How is this 
program working?'' He wants somebody that is going to be 
directly responsible to the president, to the White House, to 
get the job done. And he wants to make sure that that 
individual has only one responsibility: to make the HIV/AIDS 
program works. And that is the reason he is setting it up.
    Ms. Kilpatrick. Okay, and that would be who currently? You 
otherwise, as HHS secretary? However, because of the need and 
the pandemic and the attention that we are paying to this, we 
believe and the president----
    Mr. Thompson. More than likely would have been USAID, not 
me.
    Ms. Kilpatrick. Okay, and not----
    Mr. Thompson. I liked it to have been me, but I was not 
asked.
    Ms. Kilpatrick. I am concerned. I do not want to know the 
bureaucracy. I think it can work if we do not put another layer 
in there. And just like with the MCA, a new entity being set 
up, I am concerned that this new coordinator will be more of a 
political figure rather than someone with knowledge and 
expertise.
    Mr. Thompson. I do not agree with you, Congresswoman.
    Ms. Kilpatrick. I hope I am wrong.
    Mr. Thompson. I think you are, because the president is 
absolutely passionate about this. I have had many discussions 
with him. He wants this program to work and he wants somebody 
that he can call up on a regular basis and say, ``Tell me, 
where are the moneys going, how are the moneys working? Give me 
the results.''
    Ms. Kilpatrick. Does that eliminate the existing aid 
programs that are now in those 14 cities? There will be no need 
for that with this new configuration?
    Mr. Thompson. No, this is going to be a complement.
    Ms. Kilpatrick. In addition to.
    Mr. Thompson. Yes.
    Ms. Kilpatrick. Thank you, Mr. Chairman.
    I have some more questions; can we put those in writing?
    Mr. Thompson. Absolutely.
    Mr. Kolbe. Absolutely. All questions can go on the record. 
We will have several here. We may even get back for another 
couple of questions here.
    Mr. Lewis. Thank you, Mr. Chairman.
    And, Mr. Secretary, welcome.
    Mr. Thompson. Thank you very much.

                             HIV/AIDS CASES

    Mr. Lewis. Mr. Secretary, in 1981, I remember sitting on 
the House floor with two of my colleagues, the former, now 
passed, Julian Dixon and Victor Fazio, asking them to sign a 
resolution which called for a presidential commission on a 
thing called AIDS. And they said, ``You want to do what?'' 
Because none of us, either side of the aisle, even knew what 
the term meant in those days.
    And with that resolution was the first dollar contribution 
ever made for research in this subject area. We have come a 
long ways with this research, and we are learning a lot.
    But as Everett Koop suggested, the surgeon general, this 
thing is like the flu virus: it mutates, et cetera. The 
challenges are endless. So because of that I am wondering why, 
within this package, is there $10 billion promised by the 
President directed toward 10 or a specific 12 countries in 
Africa and Haiti and Guyana, and not to places like India, 
China where under the surface there is a huge problem.
    Mr. Thompson. The reason being is that this is where 
approximately 68 percent of all the HIV/AIDS cases are in the 
world. And we are going to have a tremendous impact. And we 
think that we got the structure set up there that we can move 
relatively rapidly in there to try and control it.
    First off, I would like to compliment you on your 
leadership and vision in 1981.
    Secondly, I thank you for your support on this.
    Third, we are going to be doing things in India through the 
Global Fund, but we are looking bilaterally at these 12 
countries in Africa and the two countries in the Caribbean 
where 60 to 70 percent of the world's AIDS cases are right now. 
We think this is going to give us the biggest bang, give us the 
opportunity to see if we can somehow get some kind of controls 
under the burgeoning and the exponential explosion of this 
disease.
    Mr. Lewis. Appreciate your response, but let me say that I 
feel very strongly that, while those educational efforts and 
control efforts are critical, research dollars going to 
fabulous institutions around the world are every bit as 
important.
    Mr. Thompson. Well, as you know, we are still spending a 
lot of money in research up at NIH, and about 75 percent of the 
money spent on HIV/AIDS research is going out to university 
research centers, not only in this country, but worldwide.
    Mr. Kolbe. Well, since we have about one more minute or so, 
let me just follow up on that.
    Is there any flexibility in the President's plan to be able 
to allow other countries to be brought into it if the 
circumstances change? Can you look at the situations?
    India is going to have so many cases that it is going to 
clearly be one of those that is going to be contributing to the 
60 percent. I think it is already. But it is clearly going to 
be one of those that is going to be contributing.
    How flexible are you going to be on being able to make 
adjustments in terms of the countries that are the recipients 
of this program?
    Mr. Thompson. Without specifically talking to the president 
on this, I am fairly satisfied that once we set up the 
successful model, Congressman, Mr. Chairman, I am fairly 
confident that if we are successful this will spread; and if 
not through bilateral effects, through the Global Fund.
    Mr. Kolbe. Is the whole idea of the bilateral program, 
setting this thing up with a new coordinator there, that we 
simply are not able to deliver programs currently through the 
mechanisms that we have or through the Global Fund?
    Mr. Thompson. No. I think we have done quite well, Mr. 
Chairman, in getting the things out. But this is going to be a 
massive infusion of new dollars, and he wants one person 
absolutely focused all the time on this particular subject; to 
be able to travel, be able to set up the programs, be able to 
monitor them, be able to look at competing interests between 
USAID, Department of Health and Human Services, NGOs, and find 
out what is working. It is just a much more targeted approach 
that the president feels is necessary with this kind of an 
infusion to have that kind of focal point.
    Mr. Kolbe. But he is going to be not just a policy person, 
he is going to be an administrator of a massive, massive new 
program, of a new bureaucracy, massive new bureaucracy.
    Mr. Thompson. Administrator, an implementer and a 
contractor. I do not think that this is going to have the kind 
of bureaucratic growth because they are going to be depending 
upon the expertise in USAID and Department of Health and Human 
Services, as well as NGOs and faith-based organizations that 
are going to be able to do this.
    Mr. Kolbe. Hope you are right.
    Six minutes; we must recess.
    We thank you very much, Mr. Secretary, for being here.
    Mr. Thompson. Thank you, Mr. Chairman.
    Mr. Kolbe. And we will stand in recess, and we will resume 
with Dr. Feachem and Dr. Gootnick as soon as we come back from 
these votes.
    Thank you very much.
    [Recess.]
    Mr. Kolbe. The subcommittee will resume our second part of 
our hearing here, to hear from and about the Global Fund to 
Fight AIDS, TB and Malaria. Several months ago this 
subcommittee requested the General Accounting Office to look 
into the progress of the Global Fund, how it was being 
implemented and problems and challenges that are faced.
    And I am happy to say we have that report in hand today and 
this is the purpose of this hearing as to not only receive that 
report but also to hear from the GAO as well as from the 
executive director of the Global Fund.
    So at this point we are very happy to welcome Dr. Gootnick, 
who was the lead on this particular report and who will cover a 
brief summarization of it, and then we will hear from Dr. 
Feachem, and then we will take questions.
    Dr. Gootnick.
                                            Wednesday, May 7, 2003.

                UNITED STATES GENERAL ACCOUNTING OFFICE


                                WITNESS

DAVID GOOTNICK, DIRECTOR, INTERNATIONAL AFFAIRS AND TRADE, GAO

                    Mr. Gootnick's Opening Statement

    Mr. Gootnick. Mr. Chairman, thank you for the opportunity 
to be here today to discuss GAO's assessment of the first year 
operations of the Global Fund to Fight AIDS, TB and Malaria. 
Briefly, by way of background, the fund has received $3.4 
billion in pledges. The United States has pledged $1.65 billion 
and is the fund's largest donor. Over two rounds of grant-
making, the fund has approved 153 grants, totalling nearly $3.7 
billion over 5 years.
    The chart on my left, which is reproduced in my written 
statement, shows that roughly two thirds of the funding is 
directed towards HIV/AIDS and just under two thirds of the 
funding is directed to sub-Saharan Africa.
    Our report released today has four key findings in the 
areas of governance, oversight, resource mobilization and 
grant-making. Of note, in each of these areas, the Fund in its 
first year of operations has recognized and begun to respond to 
the major challenges cited by GAO and others.
    First, on governance structures. The Fund has rapidly 
established its governance structures at the headquarters and 
country levels, yet as of late 2002, country-level governance 
structures needed better communication and participation. The 
Fund requires potential recipients to establish a country-
coordinating mechanism as a forum to develop, review and submit 
grant proposals.
    The Country Coordinating Mechanism, or CCM, should include 
locally-based government, private sector and civil society 
representation. The CCM designates the principal recipient of 
the grant. Effective CCMs are central to the Fund's vision of 
broad-based response to AIDS, TB and Malaria.
    However, during our field work in Haiti, Honduras, Tanzania 
and Ethiopia in late 2002, we observed a lack of clearly 
defined roles and a need for broader participation and improved 
communication processes of CCMs. For some first-round grants, 
these issues hampered effective start-up of country-level 
operations.
    Second, on oversight. The Fund has developed comprehensive 
oversight mechanisms, yet the introduction of fund oversight 
has been slowed by controversy. At the local level, the Fund's 
oversight of grant recipients is through its Local Fund Agent. 
The Local Fund Agent, or LFA, is an independent entity hired by 
and accountable to the secretarist of the Fund.
    The LFA ensures that grantees account for the money they 
spend, reviews the grant's progress and assesses the grantee's 
ability to procure goods and services. However, the 
introduction of the LFA has been slowed by controversy and 
misconceptions.
    For example, during our field work, we observed 
stakeholders in recipient countries who believed incorrectly 
that the LFA is charging an exorbitant fee and deducting it 
from the grant. We also observed misunderstandings regarding 
eligibility criteria for serving as an LFA. These problems 
delayed implementation of some first-round grants.
    Third, on resource mobilization. Current pledges to the 
Fund constrain its ability to approve new grants. As the chart 
to my right shows, the Fund faces short- and long-term resource 
constraints.
    In the short-term, the Fund has roughly $300 million 
available for new grants in future rounds. This is far less 
than the Fund projects it will need to support technically 
sound proposals. This constraint is evident when comparing 
pledges through 2003, with two-year commitments to already-
approved grants.
    This figure is also reproduced in our written statement. 
The pledges through 2003 and two-year commitments to already-
approved grants leaves roughly $300 million available for 
future rounds.
    In the long-term, the Fund faces a potential short-fall in 
funding of already-approved grants. This is evident when 
comparing total pledges to the Fund with its potential five-
year commitments to grantees; that is total pledges to the Fund 
to date, and five-year commitments to grantees.
    Fourth, on grant-making. Although challenges remain, the 
Fund's grant-making processes have been strengthened 
significantly in its first year.
    Between its first and second round of grants, the Fund made 
numerous improvements in its grant-making processes. For 
example, it altered eligibility criteria to ensure a focus on 
the neediest countries.
    It also added additional members to its review panel to 
better prepare it to evaluate non-medical development-related 
issues.
    Our report cites two ongoing challenges to the grant-making 
process. First, ensuring that grants augment and complement 
existing spending on AIDS, TB and malaria.
    And second, evaluating the recipient's capacity to 
effectively use grant funds. In conclusion, Mr. Chairman, the 
Fund has made noteworthy progress in its first year, and 
despite major challenges, is a promising mechanism to fight 
these three diseases.
    Our analysis suggests that the Fund's success will depend 
on its ability to build effective, locally-based governance and 
oversight structures, and on its ability to raise the resources 
necessary to approve and finance grants.
    This concludes my prepared statement. I will be happy to 
answer any questions you or other members may have.
    [The statement of Mr. Gootnick follows:]

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    Mr. Kolbe. Thank you very much, Dr. Gootnick. We will then 
call you back in just a moment after we hear the testimony from 
Dr. Feachem. We will then have both of you at the table for 
questions.
    We will excuse you for just one moment and ask Dr. Feachem 
to come to the table.
    Let me just say before I call on Dr. Feachem for his 
statement, just a word or two about him and the work of the 
Global Fund.
    We are very happy to have you, Dr. Feachem, in this first 
opportunity to testify before this subcommittee and to give 
your perspective, your very important perspective, on what is 
going on.
    This subcommittee takes a real interest in making sure that 
the Global Fund is a success. The institution is new and it is 
unique, certainly, on the multilateral landscape as it deals 
with health issues in the world today.
    As you know from our conversations, I personally visited 
grants of the Global Fund in Haiti and, of course, spent a day 
with you and your staff, or the better part of a day in Geneva, 
to get a sense of the operations and the progress to date.
    I think we all have very high hopes for the Global Fund. I 
think the world has high hopes for the success of this fund.
    It is absolutely imperative that the structures, the grant-
making process, of the procurement processes and the results of 
the Global Fund get up and that we can see the results of that 
as quickly as possible so that we can meet the expectation of 
both the donor and the recipient countries, as well as the 
civil society that is impacted by the diseases which your fund 
is committed to tackling.
    The HIV/AIDS pandemic alone will be with us for generations 
if current trends continue. If we are to turn back the pandemic 
we have to see, I think, this institution has to be successful 
and play a major role in doing that.
    And the bilateral programs of the United States and other 
countries is not going to carry the day alone. Institutions 
like the Global Fund are integral to our efforts to make sure 
that we have a coordinated worldwide response that stretches 
across bilateral programs through multilateral organizations, 
national governments of the impacted countries, as well as 
civil societies in those countries.
    Just a word of introduction of Dr. Feachem. He was 
appointed the executive director of the Global Fund to Fight 
AIDS, Tuberculosis and Malaria at the second meeting of the 
board in April of 2002, so you are now 13 months or actually a 
little less since you actually arrived on the scene and got on 
board there.
    But prior to his position with the Global Fund, Dr. Feachem 
was founding director of the Institute for Global Health in San 
Francisco and professor of international health at the 
University of California in San Francisco and in Berkeley.
    So he comes to this with a great deal of background. He 
also has been a visiting professor at London University, for 
four years was director for health, nutrition and population at 
the World Bank. So he has worked in international health for 30 
years, has published extensively on public health and health 
policy, and holds a Doctor of Science degree in medicine and a 
PhD in environmental health.
    Your credentials are well-established, Dr. Feachem. We 
welcome you today, and unless Ms. Lowey has comments, we will 
take your statement and then we will go to questions with both 
of you.
                              ----------                              

                                            Wednesday, May 7, 2003.

             THE GLOBAL FUND TO FIGHT AIDS, TB AND MALARIA


                                WITNESS

RICHARD G. A. FEACHEM, EXECUTIVE DIRECTOR

                    Mr. Feachem's Opening Statement

    Mr. Feachem. Well, thank you very much. And good afternoon, 
Chairman Kolbe, and Representative Lowey and other members of 
the committee.
    Mr. Kolbe. I am sure we will be joined by other members who 
told me on the floor they were going to be coming back this 
way.
    Mr. Feachem. Excellent. Thank you. And thank you for this 
opportunity to testify on the progress and prospects of the 
Global Fund, which is one critical component in our combined 
efforts to turn the tide of AIDS, TB and malaria.
    I am glad to be here also with Secretary Thompson, who has 
brought his passion and leadership to the Global Fund as the 
chair of our board.
    AIDS, TB and malaria are killing today at least 6 million 
people every year, and this number is rising rapidly. AIDS 
alone is the greatest disaster in recorded human history.
    In southern Africa, life expectancies have already been set 
back to the levels of the 1920s, school teachers are dying at 
twice the rate that they can be trained, and 70 percent of 
healthy 15-year-olds will never reach their 60th birthday. The 
comparable figure for the United States is 10 percent.
    In Nigeria, Ethiopia, Russia, India and China, we are at an 
earlier point in the epidemic, but make no mistake, we are on 
the same trajectory.
    I would like to compliment both Ms. Lowey and Mr. Lewis for 
drawing attention both to the Indian epidemic and the scale of 
the problem emerging in Asia, and also for the special impact 
that this epidemic has on women, which is a matter of 
particular concern and it represents, I think, a particular 
tragedy in the lives of these communities.
    But we can change the future. We can avert tens of millions 
of deaths and save billions of dollars of economic loss. We 
know what works, and we are every day developing better tools 
which will be even more effective.
    The challenge is to apply known solutions on a very, very, 
very large scale. But to do this, we must adopt a comprehensive 
strategy with several distinctive pieces, which must be bound 
together by a common vision.
    Let me name the five big pieces that constitute the 
comprehensive approach to which we must all be committed.
    One, governments in developing countries must do much more.
    Two, civil society in the developing world must be 
empowered and supported to contribute more effectively to the 
fight.
    Three, bilateral assistance in the form both of money and 
technical support is critical. President Bush's announcement in 
his State of the Union is an historical turning point.
    For the first time, we see at the highest political level a 
recognition of the immense gravity of the global threat of AIDS 
and the allocation of resources on the scale that is required. 
For the 14 countries targeted, the emergency plan for AIDS 
relief will make a world of difference.
    Four, we also need large and effective multilateral 
partnerships and financing mechanisms. This includes the Global 
Fund as the central means for public and private donors to 
invest large sums efficiently and accountably.
    Before I return to the Global Fund, let me not forget to 
include the critical fifth piece in this jigsaw, which is 
research and development and the need to find improved tools in 
the fight against all three diseases.
    And I applaud the work of this Congress in its continuing 
commitment to the research agenda and its continuing 
outstanding financial support for the needed research.
    The benefits of research will come in time. But to turn the 
tide of these diseases in the short term, we need effective 
financing of existing interventions. The Global Fund was 
created through a consensus among the G-8, other donor nations, 
activists, effective countries and communities and the U.N. 
Secretary General to be the principle multi-lateral financing 
mechanism for the fight against AIDS, TB and malaria.
    The Global Fund has been working since January of 2002 to 
realize that vision. It was the fund's originators that said it 
must be independent, that it must not be business as usual, 
that it should draw heavily on lessons and experience from the 
private sector.
    I, myself, have been a consistent critic of development 
assistance. We do not need another entitlement fund with 
politicized governance. We do need an effective financing 
mechanism that can tie investment to the production of results.
    Three goals characterize what the Global Fund must do to 
have a distinct and additive role and to play its full part in 
a comprehensive global response.
    First, we must enable and support local partnership and 
local ownership. And a part of this is the country-coordinating 
mechanisms, which have been somewhat commented on already this 
afternoon. And I want to digress slightly to make a couple of 
comments about country-coordinating mechanisms.
    Today, 50 percent of the members of the country-
coordinating mechanisms are from outside government. They are 
from one or the other form of civil society.
    It may be NGOs, it may be the private sector, it may be 
faith-based organizations. But roughly 50 percent of CCM 
membership today is from outside government.
    Secondly, 65 percent of all the individual CCMs have a 
faith-based organization or more than one faith-based 
organization represented around the table.
    In Burundi, remarkably, 20 percent of the CCM members are 
from faith-based organizations. In Haiti, a journalist sits on 
the CCM.
    When I was back in San Francisco before I took the job of 
executive director of the Global Fund, and I heard about the 
invention of CCMs, and the creation of CCMs, the method by 
which the Global Fund would talk to individual countries, I was 
skeptical.
    I have become a great enthusiast, and although we have a 
good distance to travel to make CCMs ideal, I think the big 
news about CCMs today is they are working much better than I 
would have thought they would be at this stage. And in some 
countries, they are working very well, indeed.
    We are working with our board to find various to 
incentivize the laggard CCMs and to push them in the right 
direction. But in my view, the glass is half full on CCMs, not 
half empty.
    The second, I think, special commitment to the Global Fund 
is to reduce transaction costs. And I am happy to elaborate on 
that at the question time.
    And the third, of course, is to finance a comprehensive and 
very large response to the pandemic.
    If that is what we are trying to do, then how are we doing? 
A fair and important question which should be asked repeatedly 
and which the Global Fund must answer honestly .
    In 2002, we began to create the Global Fund from the ground 
up, establishing an infrastructure, recruiting staff and 
designing systems to achieve our purpose.
    By the end of 2002, we signed our first grant agreement and 
made our first disbursement. Now, four months later, we have 
signed grant agreements with 80 percent of the countries we 
approved a year ago, and disbursed initial funds totally about 
$21 million to 25 of those countries.
    We have also conducted a second round of proposals which 
were approved in January. We signed the first grant agreement 
with a round two grantee within three months of that approval.
    Our pace is not good enough, but it is quickening, as it 
must to scale up the response and to save lives.
    We are today, as others have commented, committed to 
roughly 155 programs in 92 countries. Nearly half of the money 
represented in those commitments goes to non-governmental 
organizations.
    What will this money do? Well, over the lifetime of these 
grants, which is five years, although our initial commitment is 
only for the first two years, it will put 500,000 people on 
anti-retroviral therapy. It will place two million additional 
people on effective TB treatment. It will increase the 
treatment of drug-resistant malaria in Africa from a current 
extremely low level of about 15,000 per year to 20 million.
    And it will finance the purchase of 30 million insecticide-
treated bed nets, which we know are a central preventive 
strategy for the control of that great killer of African 
children.
    Round three, which is currently under review, and 
subsequent rounds, will add much more to these achievements and 
scaling up.
    But what have we achieved now? Is the Global Fund saving a 
life today? The answer is yes, a modest yes, but indeed a yes. 
Our first recipients are spending their money and results are 
being achieved. Let me give the example of Haiti.
    Six-hundred people have started anti-retroviral therapy in 
Haiti because of the Global Funds. Three-hundred people have 
begun treatment for TB. A health clinic has been reopened, and 
five more have better labs and drugs on their shelves. One NGO 
has increased access to mother-to-child prevention of HIV 
prevention by five fold.
    These are small steps towards our very ambitious goals, but 
they are signs of hope, and they are the first results of many, 
many more to come. To better achieve these results, we need 
constructive criticism and insight on how we can do better.
    I am very grateful to Chairman Kolbe and this committee for 
requesting the GAO analysis, and I thank the GAO team for 
conducting an honest and forward-looking assessment. The GAO's 
findings reflect both the quick progress and growing pains 
inherent in an effective start-up organization.
    I will be happy to discuss the specific issues raised by 
the GAO in the discussion period.
    Let me conclude by commenting on three questions that I 
hear most clearly on my visits to Washington.
    ``Where are the other donors? Where are the results? And 
should we support the bilateral initiative or the Global 
fund?''
    Firstly, where are the other donors?
    Concerning contributions and pledges, the U.S. will be out 
ahead of its fair share if other donors do nothing more. Other 
donors need to step forward, and they are stepping forward. We 
are pursuing the private sector through a number of avenues, 
and we are knocking on the doors of new public money, including 
the European Development Fund, and the U.K.'s International 
Finance Facility.
    In the short term, the major donor nations, particularly 
the G-8, will surely be responsible for most of the refinancing 
of the Global Fund. Secretary Thompson and I are working 
vigorously to maximize the commitments of the G-8 as we 
approach the G-8 summit in Evian the first week of June.
    On July 16, a donors' conference is being held in Paris, at 
which all supporters of the Global Fund, public and private, 
will discuss our resource requirements.
    I am very much hoping Chairman Kolbe and Ms. Lowey that you 
will accept our invitation to come to Paris on July 16 and join 
in these important discussions.
    It is my understanding that some will make new pledges, 
including France. It is essential that the United States 
maintain its leadership in financing the Global Fund, and its 
commitment to a fair share of the fund's needs. This provides a 
strong incentive for others, both donor nations and the private 
sector.
    But these resources are only half of the deal we are 
striking. The other half, of course, is results, results, 
results. I commit, and the secretariat commits, and the board 
commits, to getting you the results that you expect.
    Large-scale reductions in disease will take time, but soon 
we will be able to show increasing numbers of people receiving 
effective prevention and treatment services. These increases in 
coverage will drive further funding and further results, and 
bring us closer to the day when we can demonstrate that the 
tide has turned.
    The last question that I hear frequently in Washington is 
the one that pits the bilateral initiative against the Global 
Fund and asks which should we be supporting and which should we 
be advocating for.
    The answer is very clear, and Chairman Kolbe gave that 
answer in his opening comments, in his introduction of my 
presentation. The answer is, both.
    If you look at the global architecture necessary to turn 
around the HIV/AIDS pandemic, the like of which we have never 
seen, we need very strong bilateral initiatives. And the one 
announced by President Bush in the State of the Union is by far 
the largest.
    And we also need an effective multi-lateral response to 
finance the necessary action against the pandemic in many, many 
more countries. And we are today committed to 92 countries.
    So it is not a choice between the bilateral initiatives and 
the Global Fund, it is the need for both of these, and the need 
for the necessary collaboration and coordination between them, 
which Secretary Thompson referred to.
    Thank you again for this opportunity to speak before this 
committee. I have submitted copies of my testimony for the 
record and also have available copies of a brief fact sheet and 
update on the Global Fund.
    I am very happy to answer questions that the committee may 
have.
    Thank you.
    [The statement of Mr. Feachem follows:]

GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT
    
    Mr. Kolbe. Thank you very much.
    Dr. Gootnick, if you would join Dr. Feachem at the table 
there, both of you share that microphone.
    Ms. Lowey, I understand you have to be across the hall in a 
few minutes.
    Mrs. Lowey. That is right.
    Mr. Kolbe. Why do not you go ahead first?

                               GAO REPORT

    Mrs. Lowey. Thank you very much, Mr. Chairman, and welcome. 
I thank you both for your testimony.
    First, regarding the GAO report. It identifies a number of 
specific challenges that the Global Fund has encountered in 
implementing HIV-treatment programs. These include the 
complexities of drug procurement, dosing regimens, patient 
monitoring, payment issues and procurement principles.
    As you know, this is a complex challenge, made immensely 
more difficult by the lack of health infrastructure in many 
countries.
    The president's plan also segregates $300 million 
specifically for a mother-to-child initiative in 2004.
    My first question, sir, is how do we intend to transition 
from our current program in which we spend between 10 and 15 
percent on treatment to 55 percent for treatment by 2006? Does 
that mean we will be cutting back on prevention programs?
    And maybe I will ask the other two, because I see I have to 
leave for a few minutes, also to you, sir, regarding the 
report.
    How will the president's initiative address the lack of 
health infrastructure in Africa? And how do we intend to 
address the complexities of drug procurement and all the 
attendant issues?
    And maybe we should begin with the first question. You have 
that one.
    Mr. Gootnick. Well, I certainly would want to give Dr. 
Feachem the opportunity to answer those questions because I 
think those are truly questions for the fund.
    What I can tell you in terms of GAO's assessment, the three 
points that you made are scaling up treatment, lack of health 
infrastructure and the complexity of drug procurement and 
administration.
    And I would say, again, sticking with the analysis that GAO 
performed over the past year, the Global Fund uses its 
technical-review panel as its means for determining that grant 
proposals submitted to the fund are either approved or not.
    And that technical-review panel intends to apply principles 
that would tend to support projects that are capable along the 
lines that you have demonstrated.
    So specifically, the components of technical-review-panel 
assessment include the technical soundness of the approach, the 
participatory nature of the proposal, the ability to monitor 
and evaluate the grant proposals downstream.
    So these are the types of things that the fund endeavors to 
achieve through its grant-making process. The success of that 
endeavor will be seen over time.
    Mrs. Lowey. Would you like to comment, Dr. Feachem?
    Mr. Feachem. Well, very briefly. And thank you for the 
questions.
    On the question of the balance between prevention and 
treatment, I obviously cannot comment on the bilateral 
initiative, but let me make a global comment and a Global Fund 
comment.
    The scientific consensus today is very clear, which is that 
countries need a comprehensive approach to HIV/AIDS, with 
strong prevention and strong treatment.
    The exact balance between those I think varies country by 
country, depending on the state of the epidemic.
    So, for example, in India today prevention would loom very 
large and treatment would be a somewhat lower priority, but 
nonetheless important. Whereas in Malawi or Zimbabwe or 
Mozambique or Namibia, treatment is a huge priority, as is 
prevention. So the relativities are not standard across 
countries.
    The Global Fund, of course, is driven by the proposals that 
it receives and that are technically screened, and our money 
today is committed substantially to treatment and to 
prevention.
    So we start off with a balanced approach. We do not have to 
make a transition from 10 percent to 55 percent, as you 
mentioned. That is a challenge for the bilateral initiative.
    On lack of health infrastructure in Africa, this is a very 
great challenge to all of us in the fight against these three 
pandemics, and I would just make three comments.
    One is, it is indeed a challenge and we need to work in a 
coordinated way to strengthen the infrastructure.
    Secondly, I think one of the important features of the 
Global Fund is that we invest in everybody's capacity, not just 
in the government's capacity. When we have these discussions 
about absorption capacity, we often tend to focus on weak 
government infrastructure, which does need to be strengthened.
    But the Global Fund's commitment is to invest in anybody's 
capacity who is able to do more.
    So, for example, in English-speaking Eastern and Southern 
Africa, something like 40 percent of all hospital beds are 
controlled by the Protestant or Catholic churches. We are 
investing in that capacity to expand treatment, not only the 
government's hospital infrastructure.
    So that is an important feature.
    And thirdly, just to clarify what I think you know, the 
Global Fund does invest in infrastructure. We do not just 
invest in the drugs or the specific intervention.
    Thirdly, on drug procurement, last October the board of the 
Global Fund, with the support of the United States delegation 
and other board constituencies, passed what I think is very 
farsighted policies on drug procurement, which the GAO report 
makes some reference to.
    It is very interesting to me how the same parties who are 
failing to agree currently in the World Trade Organization 
agreed last October in the context of the Global Fund, and we 
have drug-procurement policies which jump over the current 
arguments that are bedeviling the Doha, post-Doha discussions 
at the WTO.
    I think those are good policies and they represent a fair 
and transparent way of purchasing drugs of assured quality at 
the lowest price, through international competitive tendering, 
and I think that is the way we need to go.
    It will not be a simple road in practice, and we will need 
to call on the assistance of international procurement agencies 
to help procurement in very small countries, poor countries, 
where the task of procuring complex drugs on a difficult and 
fast-moving international marketplace is really quite 
challenging.
    Mrs. Lowey. Thank you very much, Mr. Chairman. And I do 
apologize, but I have to run across the hall for a few minutes.
    Mr. Kolbe. If you can come back, we would love to have you.
    Mrs. Lowey. Okay, thank you.
    Mr. Kolbe. Thank you very much.
    And Ms. Lowey, thank you for your questions.
    Most of the questions I have are probably directed to Dr. 
Feachem, but I am going to start with one here for Dr. 
Gootnick, and there may be some along the way that you can fill 
in.
    I was interested in the noting in the report here, and 
actually both of you can comment on any of these questions or 
respond to them.
    I was interested in the report, looking at the figure of 
the amount that is paid to the World Bank in fees for their 
managing the account.
    What role do they play, other than simply holding the funds 
and actually disbursing funds? Do they have any other role for 
this? I think it is a $2 million fee that they are getting for 
this?
    Mr. Gootnick. The World Bank will receive the majority of 
the pledges of the contributions to the fund.
    Mr. Kolbe. Not all?

                               WORLD BANK

    Mr. Gootnick. There are two avenues to contribute to the 
Global Fund, governments by-in-large are contributing through 
the World Bank. The private sector and individuals are 
contributing through the U.N. Foundation, but it is a small 
percentage of the funds that have come through this foundation.
    Mr. Kolbe. Those funds, then, are not deposited with the 
World Bank, that latter category?
    Mr. Gootnick. Those funds are then transferred to the World 
Bank.
    Mr. Kolbe. So they are transferred. Ultimately they end up 
in the World Bank or for holding over for disbursing?
    Mr. Gootnick. I would refer to Dr. Feachem.
    Mr. Feachem. I would have to seek clarification on that.
    Mr. Gootnick. The other role is for the World Bank. The 
vast majority, 99 percent of the funds, have come through the 
World Bank.
    So the World Bank receives them, they hold them, they 
invest them, and they disburse them on the specific direction 
of the Global Fund's Secretariat.
    Mr. Kolbe. Are there other examples of this, other funds 
like this, that the World Bank manages? Do you know enough 
about the operation of the World Bank to be able to tell us 
this? I may be getting a bit out of your area of expertise 
here.
    Mr. Gootnick. Yes, my understanding is that the global 
environmental facility also is handled in the same fashion, but 
I have not looked too closely at this.
    Mr. Kolbe. There is no interest received on the funds that 
are being held by the World Bank, is there? Oh, there is?
    Mr. Gootnick. Actually the World Bank invests the funds. 
And those investments are meant to cover the rest of certain 
operational aspects of the Global Fund's activity.
    Mr. Kolbe. And of the costs to the World Bank, I presume? 
Is that right, out of their costs, yes?
    Mr. Feachem. If I may clarify that, Mr. Chairman, the World 
Bank holds the funds in a trustee account on behalf of the 
Global Fund. They attract a rate of interest, which is paid 
into the trustee account, so the Global Fund benefits from that 
interest. As a quite separate transaction, we pay the World 
Bank a fee.
    Mr. Kolbe. It is a flat fee, then, it is not based on the 
amount of funds----
    Mr. Feachem. Correct.
    Mr. Kolbe [continuing]. That are deposited, it is a flat 
fee.
    Mr. Feachem. It is a flat fee periodically renegotiated in 
the life of the volume of the work involved. It is not a 
percentage of the volume of funds held.
    Mr. Kolbe. Correct, so is the board satisfied with the 
financial arrangement that you have with the World Bank?
    Mr. Feachem. The matters of this kind come before the 
finance and audit committee of the board, which is currently 
considering this matter, because what we call the trustee 
agreement between the Global Fund and the World Bank is 
currently up for discussion and for setting of the new fee 
rates.
    So the board will be considering this matter in June. My 
understanding is that there is some degree of disquiet in the 
board about the nature of this arrangement, but we will have to 
see how the discussions go at the next meeting.
    Mr. Kolbe. Could you characterize that disquiet as being 
over the amount of the fees being paid? Or is it at least in 
part?
    Mr. Feachem. In part the amount of fees being paid, and in 
part the perceived lack of transparency of the bank in 
declaring clearly exactly what its costs are in order to 
undertake its work on our behalf.
    Mr. Kolbe. I am very interested in seeing how that 
negotiation goes. We insist that your work be transparent, and 
it seems to me the World Bank's should also.
    It bothers me, the idea that the World Bank would be making 
any kind of a profit off of, or money from managing an account 
which is paid into it by private organizations as well as 
governments to manage or to try to deal with a pandemic around 
the world.
    It just bothers me if that is the case. And I will be 
interested in hearing more about how this particular--this is a 
small thing, I realize, but it is one that just leaped out from 
the page.
    Mr. Feachem. And I must clarify, Mr. Chairman, that we have 
no evidence to suggest that the World Bank is making a profit. 
So I do not want to imply that we think that is the case.
    Mr. Kolbe. But unfortunately, you do not have a good handle 
on what their costs are because it is not terribly transparent.
    Dr. Feachem, you touched on this just a little bit, but as 
you know, the House of Representatives last week passed an HIV/
AIDS authorization bill dealing with the bilateral, as well as 
additional money for the Global Fund.
    I will not ask you to comment on the breakdown in that, 
although there is more in that than was requested by the 
President for the Global Fund. But I would ask you to comment 
on the issue about limiting the U.S. contribution to the fund 
to 33 percent, challenging other donors in the private sector 
to match with two-thirds of the funds, with 67 percent.
    Is this kind of provision in the legislation helpful to 
you, or does it harm your efforts to get other countries to 
step up to the plate?
    Mr. Feachem. It is helpful, and I think it is widely 
perceived as being reasonable and appropriate. Let me just give 
a very quick bit of background to that comment.
    If we look at the U.S. proportion of the money in the bank 
so far, it is 25 percent. So we should not get too carried away 
by these numbers of 50 percent of Global Fund resources come 
from the United States.

                             DONOR PLEDGES

    Mr. Kolbe. Pledges at this point are 50 percent, but the 
actual on-deposit is 25 percent?
    Mr. Feachem. Pledges at this point are running a little 
under 50 percent, but close to 50 percent, but those are 
pledges----
    Mr. Kolbe. Pledges from the United States?
    Mr. Feachem. Pledges from the United States are running at 
a little under 50 percent of all pledges. But those are pledges 
out to the year 2008 and so give a particular view of relative 
contributions to the Global Fund.
    And of course, many European nations are saying that is not 
the only figure we need to look at, because it just happens 
that because of the president's State of the Union address, a 
five-year commitment was made. Some European nations have not 
made those long-term commitments.
    So if we look at the shortest-term figure we could look at, 
which is money in the bank today, the U.S. stands at almost 
exactly 25 percent of cash in the bank.
    Now, moving forward, I think it is extremely appropriate 
and helpful of the U.S. to maintain its financial leadership, 
its position as the largest donor, and to say that there is a 
clear concept of an appropriate share or a fair share, and we, 
the United States, are going to announce what we think that 
should be.
    And maybe we think it is 33 percent, which provides a clear 
challenge to everybody else. Everybody else being all the other 
donor nations and all the private sector contributors to the 
Global Fund to come up with the other two-thirds.
    So we believe that this is challenging. We believe it is 
helpful. And it certainly has become part of the currency of 
the discussion in the lead-up to the G-8 summit and the lead-up 
to the July 16 donor conference in Paris.
    Mr. Kolbe. I have some questions on this. Maybe this is the 
appropriate time to ask about them. The funds, the actual 
funds, pledges versus the amount of cash on hand.
    Do you have enough cash on hand, in the bank, World Bank 
fund, trustee fund, to go how far? To carry you how far?
    Mr. Feachem. We are fully funded for our current 
commitments to round one and two. So our current situation is 
that we have committed ourselves to 155 programs in 92 
countries for the first two years of those programs. Those are 
the legally binding agreements.
    Mr. Kolbe. And those, when you say first two years, so it 
includes the funding for both of those years?
    Mr. Feachem. Exactly.
    Mr. Kolbe. Okay.
    Mr. Feachem. And we are fully funded for that commitment to 
two years of 155 programs in 92 countries. We have left after 
that as Dr. Gootnick said, roughly 300 million.
    So we are not fully financed for our expected round-three 
commitments. And as you know, round three closes at the end of 
May and the board will make decisions on it at its meeting in 
October.
    We have a prediction of how big round three is going to be, 
based on experience so far. We are not fully funded, by any 
means, for round three or for rounds four and five, neither, as 
Dr. Gootnick pointed out, are we funded for years three, four 
and five of the first two rounds that we have already committed 
to for the first two years.
    Mr. Kolbe. All right. Let me just run through those figures 
again. Round one was how much, in how many countries?
    Mr. Feachem. If I could add round one and----
    Mr. Kolbe. One and two together, that is what is confusing 
me, I guess.
    Mr. Feachem. Round one and two together----
    Mr. Kolbe. So a round is for one year or two years?
    Mr. Feachem. No, sorry. Terminology. A round is a call for 
proposals reviewed by our technical review panel, approved by 
our board. Round one was approved in April, round two was 
approved in January 2003----
    Mr. Kolbe. Each of them include funding for two years for 
the program.
    Mr. Feachem. Exactly.
    Mr. Kolbe. Okay.
    Mr. Feachem. Exactly.
    Mr. Kolbe. Okay.
    Mr. Feachem. And if you add those together----
    Mr. Kolbe. That is the 155 programs in 92 countries.
    Mr. Feachem. With two-year commitments worth $1.5 billion.
    Mr. Kolbe. One point five.
    Mr. Feachem. And if you look at where those commitments 
fall through time, and the money that we have in the bank or 
are firmly pledged, we are covered for that.
    We are not covered for round three.
    Mr. Kolbe. And when is round three due?
    Mr. Feachem. A board decision in October.
    Mr. Kolbe. October? The proposals are in now?
    Mr. Feachem. End of May.
    Mr. Kolbe. End of this month.
    Mr. Feachem. End of this month.
    Mr. Kolbe. So you will be going through the technical 
review for the next several months?
    Mr. Feachem. July.
    Mr. Kolbe. And staff will be making recommendations to the 
board for October meeting.
    Mr. Feachem. Exactly.
    Mr. Kolbe. Based on what you are seeing out there, what do 
you expect the size of the requests to be, that might logically 
be, if you have funds available that you might make to the 
board?
    Mr. Feachem. Our current prediction, based on the volume 
that we believe is coming in, and the expectation that the 
Technical Review Panel will continue to reject 60 percent of 
all applications and accept only 40 percent of all 
applications, we are predicting----
    Mr. Kolbe. And did that number hold basically true for both 
rounds one and two?
    Mr. Feachem. It did. It is not a policy, it just fell out.
    Mr. Kolbe. No, I understand. And about 40 percent are being 
approved.
    Mr. Feachem. Exactly.
    Mr. Kolbe. Okay.
    Mr. Feachem. Could change through time, no certainty about 
that.
    Mr. Kolbe. Actually, countries could learn what is needed 
and what is required and the numbers could go up.
    Mr. Feachem. Exactly.

