[Senate Hearing 108-]
[From the U.S. Government Publishing Office]



 
      FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS 
                  APPROPRIATIONS FOR FISCAL YEAR 2005

                              ----------                              


                       WEDNESDAY, APRIL 21, 2004

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 2:35 p.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Mitch McConnell (chairman) 
presiding.
    Present: Senators McConnell, Shelby, DeWine, Leahy, and 
Durbin.

           UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT

STATEMENT OF ANDREW S. NATSIOS, ADMINISTRATOR

                          DEPARTMENT OF STATE

STATEMENT OF AMBASSADOR COFER BLACK, COORDINATOR FOR 
            COUNTERTERRORISM

             OPENING STATEMENT OF SENATOR MITCH MC CONNELL

    Senator McConnell. The hearing will come to order. I want 
to welcome Mr. Natsios and Ambassador Black. Thank you for 
being here today. Our hearing is on foreign assistance and 
international terrorism, a topic of keen interest, not only to 
our subcommittee but to all the people in the world who are 
free and would like to remain so. Senator Leahy, I believe, is 
on his way. We will both make some opening remarks and then be 
followed by the two of you, first Mr. Natsios and then you, 
Ambassador Black. In the interest of time I'm going to ask our 
witnesses to summarize their remarks and then we will proceed 
to 5-minute rounds of questions and responses.
    A final piece of housekeeping. Due to last minute travel 
requirements, HIV/AIDS Coordinator Tobias will be unable to 
participate in the April 28 hearing on the fiscal year 2005 
HIV/AIDS budget request. Staff will be working with the State 
Department to reschedule the hearing for some time next month 
and we will make an announcement once that date has been 
reached.
    I want to make a few brief historical reflections. 
Understanding the looming threat of the axis powers to America, 
President Roosevelt said in his Arsenal of Democracy speech in 
December 1940, that ``no man can tame a tiger into a kitten by 
stroking it. There can be no reasoning with an incendiary bomb. 
We know now that a nation can have peace with the Nazis only at 
the price of total surrender.'' So it is with the ongoing war 
on terrorism. Our current-day enemies are as ruthless as the 
Nazis and as devious as the kamikaze pilots who struck without 
warning, originally at Pearl Harbor and later when then crashed 
into our ships. From trains in Spain to nightclubs in Bali and 
Tel Aviv the terrorist hydra indiscriminately targets innocent 
men, women, and children in misguided jihad that pits 
fanaticism against freedom. To be sure there can be no 
armistice or peace treaty with terrorists. With the continued 
participation of other world democracies this scourge must be 
managed and controlled like the disease that it is. Our modern 
day arsenal of democracy is vast and potent. From precision-
guided munitions to basic education programs in the Muslim 
world, America has at hand the tools and the capacity to 
militarily confront terrorism on foreign shores while 
simultaneously undermining social and economic conditions that 
offer terrorists safe haven and breeding grounds. And under 
President Bush we have tested and solid leadership. The weapons 
under this subcommittee's jurisdiction are numerous and include 
the obvious, the State Department's Anti-Terrorism Assistance 
Program and Terrorist Interdiction Program and the more subtle 
USAID's child survival and basic education programs. Although 
many advocate additional resources for foreign assistance 
programs it is clear this administration understands the 
importance of U.S. foreign aid in the war against terrorism.

                           PREPARED STATEMENT

    Testifying on the fiscal year 2005 budget request before 
this subcommittee earlier this month, Secretary Powell 
indicated as follows: ``to eradicate terrorism the United 
States must help create stable governments in nations that once 
supported terrorism, go after terrorist support mechanisms as 
well as the terrorists themselves, and help alleviate 
conditions in the world that enable terrorists to bring in new 
recruits.'' When it comes to the budget request, there may be a 
difference of dollars but not direction. We all know now that 
repression in Cairo and Riyadh translates into terrorism in New 
York, Virginia, and Pennsylvania.
    Let me just close with an observation on Southeast Asia. 
With a highly combustible mix of corrupt and undemocratic 
governments and regional terrorist groups with linkage to Al 
Qaeda, that region may very well become our next front in the 
war on terrorism. The hydra has already appeared in the 
Philippines, Indonesia, Thailand, Malaysia, Singapore, and 
Cambodia. It is imperative that we provide sufficient resources 
to foreign assistance programs in that region--whether basic 
education in Jakarta or democracy promotion in Phnom Penh--to 
deny footholds for Islamic extremism. Should we fail to do so 
the results will be catastrophic for the region and for the 
world. Regional terrorists are undoubtedly aware of the massive 
flow of trade and oil through the Strait of Malacca.
    [The statement follows:]

             Prepared Statement of Senator Mitch McConnell

    I want to begin my remarks with a brief historical reflection.
    Understanding the looming threat of the Axis powers to America, 
President Franklin Roosevelt said in his ``Arsenal of Democracy'' 
speech in December 1940 that ``no man can tame a tiger into a kitten by 
stroking it. There can be no reasoning with an incendiary bomb. We know 
now that a nation can have peace with the Nazis only at the price of 
total surrender.''
    So it is in the ongoing war against terrorism.
    Our current day enemies are as ruthless as the Nazis and as devious 
as the kamikaze pilots who struck without warning at Pearl Harbor. From 
trains in Spain to nightclubs in Bali and Tel Aviv, the terrorist Hydra 
indiscriminately targets innocent men, women and children in misguided 
jihad that pits fanaticism against freedom.
    To be sure, there can be no armistice or peace treaty with 
terrorists. With the continued participation of other world 
democracies, this scourge must be managed and controlled like the 
disease that it is.
    Our modern day arsenal of democracy' is vast and potent. From 
precision guided munitions to basic education programs in the Muslim 
world, America has at hand the tools and capacity to militarily 
confront terrorism on foreign shores while simultaneously undermining 
social, political and economic conditions that offer terrorists safe 
haven and breeding grounds. And under President Bush, we have tested 
and solid leadership.
    The weapons' under this Subcommittee's jurisdiction are numerous 
and include the obvious--State's Antiterrorism Assistance Program and 
Terrorist Interdiction Program--and the more subtle--USAID's child 
survival and basic education programs. Although many advocate 
additional resources for foreign assistance programs, it is clear this 
Administration understands the importance of U.S. foreign aid in the 
war against terrorism.
    Testifying on the fiscal year 2005 budget request before this 
Subcommittee earlier this month, Secretary Powell stated: ``[t]o 
eradicate terrorism, the United States must help create stable 
governments in nations that once supported terrorism, go after 
terrorist support mechanisms as well as the terrorists themselves, and 
help alleviate conditions in the world that enable terrorists to bring 
in new recruits.''
    When it comes to the budget request, there may be a difference of 
dollars--but not of direction. We all know now that repression in Cairo 
and Riyadh translates into terrorism in New York, Virginia and 
Pennsylvania.
    Let me close with an observation on Southeast Asia. With a highly 
combustible mix of corrupt and undemocratic governments and regional 
terrorist groups with linkages to al-Qaeda, that region may very well 
become our next front in the war on terrorism. The Hydra has already 
appeared in the Philippines, Indonesia, Thailand, Malaysia, Singapore 
and Cambodia. It is imperative that we provide sufficient resources to 
foreign assistance programs in the region--whether basic education in 
Jakarta or democracy promotion in Phnom Penh--to deny footholds for 
Islamic extremism.
    Should we fail to do so, the results will be catastrophic for the 
region and the world. Regional terrorists are undoubtedly aware of the 
massive flow of trade and oil through the Strait of Malacca.

    Senator McConnell. With that, let me call on my friend and 
colleague, Senator Leahy, for his opening observations.

             OPENING STATEMENT OF SENATOR PATRICK J. LEAHY

    Senator Leahy. Thank you very much, Mr. Chairman. I'm 
pleased you're holding this hearing. Ambassador Black and Mr. 
Natsios, I appreciate both of you being here. You both have 
long and distinguished records in your fields and have been 
helpful to our committee.
    I think a key question for us today is one that was posed 
by a top official of the Bush administration. He said: ``Are we 
capturing, killing, or deterring more terrorists every day than 
the madrassas and the radical clerics are recruiting, training, 
and deploying against us?'' I think it is a key question. That 
was Secretary Rumsfeld's question on October 16. It's a lot 
different than the everything is roses rhetoric than we've 
heard from many in the administration. I commend Secretary 
Rumsfeld for the statement. It was blunt, unpolished, and it 
was right on target. I think that question, particularly the 
issue of deterrence, should be at the heart of our 
counterterrorism strategy.
    As you both know, fighting terrorism involves a lot more 
than just force and interdiction. If that's all it took, with 
the most powerful military on earth, we would have already won. 
But I think that many of the administration's foreign policies 
are taking us in the wrong direction, and let me give you some 
examples of where I believe we're losing ground. The conflict 
between Israelis and Palestinians has enormous impact on how 
the United States is perceived in the Muslim world but I don't 
believe the President has invested, really, any political 
capital in solving the conflict. The road map is dead, the 
violence continues unabated and it's fueled the propaganda 
machines of Islamic extremists.
    Iraq, after squandering the goodwill afforded us around the 
world after the September 11 attacks, we are floundering. The 
failure to find weapons of mass destruction has damaged our 
credibility. The commander of U.S. ground forces in Iraq, 
General Sanchez, has said Iraq is becoming a magnet for foreign 
terrorists. Other reports indicate that terrorist organizations 
around the world are using Iraq as a rallying cry for gaining 
new recruits. And while the President has talked about 
democracy and human rights, he speaks about changing the world, 
we are giving billions of dollars in aid to corrupt, autocratic 
regimes that are the antithesis of democracy and American 
values. Yet, we spend a pittance of what is needed to counter 
the powerful forces of Islamic extremism in key countries like 
Indonesia, the Philippines, and Malaysia, just to give some 
examples.
    Ambassador Black and Mr. Natsios, a recent Pew Research 
Poll showed that the credibility and reputation of the United 
States has been badly damaged, especially in Muslim countries, 
as a result of our own policies. Now, your testimony, which I 
have read, I know you're just going to summarize it but it 
describes what you're doing to strengthen government 
institutions and win the battle for hearts and minds in 
countries that are vulnerable to terrorist networks. We want to 
help. But I'm telling you that while I'm sure there have been 
successes, and there have been, if you look at the big picture 
some of the President's policies are working against you and I 
don't think you're devoting enough resources to do the job. And 
I say this as one who has strongly supported efforts of this 
administration, as I have of past administrations, to get 
resources to areas where foreign aid can do some good.
    Thank you. Thank you, Mr. Chairman.
    [The statement follows:]

             Prepared Statement of Senator Patrick J. Leahy

    Thank you Mr. Chairman for holding this hearing. Ambassador Black 
and Mr. Natsios, I appreciate you being here. I know you both have long 
and distinguished records in your fields.
    I think a key question for us today is one that was posed by 
another top official of this Administration. He said, quote: ``Are we 
capturing, killing or deterring more terrorists every day than the 
madrassas and the radical clerics are recruiting, training and 
deploying against us?'' That was Secretary Rumsfeld's question on 
October 16, and it was notably different from much of the rhetoric we 
have come to expect from this Administration. It was blunt. It was 
unpolished. And it was right on target.
    This question, and particularly the issue of deterrence, should be 
at the heart of our counter-terrorism strategy. As you both know, 
fighting terrorism involves more than force and interdiction. 
Unfortunately, I believe that many of this Administration's foreign 
policies are taking us in the wrong direction. Let me give you some 
examples of how I believe we are losing ground:
  --The conflict between Israelis and Palestinians has an enormous 
        impact on how the United States is perceived in the Muslim 
        world. Yet, despite its importance, President Bush has invested 
        almost no political capital in solving the conflict, the road 
        map is dead, and the violence continues unabated--fueling the 
        propaganda machines of Islamic extremists.
  --In Iraq, after squandering the good will afforded us after the 
        September 11 attacks, we are floundering. The failure to find 
        weapons of mass destruction has damaged our credibility. The 
        Commander of U.S. ground forces in Iraq, General Sanchez, has 
        said the country is becoming a magnet for foreign terrorists, 
        while other reports indicate that terrorist organizations are 
        using Iraq as a rallying cry for gaining new recruits.
  --At the same time the President talks about democracy and human 
        rights--``changing the world'' is how he put it--we are giving 
        billions of dollars in aid to corrupt, autocratic regimes that 
        are the antithesis of democracy and American values. And yet we 
        spend a pittance of what is needed to counter the powerful 
        forces of Islamic extremism in key countries like Indonesia, 
        the Philippines, and Malaysia.
    Ambassador Black, Mr. Natsios, a recent Pew Research poll showed 
that the credibility and reputation of the United States have been 
badly damaged, especially in Muslim countries, as a result of our own 
policies.
    Your prepared testimony describes what you are doing to strengthen 
government institutions and win the battle for hearts and minds in 
countries that are vulnerable to terrorist networks. We want to help. 
But what I am telling you is that, while I am sure there have been 
successes, if you look at the big picture, some of the President's 
policies are working against you, and you are not devoting enough 
resources to do the job.

    Senator McConnell. Mr. Natsios, why don't you go ahead and 
we'll put your full statement in the record. If it's too 
lengthy, I would ask you to summarize.
    Mr. Natsios. Thank you. Does this go on automatically?
    Senator Leahy. You can press the button right in front of 
you. The light will go on if it's on.

              SUMMARY STATEMENT OF HON. ANDREW S. NATSIOS

    Mr. Natsios. I do have a longer statement for the record, 
Mr. Chairman, which I would like put in the record, and I will 
read a summarized version.
    It is a privilege for us to be here today to discuss the 
efforts of both the State Department and USAID to combat 
terrorism. President Bush said defeating terrorism is our 
nation's primary and immediate priority; in a word it is this 
generation's calling. The war on terrorism has led to a 
broadening of USAID's mandate and has thrust the Agency into 
situations that go beyond its traditional role of humanitarian 
aid and development assistance.
    In both Iraq and Afghanistan, USAID has stood in the 
frontlines of important battles in the new war. The USAID's 
initiatives are helping the people of Iraq and Afghanistan 
reclaim their societies and together we're laying the 
groundwork for their rebirth. Through the end of the cold war 
and the challenges that now face USAID have prompted the most 
thoroughgoing reassessment of the country's development mission 
since the end of World War II, when the reconstruction of 
Europe began. We are responding with a new understanding of the 
multiple goals of foreign assistance, specifically we now have 
reformulated what we do into five distinct, broad challenges.

                    BROAD CHALLENGES OF FOREIGN AID

    First is supporting transformational development. Second is 
strengthening fragile states and reconstructing failed states. 
Third is supporting U.S. geo-strategic interests. Fourth is 
addressing transnational problems and fifth is providing 
humanitarian relief in crisis countries. Let me go through each 
of these to describe how that relates to the goal of combating 
terrorism.
    First, supporting of transformational development. It is 
the mission of USAID to shore up the democratic forces in a 
society and to help bring economic reforms that have the most 
effective antidote to terrorist threats. The President's 
Millennium Challenge account, in fact, fits very much into this 
category, and we're working with a number of countries that are 
threshold countries. They will probably not make MCC status, 
according to the indicators, but they are on the edge of making 
it and we want to help them get through the 16 indicators so 
they do qualify. And that's a category of countries that are 
about to take off in terms of development. They're pretty 
functional countries but they're very poor, and they need help 
to take off at high rates of economic growth.
    The second is strengthening failed and fragile states. The 
President's national security strategy underscores the changed 
dynamics of the post-cold war world. Today, weak states, it 
says, pose a greater danger to our national interests than 
strong states do. We are dealing with this consequence today. 
There is perhaps no more urgent matter facing AID's portfolio 
than fragile states, and no set of problems more difficult and 
intractable. I might add that the bulk of the states we deal 
with are either failed or fragile states now, the 80 countries 
in which we have USAID missions. It is no accident that the 
three countries which hosted headquarters Al Qaeda were failed 
states; first Somalia, then Sudan and then Afghanistan. That is 
not an accident.
    The third category is supporting U.S. geo-strategic 
interests. Aid is a potential leveraging instrument that can 
keep countries allied with U.S. policy. It also helps them in 
their own battles against terrorism. For example, while it is 
vital that we keep a nuclear-armed Pakistan from failing and 
allied with us in the war on terrorism, we must also help 
Pakistanis move towards a more stable, prosperous, and 
democratic society.
    The fourth category is addressing transnational problems, 
such as HIV/AIDS, infectious disease, international trade 
agreements and various efforts to combat criminal activities to 
support terrorism.
    The final category is a historic one for USAID and the U.S. 
Government, and that is humanitarian aid and disaster relief. 
There is a moral imperative, and that has not changed, to 
provide assistance to people's basic needs. We must, however, 
do a better job of combining this assistance with longer-term 
development goals.
    I want to be clear in my remarks today. I do not believe 
terrorism is simply caused by poverty. The clear analysis shows 
that there is no necessary relationship. There are very poor 
countries that have no terrorism, there are middle income 
countries that do. I do believe, however, that there are 
certain conditions that encourage terrorist networks and spread 
their influence. Among these are geographic isolation of 
people; a lack of economic opportunity and large levels of high 
unemployment; weak institutions and governance; a lack of 
financial transparency in their private banking sectors and 
poor educational systems. Many of these issues are related and 
overlapping, but I'd like to discuss each of them briefly to 
show how they relate to our ability to make contributions in 
the war against terrorism.

                          GEOGRAPHIC ISOLATION

    First is geographic isolation. I would commend a book 
written by my friend, Ahmed Rashidi, a journalist for the Far 
Eastern Economic Review; he's a Pakistani scholar and 
journalist. He wrote a book called ``The Taliban,'' which is 
the best book on the Taliban. It was written before 9/11. And 
what he describes is fascinating, because the connection 
between the terrorist threat, the isolation in the most remote 
areas of Pakistan and Afghanistan, to the Al Qaeda networks and 
the relationship between the madrassas along the border between 
the countries is directly related to the rise of Taliban and Al 
Qaeda in Afghanistan.
    Building roads has been an extremely effective means of 
combating the effects of geographic isolation. We signaled this 
last year when we completed a 379 kilometer highway that 
connects Kabul to Kandahar; we're now building the rest of it 
with the Saudis and the Japanese, between Kandahar and Herat. 
We did this in 13 months. Having run the Big Dig in Boston, I 
can tell you this is almost unimaginable what we built, a 379 
kilometer highway through the middle of this heartland of Al 
Qaeda and Taliban, in the middle of a war and got it done in 13 
months. The restoration of the road was one of President 
Karzai's overriding priorities. Everybody, including school 
children, know about the road. When I was down cutting the 
ribbon with Hamid Karzai, I went down to Kandahar, I asked 6-
year-old kids: ``Do you know about this highway?'' They said: 
``Everybody knows about the highway.'' I said: ``Who built the 
highway? They said: ``The Americans built the highway.'' So 
it's very well known that it exists. It is a symbol of what can 
happen when there is development going on in a society.
    We're also sponsoring very innovative radio programming to 
restore communications infrastructure, private sector radio 
stations, in Afghanistan. In a similar vein, USAID has funded a 
so-called Last Mile Initiative, which will bring rural and 
isolated populations around the world into the information age 
via connection to the Internet.

                    ECONOMIC GROWTH AND JOB CREATION

    Third is the lack of economic growth and job creation. We 
have learned that countries become vulnerable and subject to 
terrorist subversion when there are high rates of unemployment, 
particularly among young men between the ages of 15 and 35. You 
can look at actually a demographic analysis of societies. If 70 
percent of the population is over 25 and there are low rates of 
unemployment, the incidence of terrorist groups and the 
incidence of militias, which are outside the control of the 
central government, tend to diminish dramatically. And if you 
have the inverse statistic you have a serious problem. It is 
the case that militias are recruited from the ranks of restive 
and unemployed youth who are easily seduced into criminal 
activity. Our interventions in post-conflict countries have 
focused on various quick impact projects that generate 
employment as they help rebuild communities. We are using a 
variety of programs that address the economic isolation that is 
imposed on them by law and custom, by tenuous rights to 
property, multiple impediments to the creation of productive 
enterprise and disenfranchisement. One of the most important 
aspects of our strategy to address the lack of economic 
opportunity has been trade capacity building, because trade 
equals jobs equals lower unemployment rates.

                           GOVERNANCE ISSUES

    Weak institutions and poor governance. The terrorist threat 
also correlates closely with governance issues. Our development 
programs are firmly committed to building networks of schools 
and health clinics and seeing that they are competently 
staffed. In Afghanistan, Iraq, and elsewhere we are installing 
management systems and teaching skills that will modernize key 
government ministries. For example, in Afghanistan right now, 
1,000 people are on the staffs of the central ministries that 
are paid for by USAID. Eight hundred and seventy of them are 
Afghans with college degrees who have worked with international 
institutions, or NGOs, before their entrance, and we hired them 
jointly, very carefully--120 of them are expatriates. They are 
in the ministries; these are not people working for USAID and 
the Mission. We pay their salaries; they are the force to stand 
up competent ministries to develop public services. So the 
government is competent in administering services. Other 
programs, as in Cambodia, seek to foster competent political 
parties, political institutions at the national and local 
level, judicial reform and the protection of human rights.
    Terrorism also breeds in places where the government is 
present but is gripped by corruption. We're beginning to mount 
a more worldwide assault on endemic, parasitic corruption of 
elites which, among other things, short circuits effective 
development and deepens the resentments that terrorists so 
effectively mine. Weak financial systems also contribute to the 
problem of terrorism by allowing the movement of money between 
institutions and groups without any oversight.
    There is also a problem of choking off criminal activities 
like opium and poppy production. Much of the revenue in 
Afghanistan that fueled Al Qaeda and Taliban was provided by 
the heroin trade; 70 percent of the production of heroin in the 
last 10 years has been from Afghanistan. Our experience in 
fighting cocoa production in Peru, Bolivia, and Colombia has 
shown us that the only effective strategy to literally clear 
the ground for licit and legal crops that will feed the nation 
is aggressive eradication on one side and then alternative 
development programs on the other that provide a means for 
family incomes.

                         EDUCATION AND TRAINING

    The lack of education and training. We believe that in the 
longer term education is one of the most potent weapons against 
terrorism. To that end we have designed programs specifically 
for the Muslim world that respond to the challenges posed by 
the madrassas that preach radical forms of Islam. One approach 
focuses on improving the performance of secular education 
systems. We share the view with more enlightened Muslims that 
see the participation of women as a key to modernization, and 
our education programs are designed to emphasize this 
objective.
    Finally, we would like to emphasize that the presence of 
our missions and embassies in a host country can be a powerful 
educational force as well as a potent counterweight to the 
presence of terrorism and anti-Americanism. I'd like to cite 
that of the 8,000 people who work for USAID--we have 2,000 
direct hires, but 8,000 employees total--4,000 are former 
foreign service nationals. They are not Americans. They are 
Brazilians, they are Peruvians, they are Ugandans, they are 
Jordanians, and they work as a cadre of development experts, 
many of them have PhDs or law degrees or they're experts in 
their disciplines in their countries. Many of them have worked 
for USAID for a couple of decades. They are our links into the 
community at the grassroots level but they also have used USAID 
as a way of learning American values and American systems, and 
I am proud that legions of these graduates, from our FSN 
workforce, have now gone on to ministerial posts. I would add 
that the new vice president of El Salvador, just elected 2 
weeks ago, is a former FSN with USAID in El Salvador. The 
minister of agriculture in Guatemala stopped me 2 years ago at 
a conference and thanked me because for 10 years he was an FSN 
with our agriculture program in Guatemala. He was the minister 
of agriculture, I don't know if he still is. But we find this 
all over the world, that people who used to work for USAID now 
are in ministries as ministers, as prime ministers, as heads of 
NGOs and universities.

                           PREPARED STATEMENT

    I want to close with one point. We at USAID are the chief 
instrument of what some people call the Nation's soft power. 
I'm not fond of the phrase because it unintentionally implies 
weakness, and it is the opposite of that. In any case, the 
President signaled the importance of what we do when he called 
development a critical part of the triad of foreign policy 
instruments. Last week he reminded us that the war on terrorism 
is imminently winnable but it will be long and tough. He has 
also referred to it as an unconventional war that will require 
a large measure of old fashioned resolve and fortitude as well 
as new thinking. He has charged my Agency with new challenges 
and unprecedented responsibilities. I consider it our most 
important calling. Foreign assistance is one of our nation's 
best offenses against terrorism and instability now and in the 
long term.
    Thank you very much.
    [The statement follows:]