                         TECHNICAL REVIEW PANEL

    Well, truly, countries are learning. Equally, the Technical 
Review Panel could raise the bar. It was clear that between 
round one and two the quality of applications was better in 
round two, but the acceptance rate was still the same.
    So our impression was that the TRP raised the bar, and that 
is probably very healthy. They may raise the bar again.
    Mr. Kolbe. I have a question on that, but go ahead and 
finish the point based on if it is roughly stays the same at 40 
percent you are looking at what?
    Mr. Feachem. We are looking at round-three commitments of 
$1.6 billion.
    Mr. Kolbe. So only 20 percent of cash on hand for that?
    Mr. Feachem. Precisely.
    So that is the big refinancing requirement which all these 
calls for refinancing of the Global Fund that we will hear 
around the G-8 Summit in Evian, that is what is triggering 
this.
    Now, the point is, the important point I must add that 
during June, we at the secretariat will be able to analyze in 
detail what has actually been proposed for round three.
    By the end of May we have our closing date, so in June, 
even before our Technical Review Panel does its assessment, we 
will know the volume of applications, and we will be able to 
make before July 16 a better estimate of the likely size of 
round three.
    Mr. Kolbe. Will there be instructions given to the 
Technical Review Panel about raising the bar if----
    Mr. Feachem. No.
    Mr. Kolbe. So you will not say, ``We are not going to have 
enough funds, raise the bar?''
    Mr. Feachem. No. Well, firstly, the Technical Review Panel 
does not report to me. So I give it no instructions.
    Mr. Kolbe. It reports to?
    Mr. Feachem. It reports to the board.
    Mr. Kolbe. Directly to the board?
    Mr. Feachem. Directly to the board, and the board has 
resisted giving it instructions. The board gives it guidelines 
concerning how to conduct its procedures, but it is a truly 
autonomous body that reaches independent judgments about the 
quality of proposals.
    Mr. Kolbe. And it does not prioritize those proposals, it 
simply----
    Mr. Feachem. It puts them into four categories, two of 
which it recommends for funding, and two of which it recommends 
not for funding.
    Category one is fund basically as is.
    Category two is fund if certain questions that we have 
asked can be satisfactorily answered, and we the Technical 
Review Panel are the judge of that satisfactoriness.
    Category three is substantial problems, come back to us at 
the next round.
    And category four is let us not hear from you again, go 
away.
    So that is how the TRP divides all proposals that it 
receives. The TRP is not charged with dealing with the problem 
of not enough money for category one and two.
    That is a problem for the board to deal with.
    Mr. Kolbe. Okay, well, that was my question.
    If as you approach this October meeting, if you only could 
see that you had funds for--let me just pull a number out of 
the hat, this is purely hypothetical--but for $1 billion and 
you have proposals of $1.6 billion, the TRP does not really 
help you prioritize those. It does not help the board 
prioritize those.
    I mean, because the questions might be answered by the time 
the October meeting comes around, is that correct? Between 
category two and one, I mean, you might get the answers and you 
might be satisfied that----
    Mr. Feachem. Well----
    Mr. Kolbe. Let me back up. Does the TRP or the staff 
attempt to address those questions prior to the board 
considering them? The category two questions?
    Mr. Feachem. Well, the secretariat does some work prior to 
the meeting of the board to fill in gaps that can obviously be 
filled in.
    The main task of answering the category-two questions and 
deciding whether they were satisfactory answers or not is 
actually done post-board in the current arrangements.
    So if those arrangements are not changed, what would happen 
is this: The end of May, all proposals are in. Secretariat 
screens for eligibility. We have some eligibility criteria, and 
some get knocked off the table because they are noneligible 
applications.
    Eligible applications go to the TRP in July. The TRP makes 
judgments that are purely technical and contextual and does 
prioritize to the degree of category one and category two and 
then it draws a line and says category three, category four.
    The matter of what we should do in October----
    Mr. Kolbe. Yes.
    Mr. Feachem [continuing]. If the board is presented with 
more category one and category two than we had----
    Mr. Kolbe. And you tell them we only have enough funds 
right now to commit to a billion instead of $1.6 billion. How 
do they go about making that decision?
    Mr. Feachem. That is a question that is currently under 
discussion both in board committee, and will doubtless be 
discussed at the June board meeting concerning the ways in 
which the board might handle that situation in October if that 
situation does arise.
    Mr. Kolbe. You have not had them make that decision yet?
    Mr. Feachem. We have not yet had to make that decision.
    Mr. Kolbe. In round one and two?
    Mr. Feachem. Exactly.
    Mr. Kolbe. These are questions that are just coming from 
all directions. I am trying to get them in some kind of order 
here. But I apologize if they are not.
    You mentioned something about research. None of your grants 
are for research.
    Mr. Feachem. The Global Fund's policy on research is that 
we are not a research-funding organization, and we do not 
receive research proposals.
    We do not fund laboratory basic research of any kind, 
research leading towards new drugs and vaccines. I will come 
back to that in a second, if I may.
    The research that we do fund, and indeed, we encourage, is 
operational research within the context of funded programs.
    So we do say to our applicants, if you are looking for $50 
million from the Global Fund to launch a major new attack on 
malaria or HIV/AIDS, you better know what is going on. You 
better be measuring and monitoring and learning.
    Mr. Kolbe. So measurement, and output, outcomes----
    Mr. Feachem. Exactly.
    Mr. Kolbe. That is what you are measuring. And that is the 
research----
    Mr. Feachem. That is what we are----
    Mr. Kolbe [continuing]. But very important research, I 
might add.
    Mr. Feachem. Indeed, it is.
    Mr. Kolbe. Extraordinarily important.
    Mr. Feachem. And the other kind of research that will lead 
us toward a vaccine--microbicides, better drugs, et cetera; all 
urgently needed--we are not a financier of that, and have no 
intention to be so.
    But we are an advocate for that, because we badly need 
those new tools.
    And also, we are an incentivizer of that. It is very 
interesting to see the way in which the private sector with 
their big R&D machinery have recognized there is now 
substantial new purchasing power in the world, which helps to 
answer the question, ``If I discover it and bring it to the 
market, who is going to buy it?''
    Now that is a big question in the R&D decisionmaking that 
goes on both in the biotech industry and in Big Pharma. The 
Global Fund is part of the answer to that question and is 
attracting attention from the industry.
    Mr. Kolbe. I am going to come back in just a moment to some 
questions about the CCMs, which we will get Dr. Gootnick back 
into the picture here.
    But I want to ask you just one on this research issue, 
leads me to one question, Dr. Feachem, that taking off your ATM 
hat for a moment and just talking as a researcher and a policy 
person.
    When the HIV/AIDS virus was first identified in 1983, 1984? 
Many people predicted that within three to five years we would 
have a vaccine for it. And here we are, 20 years later and we 
do not. We have discovered it is much more complicated.
    And a question to you just as a researcher in this field, 
is do you think--and it does relate to the Global Fund--we are 
ever realistically going to see this happen in our lifetimes, a 
vaccine?
    And if not, then are we consigned to programs that deal 
with prevention and treatment and that is what we are going to 
have to focus on?
    Mr. Feachem. I am a founder-board member and the current 
treasurer of the International AIDS Vaccine Initiative, and 
have been in my personal capacity a very strong advocate for 
increased research leading us towards an HIV vaccine.
    I believe the answer to that question is that we will get 
an HIV vaccine that will be effective in prevention. But we may 
not get it for many years.
    So I think we are faced with a research imperative to 
accelerate towards the day when we have a vaccine. Clearly, the 
day that we have a vaccine, the Global Fund will become a major 
purchaser of that vaccine.
    And therefore, it is already an incentivizer of that R&D in 
the private sector. So we have a big commitment to the vaccine 
and to buy the vaccine when it becomes available. Will that be 
eight years, 10 years or 15 years? I have no idea. Will it come 
one day? Yes.
    And when the vaccine does come, will we then want to 
slacken off or reduce our efforts in prevention and treatment?
    Absolutely not. And there are many examples of diseases for 
which we do have vaccines, but it does not mean we do not do 
all of the other things we need to do.
    Mr. Kolbe. Thank you for that answer.
    Let me come back to the CCMs, which seem to be very much at 
the heart of many of the questions about the operation of the 
Global Fund.
    And both of you can comment on this.
    You said in your remarks that you would prefer to look at 
it as the glass being half full, not really half empty, because 
many of the CCMs are working well, indeed.
    How would each of you describe from the work that you have 
done reviewing this? Maybe I will start with you, Dr. Gootnick.
    What is the difference? What makes a good CCM, and what 
makes one that is not working so well?
    Mr. Gootnick. Well, let me start with an informal comment. 
The GAO, unlike the Global Fund, cannot say the glass is half 
empty or the glass is half full. The GAO could simply say the 
glass is at 50 percent. [Laughter.]
    Mr. Kolbe. Okay. Describe this 50 percent glass for me.
    Mr. Gootnick. Well, while I could put a percentage on it, 
our work--again, recognizing that we offered you a snapshot in 
late 2002----
    Mr. Kolbe. Right.
    Mr. Gootnick [continuing]. And with that caveat, and with 
the caveat that we visited the four countries I mentioned. We 
also relied on fund documents, and we relied on other observers 
of the fund to be confident that our observations were 
credible.
    But our concerns related to the level of communication, the 
participatory nature of CCMs, and we were left with the view 
that in some places--again, as of late 2002--some CCMs were 
functioning and were participatory, and in some situations they 
were not.
    Now, we we also reviewed and observed over the course of 
our assessment that the Global Fund, having recognized this 
issue--this has been discussed at the board level--has begun to 
take some steps.
    So that they have clarified who should participate in the 
CCMs, they have clarified what roles and responsibilities the 
CCM has. They have begun to conduct workshops to disseminate 
the information on how CCMs can effectively perform.
    We have captured that in our report. But, again, we would 
not say it is half full or half empty. We would simply give you 
our best percentage.
    Mr. Kolbe. Dr. Feachem, do you think that the report of the 
GAO was fair in their assessment of how the CCMs have operated 
so far?
    And if so, would you then describe things you are doing to 
try to get the CCMs that are not working as well as they should 
or might be doing, get them functioning better?
    Mr. Feachem. Yes. I think the snapshot that the GAO took at 
the end of 2002--would that be accurate?--was a very fair 
snapshot of where CCMs were then. I think CCMs today are a step 
ahead of that. CCMs are moving in the right direction.
    I would be careful not to in any way overstate how well 
CCMs are working. In my view of CCMs today, and the evidence 
that we get from our many interactions with CCMs, is that we 
have a spectrum, from CCMs that are working really very well, 
to CCMs that are working very badly, indeed.
    I think we are moving in the right direction, and they are 
strengthening, and they are strengthening because they are 
learning to do their work. There is tremendous in-country 
pressure on them to move in the direction that we wish them to 
move in.
    So the movement is always in the right direction. But there 
is a lot more to be done.
    You asked, what are the specific things that are wrong with 
CCMs when they are not good. I would mention three. There are 
doubtless others.
    One is government capture. That is clearly a problem with 
some CCMs.
    Often associated with that is infrequent meetings, which 
are untransparent. They are not announced, their discussions 
are not open to scrutiny, no minutes are published, et cetera. 
So a non-transparent process.
    There are probably a few CCMs that have hardly ever met, 
where it is more of a paper exercise than a real meeting of 
people to debate national policies and priorities.
    What do we do about all that?
    Well, I think the first thing to say is that several 
different actors have to do something about that. It is not 
just for me and the secretariat to do something about that. It 
is very much for our partners in-country, USAID for example, to 
help in that effort.
    The NGOs active and influential in that country have in 
many ways a bigger influence than we do on how a particular CCM 
moves forward. And we are seeing that influence apply.
    The specific things that we can do are, firstly, issue 
guidelines and clear specifications about CCM best practice and 
good practice. And the board will debate and agree on those in 
its upcoming meeting first week of June.
    So we will be able to publicize the Global Fund view of 
what a CCM should be like. That will be helpful.
    I would like to go further and set minimum standards for 
CCMs. The board at the moment is not comfortable with that, but 
it is my personal preference, and that is well known. So that 
we say, ``Unless your CCM meets a required minimum standard, we 
will simply reject your application. It will not even go to the 
TRP.''
    Now, that is a step too far for the board consensus right 
now. We shall have to see in the future.
    Thirdly, we can exchange information among CCMs.
    And it is very interesting that when the Global Fund holds 
multi-country meetings as we have been doing Pretoria, in 
Dakar, Senegal and Dhaka, Bangladesh, in Manila, in other 
places. In Kiev.
    When we hold these multi-country meetings, representatives 
of CCMs come, and they talk to each other and they share 
information across countries. This appears to be influential.
    So in various ways I think we must keep a light shining on 
CCMs and make it clear when we think they are not, you know, 
living up to the expectations that we have for them.
    Mr. Kolbe. Describe to me the interaction, then, between 
the CCM and the proposal at the technical review board and the 
board?
    If you were aware that a CCM is an ineffective CCM, 
nonetheless, proposals come in from that country, how does that 
affect either the technical review process or the board's 
decision to fund a project in that country?
    Mr. Feachem. Well, I think that is an important question, 
and it is an evolving subject today.
    Mr. Kolbe. The add-on question to that is, is it 
permissible for proposals to come in from outside CCM under 
those circumstances?
    Mr. Feachem. Right. Well, if I could take the two parts of 
that.
    Today the situation is that we do have a very small number 
of minimum requirements, so the proposals must come from a CCM. 
We must be told what the membership of that CCM is. And those 
proposals must be signed both by the chairman of the CCM, 
whoever that happens to be, and also by a civil-society 
representative on the CCM.
    So we do have requirements that encourage the kind of 
inclusiveness and transparency in CCMs that we seek.
    Your question of, if a proposal comes from a CCM, which 
meets those very minimal minimum standards and passes the TRP 
and comes to the board, but nonetheless, we know from other 
information that it is far from an ideal CCM, is there any 
consequence at the moment for that knowledge? No, at the moment 
there is not.
    I think it is the kind of domain of getting firmer with CCM 
expectations that the board will continue to explore. But at 
the moment there is no direct consequence to that.
    Mr. Kolbe. So how do you incentivize the country to improve 
its CCM?
    Mr. Feachem. Through a variety of means. As far as the 
secretariat is concerned, through clearly advertising what our 
expectation is.
    The step beyond that would be making those expectations a 
requirement. And as I explained a moment ago, the board is not 
yet comfortable with that step.
    But at the country level, the fact that we publicize what 
we expect gives tremendous ammunition for the private sector 
and the faith-based organizations and the NGOs, because they 
then go to the CCM and say, ``Not you should reform because we 
say so,'' but they say, ``You should reform because here are 
the guidelines published by the Global Fund and they say so.''
    So we are clearly getting feedback from NGOs in-country. 
But the clearer we are about what we expect, the easier it is 
for them in-country to press for the changes necessary.
    And again, I do have to say that changes are occurring. I 
mean, there are CCMs that I visited and that my staff have 
visited where the message back is, ``I went two months ago, it 
was like this, I go today, it was like that.'' There is 
significant movement as a result of the processes we are 
talking about.
    The question of can an applicant apply around the side of a 
CCM or without a CCM endorsement, not through a CCM, the answer 
to that at the moment is, ``Yes, in defined special 
circumstances,'' which are made very public.
    And I probably will not exactly remember what they are, but 
they are something like, ``There is not a CCM, so I am applying 
because my country does not have one.'' That is an allowable 
application.
    The CCM has illegitimately disallowed or blocked my 
proposal and I can demonstrate that. Well, demonstrate it. We 
will listen seriously for that.
    And there may be a third ground that I am not exactly 
recalling, which does leave the door open for an application 
not through a CCM.
    Mr. Kolbe. Are there some grants that fall into those 
categories?
    Mr. Feachem. There are a small number. Again, I would have 
to take advice or correspond with you about exactly what the 
cases are. There are a very small number, yes.
    And in fact, the South Africa case was interesting, because 
as you recall, and if you followed the great debates in South 
Africa, KwaZulu-Natal applied not through the CCM, but----
    Mr. Kolbe. That is right.
    Mr. Feachem. But at the time it applied, there was not a 
functioning CCM. And we have then had a year of sometimes 
difficult negotiations to get to the point we are now at, which 
is the South African CCM has now fully approved the KwaZulu-
Natal proposal. And we are about to sign the grant agreement. 
And that proposal does contain substantial anti-retroviral 
therapy.
    Mr. Kolbe. Conversely, though, you have talked about some 
of the CCMs and the improvements that have been made. Are there 
any that are backsliding?
    Mr. Feachem. Not that I am aware of. I mean, the pressures 
on CCMs are to push them in the right direction. I am aware of 
no CCM that has taken a step backward.
    Mr. Kolbe. I am tempted to ask about some specifics, but I 
do not know how comfortable you would be talking about specific 
countries, and maybe we will just leave that alone.
    Are there any examples of where grant proposals have been 
turned down because you thought the CCM itself was totally 
inadequate? Just did not trust the proposal coming through a 
CCM?
    Mr. Feachem. Well, I think the way that manifests itself is 
in--of course the technical review panel, you know, rejects 60 
percent, and they have many reasons----
    Mr. Kolbe. I guess I am thinking at the board level.
    Mr. Feachem. So far, and we only have two rounds of 
experience on this. The board has accepted en masse, as a bloc, 
the recommendations of the technical review panel.
    Mr. Kolbe. How have they been done in a bloc? You do not go 
through them and vote on them one by one.
    Mr. Feachem. No. The board has resisted that for several 
reasons. If the board got into the business of debating every 
proposal, it would meet for weeks and it would reproduce the 
work of the technical review panel.
    So a key element in our design is that the board trusts the 
judgments of the technical review panel.
    It is very interesting to remember Secretary Thompson's 
comment about the U.S. parallel review, the conclusion of which 
was that the TRP got it pretty much right.
    Now other countries do the same. We know that some of our 
other donor countries are also scrutinizing the proposals and 
seeing what conclusions they would come to. And the feedback 
from that has been they would come to not the identical 
conclusions, obviously, to the TRP, but very, very similar 
conclusions.
    But can I come to your question about consequences? After a 
board approval, there can be and there have been in several 
cases some very tough negotiations leading to the Global Fund 
saying no. Let me give you an example of that.
    If proposal A is accepted by the board, the Global Fund 
then goes to the country, talks to the CCM and says, ``Now, who 
is the principal recipient; who is the legal entity with whom 
we will sign the legally binding grant agreement and to whom 
will the check go?''
    And there have been several cases where the CCM has said, 
``This is the organization. This is our appointed body to 
receive the money and do the work.''
    And we have done, as we do in all cases, an assessment of 
that principal recipient. And in some cases we have said, ``No, 
that is not a trustworthy or adequate principal recipient and 
we will not agree with you, the CCM, that they should be the 
holders of these funds and responsible for this work.''
    And then it is up to the CCM to make another proposal, 
which again we have to assess, and if we find it wanting we 
will clearly say so.
    Mr. Kolbe. Thank you. We only have just about three or four 
more minutes before we have to vacate this room for the next 
hearing. Mr. Flickner just reminded me of one specific country 
I do have to ask about, and that is the CCM in North Korea?
    Would it be safe to say that was one that was captured by 
government?
    Mr. Feachem. I think the CCM in North Korea should be the 
dictionary definition of an oxymoron. [Laughter.]
    Mr. Kolbe. But nonetheless you did actually have a 
proposal. You did approve a proposal, did you not from North 
Korea?
    Mr. Feachem. The board approved a proposal from North 
Korea.
    Mr. Kolbe. And nothing happened?
    Mr. Feachem. No, we are in protracted discussions.
    Mr. Kolbe. Discussions. There is somebody to have a 
discussion with on this?
    Mr. Feachem. There is, both----
    Mr. Kolbe. Health ministry?
    Mr. Feachem [continuing]. Both the health ministry and our 
international partners in North Korea. Because UNDP maintains 
an office there, and WHO maintains an office there.
    But those discussions are still ongoing.
    Mr. Kolbe. Okay, so no cash has been disbursed?
    Mr. Feachem. Certainly not. Nor has a grant agreement been 
signed.
    Mr. Kolbe. Signed. Okay.
    My last area is to turn to the LFA, the Local Fund Agency. 
You did say earlier that there was some concern that some 
places had felt that concern.
    I think Dr. Gootnick, you said this, that the money was 
being subtracted from the, or taken out of the grant in order 
to fund the LFA, the monitoring. That is not correct, is it?
    Mr. Feachem. No, that is absolutely not correct. The LFA is 
contracted by the Global Fund in Geneva----
    Mr. Kolbe. And that is part of your overhead?
    Mr. Feachem. Absolutely. Absolutely. The LFA works for us, 
not for the recipient. And it is contracted by us to be our 
eyes and ears in the country.
    Mr. Kolbe. But nonetheless, I think there is this 
perception, apparently, an incorrect perception in some 
countries that somehow it is coming out of their grant.
    Mr. Feachem. Well, that is absolutely not the case.
    Mr. Kolbe. Thank you, I am glad you clarified that. Somehow 
we need to apparently need to communicate that, I think. And in 
the report, that says one of the things that some countries 
have that view, or some recipients have the view that that is 
the case, that that is being done.
    I believe you have contracted with four different 
organizations to be LFAs?
    Mr. Feachem. So far.
    Mr. Kolbe. Yes, so far. Do you do it on a country-by-
country basis, or do you contract with the four, and then you 
say, ``You take Haiti and you take Botswana?'' Or do you go to 
Botswana and see who might be a LFA there?
    Mr. Feachem. Up to now, we have the four. And with the 
four, it is a country-by-country choice.
    But we also have an umbrella contract and understanding 
with the global entity. Because it happens that at the moment, 
the four all have multi-country capacity.
    So we have an umbrella contract with the headquarters, 
which helps us then negotiate country-by-country contracts. The 
country-by-country choices are country by country. So we go to 
Botswana and we say, ``Which of the four of you will do the 
best job at hand?
    Mr. Kolbe. In all of the 92 countries then that you 
currently have grants operating in, one of those four then is 
functioning in that country?
    Mr. Feachem. Either is or is about to be.
    Mr. Kolbe. Okay, so in some cases, they are actually 
putting their presence in there as a result of the----
    Mr. Feachem. No, no. We, we----
    Mr. Kolbe [continuing]. Pull the Fund?
    Mr. Feachem [continuing]. No, we do not favor that at all. 
The four that we are dealing with--when we contract with LFA in 
country X, what we like to see and expect, is an existing 
presence in country X.
    Mr. Kolbe. I think that just contradicts what you just told 
me. You said in some they are about to have their presence 
there, you said.
    Mr. Feachem. No, sorry. I am sorry, I miscommunicated. In 
the 92 countries, for most of them, we have a contract with an 
LFA in that country.
    Mr. Kolbe. It is already pre-existing. It has been there. 
They have been in the country.
    Mr. Feachem. They have been in. For a few countries, we 
simply have not yet negotiated it. We have not yet made our 
choice.
    Mr. Kolbe. Oh, okay.
    Mr. Feachem. Not that they have not yet arrived there, 
because we do not like an LFA saying to us, ``If you contract 
for me in Malawi, I will set up an office in Malawi.'' That 
does not sound right to us.
    We want them to be in Malawi, with a track record in that 
country and know the private and public sectors----
    Mr. Kolbe. That raises an interesting question. Will you 
sign a contract with the recipient for a grant even if you do 
not yet have a LFA on the----
    Mr. Feachem. No, we first----
    Mr. Kolbe. You first have the LFA.
    Mr. Feachem. We first have the LFA. The LFA has to assess 
the principle recipient. And then we sign the grant agreement.
    The final comment on this I must make for the record, is 
that we have just launched an international tender for the roll 
of LFA.
    So the situation you find today of the four organizations 
working for us in many countries, and some very good experience 
coming from that, that is not sufficiently transparent for our 
future or sufficiently competitive in allowing others to enter 
into this role.
    So we have just launched an international competitive 
tender which says, ``This is the LFA role. Compete with each 
other to play this role for us in countries where you think you 
have special capacity and advantage.''
    And out of that will come before round three is launched in 
October, a selection of a menu of LFAs, which will be broader 
than four. I do not know how many it will be. But it will 
extend the range of organizations that play that role.
    Mr. Kolbe. Dr. Feachem, what is your percentage of Global 
Fund budget that is spent on administration and overhead?
    And Dr. Gootnick, does that figure correspond with what you 
understand it to be? What would you tell us it is?
    Mr. Feachem. I would say that today the total cost of doing 
business is about 5 percent of our commitment on a year-on-year 
basis.
    And that 5 percent is roughly made up of 2 percent Geneva 
secretariat, 2 percent LFA contracts, which are in-country, and 
1 percent are contracts with the World Bank as our trustee and 
the World Health Organization as our main administrator.
    Through time, as economies of scale are increasingly 
realized and our rate of commitment and disbursement rises, I 
would expect that 5 percent figure to fall.
    Mr. Kolbe. Dr. Gootnick. Do you have any----
    Mr. Gootnick. By in large, I concur with that.
    Mr. Kolbe. Do you have any concerns about the figures?
    Mr. Gootnick. Well, that figure is based on a goal of the 
fund to disburse $750 million this year. If they do that in 
2003, then Dr. Feachem's figures are accurate.
    Mr. Kolbe. And that was really about going to be my final 
question.
    How much of the money that has been appropriated and 
committed and is in the hands of the Global Fund and has been 
obligated through your grants, do you actually expect to be in-
country this year?
    Mr. Feachem. We are today revising in Geneva our 
projections that would answer that question.
    As of today, $21 million is out of the door and received by 
countries. And the pace of the disbursement is rapidly 
accelerating. We are putting together our best estimate of 
where we will be by the end of this calendar year or a year 
from now. And I will share those numbers with you.
    The reason that it is $21 million today is partly that as 
you know, the disbursement process only started in January of 
this year.
    And secondly, we disburse quarterly. And the first 
disbursements are rather cautious. So they are not always a 
quarter of the year one budget. They are often more modest than 
that, frequently, at the request of the recipient who says to 
us, ``Now, wait a moment. Do not send us a quarter of the year-
one budget because we have some preparatory and start-up 
investments to make.
    So give us a smaller sum and then when the second, when the 
first quarter is extinguished and we come back to you for the 
second quarter disbursement, we are going to be asking for more 
because we will be able to show you that we have made the 
preparatory investment.''
    Mr. Kolbe. I think I would like to be, and I think my staff 
would very much appreciate, being kept apprised of the rate of 
disbursement of funds.
    Mr. Feachem. We will.
    Mr. Kolbe. Granted, I understand that it is a figure that 
goes like this.
    Mr. Feachem. Yes.
    Mr. Kolbe. But nonetheless, $1.5 billion is what we have 
committed.
    Five months into the fiscal year, the calendar year, which 
is also your fiscal year, $21 million out the door suggests 
that you have a lot to do for the rest of this year.
    Mr. Feachem. And yes, just one caveat on that. When we talk 
about $1.5 billion of commitment over two years----
    Mr. Kolbe. Two years.
    Mr. Feachem [continuing]. It is from the date of signing of 
the grant agreement.
    Grant agreements are being signed now.
    Mr. Kolbe. Okay.
    Mr. Feachem. I mean, 40 or 50 have been signed, but we have 
many more to sign. So the clock starts ticking when I sign the 
grant agreement, and it is the two years from that date that is 
the one to watch.
    Mr. Kolbe. I want to thank both of you for your patience in 
my questions here, which I hope were not totally off the wall 
here. But it helps me to understand this a great deal.
    And I thank you very much, Dr. Feachem, for the work that 
you and your agency is doing. And Dr. Gootnick, I really 
appreciate the work that the GAO has done.
    Often some of the reports of GAO kind of get forgotten. But 
I think this is one that is going to be read a lot here by a 
lot of people that have a great interest in this, and I think 
will be used as a benchmark as we come back to the Fund in the 
future.
    And undoubtedly, we are going to want the GAO to do an 
assessment of this, an update of this in the future.
    We thank you both very much for your participation here 
today, as well as Secretary Thompson earlier. I think this 
hearing has been exceptionally good.
    Thank you very much. The subcommittee stands adjourned.
                                           Wednesday, May 21, 2003.