              Prepared Statement of Hon. Andrew S. Natsios

    Chairman McConnell, members of the subcommittee: It is a privilege 
to be here today to discuss the efforts of the U.S. Agency for 
International Development to combat terrorism.
    September 11 and the war on terrorism have brought the most 
fundamental changes to this country's security strategy since the 
beginning of the Cold War. This was the theme that Secretary of State 
Colin Powell brought to Congress in multiple testimonies this month and 
last. Recent events in Madrid--as in Indonesia, Morocco, the 
Philippines, Turkey, Uzbekistan, and Pakistan, among other places--
underscore the urgency of his remarks and the global nature of this 
challenge. As President Bush said: ``Defeating terrorism is our 
nation's primary and immediate priority.'' In a word, it is this 
generation's ``calling.''
    This country is no longer tasked with managing a global political 
chessboard with two blocs of opposing armies and alliances. We face a 
challenge that is much more complex.
    In September 2002, President Bush unveiled his National Security 
Strategy to address the unprecedented challenges that are facing the 
nation. It outlined the new direction in foreign policy that was 
required to respond effectively to what occurred the previous 
September. Among the tools that would be engaged in the new war was 
``development.'' Indeed, it was elevated as a ``third pillar'' of our 
foreign policy, along with defense and diplomacy. The global war on 
terror is the arena in which foreign aid must operate. This requires 
USAID to acknowledge its mission is broader than the traditional 
humanitarian and development response. We are challenged increasingly 
to deal effectively with failed states, transnational problems, and 
geostrategic issues.
    In February of last year, the Administration issued the National 
Strategy on Combating Terrorism, which laid out a ``4D strategy'' in 
the War on Terror: (1) defeat the terrorists, (2) deny them resources 
and state sponsorship, (3) diminish the underlying conditions that 
terrorists seek to exploit, and (4) defend U.S. citizens and interests 
at home and abroad. USAID's programs aim directly at both denying 
terrorists resources and diminishing the underlying conditions that 
terrorists exploit.
    In both Iraq and Afghanistan, USAID has stood in the front lines of 
the most important battles in the new war. The outside world has little 
understanding of the devastation--physical and psychological--that 
these societies had suffered from decades of predatory and tyrannical 
governments and political fanaticism. USAID initiatives are helping the 
people of Iraq and Afghanistan reclaim their societies and together we 
are laying the groundwork for their rebirth.
    Our country's post-war reconstruction efforts in Iraq are critical 
to the broader war on terror and remain a central priority of the 
Agency. Our achievements are significant, especially in light of the 
security situation and the desperate and on-going efforts of some to 
disrupt our progress.
    To check the forces of terror and bring peace and stability to this 
dangerous region of the world, USAID is committed to the President's 
goal of seeing democratic governments come to Afghanistan and Iraq. It 
is a historic commitment that is rivaled only by the Marshall Plan, to 
which my Agency traces its origins.
    The new challenges have prompted some of the more important 
internal reforms I have brought to USAID. A bureau of the Agency 
formerly focused on humanitarian crisis has been redesigned to deal 
with the vulnerability of contemporary societies to conflict and 
breakdown as well as the shoring up of democratic governance around the 
world. The Office of Conflict Management and Mitigation has been 
created to provide analytical and operational tools in order to sharpen 
our responses to crises by better understanding the motivations, means, 
and opportunities for violent conflict to thrive.
    Terrorists frequently thrive within an atmosphere of chaos. 
Conflict and state failure serve the purposes of terrorists by 
providing them with an opportunistic environment in which to operate. 
Regimes that are closed--politically and economically--foment a sense 
of hopelessness and multiply the number of aggrieved, who become easy 
recruits to the terrorist cause. It is the mission of my Agency to 
shore up the democratic forces of society and to help bring the 
economic reforms that are the most effective antidote to the terrorist 
threat and its appeal. We understand that this is not going to happen 
overnight and that our contributions are necessary but not sufficient 
alone: a fact clearly pointed out in the President's National Strategy 
for Combating Terrorism. The war on terror will be a long one, as the 
President reminds us, and it will take both resolve and long-term 
commitment.
    USAID's higher profile in our foreign policy initiatives since the 
war on terror began can be measured in budgetary terms. The commitment 
to the Agency has been substantial and growing as we administer funds 
from a number of Foreign Affairs accounts. In fiscal year 2003, for 
example, we administered a nearly $14.2 billion portfolio, including 
supplemental funds for Iraq, which is up from $7.8 billion in fiscal 
year 2001. We are proud of this vote of confidence and anxious to make 
good on our daunting responsibilities.
    The end of the cold war and the challenges that now face USAID have 
prompted the most thoroughgoing reassessment of the country's 
development mission since the end of the Second World War. We are 
responding with a new understanding of the multiple goals of foreign 
assistance. Specifically, USAID now faces five distinct challenges:
  --Supporting transformational development
  --Strengthening fragile states and reconstructing failed states
  --Supporting U.S. geo-strategic interests
  --Addressing transnational problems
  --Providing humanitarian relief in crisis countries
    You may notice that ``conducting the war on terror'' is not one of 
the Agency's core goals. Each of these goals, however, is vitally 
relevant to what the President has called this nation's ``primary and 
immediate priority.'' Let me take a moment to outline these challenges.
    Supporting transformational development.--In the developing world, 
USAID supports far-reaching, fundamental changes in institutions of 
governance, human services such as health and education, and economic 
growth. Through this assistance, capacity is built for a country to 
sustain its own progress. While these efforts have long been justified 
in terms of U.S. generosity, they must now be understood as investments 
in a stable, secure, and interdependent world.
    Strengthening failed and fragile states.--The President's National 
Security Strategy wisely recognizes the growing global risks of failing 
states when it said: ``The events of September 11, 2001 taught us that 
weak states . . . can pose as great a danger to our national interests 
as strong states . . . poverty, weak institutions and corruption can 
make weak states vulnerable to terrorist networks and drug cartels 
within their borders.'' The failure of states such as Zaire, 
Afghanistan, Lebanon, Bosnia, Somalia, Liberia had repercussions far 
beyond their own regions. We are dealing with the consequences today.
    There is perhaps no more urgent matter facing USAID's portfolio 
than fragile states and no set of problems that are more difficult and 
intractable. USAID has extensive experience in conflict and post-
conflict situations, which uniquely equip us to play a constructive 
role in achieving stability, reform, and recovery in fragile states. I 
offer our experience in the Sudan as illustrative.
    USAID boasts unparalleled expertise in Sudanese affairs. Our staff 
has spearheaded strategic interventions that have brought pockets of 
peace and intervals of tranquility which have allowed our humanitarian 
missions to move forward and peace to gain traction. They have helped 
coordinate policies with other nations that have brought this country 
to the doorstep of peace after more than a generation of civil war. Our 
goal is to bolster the peace, provide humanitarian relief, and spur 
recovery in order to maximize incentives for further development and 
now it is up to the Sudanese government and warring parties to pursue 
this path of opportunity that the U.S. government and other donors have 
helped to open.
    Supporting U.S. geo-strategic interests.--Aid is a potent 
leveraging instrument that can keep countries allied with U.S. policy. 
It also helps them in their own battles against terrorism. Our tasks 
today however, are broader and more demanding than just winning the 
allegiance of key leaders around the world. For example, while it is 
vital that we help keep a nuclear armed Pakistan from failing and 
allied with us in the war on terrorism, we must also help Pakistanis 
move toward a more stable, prosperous, and democratic society. Our 
support for reform of Pakistan's educational system and its political 
institutions is critical in this regard.
    Addressing transnational problems.--Global and transnational issues 
are those where progress depends on collective effort and cooperation 
among countries. Examples include HIV/AIDS and other infectious 
diseases, international trade agreements, and certain criminal 
activities such as trafficking in persons and the narcotics trade. 
USAID will continue to play a leading role on these issues, working 
with countries to help them address these problems so that they do not 
slip into instability and failure.
    Providing humanitarian relief.--The United States has always been a 
leader in humanitarian aid and disaster relief. We are the largest 
contributors of food aid that have fed the hungry and combated famine 
around the world. This is a moral imperative that has not changed. We 
must, however, do a better job of combining such assistance with longer 
term development goals. And we must make sure that the recipients are 
aware of help and U.S. generosity. This is particularly important in 
areas of the world subjected to anti-Americanism and terrorist 
propaganda.
    I want to be clear. I in no way believe that terrorism is simply 
caused by poverty. Osama Bin Laden was by no means from a deprived 
background, nor were the perpetrators of 9/11. I do believe that there 
are certain conditions that are propitious to terrorists and their 
cause. Among these are: isolation, a lack of economic opportunity, weak 
institutions and governance, a lack of financial transparency and poor 
educational systems. Many of these issues are related and overlapping, 
but I'd like to discuss them each briefly, and outline some of our 
endeavors in these areas and the critical contributions they make to 
waging an effective war on terrorism.
    (1) Isolation.--As the experience in Afghanistan indicates, remote 
and isolated areas of poorer countries are the most fertile grounds of 
terrorist fanaticism. These continue to be the strongholds of the 
Taliban.
    Building roads has been an extremely effective means of combating 
the effects of isolation. USAID's signal achievement last year was the 
rehabilitation of 389 kilometers of road that connects Kabul with 
Kandahar, an unprecedented engineering feat given the constricted time 
frame and insurgency threats. Approximately 35 percent of Afghanistan's 
population lives within 50 km of the highway, much of this agrarian and 
rural. Plans are being implemented to extend it to the city of Herat, 
were it will then arc back and reconnect with Kabul in one complete 
circuit.
    Restoration of the road has been one of President Karzai's 
overriding priorities. It is crucial to extending the influence of the 
new government, now endowed with democratic legitimacy and bent on a 
new start for the country. When complete, it will help end the 
isolation that has sheltered the Taliban and fed terrorist insurgency. 
It will stimulate development and reconnect the country to a larger 
network of regional trade.
    I am convinced that development has generally gotten off track in 
abandoning its commitment to road building, particularly in rural 
areas. Short term, it generates employment; long term, it serves 
development. In connecting more remote regions to the capital cities, 
it also spreads the modernizing forces of urban life to the 
hinterlands. And in places like Afghanistan or Pakistan, this can make 
a significant contribution to the war on terror. In other places like 
Nepal where we built roads decades ago, recent evaluations have shown 
that they have had an enormous impact in opening access to remote areas 
and countering the impact of insurgent groups.
    Radios are another example of how we combat isolation. Afghanistan 
has a radio culture. USAID has restored radio transmission towers. It 
has also funded innovative programming and provided the capital to 
build private radio stations. For example, Radio Kabul has broken new 
ground with a program that appeals to the music tastes and concerns of 
the young, featuring a mix of female and male disk jockeys that are 
representative of the diverse ethnic groups in Afghan society. Such 
things were unimaginable under the Taliban and the programming 
popularity is testament to the country's new ethos.
    In a similar vein, USAID is funding the so-called ``Last Mile'' 
initiative, which will bring rural and isolated populations into the 
information age via connection to the internet. Increased development 
and trade opportunities for such areas can also be pursued through such 
linkages to the outside world.
    (2) Lack of economic growth and job creation.--We have learned that 
countries become vulnerable and subject to terrorist subversion when 
there are high rates of unemployment, particularly among males aged 15-
35. This has been confirmed time and again by our experiences with 
fragile and failing states. Militias recruit from the ranks of restive 
and unemployed youths who are easily seduced into the criminal 
activities that support terrorism.
    Our interventions in such countries have focused on various quick 
impact projects that generate employment as they help rebuild 
communities. In channeling the productive energies of such peoples, 
these programs also provide visible signs of hope that can counter the 
call of those who base their appeals on a sense of hopelessness. 
Indeed, programs such as ``food for work'' may be the only means of 
survival for backward or war-devastated communities. As we found out in 
Afghanistan, this is what stood between desperation and reliance on 
Taliban ``charity.''
    The most potent weapon against terrorism, however, will come not 
from external aid but from the internal development of such societies. 
USAID is using a wide variety of programs that address the economic 
isolation that is imposed on them by law and custom, tenuous rights to 
property, multiple impediments to productive enterprise, and 
disenfranchisement. We take inspiration from the work of Hernando De 
Soto who seeks to integrate the untapped talents and tremendous 
energies of the marginalized by bringing them into the mainstream of 
their nation's economy. And we apply the lessons from the work of 
Michael Porter who seeks to unlock the potential latent in national 
economies by creating local conditions that foster business and job 
creation.
    One of the most important aspects of our strategy to address the 
lack of economic opportunity has been trade capacity building 
activities. This includes supporting trade negotiations and helping 
counties take advantage of the opportunities for trade. Complementing 
our efforts in the World Trade Organization and in support of the 
Africa Growth and Opportunity Act, our trade capacity building programs 
help integrate countries into the world trading system. Our programs 
which support our trade negotiations from Central America to Southern 
Africa and beyond will help countries: a) implement the free trade 
agreements, furthering the rule of law and improving transparency, and 
b) benefit from the opportunities offered by those agreements.
    In order for trade agreements to translate into investment 
opportunities, developing countries must have a sound business climate. 
In much of the developing world, however, it remains difficult to start 
and run a business. We are addressing some of the key issues related to 
property rights, contract enforcement, and rule of law--that are part 
of the enabling environment that allows businesspeople, investors, and 
farmers to build private enterprises and create wealth.
    Another example is a report from Mindanao in the Philippines, where 
USAID has been working to provide economic opportunities and permanent 
private sector jobs for members of an insurgent group. Unsolicited, 
this prompted another armed group to offer to turn in their guns for a 
jobs program like the USAID program in a neighboring village. This is 
the kind of demand these programs can generate.
    There is also the problem of choking off criminal activities like 
opium and poppy production that provides the livelihood for many people 
in different regions. Our experience in fighting cocoa production in 
Peru, Bolivia, and Colombia has shown us that the only effective 
strategy is to literally clear the ground for the licit crops that will 
feed the nation while aggressively pursuing eradication of the others.
    In eradicating poppy, we eradicate what is a major source of 
funding for terrorists. We are also addressing what has turned into a 
plague for the region. While poppy was cultivated for export to the 
West as a weapon to undermine the fabric of society there, it has 
caused a raging addiction problem in Pakistan, Afghanistan, and Iraq.
    (3) Weak Institutions and Poor Governance.--The terrorist threat 
also correlates closely with governance issues. This has a geographic 
dimension, when, typically, institutions of government and the services 
they provide have only the most tenuous presence in areas outside the 
capital. Where food is scarce and health service is minimal, the 
religious schools called madrassas will fill the void. USAID has made 
fortifying agriculture and reviving rural economies a priority. Our 
development programs are firmly committed to building networks of 
schools and health clinics and seeing that they are a competently 
staffed. In Afghanistan, Iraq and elsewhere, we are installing 
management systems and teaching the skills that will modernize key 
government ministries. Other programs seek to foster competent 
political parties, parliaments, local government and judicial systems 
which ensure the rule of law.
    Building and strengthening institutions has been at the center of 
our efforts in Afghanistan. We are supporting the electoral process, 
providing assistance for voter registration, political party 
development, and civic education. We are also expanding our rule of law 
program so that a new Constitution can be enforced and are heavily 
involved in supporting educational institutions at different levels and 
through a broad range of activities. In almost every country where 
USAID works, building up institutional capacity--whether it's 
supporting the Bank of Indonesia or the Indonesian Attorney General's 
office ability to combat money laundering or strengthening rule of law 
in Columbia--is central to our approach.
    Terrorism also breeds in places where the government is present but 
is gripped by corruption. USAID considers the issue of corruption as 
central to our development mission. I have commissioned an agency-wide 
anti-corruption strategy which will move USAID's commitment to fighting 
corruption into all appropriate facets of agency operations. We have 
supported Transparency International almost from its inception and we 
work with a host of related NGO's in the field. We are developing 
innovative strategies in Washington and the field to counter the petty 
corruption that demoralizes the citizenry and encumbers their 
activities. The economic drag from such practices is literally 
incalculable.
    We are also beginning to mount a more serious assault on the 
endemic, parasitic corruption of elites which, among other things, 
short-circuits effective development and deepens the resentments that 
terrorists so effectively mine. In making democratic change central to 
our foreign policy initiatives, we are not merely advancing a core 
value of our society but the most effective instrument of social 
regeneration in closed and corrupt regimes.
    (4) Weak Financial Systems.--Related to weak governance is the 
problem of weak financial institutions and lack of financial 
transparency. Of particular significance to the war on terrorism are 
our efforts to reform banking and financial systems and install proper 
auditing practices that will track the monies that serve criminal 
activities and feed terrorist networks. Assistance efforts have helped 
pass legislation, set up financial crimes investigative groups, and 
trained bank examiners to identify and report suspicious transactions.
    (5) Lack of Education and Training.--We believe that in the long-
term, education is one of our most potent weapons against terrorism. To 
that end, we have designed programs specifically for the Muslim world 
that respond to the challenge posed by radical Islamism. One approach 
focuses on improving the performance of the secular educational system, 
to help it compete more effectively with radical schools. Radical 
schools have been particularly successful in countries where the public 
school system has deteriorated, leaving an educational vacuum. This has 
been dramatically illustrated in Afghanistan and Pakistan. We share the 
view of more enlightened Muslims that see the participation of women as 
key to modernization. And our educational programs are designed with 
due emphasis to this goal.
    Finally, I would like to emphasize that the very presence of our 
Embassies and Missions in a host country can be a powerful educational 
force as well as a potent counterweight to the presence of terrorism 
and anti-Americanism. Secretary Powell last year paid tribute to our 
missions as among the best exemplars of American values and among the 
nation's most effective ``ambassadors.''
    I would also like to cite the over 4,000 Foreign Service Nationals 
that work for USAID. I have been thanked by them on numerous occasions 
in my travels and they frequently express their gratitude for the 
``educational experience'' that USAID afforded them. In addition, I 
believe that the impact of our training programs has been enormous. I 
am proud that among the legions of ``graduates,'' both of our 
educational programs and of our foreign service national workforce 
(FSN), many have gone on to ministerial posts and other positions of 
influence in their countries. We welcome the vice-president of El 
Salvador as one, a former USAID FSN installed in office several weeks 
ago in what, from a United States point of view, was a most promising 
election for the people of her country and inter-American relations.
    I want to close with the following point. We at USAID are the chief 
instrument of what some call the nation's ``soft power.'' I am not very 
fond of the phrase because it unintentionally implies weakness. In any 
case, the President signaled the importance of what we do when he 
called ``development'' a critical part of a triad of foreign policy 
instruments. Last week, he reminded us that the war on terrorism is 
eminently winnable, but that it will be long and tough. He has also 
referred to it as an ``unconventional'' war, one that will require a 
large measure of old fashioned resolve and fortitude as well as new 
thinking. He has charged my Agency with new challenges and 
unprecedented responsibilities. I consider it my most important task to 
respond to this ``calling.'' U.S. Foreign Assistance is our nation's 
best offense against terrorism and instability now and in the long 
term.
    This concludes my testimony, Mr. Chairman. I will be happy to 
answer any of your or the Committee's questions.

    Senator McConnell. Thank you, Mr. Natsios. Ambassador 
Black.

                 SUMMARY STATEMENT OF HON. COFER BLACK

    Ambassador Black. Thank you very much, Chairman McConnell, 
Senator Leahy, and distinguished members of the subcommittee. 
Thank you very much for this opportunity to testify today at 
your hearing on foreign assistance and international terrorism.
    This hearing is appropriate and timely in addressing the 
State Department's specific counterterrorism programs and USAID 
development programs in the context of the U.S. Government's 
overall strategy to assist other countries. It is essential to 
consider these efforts together rather than narrowly viewing 
individual programs that respond to various regional or global 
threats. Today's hearing should reinforce the fact that 
international programs fundamentally contribute to our goals of 
diminishing the underlying conditions that spawn terrorism 
while thwarting and capturing terrorists before they can strike 
us and our allies overseas.
    Resources are lifeblood as we prosecute the global war on 
terrorism. Many countries function as our allies in this effort 
but a number of these prospective partners are faced with 
relatively weak institutions and capabilities. Before I 
describe the variety of State Department programs, and I'll try 
to be short, to improve the capabilities and institutions of 
our international partners, I first want to thank you and your 
colleagues for your subcommittee's support for these programs. 
We greatly appreciate your subcommittee's support for the 
administration's full fiscal year 2004 appropriations request 
for anti-terrorism programs funded through the 
Nonproliferation, Anti-Terrorism, De-mining and Related 
Programs account. I sincerely hope that your mark-up of the 
fiscal year 2005 request will be equally supportive and that 
your colleagues in the House will follow this example.
    Administrator Natsios has described the scope of USAID 
programs briefly. To strengthen the institutions in our partner 
countries these efforts are a complimentary backdrop to the 
programs we pursue at State. In many of the countries where we 
work the overall institutions of government and society are not 
sufficiently robust for the task of aggressive counterterrorism 
programs. We cannot expect countries to be effective in 
deterring, detecting, and capturing terrorists if their 
security guards and policemen are barely literate and poorly 
paid and susceptible to bribes, their investigators, 
prosecutors and the judges are poorly trained and their basic 
communications infrastructure is weak or virtually nonexistent. 
In order to develop these institutional capabilities fully, 
countries need a functioning educational system to develop 
qualified personnel. Institution building requires laws to 
provide the necessary legal framework for investigating, 
pursuing, apprehending and prosecuting terrorists. Countries 
even need radios, computers and other communications equipment 
that will allow foreign counterterrorism officials to exchange 
information real-time.
    When we strengthen the institutions of our partners we move 
less-developed countries closer toward their full potential in 
combating terrorism. At the same time we must encourage our 
international partners to provide resources and expertise in 
support of this goal.
    Mr. Chairman, let me turn briefly now to some of our 
specific counterterrorism programs. The administration is 
requesting $128 million in the NADR account to meet the Anti-
Terrorism Training Assistance Program's growing requirements. 
My office provides policy, guidance and funding to the 
Department of State's Bureau of Diplomatic Security Office of 
Anti-Terrorism Assistance, ATA. The highest priority for 
assistance remains in the southern crescent countries, which 
extend from East Asia through Central and South Asia to the 
Middle East and to particularly vulnerable East African 
counties. In this request, $25 million is specifically intended 
for programs in Indonesia, Afghanistan, Pakistan, Kenya, and 
Colombia.
    The ATA program provides a wide range of courses to 
strengthen the counterterrorism capacities of recipient 
countries. The Department works closely with U.S. embassy 
officers, especially regional security officers, to develop a 
tailored training package to meet each recipient country's 
needs. The training includes courses on hostage negotiation, 
bomb detection, and airport security, all of which are 
currently relevant to the threats and events we've witnessed in 
the past year.
    The administration is also requesting $5 million for the 
Terrorist Interdiction Program, or TIP. TIP is designed to 
enhance border security of countries confronted with a high 
risk of terrorist transit. Through this program priority 
countries receive a sophisticated database system and training 
support to identify and track suspected terrorists as they 
enter and exit at ports of entry. TIP is currently operational 
in 18 countries. The requested funds will be used for TIP 
installations in up to six new countries and continued work and 
maintenance on existing installations. The administration is 
requesting $500,000 to strengthen international cooperation and 
to advance United States and international goals and to 
stimulate the analytical and problem solving skills of senior 
officials in countries that currently confront the terrorist 
threat.
    We're also requesting $7.5 million to support programs that 
combat terrorist financing. Understanding----
    Senator McConnell. Excuse me, Ambassador Black.
    Ambassador Black. Yes sir?
    Senator McConnell. Are you near the end of your opening 
statement?
    Ambassador Black. Yes sir, I am.
    Senator McConnell. Okay, great.
    Ambassador Black. I can stop right away if you like, sir.
    Senator McConnell. I want to assure you, if it's any help, 
that I've read your statement.
    Ambassador Black. Okay
    Senator McConnell. I appreciate having it read to me again 
but I can read.

                           PREPARED STATEMENT

    Ambassador Black. Okay. I certainly did not mean to suggest 
that, sir. Anyway, we have a spectrum of programs that we think 
are crucial in the global war on terrorism. They provide an 
underlayment in terms of the anti-terrorism assistance program 
to the interdiction program to our diplomatic initiatives with 
other countries so that we can build the capacity and the will 
to fight terrorism.
    If that's all right with you, Mr. Chairman, I think it's 
probably best I stop right there.
    [The statement follows:]

                 Prepared Statement of Hon. Cofer Black

    Chairman McConnell, distinguished Members of the Subcommittee, 
thank you for the opportunity to testify today at your hearing on 
``Foreign Assistance and International Terrorism.''
    This hearing is appropriate and timely in addressing the State 
Department's specific counterterrorism programs in the context of the 
U.S. Government's overall efforts to assist other countries, rather 
than programs that respond to various regional or global threats. 
Today's hearing should reinforce the fact that international programs 
fundamentally contribute to our goals of diminishing the underlying 
conditions that spawn terrorism and trying to capture and thwart 
terrorists before they can strike us and our allies overseas.
    Resources are lifeblood as we prosecute the Global War on 
Terrorism. Many countries are willing to cooperate in the Global War on 
Terrorism, but many of these prospective partners are faced with 
relatively weak institutions and capabilities. Before I describe the 
variety of these programs to improve the capabilities and institutions 
of our international partners, I first want to thank you and your 
colleagues for your Subcommittee's budgetary support for the programs. 
We greatly appreciate your Subcommittee's support for the 
Administration's full fiscal year 2004 appropriations request for Anti-
Terrorism programs funded through the Nonproliferation, Anti-Terrorism, 
Demining and Related Programs (NADR) account and we applaud your 
efforts to restore at least some of the cuts made by the House last 
year. Your action recognizes and underscores the essential role of 
international programs in the ongoing effort to combat terrorism. I 
sincerely hope your markup of the fiscal year 2005 budget request will 
also be equally supportive and that your colleagues in the House will 
follow this example.
    My colleague, USAID Administrator Natsios, has described the broad 
Agency for International Development programs to strengthen the 
institutions in our partner countries. These programs are a 
complementary backdrop to the programs we pursue at State.
    Institution Building for CT Programs.--While the State Department's 
counterterrorism programs focus on developing specific skills, we 
recognize that in many of the countries where we work, the overall 
institutions of the government and society are not sufficiently robust 
for the task of aggressive counterterrorism programs. For this reason, 
institution building is not an abstract or academic concept. 
Institution building begins with having laws in place to provide the 
necessary legal framework for investigating, pursuing, apprehending, 
and prosecuting terrorists. It requires capable and motivated law 
enforcement personnel, investigators and prosecutors and judges. 
Therefore, aside from the many other benefits that may accrue from our 
foreign assistance programs, the U.S. Government must consider the 
status of a country's social institutions and our role in enhancing 
those capabilities to support the Global War on Terrorism.
    Foreign Assistance Programs Support CT Programs.--We cannot expect 
countries to be effective in deterring, detecting and capturing 
terrorists if their security guards and policemen are barely literate, 
poorly paid and susceptible to bribes, if the investigators, 
prosecutors and judges are poorly trained, and if the basic 
communications infrastructure is weak or virtually non-existent. In 
order to develop these institutional capabilities fully, countries need 
a good educational system to develop qualified personnel and even 
radios, computers, and other communications equipment that will allow 
foreign counterterrorism officials to exchange information in real 
time. We must do what we can to strengthen the institutions of our 
partners and thereby move less developed countries closer toward their 
full potential in combating terrorism. At the same time, we must also 
encourage our international partners to provide resources and expertise 
in support of this goal.
    Mr. Chairman, let me turn now to some of our specific 
counterterrorism programs.

               STATE DEPARTMENT COUNTERTERRORISM PROGRAMS

    Antiterrorism Training Assistance (ATA).--For fiscal year 2005, the 
Administration is requesting $128 million in the NADR account to meet 
the ATA program's growing requirements. Of this amount, $25 million is 
specifically requested for programs in Indonesia, Afghanistan, 
Pakistan, Kenya, and Colombia. The ATA program was among the first 
specific counterterrorism programs funded at State, initially 
authorized in late 1983. It continues to serve as the primary provider 
of U.S. Government antiterrorism training and equipment to the law 
enforcement agencies of friendly countries needing assistance in the 
Global War on Terrorism. My office, the Office of the Coordinator for 
Counterterrorism (S/CT), provides policy guidance and funding to the 
Department of State's Bureau of Diplomatic Security Office of 
Antiterrorism Assistance (DS/ATA), which implements the program. My 
office determines the relative priority for select countries to receive 
a given type of training. If a country must be assigned a higher 
priority because of specific problems, we will do so. It is important 
to keep in mind that we receive far more requests for ATA training than 
we can accommodate in a year, and there are always countries waiting 
for the benefits of this program. Once the prioritization process is 
completed, our colleagues in DS/ATA then work out the details of the 
training schedules and make the arrangements.
    The ATA program provides a wide range of courses to strengthen the 
counterterrorism capacities of recipient countries. The Department 
works closely with the U.S. Embassy officers, especially the Regional 
Security Officers, to develop a tailored training package to meet each 
recipient country's needs. The training includes traditional courses, 
such as hostage negotiations, bomb detection, and airport security. In 
recent years, ATA has developed new courses for investigating terrorist 
organizations and defeating cyber-terrorism. The program has also 
provided a series of seven seminars to help other countries strengthen 
their counterterrorism legislation.
    In fiscal year 2005, we plan to continue a robust schedule of 
training and assistance with our partner nations to further enhance 
their capacity to counter terrorism. The highest priority for 
assistance remains the ``southern crescent'' countries, which extend 
from East Asia through Central and South Asia to the Middle East and 
into particularly vulnerable East African countries and even beyond to 
the western hemisphere. We will continue to support specialized 
programs conducted in-country in Indonesia, Afghanistan, Pakistan, 
Kenya, and Colombia. We will support the Counterterrorism Center in 
Kuala Lumpur, established by the Government of Malaysia to address 
pressing regional counterterrorism issues. We will aid the Government 
of the Philippines in the establishment of a new law enforcement 
counterterrorism unit. We also expect to develop new courses and 
programs to meet the evolving terrorist threat.
    Terrorist Interdiction Program (TIP).--The Administration's fiscal 
year 2005 budget request includes $5 million for TIP. TIP is designed 
to bolster the border security of countries confronted with a high risk 
of terrorist transit. Through this program, priority countries receive 
a sophisticated database system and training support to identify and 
track suspected terrorists as they enter and exit at-risk countries. 
TIP is currently operational in 18 countries, and is scheduled for 
deployment in five more countries this calendar year. The requested 
funds will be used for TIP installations in up to 6 new countries and 
continued work and maintenance on existing installations.
    CT Engagement.--The Administration is requesting $0.5 million in 
fiscal year 2005 to strengthen international cooperation and working 
relationships for counterterrorism. In pursuit of this goal, S/CT 
coordinates and participates in a variety of bilateral meetings and 
conferences with our allies. These meetings and conferences not only 
advance U.S. and international goals; they also stimulate the 
analytical and problem-solving skills of senior officials in the 
countries that currently confront the terrorist threat.
    Terrorist Finance Programs.--The Administration's budget request 
for fiscal year 2005 is $7.5 million for the NADR account to support 
counter/anti-terrorist finance programs. Understanding and interdicting 
the financial transactions that sustain terrorist activity is a core 
function of the State Department's efforts to combat international 
terrorism. We seek to stem the flow of funds to terrorist groups and to 
strengthen the capability of our partners to detect, disrupt and deter 
terrorist financing networks around the world.
    The groundwork for our counterterrorism finance offensive was 
actually laid many years before 9/11, through provisions that the State 
Department proposed and the Congress enacted in the Antiterrorism and 
Effective Death Penalty Act of 1996. The Act authorizes the Secretary 
of State, in consultation with the Attorney General and the Secretary 
of Treasury, to designate Foreign Terrorist Organizations (FTOs). Among 
other provisions, the Act prohibits U.S. persons and persons subject to 
the jurisdiction of the United States from knowingly providing material 
support or resources to an FTO, or attempting or conspiring to do so. 
Among the consequences of a designation, any financial institution that 
becomes aware that it has possession of funds of a designated FTO must 
retain control over the funds and report the funds to the Treasury 
Department's Office of the Foreign Assets Control (OFAC). Currently 37 
groups are designated as FTOs.
    Following the terrorist attacks of September 11, 2001, the 
President signed Executive Order 13224, which requires U.S. persons to 
freeze the assets of individuals and entities designated under this 
E.O. for their support of terrorism. There are currently over 250 
individuals and entities designated under E.O. 13224. The White House 
has established an interagency mechanism to coordinate the USG policy 
on counterterrorism training and technical assistance, including 
terrorist financing.
    We are not alone in our efforts to combat terrorist financing. The 
U.N. Security Council has also significantly enhanced efforts to combat 
terrorist financing after the September 11 attacks, calling on member 
countries to criminalize terrorist financing and to freeze the assets 
of terrorists and terrorist organizations. The U.N. Security Council 
created the 1267 al-Qa'ida/Taliban Sanctions Committee to maintain a 
list of individuals and entities associated with al-Qa'ida, the 
Taliban, or Usama bin Laden. All U.N. Member States are obligated to 
implement asset freezes, arms embargoes, and travel bans against those 
on the list. This list continues to expand as other countries join the 
United States in submitting new names to the committee. So far, the 
international community has frozen over $130 million in assets of 
persons or entities with ties to terrorist networks, and in many cases 
to al-Qa'ida. The U.N. Security Council's role in fighting terrorist 
financing through its resolutions on asset freezing and other 
sanctions, and especially its listing of al-Qa'ida-related names, has 
been crucial to our efforts in this area.
    We are working closely with the Financial Action Task Force (FATF), 
a 31-member international organization that sets standards to combat 
money laundering and more recently to combat terrorist financing. The 
FATF elaborated on two of its earlier recommendations to make the use 
of cross-border wire transfers and alternative remittance systems (such 
as hawalas) more transparent, and less subject to exploitation by 
terrorist groups. On the bilateral front, interagency teams led by the 
State Department are traveling to states critical to our 
counterterrorism efforts to evaluate their financial systems, identify 
vulnerabilities, and develop and implement comprehensive 
counterterrorism financing training and technical assistance programs.
    To help other countries combat terrorism financing, we have 
developed CT Finance Capacity Building programs that are jointly 
coordinated by S/CT and administered through the Department of State's 
Bureau for International Narcotics and Law Enforcement Affairs (INL). 
We coordinate these capacity-developing programs with counterpart 
entities at the Departments of Justice, Treasury, and Homeland 
Security, USAID, and the independent financial regulatory agencies. 
These programs provide front-line states with technical assistance in 
drafting anti-terrorist financing legislation, and training for bank 
regulators, investigators, and prosecutors to identify and combat 
financial crimes that support terrorism.
    The INL Bureau also runs a number of other programs that strengthen 
the fundamental law enforcement framework needed to fight a number of 
problems: terrorism, conventional criminals, and narcotics, including 
narcotics trafficking linked to the financial support of terrorism. 
Examples include the International Law Enforcement Academies in 
Budapest, Hungary; Bangkok, Thailand; Gaborone, Botswana; and Roswell, 
New Mexico. Bilateral training also is provided for a variety of 
courses on such topics as alien smuggling, border security and cyber 
crime, and some of this training has counterterrorism aspects.
    In addition to the counterterrorism programs mentioned above, the 
State Department also has a number of regional and country-specific 
assistance efforts, focusing heavily on countries where there are major 
terrorism threats.
    South East Asia.--The Bureau for East Asia and the Pacific (EAP) 
has put together a $70 million request in fiscal year 2005 using 
Economic Support Funds (ESF) program to continue to help Indonesia in a 
number of areas, including education, economic growth and 
implementation and enforcement of financial crimes and antiterrorism 
laws and policies. The education program initiative would be designed 
to improve the quality of secular and technical education and to 
moderate extremism in madrassas. In the Philippines, $35 million is 
requested in ESF for EAP and USAID to continue to help the government 
and the Autonomous Region of Muslim Mindanao to implement their peace 
agreement. This is accomplished by funding sorely-needed health, 
education, and small infrastructure improvements and the transition of 
Muslim separatist fighters to peaceful and profitable livelihood 
pursuits, such as corn, sorghum and seaweed farming.
    South Asia.--S/CT and ATA have several programs designed to allow 
countries in the region to defend themselves from terrorist groups. The 
ATA program has over the past year trained an indigenous presidential 
protective unit for the Afghan government. It has also recently 
completed the training of a dedicated civilian investigative unit in 
Pakistan that will significantly increase that county's capacity to 
investigate terrorist groups and their activities. Other ATA training 
conducted throughout the region is reinforcing the strong partnership 
between the United States and both Pakistan and India, as well as other 
South Asian governments cooperating in the Global War on Terrorism.
    In addition to the $6 million we are seeking for ATA programs in 
Pakistan to train counterterrorism specialists, International Narcotics 
Control and Law Enforcement (INCLE) funds are being requested to 
improve the effectiveness of that country's law enforcement efforts in 
border security, law enforcement coordination and development, and 
counternarcotics. The Administration has requested $40 million for 
fiscal year 2005 to help secure the western border of Pakistan from 
terrorists, criminals and narcotics traffickers.
    Africa.--The President's East Africa Counterterrorism Initiative 
(EACTI) announced in June of 2003 is designed to strengthen the 
capabilities of regional governments to combat terrorism and to foster 
cooperation among these governments. It includes military training for 
border and coastal security, a variety of programs to strengthen 
control of the movement of people and goods across borders, aviation 
security capacity-building, assistance for regional efforts against 
terrorist financing, and police training. EACTI also includes an 
education program to counter extremist influence and a robust outreach 
program. In addition to EACTI, we are using NADR funds, Economic 
Support Funds, and other diplomatic and developmental tools to help 
strengthen democratic institutions and support effective governance. 
Amounts devoted to these efforts are relatively small, but in Africa, a 
little goes a long way.
    General Law Enforcement Training.--As part of a broader 
institutional building effort, INL is funding a police development 
program begun in 2002 for national police in Tanzania, Uganda, and 
Ethiopia. While not specifically CT focused, the program is introducing 
essential skills-based learning and problem solving techniques to build 
the capacity of these East African police forces to detect and 
investigate all manner of crime, including terrorist incidents. INL is 
also funding forensic laboratory development programs in Tanzania and 
Uganda, designed to build the capacity of these governments to analyze 
evidence collected at crime scenes. In Kenya, INL is funding technical 
assistance and training for the Anti-narcotics Unit of the Kenyan 
national police and the anti-smuggling unit that works out of the Port 
of Mombassa. These units jointly search containers entering the port to 
interdict drugs and other contraband that may be brought into Kenya 
otherwise undetected.
    Last year we held a major counterterrorism conference for 13 
nations in southern Africa. The sessions, held in the International Law 
Enforcement Academy in Botswana, included crisis management workshops 
and discussions of ways to strengthen counterterrorism laws. In 2002, 
six African countries from various parts of the continent took part in 
a week-long CT legislation seminar in Washington that State co-
sponsored with the Justice Department.
    Latin America.--Colombia remains a major trouble spot in the 
western hemisphere because of the unholy alliance between narcotics 
traffickers and FARC and other terrorist groups. The variety of 
assistance programs include the Andean Counterdrug initiative, and 
anti-kidnapping initiative and the ATA program. The Colombia programs 
can be and have been the subject of separate hearings. I mention them 
because they are also part of the overall program to counter terrorism 
even though the elements are different than the more widely-publicized 
threat from al-Qa'ida and related groups.
    Mr. Chairman, this concludes my overview of our foreign assistance 
programs that help support the GWOT. We had a productive meeting with 
your staff earlier this year to discuss my office's specific programs. 
If you or your staff want additional details, we would be glad to 
provide them. At this point, I'd be happy to take any questions.

    Senator McConnell. Great. Thank you, Mr. Ambassador.
    Let's just go right to some of the questions that have been 
prominent in the news lately. To what extent do you believe the 
liberation of Iraq has served to draw international terrorists 
to that country?
    Ambassador Black. Are you asking me, sir?
    Senator McConnell. Yes.
    Ambassador Black. I think, first of all, we need to 
appreciate this is a global war on terrorism. The strategy is a 
global one. I think it's important to recognize that we put our 
resources where the terrorists are. We also need to cover those 
areas where either there is a limited terrorist presence or 
areas where they could in surge to. Look at this globally. As 
an example, there are areas such as the tri-border area in 
South America where there is not an established presence now; 
the terrorists who were there to a large extent have left but 
we position ourselves to identify and be able to counter any 
terrorists that flee to this area. I think it is important to 
appreciate that the current violence and anti-terrorism 
activity in Iraq is founded upon several key pillars. One is 
the members of the regime that have nothing, that have lost 
everything and have nothing to gain are operating against us. 
There are also those from established groups that are rallying 
to what they believe to be a cause to operate against coalition 
forces, as well as an element of those that have been incited, 
essentially, by play in the media.
    Senator McConnell. To the extent that terrorists have gone 
to Iraq, that's a pretty good place to fight them, is it not?
    Ambassador Black. It is, indeed. You know, I do recall, 
Senator, at the height of the war in Afghanistan, where the 
commanding general there was being asked about his ability to 
prosecute the war against Al Qaeda. And if I may quote him, and 
I just forget his name, I just thought of this off the top of 
my head, his answer was essentially, you know, the Al Qaeda 
terrorists that present an immediate threat to the United 
States, we'll kill them here. And if they go somewhere else, 
we'll kill them there. So I think there is an element of that, 
Mr. Chairman, where there is a universe of these people that 
are determined to do us harm and this engagement is one that is 
global and right now we are paying particular attention, as are 
they, to the battlefield in Iraq.
    Senator McConnell. There are some that have suggested that 
by going on offense and taking the fight to the terrorists 
we're creating more terrorists. I'm curious as to your reaction 
to that line of argument.
    Ambassador Black. I am profoundly against that argument. 
There is no opportunity to negotiate. One cannot appease. There 
are a number of these people that are very set in their ways, 
that are absolutely determined to do us harm, to kill as many 
people as they possibly could, and our determination to engage 
these people and our will to continue, I think is vitally 
important.
    Senator McConnell. To what extent is the well-publicized 
decision by Spain and Honduras to withdraw their troops from 
Iraq going to embolden terrorists or in general create a 
problem for us?
    Ambassador Black. It's hard to estimate exactly how a 
terrorist will think in such a situation. I think the reality 
which they will have to confront, as these countries have been 
and continue to be good allies, the Spanish in particular have 
made significant contributions on the battlefield, is a 
democracy, their forces do respond to the actions of their 
government. I think that the loss has some significance. We 
want to have as many with us as we can. However, practically 
speaking, I think the position of the Spanish government is 
very clear. They know that they're playing a key role in the 
global war on terrorism. They've redeployed their forces to 
another area and I think the terrorists will fully appreciate 
that these losses are tactical and can be made up by reshifting 
of coalition forces, and that's what U.S. commanders have 
stated.
    Senator McConnell. Some in this country have argued, and 
you certainly have heard the argument, that the effort in Iraq 
is somehow detracting from the war on terrorism, as if they 
were two entirely separate issues. To what extent is the war in 
Iraq detracting from, or irrelevant to, as the critics have 
said, the war on terror? Or is it part of this larger effort? 
As you suggested earlier, we are confronting these people in a 
place where we're in a pretty good position to deal with them.
    Ambassador Black. Again Senator, this is a global war. 
There is currently a finite set of these terrorist enemies we 
need to engage and we have done this in Afghanistan; we are 
doing it in Iraq. And the United States with her allies are 
operating globally, around the world, and I think it's 
important to appreciate that these forces are being used 
productively against a terrorist set, that if we weren't 
engaged with them there then we would be operating against them 
in other places and in other contexts.
    Senator McConnell. One final question on this round. To 
what extent does sticking to the June 30 transfer date and 
handing over at least the political authority in Iraq to an 
Iraqi entity undermine terrorists' arguments in Iraq, or 
elsewhere for that matter?
    Ambassador Black. I believe there is a determination to 
conduct this action. I think that terrorists fear the emergence 
of a society where there's equitable representation. They fear 
what a democracy or a like or affiliated kind of a government 
does to their cause and they are intensifying their operational 
activity to do as much as they can to derail it.
    Senator McConnell. So it's reasonable to assume it could 
well get a good deal worse before June 30 than it has been?
    Ambassador Black. Well, it's hard to predict. I think there 
are significant actions underway now on the battlefield in Iraq 
but our enemies clearly do appreciate that the clock is 
ticking, that the new Iraq is one in which there is to be 
equitable representation, in contrast to all of their recent 
history. This is a bright future and they want to stop it for 
their own advantages so they're likely to do everything they 
can do derail it in the short-term.
    Senator McConnell. Well, the BBC/ABC poll taken of Iraqi 
citizens back in February, which got remarkably little coverage 
in this country, was a clear indication that the Iraqi people 
feel that they're a lot better off than they were a year ago. 
And there was a stunning level of optimism about how they would 
be a year from now. The kind of numbers that people in my line 
of work would love to see in this country.
    Ambassador Black. Absolutely, sir. And the folks that come 
back from Afghanistan and talk, you and I perhaps watch the 
news and TV and we see isolated incidents of, you know, 
violence and conflict. To a large extent it's looking at 
history, real time, through a straw. The vast majority of 
Iraqis want the kind of future that we're helping them to get. 
It's important that we do this and I think it is clear, at 
least in my view, history will say that Iraq is far better off 
as a result of these actions.
    Senator McConnell. Senator Leahy.
    Senator Leahy. Thank you, Mr. Chairman.
    Tell me, Ambassador Black, there was a horrible car bombing 
in Iraq, a number of children--I think it was in the last few 
hours--children killed. And horrible bombings in Saudi Arabia. 
The press, at least initially, reported that the Saudis had 
heard there might be six of these bombs; they were able to find 
and diffuse five. Now, in Saudi Arabia, is there any indication 
that Al Qaeda was involved?
    Ambassador Black. The most recent reporting that I have 
received, Senator, is that there is no definitive proof yet 
that it was Al Qaeda. But the actions underway, as you know, in 
Saudi Arabia, the government of Saudi Arabia is fully engaged 
countering these individuals, and there's a tremendous amount 
of operational activity that's underway.
    Senator Leahy. What about in Iraq? Do we have--what is the 
indication of who was responsible?
    Ambassador Black. Again, I would have to check. I think the 
forensics are underway. It almost always takes some time to 
actually prove this out, to find out exactly which particular 
group is involved.
    Senator Leahy. Did that appear to be internal, though, at 
least from initial reports?
    Ambassador Black. They always say, when you come down to 
speak before you, one should not speculate.
    Senator Leahy. I accept that. Well, let me ask you a 
question that maybe you could answer. This is Foreign Policy 
Magazine, the most recent copy, and it has articles about Al 
Qaeda, and on the cover it says, leadership is in disarray, the 
training camps are in ruins, so why is Al Qaeda's ideology 
spreading faster every day? Gentlemen?
    Ambassador Black. I think it's important, again, to 
emphasize what we know. What we know is, as the President has 
stated, more than two-thirds of the Al Qaeda leadership of the 
period of 9/11 is captured, detained, or killed.
    Senator Leahy. Accepting that, why is their ideology 
spreading faster every day?
    Ambassador Black. It is the convergence of communications, 
TV, the Internet and the like, incitement, where----
    Senator Leahy. Let's take it step by step. The TV and the 
Internet and all was there before, before we broke up the 
leadership. So we have to assume there's something more.
    Ambassador Black. Well, I think that there is a lot to see 
with greater regularity.
    Senator Leahy. Such as?
    Ambassador Black. Well, such as your 9/11, to start with. 
The images of that were transmitted around the world in such a 
way that----
    Senator Leahy. But subsequent to that we went to 
Afghanistan, we knocked out a lot of the Al Qaeda leadership.
    Ambassador Black. Yes, Senator, but also it goes the other 
way too, such as the bombings in Madrid, the bombings in 
Indonesia. And acts in one place of the world are transmitted 
around the other. The vast majority of these terrorists that 
formerly were very isolated have obtained comfort, if you will, 
in their objectives by seeing actions around the world.
    Senator Leahy. So these actions are why their ideology is 
spreading so fast?
    Ambassador Black. No, it's not why, it's an incitement or 
an encouragement of, you know, radicalized views which have 
not, in our view, been sufficiently countered by the programs 
such as being conducted by USAID, which essentially encourage 
appreciation of, you know, moderation as opposed to radicalism.

                        COST OF REBUILDING IRAQ

    Senator Leahy. You mention AID and Mr. Natsios has said, 
appropriately, that USAID is being increasingly called up to 
deal effectively with failed states, transnational problems, 
geo-strategic issues, and part of our responsibility is making 
sure we know how much it's going to cost. I remember last 
April, a year ago, you stated with some confidence, on 
``Nightline,'' the American contribution to rebuild Iraq would 
be no more than $1.7 billion. So far we're more than 1,000 
percent higher than that. You were about $18 billion short. Are 
your estimates getting more accurate?
    Mr. Natsios. The estimate was not $1.7 billion. That was 
the amount of money that OMB told me they were going to give 
us, the U.S. Government, to reconstruct Iraq.
    Senator Leahy. Is that what you told OMB that you needed?
    Mr. Natsios. We weren't asked what we needed. We were told. 
We were not doing all the work, we were doing some of the work. 
Some of it was being done by State Department, some by some 
other Federal agencies, some by the Defense Department. There 
was an overall figure, I believe the figure was $2.7 billion; 
the amount of money that we were given of that $2.7 billion was 
$1.7 billion. I never said on ``Nightline'' that that was the 
amount that we estimated--because we did not know how much it 
would cost since we weren't in the country yet.
    Senator Leahy. Well, let me ask you this. We've 
appropriated $18 billion and we're told we had to do it 
immediately, needed it yesterday. I remember in the committee's 
conference, the White House said, we've got to have this money, 
we've got to have it right now. And that was 6 months ago and 
less than one-ninth of the money has been obligated. I expect 
far less than that has been expended. What happened between 
we've got to have it immediately and the fact we're not using 
it?
    Mr. Natsios. Well, I can only tell you what was given to 
us. We've been given $3.8 billion between the first and second 
supplemental. We've obligated $3.3 billion as of last week.
    Senator Leahy. How much have you expended?
    Mr. Natsios. That obligation means that there are signed 
contracts but the contracts are 1 year to 2 years long so some 
of them are being expended more rapidly because they're shorter 
contracts, some of them longer. But our expenditure rates are 
pretty good, I don't know the exact figure now.
    [The information follows:]

                        Expenditure Rates--Iraq

    As of April 2004, USAID has been apportioned a total of 
$4,338,263,000 from the Fiscal Year 2003 Iraq Relief and Reconstruction 
Fund and the Fiscal Year 2004 Iraq Relief and Reconstruction Fund. Of 
this amount, $3,328,194,000 has been obligated and $1,247,797,000 has 
been expended.

    Mr. Natsios. But obligation is a written contract with 
people on the ground spending money.
    Senator Leahy. If the people on the ground can get there. 
Under the circumstances there now, a lot of them are leaving 
because of the danger.
    Let me just read what you did say on ``Nightline.'' Koppel 
says, all right, this is the first, when you talk about $1.7 
you're not suggesting the rebuilding of Iraq is going to be 
done for $1.7 billion. Your answer was, well in terms of the 
American taxpayers' contribution, I do. This is it for the 
United States. They're going to get $20 billion a year in oil 
revenues but the American part of this will be $1.7 billion; we 
have no plans for any further funding for this.
    Mr. Natsios. Right.
    Senator Leahy. That's from the transcript. A little bit 
different than your answer today, Mr. Natsios.
    Mr. Natsios. Senator, if I could----
    Senator Leahy. I have supported USAID as much as any Member 
of this Senate and I just, you know----
    Mr. Natsios. My answer, a minute ago, just to be very clear 
sir, was that at the time that was put forward, that is what we 
were told the U.S. contribution was going to be. That is what 
we proposed in the first supplemental. What I just said was I 
never suggested on that program or elsewhere how much it would 
cost to reconstruct Iraq because we were not in the country 
yet. And until you're in a country and you do assessments, 
which the World Bank has done with UNDP and the U.S. 
Government, we did not know how much it would cost. We do know 
now how much it would cost, there's been a pledging session, I 
believe the amount pledged from all donors and international 
institutions is about $34 billion. So a substantial amount has 
been pledged, not just by the United States but by donor 
governments around the world, including the Bank and the United 
Nations.
    Senator McConnell. Okay, thank you, Senator Leahy. Senator 
DeWine.

                          AGRICULTURE PROGRAMS

    Senator DeWine. Thank you, Mr. Chairman. Mr. Natsios, you 
and I have discussed in the past the importance of agriculture 
development programs, and you're a big advocate for that, I'm a 
big advocate. Yet we keep seeing the requests from the 
administration going down. I was glad to see, when you all 
first took office, the program went up. We saw a high point, I 
think, of about $480 million in 2003, but your request for 2005 
I think is $419 million. That disappoints me and I just, you 
know, it seems to me that, you know, I just don't know why 
we're cutting the very initiatives that will reduce our need 
for emergency food assistance in the future. And if we're going 
to deal with the long-term problems, if we're going to shape 
the future in these developing countries, I don't know any 
other way of doing it than to put some investment and some 
money into agriculture. You want to talk a couple minutes--I've 
got another question--but do you want to talk a little bit 
about that?
    Mr. Natsios. I would like to, Senator, because I fully 
agree with you. I have been disappointed as well. We did have 2 
good years where we increased the resources. I am disappointed 
by the amount in the budget, but that's the reality. The 
reality is that agriculture is not very visible. You and I 
support it and I know members of this committee have supported 
it but----
    Senator DeWine. Well, let's get it done.
    Mr. Natsios. Let me tell you, though, what the consequences 
of our not funding this program. What happens when there's a 
huge gap in between rural areas in terms of lifestyle and 
public services and people's family income in urban areas, as 
people migrate from the rural areas to the cities. And they do 
not end up in middle-class neighborhoods.
    Senator DeWine. No.
    Mr. Natsios. They end up on the streets and in shanty 
towns. The most destabilizing thing in developing countries, 
particularly with large Muslim populations that are prone, 
potentially, to radicalization through these radical Islamic 
networks, is large scale migration to the cities without jobs 
in those cities. And so our strategy is, to the extent that we 
have the money to spend it, is to spend the money in the rural 
areas to rectify the inequality between the rural areas and the 
urban areas so they don't go to the cities. Because when they 
leave the rural areas, the natural constraining factors of the 
traditional mullahs, their family, their extended family, local 
institutions, local governance, which constrain and socialize 
young men's behavior as they're growing up, goes on everywhere 
in the world, not just in the southern countries. It's rich 
countries too, where that's the case. Those systems collapse 
when families move to urban areas. There are no substituting 
factors that constrain and socialize young men's behavior at 
that age. And so we don't want them to move to the cities. We 
want them to stay in the rural areas and improve life for them. 
However, it has not been a particularly popular thing, in the 
United States, to vote for this stuff because it's not as 
visible, and it's more remote and other things like health, 
which are very important, education, very important, other 
things, but in my view this is one of the critical and most 
important things that we can do.
    Senator DeWine. Well, I appreciate, you've articulated it 
very well. I just, you know, would hope that working with the 
administration we can do better in this area. I mean, there's 
many, many conflicting, you know, many drains on the budget, 
many demands on the budget but it seems to me this was a great 
investment. You've articulated it very well.

                                 HAITI

    Let me turn, if I could, to Haiti. Earlier this month, a 
couple of weeks ago, Secretary Powell testified in front of 
this community, and I asked him about how much money we're 
going to be able to set aside for Haiti this year. And I 
suggested to him that the $55 million that is budgeted is just 
not going to be enough. And he wholeheartedly agreed. In fact, 
let me quote what he said. ``The need is much, much greater, 
Senator. One hundred and fifty million dollars a year''--which 
is the figure I had just thrown out to him--he said, ``$150 
million a year would almost be a modest sum, frankly. This is a 
country that's been, once again, run into the ground that needs 
everything.'' Last month I asked Mr. Noriega, Mr. Franco 
similar questions. I asked about were such programs as 
agricultural development, rebuilding basic infrastructure would 
fit in in our future assistance strategy. Let me just tell you, 
Mr. Administrator, I want to be candid. While everyone says we 
have this great need in Haiti, everybody from the Secretary of 
State all the way down, I'm still waiting for a plan. I'm still 
waiting to see where the administration is going. Now, I 
understand that the USAID has come up with a draft emergency 
response plan. Is that correct and is that something you could 
share with us today?
    Mr. Natsios. We have not only a draft emergency plan but a 
draft transition plan.
    Senator DeWine. Can you give us any insight into that?
    Mr. Natsios. Yes. Just in terms of the funding, we are now 
reviewing our existing budgets because, of course, we're in the 
middle of the fiscal year, and we have spent much of our 
budget. So, that's a problem in terms of where we get the money 
from. And so we are reviewing the areas that we have discretion 
in. As you know, we cannot take money from the Eastern European 
accounts because legally you can't transfer money from those 
accounts; we can't take money from the Andean Initiative 
because it's for the Andean countries, which is the largest 
component of our aid program in Latin America. So there are 
restrictions in terms of our ability to transfer from other 
accounts into Haiti. Is it enough money? No. Secretary Powell 
was correct, I fully agree with him. We will obviously spend 
whatever money in fiscal 2005 that you give us, Senator. It is 
a serious problem, and if we don't deal with it we're just 
going to have a repetition of this again in another 5 or 10 
years.
    In terms of what's in the emergency plan, the first phase 
of it is to stabilize the existing situation, which is going on 
now. In the transition plan that we've done, we want to do 
three things we did not do 10 years ago when we went through 
this. One, we did not engage the Haitian-American diaspora, 
many of who are professional people and entrepreneurs. They 
have skills and values from American society that could be very 
useful in reconstructing Haiti. And they can transfer those 
values much more easily than we can. And so we're going to have 
three conferences with CIDA, the Canadian aid agency, and 
USAID, for the Haitian-American community to tell us how they 
think they could help us do this reconstruction in a way that 
would engage the large Haitian-American diaspora in the United 
States.
    The second is, we did not have a government to work with 
before. The new government, we're very, very pleased with. They 
are technocrats, they're honest people, they appear to be 
competent technically, and so we are going to coordinate with 
them. Because if you don't get the engagement of an indigenous 
government, it really reduces the effectiveness of your 
program. So we do have one good thing working in our favor.
    Economic growth is a critical part of this. If there aren't 
jobs, it's going to further destabilize the situation. So we've 
got to work on the issues around transformation of the economy. 
They were transforming in the early 1990s and the great sadness 
of what happened in the 1990s was all that industrial 
manufacturing that had created about 500,000 jobs, has all 
moved to Central America. And that's not going to come back 
easily. Some of it stayed, but much of it has left.
    So those are the three components right now.
    Senator DeWine. My time is up but I just want to say, that 
that's why I was so happy in the last hearing to hear Secretary 
Powell say that, you know, he supports our trade bill. And, you 
know, we've got to get that passed.
    So, thank you very much. Thank you, Mr. Chairman.
    Senator McConnell. Okay, thank you, Senator DeWine. Senator 
Durbin, to be followed by Senator Shelby.
    Senator Durbin. Ambassador Black, I really didn't come to 
this meeting prepared to ask you any questions. But I do have 
to ask one now, based on what you've said in your testimony. I 
believe you responded to the Chairman by suggesting that we 
don't have an accurate view of what is happening in Iraq. You 
gave an example of the television coverage and you said that we 
are, like, looking at the situation through a straw--your 
words--and focusing on: ``isolated instances of violence and 
conflict.'' Those were your words. I've heard Secretary 
Rumsfeld describe what has happened over the last 2 or 3 weeks 
as a flare up. I can't believe those words are being used in 
reference to what we've been through in the last several weeks. 
The death toll now of Americans is over 700 in Iraq, over 3,000 
injured seriously. More lives have been lost in the first 2 
weeks of April in Iraq than in any month since we invaded that 
country. The Iraqi police and army, that we trained, were 
totally ineffective when this offensive started. Ambassador 
Bremer announced this week not to expect them to take any 
responsibility on June 30 for the security of their country. 
Foreign armies have not come to our rescue; sadly, they are 
leaving, causing a greater burden for the American troops which 
remain. There have been orders for 20,000 additional American 
soldiers to be sent to this theatre. And I can tell you that 
any Senator at this table will tell you when they go home on 
the weekend the phone calls they will receive from the families 
of Guard and Reserve. Isolated instances of violence and 
conflict are how you described it. Last week, Secretary 
Rumsfeld, after some extensive questioning, finally conceded 
that the situation in Iraq is worse today than he thought it 
would be. Are you prepared to make that same concession?
    Ambassador Black. I think it's very important, Senator, for 
me to emphasize the response was to a specific question. The 
question was the viewpoint from the terrorists, in terms of 
incitement and terrorism. What I was trying to convey was that 
the terrorists are influenced by new forms of communication, 
television, the Internet and the like. And what I was trying to 
convey was that terrorists around the world can see acts of 
violence and it is covered pretty well, and this is an 
incitement to terrorists in areas other than on the 
battlefield, that there's a significance that we are 
heartbroken at the loss of life is all true and all of us as 
Americans view these developments very seriously. But what I 
was trying to answer was from the standpoint of the terrorists, 
and this is the end I know better, was, you know, what is the 
commonality terrorists in other areas of the world, what does 
this mean to them? And the commonality is they have instant 
communications, they can watch TV and these incidents are 
portrayed on a full TV screen and it has significant impact for 
terrorists. It is inciteful and it gives them comfort and 
continues to fuel their radical beliefs that are not to our 
advantage.
    Senator Durbin. I don't argue with that conclusion.
    Ambassador Black. Sir, that's what I was trying to say.
    Senator Durbin. But to suggest that the television 
reporting of what has happened in Iraq somehow distorts by 
focusing on isolated instances of violence and conflict is to 
ignore the reality of the danger of this situation.
    I'd like to ask you this question, because it's come up in 
many contexts. You're a 28-year veteran of the Central 
Intelligence Agency. When did you reach the conclusion, after 
9/11/2001, that the key to fighting terrorism in the world was 
the invasion of Iraq?
    Ambassador Black. As an intelligence officer I would not be 
involved in those decisions and gratefully I wouldn't have to 
make them. We provide--intelligence services provide analysis; 
my end was to provide analysis to facilitate that process, as 
well as to collect information for the decision makers and they 
would use that in factoring in what they decided to do.
    Senator Durbin. So you won't answer the question?
    Ambassador Black. I wasn't in a position to do it, sir. I 
was in the collection operational end. I wasn't in the decision 
making end of this. And frankly, my involvement with Iraq was 
very limited. I look at terrorism as a global issue and others 
specifically looked at Iraq. I did not, Senator.
    Senator Durbin. That is hard to believe. Ambassador, State 
Department Coordinator for Counterterrorism with the rank of 
Ambassador-at-Large, and you never had an opinion as to whether 
the invasion of Iraq----
    Ambassador Black. No sir. Senator, you asked me, if I 
understood you correctly, you were asking about my time in the 
Central Intelligence Agency, and I was speaking from that 
context.
    Senator Durbin. Well, can you speak to the context of your 
service to our Government? At what point did you reach the 
conclusion that the key to counterterrorism, after 9/11/2001, 
was the invasion of Iraq?
    Ambassador Black. I believe that there is an association 
among terrorist groups. I think the Secretary of State made the 
case in front of the United Nations. I think our, you know, our 
policy makers viewed this issue and took action that's in the 
interest of the United States. Tactically looking at 
terrorists, there have been association, terrorists have moved 
across Iraq and this is a whole separate story. But that was 
considered friendly territory; in fact, many of the Al Qaeda 
that had to flee out of Afghanistan transited numerous 
countries in the area. So looking at it from a terrorist 
organizational standpoint there was an association.
    Senator Durbin. Is my time up?
    Senator McConnell. Yes.
    Senator Durbin. I'll wait for another round.
    Senator McConnell. Thank you, Senator Durbin. Senator 
Shelby.
    Senator Shelby. Mr. Chairman, I was not here earlier. We 
had a banking committee hearing. I'd like that my opening 
statement be made part of the record in its entirety.
    Senator McConnell. It will be.
    [The statement follows:]

              Prepared Statement of Senator Richard Shelby

    Mr. Chairman, thank you for holding this very important hearing and 
for the opportunity to address the subcommittee and the witnesses on 
the need to ensure adequate resources and attention remain focused on 
the vitally important role of foreign assistance in waging a long-term 
struggle against terrorism.
    Foreign aid programs, we all know, have long been very unpopular 
among the American public, which views the one-percent of the federal 
budget that goes towards aid programs as an unwarranted drain on higher 
priority domestic programs. Mr. Chairman, nothing could be further from 
the truth, and I commend you for the role you have played over the 
years in leading the effort to ensure that U.S. interests abroad 
receive the attention and resources they need. Since the devastating 
attacks of September 11, 2001, the importance of these programs has 
only grown, and you can be assured of my support in the months ahead as 
the budget process advances.
    Terrorist organizations like al Qaeda, Jemaah Islamiya, Palestinian 
Islamic Jihad, Hamas, and others prey on the destitute and the 
desperate in their efforts at replacing existing governments with 
fundamentalist regimes that eschew democracy and freedom and that 
advance their cause through the use of indiscriminate violence. The 
scale of the problem, I think it is safe to say, exceeds anything any 
of us anticipated even as the threat of terrorism emerged during the 
1990s as one of our most pressing national security challenges. 
Successes against al Qaeda in Afghanistan--and they have been 
considerable--have perversely resulted in a diffusion of the problem as 
less-centrally coordinated cells replace the hierarchy that once 
characterized the birth child of Osama bin Laden. The threat of 
terrorism today is enormous, and has already had a very fundamental 
transformational effect on the way we live our lives in history's 
strongest and most prosperous country.
    I am a supporter of the President's Millennium Challenge Account. 
Foreign aid programs should take into account recipient countries' 
commitment to the ideals of democracy and free enterprise. The war on 
terrorism, sadly, does not allow for as broad an application of that 
principle as many of us would like. Economic and security assistance to 
countries that share our interest in fighting terrorism but that do not 
represent our ideal recipient must remain a central tenet of U.S. 
foreign policy for the foreseeable future. We simply cannot afford to 
discount the role countries like Pakistan, Uzbekistan, Nepal, Egypt and 
others play in the struggle against terrorism. They need our 
assistance, and they should receive it. At the same time, we should not 
give out blank checks. Security assistance in particular must come with 
strings attached that ensure it is not abused for the purpose of 
repressing legitimate democratic aspirations. Economic assistance, 
similarly, must be oriented toward transition to free market systems 
where the rule of law and transparency are integral parts of those 
transitions.
    Mr. Chairman, I thank you again for the opportunity to address the 
hearing today, and look forward to the testimony of the witnesses.

    Senator Shelby. Ambassador Black, it's good to see you 
again. You have had a distinguished career at Central 
Intelligence Agency and I'd like to focus some of my remarks on 
terrorist financing. And I don't know what you can tell us here 
today. And the Banking Committee, as you probably know, is 
engaging in a comprehensive review of our government's ability 
to identify and track the financing of terrorists in their 
operations.
    I think it's a given in a lot of quarters that the terror 
finance issue is viewed as much diplomatic as it is enforcement 
at times. One example, there are material differences in many 
countries' view of the phrase, support for terrorism, as it 
relates to the sanctions program. As you look around the world, 
Ambassador Black, can we convince our allies that the 
President's standard is appropriate? And if so, how have we 
been able to do this? Have we hurt our long-term efforts for a 
short-term benefit, and what are our biggest challenges here, 
success in this area? Because I think it's important to get to 
the financing.

                          TERRORISM FINANCING

    Ambassador Black. I think absolutely, as I believe you will 
recall, the greatest progress and greatest growth in the field 
of counterterrorism has been in the financial area. It's been 
only in the last few years that this has been addressed 
aggressively and comprehensively. The experts that look at this 
first have to identify where we need to encourage the will of 
countries to look at their system in a critical way.
    Senator Shelby. That's hard sometimes.
    Ambassador Black. That's very hard to do. And then to take 
corrective action that may impact in other areas besides 
terrorism and that may not be necessarily instinctively 
appealing to some segments of a society in a particular foreign 
country. We look to encourage them to change their rules, the 
banking regulations, essentially to improve their will and 
capacity but to create a commonality of financial, legal rules 
and to make sure that there is a way to enforce the regulations 
in an international way. We do this by working not only 
bilaterally with countries but also through the United Nations, 
working with our partners in the G-8, work with other 
countries. So there has been growth, there has been progress, 
and it is tricky, Senator, because when you figure out a way to 
close off one avenue of fundings or one ploy from a terrorist 
group invariably they will seek to do something else. So we 
have broadened into such things as----
    Senator Shelby. Unconventional financing.
    Ambassador Black. Unconventional financing. And it's 
basically an offense and defense type thing; as we get a leg up 
in one area they shift to something else so we have to keep at 
it.
    Senator Shelby. But essential to our fight on terrorism, is 
it not?
    Ambassador Black. Yes, it is, absolutely. If armies move on 
supplies then the terrorists need access to funding, is the 
most important thing. And unfortunately for us, usually they 
don't need much. But we can severely threaten and curtail so 
that they cannot conduct training as they have in the past and 
do the big things. The small things are harder to catch but the 
big things we have some optimism what we can interdict on.
    Senator Shelby. Ambassador Black, while the focus of a lot 
of discussion is on the Middle East for various reasons, the 
scourge of terrorism and the harboring of terrorists has become 
a global phenomenon. From the tri-border area that we're both 
familiar with in South America to the continued consolidation 
of its position in Lebanon by Iranian- and Syrian-supported 
Hezbollah, to Uzbekistan currently experiencing either a 
resurgent Islamic Movement of Uzbekistan or whatever Al Qaeda 
offshoot is replacing it, to the jungles of Indonesia, the 
challenge that's facing us has grown beyond anything some of us 
imagined, you know. Maybe not you, you know, I mean, your 
special position a few years ago. In addition, I want to ask 
you, in addition to the countries and regions I've listed, 
where do you see the next challenges? And where in the context 
of harboring terrorist funds or using money for terrorist 
support are the real trouble spots?

                            GLOBAL CHALLENGE

    Ambassador Black. I think it's a commonality. Again, I 
think you've hit it exactly right, Senator, it's global. As you 
make progress in one particular geographical area or in one 
sector, invariably it will shift to the other side of the world 
then another sector. Essentially I'd look at it in two ways. 
One, we have to work exceptionally well with our partners at 
the financial centers, London, Hong Kong and the like, so that 
we can begin to inhibit the movement of funds of terrorist 
groups or those associated with terrorists as well as identify 
the main individuals and funding mechanisms by which the 
operators get their funding.