                    MILLENNIUM CHALLENGE CORPORATION

                               WITNESSES

ALAN LARSON, UNDER SECRETARY OF STATE FOR ECONOMIC, BUSINESS AND 
    AGRICULTURE AFFAIRS
ANDREW NATSIOS' ADMINISTRATOR, U.S. AGENCY FOR INTERNATIONAL 
    DEVELOPMENT (USAID)

                   Chairman Kolbe's Opening Statement

    Mr. Kolbe. The Subcommittee on Foreign Operations will come 
to order. Our Ranking Member is not here yet. She is on her 
way, we believe, but we will begin because Administrator for 
USAID, Andrew Natsios, has to leave to catch a flight overseas, 
has to leave here at 2:45, which gives us exactly 40 minutes 
from now. I at least want to get the statements in and a couple 
of questions for Administrator Natsios before he has to go.
    So we will take Ms. Lowey's opening statement after she 
arrives here, and I will begin with mine, and then, of course, 
take the statements from Mr. Larson and Mr. Natsios and then go 
to questions, take Ms. Lowey's statements when she gets here.
    Today the subcommittee is holding a special hearing devoted 
solely to the consideration of the proposed Millennium 
Challenge Account, or, as it is known, the MCA. The MCA has, of 
course, been discussed in other hearings that we have had, but 
this is an opportunity for us to go beyond the previous 
considerations, discussions of country eligibility, to explore 
in a deeper way this new paradigm for foreign assistance.
    We have two witnesses today. I have asked Under Secretary 
of State Larson to focus his testimony on the mechanics of how 
the Millennium Challenge Corporation will actually work, 
particularly its organizational structures. Then we will 
receive testimony from USAID Administrator Natsios on what he 
views as the role of USAID once the Millennium Challenge 
Corporation is up and running.
    Together we think these witnesses should be able to respond 
to many of the serious issues that have been raised in prior 
hearings, though peripheral to the discussion of that hearing, 
questions with regard to the $1.3 billion request that is in 
the administration's budget proposal for the proposed 
Millennium Challenge Account to support a new agency, the 
Millennium Challenge Corporation, the MCC.
    Let me just tell you how I view the situation that faces 
this subcommittee. A number of agencies working in domestic 
policy in the Department of Defense are rapidly expanding 
development-type activity overseas, filling the vacuum left by 
State and USAID inaction or ineptness. The State Department and 
the International Affairs offices at the Treasury Department 
have traditionally set policy. Yet both are increasingly 
seeking to supplant USAID in the delivery of bilateral economic 
assistance.
    With the establishment of the MCA, it is hoped that USAID 
will better manage development and humanitarian programs, 
working under a more focused mandate. Meanwhile, the State and 
Treasury Departments can return to what they are best equipped 
to do--to help the President set international policies and 
mandates.
    Neither USAID nor the Millennium Challenge Corporation can 
succeed as operational arms of our government unless they have 
adequate autonomy to effectively conduct their day-to-day 
operations.
    As we attempt to translate the vision of the MCA into 
programmatic reality, we will have to overcome several 
challenges that have received little attention until now. How 
we, Congress and the administration, respond to these 
challenges will determine whether the MCA is sustainable over 
time.
    Key challenges that I see and want to address today are 
these: how will we draft the legislation to implement the MCA; 
relations of the MCA or MCC with other U.S. Government 
agencies; and the Millennium Challenge Corporation's 
relationship with Congress. In each instance, there will be a 
focus on MCA performance and evaluation to determine whether 
better results are achieved.
    When it comes to planning and implementation, the MCC is 
supposed to respond to the needs of the qualifying recipient 
country. It seeks to avoid traditional AID preferences, whether 
it is the administration's view of what is driven by diplomatic 
or security needs or Congressionally-driven earmarks for 
geographic regions or sectors for development assistance. That 
is the first challenge.
    Unlike attempts at nation building from near ground zero, 
as we are seeing in Afghanistan or Iraq, the MCA would be 
nation reinforcing. The MCA would not work around weak or 
corrupt governments by buying into the hodgepodge of small 
projects undertaken by nongovernmental organizations. Instead, 
the MCA contract would represent a partnership between nation 
states, operating in a transparent manner, in real time, with 
realizable expectations about results, and with participation 
of civil society.
    The second challenge relates to unrelenting bureaucratic 
turf battles over the control of development assistance. I put 
that as bluntly as I can. The two-dozen-odd accounts in our 
subcommittee appropriations are entrenched in processes, in 
defenses, and traditions that collectively may well make them 
incapable of implementing the MCA vision. If we are to 
appropriate large sums for development assistance that is 
premised on an effective political economy, innovation, local 
country ownership, while largely setting aside consideration of 
strategic or diplomatic necessity or Congressional whims, then 
it is essential that we look behind existing mechanisms for new 
ways to deliver foreign assistance.
    We need to better understand who does what, when, where, 
when and for how long, in U.S. foreign assistance programs. The 
proposal for MCA, it seems to me, is definitely a step in the 
right direction, or could be a step in the right direction if 
done right. It would create a public corporation that operates 
with a very lasered focus on countries who have embraced 
policies that actually reduce poverty through economic growth 
and investment in people. Incidentally, this morning, as you 
may know, the Senate authorizing committee rejected this 
approach.
    Let me use an extensive quote to make my point. You can try 
and guess who these words are from, and I quote here:
    ``for no objective supporter of foreign aid can be 
satisfied with the existing program--actually a multiplicity of 
programs. Bureaucratically fragmented, awkward and slow, its 
administration is diffused over haphazard and irrational 
structure, covering at least four departments and several other 
agencies. The program is based on a series of legislative 
measures and administrative procedures conceived at different 
times and for different purposes, many of them now obsolete, 
inconsistent and unduly rigid, and thus unsuited for our 
present needs and purposes. Its weaknesses have begun to 
undermine confidence in our effort both here and abroad.''
    You might think that was Secretary Powell last week, or you 
might think it was President Bush, but actually it was a 
statement by President Kennedy regarding the creation of USAID 
back in the early 1960s.
    Once again, we find ourselves in a management morass for 
international programs. It has been a decade since the Cold War 
and 20 months since September 11. Nevertheless, we are still 
struggling to figure out how to deliver foreign assistance in a 
manner that is meaningful, accountable, and makes them 
productive units of foreign policy.
    So the third challenge relates to the management of 
relations between the executive and the legislative branches. 
If the MCA model is to be sustainable, it needs to withstand 
the rhythm of annual budget pressures inherent in the 
interactions between the Congress and the executive branch.
    The President is asking for an unprecedented amount of 
flexibility for the MCA. Congress needs to be confident that 
the MCA appropriations support publicly acceptable objectives, 
implemented in ways that are accountable to U.S. taxpayers and 
focused on achieving results intended by Congress working in 
concert with the President. Everyone involved in the process 
must recognize that the MCA requires greater self-discipline 
regarding the allocation of foreign assistance. This applies to 
policy-makers in the Congress and the executive branch as well 
as, of course, citizen advocates.
    As we move to support, as I hope we will, the MCA, both 
branches must give the MCA political space to prove itself 
without directives for specific sectors or countries.
    Finally, we need to recast our expectations for development 
assistance. In the long term, we need to define success as the 
success of our MCA partners, not how much money is appropriated 
in our annual appropriations bill.
    With that, let me call on Ms. Lowey for her opening 
remarks.

                     Mrs. Lowey's Opening Statement

    Mrs. Lowey. Thank you, Mr. Chairman, and I welcome our 
witnesses this afternoon to our hearing on the President's 
proposed Millennium Challenge Account. I am pleased that we 
have the opportunity to continue our dialogue on the MCA 
proposal before Congress, and I hope it will be a productive 
discussion. I met recently with Mr. Larson on this issue and 
have used the occasion of earlier hearings this year to express 
my views on this proposal.
    I will start today by making it clear that I do not oppose 
the concept of a Millennium Challenge Account, and I think I 
have made that clear to many of you in this room. Too often in 
this town, constructive criticism is taken out of context and 
misconstrued as fundamental opposition. Despite my support for 
the fundamentals of the MCA, however, there are some very 
serious ambiguities with this proposal that have to be cleared 
up before I will support providing significant funding for it 
in fiscal year 2004.
    I have carefully reviewed the recent remarks of Chairman 
Kolbe on the MCA and find myself in agreement with much of what 
he said. Before getting to the proposal itself, I would like to 
point out several things. The MCA proposal is not one with 
which the majority of Americans or even the majority of Members 
of Congress are familiar. So the debate about MCA centering 
around performance indicators, eligibility criteria, and 
oversight is occurring largely in a vacuum with a limited 
number of lawmakers and Washington-based foreign policy wonks 
discussing the details.
    Those who are participating in this debate have made two 
erroneous assumptions: first, that there is money available to 
fund the MCA simply because it was included in the President's 
budget; and second, that the resources devoted to it will be 
additive to current foreign aid programs. The fundamental 
questions--can we afford the MCA, given other budget realities, 
and is this the first step toward a dissolution of our primary 
foreign aid delivery mechanism, USAID--are not being asked.
    As a longtime advocate for increases in foreign assistance, 
with a firm conviction that these expenditures are in the 
security interests of the United States, I have to express 
regret that the realities that will likely be presented to the 
committee in the 302(b) allocation process will force 
substantial cuts in the President's proposed budget for foreign 
assistance. The proposal to create the Millennium Challenge 
Corporation will suffer in this process for several reasons, 
and I would like to highlight three:
    First, the proposal maximizes executive branch control of 
resources to the exclusion of the Congress. Two, the insistence 
on creating a new corporation to implement this proposal will 
mean that it will not be in a position to spend funds 
responsibly until at least 9 months into fiscal year 2004, if 
then. Three, I am convinced that this is the beginning of an 
effort to do away with the Agency for International 
Development.
    Essentially the President has asked Congress to appropriate 
$1.3 billion to a concept. The legislative proposal before us 
for MCA contemplates no role for Congress beyond providing the 
funding. Why should I support a process that will give 
virtually all the new resources in the foreign aid budget, to a 
yet-to-be-formed independent corporation to be run in the 
shadow of OMB, largely independent of congressional oversight?
    I am not encouraged, frankly, by the administration's track 
record of undermining congressional oversight with respect to 
foreign aid. I know my chairman has expressed his support for 
an independent entity, to get away from entrenched processes, 
incentives, and traditions. And I must admit I agree that this 
may be necessary, and I am in favor of creativity and 
innovation and trying new approaches in appropriating foreign 
aid. And I also can agree with the concept that we must step 
back from existing AID mechanisms to foster innovation and 
country ownership. I do not, however, agree that this should 
translate into a new independent entity with a structure that 
largely shuts out our development professionals.
    One of the strengths of our foreign aid program is the 
skilled professionals on the ground providing oversight in 
countries around the world. Yet I have not seen any concrete 
oversight plans for MCA funding. The White House has insisted 
on preserving the independent corporation aspect of its 
proposal and, to my knowledge, we have absolutely no 
information, at least I don't, other than the structure of the 
Board about how this will be constituted, how many people will 
be involved, what contracting and auditing procedures will be 
put in place, et cetera.
    Under the best of circumstances, it will begin to function, 
as I mentioned, in October of this year, which could translate 
into a year's delay in getting funding to eligible countries. 
It cannot be done any faster, as I see it, to be done 
responsibly.
    What is the rationale, frankly, for appropriating so much 
money to this program which will take so long to get started up 
when there are so many immediate needs? And I don't have to 
cite them here. We all know them. It is no secret that the U.S. 
Agency for International Development is undergoing a personnel 
crisis at its senior levels. The reasons for this are varied, 
but the continuous criticism and absence of confidence in the 
agency's capabilities coming from the White House, OMB, DOD, 
Treasury, and the State Department in my judgment have 
exacerbated the crisis. The numerous initiatives we have seen 
in the 2004 request, though, contemplating new administrative 
structures, illustrate vividly a lack of appreciation and 
reveal a starkly naive view of what it takes to achieve 
sustainable development.
    It seems to be a prevailing view at senior levels of the 
administration that there are as yet undiscovered people who 
are capable of stepping in to immediately put development 
dollars to work. In other words, they are going to find people 
from somewhere who have not been involved in sustainable 
development that are going to be doing a really terrific job. 
Well, from my experience, the painful reality is that it does 
not work that way in the poor countries of the world. Our 
development policies and goals should not be based on the 
biases of unaccountable OMB officials, and before we let USAID 
wither on the vine and lose the unique capacity it has to work 
effectively in poor countries of the world, I believe we should 
think twice.
    Despite its faults--and I don't deny it has faults--USAID 
remains the best and most effective entity the world has to get 
this difficult job done. If it is broken fix it, but do not 
throw it out.
    I should apologize, frankly, for using the bulk of my time 
to talk about process issues. However, I do feel that we are at 
a crossroads with the fiscal year 2004 proposals before us, 
and, as I have indicated in prior hearings, virtually the 
entire $2.6 billion dollar increase in the foreign aid budget 
would go to new initiatives, most prominently the MCA. Other 
development accounts are straight-lined or cut. We have major 
cuts proposed in a number of countries such as Russia, Ukraine, 
Armenia, East Timor, and South Africa that prematurely begin a 
graduation process.
    This year's budget marks the beginning of a process to 
corporatize foreign aid into the new top-down bureaucracies to 
centralize control of resources with a small group of White 
House and OMB officials and to remove Congress' ability to 
direct AID dollars to specific purposes or countries.
    I want to work with the administration, and I always work 
with my distinguished Chair for whom I have absolute respect. 
However, if the administration does not reach out--and I must 
say, Mr. Larson did come in about 2 weeks ago and I appreciate 
that--if the administration does not reach out and work 
cooperatively with the committee and Congress as a whole, the 
long-sought consensus to increase foreign aid resources will 
dissolve into chaos and finger pointing.
    And just in conclusion I want to say, and for those of you 
with whom I have worked, I think foreign aid is too important 
and we have to make sure there is a consensus, that we 
understand in the Congress how it is going to work, how it is 
going to be delivered, and we have to have confidence that the 
procedure will work smoothly and effectively.
    And I thank you, Mr. Chairman.
    Mr. Kolbe. Thank you very much, Ms. Lowey.
    Well, we have about 23 minutes before Mr. Natsios has to 
leave. We are going to begin, though, with Mr. Larson's opening 
statement, then Mr. Natsios's. We will try and take some 
questions for Mr. Natsios before he goes. As always, the full 
statements will be placed in the record. So if you would like 
to abbreviate the statements, that will get us to questions 
quicker.