                  USAID PROGRAMS AND COUNTERTERRORISM

    Senator Shelby. How will assistance programs, USAID, 
address some of these programs?
    Mr. Natsios. Senator, there are a dozen countries now where 
USAID has programs on counterterrorism financing through the 
Central Bank. For example, in Central Asia, all of Central 
Asian Republics. Now employees in many of their commercial 
banks and their Central banks are being trained in money 
laundering and how to prevent it, how to notice whether or not 
transactions look out of the ordinary. We are running anti-
money laundering programs. It's not just in the terrorist 
areas, I might add, it's also in narcotics trading, it's in 
human trafficking. The globalization of the world economy has a 
bright side to it--more jobs, more wealth, less poverty. It has 
a darker side to it too, which is all the criminal elements who 
are now using globalization for their own darker purposes. 
We're doing a financial crimes training program for the 
judicial system in a number of countries, including South 
Africa. And there's a unit within West Bank Gaza that USAID 
runs that deals with this bank supervision system to stop the 
flow.
    Senator Shelby. Working?
    Mr. Natsios. It is working, yes, to the extent that it's 
going through the formal system. You know Al Qaeda knows what 
we're doing now.
    Senator Shelby. Yes.
    Mr. Natsios. And they're moving money, some of their money, 
as I understand it, my friend Cofer Black tells me, I see him 
every morning at the morning staff meeting with the Secretary, 
that some of the money, I think you said at one point, was 
moved into gold bouillon. And you can't track that through a 
bank account. I signed with the finance minister of the 
Philippines, when President Arroyo visited last year, an anti-
money laundering effort in the Philippines that the government 
asked for there, and we're helping work with them on new 
regulations to control it. So we're doing that in a number of 
countries as part of our worldwide corruption campaign.
    Senator Shelby. Mr. Chairman, thank you for your 
indulgence.
    Senator McConnell. Thank you, Senator Shelby.
    Let me shift to an area of the world where there appears 
not, at the moment, to be a difference between Senator Kerry 
and the President. On ``Meet the Press'' Sunday, when asked 
whether he supported the President's stance on Israel, Senator 
Kerry said yes, completely. On the same Sunday talk show, 
Senator Kerry also expressed support for the right of Israel to 
defend itself against Hamas terrorists. So it appears at least 
in this area there may not be a partisan debate during the 
election year and I think that's a good thing.
    Ambassador Black, has the killing of Hamas leaders, 
including terrorist Yassin and al-Rantisi disrupted that 
organization?
    Ambassador Black. I believe that it has disrupted it. The 
leadership being challenged like that certainly has a ripple 
effect on that society. You know, Israel has a right to defend 
itself; we've required them to be prudent and circumspect in 
what the objective is and the objective is peace. And currently 
there is a lot of violence with Hamas. Hamas will have 
difficulty replacing leadership individuals such as Rantisi.
    Senator McConnell. Do you see any difference in United 
States efforts to hunt down Osama bin Laden and Israel's 
targeting of Hamas terrorists?
    Ambassador Black. Well, I think that I can speak from, you 
know, Al Qaeda, we've lost 3,000 people. We have to take 
actions to defend ourselves against an imminent threat. Israel 
has a right to defend itself, it has lost people. We, in the 
case of Israel and Hamas, it is important, the objective is 
peace, the objective is an improvement in the quality of life. 
And we encourage both sides to reach that goal and Hamas and 
terrorists should stop violence and to allow some positive 
developments to take place.
    Senator McConnell. What impact, if any, has resulted from 
the elimination of these Hamas leaders, in terms of terrorist 
attacks against Israel?
    Ambassador Black. We would have to see and we'd need more 
time to see what effect that has had on their operational 
capability. I think all of us need to look at this and see what 
the developments are.
    Senator McConnell. Mr. Natsios, how have USAID-funded 
programs in the West Bank and Gaza countered--if they have--the 
efforts of Hamas to win the hearts and minds of the Palestinian 
people?
    Mr. Natsios. We have a number of programs, Senator, in West 
Bank and Gaza in a number of areas. First is in the area of 
civic education through the news media, and they are designed 
for young people, very young and teenage level people, that 
violence is not the solution. There are some things that we can 
measure precisely but the effect on people's behavior, while we 
know it takes place, you cannot quantify it as carefully as you 
can, let's say, child mortality rates or increases in income 
from micro enterprise, that sort of thing. We also are 
sponsoring----
    Senator McConnell. Have you all ever done any surveys, or 
are you familiar with any surveys of people in Gaza, for 
example, in terms of how widely a group like Hamas is 
supported?
    Mr. Natsios. I think some surveys have been done; I am not 
familiar enough with them from memory to give you the data. But 
we certainly would be willing to look and provide to you. I've 
seen some of them a year ago.
    Senator McConnell. Do you remember whether more people were 
favorable or unfavorable toward activities of Hamas?
    Mr. Natsios. I don't recall, Senator.
    Senator McConnell. Okay, go ahead.
    Mr. Natsios. We are running a series of town hall meetings, 
panel discussions and young leader training programs at the 
community level, where areas that we might think would be 
primary breeding grounds for suicide bombers, to at least get 
these issues out on the table and have discussions that there 
are alternatives to violence. We're also running a series of 
community service programs that will bring conflict resolution 
skills. We're doing this in a number of countries. In fact, we 
set up a new office in USAID called Conflict Mitigation and 
Management because it's very clear that there are some things 
you can do at community programming levels that can affect 
people's propensity to get drawn into these violent militias or 
these suicide bombing groups.
    Senator McConnell. I hate to interrupt you but I want to 
ask if you are confident that none of our U.S. tax dollars end 
up in pockets of Hamas.
    Mr. Natsios. We have an extensive program in the office we 
have set up in West Bank Gaza to monitor this; we have a system 
of certifications that we do where----
    Senator McConnell. Is the answer to my question yes, you're 
confident that U.S. tax dollars----
    Mr. Natsios. I am confident, yes.
    Senator McConnell. Let me shift to Syria for a minute with 
you, Mr. Ambassador. Have you noticed any change in Syria's 
support for terrorism since the fall of Saddam Hussein?
    Ambassador Black. There has been selective improvement in 
certain areas, certainly in the border area we see some 
positive signs there. We believe because of their strategic 
position in the region and their comprehensive support for 
established terrorist groups in Syria there's an awful lot more 
that they can do.
    Senator McConnell. Then they still are a haven to some 
extent for terrorists?
    Ambassador Black. Yes, they are.
    Senator McConnell. So there's been some improvement but not 
nearly enough? Would that be a way to describe it?
    Ambassador Black. Not anywhere near enough.
    Senator McConnell. To what extent is Iran supporting or 
directing Shiite cleric al Sadr?
    Ambassador Black. There are contacts between Iranian 
officials and members of that community. We are concerned about 
the involvement and the projection of Revolutionary Guard 
personnel and the like into that community with contacts but I 
have to leave the rest of that to the intelligence community. 
We're concerned there are contacts, yes.
    Senator McConnell. Senator Leahy.
    Senator Leahy. Thank you, Mr. Chairman. A couple of points 
I didn't mention, where Ted Koppel is speaking to Mr. Natsios, 
he said: ``I understand but as far as reconstruction goes, the 
American taxpayer will not be hit for more than $1.7 billion, 
no matter how long the process takes.'' Natsios answered: 
``That is our plan, that's our intention.'' And these figures, 
outlandish figures I see, and I have to say there's a little 
bit of hoopla involved in this. And then later on when asked 
the question again, Natsios said: ``that's correct, $1.7 
billion is the limit on reconstruction for Iraq. It's a large 
amount of money compared to other emergencies around the world 
but in terms of the amount of money needed to reconstruct the 
country it's a relatively small amount.''
    Mr. Black, one of the things that the United States is 
admired most for is our values. As I travel around the world I 
speak of our basic values as a country, democracy, human 
rights, our respect for the rule of law. And I think the more 
we can point to that the easier it makes our diplomacy; I think 
it helps our intelligence gathering, it certainly helps us 
counter the message of extremists. Would you agree with that?
    Ambassador Black. I would, yes sir.
    Senator Leahy. And the world looks to us for leadership and 
I think back to some of the things we've done, we closed our 
eyes at times during the cold war, sometimes we would support 
dictators because they said they were anti-communist. And then 
sometimes we turned a blind eye to activities of some countries 
because they said that they'd help us combat drugs. And now if 
they will fight terrorism we close our eyes, whether they're 
repressing minorities or whatever. We still see a number of 
very autocratic regimes since September 11, including some we 
give large amounts of aid to, engage in repression under the 
rubric of fighting terrorism. How do you go to some of these 
autocratic countries, asking for their help in fighting 
terrorism, without giving them an excuse to violate the rights 
of their own people, to crack down on legitimate voices of 
opposition? For example, legitimate voices of dissent. I'm not 
talking about people trying to blow up their government or ours 
but people who protest peacefully. How do you do that balancing 
act?
    Ambassador Black. I think it is a challenge. I would 
underscore that in all of my experience it has been very clear 
in all the dealings that we've had in countries that the way 
you generically described them is that we're in the business of 
countering terrorism, countering terrorists, which means 
identify the terrorists and counter them. We're not in the 
business of countering anybody else. We are proponents and 
advocates for the principles of democracy, free speech and the 
like. I always make it very clear, and we're always mindful, 
and sort of, you know, ruthlessly mindful and focused to any 
country that is cooperating with us, if they show any sign, and 
we check these things out, of using religious expression or 
political expression as an example that these are actually 
terrorists or they should be countered or someone should engage 
them, this is relentlessly looked at. We are in the business, 
we as Americans, in the counterterrorism field, of countering 
the terrorists, which means terrorists are specific individuals 
who represent, in our case certainly, an imminent threat to the 
United States. We encourage freedom of speech, religious 
expression and the like. So it is difficult. It requires 
constant education and we, as Americans, regardless of what 
element or what agency we are with, attempt, to the best of our 
ability to underscore that principle. And they are, of course, 
as I'm sure you would advocate, they are related. You really 
can't do one without the other.

                              USAID BUDGET

    Senator Leahy. I agree, but I could name a lot of countries 
where we give aid that are autocratic and we seem to be 
increasing our aid.
    Mr. Natsios has quoted the President's national security 
strategy, which says that: ``Poverty, weak institutions and 
corruption can make weak states vulnerable to terrorists 
networks.'' I certainly agree with the President on that, and 
with Mr. Natsios. Mr. Natsios testified that failed states, 
including Zaire, Lebanon, Somalia and Liberia had repercussions 
far beyond their own regions, and we're dealing with the 
consequences today. But the amount of aid we provide is not 
significantly more than the past, with one exception, Liberia, 
and there I had to offer an amendment over the administration's 
objections to provide emergency funding for Liberia because the 
administration had not done so. And we know what Senator DeWine 
has said about Haiti. I agree with all the rhetoric, I worry 
the reality of money is not there.
    Mr. Natsios. Senator, if I could, I want to first thank the 
committee for their help and leadership on the budgets, since 
I've been administrator. We really do appreciate the money 
you've given us. But just to give you a sense of the importance 
of AID, when I started in office the total amount of money AID 
spent, from all spigots, was $7.9 billion. That was in fiscal 
year 2001, the last year of the last administration. Last year 
we spent $14.2 billion. Our budget has basically doubled in 2 
years. That is not all Iraq. It's Afghanistan and we have 
increased the budget for Africa for the first time in 20 years, 
by a substantial amount, it's a 35 percent increase in the 
Africa Bureau budget. And it's been stable for 20 years, since 
the early 1980s.
    Senator Leahy. Some of that money came from the Congress 
over the objection of the administration.
    Mr. Natsios. Well actually, no, this is the money we asked 
for. You did give us more money for HIV/AIDS. I didn't include 
the 2004 budget.
    Senator Leahy. And Afghanistan, 1 year there was zero in 
there for Afghanistan.
    Mr. Natsios. I understand that. I understand that but the 
budget cycle in the case of Afghanistan started before 9/11 
took place, so. But if you look at all of our accounts, they've 
gone up. The President is putting a huge increase in foreign 
aid. Now I might add, ODA, which is Official Development 
Assistance, that's the standard used worldwide for donor 
governments. The donor-from all agencies, not just the U.S. 
Government, I mean, not USAID alone, was $10 billion in fiscal 
year 2001. We estimate ODA this year will be up 150 percent to 
$26 billion, and that is not primarily Iraq. In all these 
accounts, because of the Millennium Challenge account, because 
of HIV/AIDS, because of the President's 18 initiatives and 
foreign assistance, because of the increase in the Africa 
Bureau budget, because of the increase in famine assistance, 
there's a whole set of initiatives the President's made. So 
this is the largest increase in foreign aid since the Truman 
administration; we went back to our records.
    Senator Leahy. Including the $146 million cut in 
international health programs and developmental assistance?
    Mr. Natsios. Well, the priority of the Congress and the 
administration was in HIV/AIDS, and we put the money into those 
accounts.
    Senator McConnell. We need to move along here. We've got 
about 15 minutes left and Senators are still here. Senator 
DeWine.
    Senator DeWine. Thank you, Mr. Chairman.

                                 SUDAN

    Mr. Natsios, let me move to Sudan. When Secretary Powell 
testified before this subcommittee, I brought up the issue of 
Sudan. As the former special humanitarian coordinator for 
Sudan, maybe you can continue the dialogue I started with him. 
He testified that we're this close in regard to a peace 
agreement. But this week the Sudanese government requested the 
U.N. emergency relief coordinator to postpone his visit. The 
coordinator and the humanitarian agencies really need access to 
the affected region in order to help the people suffering 
there. Given the current crisis and the lack of access, as far 
as the U.N. Mission and the humanitarian organizations that 
they're facing, what are your thoughts about how the United 
States can play a constructive role now in ending this conflict 
and suffering?
    Mr. Natsios. I think there are two separate conflicts here. 
One is between the North and the South.
    Senator DeWine. Right.
    Mr. Natsios. That's been going on since 1982. And Secretary 
Powell was correct that there are about two remaining issues, 
one around power sharing, the other about the application of 
law in Khartoum for Southerners. Those issues are still 
outstanding. They are being dealt with but we're not at a 
resolution of those issues. There is a relative cease-fire in 
the South, and that's been holding with a couple of egregious 
examples, but for the most part it's been holding. The biggest 
tragedy in the world right now is in Darfur.
    Senator DeWine. That's correct.
    Mr. Natsios. You're specifically referring to.
    Senator DeWine. Right.
    Mr. Natsios. That is the worst disaster in the world. We 
are very concerned about it. President Bush has spoken to 
President Bashir about it; I've spoken to the foreign minister 
about it; Secretary Powell has spoken to Vice President Taha 
about it at length. We have gone to the Security Council for a 
review of what is happening. We have gone to the U.N. 
Commissioner on Human Rights for review of this. I've tried to 
get staff in; we do not have visas yet, in fact, the State 
Department is meeting for the second time with the Sudanese 
Charge here to get permission to get our DART teams, Disaster 
Assistance Response Teams, into the country.
    Senator DeWine. Do you have your staff in?
    Mr. Natsios. We have a small staff in Khartoum, but we need 
far more people to respond. We have negotiated with the 
European Union and the United Nations in agreement between the 
rebels and the government for access into Darfur. The problem 
is unless we have monitors in there we'll have no way of 
knowing whether the agreement is being enforced, Senator. So I 
just want to thank you for bringing this issue up; it is a 
great tragedy, that we're about to end one conflict, and we're 
starting a new one. The atrocities committed in Darfur are 
among the worst I have ever seen; 800,000 people displaced; 400 
villages have been burned to the ground; irrigation systems 
have been blown up. We are extremely disturbed by what has 
happened. I'm spending a very large amount of time on this; I 
talked with Jan Eglund, who is the U.N. Undersecretary General 
for Emergency Operations yesterday and we are trying to assist 
his office in getting his people in. The head of the World Food 
Program, who I spoke with yesterday, Jim Morris, is being sent 
in as the leader of that delegation next week but we have to 
get him a visa to get in, and there are problems with that. So, 
it is a serious problem, we're spending a lot of time on it at 
very high levels.
    Senator DeWine. Good. Well, I'm glad it's at a high level, 
and I, you know, I know that the President has spoken about it. 
We appreciate that, I commented on that before but, you know, I 
appreciate your focus on it very much.
    Let me ask another unrelated question. There's been a 
considerable amount of press and attention given to USAID's 
malaria control policies and programs. ``New York Times 
Magazine'' wrote a significant piece about DDT and USAID policy 
just last week. I wonder if you wish to comment or clarify 
USAID's position in regard to malaria and the use of DDT.

                            MALARIA PROGRAMS

    Mr. Natsios. There are two ways to control malaria at the 
household level in countries that are prone to it. One is 
through insecticide-treated bed nets, which is the policy we 
have been pursuing. We have empirical evidence from the field 
and tests that this dramatically reduces malaria because most 
people who get bitten, particularly children, get bitten at 
night. And if they do not have the bed nets they get bitten and 
many of the kids die if they are malnourished. That is the 
policy we have been pursuing. There are people who argue we 
should be spraying with DDT. Some Africans are saying to me, 
wait a second, you want us now to allow you to spray in our 
villages something that is illegal in the United States? Please 
explain that to me. So it's interesting to have it debated this 
way in the newspapers in the United States, but the fact is we 
haven't made it legal to use DDT in the United States. Are 
there arguments for it? Yes, there are. It can be used with a 
relatively minimal level of risk if it's used properly at the 
household level. However, we have a strategy, it has been 
working, and the question is, do we want to divert the money we 
are spending now in the insecticide-treated bed nets into DDT? 
We are reviewing this now, and this is not just my decision to 
make. If we shift strategies it needs to be discussed in 
Washington widely because it will be controversial.
    Senator DeWine. More to come. Thank you. Thank you, Mr. 
Chairman.
    Senator McConnell. Okay, we're going to do two more rounds 
and that will be it for the hearing. Senator Durbin, followed 
by Senator Shelby.

                              MICRO CREDIT

    Senator Durbin. Thank you very much, Mr. Chairman.
    Mr. Natsios, 30 years ago an economics professor in Asia 
set out to prove a point that he believed, that if you loaned 
small amounts of money to very poor people amazing things would 
happen. Thirty years later that concept of micro credit 
Mohammed Unis initiated in Bangladesh now reaches some 70 
million people across the face of the earth. It's an incredible 
testament to this man's wisdom and tenacity and the fact that 
he had an open franchise; anyone can try it. And fortunately 
the United States has supported micro credit expansion in the 
name of economic development, certainly the liberation of 
women, the enrichment of families and increasing opportunities 
for education. We've had a pretty strong record in support of 
micro credit as a nation until this year. And I'm concerned 
about decisions made in your agency about micro credit. The 
President included no reference to micro enterprise in his 
budget; USAID did not include it in its Congressional 
presentation, either in the House or the Senate, either of your 
testimony; you've reduced the administrative status of the 
Office of Micro credit and cut its funding by as much as 50 
percent, and your 5-year strategic plan makes no mention of it. 
Why is USAID backing off of its commitment to micro finance?
    Mr. Natsios. Well Senator, I don't know where that 
information comes from. It is not accurate. We have made no 
cuts in micro finance.
    Senator Durbin. I can tell you exactly where the cuts were 
made.
    Mr. Natsios. Well Senator, if I could just finish.
    Senator Durbin. Sure.
    Mr. Natsios. First, there have been no cuts made in micro 
finance in this budget or next year's budget. The funding level 
remains at $150 million. Second, the status of the office has 
been the same since the Clinton administration. We reorganized, 
and we created a new Bureau on Economic Growth, Agriculture and 
Trade instead of in the Global Bureau. But the status of the 
office has not changed at all in 3 years.
    Senator Durbin. Well, what used to be the Office of Micro 
credit has been downgraded to the Micro credit Development Team 
within the Office of Poverty Reduction, accompanied by a cut in 
administrative funding by about 50 percent.
    Mr. Natsios. Well, that's because we're sending the 
programs to the field to be run.
    Senator Durbin. Well, let's talk about where they're going 
in the field, and that concerns me as well, because I think 
this tells a story. Listen. In 2002, less than half, 45 percent 
of your funding went to groups directly responsible for 
delivering micro enterprise funds. The majority of the funding 
went to organizations that were involved in consulting, other 
for-profit organizations, business associations, research and 
government agencies. Less money is going for micro enterprise 
and more money is going for bureaucracy and consulting.
    Mr. Natsios. Well, some of the NGOs that are providing that 
information, I think are misleading the Congress. I have to say 
I'm disturbed by it because it's not accurate, sir. We are 
attempting to convert many of Mohammed Unis's great ideas and 
by the way, we were the first to fund Mohammed Unis and his 
biggest funder and have been for 30 years. A review was just 
done of the USAID Micro enterprise Program. We were ranked, of 
17 bilateral and multilateral institutions, as having the best 
micro finance programs in the world. We are the model now for 
all development agencies and remain that. What we are doing now 
is converting and some of the NGOs are working in this. I could 
tell you a couple of NGOs that are doing this. NGO funding, by 
the way, has not been cut. They're still getting about 48 
percent. What we're doing with the rest of the money is some of 
it to create a savings and loans association in cooperative 
banks to convert what our informal networks into community-
based banking. It is consumer-owned.
    Senator Durbin. Well let me just say, I have been, before 
your administration, I have been to South Africa and asked 
USAID, show me your micro enterprise. They took me to Soweto 
Township and showed me where they were loaning $10,000 a week 
to a gasoline station, owned by Blacks, which was quite an 
achievement in Soweto Township.
    Mr. Natsios. Sure.
    Senator Durbin. But that was their idea of micro credit and 
micro enterprise, $10,000 a week. What I have seen in micro 
credit and micro enterprise, and you have seen, I am sure, is 
that much, much, much smaller amounts of money have dramatic 
impacts on the lives of poor people and their families around 
the world. And my fear is that we're starting to look at this 
as a Junior Chamber of Commerce instead of what it was 
originally destined to be, and that is a way of liberating some 
of the poorest people in the world from their plight and 
helping them send their kids to school. Is this a change in 
philosophy?
    Mr. Natsios. No, actually those programs were run in the 
1990s that you mentioned and they remain programs. We don't 
support just $50 loans. We support loans that will produce more 
employment for poor people. Let's say a woman starts a micro 
enterprise program making dresses, let's say, for a $100 loan. 
Some people are more entrepreneurial than others, no matter how 
much training you give, some people have that instinct in some 
societies--if she's successful, what we then do is, we say, can 
we give you $500? Can you employ 10 women doing this in your 
business? And if she says she can then we give her larger 
loans. So there is an effort to take the more successful micro 
financed projects and scale them up so they employ more people. 
And I can show you examples all over the world where scaling 
up, in fact, is creating huge increases.
    Senator McConnell. We need to wrap up, Mr. Natsios, and 
give Senator Shelby a shot here.
    Mr. Natsios. Okay.
    Senator Durbin. Thank you, Mr. Chairman. I'd like to submit 
the remainder of my questions in writing.
    Senator McConnell. Yes, that will be true of everyone. I 
know that Senator Leahy has questions to submit for the record 
and we'll do that for everyone. Senator Shelby.
    Senator Shelby. I just have an observation, on picking up 
on what Senator Durbin was saying and some of what the 
Ambassador was saying. I have seen a lot of micro credit work 
in Africa, in Central Asia, myself, small loans, and they do 
grow. And I do believe that those are good programs, as you do, 
and I hope we will continue to expand them in the world because 
they give opportunities at $100 or $50 that they never dreamed 
they would have.
    Having said that, I want to get into a couple of more 
questions with you, Mr. Black.
    Mr. Natsios. If I could just say, Senator, I fully agree 
with you and that is what we are doing.
    Senator Shelby. Thank you. Thank you.

                             IRANIAN TERROR

    Iran has long been categorized by the U.S. Government as 
the world's leading state-sponsor of terrorism. Just a few 
weeks ago the Iranian convened what they call a terrorist 
summit. Attending were representatives of Hamas, Islamic Jihad, 
Hezbollah, allies of Al Qaeda, such as Ansar al-Islam, along 
with 30 other groups, all designated by the United States as 
terrorist groups. Furthermore, Iran reportedly used Syrian 
planes that were flown to Iran for humanitarian purposes 
following their recent earthquake to supply arms back to 
Hezbollah in Lebanon on their return flights.
    Mr. Black, how and to what extent has Iran continued and 
expanded its material support for the Palestinian terror groups 
such as Hamas and Islamic Jihad in the two years since Israel 
intercepted the ship transporting arms in January of 2002?
    Ambassador Black. Iranian intelligence hasn't stopped one 
iota.
    Senator Shelby. Not a bit?
    Ambassador Black. Not a bit. You and I have talked about 
this----
    Senator Shelby. Yes sir.
    Ambassador Black [continuing]. Over many years, Senator.
    Senator Shelby. Yes sir.
    Ambassador Black. And they continue to be as formidable as 
they were in those days. A lot of effort goes into trying to 
keep up with what they're doing, to counter them, but their 
associations with many terrorist groups are long-standing and 
very deep. The most well-known of these, of course, is 
Hezbollah, where they provide a significant portion of their 
funding. Their operatives of the Iranian Revolutionary Guards 
are accomplished and active in various areas of the world. They 
represent a formidable threat in the field of terrorism.
    Senator Shelby. Sure. What can you tell us here about the 
coordination with Ambassador Bremer and the CPA regarding 
Iranian involvement in Iraq, particularly with Ayatollah 
Sustani?
    Ambassador Black. I would have to take that for the record. 
There are others that would know much more about this than I, 
Senator.
    Senator Shelby. Would you furnish that to us?
    Ambassador Black. Yes sir, I'll get back to you, sir.
    [The information follows:]

    We coordinate very closely with Ambassador Bremer and the CPA 
regarding all indications of foreign influences in Iraq.
    CPA and Iraqi officials share our concerns about the role Iran is 
playing in Iraq. We are particularly concerned about border security, 
and the potential inflow of foreign terrorists and weapons to Iraq.
    There are also concerns that the Iranians may have contacts with 
insurgent elements in Iraq, and are seeking to ensure their capability 
to influence events in Iraq.
    The CPA is working closely with Iraqi officials to address these 
issues related to Iraq's stability and security.
    Iran, like other countries, should abide by U.N. Security Council 
Resolution 1373 to deny safe haven to those who plan, support, or 
commit terrorist acts and to affirmatively take steps to prevent the 
commission of terrorist acts by providing early warning to other states 
by exchange of information.
    Iran should also abide by U.N. Security Council Resolution 1511 
which calls upon all Member States to ``prevent the transit of 
terrorists to Iraq, arms for terrorists, and financing that would 
support terrorists.''

    Senator Shelby. Is Iran using Hezbollah to funnel money to 
terrorists in the West Bank in Gaza?
    Ambassador Black. The amount of funds that goes to 
Hezbollah is substantial and to my personal knowledge and 
experience it's primarily used within Hezbollah itself but I 
would have to take that for the record.
    [The information follows:]

    Hizballah continues to be closely allied with and, at times, 
directed by Iran. The group continues to receive financial, training, 
material, political, diplomatic and organizational aid from Iran. We 
see clear evidence that Hizballah is actively undermining prospects for 
Middle East peace by taking an active role in supporting Palestinian 
terrorist groups. This assistance has come in various forms, to include 
guidance and encouragement, funding, training and other forms of 
material support.
    We will continue to apply pressure on all states and entities who 
use terrorism to threaten the prospects for a just and lasting Middle 
East peace. This includes working closely with our allies to put 
pressure on state sponsors Iran and Syria, seek support for U.S. 
terrorism designations (including U.S. Executive Order 12947--
Prohibiting Transactions with Terrorists Who Threaten to Disrupt the 
Middle East Peace Process), and exposing the activities of these 
entities in our publications and public statements.

    Senator Shelby. Does that include bank transfers and other 
means, other unconventional means or some of both?
    Ambassador Black. It's through a variety of means; money in 
suitcases and, you know, wire transfers and the whole spectrum.
    Senator Shelby. Are we doing everything we can to try to 
stop that, as far as you know?
    Ambassador Black. Yes, we are, but there's always more we 
can do. This is a serious business and you know, we can always 
say there's a lot more that we can do and we are trying, 
Senator.
    Senator Shelby. The possibility of linking assistance to 
cooperation in combating terrorist financing--this has been 
brought up before. In testimony earlier this year, former 
Deputy National Security Advisor for Combating Terrorism, 
Richard Clarke, testified, suggested one approach to improving 
the level of cooperation among countries of interest would be 
the establishment of a certification process linking U.S. 
assistance to individual countries' records at cooperation in 
the war on terrorism including terrorist financing, very 
similar to the old process of certifying countries' cooperation 
in the war on drugs that we're familiar with. Is this a 
reasonable approach, to link this, or is it worth looking at? 
Mr. Ambassador, you want to?
    Mr. Natsios. Eighty-five percent of our funding does not go 
through governments. It goes through trade associations, it 
goes through NGOs, it goes through universities, it goes 
through private businesses in competitive contracts. And so, we 
don't go--there are only about four or five countries left in 
the world where we actually give large amounts of money to the 
governments. So what I don't want to do is have a sort of----
    Senator Shelby. And those countries are Israel and who 
else?
    Mr. Natsios. Egypt, Pakistan, and Jordan. There are a 
couple of, I mean, Bolivia, we're doing a little bit now but 
those are the big ones, that's where the 15 percent goes.
    Senator Shelby. Along this same line, it's interesting to 
note that of the seven countries listed by the Financial Action 
Task Force as non-cooperative in the effort to stem the flow of 
funds that support terrorist activities, one, the Philippines, 
has been a major recipient of counterterrorism assistance and 
another, Indonesia, presents us with one of our most serious 
long-term counterterrorism challenges in the entire world. 
Don't we need some kind of criteria? Or how do we do it? I know 
they need help, I know the Philippines definitely need help.
    Mr. Natsios. Right.
    Senator Shelby. Indonesia is a heck of a challenge.
    Mr. Natsios. In both countries, though, none of our money 
goes through the governments.
    Senator Shelby. Okay.
    Mr. Natsios. It goes through these other means, and that's 
why we do it through other means so we can control the money.
    Senator Shelby. Control the money.
    Mr. Natsios. Yep.
    Senator Shelby. Okay.
    Mr. Natsios. But we'll certainly look at it, Senator. It's 
a legitimate point.
    Senator Shelby. Well, it's not original with me, it's just 
something--we just want to make sure the programs were working.
    Mr. Natsios. Absolutely.
    Senator Shelby. Mr. Chairman, thank you for your 
indulgence.
    Senator McConnell. Thank you, Senator Shelby and Senator 
DeWine for staying to the end. And we thank you both for your 
service to our country and we'll look forward to getting the 
answers to the questions that are submitted in writing.
    Ambassador Black. Thank you Senator, for having this 
hearing.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator McConnell. There will be some additional questions 
which will be submitted for your response in the record.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

         Questions Submitted to Administrator Andrew S. Natsios

             Questions Submitted by Senator Mitch McConnell

                                  IRAQ

    Question. Following the June 30 transition in Iraq, will USAID be 
the implementing agency for humanitarian, health, education and 
democracy and governance programs in Iraq?
    Answer. To date, USAID has been successfully implementing a large-
scale development program in Iraq in the areas of humanitarian 
assistance, economic growth, health, education, democracy and 
governance, and infrastructure. We are currently building upon and 
expanding our interventions in each of these sectors with funding 
provided under the second supplemental. The allocations to date are 
articulated in the April 5, 2004, section 2207 report. USAID is 
prepared to increase its portfolio, consistent with its areas of 
expertise, at the request of the Secretary of State.
    Question. What impact can regional democracy activists--such as 
Egypt's Said Ibrahim--have in furthering political reforms in Iraq?
    Answer. While it is important for democracy activists in the region 
to continue their efforts and raise their voices in support of 
democratic systems of government in Iraq and throughout the Middle 
East, it is more important that Iraqis are in a position to advocate 
for democratic reforms in their own country. In order for democracy to 
take root culturally, below the level of institutional structures, 
there must be a genuine Iraqi demand for the reforms. USAID's 
assistance program facilitates this transformation by working directly 
with Iraqis to secure an environment that protects the rights of 
minorities and other marginalized populations, promotes a broad-based 
understanding of democratic rights and responsibilities, 
professionalizes the civil service, fosters freedom of expression, and 
establishes an independent and responsible media. These efforts, 
however, could be enhanced by political activists such as Said Ibrahim 
and other scholarly interpretations by Arab religious, academic, and 
opinion leaders regarding the consistency between Koranic teachings and 
democratic principles and institutions.
    Question. Has the liberation of Iraq already had an impact on 
freedom in the region--such as increased calls for reform in Syria or 
Libya's recent opening to the West?
    Answer. The liberation of Iraq has sent a strong message regarding 
the intention of the United States to oppose dictatorial regimes which 
terrorize their own people and offer haven to terrorist groups. Given 
the timing of the war and the calls for reform in Syria and Libya, a 
case could be made for there being a connection. Whatever the 
motivation for these new openings, the critical factor is to provide 
the support and encouragement necessary to turn the promise they hold 
out into reality. Activities to develop more democratic policies and 
mechanisms and a more open market economy should be undertaken to help 
facilitate transparency and equity in these countries' dealings with 
their own citizens and the rest of the world.

                              AFGHANISTAN

    Question. What programs are being funded by the United States to 
provide alternatives to Afghan poppy farmers?
    Answer. It is generally agreed that a successful counter-narcotics 
effort is predicated on a three-legged approach (interdiction, 
eradication and alternative livelihoods). USAID operates under the 
alternative livelihood heading. Few crops can compete with poppy. 
However, USAID is implementing some programs which help farmers with 
alternative sources of income through production of high value crops, 
such as grapes, apricots, almonds, pomegranates, pistachios, walnuts, 
cherries, melons and peaches, in addition to food processing, as an 
alternative to poppy.
    USAID's agriculture program--Rebuilding Agricultural Markets 
Program (RAMP)--is working in several key areas of Afghanistan which 
are growing poppies--most notably Helmand, Nangarhar and Kandahar. 
Specifically, of the 32 projects which had been funded under RAMP by 
mid-April, five were exclusively directed at these provinces, with a 
total value of $7,610,291. These figures exclude projects which will 
impact these provinces but which have a regional or nationwide scope. 
USAID advisors have actually gone into villages where poppy is grown, 
and had discussions with the village headmen to ask them to sign 
affidavits attesting that they will disavow poppy cultivation in 
exchange for USAID assistance. Anecdotally, this has been a successful 
approach.
    In addition, USAID is rehabilitating farm-to-market roads and 
providing market and storage facilities to ensure that perishable 
produce can make it to the markets and facilitate their sale, once 
there. Under RAMP, improving market linkages and the ``value chain'' 
from field to market to processing to final sale is a key strategy to 
improving farmer's incomes. By focusing this strategy on both 
traditional and innovative, high value crops, the relative 
attractiveness of poppy cultivation is greatly reduced. These market 
and storage facilities are being constructed in eight provinces, 
including Nangarhar, Helmand, and Kandahar. To date, three are 
completed, another 65 are under construction, and 100 will be completed 
by June 30, 2004. By late Summer, 141 market and storage facilities 
will be completed.
    Question. What importance do the British (who are in charge of 
counternarcotics operations in Afghanistan) place on alternative crops 
or employment opportunities?
    Answer. The United Kingdom has adopted a plan to support the Afghan 
National Drug Control Strategy. The Research in Alternative Livelihoods 
Fund (RALF) is a component of the UK's development assistance program 
to Afghanistan which is administered by the Department for 
International Development.
    RALF is a $5.4 million effort over three years, whose overall scope 
is applied research and the promotion of natural resource-based 
livelihoods specifically directed to rural areas currently affected by 
poppy production.
    We are working closely with the British to ensure that our programs 
are coordinated.
    Question. Are these [counternarcotics] activities sufficiently 
funded?
    Answer. The key to successful counternarcotics activity is a fully 
integrated and well-implemented program involving interdiction, 
eradication and alternative livelihoods. While additional funds are 
welcomed, emphasis must be placed on a well-coordinated strategy.
    Question. Are education programs in Afghanistan having an impact in 
mitigating radical Islam among the nation's youth?
    Answer. USAID's education program in Afghanistan is primarily 
geared at primary education, for grades one through six, though we have 
been providing textbooks through grade 12. With that said, there is an 
enormous cohort of youth who did not attend school under the Taliban 
and so need extra help in order to reach a grade appropriate for their 
age. Our accelerated learning is directed at these students. The 
program is expanding rapidly, with now 137,000 students enrolled in 17 
provinces. This program has also trained 4,800 teachers, specifically 
trained in methodologies for these students.
    We are also working to improve the quality of education in the 
regular curriculum. In the 2002 and 2003 school years we provided a 
total of 25 million textbooks, this year we will provide over 16 
million more. We are also implementing a radio-based teacher training 
program to improve the quality of teaching. The program is now 
broadcast in six provinces through local broadcasters and nationwide 
through a national broadcaster. Twenty-six of these programs have been 
broadcast to date and initial results from monitoring of the pilot 
programs found that approximately 80 percent of Afghan teachers in the 
listening areas listened to these programs.
    Lastly, data show that Afghan children and youth are increasingly 
returning to school. In 2001, under the Taliban, approximately 1 
million Afghan children went to school, in 2002, the first year we 
provided textbooks, UNICEF measured that 3 million children were in 
school. Data collection was poor in 2003, but education experts working 
in Afghanistan estimated that the total was approximately 4 million 
children in school. Finally, the latest data for 2004 show that 4.5 
million children are in school. Such significant percentage gains year 
over year in school enrollment indicate a vote of confidence in a 
peaceful, productive future among Afghan children, youth, and their 
parents.
    Question. What threat does Afghani Islamic fundamentalism pose to 
reconstruction efforts in Afghanistan?
    Answer. It is important to draw a distinction between Islamic 
fundamentalism and terrorist activities. Extremist political groups who 
sponsor terrorist activities continue to pose a threat to 
reconstruction in Afghanistan. Fundamentalism itself is not the 
problem.

                             SOUTHEAST ASIA

    Question. How can the United States and international donors hold 
governments in the region more accountable for their actions--for 
example, in Cambodia where despite significant foreign aid, the country 
remains a corrupt narco-state that is a known haven to regional triads 
and terrorists?
    Answer. USAID does not engage directly with the Cambodian 
Government, except in the areas of HIV/AIDS treatment and prevention, 
programs to prevent trafficking in persons, and basic education. Many 
USAID-supported activities are funded specifically to encourage 
government transparency and accountability: legal clinics that 
challenge some of the most egregious situations; democracy projects 
that promote alternative political approaches; anti-trafficking 
programs that highlight some of the worst cases of abuse; and labor 
union programs that promote the free exercise of union rights.
    More broadly, USAID programs are not structured to ``reward'' the 
government. Rather, the aim is to improve Cambodia's human rights 
performance, introduce new ideas about good governance and address some 
of the most challenging social issues facing the country. With regard 
to terrorism specifically, it should be noted that since September 11, 
the Cambodian Government has been an active and cooperative participant 
in the fight against terrorism. Specific actions include sharing 
information, closing possible ``cells,'' and shutting down extremist 
sites and potential staging grounds for terrorist acts.
    During initial operations against the Taliban and al-Qaeda in 
Afghanistan, Cambodia quickly offered basing and over-flight rights for 
U.S. military aircraft (this offer still stands). It also arrested four 
people in May 2003 with alleged ties to a terrorist organization and 
closed two Islamic fundamentalist schools where these individuals were 
employed. In addition, Cambodia destroyed its entire stock of hand-held 
surface-to-air missiles. It also introduced an automated system to keep 
better track of people entering and leaving the country.
    Question. What programs are currently funded by USAID that 
encourage and foster regional cooperation among Southeast Asia 
reformers?
    Answer. USAID is funding four programs that are fostering regional 
cooperation efforts to address transnational issues and opportunities, 
promoting public-private partnerships, and facilitating the exchange of 
information and ideas among reformers in Southeast Asia. The Southeast 
Asia competitiveness initiative focuses on improving competitiveness of 
the Asian economy by building economic clusters in Vietnam, Thailand 
and Cambodia that work towards growth and help government and the 
private sector design and implement national competitiveness 
strategies. The Accelerated Economic Recovery in Asia program supports 
legal, judicial and economic reform in Thailand, Vietnam, Cambodia as 
well as Indonesia and the Philippines. The ASEAN program supports 
projects in three areas: bolstering the administrative and project 
implementation capacity of the ASEAN Secretariat; building regional 
cooperation on transnational challenges, including terrorism, human 
trafficking and narcotics, and HIV/AIDS and other infectious diseases; 
and fostering economic integration and development between the ten 
Southeast Asian member countries. The trafficking in persons program 
operates in Thailand, Laos and Vietnam, and focuses on prevention, 
protection and prosecution to combat trafficking.
    Question. What programs are currently funded by USAID to counter 
the efforts of madrassas to recruit the region's disaffected Muslim 
youth?
    Answer. In Indonesia, the new basic education program will also 
include assistance provided for school-to-work transition, especially 
to out-of-school youth. Over time, this will increase the prospects for 
employment among young job-seekers. Improved prospects for meaningful 
employment, and the better future that it can bring, should lessen 
frustration and alienation among those young people who could, 
otherwise, be willing recruits for leaders who advocate extreme 
solutions to social and economic problems. These efforts in the 
education sector will be complemented by the new emphasis on job 
creation in the new USAID economic governance and growth programs.
    In October 2003 President Bush announced in the Philippines that 
USAID would make available up to $33 million in fiscal year 2004-2008 
for education assistance in conflict affected areas of the 
Philippines--specifically in the Autonomous Region of Muslim Mindanao 
(ARMM). To counter the efforts of madrassas to recruit disaffected 
Muslim youth, the program's goal is to improve the quality of education 
in ARMM region schools where public schools are grossly under-funded 
and madrassas may be the only school within walking distance.
    The Improved Access to Quality Education in Poor, Conflict-
Affective Communities program is designed to address the political, 
economic and social marginalization of Muslim and other impoverished, 
conflict-affected communities in Mindanao with a goal to building peace 
and economic security.
    Program focus areas are:
  --Increasing community-based learning opportunities--especially in 
        school-less, conflict-affected areas;
  --Promoting reintegration of out-of-school youth into the peaceful, 
        productive economy;
  --Improving teaching capacity in math, science, and English in both 
        public and madrassa schools and providing opportunities for 
        madrassa schools to adopt secular curriculum;
  --Reforming education policy.
    Key achievements to date:
  --A Congressional internship program for young Muslim leaders 
        provided the first group of ten college graduates and graduate 
        students with an understanding of the dynamics of the 
        legislative branch.
  --Peace Corps volunteers in collaboration with the USAID education 
        program are providing math, science, and English training for 
        teachers from Muslim areas of Mindanao.
  --Public elementary and high schools in the ARMM have received up to 
        five computers each, as well as software, printers, network and 
        internet connection.
  --USAID is distributing books donated by U.S. publishers to schools 
        and libraries in conflict-affected areas of Mindanao where 
        reference and books materials are in critically short supply.
    In two other countries, Pakistan and Bangladesh, USAID is 
responding to vulnerable and at-risk Muslim youth. The emphasis of 
USAID's program in such countries is to develop a more credible public 
education system so families can select this option as a viable option 
over the madrassa system.
    To this end, USAID is working along several tracks. One approach 
being explored is the introduction of innovative approaches for early 
childhood learning. Some of these involve engaging parents, some of 
them semi-literate or even illiterate, to be proactive in the education 
of their children, having mothers take a greater interest in school 
operations and engaging unemployed or under-employed youths in the 
community with some level of education to act as tutors for children 
having difficulty in schools.
    Another element of USAID's support for early childhood development 
is through a mass media approach to improving literacy, numeracy and 
critical thinking skills in the next generation. In Bangladesh, a 
USAID-supported Bangladeshi-produced Sesame Street program will include 
messages of tolerance and non-violent conflict resolution, reaching out 
to a broad audience in Bangladesh in addition to preschoolers.
    Third, USAID is seeking a better understanding of the madrassa 
education system and its relationship with the mainstream public (and 
private) education systems. The objective is to identify incentives and 
resources to improve educational content at madrassas and to determine 
if there are appropriate entry points for U.S. assistance for those 
madrassas that are registered with the host government and subscribe to 
a government-approved curriculum.
    Finally, USAID is supporting innovative public-private partnerships 
to increase job skills of older students and better prepare those 
leaving schools for future employment.

                                 ISRAEL

    Question. How have USAID-funded programs in the West Bank and Gaza 
countered the efforts of Hamas to win the hearts and minds of the 
Palestinian people?
    Answer. USAID funds a broad range of activities in the West Bank 
and Gaza that engage the youth population, and are aimed at dissuading 
Palestinian youth from aspiring to be terrorists. For example:
  --Our democracy and governance projects teach the skills of 
        democratic, civil, non-violent mobilization and advocacy. They 
        reach out to school children and university students, providing 
        mentoring, counseling, and structure, and at the same time 
        imparting skills, knowledge, and appreciation for non-violent 
        conflict resolution techniques.
  --USAID-supported civic education media programs are widely 
        disseminated and designed to deliver and reinforce the message 
        that there are problems, but that violence is not a solution.
  --Town hall meetings, panel discussions, and young leader training 
        programs reach out into the heart of the communities that have 
        been identified as prime breeding ground of suicide bombers, 
        providing avenues of communication that are effective and 
        healthy alternatives to violence.
  --Through our various community service programs, we are trying to 
        inculcate skills and positive experiences that will support 
        non-violent conflict resolution behaviors. For Palestinian 
        teens and young adults, we support programs that ``get them off 
        the street'' into positive, healthy, mentored situations where 
        they are engaged in activities conducive to adopting non-
        violent approaches to resolving the national conflict.
    Additionally, Palestinians put a very high priority on education 
for children. While USAID/West Bank and Gaza does not work specifically 
on curriculum development or textbooks, we do fund significant training 
programs for teachers and students, which help students deal in 
alternative ways with trauma and anger. For example:
  --Our ``psycho-social'' training project has reached over 32,000 
        students between the ages of 6 and 18 and their teachers. 
        Activities under this project include play and art activities 
        for children, geared towards helping them deal with the tension 
        of the situation on the ground, and group discussions with 
        parents and teachers.
  --Our People to People program works with Palestinian Ministry of 
        Education and Israeli public school teachers on developing a 
        curriculum that recognizes the views, values, narrative, and 
        humanity of each side in the conflict.
  --We also improve the learning environment by building and repairing 
        classrooms, libraries, and labs. The 800 classrooms that USAID 
        has remodeled and rebuilt provide improved learning 
        environments for children. Among other things, these new 
        classrooms provide the opportunity for girls to go to school in 
        areas that they previously were unable to because of space 
        limitations.
  --USAID funds have also provided summer camp experiences for more 
        than 8,500 girls and boys. Basic themes of these in-school and 
        summer camp activities include moderation, reconciliation, and 
        overcoming conflict through peaceful means.
  --Under our Tamkeen project one NGO in Gaza supports university 
        students' work on issues of democratic practice, including peer 
        mediation and conflict resolution.
  --Another NGO has provided extremely high quality civic education to 
        thousands of people (mostly high school students) throughout 
        the West Bank and Gaza.
  --Under our Moderate Voices program NGOs work with teachers, Ministry 
        of Education, and school administrators on a peace curriculum 
        integrated with the regular school curriculum. It has also 
        supported an initiative with high school students promoting 
        democratic dialogue, attitudes, and skills, and an ongoing 
        project in the Gaza Strip to enrich and emphasize democratic 
        and human rights oriented values in the standard curriculum.
  --Also in Gaza, a peer mediation and conflict resolution program 
        conducted in UNWRA schools disseminates desired values and 
        identifies and training peer leaders to act as mediators in 
        conflict situations.
    Finally, a significant portion of our overall programming is geared 
to meeting emergency health and humanitarian needs, creating jobs, 
providing educational opportunities, and supporting economic 
development. In this way, USAID programs give Palestinian youth hope 
for a better life and future.
    This fiscal year we plan to use available funds to design and 
implement additional targeted activities, within the parameters of 
current U.S. law.
    Question. What plans does USAID have for its programs in Gaza--
particularly those relating to water--should Israeli withdrawal become 
a reality?
    Answer. The primary issue that determines USAID Gaza water programs 
is the security situation and the cooperation of the Palestinian 
Authority in the investigation into the killing of three American 
Security Guards that occurred on October 15, 2003. On 4/28/04, the 
Department of State determined that the situation had not improved 
sufficiently for the major infrastructure projects--the Gaza Regional 
Water Carrier Project and the Gaza Desalination Plant Project--to 
continue. However, rather than terminate the project, the U.S. 
Government is simply continuing to suspend activity, and retain the 
funds allocated in the hopes that these important projects can be 
brought on line rapidly should the situation change. If the security 
risk level is considered acceptable and there is agreement that the PA 
has cooperated in the investigation, we will want minimal time to begin 
implementation of the Gaza Regional Water Carrier and perhaps six 
months to bid and award the Gaza Desalination Plant Project.
    Directly related to the Israeli withdrawal may be the need to 
replace water supplies now being provided by Israel's Mekorot Water 
Company, primarily (but not exclusively) to Gaza's southern 
settlements. Once the settlements are withdrawn it is conceivable that 
Israel will no longer pump water into Gaza. Piped connections may have 
to be modified so that Gaza communities will be able to benefit from 
the Mekorot lines. USAID/WBG will investigate the engineering 
implications of this issue over the coming weeks.
    In addition, we believe that several of the Israeli settlements in 
Gaza are now getting their potable water from local groundwater 
reserves. Where this is happening, it may be necessary to provide piped 
connections from the wells to the closest adjacent Palestinian water 
network. Whether and to what extent this may be required must also be 
investigated in the coming weeks.
    Question. How does USAID ensure that no U.S. taxpayer funds for the 
West Bank and Gaza end up in the hands of terrorists?
    Answer. The Mission is well aware of the dangers associated with 
providing assistance to terrorist organizations or those who are 
affiliated with such organizations. Country Team vetting and close 
oversight help the Mission ensure that funds do not fall into the hands 
of terrorists. Consequently, beginning in November 2001, the Mission 
implemented a program whereby Palestinian grantees and contractors must 
be vetted by the Country Team at the Embassy in Tel Aviv. This applies 
to all contracts in excess of $100,000 and to all grants regardless of 
dollar value. In each case, the organization and its key personnel are 
reviewed to determine whether they are engaged in terrorist activity. 
Also, individuals applying for scholarships or to participate in USAID 
funded training programs are similarly vetted. To date, the Mission has 
vetted more than 1,000 Palestinian organizations and individuals.
    Finally, the Mission, with congressional encouragement, has 
developed a robust risk assessment strategy. All Mission institutional 
contracts and grants--approximately 100--are audited on an annual basis 
by local accounting firms under the guidance and direction of USAID's 
Inspector General. Preliminary findings on the first 10 auditable units 
appear to indicate that except for some questioned costs, general 
compliance and internal controls appear to be adequate.

                               INDONESIA

    Question. Will increased assistance for education and health 
programs help counterbalance the ability of JI and other extremist 
groups to recruit in Indonesia?
    Answer. The increased assistance from USAID for education and 
health programs should help to counterbalance the appeal of extremist 
groups and messages in Indonesia. The new basic education program will 
support our efforts to counter extremism through its focus on critical 
thinking, improved teaching methodologies, democracy, pluralism and 
tolerance. The focus on improving the quality of public school 
education, through improvements in school governance and teacher 
training, will allow schools that follow the government-mandated 
curriculum to offer a more attractive alternative to parents and 
students who are currently turning to private and religiously-based 
schools for basic education.
    The assistance provided on school-to-work transition and the 
special assistance to out-of-school youth should, over time, increase 
the prospects for employment among young job-seekers. Improved 
prospects for meaningful employment, and the better future that it can 
bring, should lessen frustration and alienation among those young 
people who could, otherwise, be willing recruits for leaders who 
advocate extreme solutions to social and economic problems. These 
efforts in the education sector will be complemented by the new 
emphasis on job creation in the new USAID economic governance and 
growth programs.
    Similarly, although perhaps over a longer time frame, increased 
assistance to health and other basic human services can lessen the 
appeal of extremists. The provision of better quality health, water and 
nutritional services to people and communities should improve their 
quality of life, particularly among poor Indonesians, and help address 
the feelings of abandonment that can fuel the anti-government and anti-
societal appeal of extremists. More broadly, the delivery of improved 
services by local governments, through management systems that 
encourage community participation, ownership and control, offers 
citizens a real voice in their governance and, by extension, a more 
substantive role in the development of effective dispute resolution 
mechanisms at the local level.
    Question. How does USAID maximize information technology in its 
programs in a geographically challenging place such as Indonesia?
    Answer. The decision to make Indonesia one of three focus countries 
for the President's ``Digital Freedom Initiative'' (DFI), announced by 
President Bush at the October 2003 APEC meeting, offers the opportunity 
for USAID to pursue Information and Communication Technology (ICT) 
solutions to development issues using a more strategic approach than 
was possible in the past.
    In recent years, USAID has integrated ICT solutions into over 
thirty development programs, including efforts in: (a) electoral 
management (including GIS-assisted establishment of voting districts); 
(b) establishment of a website for the National Parliament; (c) 
promoting pluralist civil society and tolerant Islamic values by 
disseminating information on religious tolerance on-line; (d) 
international trade promotion and small- and medium-sized enterprise 
development; (e) establishment of a Center for Energy Information in 
the Ministry of Energy and Mineral Resources to facilitate private 
sector investment; (f) promotion of decentralized and strengthened 
management of Indonesia's forests, protected areas and coastal 
resources through on-line information centers; (g) establishment of a 
local government on-line support center to share decentralized 
governance ``best practices'' and provide access to donor agencies, 
associations of regional governments and regional government 
directories; and (h) establishing a nation-wide Nutrition and Health 
Surveillance System for households with mothers and children under five 
years of age.
    Under the new fiscal year 2004-2008 Strategic Plan for Indonesia, 
USAID will further integrate ICT solutions into all assistance 
programs, to be coordinated under a DFI Plan that is currently in 
preparation. In addition to a special focus on ICT services and access, 
especially for the underserved, we will pursue specific ICT 
applications in our new basic education program, health and emergency 
relief services (including a proposed joint emergency information 
system with Microsoft and the Indonesia Red Cross), and local 
government service provision programs.

                              NORTH KOREA

    Question. Given the extremely closed nature of North Korea, can any 
programs be conducted inside that country to promote democracy and 
human rights?
    Answer. North Korea remains the most closed and isolated country in 
the world. The regime controls the people and ensures its survival by 
brutally restricting the flow of all information and ideas. In such an 
environment, it is virtually impossible to conduct any programs inside 
the country that overtly promote democracy and human rights.
    Question. What programs can be supported among North Korean 
refugees to create an organized opposition to the thugs in Pyong Yang?
    Answer. The United States is not pursuing regime change in North 
Korea; support for programs meant to create an organized opposition to 
the regime in Pyongyang would not be consistent with that policy.

                              WEST AFRICA

    Question. Do you agree that drug addicted, demobilized rebels in 
Sierre Leone and Liberia pose an immediate threat to the resumption of 
hostilities in the region--and easy recruits for terrorist 
organizations?
    Answer. Based on extensive discussions in Sierra Leone with NGOs, 
youth groups, women's groups, traditional leaders, communities and 
peacekeepers, drug addiction among ex-combatants has not been found to 
be a serious problem.
    In Liberia, however, the situation is different and drug abuse is 
thought to be a significant issue among (ex-)combatants. Despite these 
problems, they are not seen as a threat to the disarmament, 
demobilization and reintegration (DDR) process.
    Question. What programs does USAID sponsor to ensure that these 
addicts are treated for their addictions?
    Answer. USAID is well aware of the drug problems in Liberia and 
intends to use International Disaster and Famine Assistance funds to 
support activities that address the issue. The current Annual Program 
Statement (APS) ``Achieve Peace and Security through Community 
Revitalization and Reintegration'' (APSCRR) clearly states that, 
``USAID is interested in funding suitable drug treatment programs under 
this APS.''
    We are currently reviewing proposals in this area submitted in 
response to the APSCRR APS and plan to support activities that would 
begin in the next few months. Activities will focus on both drug 
awareness programs and the treatment of drug addiction through support 
groups and substance abuse treatment facilities, which would be linked 
with ongoing reintegration/employment programs.

                             SOUTH AMERICA

    Question. Does USAID have lessons-learned from efforts to counter 
drug cultivation in Central and South America that may be applicable to 
on going counternarcotics efforts in Afghanistan?
    Answer. Three lessons from counter-drug programs in Central and 
South America are important for counter-narcotics activities in 
Afghanistan and other areas.
  --Drug production typically takes place in areas where there is no 
        state presence. Expansion of state presence throughout the 
        entire national territory is therefore critically important. 
        Military and/or police forces must be able to arrest criminals 
        and control illegal activities that take place anywhere in the 
        country. The National Government must also provide, or support 
        effective local governments that provide, essential government 
        services such as access to justice, education, health, economic 
        and social infrastructure, and other services that earn the 
        trust, confidence and support of local people.
  --Local support for counter-narcotics programs is essential for 
        success. This support is gained through alternative development 
        assistance which increases legal employment and incomes as well 
        as through local government or community development programs 
        that provide local infrastructure and improved local 
        governments in exchange for community support to eradicate drug 
        crops.
  --If society views narco-trafficking as a foreign problem only, 
        people will not support the actions needed to root it out. 
        Communication programs are essential to teach and inform people 
        at all economic levels about the dangers of drug production and 
        narco-trafficking. People need information about how narco-
        trafficking affects their health, communities, the environment, 
        families, and the economy. They also need to see examples of 
        how narco-trafficking negatively impacts justice systems, 
        institutions and democracy.

                                PAKISTAN

    Question. Can you comment on the impact of U.S. assistance in 
Pakistan to counter the hateful ideology of madrassas and other 
extremists?
    Answer. The primary objective of USAID/Pakistan's education sector 
is to provide the knowledge, training and infrastructure to support the 
Government of Pakistan's educational reform program. USAID assistance 
emphasizes high quality education programs for boys and girls 
throughout Pakistan, including public and private schools and 
registered madrassas wishing to avail themselves of the assistance. Two 
pilot programs in early childhood education and adult literacy are 
proving highly successful in changing the approaches of teachers, 
parents and administrators and making public schools more effective and 
attractive to students and their parents. The Government of Pakistan is 
interested in expanding these programs nationwide.
    The ``Whole District Initiative'' provides materials and training 
to upgrade all schools wishing to participate in the initiative in four 
districts each in Balochistan and Sindh--two badly neglected areas of 
the country. These are demonstration projects, with the goal of 
replication in all districts of the country by Government with USAID 
and other donor support.
    The USAID Teacher Education project provides the opportunity for 
selected Pakistani educators to study in the United States and gain 
first hand knowledge of the American culture and values as well as 
academic training to become better teachers and mangers of educational 
services.
    USAID is exploring expansion of school feeding programs currently 
funded by USDA in one district.
    In June a project will begin to rehabilitate and refurbish 130 
shelterless schools across all the seven agencies in the Federally 
Administered Tribal Areas (FATA). Schools, water and health facilities 
are the priorities of these communities.
    Collectively, these measures may serve to undercut some of the 
appeal of Madrassa education in its more extreme forms. However, USAID 
programs cannot directly take on the problem of the Madrassas that 
foster or support terrorism. That responsibility must be assumed by the 
Pakistan Government.
    Question. How do you envision the democratic development of 
Pakistan, and what programs are supported by USAID to advance democracy 
in Pakistan?
    Answer. Recent developments indicate a positive trend towards 
democratic development of Pakistan. In 2002, Pakistan returned to 
democratic rule with elections of the national and provincial 
legislatures, with more than 70 percent of members being elected for 
the first time to parliament. This has created an opportunity to train 
these parliamentarians in the necessary skills to improve legislative 
governance, especially to be responsive to the needs of citizens. 
Pakistan has also opened up its electronic media to private sector 
ownership in the first time in its history. Now citizens have access to 
alternative choices and increased accountability in the media. Also, 
Pakistan is currently in the process of shifting political, 
administrative and fiscal responsibilities from central to local levels 
of government through a comprehensive devolution program.
    USAID built its governance interventions to capitalize on these 
developments through a three-year, $38 million program to help build a 
more participatory, representative and accountable democracy. It is 
designed to actively involve civil society, the key actors in eliciting 
democratic change in Pakistan, by (1) improving the capacity of 
legislators at national and provincial levels to effectively perform 
their legislative duties and better address the needs of citizens; (2) 
actively engaging civil society groups, media and political parties to 
address pressing social and economic issues; and (3) stimulating local 
governments to work with citizens to solve social and economic problems 
at the community level.

1. Improving the capacity of national and provincial legislatures to 
        respond effectively to the needs of citizens
    Program activities include:
  --Providing technical assistance and training in drafting specific 
        legislation, such as conducting background research and 
        drafting policy papers;
  --Assisting legislators and staff to improve legislative procedures 
        and processes such as functioning of committees; and
  --Support public forums where interest groups will discuss current 
        legislative agenda topics, from passing a budget to reforming 
        laws affecting women.

2. Civil society, media and political parties actively engaged in 
        addressing key economic and social issues facing Pakistani 
        society
    Examples of activities are to:
  --Improve the financial and operational sustainability of NGOs, such 
        as introducing efficient auditing software programs;
  --Develop the capacity of new, private radio stations to improve 
        their programming content, including professional quality 
        weekly news programs on women's issues;
  --Train journalists to improve the quality of reporting through new 
        university curriculum; and
  --Strengthen political party processes and structures, such as 
        improving intra-party communication and development of party 
        membership lists.

3. Local governments working with citizens to solve social and economic 
        problems at the community level
    Projects which are demonstrating to citizens that their local 
governments are part of positive solution include:
  --Small water systems for potable water and irrigation;
  --Ambulance services and improved health clinic equipment; and
  --Sanitation facilities such as latrines so that parents allow their 
        children, especially girls, to stay in school.
    Question. How will the fiscal year 2005 request for Pakistan--
particularly $300 million in economic aid--combat terrorism in that 
country?
    Answer. The U.S. program in Pakistan has counterterrorism as its 
priority strategic goal. All programs are designed to support the 
government of Pakistan to achieve their goal of becoming a modern, 
moderate Islamic state. U.S. assistance programs are varied but 
targeted to address critical barriers to achieving the social and 
economic prosperity which is essential to fight terrorism.
    Poverty and illiteracy are Pakistan's overriding limiting factors 
to becoming a modern state capable of offering alternatives to its 
citizens, and also to participating in the global economy. Without 
economic options and basic social services, the poor are easy prey for 
religious extremists.
    Economic aid for Pakistan addresses the need for a growing economy 
that can reduce poverty through increasing literacy, improving basic 
health services and expanding employment opportunities for the poor, 
especially youth and women. Education programs will strengthen the 
central and local governments in their ability to offer viable 
alternatives to religious schools. USG support ranges from sustainable 
investments such as updating education policy and teacher training to 
more immediate, practical investments in school infrastructure and 
teaching materials. Expanding access to basic health services is 
another targeted program which will help poor Pakistanis take advantage 
of economic opportunities. Through microfinance and small business 
loans, entrepreneurs will not only increase their own standards of 
living but also offer employment in their communities.
    In addition to a strong economy, Pakistan needs a stable democracy 
to become a moderate Islamic state. This requires strong institutions, 
trained civil society and government leaders, and an open environment 
for raising awareness of issues such as human rights. U.S. economic 
assistance programs offer training for legislators in basic governance 
processes which will strengthen Pakistan's national and provincial 
institutions. These programs will also expose legislators and their 
staff to the workings of modern Muslim and non-Muslim governance 
systems in other countries. Civil society organizations will be 
supported to prioritize, articulate and communicate citizen concerns to 
government officials at all levels, such as women's issues, poverty, 
and education.
    Other innovative assistance activities are being implemented in 
support of devolution. One program is helping local governments and 
communities work together for the first time to provide basic services, 
especially in health and education. Expanding this pilot program, which 
demonstrates transparency and accountability through direct experience, 
is a priority. It improves the quality of life for poor citizens and 
also reinforces the potential for a decentralized, grassroots 
democracy.

                               SYRIA/IRAN

    Question. What programs can be conducted in both Syria and Iran to 
foster political and social reforms?
    Answer. There are few options for fostering political and social 
reforms that can be conducted in both Syria and Iran with Foreign 
Operations funds for political or social reform. Sec. 507 of the 
Foreign Operations, Export Financing, and Related Programs 
Appropriations Act, 2004 (Division D, Public Law 108-199) prohibits 
both Syria and Iran from receiving any funds appropriated under this 
act.
    However, Sec. 526 (Democracy Programs) instructs, ``that 
notwithstanding any other provision of law, not to exceed $1,500,000 of 
such funds may be used for making grants to educational, humanitarian 
and nongovernmental organizations and individuals inside Iran to 
support the advancement of democracy and human rights in Iran.''
    Per this section of the appropriation bill, the Department of State 
is actively exploring opportunities to promote democracy activities 
within Iran, in accordance with this fiscal year 2004 congressional 
authorization. The Bureau of Democracy, Human Rights and Labor recently 
solicited Iran proposals and hopes to be able to fund projects within 
Iran this fiscal year. These projects will support the Iranian people 
in their quest for freedom, democracy, and a more responsible, 
transparent, and accountable government that will take its rightful 
place as a respected member of the international community.
    Lacking an authority that would similarly allow assistance for 
Syria, foreign assistance funds cannot be used to foster political and 
social reform in Syria.
    The Bureau of Educational and Cultural Affairs (ECA) of the State 
Department is able to use its base funding in Syria and has developed a 
full range of exchange activities to reach out to Syrians, with a 
special emphasis on women and youth. The following exchange activities 
are currently underway with Syria. They directly and indirectly address 
social and political reform by focusing on themes or individuals with 
the capacity to foster new approaches in Syria:
  --Twelve Syrian undergraduates are among the 71 youth from the Middle 
        East and North Africa to receive scholarships to U.S. colleges 
        and universities in 2004 under Partnerships for Learning 
        Undergraduate Scholarships.
  --The University of Oklahoma, funded through a grant from ECA, will 
        conduct a series of exchanges with Syria focusing on water 
        management and water conservation issues.
  --Ohio University, in partnership with ECA, is planning a summer 
        institute for teachers of English as a Foreign Language from a 
        half dozen NEA countries, including Syria. We currently have 
        three English Language Fellows in Syria and expect to continue 
        at this level in 2004-05. English language programs convey U.S. 
        values and encourage access to economic opportunity.
  --Columbia University's Center for International Conflict Resolution 
        is planning a one-year, multi-phased project to bring together 
        Syrian and American civil society leaders.
  --10 Syrian high school students (out of 440 students from the 
        region) will participate in the Partnership for Learning Youth 
        Exchange Program and spend an academic year living with 
        American families and studying in U.S. high schools.
  --The Fulbright program in Syria has grown in the last three years 
        into a vibrant program encompassing visiting scholars 
        (partially funded by Syria), visiting students placed in top 
        U.S. universities, American scholars, and students.
  --The International Visitor exchange program with Syria has averaged 
        about twenty participants a year. Projects have focused on 
        journalism, energy, micro-credit, women, tourism, and the 
        environment.
  --Each year, two to five Syrians participate in the Humphrey 
        Fellowships Program which provides mid-career professionals in 
        public service a year of academic training and professional 
        experience in the United States.
    Regarding Iran, ECA has initiated educational exchanges through a 
grant to the Council of American Overseas Research Centers (CAORC). 
CAORC, working with the American Institute of Iranian Studies, has a 
very active exchange program focusing on Iranian studies. If it is the 
political will of the Department to further develop ties with Iran, ECA 
will be a full partner in implementing exchanges which promote mutual 
understanding and respect, as authorized by the Fulbright-Hays Act of 
1961.