                     Mr. Larson's Opening Statement

    Mr. Larson. Mr. Chairman, Congresswoman Lowey, and 
distinguished members of the subcommittee, thank you very much 
for holding this hearing and I appreciate the opportunity to 
continue our efforts to work with the Congress.
    I appreciate the spirit of the hearing. Within the 
administration, we have worked very hard, crossing a lot of the 
bureaucratic glitches that you mentioned, Mr. Chairman, to work 
together for a year to come up with this proposal. We think 
that the MCA will target countries that are governing justly, 
thus investing in the health and education of their own 
citizens and encouraging economic freedom, and by concentrating 
on those countries that we can produce better developmental 
outcomes.
    It really, sir, as you said in your opening statement, it 
is a program that is intended to operate with a laser focus on 
countries that are pursuing good policies and promoting growth 
and poverty alleviation.
    We do think that we can through this program establish a 
good working partnership with countries who themselves will be 
involving their citizens in identifying development priorities, 
that the proposals for activities should come from the 
countries themselves.
    We imagine having business-like contracts with countries. 
We will want to invest taxpayer resources only in well-
implemented programs that have clear objectives and built-in 
performance benchmarks.
    We have proposed and we believe very strongly that the MCA 
should be administered by a separate corporation that has a 
very focused mission. The legislation has called for a lean 
Millennium Challenge Corporation. We have talked about 100 
people or fewer that would be headed by a Chief Executive 
Officer, nominated by the President, confirmed by the Senate, 
and who would be accountable to the Congress. The CEO would 
report to a board of directors that would be chaired by the 
Secretary of State, and I can say from numerous conversations 
with the Secretary that he is totally committed to the idea of 
accountability to the Congress for how this program is managed.
    We see the MCA as complementing, not replacing, other 
assistance programs. President Bush has sought to expand other 
assistance programs, including those that provide famine 
relief, that combat HIV/AIDS, or help strategic partners, and 
we believe very firmly that the MCA will not come at the 
expense of USAID.
    We want the MCA to have a strict, transparent country 
selection process. We have identified publicly available 
indicators that will help inform that selection process. But at 
the end of the day, the Board would review that information and 
the Board would make final recommendations to the President. 
Again, the Secretary of State is firmly committed to the idea 
that this program should focus on developmental outcomes.
    We propose that the MCA would focus on the poorest 
countries. In the first year we propose that only the world's 
74 poorest countries, those that have a per capita income under 
$1,435, and that are eligible for the soft window of the World 
Bank, would be considered for the program. We expect these 
countries to set their own priorities and identify the most 
important hurdles to development based on their poverty 
reduction strategies or other development strategies that they 
have. We would want their proposals to be vetted within their 
societies with NGOs and business, and when the contracts are 
concluded, we would imagine them being published on the Web 
because we want total transparency in this program.
    We believe that the proposals should have a plan and a 
timetable for achieving objectives--how the results are going 
to be achieved--and a plan for ensuring financial 
accountability, which I know is one of the points, 
Congresswoman, that you have just raised.
    We believe that it will be very important for these 
proposals to be reviewed thoroughly, including by outside 
experts, and I think there are many good ideas for how to 
achieve that. We do want the corporation to have a clean, 
flexible legislative mandate. We do not think we can be 
effective in responding to developing country priorities if 
they are subject to recall or regional or country earmarks. We 
don't think that we will be able to attract the best people 
within government or outside of government, and we would like 
to reach out to the NGOs and others to get personnel, unless 
the MCA has a flexible personnel authority. And to be lean and 
efficient, it is going to have to be able to contract flexibly 
for services.
    I appreciate very much the strong focus of the opening 
statements on achieving development outcomes. I began my 
involvement with developing countries as a schoolteacher in 
Kenya. I have served in Sierra Leone, Zaire and Jamaica, and 
helped run small programs. I am convinced after working on 
these issues for a long time that this proposal and initiative 
is the best opportunity that we have had to really do something 
important and new in the area of development assistance; that 
it is a good blend of compassion, but at the same time an 
insistence on results; that it is a very important initiative 
for us to be able to pursue at a time when we are fighting 
terrorism because it shows that we are also fighting for the 
values that other countries look to us to uphold.
    We want to work with the Congress. We certainly urge your 
strong support for the Millennium Challenge Account of 2003, 
but we also pledge our support to work with you to make that a 
reality.
    Mr. Kolbe. Thank you.
    [The information follows:]

GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT
    
    Mr. Kolbe. Mr. Natsios.

                     Mr. Natsios, Opening Statement

    Mr. Natsios. Thank you, Mr. Chairman and members of the 
committee for holding this hearing on the President's 
Millennium Challenge Account. We appreciate the Chairman's 
active leadership in support of the MCA, beginning with your 
trip to Monterey last year.
    I have longer testimony which I would like to leave for the 
record and then reduce my remarks.
    Mr. Kolbe. Your full testimony will be placed in the 
record.
    Mr. Natsios. USAID will reorient its assistance programs to 
take into account the principles driving the MCA, so it will 
not just be the MCA that are driven by the President's new 
vision.
    Given our strong interests in supporting and complementing 
the Millennium Challenge Corporation, USAID has now put in 
place, actually 6 months ago, a team actively reviewing its 
existing portfolio to figure out how best to organize itself 
and to support the mission and the operations of the MCA. In 
addition to providing support that may be needed in MCC 
countries, we believe that USAID should focus activities on 
four broad categories of countries.
    The first are countries that just barely missed getting in 
the MCA. If you look at the 16 indicators, you can tell there 
are a number of countries that are just on the edge of being 
eligible. The second are mid-range performers that have the 
will to reform, countries that did not do particularly well but 
they did not do that badly either, but they want to reform, 
they want to change; they have, like Kenya has, a new head of 
state who really is interested in changing the system and has 
made some important decisions since his election last fall. The 
third are failed or failing states that need postconflict 
transition or humanitarian assistance. And finally, there are 
countries requiring assistance for strategic national security 
interests. We actually intend to categorize our portfolio of 79 
countries in one of those four categories.
    In the first group of countries, USAID will concentrate 
development assistance in child survival and health funds to 
specific areas that require strengthening for the country to 
get over the edge to be eligible for MCA. For example, if a 
country is not investing sufficient resources in training its 
people and its ministries to achieve better results, USAID 
would focus our programs in those areas to the extent that we 
could.
    In the second group of countries, which are unlikely MCA 
candidates in the near future, we will assess the commitment to 
political and economic reform which is the requirement, really, 
for countries to be transformed developmentally. Where such a 
commitment exists, we will again concentrate our resources on 
building local capacity institutions that can support the 
foundation of MCA assistance.
    For those countries that lack such a commitment, we will 
continue programs that address global issues and health issues 
such as HIV/AIDS and environmental degradation and humanitarian 
assistance, or if there is an emergency, but we will need to 
review our other assistance and whether it should really go 
into those countries.
    The third group of countries are those which are failed and 
failing states. We reorganized 2 years ago; we have a bureau 
that deals with failed and failing states. What is a failed and 
failing State? I can give you 24 countries in the world that 
fit into that category. The CIA has a list that they maintain, 
a big map they produce each year. They have been doing this for 
12 years now, and they can tell you exactly. It is the same 
list we maintain. It is the Somalias of the world, it is the 
Sudans of the world, it is the Afghanistans, although 
Afghanistan is now coming out of a period of 22 years of 
catastrophe.
    So one bureau in USAID which has far more resources than it 
has ever had, the one headed by Roger Winter, is the Bureau of 
Democracy, Conflict, Humanitarian Assistance. It is the Office 
of Foreign Disaster Assistance, Office of Transition 
Initiatives, Conflict Management and Mitigation, and the Food 
for Peace Office and Democracy in Governance. They will be put 
in the third category.
    Using our assistance in these accounts, we will integrate 
emergency relief food assistance with transitional initiative, 
governance, and civil society building.
    Finally, USAID will continue to respond for needs in 
countries of strategic national importance where there are 
threats to American security interests, recognizing that 
primary objectives typically fall under foreign policy but may 
not necessarily produce economic growth. And while these 
programs are usually funded with ESF resources, USAID will work 
quickly and effectively to achieve U.S. Government objectives.
    Simply put, spurred by the proposal of the MCA, we intend 
to work hard both to more clearly define our different 
development and humanitarian objectives and to more closely 
align with them with the appropriate funding sources and 
mechanisms that exist right now.
    MCC programs will be founded on a partnership--this is for 
the $5 billion--driven by country demand. We stand ready to 
support the MCC. We know the committee is interested in 
learning more about the operational details of the MCA; 
however, until we have its CEO named and an MCC to begin to 
dialogue or to talk with, we are unlikely to be able to give 
you definitive answers, since they will be in charge and not 
AID.
    Our general thinking is that if a country selected for MCC 
funding has USAID mission and program, we would undertake a 
strategic view of the existing portfolio of projects. In many 
cases we would see the USAID programs transitioning to support 
the MCC contract; however, there are critical global and 
regional threats such as HIV/AIDS that would continue to 
warrant support under the existing AID portfolio.
    Indeed, one of the ways that USAID will complement the MCC 
is our ability to address regional issues such as disease, 
water resource management. We are dealing with the water 
problems of Mozambique, Zambia, Malawi and Zimbabwe, for 
example, in the Zambezi River Valley and the Limpopo River, 
because it covers four countries. We cannot do it and just deal 
with one country; transportation linkages affect regional trade 
capacity, and by virtue of being country specific, we cannot 
act.
    USAID will not adopt a black-or-white approach on how we 
will relate to the MCC in every country. Rather, we think each 
country will be reviewed on a case-by-case basis and will vary 
depending on the country's capacity to manage the money it is 
getting. There is a wide variation in developing countries of 
whether the ministries can spend large amounts of money. There 
are some countries, where we could write a check to them, 
literally, and giving it to them would not place American 
taxpayers at risk and we would see great results.
    There are other countries that are transitioning to 
democracy that will be eligible for MCA that want help in 
building that capacity but are not quite there yet, and they 
need to be treated in different categories even though they are 
both MCC countries.
    We believe that maintaining this flexibility is essential 
for ensuring the MCA be truly country owned. Not only should 
MCA countries vary considerably from country to country, but a 
variety of different implementation mechanisms are likely to be 
used.
    I have had private conversations with people from countries 
that think they are MCC candidates. I have never told them 
whether they are or are not. It is very interesting. You get 
very different answers from Ministers and Prime Ministers and 
Presidents over what they would do with the money if they got 
it. I had one President who told me--I just smile when he says 
it--if we got this money we would use it entirely for road 
construction. The reason is that they cannot get their health 
clinics functioning because they literally cannot get to much 
of their population. There are no roads getting to them. In 
other cases, they cannot build health care systems or education 
systems because of the absence of transportation, or farmers 
cannot grow a surplus and sell it because they cannot move 
surpluses around. These are legitimate issues that need to be 
dealt with.
    I would like to conclude by underlining the importance of 
maintaining the integrity of country ownership of the process. 
We know in the developing world that when a Head of State and 
Ministries and Parliaments take ownership, the likelihood of 
success of a program dramatically increases, and when they do 
not take ownership, the likelihood of failure is also 
dramatically increased.
    The MCA creates a unique opportunity to prove that 
development done right can work. We urge the passage of this 
legislation. Thank you very much, Mr. Chairman.
    [The written statement of Administrator Natsios follows:]

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                            MCA ELIGIBILITY

    Mr. Kolbe. We have a very limited amount of time. I am 
going to ask one question of Mr. Natsios and cede my time so we 
can get others to ask those questions. Mr. Larson will have 
much longer to stay with us here.
    So, Mr. Natsios, let me see, I am trying to see if I 
understand your concept of how this would work here. There 
could be 15, maybe 20 countries that might be eligible here to 
be considered MCA-eligible countries. What if one of the 
countries that is selected is already--presumably it would be--
is already getting aid through other mechanisms: child survival 
and health program; ESF, Economic Support Fund; development 
assistance. Is the country going to be able to switch its 
funding from that, or is that funding going to continue, or are 
we going to tell an MCA assistance--you have been selected, you 
are going to get the funding over here; so that if they have 
$50 million in this other kind of assistance pots, now they are 
going to get $50 million from MCA, what incentive do they have 
to try to meet the criteria for MCA?
    Mr. Natsios. Well, one, it is not a matter of incentive to 
meet the criteria. They have already met it which is how they 
are getting the money. This is based on past performance.
    Mr. Kolbe. I guess the question would be: How does a 
country that might be shortfall, and it sees another country 
just having its aid supplanted by a different form of aid, what 
incentive does it have to try to get up to the standards?
    Mr. Natsios. It is the order of magnitude. The amount of 
money that will be spent through the MCA in a relatively small 
number of countries means that the aid programs will be way 
up--for example, I actually have gone through and tried to do 
some calculations with our staff as to how this would work 
practically. Most of the plus-ups in aid programs are by a 
factor of 5 to 10. I do not mean 5 to 10 million. I mean 500 
percent or 1,000 percent increase.
    For example, in one country, without mentioning the name 
because I am not sure they will be eligible, the program is now 
around $40 million. They would probably go to $300 or $400 
million. So the incentive is a massive increase in the volume 
of aid. That is the incentive.
    And what I would propose to do myself, but we have to work 
this out--Secretary Powell would have to agree to this, and the 
new CEO--we would try to phase down our program in that country 
so we can go to this new contract baseline approach. If they 
want us to help them with the existing aid mission in the 
country, we would be glad to do that. It is up to them to 
decide whether or not we could be useful to them.
    Mr. Kolbe. I have got lots of other things, but I want to 
allow other Members to have questions of Mr. Natsios before he 
has to leave to catch his plane. Perhaps we could keep this 
round of questioning to Mr. Natsios.
    Mrs. Lowey. Thank you. Just following up, how would USAID 
help countries become eligible for MCA resources? Do you expect 
additional resources from the MCA to accomplish this?
    Mr. Natsios. Well, it is being phased in. The first year, 
as you know, the proposal of the President for 2004 is 1.3 
billion, not 5 billion all at once. It gets phased in and 
countries will be added each year until the whole 5 billion--if 
the Congress chooses to support the President's recommendations 
to get to that level. So there will be a phase-in of this, 
which is the appropriate way to do this.
    We will, we expect, take the money from the countries where 
we have programs and we are phasing them down, and reallocate 
that to other countries. What we propose to do is to look to 
see why they failed. If they came close--I do not want to give 
country names, but I think of a particular country that I know 
does well in all the factors except they are not spending a lot 
on education. They are committed to it, but they just do not 
have the resources to do it. Actually, the Head of State said 
to me, ``Andrew, we need help in this area. Would you give us 
help?'' They know they may fail to be eligible because of this.
    So what we would propose to do is go to them and say, look, 
if you are interested in reorienting the aid program in order 
to make you eligible, then let us work in this area very 
heavily so that you in fact will be eligible the next time a 
review is done.
    Mrs. Lowey. You are talking about from your regular budget 
at AID?
    Mr. Natsios. That is correct.
    Mrs. Lowey. You are not talking about getting any money or 
setting up a special account to move people from a tier 2 or 
tier 3 upwards?
    Mr. Natsios. Right. We are using the existing resources.
    Mrs. Lowey. You know, I guess we will save it for Mr. 
Larson, but I am still puzzled, only because you will not be 
able to spend the MCA funds at least for 9 months or a year, so 
what are you going to do with the $1.3 billion of MCA money?
    Mr. Natsios. I am not running the MCA, so----
    Mrs. Lowey. Just to conclude that one question.
    Mr. Natsios. As a general proposition, there will be 
planning that will have to be done, but we have to remember the 
countries that are being chosen are, for want of a better term, 
the ``cream of the crop.'' These are the best managed, best led 
countries in the developing world, that are very poor 
nevertheless. The countries that are hardest to get started in 
are countries that are really profoundly dysfunctional. There 
are, unfortunately, a lot of them. But there are 15 or 20 
countries that if I had a choice now, I would triple their 
budgets because they are doing so well, but they are still very 
poor and they need help. So it is not going to be as hard as 
you may think, because these are countries that meet the 
criteria in the first place, which means they are probably on 
the way up.
    Mr. Kolbe. You only have a couple more minutes, and I want 
to try to get to more members' questions' for Mr. Natsios.
    Mr. Wicker.
    Mr. Wicker. Thank you.