                           EGYPT/SAUDI ARABIA

    Question. With respect to United States aid for Egypt, what should 
we be doing differently in that country to ``drain the swamp'' that 
foments extremism?
    Answer. The U.S. Government promotes economic and political 
development through USAID programs that improve the lives and welfare 
of the Egyptian people. The program expands economic opportunities, 
improves education and health systems and provides for the expansion of 
basic infrastructure. In addition, U.S. assistance addresses critical 
issues in the area of democracy and governance.
    The United States reviewed its democracy and governance programs 
during the year as part of a comprehensive assessment of its bilateral 
assistance to Egypt. Programs in 2003 and early 2004 focused 
particularly on justice sector reform; civil society with a special 
emphasis on gender equality; media independence and professionalism; 
and responsive local governance. These USAID-funded projects supported 
reform-minded individuals and progressive organizations that seek to 
modernize Egypt.
    United States aid for Egypt can continue to identify and fund 
activities that foster inclusion, citizen participation and 
modernization. By strengthening civil society, promoting greater 
independence and professionalism in the media, and modernizing the 
judicial sector, USAID is creating a firm foundation for a flourishing 
democratic society. We have encouraged the Government of Egypt (GOE) to 
support new initiatives to conduct free and fair elections that include 
updated voter registration lists and multi-party platforms. We have 
worked with the GOE to strengthen a more independent and representative 
Parliament. In partnership with the U.S. Embassy, USAID continues to 
support progressive and reform minded individuals who have the vision 
and charisma to mobilize Egyptian citizens and policy makers towards 
more democratic policies.
    Pursuant to the President's Middle East Partnership Initiative 
(MEPI), we are supporting programs that affect ordinary Egyptians 
directly. For example, we are supporting the National Council for Women 
in order to promote women's access to legal services throughout Egypt. 
We recognize that empowering women and promoting human rights is an 
effective way to combat terrorism and extremism because it allows 
citizens to better direct their frustration and exercise their rights. 
One non-traditional but creative way to use U.S. foreign assistance 
would be to foster peace and reconciliation programs in the region, 
thereby reducing violence and the incidence of extremism.
    U.S. aid is also helping the GOE to create a globally competitive 
economy through policy reforms that will increase foreign and domestic 
investment, encourage export-oriented growth, improve workforce and 
business skills, and invest in information technology. These 
transformations will help bring about a more competitive economic 
environment within Egypt, allowing the country to reach higher levels 
in the global economy. Additionally, U.S. aid is providing assistance 
for educational reforms that empower teachers and parents at the local 
level. This support goes to training teachers to promote the vocational 
skills and critical thinking skills necessary to seek and hold jobs. 
When people are given an adequate education, are able to provide for 
their families with decent jobs and generally have more hope for a 
brighter future, they are able to make informed choices, leading to 
fewer tendencies to succumb to terrorist rhetoric.
    Question. What impact would greater freedom of association in Egypt 
have in terms of releasing societal pressures that may give rise to 
extremism?
    Answer. As noted in the 2003 Human Rights Report, the Government of 
Egypt (GOE) record on freedom of peaceful assembly and association 
remained poor. Both USAID and the United States Embassy in Egypt 
acknowledge that many serious problems remain. Through USAID-funded 
projects and diplomatic dialogue at both the senior and working levels, 
the USG encourages the GOE to create an enabling environment to foster 
greater freedom of speech and assembly.
    This year, regardless of regular demonstrations that have anti-
American sentiments, the United States Embassy strongly supported 
Egyptian citizens' rights to express openly and peacefully their views 
on a wide range of political and societal issues, including criticism 
of government policies and alliances. During the numerous unauthorized 
antiwar demonstrations, the U.S. Embassy reported on the large numbers 
of security personnel deployed to contain the demonstrators and 
followed the cases of those allegedly mistreated while in detention.
    It should be noted that from experience in other countries, it is 
difficult to predict the impact of greater freedom of association and 
speech. On one hand, it is possible that in Egypt there could be, for 
the short-term, an increased number of demonstrations with anti-
American undertones. Reform minded individuals and progressive groups 
seeking modernization and moderation could be discouraged in the short-
term from publishing their views in the media by pressures from 
fundamentalist voices. Civil society organizations, already restricted 
by the 2002 Law 84 that grants the Minister of Insurance and Social 
Affairs the authority to dissolve NGOs by decree, could be temporarily 
stifled, paralyzed from espousing any progressive or reform oriented 
platforms.
    On the other hand, the USG believes that freedom of association is 
defined too narrowly in the Egyptian context and needs to be broadened 
to include non-governmental organizations, the press, students, and 
professional associations. By increasing freedom of speech and 
association, this may encourage more reformist voices to participate 
and widen the space for political discourse. Through continuous 
dialogue in diplomatic channels and numerous USAID-funded programs, we 
encourage the GOE to encourage greater freedom of association and 
speech in the belief that this releases societal pressures and reduces 
the incidence of extremism.
                                 ______
                                 
               Question Submitted by Senator Mike DeWine

                                 HAITI

    Question. You are familiar with my bill, S. 2261, the Haiti 
Economic Recovery Opportunity Act of 2004. As you know, the bill is not 
a substitute for increased U.S. assistance, but rather a compliment. In 
a 2003 study, USAID concluded that the old version of the bill would 
have a dramatic impact on employment in Haiti, and the new bill goes 
even further in helping to ``grow jobs.'' Secretary Powell voiced his 
support of the bill while in Haiti, and again before this sub-
committee. Do you support the bill?
    Answer. I, along with Secretary Powell, support the Haiti Economic 
Recovery Opportunity Act of 2004. It is very important to help improve 
the economy of Haiti, the poorest country in the Western Hemisphere. 
This bill complements USAID's economic growth activities in Haiti.
                                 ______
                                 
            Questions Submitted by Senator Patrick J. Leahy

                        HUMANITARIAN ASSISTANCE

    Question. Mr. Natsios, there is nothing more basic to U.S. foreign 
aid than our humanitarian and development assistance programs. It is 
what the American people think of first, when they think of foreign 
aid.
    The President's has talked a lot about his commitment to combating 
world poverty. But, his fiscal year 2005 budget would make cuts in 
several key anti-poverty programs, including a $99 million cut in 
funding for international health programs and a $48 million cut in 
Development Assistance.
    I am sure this was an OMB decision and that you don't support these 
cuts. What effect will these cuts have, and how do you explain them 
given how hard we often have to work just to scrape together a million 
dollars here or there to keep good projects from shutting down?
    The Secretary of State has said that this budget represents a quote 
``commitment to humanitarian assistance.'' Given these--and other--
cuts, is that how it looks to you?
    Answer. As we all know, the United States is on a war-time footing 
and faces major budget challenges to meet the requirements of both 
homeland security and U.S. military defense needs overseas. But at the 
same time, foreign assistance is becoming a higher priority than it has 
been in many years, as evidenced by the President's additional funding 
requests for the Global HIV/AIDS Initiative (GHAI) and the Millennium 
Challenge Account (MCA).
    As I noted earlier in this hearing, the overall budget that USAID 
is currently managing also is much larger than it has been in many 
years. This increase is attributable to massive assistance efforts in 
Iraq and Afghanistan on top of maintenance of USAID's current 
portfolio. While there has been a slight decrease in USAID's 
traditional development accounts, we are already receiving some funds 
from the GHAI account, and additional transfers are likely. It is also 
anticipated that some USAID programs in countries that do not qualify 
for MCA programs (the threshold countries I mentioned in my opening 
remarks) may receive some MCA assistance to help them qualify later on. 
USAID will likely manage these programs, using MCA funds. USAID is very 
much on the front lines of major efforts to continue to assist those 
countries most in need, and I certainly agree with the Secretary's view 
that this budget reflects the Administration's commitment to maintain 
humanitarian assistance.

                               EDUCATION

    Question. Mr. Natsios, the President announced a new education 
initiative for Indonesia, a Muslim country where millions of students 
are enrolled in Islamic schools similar to the madrassas in Pakistan. 
This initiative calls for some $150 million over five years, or about 
$30 million per year. That, I am told, is enough to reach maybe 10 
percent of the students. In other words, we will be barely scratching 
the surface.
    If we are serious about this--and I support it--shouldn't we be 
spending amounts that will reach enough students to produce a real 
impact? And shouldn't we be doing the same thing in other predominantly 
Muslim countries?
    Answer. It is true that, in our program planning, USAID/Indonesia 
has estimated that activities funded under the $157 million, six year 
Indonesia Basic Education Initiative will improve the quality of 
education and learning for approximately four million students, or ten 
percent of the enrolled student population in our target group. The 
target population encompasses grades 1 to 9, or Indonesian primary 
school and junior secondary school. At the time the concept paper for 
the new education initiative was developed, USAID/Indonesia had 
proposed a $250 million, five year program. Clearly, additional 
resources would allow us to directly assist additional Indonesian 
students and teachers.
    We are, however, designing our education activities with an eye to 
replication at the local level, using Indonesian local government and 
central government resources. We are also working closely with a number 
of other international donors to agree on a more standardized 
``package'' of basic education approaches that can be extended to 
additional districts and students using other donor funding. In 
addition, we plan to work with a large number of Indonesian and 
international companies that have expressed an interest in supporting 
educational development, on a significant ``Indonesian Education 
Public-Private Alliance.'' Finally, we are working with the United 
States-Indonesia Society (USINDO) and the Indonesian Embassy in 
Washington to identify other potential partnerships.
    Through these innovative program approaches we seek to maximize the 
impact of the Indonesia Basic Education Initiative funded by the U.S. 
Government.

                 RECONCILIATION AND UNIVERSITY PROGRAMS

    Question. Mr. Natsios, I want to commend USAID for the way it is 
responding to our concerns about the need for a designated pot of 
money, with a designated person to manage it, to fund reconciliation 
programs and university programs. Both are strongly supported up here, 
and we need to be sure that universities and organizations that submit 
unsolicited proposals will not get lost in the bureaucracy down there.
    On the reconciliation programs, although most organizations that we 
know of are working in the Middle East--like the Arava Institute for 
Environment Studies--this is intended to be a worldwide program. We 
want to encourage organizations in places like Cote D'Ivoire, Colombia, 
and other conflict areas to participate, not only in the Middle East. 
And ideally, we would like to see a request in the President's fiscal 
year 2006 budget for these activities. So I appreciate your support and 
would welcome your thoughts on this.
    Answer. USAID's Office of Conflict Management and Mitigation (CMM) 
has been working closely with the State Department to develop a 
transparent, competitive process for the allocation of $8 million in 
the fiscal year 2004 Economic Support Fund earmarked for reconciliation 
programs. Several weeks ago both State and CMM staff briefed 
Congressional staff on progress in that regard.
    We intend to focus on critical countries representing all the 
regions of the world where we believe the provision of additional funds 
will have an impact. Country selection is based on a number of factors 
including a desire to assist reconciliation efforts among actors in 
countries currently experiencing conflict as well as those emerging 
from conflict. Proposals will be reviewed jointly by State and USAID on 
a competitive basis and judged against conflict criteria guidelines 
previously established by CMM.

                              USAID STAFF

    Question. Mr. Natsios, in my opinion, USAID does not have nearly 
enough staff, particularly in your field missions, to manage the number 
of contracts and grants you should be funding. Because of the shortage 
of staff, the trend has been in favor of big Washington contractors, 
which are not always the best qualified for the job. But they are the 
only ones capable of navigating the regulations for applying for 
contracts, which have become so burdensome and expensive that smaller 
contractors and NGOs can't compete. This is wrong, it has gone on for 
too long, and it has repercussions for everything USAID is trying to 
do.
    How many staff have you lost since the mid 1990s, and how can we do 
the job that needs to be done if you don't have the people to do it? 
Are you requesting the budget you need to support the staff you need?
    What are you doing to make it easier for smaller NGOs and 
contractors to compete?
    Answer. In 1990, USAID had 3,262 U.S. direct hire staff (USDH). We 
now have just under 2,000. Many believe that we compensated for the 
loss of staff in the 1996 reduction in force (RIF) by hiring U.S. 
personal services contractors (USPSCs) and Foreign Service Nationals 
(FSNs). This is not accurate. FSN staff declined from 5,200 to 4,725 
from 1996 to 2002, while USPSC staff increased slightly from 591 to 628 
in the same period.
    In fiscal year 2004, to begin recouping the loss of staff during 
the 1990's, the Administration requested Congressional support for the 
USAID Development Readiness Initiative. Built on the same concept as 
the Secretary's Diplomatic Readiness Initiative for the Department of 
State, USAID is seeking to increase its baseline staff from 2,000 USDH 
to approximately 2,500 over a four year period. In fiscal year 2004, 
USAID received adequate funding to hire approximately 50 additional 
people above attrition. This will allow us to fill long standing field 
vacancies, allow more in-service training and respond to new program 
requirements such as the President's AIDS initiative and new programs 
in Iraq, Afghanistan, and Sudan.
    In 1995, prior to the RIF, USAID moved less than half the dollars 
we obligated last year with over 170 people in the Office of 
Procurement. Today we have 123 people to handle the funding increases 
associated with Iraq, Afghanistan, and now HIV/AIDS. In order to handle 
this workload while we rebuild our staff, we have been forced to award 
larger contracts and grants. We have also set the funding levels very 
high on our Indefinite Quantity Contracts (IQC) to allow for more 
flexibility. Without appropriate staffing to administer the contracts, 
the Agency is concerned about proper oversight of the awarded 
contracts. USAID consequently needs the planned increase in procurement 
staff to adequately handle the funding increases associated with 
Administration priorities.
    At the same time, USAID is attempting to meet the President's 
directive against bundling contracts and the increased subcontracting 
goals from the Small Business Administration. USAID has expanded its 
use of small business set-asides for IQC contracts and expanded its 
evaluation criteria to emphasize the importance of subcontracting 
requirements. For example, under USAID's Iraq Phase II Infrastructure 
award, the solicitation document included an incentive fee for firms 
that propose subcontracting opportunities with small businesses beyond 
the Coalition Provisional Authority (CPA) minimum goal of 10 percent. 
In addition, USAID proposed an incentive award payment of $1 million to 
any prime contractor exceeding 12 percent of all subcontracted dollars 
to small, disadvantaged, woman-owned or disabled veteran-owned 
businesses. This incentive for prime companies to incorporate small 
business into their sub-contracting plans is a first for USAID. While 
not the typical set-aside procedure found in private sector practices, 
we feel this is a major step toward encouraging prime contractors to 
engage U.S. small businesses at a broader and more profitable tier, 
while providing essential exposure to greater opportunities.
    USAID's Office of Small and Disadvantaged Business Utilization 
(OSDBU) has also pioneered efforts to reach the small business 
community. In the fall of 2003, a Procurement Forecast was published to 
assist small businesses with anticipating Agency contracting 
opportunities for up to one year in advance. OSDBU also has a 
publication, ``Creating Opportunities for Small Business,'' available 
in booklet and ``mini-CD,'' which provides both an overview of doing 
business and hyperlinks to useful sites both within USAID and 
throughout government. OSDBU also hosts small, monthly sessions where 
small businesses can meet with and learn about upcoming business 
opportunities from a broad range of the Agency's skilled technical 
officers.

                                COLOMBIA

    Question. Mr. Natsios, in your prepared testimony, you mention 
Colombia, and that the, quote, ``only effective strategy is to 
literally clear the ground for the licit crops that will feed the 
nation while aggressively pursuing eradication of the others.'' 
Unquote.
    We are spending hundreds of millions of dollars each year to spray 
herbicide to destroy the coca. But the amount we are spending to help 
communities in these areas with alternative sources of income is 
woefully inadequate. The work USAID is doing is excellent, but it 
barely scratches the surface. Isn't this strategy doomed to fail, if we 
don't provide the resources to give people the means to survive without 
growing coca?
    Answer. Thank you for recognizing USAID's efforts. Colombia's 
problems are extremely complex and require a combination of ``hard'' 
and ``soft'' assistance. Military and police assistance is crucial 
because insecurity, lawlessness, and lack of state presence are at the 
heart of Colombia's problems. Military and police assistance create a 
positive security environment that is necessary for effective 
implementation of ``soft'' assistance like economic development, 
institutional reform, anticorruption, human rights, access to justice 
and humanitarian relief, trade, and private sector support to increase 
legal employment and incomes. But a program composed of only ``hard'' 
assistance cannot succeed. USAID's ``soft'' assistance programs are 
essential complements to the military and police assistance programs, 
and are needed to make gains from the ``hard'' activities permanent. 
``Soft'' developmental programs leave behind legal production systems 
and improved institutions at all levels which earn the trust and 
confidence of citizens and show them that they can work together to 
solve problems. Perhaps most importantly, soft side activities 
demonstrate that there is a legal way to survive and that citizens do 
not have to be part of a criminal organization that brings violence and 
insecurity into their communities and into their homes.

                           POPULATION GROWTH

    Question. Mr. Natsios, about 95 percent of world population growth 
is now occurring in the developing world. It is one of the defining 
characteristics of underdevelopment, and a key cause of political 
instability and economic stagnation in many countries. Shouldn't we be 
spending more on international family planning to slow population 
growth so that these underdeveloped economies have a chance to grow?
    Answer. In each year of the Bush Administration, the Agency has 
requested $425 million for population and reproductive health. The 
request level is $40 million higher than the appropriated levels in 
each of the preceding five years, which ranged from $356 to $385 
million.
    USAID has also has taken steps to be more strategic in allocating 
funding across countries. Beginning this year, population and 
reproductive health funds from the Child Survival and Health Account 
have been allocated according to criteria that emphasize need, taking 
into account population size and density, fertility, and indications of 
unmet need for family planning. By directing resources to countries 
with greater need--principally countries in Africa, Near East and South 
Asia--our funds can go further and have greater impact.
    As I stated in my remarks before the Senate Foreign Operations 
Subcommittee in April, the combination of a high concentration of young 
people, especially young men, with high rates of unemployment creates 
the conditions that foster political instability. USAID assistance for 
improving health, including family planning, combined with 
interventions that expand economic opportunity can help alleviate these 
conditions and bring greater stability to the developing world.

                   COORDINATION OF FOREIGN ASSISTANCE

    Question. Mr. Natsios, in your opening statement, you mentioned 
that ``development'' has been elevated as a third part of the 
President's national security strategy. I agree that development is 
important, but as the old saying goes, actions speak louder than words. 
I am concerned that the Administration's policies have undermined the 
ability to effectively coordinate foreign assistance by creating all 
sorts of new entities and initiatives. Let me give you some examples:
  --The Millennium Challenge Account, a new independent agency, will 
        eventually provide $15 billion in foreign aid.
  --The Coalition Provisional Authority, a Defense Department entity, 
        is administering, as you point out in your statement, the 
        largest foreign assistance program since the Marshall Plan.
  --A new AIDS Coordinator, whose physical offices are not even located 
        within either the State Department or USAID, will be in charge 
        of $15 billion.
    These are just the ones that I can remember.
    Has the proliferation of new entities and initiatives--all of 
varying autonomy and reporting to different agencies--undermined our 
ability to effectively coordinate foreign aid programs?
    Answer. With the greater understanding of the importance of 
development, as well as the increase in resources being devoted to 
development, it is not surprising that there are more actors involved 
in foreign aid today than there have been in the past. We are living in 
a more complex era and face a much broader range of challenges than we 
have in earlier years. We are very closely involved, either as 
implementers or in other capacities, of all the new foreign aid 
initiatives you cite, and believe USAID has a valuable role to play in 
helping to coordinate these initiatives.
    USAID has developed a very close working relationship with the 
entities you mention, and looks forward to coordinating efforts with 
various implementing partners. In the case of the Millennium Challenge 
Corporation, as a Board Member I will be directly involved in 
overseeing its operations. USAID is currently working closely with the 
MCC staff to develop a strong institutional linkage both in the United 
States and in the field.

                            SECURITY IN IRAQ

    Question. Mr. Natsios, when Congress was debating the Iraq 
supplemental last October, Ambassador Bremer stated that reconstruction 
efforts directly affect the safety of our troops. News reports indicate 
that the latest violence in Iraq has seriously hampered reconstruction 
efforts. Perhaps the best evidence of this is that only \1/9\ of the 
funds from the Iraq supplemental, passed 6 months ago, has been 
obligated and I suspect that far less than that has been actually 
expended. How seriously is the violence in Iraq impeding reconstruction 
efforts? Is this slow down in the reconstruction threatening the safety 
of our troops, as Ambassador Bremer suggested last fall?
    As we all know, USAID, as well as the Defense Department, relies 
heavily on contractors and NGOs to implement many of its programs. We 
all saw the tragic events in Falluja where American contractors were 
brutally murdered, leading to the standoff in that town. Isn't a major 
part of the problem in Iraq that the CPA cannot provide security for 
many contractors there? What is being done to improve the ability of 
contractors and NGOs to operate in Iraq?
    Answer. USAID has strict security guidelines for its staff and 
technical experts, and these guidelines have served us well. USAID's 
security officers coordinate daily with the security advisors of all of 
its implementing partners to ensure everyone has the most up-to-date 
information on the security environment to inform program decisions.
    Our work in Iraq has not stopped, despite the recent violence in 
some areas of Iraq. Where it is safe, our expatriates are on the job, 
and in almost every area, our Iraqi assistance staff is still working 
with their counterparts. Where the situation is unsafe, we have 
temporarily relocated some of our expatriate staff.
                                 ______
                                 
            Questions Submitted by Senator Richard J. Durbin

                               TERRORISM

    Question. Many have argued that especially since September 11, 
USAID needs to ensure that development assistance activities more 
directly complement the global war on terrorism. Through a variety of 
activities--basic education, health care, agriculture, expanding 
opportunities for women, job creation, micro-enterprise, promoting the 
rule of law--the United States can help counter conditions that give 
rise to terrorism. These programs and others like them have been core 
USAID priorities for many years, long before the terrorist attacks in 
the United States.
  --Given the requirement to augment American efforts to combat the 
        threat of terrorism, what changes have you made in designing 
        and implementing these activities so that they are more 
        effective in the fight against terrorism?
  --Is this a matter of simply spending more money on these critical 
        activities, or should the programs themselves be re-tooled and 
        re-focused in order to achieve the intended results?
  --What indicators will you most closely monitor in order to assess 
        the impact of development assistance and its contribution to 
        combating terrorism?
    Answer. The War on Terrorism has sharpened the focus of our 
development assistance programs. In addition to addressing the social 
and economic needs of countries which combat terrorism in the long 
term, USAID is also working with other U.S. government agencies to 
target our assistance on specific short-term programs in three areas: 
denying terrorist access to new recruits, funds, and sanctuary.
    To counter terrorist recruiting we are doing three things. First, 
in communities that have radical Islamic schools, we are supporting 
secular and moderate madrassas that provide an attractive alternative 
to radical schools. Second, we follow up with skills training for youth 
that gives them an opportunity for employment and a viable alternative 
to going to the terrorist training camps. Third, we couple this 
training with small enterprise development programs to provide 
employment and allow youth to make a legitimate contribution to their 
communities.
    USAID also supports programs aimed at denying terrorists resources, 
primarily from money laundering activities. To shut down this illegal 
flow of funds, USAID has provided hardware and technical assistance to 
the Financial Intelligence Units (FIU) of Central Banks in key 
financial hubs to prevent suspicious transactions that lead to money 
laundering operations. We have approved support to the Palestinian 
Monetary Authority to help set up their FIU with the intent of stopping 
the flow of illegal funds into the West Bank/Gaza region. We have 
supported similar programs in Indonesia and the Philippines. In 
conjunction with the support of the FIU we have enhanced our technical 
support for bank supervisors to focus on these same crimes.
    A third area of programs aims at denying sanctuary to terrorist 
training operations. USAID is working to strengthen weak governmental 
structures that might be prime targets for terrorists, as in 
Afghanistan where we have focused our assistance through the interim 
government to establish a stable national government. People need to 
have confidence that the government will provide the public services 
needed to recover, such as schools where children will not be subject 
to terrorist indoctrination and refugee resettlement and repatriation 
programs that will not be breeding ground for terrorists. To counter 
their attempts to use Muslim communities with weak governmental 
institutions as training camps, we target these communities for 
institutional reform programs for both government and NGOs.
    To monitor the impact of our counter-terrorism and development 
programs, we will use our normal performance indicators with specific 
additions tailored to counter-terrorism objectives. For instance, we 
will pay particular attention to high risk areas, such as closely 
monitoring the number of new students in secular or legitimate 
madrassas. We will also monitor attendance in skills training programs 
and the increase in employment in vulnerable sections of critical 
countries. In financial institutions, we will monitor the number of 
suspicious transactions investigated by the FIUs. We are also closely 
tracking the number of countries that implement counter terrorism laws 
and anti-money laundering laws. These and other indicators will provide 
a clear signal on the effectiveness of these counter terrorism 
programs.
    Question. Substantial sums of foreign aid resources are being 
directed at the so-called ``front-line'' states in the war on 
terrorism. With the exception of HIV/AIDS resources (which I support), 
funding for most other development aid activities in USAID's fiscal 
year 2005 budget proposal is either flat or reduced when compared with 
fiscal year 2004 budget levels.
  --Are you concerned that development priorities in countries not 
        directly related to counter-terrorism goals are being short-
        changed?
  --Some argue that unless a country is a strategic partner in the war 
        on terrorism or has a severe health crisis, the fiscal year 
        2005 foreign aid budget neglects them, even if assistance might 
        meet other important U.S. foreign aid objectives. How do you 
        respond to this criticism?
    Answer. What does an anti-terrorism program look like in a 
developing country? In addressing the root causes of terrorism, it 
would focus on developing respect for rule of law, through transparent 
and non corrupt practices; cutting off funding sources for terrorists 
by criminalizing money-laundering and prosecuting the offenders; 
providing options for legitimate ways for citizens to earn a living 
without fear of extortion; expanding education opportunities to reach 
the most disenfranchised groups to build hope for their own 
development; and building democracy and accountability within all 
elements of society. Not coincidentally, such programs also reflect the 
focus of USAID's development goals.
    Since its inception, USAID has been at the forefront of 
implementing programs that address the root causes of terrorism. While 
funding since September 11, 2001, has become more targeted with regard 
to correlating our programs with counter-terrorism programs, the nature 
of our work has not changed dramatically. Terrorist groups prey on the 
poor and weak countries as training grounds for their operations in 
other countries. USAID has both experience and expertise in developing 
effective programs to improve livelihoods of citizens in poor and weak 
countries, thereby eliminating the underlying conditions terrorist look 
to exploit. In this way, the goals of counter-terrorism and the goals 
of USAID are closely aligned and reinforce our national security goals.
    With the reality of funding constraints, allocation decisions are 
always a challenge. Thanks to the heightened emphasis the present 
Administration has placed on development as the third pillar of foreign 
policy, USAID has been able to expand its programs into countries of 
strategic importance to U.S. foreign policy. This expansion has come in 
addition to, rather than in replacement of, on-going programs in other 
needy countries.
    Question. In terms of the terrorist attacks that we have seen in 
recent months, the connection between failed states and the roots of 
terrorism appears to be more indirect than we used to believe. Instead 
of operatives coming out of places like Sudan and Afghanistan, for 
example, we seem to be witnessing the emergence of local terrorist 
organizations in states like Turkey and Spain taking up the goals or 
ideology of Al Qaeda.
  --How do you use foreign aid to fight an ideology that emerges in a 
        relatively wealthy state?
  --With this emerging successor generation of Al Qaeda-associated 
        operatives, from the perspective of counterterrorism, are we 
        missing the point in directing our resources toward so-called 
        front-line states? Where exactly is the ``front line''?
    Answer. The terrorist groups are primarily using poor and weak 
countries as training grounds for operations in other countries. 
Current terrorist groups have been able to link radical Islamic 
rhetoric with retribution for alleged grievances as a justification for 
violence. To win the ``war of ideas'' this linkage has to be broken and 
replaced with confidence in the law as a means to resolve grievances. 
USAID uses foreign aid to work on two fronts to achieve this objective. 
First, our Muslim Outreach and other democracy programs reinforce the 
principles of religious freedom and democratic governance, whether in 
``relatively wealthy'' or poor states. Secondly, we continue to 
encourage weak states to build stronger and more responsive 
institutions on the foundation of the rule-of-law. As one example, in 
response to terrorists' use of legitimate charities for funds, we are 
working to develop and pass anti-money laundering laws, detection by 
bank examiners, and the prosecution for these financial crimes through 
the courts. In addition, there are numerous other USG agencies with 
active counter-terrorism programs working in countries, particularly in 
the Middle East, where USAID does not have a presence.
    Front line countries are those countries easily exploited by 
terrorists, either for operational bases or for laundering money. The 
new generation of terrorists, regardless of where they come from, will 
continue to look for bases of operations, communication, and for 
financing. It is in these front line countries where we have the best 
chance of defeating terrorism.
    Question. What specifically would you say has been the effect of 
the war in Iraq on the roots of terrorism in the Middle East?
    In what demonstrable way is foreign aid to Iraq reducing the 
terrorist threat against the United States and its allies?
    Answer. The UNDP's ``2003 Arab Human Development'' Report 
identified lack of education and economic opportunities and a generally 
repressive environment as causes of the sense of hopelessness that 
leads to terrorism. The war in Iraq has overthrown an oppressive 
regime, enabling for the first time in decades citizens to have a 
greater voice in public dialogue, and participate more freely in 
political processes. Schools have been rehabilitated, allowing more 
children, especially girls, to return to school. In addition, over 
30,000 teachers have been trained in new teaching methods that enhance 
tolerance and respect for diversity in the classroom. Tens of thousands 
of jobs have been created for Iraqis, and extensive progress has been 
made in strengthening local government and the delivery of essential 
services to the local level.
    Lack of educational and economic opportunities and a generally 
repressive environment are major causes of the sense of hopelessness 
and disenfranchisement that leads to terrorism. Ill-educated, 
unemployed youth are a major demographic group in the Middle East and 
they provide a fertile field for terror groups. The solution is to 
provide the guidance and resources necessary to develop an educational 
system that gives a graduate the appropriate skills (including computer 
training) to be gainfully employed. Assistance to small and micro 
enterprises, including micro-credit, is crucial as small businesses 
provide a key opportunity for employment. A business-friendly policy 
environment must be developed to encourage foreign investment and 
expedite the development of local industries. In addition, democratic 
practices need to be supported, providing citizens with the opportunity 
to hold government officials accountable and to participate directly in 
the decision-making processes that affect their daily lives. All these 
are development activities that must be provided in order to reduce the 
growing terrorist threat.
    Question. If terrorists are increasingly using advanced 
technologies like the Internet to do such things as coordinate 
operations, find information about weapons of mass destruction, and 
recruit members, how are we ensuring that we provide foreign aid in 
such a way that we avoid enabling members of terrorist organizations to 
be more effective?
    Answer. Modern technology allows terrorists to plan and operate 
worldwide from the shadows. The Bali bombing was planned in Malaysia, 
and the explosives were purchased in the Philippines with funds 
siphoned off Islamic charities in the Middle East. This was all handled 
thought the internet. Today's terrorists are smart, technologically 
sophisticated, and linked worldwide.
    To beat these terrorists we must be smarter, more computer wise and 
better linked than they are. We must use technology to close-off their 
operating space, to push them out of the shadows. We are doing this by 
sharing data among nations, by equipping our partners with IT equipment 
that works together, and being on top of information that can lead to 
terrorist plots. As one example, USAID is currently working with 
Central Banks in several countries to spot money laundering activities, 
by providing the computer equipment so Bank Financial Intelligent Units 
can process suspicious transaction reports quickly, identify who is 
conducting financial crimes, and build the body of evidence necessary 
for conviction.
    Terrorist are quick to convey information from one country to 
another through modern communications. The law enforcement community is 
getting even better and faster at communicating information, using 
detection techniques, and connecting terrorist data bases. USAID is 
working with the newly established, Terrorist Threat Integration 
Center, which acts as a hub for information provided by all sources on 
terrorist activities, known or suspected terrorist individuals or 
organizations, and other related data---even the most remote data. This 
allows all the different organizations to have instant, on-line access 
to the most recent information on the terrorist activities.

                            MICROENTERPRISE

    Question. USAID has been a global leader in the area of 
microenterprise, but we need to coordinate our efforts with other major 
players--particularly the World Bank and the United Nations Development 
Program (UNDP). The Microenterprise for Self Reliance Act of 2000 
directs the administrator of USAID to ``seek to support and strengthen 
the effectiveness of microfinance activities in the United Nations 
agencies, such as the UNDP, which have provided key leadership in 
developing the microenterprise sector.''
  --What steps have you taken to strengthen the effectiveness of 
        microfinance activities in the UNDP?
    Answer. USAID and UNDP are both active members of the Consultative 
Group to Assist the Poor (CGAP), the 28-donor coordinating body for 
microfinance. USAID financial and technical support has strengthened 
donors including UNDP in a number of ways. Over the past 18 months, for 
example, CGAP has coordinated a ``peer review'' process to increase aid 
effectiveness in microfinance. Seventeen donors, including USAID and 
UNDP, have been assessed through this process. In each case, the peer 
review team has identified very specific areas for improvement and has 
proposed steps to strengthen the strategic clarity, staffing, 
instruments, knowledge management, and accountability of the 
microfinance activities of the agency being reviewed. The findings have 
been shared with other donors. UNDP has taken a number of concrete 
steps to respond to the findings, and Mark Malloch Brown, Administrator 
of UNDP, provides leadership to the microfinance peer review 
initiative.
    USAID has also worked with other CGAP members to develop stronger 
donor practices, including the recent drafting of core principles for 
microfinance that we expect to be endorsed by all CGAP members. At the 
last annual meeting, the CGAP member donors endorsed new requirements 
for membership, including comprehensive reporting of microfinance 
activities and results. We have also used CGAP to collaborate on 
developing new tools for microfinance donors, such as common 
performance measures. USAID, UNDP and CGAP took the lead in developing 
specialized microfinance training for donor staff, and many staff from 
UNDP and other donors have benefited from the week-long course.
    USAID also takes responsibility for developing knowledge and ``how-
to'' materials in specific areas, such as post-conflict microfinance 
and rural and agricultural finance. We invite participation from other 
donors in this work. Next month, for example, we will convene a donor 
forum on recent innovations in rural finance and their implications for 
the donor community. UNDP will, of course, be invited to participate. 
Finally, in the field USAID is often involved with UNDP in in-country 
donor coordination efforts in the microfinance arena.
    Question. I am concerned that the UNDP has not joined USAID's 
efforts (required by Public Law 108-31) to develop cost-effective 
poverty-assessment tools to identify the very poor--those with an 
annual income 50 percent or more below the poverty line as established 
by the government of their country--and to ensure that substantial 
microenterprise resources are directed to them.
  --Will you work with Congress to encourage UNDP to expand its 
        microenterprise efforts for the very poor and to use the 
        poverty measurement methods that USAID is developing so that we 
        can be sure that these funds are reaching the people who need 
        them the most?
  --What specific efforts do you believe will be effective in 
        convincing UNDP representatives of the importance of targeting 
        to the very poor?
    Answer. USAID has invited the Consultative Group to Assist the 
Poor's (CGAP) technical and financial collaboration in developing the 
poverty assessment tools, as a means to ensure that the broader donor 
community is aware of and involved in this important work. An ambitious 
work plan is underway to have the tools designed, field-tested and 
ready for implementation by USAID in October 2005. Over the coming 
year, we will be testing preliminary tools in the field with diverse 
partners. This should begin to provide evidence of the value and 
practicality of the USAID tools for other donors. We would welcome 
closer involvement of UNDP and other donors in this work, through CGAP 
or directly. We expect that the tools will prove sufficiently valuable 
and cost-effective to suggest ways for donors and practitioners to 
better serve very poor clients.

                        BASIC EDUCATION FUNDING

    Question. Mr. Natsios, last December, 18 Senators and 63 Members of 
the House wrote to the President urging him to use the G-8 Summit this 
June as a venue to launch a significant U.S. initiative on basic 
education and galvanize the world community to achieve the goal of 
education for all by 2015. Basic education is important to our 
strategic and developmental interests around the world. Our National 
Security Strategy recognizes the link between poor education and 
reduced security. Unfortunately, the Administration's budget request 
would cut basic education support by $26 million under Development 
Assistance.
  --Can you explain the proposed funding cut for basic education in 
        light of our strategic objectives?
    Answer. Education is a priority issue for this administration; it 
is an important long-term investment in sustaining democracies, 
improving health, increasing per capita income and conserving the 
environment. Economic growth in developing countries requires creating 
a skilled workforce. President Bush has helped to give education a 
strong profile in the G8 in recent years, and work is being carried 
forward actively both multilaterally and bilaterally. We are working 
internationally to support countries' efforts to improve their 
education programs and to produce measurable results on enrollment and 
educational achievement.
    Since the submission of the USAID fiscal year 2005 Congressional 
Budget Justification, projections on basic education levels have 
changed somewhat for both fiscal year 2004 and fiscal year 2005. While 
there is a $22 million reduction in Basic Education funded by the 
Development Assistance (DA) account from fiscal year 2004 to fiscal 
year 2005 (from $234 million to $212 million), the currently projected 
total for basic education from all accounts for each of fiscal year 
2004 and fiscal year 2005 is $334 million. The Administration intends 
to continue to maintain its strong interests in this area. In fact, the 
U.S. support for basic education from all accounts has more than 
doubled from fiscal year 2001 to fiscal year 2004, in recognition of 
its importance to giving people the tools to take part in free and 
prosperous societies.

                          COMBATTING HIV/AIDS

    Question. There is strong evidence that keeping children in 
school--especially girls who are much more susceptible to the AIDS 
virus--reduces the chance that they will become infected. A World Bank 
study reports that in Zimbabwe, girls who received primary and some 
secondary education had lower HIV infection rates--a trend that 
extended into early adulthood. In Swaziland, 70 percent of secondary 
school age adolescents attending school are not sexually active, while 
70 percent of out-of-school youth in the same age group are sexually 
active. Despite this, the focus has been on using schools as a venue 
for teaching about AIDS, rather than recognizing education as part of 
the fight against AIDS. I am pleased to see the Administration's 
recognition of the importance of education for AIDS orphans and 
vulnerable children, but given the value of education as the only 
vaccine against AIDS that we currently have:
  --Shouldn't the United States have a coordinated strategy on basic 
        education and HIV/AIDS prevention?
    Answer. Basic education is a priority for the U.S. Agency for 
International Development. It is the linchpin for success in many of 
our development activities, including family planning, child health and 
HIV/AIDS.
    In order to be successful in the fight against HIV/AIDS, it is 
essential that we wrap all of our development programs around HIV/AIDS 
programs. One of the first things I did when I became administrator of 
USAID was to issue a cable urging all of our missions to do this. While 
USAID has a large HIV/AIDS prevention program, we also have programs in 
education, agriculture and other sectors. Our missions have been 
working to integrate AIDS prevention messages into all of the other 
sectors.
    Question. Funds from many sources are now available to implement 
both treatment and prevention programs to combat AIDS, TB, and Malaria. 
The influx of funds is still not commensurate with the extent of the 
problem, but the increase in partners is welcome and needed. I would 
like a clarification of how USAID is making sure its work is 
complementary to that of the President's Emergency Plan for AIDS, 
Relief (PEPFAR), the Global Fund to Fight AIDS, Tuberculosis and 
Malaria (Global Fund), the WHO 35 Initiative, the World Bank, and 
other programs during the scale-up that is occurring on the ground.
  --How are staff coordinating on the ground with other donors?
  --What are you doing to improve the effectiveness of USAID and other 
        donor programs?
  --I envision a sea of paperwork for a country with 30-40 different 
        donors. What procedures have you put in place to limit 
        transaction costs and improve efficiencies relative to other 
        donors?
    Answer. On April 25, the U.S. Government convened a meeting, along 
with UNAIDS and the United Kingdom, to address this very topic. The 
meeting ended with a pledge that countries will have one agreed HIV/
AIDS Action Framework that provides the basis for coordinating the work 
of all partners; one national AIDS authority, with a broad-based 
multisectoral mandate; and one agreed country-level monitoring and 
evaluation system.
    These principles will allow donors to achieve the most effective 
and efficient use of resources, and to ensure rapid action and results-
based management.
    This is a goal that USAID has been working toward for long time. 
USAID staff have been participating for several years in a working 
group with many other international donors to set up standardized 
monitoring and evaluation indicators used by all donors.
    Question. In a press release of April 13, 2004, USAID announced the 
first round of grants made under the President's Emergency Plan for 
AIDS Relief (PEPFAR) with fiscal year 2004 funding. Five grants were 
announced for projects in just some of the 14 countries eligible for 
PEPFAR funding, totaling less than $35 million. Only three of these 
grants--totaling just $18 million were directed to Orphans and 
Vulnerable Children (OVC) programs. Not one of these grants exceeded $7 
million, even though all were for efforts in multiple countries. Given 
the magnitude of the orphan problem, and the grave consequences it has 
for the children, their families and communities, and for their 
countries, these efforts seems far too tentative and too limited, far 
smaller than the effort anticipated by Congress in allocating 10 
percent of fiscal year 2004 HIV/AIDS funds for OVC programs.
    While I compliment USAID for recognizing the importance of OVC 
programs in assuring the long-term economic and social development of 
poor countries, I am concerned that our financial support to date is 
too limited to effectively address the needs of the rapidly growing 
numbers of orphans and other children affected by AIDS.
  --Can you tell me how much of the fiscal year 2004 appropriation for 
        HIV/AIDS has in fact been committed to date for this purpose 
        and how much will be committed in fiscal year 2005?
  --Can you assure me that fully 10 percent of the 2004 appropriations 
        will be dedicated to this critical problem and that funding for 
        OVC programs will expand significantly from what appears to be 
        a slow and tentative beginning?
    Answer. In fiscal year 2004, the U.S. Government has allocated $50 
million, or 6 percent of the HIV/AIDS budget, to programs for orphans 
and vulnerable children. Levels for fiscal year 2005 are not available 
at this point.
    USAID has recognized the importance of funding programs to support 
children affected by AIDS for the past few years. Our programs in this 
area are beginning to grow significantly under the President's 
Emergency Plan for AIDS Relief. As you mentioned, grants for orphans 
and vulnerable children were some of the first announced under the 
Emergency Plan. These grants will provide resources to assist in the 
care of about 60,000 additional orphans in the Emergency Plan's 14 
focus countries in Africa and the Caribbean. Approaches to care 
services will include providing critical social services, scaling up 
basic community-care packages of preventive treatment and safe water, 
as well as HIV/AIDS prevention education.
    Prior to the implementation of the Emergency Plan, as of six months 
ago, USAID was funding 99 programs in 25 countries to specifically 
respond to the unique issues facing children affected by AIDS. In 
addition, USAID funds a consortium of groups who are working together 
as the ``Hope for Africa's Children Initiative.''
    Question. The HIV/AIDS pandemic has had an enormous impact on the 
world's youth. To date, 13-14 million children have been orphaned by 
AIDS, and that number is expected to reach more than 25 million by 
2010. This virtual tsunami' of orphans in sub-Saharan Africa will 
spread to new countries in Africa and to Asia as death rates from AIDS 
rise in those regions.
  --Within PEPFAR and other programs, what are you currently doing to 
        scale up efforts regarding AIDS treatment, health care and 
        getting these children into school?
    Answer. Under the President's Emergency Plan for AIDS Relief, 
caring for children affected by AIDS is one of the top priorities. 
While USAID has been working in this area for several years, we have 
recently been able to significantly scale-up our programs. We recently 
entered into agreements with the World Food Program and a consortium of 
organizations called ``Hope for Africa's Children Initiative'' to 
address issue specific to children affected by AIDS.
    In addition, the first round of grants USAID gave under the 
Emergency Plan were aimed at orphans and youth. Grants were given to 
five organizations for their work in 14 Emergency Plan focus countries 
to support children affected by AIDS and for abstinence and behavior 
change prevention programs targeted at youth.
    These grants will provide resources to assist in the care of about 
60,000 additional orphans in the Plan's 14 focus countries in Africa 
and the Caribbean. In addition, prevention through abstinence messages 
will reach about 500,000 additional young people in the Plan's 14 focus 
countries through programs like World Relief and the American Red 
Cross's Together We Can. USAID country missions also will receive 
additional dollars for orphans and youth upon the award of the 
remainder of the fiscal year 2004 President's Emergency Plan dollars.
    Question. The President's initiative on global AIDS includes a 
commitment to put two million people on life-saving antiretroviral 
treatment.
  --How many AIDS patients within all of our AIDS efforts are currently 
        under treatment?
  --How many mothers have actually received treatment to reduce mother-
        to-child transmission?
  --What is USAID doing to scale up the numbers treated through your 
        agency in the coming year?
    Answer. Treating two million people living with HIV/AIDS is the 
cornerstone of the President's Emergency Plan for AIDS Relief. With the 
first round of funds, an additional 50,000 people living with HIV/AIDS 
in the 14 focus countries will begin to receive anti-retroviral 
treatment, which will nearly double the number of people who are 
currently receiving treatment in all of sub-Saharan Africa. Today, 
activities have been approved for anti-retroviral (ARV) treatment in 
Kenya, Nigeria, and Zambia, and patients are receiving treatment in 
South Africa and Uganda because of the Emergency Plan.
    The first complete set of counts of patients served will be sent by 
U.S. Government country missions to headquarters early next Fall. As of 
March 31, 659,500 women have received services at ante-natal clinics 
with 76,000 women receiving a complete course of ARV prophylaxis to 
prevent mother-to-child transmission.
    USAID is working in a variety of ways to scale-up the numbers of 
people receiving ARV treatment. For example, we help developing 
countries establish effective and efficient supply chains, as a 
continuous, reliable flow of commodities is essential to ARV treatment. 
We also provide funding to ensure that health systems within developing 
countries are available to implement treatment programs.

                              TUBERCULOSIS

    Question. Tuberculosis is the greatest curable infectious killer on 
the planet and the biggest killer of people with HIV. Treating TB in 
people with HIV can extend their lives from weeks to years. I am very 
concerned that the President's 2005 budget actually cuts TB and malaria 
funding by some $46 million. And the President's AIDS initiative fails 
to focus on expanding TB treatment as the most important thing we can 
do right now to keep people with AIDS alive and the best way to 
identify those with AIDS who are candidates for anti-retrovirals.
    I was just in India where TB is currently a far greater problem 
than HIV--though AIDS is rapidly catching up--and a new WHO report has 
shown that parts of the former Soviet Union and Eastern Europe have 
rates of dangerous drug resistant TB 10 times the global average. TB 
rates have skyrocketed in Africa in conjunction with HIV, yet only one 
in three people with HIV in Africa who are sick with TB even have 
access to basic life-saving TB treatment. The cuts in TB funding are 
short-sighted; TB efforts should be expanded. We are missing the boat 
on this issue--at our own risk.
  --Will you push to expand overall USAID funding to fight TB to our 
        fair share of the global effort? (The United States is 
        currently investing about $175M in TB from all sources 
        including our contribution to the Global Fund.)
  --Will you ensure that the USAID makes it a priority to expand access 
        to TB treatment for all HIV patients with TB and link TB 
        programs to voluntary counseling and testing for HIV?
    Answer. Outside of HIV/AIDS, tuberculosis (TB) and malaria are our 
top priorities for infectious diseases. USAID is the largest bilateral 
donor providing support to the global effort to fight TB. Our total 
fiscal year 2004 budget (all accounts) for TB programs worldwide is $82 
million. This level has increased dramatically over the last several 
years, from just over $20 million in 2000. In addition, as you mention, 
the Global Fund to Fight AIDS, TB and Malaria supports grants for TB, 
and the USG is the largest contributor.
    In the fiscal year 2005 budget, we did have to cut our request for 
infectious disease funding overall to stay within our budget 
parameters. We will do everything we can to protect our core TB 
programs. Overall in TB, our priority is to expand and strengthen 
implementation of the WHO recommended DOTS (Directly Observed 
Treatments Short-course) strategy--which is the best means for getting 
effective TB treatment to patients. In addition, USAID is supporting 
critical research to identify better diagnostic methods, better and 
shorter treatment regimens and new approaches to improve program 
performance.
    With regard to TB and HIV/AIDS, we would strongly agree with the 
points you raised on the critical importance of getting access to TB 
treatment to those infected by HIV/AIDS. USAID is a leader in 
expanding, strengthening and testing approaches to improve the care of 
patients co-infected with TB and HIV/AIDS. One of the criteria for 
selection of our priority countries for TB is the prevalence of HIV. As 
such, we are supporting TB programs in many countries that have a heavy 
burden of both diseases such as South Africa, Kenya, Uganda, Ethiopia, 
Nigeria, Cambodia, and Haiti, as well as in countries such as Russia 
and India where TB is a serious problem and where HIV/AIDS is on the 
rise. In these and other countries, we need to expand access to DOTS in 
the general population, since many co-infected patients seek TB care 
without even knowing their HIV status.
    In addition, USAID supports country-level activities that 
specifically address TB-HIV/AIDS co-infection in Ethiopia, South 
Africa, Kenya, Malawi, Mozambique, Tanzania, Uganda and Zambia. These 
activities use HIV counseling and testing as an entry point to a 
package of prevention, care and support for those patients with 
suspected TB and/or HIV/AIDS.
    USAID also supports operations research to test approaches to 
improve identification and care of patients co-infected with TB and 
HIV/AIDS.
    Finally, TB technical advisors participated in the review of 
country plans to the President's Emergency Plan for AIDS Relief. While 
finalization of these plans is pending, TB-HIV/AIDS co-infection was 
particularly emphasized in the plans for Ethiopia, Mozambique, Nigeria, 
Tanzania, Rwanda, and South Africa.

                         FEMALE GENITAL CUTTING

    Question. It is my understanding that USAID is developing a 
strategy for eliminating female genital cutting around the world. I 
would like to call to your attention the work of the group Tostan in 
Senegal, which has impressed observers by inspiring the mass 
abandonment of female genital cutting in more than 1,200 villages since 
1997. This kind of extraordinary progress should be encouraged.
  --What is the timetable for the completion of USAID's strategy?
  --What is the likely role of multi-dimensional programs such as 
        Tostan in that strategy?
  --What is your sense of whether it might be possible to begin 
        supporting effective programs such as Tostan even before the 
        strategy is completed?
    Answer. USAID will complete its FGC Abandonment Strategy and 
implementation plan by early summer 2004.
    Programs such as Tostan are currently integral to USAID's work.
    USAID incorporated eradication of FGC into its development agenda 
and adopted a policy on FGC in September 2000. To integrate this policy 
into programs and strategies, USAID:
  --Supports efforts by indigenous NGOs, women's groups, community 
        leaders, and faith-based groups to develop eradication 
        activities that are culturally appropriate and that reach men 
        and boys as well as women and girls.
  --Works in partnership with indigenous groups at the community level, 
        as well as with global and national policymakers, to reduce 
        demand by promoting broader education and disseminating 
        information on the harmful effects of FGC.
  --Collaborates with other donors and activist groups to develop a 
        framework for research and advocacy and to coordinate efforts, 
        share lessons learned, and stimulate public understanding of 
        FGC as a health-damaging practice and a violation of human 
        rights.
    USAID currently funds Tostan projects in Senegal, Guinea, Burkina 
Faso, and Mali.
    In addition to our work with Tostan, we are involved with other, 
comparable organizations. For example, in Nigeria, USAID's local 
partners include the Women's Lawyers Association and Women's 
Journalists Association. These groups work with us in programs 
involving community media and traditional media advocacy to change 
social norms regarding FGC.
    In Mali, we worked with an important women's Islamic group which 
reversed a previous stance when they affirmed that female circumcision 
is optional; that the practice is not mandatory under Islam.
                                 ______
                                 

             Questions Submitted to Ambassador Cofer Black

             Questions Submitted by Senator Mitch McConnell

    Question. Which terrorist groups are operating in Iraq, and do they 
receive support from Iraq's neighbors--if so, what kind of support?
    Answer. Terrorist groups operating or present in Iraq as of May 
2004 which have been designated by the United States as Foreign 
Terrorist Organizations (FTO) or under the Terrorist Exclusion List 
(TEL) include Ansar al-Islam/Ansar al-Sunna, and the Mujahedin e-Khalq 
(MEK). However, many individuals or entities with links to al-Qaeda, 
former regime elements, or other foreign terrorists or organizations, 
such as the network led by Abu Mus'ab al-Zarqawi or the Islamic Army in 
Iraq, have claimed responsibility for terrorist actions in Iraq, such 
as the August 2003 bombing of the UNHCR Headquarters. In addition to 
our extensive security and policing efforts within Iraq, we are also 
working with Iraq's neighbors, where possible, to track and cut off the 
cross-border flow of persons, weapons and funding to the terrorists in 
Iraq.
    Question. Has the Liberation of Iraq had an impact on the 
advancement of freedom in the region--such as increased calls for 
reform in Syria or Libya's recent opening to the West?
    Answer. U.S. resolve to see international law and more than a dozen 
U.N. Security Council resolutions upheld in Iraq clearly had a profound 
impact on most of the region, including on the historic decision by 
Libya's Muammar Qadhafi to give up his weapons of mass destruction and 
non-MTCR compliant missiles.
    Syria, however, remains a closed, autocratic state. We remain 
concerned about the repression of Syrian citizens, including religious 
and ethnic minorities. Given the nature of the Syrian regime, it is 
very difficult to gauge whether calls for reform from the Syrian public 
have increased over the past eighteen months. Syria also maintains a 
significant military and intelligence presence in Lebanon and continues 
to interfere in Lebanon's political life.
    In Libya's case, other factors also played a role, including a 
tough bilateral sanctions regime, years of sustained diplomacy, and 
United States and UK intelligence efforts to uncover the details of 
Libya's WMD efforts. It is also important to note that the courage and 
tenacity displayed by the families of the Pan Am 103 victims helped to 
persuade Libya to finally address the U.N. Security Council demands 
related to Pan Am 103, including transfer of the two suspects and 
renunciation of terrorism.
    Question. What is the nexus between the growing illicit narcotics 
trade and terrorism in Afghanistan?
    Answer. We do not know to what extent al-Qaida profits from the 
drug trade in Afghanistan. U.S. Government agencies have anecdotal 
reports of drug trafficking by elements aligned with al-Qaida, but 
there is no evidence that such activities are centrally directed. Al-
Qaida continues to rely on private donations and funding sources other 
than narco-trafficking for most of its income, and there is no 
corroborated information in U.S. Government holdings to suggest that 
drug trafficking provides a significant percentage of al-Qaida's 
income. We remain deeply concerned about the possibility that 
substantial drug profits might flow to al-Qaida, however, and continue 
to be vigilant for signs that this is occurring.
    The involvement of anti-government Afghan extremists in the drug 
trade is clearer. U.S. troops in 2002 raided a heroin lab in Nangarhar 
Province linked to the Hizb-I Islami Gulbuddin and officials from the 
United Nations and the Afghan Government report that the Taliban earns 
money from the heroin trade. Based on the information available, 
however, we cannot quantify how much these groups earn from the drug 
trade, nor can we determine what percentage of their overall funding 
comes from drugs.
    In addition, extremists and terrorists in Afghanistan may sometimes 
turn to the same network of professional smugglers used by drug 
traffickers for help moving personnel, material, and money.
    Question. Is this illicit trade undermining reconstruction efforts, 
and what impact might the drug trade have in the country's future 
development?
    Answer. Disrupting the growth of the narcotics trade in Afghanistan 
continues to be a focus of international efforts. The United States has 
developed our counternarcotics program in close consultation with the 
United Kingdom and is coordinating with the UK in seeking 
counternarcotics assistance from the G-8, EU, other major donors, and 
some of Afghanistan's neighbors. A number of donors, including NATO 
Allies, have already contributed to broader law enforcement, border 
security, criminal justice sector, alternative development, and demand 
reduction programs.
    If narcotics cultivation and trafficking were to continue unabated 
in Afghanistan, it would threaten all of the gains that have been made 
there over the past three years. Among other negative effects, a 
narcotics economy corrupts government officials, damages Afghanistan's 
relationship with the international community, makes criminals out of 
much of the Afghan public, makes addicts out of the youth, and stunts 
the country's legitimate economic growth. If the problem is not 
addressed, and the Afghanistan narcotics trade continues to rise at its 
current explosive rate, Afghanistan risks becoming a failed state.
    Question. Are Afghan officials involved in this trade?
    Answer. Given the pervasiveness of the drug trade in Afghanistan--
some estimates put it as high as 60 percent of the country's GDP--there 
is little doubt that Afghan officials are involved. There is anecdotal 
evidence of drug-related corruption within the Afghan police, the 
military, and the civilian government at national and provincial 
levels. President Karzai is keenly aware of the danger of government 
corruption and appears to be appointing high-level officials who he 
views as honest and trustworthy.
    Question. What role does the U.S. military play in counterdrug 
efforts in Afghanistan?
    Answer. As of May 2004, the U.S. military in Afghanistan has 
resisted active engagement in counternarcotics, out of concern that 
such assistance might turn the Afghan populace against U.S. forces. The 
military has agreed, however, to destroy drug-related facilities if 
found in the course of patrolling operations.
    Question. What threat does Afghan Islamic Fundamentalism pose to 
reconstruction efforts in Afghanistan?
    Answer. Islamic fundamentalism itself does not necessarily threaten 
reconstruction efforts in Afghanistan. Afghanistan is a deeply 
religious Islamic country, and that fact alone does not hamper our work 
there. In fact, many very religious Afghans are supporting our efforts. 
What does threaten our efforts are continued insurgent attacks--whether 
motivated by religion, politics, or other factors. Attacks on 
reconstruction workers and humanitarian organizations threaten to 
significantly slow our progress by increasing security concerns and 
costs.
    Even in the face of danger, our reconstruction efforts continue. As 
Coalition forces continue their fight against insurgents, we expect 
that the pace of insurgent attacks will slow.
    Question. As terrorist attacks have already struck the Philippines, 
Indonesia and Thailand, do you agree that the next major front in this 
war is Southeast Asia?
    Answer. As we have seen all too recently and tragically around the 
world, the threat from terrorism persists despite our best efforts and 
the progress we have made. Southeast Asia in particular remains an 
attractive theater of operations for regional terrorist groups such as 
Jemaah Islamiyah (JI). The governments in Southeast Asia continue to be 
reliable partners in the war on terrorism, but they face tremendous 
challenges to dealing with the terrorist threat. Most worrisome is the 
disparity between the level of threat--future attacks are a certainty--
and the capacity of host governments to deter attacks, disrupt 
terrorist activity, and respond to incidents. The USG remains committed 
to cooperating closely with partner countries in Southeast Asia to help 
them develop and improve the law enforcement, finance and other tools 
necessary to combat terrorism.
    Question. How cooperative are governments in that region on 
terrorism--particularly Indonesia, Thailand and the Philippines? Do 
they understand the imminent threat regional terrorists pose?
    Answer. The United States enjoys excellent CT cooperation with 
Indonesia, Thailand, and the Philippines. These governments take 
counterterrorism very seriously. The October 2002 Bali bombings 
demonstrated the threat that terrorism poses not only to their own 
citizens and government, but also to their economies. Since Bali, the 
Indonesian government has arrested over 130 Jemaah Islamiyah (JI) 
suspects and convicted over 100 JI and affiliated terrorists. In 2003, 
Thai authorities captured Hambali, JI's operation chief and Al-Qaeda 
point man in Southeast Asia, a significant blow to the organization and 
an important victory in the war against terrorism. In the Philippines, 
we have seen success as the Philippine National Police have thwarted 
plots in Manila and arrested suspected members of JI and the Abu Sayyaf 
Group.
    Question. Do you agree with Philippine President Arroyo's recent 
assertion that the Al-Qaeda-linked Abu Sayyaf terrorist group is a 
``spent force''?
    Answer. The Philippine government, working in part with the USG, 
has had some success against the leadership of the Abu Sayyaf Group 
(ASG). Several of the ASG terrorists involved in the kidnapping of 
Americans Martin and Gracia Burnham and Guillermo Sobero, for example, 
have been captured or killed. We are assisting Manila in everyway we 
can to keep the pressure on ASG. The ASG remains capable of launching 
terrorist attacks, however, as demonstrated by their responsibility for 
the February 2004 Superferry 14 bombing outside Manila which, killed 
over 100 people.
    Question. What should U.S. policy on terrorism be in those 
countries where repressive governments terrorize their own citizens, 
such as Cambodia?
    Answer. Comprehensive, effective U.S. counterterrorism policy is 
inseparable from overall foreign policy goals that advance good 
governance, human rights, promotion of the rule of law and promotion of 
economic and commercial development. We advance USG counterterrorism 
efforts by emphasizing these goals to our international partners on a 
bilateral basis and in various multilateral fora.
    In Cambodia, we are working with the government and civil society 
to implement good governance, promote human rights and greater respect 
for the rule of law and increase accountability. We have provided some 
limited counter-terrorism training to mid-level Cambodian officials 
through programs offered by the International Law Enforcement Academy 
(ILEA) in Bangkok.
    Question. What is your reaction to the recent news that Cambodia is 
re-opening Saudi charities shut down last year?
    Answer. On December 29, 2004, a Cambodian court convicted two Thai 
nationals and one Cambodian as accessories in ``attempted premeditated 
murder with the goal of terrorism'' for their role in supporting Jemaah 
Islamiyah (JI) operations chief Hambali while he was resident in 
Cambodia. They were sentenced to life imprisonment. A fourth 
individual, an Egyptian national, was acquitted. Hambali and two other 
JI operatives were convicted in absentia and given life sentences.
    The trial arose from the May 28, 2003, arrests of foreign members 
of the Umm al-Qura group, a Saudi-based charity that had been 
establishing schools for Cambodia's Cham minority community, an 
indigenous Muslim population. These convictions are a signal to 
terrorists that the Cambodian government is prepared to take effective 
action against those planning terrorist activities inside Cambodia.
    The Saudi-based Umm al-Qura charity has not resumed activities in 
Cambodia. The Mufti of Cambodia, Sos Kamry, has opened the Cambodian 
Islamic Center on the site of the former Umm al-Qura school. However, 
it has no relationship with the Saudi charity. Embassy personnel have 
visited the Cambodian Islamic Center on several occasions and have been 
warmly received by staff and students there.
    Question. Are there any links between Islamic terrorist 
organizations or individuals and Cambodian government officials?
    Answer. There is no evidence of links between Islamic terrorist 
organizations or individuals and the Cambodian government. The 
Cambodian government has taken decisive action against suspected 
Islamic extremist organizations and individuals in the closing the Umm 
Al-Qura School in May 2003 and deportation of many of its foreign 
staff. In December 2004, a Cambodian court convicted five individuals 
of plotting terrorist attacks, including the conviction in absentia of 
Jemaah Islamiyah operations chief Hambali.
    In March 2004 the Cambodian government demonstrated its commitment 
to combating terrorism by destroying with U.S. assistance its stocks of 
man-portable air defense systems (MANPADS).
    Question. How cooperative has China been in the war on terrorism, 
and what threat do indigenous Islamic fundamentalists in China pose to 
the Middle Kingdom and the region?
    Answer. United States-China counterterrorism cooperation is 
positive. We have been sharing information and consulting with each 
other to prevent terrorist incidents.
    The PRC is concerned about links between Xinjiang Uighur Autonomous 
Region separatist groups (composed mainly of ethnic Uighurs, but also 
other Muslims) and Islamic fundamentalists in Central Asia. There have 
been terrorist incidents in China, and there is evidence that some 
ethnic Uighurs have been trained in Afghanistan by Al-Qaeda. In 
September 2003, after careful review of all available information, the 
United States designated the East Turkistan Islamic Movement a 
terrorist organization under Executive order 13224. We have made clear 
to the Chinese, however, that counterterrorism cannot be used as an 
excuse to suppress peaceful dissent or the legitimate expression of 
political and religious views.
    Question. How do you explain Thai Prime Minister Thaksin's initial 
slow and ineffective response to terrorism in southern Thailand?
    Answer. The violence in southern Thailand appears to be an 
insurgency driven by historical separatist sentiment. We have not yet 
seen evidence of outside terrorist direction, although insurgents 
sympathize with global Muslim causes. In response to the ongoing 
violence in southern Thailand, the Thai government has increased the 
number of security personnel operating in southern Thailand and has 
announced development and educational programs to address long-standing 
tensions in the region.
    The Thai government remains a stalwart partner in the war on 
terrorism. In 2003, Thai authorities captured Hambali, Jemaah 
Islamiyah's operation chief and Al-Qaeda point man in Southeast Asia, a 
significant blow to JI. We are working with the Thai government to stop 
terrorists at border entry points by providing training and computer 
equipment to establish a name-check database called the Terrorist 
Interdiction Program. Through centers like the U.S.-Thailand 
International Law Enforcement Academy in Bangkok, we are providing 
counterterrorism training to law enforcement officers throughout the 
region.
    Question. How extensive are the activities of Saudi charities in 
the region, and do we know with any accuracy how many Islamic students 
from the region have been sent to Saudi Arabia or Pakistan for 
educational purposes?
    Answer. We have reports that Saudi charities are active in the 
region, particularly in Indonesia, as well as in southern Thailand and 
Cambodia, and we continue to monitor this situation. Many of these 
charities concentrate on community development projects such as 
building schools, but some contribute to anti-Western sentiments and 
espouse Islamic extremism. We are aware that Islamic students from the 
region do attend schools in Saudi Arabia and possibly Pakistan, but 
governments in the region have not been able to provide us with 
accurate counts of the number of students.
    Question. What connection exists between organized crime and 
regional terrorist groups in Southeast Asia?
    Answer. There is evidence that extremists and terrorists have taken 
advantage of the same network of professional smugglers used by drug 
traffickers for help moving personnel, material, and money. U.S. 
Government agencies have anecdotal reports of drug trafficking by 
elements aligned with al-Qaeda, but the evidence suggests that this 
activity reflects individuals' initiative and is not centrally directed 
by the organization. Al-Qaeda and regional terrorist groups in 
Southeast Asia continue to rely on private donations and funding 
sources, rather than trafficking for most of their income. We remain 
deeply concerned about the possibility that substantial drug profits 
might flow to al-Qaida and regional terrorist groups, however, and 
continue to be vigilant for signs that this is occurring. Kidnapping 
for ransom is another funding source, particularly for the Abu Sayyaf 
Group in the southern Philippines.
    Question. To what extent does the United States have a complete and 
accurate picture of terrorist groups operating in Indonesia, 
particularly Jemaah Islamiyah (JI)?
    Answer. Our picture of terrorist groups in Indonesia, particularly 
Jemaah Islamiyah (JI), is continually evolving. We have developed over 
time a clearer understanding of the senior leadership of JI, 
connections with other groups, JI's regional structure, and their 
training. However, we are aggressively seeking additional information 
about the group, in particular actionable intelligence that will enable 
us to disrupt future operations and track down JI leaders.
    Question. How would you characterize Indonesia's cooperation with 
the United States in the war on terrorism?
    Answer. Indonesia's counterterrorism cooperation with the United 
States is strong and getting stronger. The Indonesian government has 
taken decisive action against terrorism since the October 2002 Bali 
bombing; to date, they have arrested over 130 Jemaah Islamiyah (JI) 
suspects and convicted over 100 JI and affiliated terrorists. We 
continue to share relevant threat information and work together to 
prevent future attacks. The United States, along with other donor 
states such as Australia and members of the G-8, are working together 
to help Indonesia build its law enforcement and other capabilities to 
combat terrorism.
    Question. What are JI's funding sources?
    Answer. We know that much of the funding for terrorist groups in 
Southeast Asia is funneled through cash couriers, making it extremely 
difficult to track. In order to get into specific sources of funding, 
however, I would have to answer the question in a classified setting.
    Question. What role has Saudi Arabia (particularly Saudi charities) 
played in promoting Islamic extremism in Indonesia?
    Answer. Saudi charities are involved in many aspects of community 
building in Indonesia, heavily funding projects such as schools 
(pesantrans) and mosques. While providing schools is a great service 
for the poorer Indonesian communities, some of these schools promote 
Islamic extremism. We continue to speak with the Indonesian government 
about the importance of promoting moderate views on Islam, including in 
the school curriculum.
    Question. Please comment on the recent decision by Indonesia's 
Supreme Court to reduce the sentence of Muslim cleric Abu Bakar 
Ba'asyir.
    Answer. In September 2003, a Jakarta District Court convicted 
Jemaah Islamiyah (JI) spiritual leader Abu Bakar Ba'asyir of 
participation in treason and of various immigration violations. An 
appellate court overturned the treason conviction on appeal. 
Prosecutors and defense lawyers subsequently appealed to the Supreme 
Court, which reduced Ba'asyir's sentence to 18 months. Just prior to 
his April release, however, police re-arrested Ba'asyir on terrorism 
charges for his leadership of JI and his role in the August 2003 
Marriott bombing, as well as criminal charges for his role in the 
October 2002 Bali bombings. Ba'asyir's trial opened on October 28, 
2004, and is now continuing into its third month.
    Question. What impact will Bakar's pending release have on 
terrorist activities in Indonesia and throughout the region--especially 
in light of Bakar's public comment that ``we have to oppose America 
physically in Afghanistan, Iraq and elsewhere''?
    Answer. We were tremendously encouraged that the Indonesian 
government re-arrested Ba'asyir upon the expiration of his shortened 
sentence, and that Indonesian government prosecutors are now making a 
strong case against Ba'asyir in court. There is extensive evidence of 
Ba'asyir's leadership role and personal involvement in terrorist 
activities.
    Question. Is there any evidence that Indonesia's military is 
collaborating with indigenous terrorist groups and/or individuals?
    Answer. No, we do not have any evidence or indication that 
Indonesia's military is collaborating with indigenous terrorist groups 
or individuals.
    Question. To what extent is North Korea involved in the illicit 
narcotics trade, and is there any evidence that North Korean Drug 
Trafficking is used to support terrorism?
    Answer. Law enforcement cases and intelligence reporting over the 
years have not only clearly established that North Korean diplomats, 
military officers, and other party/government officials have been 
involved in the smuggling of narcotics, but also that state-owned 
assets, particularly ships, have been used to facilitate and support 
international drug trafficking ventures. Although some of the 
information gathered is incomplete or unverified, the quantity of 
information and quality of many reports give credence to allegations of 
state sponsorship of drug production and trafficking that can not be 
ignored. It appears doubtful that large quantities of illicit narcotics 
could be produced in and/or trafficked through North Korea without 
high-level party and/or government involvement, if not state support.
    The cumulative impact of these incidents over years, in the context 
of other publicly acknowledged behavior by the North Korean such as the 
Japanese kidnappings points to the likelihood, not the certainty, of 
state-directed trafficking by the leadership of North Korea.
    There is also strong reason to believe that there is party and/or 
government involvement in the manufacture of methamphetamine and heroin 
in North Korea , but we lack reliable information on the scale of such 
manufacturing.
    We believe the motivation for DPRK trafficking is primarily 
financial. We are unaware of any specific transfer of the proceeds of 
narcotics trafficking to any terrorist group.
    Question. North Korean criminals have surfaced periodically 
throughout Southeast Asia, including in Cambodia. What are the designs 
of these North Korean criminals and are they collaborating with 
regional terrorists?
    Answer. We have seen many reports of North Koreans involved in 
criminal activity. These reports point to involvement with narcotics 
trafficking, narcotics cultivation/production, using diplomatic status 
to smuggle controlled species, the counterfeiting and distribution of 
foreign currency, including U.S. currency, trade in fraudulent items, 
violation of intellectual property rights, and smuggling of tobacco 
products to benefit from differential pricing and to avoid taxation.
    We have seen clear evidence that North Koreans are involved with 
various organized crime groups on Taiwan, in Japan and elsewhere, but 
we are unaware of any contact between North Korean criminal elements 
and terrorists.
    Question. What programs can be supported among North Korean 
refugees and exiles to create an organized opposition to the thugs in 
Pyongyang?
    Answer. With the support of the Administration, Congress last year 
passed the North Korea Human Rights Act, and we are implementing the 
measures of the Act, consulting closely with Congress and with our 
allies, to promote improved human rights in North Korea. The specific 
objectives of the Act are to promote: respect for and protection of 
fundamental human rights in North Korea; a more durable humanitarian 
solution to the plight of North Korean refugees; increased monitoring, 
access and transparency in the provision of humanitarian assistance 
inside North Korea; the free flow of information into and out of North 
Korea; and progress towards the peaceful reunification of the Korean 
Peninsula under a democratic system of government.
     As explained in the Report of the Committee on International 
Relations, The North Korean Human Right Act ``is motivated by a genuine 
desire for improvements in human rights, refugee protection, and 
humanitarian transparency. It is not a pretext for a hidden strategy to 
provoke regime collapse or to seek collateral advantage in ongoing 
strategic negotiations. While the legislation highlights numerous 
egregious abuses, the [Congress] remains willing to recognize progress 
in the future, and hopes for such an opportunity.''
    The Act authorizes $2 million to be spent annually through fiscal 
year 2008 to provide grants to private, nonprofit organizations to 
support programs, including educational and cultural exchange programs, 
that promote human rights, democracy, the rule of law, and development 
of a market economy in North Korea. For fiscal year 2005, Congress has 
indicated that these funds should be granted to Freedom House to hold a 
conference on improving human rights in North Korea. The Act also 
expresses the sense of Congress that the United States should increase 
radio broadcasts into North Korea by Radio Free Asia and Voice of 
America to 12 hours per day, and authorizes $2 million annually through 
fiscal year 2008 to increase the availability of non-government-
controlled sources of information to North Koreans.
    In addition, the Act mandates the appointment of a Special Envoy 
for Human Rights in North Korea within the State Department. Among 
other responsibilities, the Special Envoy is charged with supporting 
international efforts to promote human rights and political freedoms in 
North Korea, engaging in discussions with North Korean officials on 
human rights, consulting with NGOs, reviewing strategies for improving 
protection of human rights in North Korea, and making recommendations 
regarding USG funding of programs to promote human rights, democracy, 
rule of law, and development of a market economy in North Korea. As you 
know, the first annual report of the soon-to-be-appointed Special Envoy 
on actions taken to promote efforts to improve respect for the 
fundamental human rights of people in North Korean is due on April 15.
    We will continue to work closely with the Subcommittee to promote 
improved human rights in North Korea.