                              CONTRACTING

    Mr. Natsios, you mentioned the importance of locals taking 
ownership, and your testimony suggests that much of the 
required oversight and procurement will be contracted locally 
in the MCA. Is this a make-or-break provision, because it is 
very different from the way we have been doing business in the 
past, which involved using mostly U.S. officials to perform 
oversight; where possible, buying American goods and services?
    Do you foresee the MCC actually using local officials and 
companies to perform what has previously been a fundamental 
U.S. Government function, and are these 15 or 20 really great 
countries that you just spoke about so lacking in corruption 
and their citizens so immune from temptation in the face of 
these huge amounts of money that this makes sense?
    Mr. Natsios. No country is immune from temptation, because 
all human nature is fallen. That is the Calvinist side of my 
nature speaking now. The reason we and other Western 
democracies have less corruption is not because we are better 
people. It is because we have create d a matrix of institutions 
to constrain the abuse of power in the state. That is why we 
work better, not because we are better. It is because we found 
systems.
    And what we are trying to do to help in these countries is 
for them to create institutions that have the same effect in 
their societies, are part of their culture. And this is part of 
what we review when we look toward what is called host country 
contracting. The way USAID did its work in the 1960s, 1970s, 
and beginning of the 1980s, in fact, was mostly through the 
governments of these countries. We moved away from it because, 
as a general matter, it did not work that well. In some 
countries it worked very well.
    What we would do, if we are going to give money through a 
Ministry in a country--and we do it, and about 20 percent of 
our budget goes through that mechanism now--we have the 
auditors, the inspector general, and officers of the different 
management functions of USAID review a list of capacities: Do 
they have national audit authority; do they have a civil 
service system that can choose reasonably competent public 
officials to manage things that is not based on ethnic or 
religious or loyalties, for example; what are the education 
levels of people in the bureaucracy; do they have a transparent 
system of contracting, publicly, that is relatively free of 
corruption?
    We look at those issues, and if they do not pass, we do not 
go through them now. I mean, that is an established standard we 
developed years ago and it does work. These standards, if they 
are conformed with, the risk to the United States is far lower. 
If they do not conform to them, our management people say we 
will not allow you to contract through these countries.
    Mr. Kolbe. Mr. Natsios, your staff is giving me the sign 
across the neck here.
    Mr. Natsios. You mean that I have to go or something else 
is about to happen?
    Mr. Kolbe. I am sure we have many questions.
    Mr. Natsios. I really have to answer Congresswoman 
Kilpatrick's.
    Ms. Kilpatrick. Quick question. Thank you, first of all, 
for meeting with the Congressional Black Caucus. I appreciate 
that. You talked about your reorienting USAID into four 
categories. Going back to what the Chairman asked before in 
terms of the money, the 1.3 billion that you hope becomes 5 
billion one day, what happens to the USAID programs in those 
countries that might go to MCA now? Will you be able to 
redirect those dollars?
    Mr. Natsios. That is what our intention is, to redirect 
those dollars to countries that did not quite make it but want 
to make it, and so we will actually have, I think, more money 
in 2004 to move around than it appears in our budget because we 
will not be handling as many countries.
    Ms. Kilpatrick. Okay. All right, thank you thank you for 
waiting.
    Mr. Kolbe. I guess we are not going to get to any other 
questions to Mr. Natsios.
    Mr. Natsios. If you send me questions in writing, I will be 
glad to answer them.
    Mr. Kolbe. I really regret we were not able to get some 
more of your time here today.
    Thank you very much, Mr. Natsios. I think we will just 
continue with questions and just go down the line, even though 
the first four of us had an abbreviated attempt. We will get 
back to ours at the end and we will get another chance to do 
that.
    So let me go on, if I might then, to Mr. Lewis with 
questions.
    Mr. Lewis. This morning, the Foreign Relations Committee 
reported the authorization of the Millennium Challenge Account 
on the Senate side, and I understand that they put the 
administration of MCA solely under the State Department. There 
was some debate that would have placed the administration of 
MCA solely under USAID, et cetera. I assume you are going to be 
responsive to direction that is now given in the Senate that 
would suggest the MCA would be located solely under State. 
Could you give us the flavor of that debate as it took place in 
the administration, the pros and cons?
    Mr. Larson. Certainly first of all, I should say that I 
think the administration will continue to very strenuously make 
the case for an independent corporation that reports to a board 
that would be chaired by the Secretary of State and other 
Cabinet officers.
    I think the flavor of the debate within the administration 
centered around how to make sure that in a new initiative that 
would be responsible for a very significant amount of money and 
that would be focused very very tightly on achieving 
development outcomes by working with the best performing 
countries that you can--albeit poor but with a strong 
commitment to development--whether you could do that best by 
establishing an entity within an existing organization like 
State or AID or somewhere else, or through a new small 
corporation. We felt, on balance, that by having a small, 
flexible corporation chaired by a CEO that had a business 
orientation towards measuring results and getting the outcomes 
that we wanted, we would be more efficient in achieving the 
results that we wanted to achieve, and to some extent we would 
free USAID--which is getting more budget resources for things 
like fighting AIDS and dealing with hunger and agriculture 
problems in Africa--to work with a broader range of countries 
that do not all meet the standards of the Millennium Challenge 
Account.
    The Secretary of State felt very strongly that he needs to 
be accountable to the President and to the Congress and to the 
American people, but that he can do that through the mechanism 
of serving as Chairman of the Board of Directors of the 
Millennium Challenge Corporation.
    Mr. Lewis. I was going to ask this question of Mr. Natsios, 
but certainly you could help us with it as well. It sounds as 
though in those frontline countries where MCA is going to be 
involved in, that there is a significant likelihood that in 
many, AID will essentially be pulling out much of its 
programming. I would hope that is not the case for some of 
those countries where USAID is operating mainly because of some 
of the work we have done there in the past. What are your 
thoughts about this?
    Mr. Larson. Well, what Andrew Natsios has passed on on past 
occasions in response to this is they would like to be able to 
do a strategic review, and there are some things that might 
clearly be in the developmental area; and if it was a small 
program, it would be sensible for them to get out of. But, on 
the other hand, if they were involved as an implementer of the 
global AIDS initiative of the President, and they were in this 
country because it was one of the 17 or so countries that had a 
significant problem with HIV/AIDS, there would be a very strong 
argument in the view of USAID and the administration that that 
ought to continue, because that was focused largely on the 
public health priority of fighting HIV/AIDS and the fact that 
this was a country that was afflicted with it.
    So that would be a case where we could easily imagine the 
MCA and USAID both involved in the same country.
    Mr. Lewis. I almost hear you saying that you really 
anticipate kind of a significant shift in the activity in many 
ways of USAID, and indeed their traditional work may well be 
fazed out.
    Mr. Larson. I don't think--I don't see it that way, sir. I 
think what I am saying is that if you have a dozen or so 
countries in the first year that are MCA participants, and they 
come in with very focused proposals in one or two sectors, that 
that is going to be the predominant development focus of the 
U.S. Government in those countries, and USAID's development-
promoting activities may well be in countries that are not 
quite at the level of performance with respect to governance 
and investing their own people and the economic opportunity, 
but, as Andrew said, trying to get those countries up to a 
level where they are better positioned.
    Mr. Lewis. Lastly, will MCA be funding entities other than 
national governments? Will you be funding NGOs, for example, or 
local governments?
    Mr. Larson. We are open-minded about how to best and most 
efficiently deliver programs and services and activities. We do 
feel very strongly that the focus here is working with 
governments that have a true commitment. So the idea would not 
be to go around the back of a government that you know you can 
work with, but there could be a government that has a strong 
development policy and it has a strategy that we believe in, 
but where the services can be best delivered by a 
nongovernmental organization in whole or in part, and we are 
very open to that.
    Mr. Lewis. Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you. Mr. Rothman.
    Mr. Rothman. Thank you, Mr. Chairman.

                                FUNDING

    Mr. Secretary, it is my understanding that in order to 
qualify for MCA funding, countries must pass all three baskets 
by scoring above a median on at least half of the indicators in 
each basket; is that right?
    Mr. Larson. That is correct. That is correct. I will 
amplify it in my response.
    Mr. Rothman. What would happen if a country scored above 
the median on three indicators in the ruling justly basket, but 
had some of the worst scores for the other three indicators in 
that same basket; specifically, political rights and civil 
liberties? Would such a country still qualify for an MCA grant, 
with terrible scores on half of the indicators of a given 
basket?
    Mr. Larson. You raise a very important point about the 
impossibility of running a selection process on automatic 
pilot. One of the reasons why we felt it was very important to 
make sure that the Board made the final decisions about which 
countries to recommend to the President is that, as much as we 
want this to be based on objective and transparent indicators 
that are available to the Congress, the public, and the 
countries themselves so they know what our standards are, we do 
recognize that these indicators can have difficulty. Sometimes 
the data can be flawed or lag or be missing, and so that 
creates a bias.
    We spent a lot of time worrying about whether we should be 
using averages like an SAT score in these three areas.
    Mr. Rothman. If I could ask you this, should there be a 
minimum requirement for each of the indicators?
    Mr. Larson. Our judgment is that the approach that we set 
out was intended specifically to deal with the problem of not 
supporting countries that have a very skewed performance; in 
other words, they were very good on investing in people, for 
example, but they were oppressive, they did badly on governing 
justly.
    We see this methodology as something that shouldn't be 
slavishly followed, but it is a way of emphasizing to the 
board. We are looking for countries that are showing strong 
performance in all of the areas that are important to 
development; but at the end of the day, the board is going to 
have to look at all of that and other information available and 
make a judgment.
    Mr. Rothman. Perhaps, though, in order to make it more 
transparent for everybody, American citizens, the Congress, and 
the potential recipients or beneficiaries, perhaps a 
consideration for a minimum requirement for each indicator 
would be worth considering.
    The purpose of the MCA is to eliminate poverty in the most 
efficient way possible. Why is the administration proposing 
expanding the income threshold for qualfication to countries 
with per capita incomes up to $2,975 by fiscal year 2006 when, 
it is my understanding, there are plenty of countries with the 
per capita incomes below $1,435 from which we could presumably 
pick more than enough candidates for all of the money we are 
going to give that year?
    Mr. Larson. The reason we proposed that is that some of the 
poorest people in the world live in these low- to middle-income 
countries, and we have felt certainly the spirit of the 
discussion within the administration is that we want to focus 
on poverty alleviation in the poorest countries. And while we 
didn't put any specific benchmarks in the proposed 
authorization legislation, it is certainly the intent of all of 
us who work on this that the bulk of the resources would go to 
these poorest countries, and that, in competition to get into 
the MCA, they would compete among themselves, not against this 
slightly richer tier of countries.
    Mr. Rothman. If I have another half a second, what about 
countries that are already receiving foreign aid from the 
United States that are in that higher category, the $2,975--or, 
frankly, even in the lower category--would they be put at the 
bottom of the list? Would the fact that a country receives 
substantial assistance from the United States be a relevant 
factor in the decision-making as to whether to include them in 
this program?
    Mr. Larson. It would be a relevant factor; and I think so, 
too, would be whether the focus of any proposed activity was to 
strengthen their efforts to alleviate poverty in that part of 
the population that had it, rather than on significant 
transfers of resources. It might be more of a transfer of 
management know-how or technology or ideas about how to address 
that problem, rather than a resource issue, the way that it 
would be in some of the poorest countries of the world.
    Mr. Rothman. Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you.
    Mr. Knollenberg.
    Mr. Knollenberg. Mr. Chairman, thank you very much.
    Secretary Larson, welcome.
    I have said before in this committee a number of times that 
I do support MCA. I do have some questions about specifics, as 
I am sure that we all do, but I do support this initiative. And 
I think the strength of the MCA is that it focuses 
responsibility for economic growth on the policies of the 
governments, the developing countries themselves. In other 
words, we can't just focus on transferring aid or resources to 
the developing world; we have to, in fact, see real growth, 
unlock--unlock the resources that they already have.
    I know that Administrator Natsios referred to farmers not 
being able to sell surplus. That doesn't make any sense to 
anybody else in this country, but it is true. The banking, what 
about the banking? What about leveraging property, collateral? 
The whole idea of private property seems to be strange to so 
many of these countries.
    This new proposal will bring a lot of questions as it is. 
What kind of technical assistance, for example, are we going to 
give, or help these countries with, to prepare the proposals 
and contracts? They obviously need some help. And how do we 
help countries prepare their proposals while, at the same time, 
ensure the priorities are being established by that particular 
receipient country?
    Will the Millennium Challenge Corporation employ its own 
experts, own technical experts? And if they do, how much will 
that cost?
    And then finally, if not, where will they come from? Will 
they come from within the country? If a different organization 
or agency gets involved, won't they bring their own biases, 
their own thoughts, about about development priorities as well?
    So if you could refer to those questions, I would 
appreciate that. Thank you.
    Mr. Larson. Well, thank you, and this really gives an 
opportunity to get a little deeper. How could this work in 
practice?
    Let's assume we have selected a country. A country has 
shown through its policies and been vetted by the board and 
approved by the President, and this is a country that we want 
to work with. I think the first thing that would happen would 
be that we would want to immediately initiate a discussion with 
that country as to where is the area or areas, one or two areas 
where, by working together over 3 or 4 years, that we could 
really work with you to carry your development to a new level.
    And you mentioned, sir, some agricultural examples. Let's 
assume that that country, having gone through a process of 
discussion with its own citizens, had agriculture at the center 
of their development policy, as many African countries do. Then 
I think we would--and they might well have some very well 
developed ideas about how to promote agriculture, but have been 
short on resources. We would want to discuss those ideas with 
them.
    We would want to bring in outside, as well as inside, 
experts. I think it would be quite desirable to have an 
advisory network, for example, of people from land grant 
institutions that were prepared to vet proposals and add advice 
about how to make sure there is a property rights component, 
land tenure component, a credit component, a marketing 
information component, so that if you are going to do this 
right, you are going to make sure that farmers have the 
information, the technical support, the seeds and so forth that 
they need and the ability to market them, so that the whole 
program fits together, the contract, the proposed contract, 
would set out benchmarks that the country would be attempting 
to achieve and that we would jointly be measuring.
    And if I could just take a second to go back to Mr. 
Wicker's question from earlier, our approach would be trust, 
but verify. I mean, we would certainly want to inculcate in 
this country the notion that it is important to measure the 
success of their own programs, and so developing that local 
capacity to do so is very important. But we will want to have 
an ability to audit from outside as well, not just financially, 
although that is important, but also auditing the outcomes: Are 
we getting truly the outcomes that we are trying to achieve?
    Mr. Knollenberg. But you would welcome additional sources 
or expertise that would be available? That is what you are 
saying?
    Mr. Larson. Yes, sir.
    Mr. Knollenberg. It won't stop just within the Department.
    Mr. Larson. Oh, absolutely not. We want to bring into the 
house some of the best people we can find, but we want to also 
be--particularly sectorially, I think--be able to go outside 
the house to have advice on, say, education if it is an 
education project, or agriculture if it is an agriculture 
project.
    Mr. Knollenberg. But you are going to have your hand on the 
throttle? You will maintain control?
    Mr. Larson. Yes, sir. Yes, sir.
    Mr. Knollenberg. All right. Thank you very much.
    Mr. Kolbe. Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman.
    Welcome, Mr. Larson. I would like to begin by asking the 
chairman if I might submit for the record an article entitled 
Women and Ending Hunger: The Inextricable Link.
    Mr. Kolbe. Yes, of course. The article will be placed in 
the record following your remarks.

                         WOMEN AND AGRICULTURE

    Ms. Kaptur. Thank you.
    I would like to begin by stating I am very intrigued by the 
Millennium Challenge Account and also by your title that now 
includes the words ``Agriculture Affairs.'' We know that the 
majority of poverty in the world is in the rural areas. The 
article I just submitted for the record makes some interesting 
observations.
    It affirms, for example, that famines account for less than 
8 percent of hunger-related deaths in the world and indeed, 92 
percent of the remaining difficulties that we have globally 
with poverty. It is day-by-day chronic, persistent hunger, a 
killer that takes the lives of over 20,000 persons a day across 
our globe.
    The article also goes on to indicate that in most places in 
the world, the role of women is critical, certainly in 
agriculture. Rural women are responsible for half of the 
world's food production and produce 60 to 80 percent of the 
food in most developing countries. This is particularly true in 
South Asia and Africa.
    I would like to read into the record: ``In sub-Saharan 
Africa, women food farmers produce 80 percent of Africa's food, 
do the vast majority of the work to process, transport, store, 
and market Africa's food. They also provide 90 percent of the 
water, wood, and fuel, despite the fact that they own just 1 
percent of the land, receive less than 7 percent of farm 
extension services, and receive less than 10 percent of the 
credit given to small-scale farmers.''.
    [The information follows:]

GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT

    
    Mr. Larson, I have been a very strong voice in this 
Congress for agricultural development globally. I have also 
been a very strong voice for women being involved in that 
process.
    What can you tell me about this proposal that will assure 
me that over half the funds that you propose will go to women 
who are actually doing the work in the most poverty-stricken 
places on our globe?
    Mr. Larson. Well, thank you, and thank you for your support 
for agricultural development over the years.
    It is interesting that the President, when he announced his 
initiative, cited agriculture as a good example of the types of 
things that we would be interested in supporting through the 
Millennium Challenge Account. It is also interesting that that 
corresponds very much to the announced priorities of many of 
the developing countries. Certainly, the Africans cited 
agriculture as a priority, even at a time when the World Bank 
and others had it lower down on their priority list. So we 
think we are in tune with the thinking of the developing 
countries here.
    Secondly, the administration has sought to increase 
attention--and more than attention, its capabilities--in 
working with countries to end hunger through agricultural 
productivity. We welcome the fact that Congress has supported 
some increased resource for this, and we are moving forward in 
Mali, Uganda, and Mozambique within Africa to really attack 
hunger through agricultural development.
    We get at the issue of women and development in at least 
three different points in this Millennium Challenge. First of 
all, we get at it through the selection criteria, because the 
indicators include several indicators that get at the issue of 
voice and vote. I mean, is this a country where citizens, 
including women, have the right to have a say in the policy 
process? That is one of the indicators. Civil and political 
rights, things of that sort. And the social indicators, the 
investing in people. One of the most important ones is the 
primary school completion rate, which you are not going to have 
a good record on if you are not spending your education 
resources on primary school education for girls as well as 
boys.
    The second place where we get at the issue of opportunity 
for women is in the process of establishing the priorities for 
development in a country that is a participant. We have put 
very strong stress on the importance in that country of 
outreach and having a process where establishing development 
priorities is participatory--that is, open to citizens, to NGOs 
and to business. And, one of the things that we will look at 
very closely in examining proposals is, has there been that 
sort of outreach that encompasses the views of citizens, 
including women.
    Finally, and this in a way circles back to what I said at 
the outset, I think the sorts of initiatives that the President 
has highlighted as ones that we would be interested in 
supporting are ones that promote women's opportunities. I 
mentioned already agriculture as an example that he has cited, 
and I have worked in Africa for 5 years, so I know exactly what 
you are talking about when you say that it is the women in 
Africa that are responsible for so much of the agricultural 
production.
    A second example that he gave is education where the 
President subscribes and has put the United States on record as 
subscribing to the international development goals which 
include gender equality and universal primary school education.
    So we think we are getting at this at each stage, at each 
stage of the process.
    Ms. Kaptur. Well, I know when Catherine Bertini--and I will 
just close with this, Mr. Chairman--headed the food and 
agricultural services globally, she developed regulations 
assuring that half of the assistance would go to women involved 
in development. I would strongly urge you to take a look at the 
information I provided to the record today. Also, to the extent 
possible, engage our own U.S. Department of Agriculture through 
the PL-416 program, which the administration has zeroed out 
this year, and then reduced the PL-480 by nearly $600 million 
under last year. This is a serious impediment to your 
completing what you are attempting to do here.
    I will come back on the second round.
    Thank you, Mr. Chairman.
    Mr. Kolbe. Mr. Vitter.
    Mr. Vitter. I don't have any questions right now, Mr. 
Chairman. Thank you.
    Mr. Kolbe. Mr. Kirk.
    Mr. Kirk. Mr. Larson, I think the collective groan you hear 
on this proposal is for all of the other entrenched agencies 
that see this as a threat to the standard way of doing things, 
but I think this is a good direction to go in.
    Can you tell me, though, in your eyes, which USAID 
recipient has failed?
    Mr. Larson. Which large U.S. foreign aid recipient has 
failed?
    Mr. Kirk. I can name a bunch, but I want to hear it out of 
your mouth.
    Mr. Larson. Well, what I am going to say is probably not 
going to be exactly what you want to hear. I think that there 
are a number of assistance programs that have failed over the 
years.
    Mr. Kirk. Let's hear one.
    Mr. Larson. Well--hear one program?
    I think some of the direct cash transfer programs that we 
have done in countries like Egypt in earlier days have not been 
as successful as we would like. That is one of the reasons why 
we have moved drastically to a policy-based program in Egypt 
and are connecting the sorts of assistance that we are 
providing to those sorts of changes.
    I mention Egypt because I know it is a country that many 
cite. It is also, though, a country where in recent years, 
there have been some very important changes in their exchange 
rate policies, in their trade policies, privatization; they 
have signed on to the basic telecom agreement and the 
information and technology agreement.
    So I think we are getting results from our assistance 
programs now in a way that perhaps we haven't always been.
    Mr. Kirk. Maybe the Government of Tanzania, one of the 
favorites of the development community, I just think totally 
failed to ever lift the GDP of that country after billions of 
dollars in foreign aid.
    Mr. Larson. There is a dependence issue in a case like 
Tanzania. I mean, one of the things that we desperately want to 
avoid with this program is a sense of dependence. We would like 
to have time-limited programs where you go in, you accomplish 
some objectives, and then you get out. So it isn't seen as, as 
has been indicated earlier, as a cash transfer program, but it 
is seen as something where you are getting specific results.
    Mr. Kirk. I might say, under this proposal, Zimbabwe would 
be a big loser because its head of state is slowly going crazy?
    Mr. Larson. Yes. I think there are a number of countries 
that are not going to meet the governance criteria under this 
program.
    Mr. Kirk. That would be one, you would think?
    Mr. Larson. I would certainly think that on governance 
issues, property rights issues, and any number of the criteria, 
they simply don't cut the mustard.
    Mr. Kirk. I would hope so.
    I think your proposal would be helped if we could begin to 
see who you thought the winners and losers would be. I have 
noted--looked a long time at West Africa and looked at a 
country like Togo and looked at a country like Ghana.
    Ghana, under everyone up to President Rawlings, was a 
complete and total failure through the utter incompetence of 
its own leaders. But finally, under President Rawlings, it was 
a bit of a darling of the development community and showed 
results. Ghana's next-door neighbors, both west and east, have 
completely collapsed, largely because of the decisions of their 
own government. Would Ghana be a winner?
    Mr. Larson. Ghana is certainly a country that performs very 
well.
    We have been very cautious, Congressman, about saying, here 
is a winner and here is a loser, for several reasons. One is 
that the information does change, and you suggested even in the 
case of Ghana, it is a country that has had its ups and downs.
    Secondly, we don't want to create a sense of false 
expectations on the part of countries that think they are 
winners and then when the time comes, it turns out that they 
have slipped in a way that makes them, in our judgment, 
ineligible.
    I understand the spirit of your question, and we are 
looking for ways to help to build confidence on the part of the 
Congress that the types of countries that come up for 
consideration under the processes that we have talked about are 
countries that look right; they are countries that do, albeit 
being poor, have a sort of commitment to good governance and to 
helping their own people and to opportunity, that, you know, 
that is recognized around the world.
    So what I can tell you today is, we are not getting strange 
results when we look at how this process works.
    Mr. Kirk. I would just say that the collective groan you 
are hearing up here is that we know who the losers are. There 
is an entrenched bureaucratic interest in service delivery.
    Mr. Larson. Yes.
    Mr. Kirk. But not much interest in service performance. And 
if you could, though, begin to tell us who the winners are, you 
build the political coalition up here, because each one of 
these countries and regions has supporters up here. You could 
build that behind this proposal.
    Being in the dark on that means that the people interested 
in service delivery without performance will eat this proposal 
alive up here, as is happening over in the Senate Foreign 
Relations Committee; and I think that you need this 
flexibility. I think the Ghanas of the world need to be 
rewarded and the Tanzanias and especially Zimbabwes of the 
world need to be punished. So I hope we can move forward, but 
we will need some political reality and adjustment to sell this 
proposal.
    Thank you, Mr. Chairman.
    Mr. Larson. Thank you, sir.
    Mr. Kolbe. Thank you, Mr. Kirk. I think we are going to 
blaze that overhead here: Service performance, not service 
delivery. I think those are the words that this subcommittee 
needs to keep in mind.
    Boy, I have so many things to talk about here, I don't even 
know where to start. But I am going to start anyhow.
    The legislation, the draft of the legislation from the 
administration refers to key areas of focus: agricultural 
development, education enterprise, and private sector 
development, governance, health and trade, and investment 
capacity-building. It would seem to me that at least some of 
those are things that we are doing traditionally in foreign 
assistance--agriculture development, education and health. Not 
that they are wrong, but they don't seem to be the things that 
are truly the ones that are the focus of economic growth, which 
is what this is supposed to be all about.
    I am just trying to understand how this differs from what 
we are doing. It sounds like there is an awful lot in here that 
could be very traditional kinds of--the same kinds of programs 
we are doing, and there is not anything about infrastructure 
and there is not anything about property rights.
    You have referred several times to property rights. Nothing 
is mentioned in here in the legislation about property rights.
    Mr. Larson. First of all, we--the list you cited, Mr. 
Chairman, is meant to be illustrative, not exclusive, and it is 
meant to convey the sorts of sectors that can be productive and 
growth-enhancing. We do think that we ought to respond to 
developing country priorities so long as we see that there is a 
firm connection between those priorities and growth.
    I think what is new about the President's proposal--and I 
was about to bring it up in following up on Mr. Kirk's 
conversation--is that we have, you are right, over the years 
seen some real benefits to investments in education and health, 
if they are investments and they are the sort of thing that can 
help a country achieve a new level of development.
    I think what is new about the President's proposal is that 
it also recognizes that if you are working with a country that 
is committed to development outcomes, promoting economic growth 
may be the best way to deliver education. I mean, if they are 
committed to education and are devoting an appropriate share of 
their budget to education and, moreover, are making sure they 
get results out of education, then arguably the key issue they 
have is how to grow their economy so that they can spin off 
even further resources for that purpose.
    So there is a very strong openness in the President's 
proposal to helping small business, helping a country learn to 
trade, participate more effectively in the trading system, or 
using IT to modernize their development. It is not that we have 
thrown out the traditional approach, but we have said the 
traditional approach is not complete and there needs to be a 
stronger focus on economic development and growth.
    Mr. Kolbe. In response to Mr. Kirk's question about who are 
the losers, you said--in the programs, you said some of the 
cash assistance.
    Mr. Larson. In the past.
    Mr. Kolbe. And you mentioned Egypt. But the Millennium 
Challenge Account really is budget support, isn't it? I mean, 
you don't anticipate contracting with NGOs to deliver services?
    Mr. Larson. I wouldn't assume that this is budget support 
in the way that has traditionally been viewed. The starting 
point really would be that you are going to sit down with this 
country and say, what is your biggest priority?
    Mr. Natsios mentioned, in one country it might be roads or 
infrastructure. I don't know if that would be true, but let's 
just assume for a moment that it was true. You would want to, 
under those circumstances, look at a way to work with that 
country to have a program that would deliver these services on 
a cost-effective basis in a way that definitely promoted 
economic development.
    I think that, in my own mind, the distinction between 
project support and program support is one that begins to blur 
if you are doing things right. If you are doing things right, 
you are going to be providing a mix of technical capacity-
building, financial support, management support; and the 
ability to measure the results of programs, that is somewhere 
between what we often think of as project activities versus 
what we think of as program activities.
    Mr. Kolbe. This question really belongs to Mr. Natsios, but 
you are stuck because you are here.
    He referred to the USAID Millennium Challenge Account 
complementing what USAID does and vice versa. Yet the three 
largest countries in the administration's request for foreign 
assistance this year--for development assistance, not in the 
health account, not child and survival, not in migration or 
anything else--the three largest countries are Sudan, 
Indonesia, and Pakistan. Are those the countries we have in 
mind?
    Mr. Larson. For the Millennium Challenge Account?
    Mr. Kolbe. Yes.
    Mr. Larson. No.
    Mr. Kolbe. Okay. So I think we have to think about really 
how--whether what we are doing right now is really in that 
direction.
    Again, I want to emphasize those are the three largest 
countries in development assistance that we are talking about 
under the current assistance.
    Mr. Larson. I mean, these obviously are three countries 
where there are huge issues, where we have national issues at 
stake and we need to be a force for help. But they are not----
    Mr. Kolbe. Exactly, but I am not sure they would be the 
three I would pick for development assistance.
    Mr. Larson. I understand.
    Mr. Kolbe. Which leads me--this will be the last question I 
will get here--to the whole question of transparency, which you 
talked about, and I absolutely agree, this process has to be 
absolutely transparent for selecting the countries; which leads 
me to the question, why is there some objection to not telling 
us which countries are going to be selected, but which ones, 
based on these objective criteria, meet the eligibility 
criteria?
    I mean, do you just say, here are the criteria--you go down 
and you score all of the countries--here are the scores the 
countries get under this?
    Mr. Larson. No. We are struggling with this issue, and I am 
taking to heart what Mr. Kirk said about the way in which it 
could help the Congress have a better understanding of it.
    I mean, the issue, Mr. Chairman, is that we are in the 
process of setting up from scratch a totally new approach. When 
the President made his speech just over a year ago, he said, I 
want to focus on these three benchmark criteria, these three 
bedrock criteria: governing justly, investing in people, and 
opportunity, economic opportunity and freedom. And it was up to 
his team to try to figure out how to operationalize those 
concepts in the most effective and transparent way that is 
related to economic growth.
    And we worked very hard on this and we tried to find the 
sorts of indicators that were accessible outside, that would be 
available to the Congress and the public, that we think were 
reliable. In some cases, the indicators were out there, but 
they didn't have sufficient country coverage--you know, like 60 
percent or 70 percent of the countries had ratings under them, 
so we, in some cases, were able to encourage the people who 
keep this data to start broadening their coverage.
    And we have been concerned that the sort of results that 
you got and would continue to get by applying those indicators 
and the methodology that was referred to earlier could be 
misleading, because that data will change before we make the 
final selection process. And it has been worry about that--that 
is, it made us very, very reluctant to have lists floating 
around saying, well, these are who the countries would be if we 
are done in March 2003.
    Mr. Kolbe. I thank you. Still have lots more.
    Mrs. Lowey.
    Mrs. Lowey. I thank you, Mr. Chairman. I appreciate your 
focus on involvement of the Congress and, specifically, our 
committees in this process. However, other than our very nice 
chat, we haven't seen any evidence of it. Certainly we passed 
the Iraq supplemental in record time and more than a month has 
gone by, and we have yet to be consulted on the roles and 
responsibilities for Iraq reconstruction.
    On MCA, as I stated before, the proposed legislation 
contains no provision for congressional oversight, and I am 
told that sections addressing this issue that were contained in 
the draft bill, sent by the IR committee to the White House, 
have been removed by administration officials.
    Perhaps you can elaborate, because I appreciate your focus 
and your emphasis on collaboration. Can you give us your vision 
about how Congress and the Appropriations Committee 
specifically should be kept informed by the executive branch?
    Mr. Larson. Yes.
    First of all, I will certainly try, and I think the first 
step of the process of working together in consultation is 
something that we need to consult about, because my ideas about 
what is a good process of consultation may be interesting, but 
I think it is the Congress' ideas about what works for the 
Congress that will be very important.
    Mrs. Lowey. In fact, Mr. Secretary, perhaps I should add 
another part to it, so you can answer it all together.
    Would you oppose a requirement that Congress be notified on 
a country-by-country basis prior to the disbursement of funds 
from the MCA, and if so, why?
    Mr. Larson. Well, what I was about--let me circle to that, 
if I may.
    I think that the Congress would have every right to believe 
that the members of the board and the CEO would be available 
both for hearings and for other, less formal types of 
consultation to get--to discuss the basic operating procedures 
and policies of the corporation, as well as to discuss the 
sorts of results that the corporation was getting and so forth. 
I assume that both the Board and the CEO will appear before the 
Congress and give an accounting for the results that they have 
achieved over periods of time.
    With respect to the specific contracts, I have said that I 
expect that--well, not just expect; it is our policy that those 
would be published on the Web, and so they would be totally 
open and transparent.
    I think the place where I hesitate in response to the 
elaboration of your question is whether it is useful to have a 
mandatory notification requirement or whether it is more 
productive to have the sort of transparency that I alluded to 
and the type of consultative process that gives the Congress 
confidence that they are having the sort of voice and influence 
that they should have to be responsible for the people's money. 
That is a detail I don't have an answer for you on today. What 
I can say is, the Secretary, in every conversation I have had 
with him, focuses on accountability to the Congress.
    Mrs. Lowey. Perhaps we can continue that discussion.
    Mr. Larson. Sure.
    Mrs. Lowey. Because I would be interested to know your 
vision and that of the Secretary of State.
    Mr. Larson. Sure.
    Mrs. Lowey. With regard to the $1.3 billion requested for 
fiscal year 2004, does the administration expect to be able to 
spend, in fiscal year 2004, this money, assuming an October 
start date for the MCA?
    And given the fact that there are such incredible needs out 
there, I am wondering why $1.3 should even be appropriated. 
Could you respond?
    Mr. Larson. Sure. The administration would like to be able 
to move very, very quickly in the new budget year to implement 
this program. It is one of the reasons why we have been pushing 
for fast progress on the authorization bill; that is why we 
appreciate the opportunity for this hearing, to be able to 
advance as much as possible the timetable.
    We have within the administration a steering committee that 
is trying to carry forward some of the further work on the 
Millennium Challenge Account so that when a CEO is selected, 
the CEO will have available a set of options about issues, 
including the management of this corporation, that will 
facilitate a quick start.
    I think that if we get moving right away in October, if we 
have both legislation and appropriation, that it would be 
possible to immediately initiate consultation with the 
countries that the board and the President believe should be 
the participants in the first year, and be in a position to 
move that money in a responsible way.
    It may be that if you are working with a country on a 
sustained program dealing with agriculture, to take the first 
example that we had, that not every dollar of that will be 
expended in country in budget year 2004. But I think what we 
are going to try to do is achieve a balance between continuity 
and accountability. In other words, we would like to work with 
the country to have a sustained program over a period of 3 
years or so that would really allow for the continuity that 
will build, that would achieve results.
    Mrs. Lowey. I think my time is up, but I would still be 
interested to know why, if you are not going to spend the $1.3 
billion and given the support that you are going to get from 
this committee, you mentioned over a couple of years that you 
wouldn't have confidence that, having an effective job, you can 
come back and get the money you need while some other urgent 
needs are being met.
    Mr. Larson. No. Well, just to be very clear, we would hope 
to have--if we select a country, we would hope to be working 
with that country with appropriations from the successive 
budget years.
    I am just stressing the fact that we would see this as not 
being a light-switch approach unless the country started 
deviating from the good policies that got them into the program 
in the first place.
    Mr. Kolbe. Before I call on Mr. Wicker, I can't resist just 
saying in response to Mrs. Lowey's questions and your answers 
about consultation with Congress that, Mr. Larson, this 
subcommittee might have just a tiny bit of skepticism about 
what constitutes consultation with this subcommittee, since on 
Iraq we are still waiting to be consulted, and we are informed 
that, I guess when a fax comes floating across the machine, 
that constitutes consultation with the committee.
    Mr. Larson. The Secretary of State has a very, very strong 
commitment to consultation, meaningful consultations.
    Mr. Kolbe. Good. We are waiting for it.
    Mr. Wicker.
    Mr. Wicker. Mr. Secretary, on page 2 of Mr. Natsios' 
testimony he states and I quote, ``The MCA symbolizes a 
dramatic turning point, both in putting into practice what we 
know works in development and in elevating development as a 
fundamental aspect of our foreign policy. As Under Secretary 
Larson suggested, the MCA is the direct outgrowth of what USAID 
and other development actors have learned over the past 50 
years. We not only have considerable firsthand experience about 
what has worked and what hasn't, but we also have the benefit 
of considerable recent analysis by the World Bank,'' et cetera.
    Let me turn Mr. Kirk's question around. What are the best 
success stories in foreign policy that you are going to use as 
templates for making the MCA work in accordance with Mr. 
Natsios' testimony and his quote of your suggestion?
    Mr. Larson. Let me give you a couple of broad points and 
then perhaps a couple of specific points.
    One of the things that Andrew's testimony was referring to 
is the track record of seeing that countries that have good 
policies, as defined by good governance and openness to the 
international economy, have been shown by World Bank economic 
studies to be countries where you get up to four times the 
development outcomes or benefits from foreign assistance as you 
do compared to what you get if you are providing foreign 
assistance in a country that doesn't have a good policy 
framework. So that is a basic, general, generic point that has 
been very important.
    A second basic generic point is that local ownership of the 
development process is very important. The previous Treasury 
Secretary once referred to the assistance approach of ``dollars 
for promises.'' Dollars for promises doesn't work very well, 
because if you are only bribing a country, you are sort of 
conditioning them to do the right thing because of the offer of 
resources. That has not proved to be a good approach. They have 
to have a commitment to development in the first place, and 
that is why we put so much emphasis on these indicators and on 
the President's three criteria.
    In terms of more specific examples, I am not going--I am 
going to cite countries, but countries in terms of specific 
things that they have done. I mean, in the area of education, 
for example, one of the things that we have seen is that 
countries that have a commitment to the transparency of budget 
often get much better results than those who don't.
    In Uganda, for example, they started a process of pinning 
to the school door the budget that was provided by the central 
government, and they found that when the local community 
understood what resources were being used for education, they 
became very, very interested in the results that were being 
achieved in the local system. So that example of transparency 
in the educational budgeting process in Uganda is a very good 
practice, which I think has broader applicability.
    Mr. Wicker. So Uganda, with regard to education?
    Mr. Larson. Uganda, with regard to education, is a very 
good example, yes.
    Mr. Wicker. Are there others?
    Mr. Larson. Well, sure. I just didn't know how long you 
wanted to go, sir.
    Mozambique is a country that has shown a very, very strong 
response after a period of civil war. Part of it has been an 
economic framework that has been open to participation in the 
world economy. There has been a trade openness. This is a very, 
very poor country, but it has had growth rates in the 8 percent 
range year on year for quite some time, and a big part of that 
has been the openness of their trade regime and moving to a 
more market-oriented economy.
    Mr. Wicker. Might Mozambique be an MCA country?
    Mr. Larson. Well, I think they are among the countries that 
are in striking range. I am not, like I said, I am not in a 
position today to say, well, this country is and this country 
isn't, but they are certainly a country that, you know, if you 
look at the top 30 performers that do relatively better than 
the others in this basket of low-income--lowest-income 
countries, they are one of the ones that have a good track 
record.
    Mr. Wicker. Okay. Well, I think I would just suggest that 
you supplement your answer for the record with perhaps other 
examples.
    Mr. Larson. More examples, sure.
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    Mr. Wicker. Also--I think my time is fleeting, but could 
you specify on the record the various laws that you want to 
exempt the MCA from, and whether that includes the Buy America 
provisions that we have adhered to under previous foreign 
assistance?
    Mr. Larson. Let me do that for the record as well.
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    Mr. Larson. But, yes, we would like to have flexible 
procurement regulations. What we have not asked for is any 
exemption from laws that would bar assistance to countries.
    I just want to be very clear if there were any doubt. We 
don't--if a country is ineligible to receive U.S. assistance by 
virtue of terrorism policies or other policies where Congress 
has legislated bars on receiving foreign assistance, those 
would be honored and respected under the MCA as well.
    Mr. Kolbe. Thank you.
    Because you passed on the last round, before I go to Ms. 
Kaptur, I will see if Mr. Vitter has any questions.
    Mr. Vitter. No questions.
    Mr. Kolbe. Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman.
    I would also like unanimous consent to submit for the 
record budget summaries over the last several years of 
agricultural assistance to other countries from our country and 
the continuing diminishment of that assistance, both in direct 
food aid through traditional programs like P L 480, as well as 
the Section 416 program, which has been our traditional 
development tool in agriculture, which has been zeroed out by 
this administration.
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    Ms. Kaptur. If I listened to Mrs. Lowey correctly, your 
budget request for this coming year is $1.3 billion in this 
account? Did I hear that correctly, or is it $5 billion?
    Mr. Larson. For Public Law 480? For the MCA it is 1.3.
    Ms. Kaptur. 1.3, all right. If I look at the serious 
reduction in the PL 480 program, which is our mainline program, 
the administration has recommended a $600 million cut. The 
elimination of the Section 416 program, which is our 
traditional program to do development through the experts we 
have in this country who reside in our land grant universities 
and our local rural areas across this country, using surplus 
farm commodities, monetizing them in whatever country we send 
them to, and then using those proceeds through groups like 
Mercy Corps and World Vision to do development.
    As far as I am concerned, the elimination of that program 
and the cutbacks in the other program are going to do so much 
harm. Now, the administration comes forward with this proposal. 
I view it as sort of a shell game, because programs that I have 
jurisdiction over on my other subcommittee are being seriously 
cut and they make a real difference.
    I think feeding the hungry is the first requirement for 
those who care about others. Right, feeding the hungry? Those 
programs are being cut, while now we are creating this account 
that is supposed to eliminate poverty and do development.
    I am not against helping people. In fact, that is probably 
why I ran for Congress. However, I find this somewhat 
mystifying. I am very troubled by the apparent cutback in 
programs that I know work, and then substituting this, which is 
brand-new. There are many questions about how it's going to 
function.
    I will also place on the record, sir, because you may not 
have been here when Mr. Atwood was Director of USAID, I asked 
him a question when he came before our Agriculture subcommittee 
on USAID's total contracted employees and how many had any 
knowledge of agriculture. Out of 10,000, the answer was 80. 
AID, as good as you are, is not structured to do agricultural 
development where most of the world's poverty resides.
    I know Mr. Natsios has a desire to try to help there. But 
what you are doing is robbing the programs that have experience 
in the field and you are trying to create this new account. I 
am concerned about what is happening to those other programs. 
You are not going to be able to make this work in time, and we 
have programs like 416 that we know work and you are zeroing 
out.
    How do you respond to that?
    Mr. Larson. Well, I respond as follows: I come from agri-
Iowa. I have agriculture in my title, as you mentioned, and 
along with Mr. Natsios, I have worked very hard in the capacity 
of my chairmanship of the administration's Development Policy 
Committee to get a stronger focus on agricultural development.
    We have initiated the program to end hunger in Africa. That 
is an agricultural productivity initiative that has had 
increases--and thank you to the Congress for this--but has had 
increases of about 25 percent year on year for agriculture 
development, because we are trying to rebuild that capacity.
    We think it is a terrible mistake that the development 
community internationally drifted away from agriculture after 
the Green Revolution and that grain revolution, and that there 
are many parts of the world, including Africa, where 
agriculture productivity has languished.
    Ms. Kaptur. Are you using that in your land grant 
institutions and their connections to help?
    Mr. Larson. Yes, we are, as well as the foundations. Iowa 
State, for example, is one I know that is involved, Michigan 
State University, I think all--well, not all, but a number of 
the land grant institutions have at least individuals who are 
involved in this.
    Ms. Kaptur. But you know that by eliminating the 416 
program, you seriously undermine their abilities to do 
development in other places?
    Mr. Larson. Yes. On the food issue, we believe that it is 
unfortunate that the rest of the world has not placed the 
priority on this that we have. We are still providing at least 
a third, and in some of the most afflicted places we are 
providing 50 percent or more of the emergency food assistance.
    We are making a very, very strong effort to get more 
attention on the situation in sub-Saharan Africa; and Mr. 
Natsios and I took the initiative of organizing a meeting at 
the United Nations with the Secretary General Kofi Annan to get 
the GA countries to pay more attention to the need to respond 
here.
    The administration has made a decision to move from 416 to 
the Public Law 480 programs. We had a plus-up. You, 
Congresswoman, will be able to recite the figures better than I 
can since it is your committee.
    Ms. Kaptur. There is no plus-up, sir. There is no plus-up.
    Mr. Kolbe. If I could just interrupt, this is not the 
jurisdiction of this subcommittee; it is the jurisdiction of 
your subcommittee.
    Ms. Kaptur. No, Mr. Chairman. The agriculture programs 
unfortunately are cashed out to AID and then they do the 
contracts in the field.
    Mr. Larson. All I wanted to say is that we believe that 
food assistance is important. We are actively involved not only 
in doing more, trying to do it better internationally through 
improved procedures of early warning, but also trying to get 
other countries to do more of their share.
    Ms. Kaptur. Mr. Chairman, because my time has expired, I 
must say that it isn't just food assistance, it is assistance 
for agricultural development and it is those programs that are 
being penalized because of the way in which the administration 
is cutting those funds. The fact that even your testimony talks 
about emergency food. We do emergency, we do humanitarian and 
we do development, and it is the development piece that is 
falling out, as well as the emergency food assistance.
    Mr. Kolbe. Thank you.
    Mr. Kirk.
    Mr. Kirk. Thank you. Just to follow up, based on what I am 
hearing from you, prior draft winners of this program might be 
countries like Senegal, Ghana, Botswana, Georgia, Bangladesh, 
Ethiopia, Eritrea, and Mozambique is sort of what I have heard.
    Draft losers: Zambia, Zimbabwe, Cameroon, Cote d'Ivoire and 
Togo. Is that not unreasonable, as we look?
    Mr. Larson. I am not going to get drawn into the specifics 
of any individual country, but I think your first basket is 
countries that, taken as a group, are considered to be better 
performers, and the second basket includes a lot of countries 
that have had problems.
    Mr. Kirk. Right. Well, following up on the theme of service 
success or service delivery, we bilaterally are the number one 
donor to only a couple of countries, I think it is four. But we 
are the number one donor to the World Bank and IDB and ADB, et 
cetera, on the multilateral side.
    Would a positive rating by the MCA generate any influence 
on the U.S. executive director's office in the multilateral 
development banks? Because with the World Bank being the number 
one donor to about 50 countries, the MCA rating could have far 
more impact by influencing the U.S. executive director sitting 
on the board of those institutions than through the $1.3 
billion that you have.
    Mr. Larson. Well, the executive director of the World Bank 
has been very actively involved in our preparations. I mean, 
she works for us. Treasury, who instructs her, was actively 
involved in the work on the MCA.
    I think the really encouraging thing about this initiative 
is, it is changing the way that other development institutions 
are thinking about development. The British have sent people 
over to meet with us two or three times to understand better 
what it is we are doing and how we are going about this MCA, 
because they are intrigued at the seriousness with which we are 
approaching this development assistance initiative.
    We have tried, through our representation in the World 
Bank, to move them in the same direction. We have, for example, 
gotten a stronger focus on measuring results in the World Bank 
than was there before. We have not moved the Bank as far as we 
would like to, but we are going to keep working on it, because 
we do think that this proposal can be the yeast that changes 
the way that others do approach the development issue.
    Mr. Kirk. I would just say from what I have seen in 
economic policy, especially in a place like Eritrea or Togo, I 
would make the bet, but it would be so much more powerful if 
that policy was backed up by the executive director at the 
World Bank and the African Development Bank and any other MDBs 
that were participating. And since this subcommittee funds 
those institutions as well, it would, I think, be music to our 
ears to see that influence.
    Mr. Larson. We are pushing in exactly that direction and I 
think, sir, we are getting a little bit of track.
    Mr. Kirk. Thank you very much, Mr. Chairman.
    Mr. Kolbe. Thank you. Maybe we have time for just a couple 
of more questions before we have to wrap up and dismiss Mr. 
Larson.
    Mr. Larson, in your testimony you have the statement, the 
implementation phase will begin after countries have been 
notified of the selection of the MCA. Isn't this actually a 
two-step process? Isn't there, first, the determination of the 
countries that are eligible? Just being on the list of 
countries eligible does not guarantee they are going to be an 
MCA participant; is that right?
    Mr. Larson. Well, that is correct. I mean, you are eligible 
to compete, you have to have competed and been selected by the 
board or the President.
    Mr. Kolbe. So the board would select, would say, these are 
the countries eligible to compete?
    Mr. Larson. Correct.
    Mr. Kolbe. And then they would go out with the statement 
made on your previous page, where you said--would run a 
competition among the eligible countries to determine which 
qualify for the MCA or which would be given MCA grants, I guess 
would be the right way to say it; is that right?
    Mr. Larson. Yes.
    Mr. Kolbe. And then you would approve country X. There are 
countries A through Z that would qualify, that are on the 
eligible list, but only B, F--we don't want to name any names 
here--B, F, K, M and P are actually countries that are going to 
get grants.
    Mr. Larson. Yes. And let me, let me try to put it this way: 
First year, 74 countries eligible to compete. Let's assume, for 
the sake of argument, that 12 countries are judged by the 
board--after reviewing these indicators and all of other 
information available, that these are countries that we are 
prepared to work with. That is sort of the second stage.
    Now, it is still going to be necessary for those countries 
to come forward with projects that the Corporation and the 
board believe merit the support of the American taxpayer. That 
initiates a process by which we are in dialogue with these 
countries, and they are able to come forward with proposals. We 
think, because they are good performers, there is certainly a 
strong likelihood that they will be able to come forward with 
proposals we can support. But it is not an entitlement; it is 
something that has to be based on the adequacy and strength of 
a proposal.
    Mr. Kolbe. Do you object to having a cap on administrative 
costs? You don't have anything in your legislation which would 
cap it at all.
    Mr. Larson. Well, you know, certainly we didn't put 
anything in in terms of administrative expenditures, because we 
have the intention of keeping it lean and we have not wanted 
to, you know, legislate things that are perhaps better left to 
experience.
    But if the thrust of your question is that the Congress 
does not want to see a lot of this money being used for 
administrative expenses, we are in exactly the same place, and 
that is why we proposed something that is lean and would not be 
used to fund overhead.
    Mr. Kolbe. Well, in many cases, in many countries, the MCC, 
the Millennium Challenge Corporation, might well be 
administering programs that exceed that of USAID in a country. 
USAID has a mission in these countries, sometimes with a number 
of people there to oversee the programs.
    Do you anticipate creating a large new number of people 
that would be overseeing these programs? Or how would that work 
in country P--we don't want to name countries here--country P, 
that is one of your recipients here?
    Mr. Larson. And AID is present, for example, in country P.
    Well, I think what would likely happen--here is an example 
of what could happen. The ambassador and the AID director go in 
and see the president of country P and say, you know, you have 
asked to be considered for the Millennium Challenge Account. 
The board has reviewed all of the information. They think that 
you would make a good partner, and we would be interested in 
initiating a dialogue with you about how we can work together 
to accomplish this.
    Would you be prepared to receive a mission, next week, of a 
couple of people coming out to work on this with you?
    Mr. Kolbe. And how would the oversight and the evaluation 
be done?
    Mr. Larson. Of an actual project once it was under way?
    Mr. Kolbe. Yes.
    Mr. Larson. We would like to have the flexibility to, first 
of all, build more evaluation into the project itself. In other 
words, we would not consider any project proposal complete 
until there was a plan built in it that would benchmark 
performance and would give the Corporation reason to believe 
that the project was on track or not.
    As time goes on, we want to have the flexibility to 
contract with private groups to audit results, and as I 
stressed in response to one of the earlier questions, I think 
``audit'' means, you know, did the money go where it was 
supposed to go--a financial audit function. But it also means, 
did the activities produce the development results you are 
trying to achieve, which is more of an outcomes audit.
    Mr. Kolbe. This is a little bit like the Global ATM Fund, 
which has a local agent that does the auditing and the 
evaluation and reports back to the Global Fund then? Are you 
talking about self-evaluation? Is the country going to hire 
their own evaluators?
    Mr. Larson. As I said in response to one of the earlier 
questions, we want to encourage these countries to build in 
their own audit capabilities so that they are doing this.
    Mr. Kolbe. Do you see us relying on that?
    Mr. Larson. No. But that is what I also said, trust but 
verify.
    In other words, I think that we are going to need to have 
built into these projects the capability of a host government 
to be able to monitor and audit how funds are being used, what 
results are being achieved, and whether this project remains on 
track. But I do not believe that the Secretary of State will 
want to come before you and Mrs. Lowey and say, we believe 
these results because we have this information that has come to 
us from some third-party auditor in country P that says it is 
all on track.
    We are going to have to have an ability to verify that, and 
some of that verification may come through hiring of 
independent, private sector auditors who could go on the ground 
and test whether the results we are getting are accurate.
    Mr. Kolbe. Last here, before I call on Mrs. Lowey, we have 
been struggling with USAID to get a workable procurement system 
in place. Are we going to invent another new procurement system 
here for the MCC, a new personnel system, a new IT system?
    Mr. Larson. One of the things that we want to do in the 
very short run is identify for a new CEO what some of the best 
options or alternatives would be on issues like personnel and 
procurement and IT.
    We believe that the CEO is the person who would be paid to 
make decisions on issues like that, subject to the approval of 
the board. But we think that there are many areas where the 
choices could involve piggybacking on other systems that are 
available, where we think that they are efficient and they will 
work; in other cases, it may be that it does make sense to have 
something different.
    On the personnel side, the authorization language sets 
forth some ideas for having flexibility. This is the way that 
people are handled that would be different from the standard 
civil service or foreign service regulations.
    Mr. Kolbe. Thank you. We will wrap up with Ms. Lowey's 
questions.
    Mrs. Lowey. Mr. Secretary, it is my understanding that the 
Administration has indicated to the authorizers that it would 
be willing to allow a role for AID on the MCC Board, but only 
as a nonvoting member. I cannot understand what's so 
objectionable about having our Development Agency involved in 
helping to make decisions about where to send billions in 
development dollars. Why do you give a vote to the head of OMB 
but not a vote to those people who have been in the field for 
years and years.
    Mr. Larson. Well, I am going to answer your question in a 
slightly more general way, but the view of the Secretary of 
State is that he will visit and want to get all of the advice 
that the Director of OMB can provide, and I think, for my part, 
there is no question but that AID will have a voice.
    Mrs. Lowey. But OMB has a vote. They know more about 
development than AID?
    Mr. Larson. Well, in our view, the Administration's 
proposal is that the board should be composed of cabinet level 
officials and the Director of OMB. Along with the Secretary of 
State and the Secretary of the Treasury would be the right 
cabinet level officials, who would be accountable to the 
President for the management of this entity but that AID, the 
Director of AID, would have invaluable insights and expertise. 
And the Secretary of State relies on that.
    Mrs. Lowey. I will move on.
    Okay. Could you discuss with us how the MCA will coordinate 
with other international donors to ensure maximum effectiveness 
of overall aid dollars.
    Mr. Larson. Certainly. On the ground, coordination really 
has to begin with ground coordination. So I think the most 
important point is that in a country that is a recipient of 
MCA, the MCA would want to work, first of all, with the host 
country, which has the principal responsibility for donor 
coordination, but also other donors to make sure that our 
programs and our points of emphasis are consistent and 
complementary with what's going on, or if they are not, to 
achieve that complementary.
    I do think there is also a capitals-level aspect to donor 
coordination as well. And here part of it, in my view, is that 
the Millennium Challenge Corporation can help influence, in a 
positive way, some of the policies of other development 
institutions. I think the emphasis on measuring results is an 
important aspect of development policy, and we welcome the fact 
that others are moving in that direction.
    Mrs. Lowey. Let me just conclude because I know you have 
been very generous with your time, as has been the Chairman.
    The only list that I have seen of MCA-eligible countries is 
that which was put together by the Center for Global 
Development, the think tank, and according to this list, only 
13 percent of the population of sub-Saharan Africa, the poorest 
region in the world, would be eligible for MCA funding.
    I would be interested to know how the MCA will target the 
poorest population if it excludes the vast majority of the 
poorest region of the world, and then I have other questions 
about your funding at Millennium, the second tier. I know we 
are not going to get to that, but I think it is very important 
for us to acknowledge that because of the criteria, only 13 
percent of sub-Saharan Africa will qualify.
    Mr. Larson. The Global Development Institute, using their 
own methodology, has come up with some results, and I think 
those are the ones that you are citing. So I am not in a 
position to confirm how that squares with ours, but I think 
what I can say is that in Africa, it has certainly been the 
case that some of the most populous countries, notably Nigeria, 
have had some difficult policy environments in the last two 
decades.
    I mean Nigeria is a country that has been governed by 
military dictators. They have had very difficult internal 
violence and corruption and things of that sort, and so any 
results that you get, that are based on population in sub-
Saharan Africa, are going to be skewed by the difficulty of 
Nigeria.
    I think the positive message, about the way this process 
looks like it would work, is that quite a number of sub-Saharan 
African countries would be competitive. I think it would give 
us an opportunity to work with some of the sub-Saharan 
countries that have really made a commitment to development and 
have been showing good results, and by working with them and 
showing even better results, I think it would have an influence 
in changing policies.
    We already are hearing, and I know Mr. Natsios is hearing 
this and so am I, that countries that acknowledge that they 
have policy problems are coming to us and saying: Look, we want 
to qualify for the MCA. We know we have a difficulty now in 
this area or that. Can you work with us to help us correct this 
problem we have in governance or this problem that we have in 
having laws that don't really promote economic opportunity?
    So I believe the development impact of this initiative 
comes not only from the immediate countries that we are working 
with because they qualify, but also by the stimulus it has for 
other countries to address issues.
    Mrs. Lowey. I am so glad you ended on that note because it 
takes me back to the very beginning, and one of my basic 
questions.
    Are you going to be working with them? Are you going to set 
up a second tier of assistance through that $1.3 billion, or 
are you going for assistance to AID traditional accounts that 
have been either level funded or cut back? That is exactly the 
point many of us have been making through this whole process. 
There are many countries that really need that assistance, the 
poorest of the poor because of corruption or all kinds of 
reasons to get up to that level. If you could respond, you said 
you would be working with them? With the MCA funding?
    Mr. Larson. Our very, very strong view is that we need to 
be working with countries that are considered near miss or 
second tier or close, but not quite there.
    The Administration's current thinking is that we do have 
the flexibility, within USAID, to do that. It is a mission that 
Administrator Natsios believes is a very important mission, and 
we agree with that. The fundamental point is that we do want to 
be present, active, and supportive of those countries. This 
will not work if it is only for the A+ honor roll. It has to be 
working with, as well, the B and the B- countries to help them 
improve their policy performance, and, therefore, improve their 
development performance.
    Mrs. Lowey. Thank you, and we look forward to more details 
and more discussions as to how you are going to do that and 
help people reach that level, so they will be eligible for the 
MCA funding.
    Thank you.
    Mr. Kolbe. I misspoke. I thought of a couple of things I 
just need to get quickly on the record here.
    One of the questions I had asked recommended to the 
authorizers that they include a provision specifically 
forbidding taxation of the MCA funds or projects. I would hope 
the Administration would support such a provision, as we now 
do, for all of our AID projects in the legislation.
    Mr. Larson. Yeah.
    Mr. Kolbe. Thank you.
    I also would say that my hope is when this finally emerges, 
this framework of this organization, this corporation emerges, 
that it does include some outside board members and private 
board members. I just think it is going to be very hard for the 
OMB or the Secretary to walk into a meeting and suddenly take 
off one hat and suddenly put on another hat and be totally a 
different kind of a person. I think you need some outside, that 
is my own personal view, some outside point of view that would 
help in that, not a majority but that point of view.
    And my last question, that is just a comment for you. My 
last question is this, and it relates to what the questions 
that were being asked here earlier, once the countries are 
picked, let's say the 15 countries that are picked that are 
going to be the recipients of the assistance, is there another 
competition among them for the amount they get, or is the 
amount they are going to get determined by the quality of the 
proposal they make or simply the indicators, their poverty 
levels, that kind of thing. Or are you simply going to take it 
and try and divide it evenly among all the countries there?
    I guess, what would be the criteria for how you would 
decide, since it is limited, finite resources, as to how much 
goes to 15 countries?
    Mr. Larson. Sure. Just, if I could, just a quick note on 
the outside advice for the board.
    Even though we are committed to the notion of a cabinet 
level, inside government board, we do share very much the 
notion that the board will need outside advice. And we have 
talked about ways of providing that advice by making sure that 
eminent development experts available to help them think 
through issues of strategy.
    On your specific question, Mr. Chairman, we do not envision 
that this would be just--well, you have qualified, so here's 
your share of the amount of money that is available this year.
    We think that the decisions about allocation should be made 
on the review of the quality of the proposals and the amount 
that is needed to get a specific piece of work done. There may 
be that one of the countries that you are working with has a 
proposal that cannot really effectively be tackled with a 
relatively small amount of money, but that they, nevertheless, 
have come forward with a very credible approach of how to 
achieve their development outcomes, and that they can make the 
case both on a combination of, sort of, need in the sense of 
there is a threshold that has to be reached to make this 
project work, and the quality of the proposal. And so that is 
something that the corporation, I think, headed by the CEO 
would have to evaluate and take to the board. It is not--we 
don't want it to be seen as an entitlement.
    Mr. Kolbe. Mr. Larson, thank you very much. You have been 
very patient with all the questions coming from this committee, 
especially since you had to field all of them with Mr. Natsios' 
departure, and we do appreciate your work, the work you have 
made in helping us get this far with the proposal, and we hope 
that we will be having you and others up here frequently as we 
talk about the Millennium Challenge Account and the 
corporation.
    Thank you very much. The subcommittee stands adjourned.
    [Questions and answers for the record follow:]

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                           W I T N E S S E S

                              ----------                              
                                                                   Page
Armitage, Richard................................................     1
Feachem, R. G. A.................................................   188
Gootnick, David..................................................   172
Kean, T. H.......................................................   130
Larson, Alan.....................................................   221
Moseley, S. F....................................................    80
Natsios, Andrew..................................................   221
Sperling, Gene...................................................    59
Thompson, T. G...................................................   135
Wright, Cream....................................................   102


                               I N D E X

                              ----------                              --
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     Supplemental Request for Iraq and the Global War on Terrorism

                                                                   Page
Chairman Kolbe's Opening Statement...............................     1
Contracts........................................................    32
Funding..........................................................    21
Iraqi Pipeline...................................................    20
Iraqi Water Plants...............................................    27
MEPI.............................................................    29
Mr. Armitage's Written Statement.................................     6
Mr. Natsios' Written Statement...................................    11
Mrs. Lowey's Opening Statement...................................     2
Multilateral Assistance..........................................    26
Turkey...........................................................    23
U.S. Emergency for Complex Foreign Crisis........................    31
United Nations...................................................    20

                     International Education Issues

Chairman Kolbe's Opening Statement...............................    59
Mr. Moseley's Opening Statement..................................    80
Mr. Moseley's Written Statement..................................    86
Mr. Sperling's Opening Statement.................................    62
Mr. Sperling's Written Statement.................................    66
Mr. Wright's Opening Statement...................................   102
Mr. Wright's Written Statement...................................   107
Written Testimony of Thomas H. Kean..............................   130

                          Global Health Issues

AIDS Coordinator.................................................   169
Chairman Kolbe's Opening Statement...............................   135
Donor Pledges....................................................   206
GAO Report.......................................................   202
HIV/AIDS Cases...................................................   170
Mr. Feachem's Opening Statement..................................   188
Mr. Feachem's Written Statement..................................   193
Mr. Gootnick's Opening Statement.................................   172
Mr. Gootnick's Written Statement.................................   174
Mr. Thompson's Opening Statement.................................   139
Mr. Thompson's Written Statement.................................   143
Mrs. Lowey's Opening Statement...................................   136
Oversight and Accountability.....................................   166
Technical Review Panel...........................................   208
Uganda Model.....................................................   167
World Bank.......................................................   204

                   Millennium Challenge Corporations

Chairman Kolbe's Opening Statement...............................   221
Contracting......................................................   249
Funding..........................................................   253
MCA Eligibility..................................................   248
Mr. Larson's Opening Statement...................................   226
Mr. Larson's Written Statement...................................   229
Mr. Natsios' Opening Statement...................................   237
Mr. Natsios' Written Statement...................................   240
Mrs. Lowey's Opening Statement...................................   223
Women and Agriculture............................................   258

                                  
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