                              WEST AFRICA

    Question. Is Hezbollah profiting from the diamond trade--or other 
illicit activities in that region?
    Answer. We do not think, based on the evidence, that Hezbollah as 
an organization directly participates in the diamond trade or other 
illicit ventures in west Africa. That said, Hezbollah profits 
indirectly from the diamond trade in west Africa. Hezbollah engages in 
widespread fundraising efforts worldwide, with particular emphasis on 
regions with sizable overseas Lebanese communities such as west Africa. 
Hezbollah raises money in west Africa from members of the Lebanese 
business community, some of whom are involved in both the licit and 
illicit diamond trade.
    Question. Is there a connection between Hezbollah and Al-Qa'ida in 
west Africa?
    Answer. We have seen no credible evidence indicating a connection 
between Hezbollah and Al-Qa'ida.
    Question. Do drug addicted, demobilized rebels in Sierra Leone and 
Liberia pose an immediate threat to the resumption of hostilities in 
the region--and as easy recruits for terrorist organizations?
    Answer. Yes, the rebels pose a threat to the region and could 
resume hostilities, however they are not likely recruits for 
International Terrorist Organizations. We strongly believe in the need 
for swift and effective reintegration and rehabilitation (RR) programs 
for disarmed and demobilized combatants worldwide, including in Liberia 
and Sierra Leone.
    The U.S. Agency for International Development is spending $60 
million on RR programs, based on our Depression-era Civilian 
Conservation Corps, in Liberia for 20,000 ex-combatants and 15,000 
others, including women and children associated with those fighters. 
The United Nations (UN) and European Union (EU) are creating programs 
in Liberia for another 23,000 ex-combatants, leaving a shortfall of 
60,000 people formally classified as ex-combatants.
    U.N. Secretary-General Annan recently said that another $60 million 
in RR programs are needed to employ, retrain, educate, and counsel 
these remaining ``volatile and restive'' ex-combatants in Liberia. As 
part of our supplemental budget request, we are proposing additional 
funding for reintegration and rehabilitation programs for Liberian ex-
combatants. A senior interagency delegation will visit Brussels and 
Luxembourg January 10-13 to urge the EU to spend more on similar RR 
programs.
    Diamond fields and forests in the Mano River region have attracted 
significant illicit commercial activity, and these governments have 
minimal capability to control their borders or enforce customs 
regulations. Strengthening their capacity to combat arms smuggling, 
money laundering, and other activities supporting terrorism is a top 
priority.
    Liberia is resource rich and potentially a good place for direct 
foreign investment that would help create jobs for the unemployed 
youth. We are working with the Government and international financial 
institutions to address pervasive corruption that is currently a major 
impediment to spurring economic activity.
    Question. Is there any evidence of al-Qaida operations in Colombia?
    Answer. There is no corroborated reporting that al-Qaida 
operational cells exist in Colombia. Colombia, like many other 
countries in the Western Hemisphere, could be vulnerable to 
exploitation by terrorists for safe haven, fundraising, recruiting, or 
spreading propaganda. The United States Government works on a bilateral 
and multilateral basis to enhance the counterterrorism capacity of 
Colombia, as well as other hemispheric partners, to prevent the 
movement of terrorists in the hemisphere, deny terrorists access to 
fraudulent travel and identity documents, strengthen border security, 
and combat terrorism financing.
    Question. Is Venezuela providing sanctuary to terrorist operating 
in Colombia?
    Answer. It is unclear to what extent or at what level the 
Venezuelan Government approves or condones the use of its territory as 
safehaven by Colombia's Revolutionary Armed Forces of Colombia (FARC), 
National Liberation Army (ELN), and United Self-Defense Forces/Groups 
of Colombia (AUC)--all three U.S. Government-designated Foreign 
Terrorist Organizations (FTOs).
    Venezuela has been unwilling or unable to assert control over its 
1,400-mile border with Colombia. Consequently, the FARC and ELN have 
used the area for cross-border incursions and have regarded Venezuelan 
territory near the border as a safe area for rest, recuperation, and 
probable transshipment of drugs and arms. The AUC has admittedly 
operated in Venezuela, principally targeting FARC and ELN groups 
operating there. The AUC does not appear to hesitate to cross the 
porous Venezuela-Colombia border to disrupt or exploit the FARC's and 
ELN's strategic supply lines.
    President Chavez' stated ideological affinity with the FARC and ELN 
limits Venezuelan cooperation with Colombia in combating terrorism. 
However, the Venezuelan and Colombian Governments have worked together 
in some cases to enhance border security and bring terrorists to 
justice.
    Question. Do we have a full and accurate picture of the 
proliferation activities of A.Q. Khan in Pakistan, and how would you 
characterize the Pakistani government's cooperation in determining the 
breadth and depth of Khan's activities?
    Answer. The Government of Pakistan is continuing its own 
investigation of the A.Q. Khan network and has already taken steps to 
shut down the network. It has shared information that it has developed 
from that investigation and it has agreed to continue to share 
information with us. The information Pakistan has provided to us has 
been important to our global efforts to dismantle the network. 
President Musharraf's efforts to shut down the activities of the 
network in Pakistan have contributed to our overall effort. However, we 
remain concerned that the network could be reconstituted. For this 
reason, we are reassured by President Musharraf's statements that Khan 
remains under close watch and his movements are restricted. It is also 
notable that Khan's pardon is conditioned on his continued cooperation. 
We remain concerned, however, about Pakistan's decision to release all 
of the individuals detained in connection with the Khan case, with the 
exception of Dr. Muhammed Farooq, formerly head of procurement at Khan 
Research Laboratories.
    Question. How cooperative has Pakistan been in engaging Al-Qaeda 
and Taliban remnants in Pakistan--particularly along the border with 
Afghanistan.
    Answer. Under the leadership of President Musharraf, Pakistan cut 
its ties to the Taliban and became a critical partner in the war on 
terror. The GOP is aggressively pursuing al-Qaida and their allies 
through large-scale military operations in the Federally Administered 
Tribal Areas (FATA). Along with the United States, Pakistani forces 
have borne the brunt of fighting against al-Qaida, facing intense 
resistance and suffering many casualties, including the deaths of at 
least 200 Pakistani servicemen. Pakistan's FATA military operations 
have significantly degraded al-Qaida's command and control capabilities 
in the region.
    In addition to these counterterrorist operations in the tribal 
areas, Pakistani law enforcement--maintaining close cooperation with 
the USG in border security and investigative training--continues an 
extremely successful anti-terrorist campaign in other areas of the 
country, particularly in major cities. Pakistani authorities have 
apprehended over 600 terrorist suspects, turning over to the United 
States such key al-Qaida figures as Khalid Sheikh Mohammad and Abu 
Zubaydah. The arrestees have provided valuable information leading to 
further investigations and arrests.
    While the GOP has been very successful in targeting members of al-
Qaida and other foreign militants throughout the country, it has faced 
more difficulty confronting Pakistani militants and the Pashtun-
dominated Taliban, which enjoys close ties to some local tribes.
    Question. Why have Afghan President Karzai and the U.S. Ambassadors 
to both Afghanistan and Pakistan been critical of Pakistani efforts to 
combat terrorism along the border?
    Answer. Pakistan had supported the Taliban government in 
Afghanistan prior to September 2001. Though President Musharraf 
withdrew his government's support and Pakistan became a critical ally 
in the war on terrorism, suspicions lingered in Afghanistan over the 
sincerity of the GOP's support for the new Afghan government. Despite 
the GOP's successful efforts to target al-Qaida and other ``foreigner 
fighters'' within the Federally Administered Tribal Areas (FATA), the 
GOP has faced more difficulty confronting the Taliban, who enjoy close 
ethnic ties with the FATA tribes, as a result of which problems remain 
with cross-border infiltration into Afghanistan.
    In recent months, there has been significant progress in Pakistani-
Afghan bilateral relations. President Musharraf was the first foreign 
leader to visit Karzai in Kabul after his October election, signaling 
GOP support for Karzai and his government. Additionally, the GOP has 
intensified its counterterrorism operations against al-Qaida remnants 
in Waziristan, and the activities of the Tripartite Commission are 
providing a useful forum for deliberations between Afghan, Pakistani, 
and U.S. military and security representatives at the working level on 
sensitive border and security issues.
    Question. How do you explain the reluctance of Egyptian President 
Hosni Mubarak to embark on much-needed political and legal reforms in 
Egypt?
    Answer. The Egyptian government always has stressed the need for 
gradual reform to preserve stability, but there are signs that mind-set 
is changing somewhat.
  --President Mubarak and other senior Egyptian officials always have 
        argued the need for a gradual process of political, economic, 
        and social reform to avoid social upheaval in Egypt, where 
        population densities in the Nile delta and valley are among the 
        highest in the world. They point to the 1977 riots that damaged 
        large swaths of Cairo after President Sadat removed bread 
        subsidies, and to their struggle against domestic Islamic 
        extremists in the 1980's and 1990s, as proof of the need for 
        such gradualism.
  --We and other donors have argued that, conversely, an insufficiently 
        rapid pace of reform is likely to increase rather than decrease 
        Egypt's instability in the mid- to longer-term. High-level 
        bilateral discussions and the Broader Middle East and North 
        Africa (BMENA) initiative are key venues for delivering that 
        message.
  --Over the past year, we have seen increasing signs that Egypt is 
        ``getting it,'' although the evidence is still much more on the 
        economic than political side.
  --The new Prime Minister and cabinet have announced and begun to 
        implement the most ambitious economic reforms in years, 
        including sharp cuts in tariffs, income and sales tax reforms, 
        reductions in subsidies, liberalizing Egypt's exchange rate 
        regime, and reinvigorating the privatization program, including 
        in the financial sector.
  --We will continue to urge the government to accelerate that reform 
        process, which we support through our USAID assistance program.
  --Egypt's political system remains dominated by President Mubarak and 
        the ruling National Democratic Party, and citizens do not to 
        date have a meaningful ability to change their government. 
        There are, however limited signs of liberalization, such as the 
        recent registration of two new political parties, tolerance of 
        a significantly more open debate on presidential succession, 
        the Government's agreement to our plan to make direct democracy 
        grants to NGOs without its approval, and its support for the 
        Alexandria meeting of intellectuals and declaration on the need 
        for reform in the Arab world.
  --We will continue to press the GOE at the highest levels to open up 
        its political system and improve its poor record on human 
        rights.
    Question. Has Mubarak's reluctance to create a more open and 
pluralistic society created conditions favorable to Islamic extremism 
and terrorist recruitment efforts?
    Answer. We believe that an overly cautious approach to economic and 
political reform in Egypt would be more rather than less conducive to 
instability in Egypt, while greater political and economic opportunity 
would provide more moderate outlets for the expression of public will. 
Our Broader Middle East and North Africa (BMENA) and Middle East 
partnership Initiative (MEPI) convey the same message region-wide.
    The lack of a credible legal alternative to the ruling National 
Democratic Party (NDP) appears to have caused many people to gravitate 
towards the still-illegal Muslim Brotherhood, generally considered the 
most powerful political group in Egypt aside from the NDP.
    Terrorists may also seek to exploit a lack of economic opportunity 
to advance their violent ideology.
    However, both the Muslim Brotherhood and the jailed leadership of 
the more radical Egyptian Islamic Jihad have publicly renounced 
violence as a means to political change in Egypt.
    We continue to believe, and to advocate with Egypt's political 
leadership, that it must open up its political process to provide a 
middle ground between the NDP and religious extremism.
    Question. What concrete steps has Saudi Arabia taken to crackdown 
on ``charities'' which seem bent on sowing sees of Wahabism intolerance 
wherever Muslim communities exist?
    Answer. Saudi Arabia has made important strides, both in 
coordinated steps with the United States and on its own, to combat 
terrorist financing. Most recently, on January 22, 2004, we jointly 
submitted the names of four overseas branches of the Riyadh-based al-
Haramain Foundation to the U.N. 1267 Sanctions Committee for world-wide 
sanctions, including asset freezing.
    The addition of these four entities made for a total of 10 United 
States-Saudi joint submissions to the U.N. 1267 Sanctions Committee 
since December 2002, the largest number with any country over that 
span, and we continue to work together to look for additional entities 
and individuals providing support to al-Qaida.
    The Saudis have announced that they will establish a Financial 
Intelligence Unit (FIU) to coordinate government efforts to monitor and 
track suspicious transactions. The Saudis also enacted an Anti-Money 
Laundering Law last year which criminalizes terrorist financing and 
money laundering.
    The Saudis have also removed cash boxes from mosques and shopping 
centers in an effort to enhance oversight and accountability of 
charitable giving.
    We are awaiting the establishment of the Saudi High Commission on 
Charities, which was announced in 2004. If approved and fully 
implemented, the High Commission will ensure government oversight of 
all charitable giving overseas.
    While there is more to be done, we are seeing clear indications 
that Saudi actions are having a real impact in terms of making it more 
difficult for suspect charitable branches around the world to obtain 
funding.
    Question. Do we have a complete picture of all the regions where 
Saudi charities are active--or a list of countries they have 
specifically targeted?
    Answer. The Saudi government supports relief efforts and 
educational programs in many areas of the world. Saudi officials have 
told us repeatedly that they do not support terrorists or terrorism 
anywhere in the world. We do have evidence that some individuals in 
Saudi Arabia provide funds to terrorists. Private contributions to 
HAMAS are a particular concern. Through our intensive, high-level 
dialogue with the Saudi government, we believe we have made important 
progress, but there is more to be done to see that funds in support of 
terrorism do not emanate from Saudi Arabia.
    Question. How can the flow of funds originating in Saudi Arabia--
particularly cash--be better monitored and interdicted?
    Answer. The 2004 Financial Action Task Force (the FATF, which 
produced a set of recommendations which define best international 
practice as regards procedures to combat money laundering and terrorist 
financing) report for Saudi Arabia states that: ``Significant steps 
have been taken to discourage large cash transactions and to encourage 
the use of bank transfers in order, inter alia, to improve the ability 
of the law enforcement authorities to monitor cash transactions. Saudi 
Arabia also monitors the physical movement of cross-border 
transportation of cash. The import or export of currency in excess of 
SR 10,000 must be declared at the border, or point of entry, and a 
record is maintained of declarations and investigations carried out if 
there are doubts as to the source of the money. Saudi Arabia applies 
strict controls on the movement of Saudi currency. Saudi banks are 
encouraged to buy any excess Saudi riyals that they may have 
accumulated in other countries, and persons leaving Saudi Arabia with 
large amounts of cash are encouraged to deposit the funds in a bank 
(and thus transfer the funds by wire or convert them to another 
currency) before departure. Consequently there is very little cross-
border transportation of currency.''
    The Saudis are establishing a Financial Intelligence Unit (FIU) to 
coordinate government efforts to monitor and track suspicious 
transactions. The Saudis also enacted an Anti-Money Laundering Law in 
2004 which criminalizes terrorist financing and money laundering. The 
Saudis have also removed cash boxes from mosques and shopping centers 
in an effort to enhance oversight and accountability of charitable 
giving.
    We will continue to work closely with the Saudis to better monitor 
cash flows and interdict illicit funding.
    Question. To what extent are Saudi charities or other Islamic 
extremist organizations active in the Balkans and what specific 
activities are they involved in?
    Answer. The vast majority of Muslims in Europe have no interest in 
and nothing to do with violent extremism. Hundreds of Islamic 
organizations are active in the Balkans ranging from business to NGOs, 
to political groups; the overwhelming majority are engaged in 
legitimate activities. In some cases, however, groups with extremists 
connections have been active in attempts at recruitment and Islamic 
extremists seem to hope to utilize the Balkans as a religious foothold 
in Europe and as a possible transit route to other locations. While 
some groups' rhetoric has on occasion been vocally anti-Western, actual 
attacks have been all-but non-existent. Nonetheless, we continue to 
monitor closely the activities of possible extremist Balkan groups.
    Question. Is there a rise in intolerance and extremism within 
Muslim communities in the Balkans as a result of these activities?
    Answer. The vast majority of Balkan Muslims, like Balkan Islam 
itself, are tolerant and moderate. Despite considerable missionary 
effort over recent years by extremists, most Balkan Muslims have 
maintained their traditional moderate approach to religion. 
Nonetheless, extremist groups on the fringes of Europe's Muslim 
communities continue to seek to recruit and propagandize, and 
particularly seek to target young people.
    Question. In May 2003, American Cargo Pilot Ben Padilla 
disappeared--along with a Boeing 727--in Angola. Do you have any 
updated information on Mr. Padilla's whereabouts, or information on his 
disappearance?
    Answer. Neither the aircraft nor the missing pilot has been 
located. Over the last year, we have received several reports of 
sightings of the missing 727, but in each case, the sighted aircraft 
has been shown to be a different aircraft.
    We and the FBI continue to monitor the situation.
                                 ______
                                 
            Questions Submitted by Senator Patrick J. Leahy

    Question. Mr. Black, I had a chance to read through some of Mr. 
Clarke's book, Against All Enemies. I should point out that he 
consistently praises your efforts to combat international terrorism.
    In one part of the book, Mr. Clarke talks about Mossad's policy of 
assassinating terrorists. He writes: ``The assassinations had also done 
little to deter further attacks on Israelis. Indeed, Israel had become 
caught in a vortex of assassination and retaliation that seemed to get 
progressively worse.''
    Do you agree with Mr. Clarke's assessment? As the United States 
moves forward with efforts to combat terrorism, how do we avoid the 
same trap?
    Answer. We believe that Israel has the right to defend itself from 
terrorist attacks. We have consistently urged Israel to carefully 
consider the consequences of its actions. We are gravely concerned for 
regional peace and security, and have urged all parties to exercise 
maximum restraint.
    Question. Mr. Black, Jordan has been indispensable in developing 
intelligence and helping to thwart attacks by al Qaeda against the 
United States. King Abdullah and the rest of the Jordanian Government 
deserve our thanks for the role they have played against terrorism, an 
in support of peace between Israel and the Palestinians--a role that 
has not always been popular with other Arab countries.
    Unfortunately, our relations with other Muslim nations pales 
compared to our close relations with Jordan, and even that relationship 
is under stress with the King canceling his visit. After September 
11th, there was an outpouring of good will towards the United Sates, 
including from moderate Muslim nations. That good will has been 
squandered, and today our reputation among Muslims around the world is 
in tatters. How do we regain the good will?
    Answer. Outreach to Muslim populations around the world is a 
priority for the Department, especially in the context of the war on 
terrorism. Many of our public diplomacy programs and initiatives are 
aimed at the Muslim-majority regions of the world, including 
communities in the Middle East, South Asia, Africa, East Asia and 
Central Asia.
    In order to strengthen our relationships with these communities, we 
must counter the false perception that the United States is anti-
Islamic. In addition, we must demonstrate long-term and sustained 
commitment to the well-being of Muslim populations.
    Our outreach to the Muslim world encompasses public diplomacy and 
development assistance programs that promote economic and political 
freedom, tolerance and pluralism in Muslim communities, as well as 
mutual understanding with Americans. We must not only provide 
assistance to these communities but be recognized for the assistance we 
provided.
    Political and economic conditions vary by region and country, but 
in all regions we must increase exchanges of students, scholars and 
religious and community leaders, publicize U.S. assistance efforts more 
widely, increase youth programming, expand English teaching and broaden 
media outreach in local languages. For example:
  --The Bureau of Educational and Cultural Affairs (ECA) provided $40 
        million in fiscal year 2004 for programs for the Arab and 
        Muslim World through their Partnerships for Learning 
        initiative. The fiscal year 2005 budget funds this initiative 
        at the $61 million level.
  --Under Partnerships for Learning, ECA is planning to bring 1,000 
        high school exchange students from countries with significant 
        Muslim population to the United States in fiscal year 2005, a 
        fourfold increase over fiscal year 2002, the first year of the 
        program.
  --The Bureau of Public Affairs is directing to the Arab and Muslim 
        world at least 50 percent of Department TV co-operative 
        projects, foreign media interviews, sponsored journalists 
        tours, and video news releases.
  --Thirty-four American Corners are currently in operation in cities 
        with significant Muslim populations. The Bureau of 
        International Information Programs is working with NEA and SA 
        to establish forty-three more American Corners in those 
        regions, including ten in Afghanistan and fifteen in Iraq.
    While we will continue to engage Islamic leaders and influential 
elites, we must also reach those young people who are the critical next 
generation in the war on terrorism.
    The President's Middle East Partnership Initiative (MEPI) 
integrates policy, public diplomacy and development and technical 
assistance programs throughout the region. MEPI's mission is to support 
economic, political, and educational reform in the Middle East and 
North Africa and to champion opportunity for all people of the region, 
especially women and youth.
    Question. In my opening statement, I mentioned the memo written by 
Secretary Rumsfeld. One of the other things he writes is--and I am 
quoting--``the cost-benefit ratio is against us! Our cost is billions 
against the terrorists' costs of millions.'' What is your opinion of 
the Secretary's assessment?
    Answer. The asymmetrical nature of the war against terrorism is one 
of the factors contributing to its difficulty: in general, destroying 
things--particularly when one has selected and focused on a specific 
target--is substantially cheaper than defending an infinite list of 
possible targets, which is the task that confronts us and our allies. 
At the same time, our greater resources give us the ability to go after 
the terrorists in a myriad ways and in myriad places.
                                 ______
                                 
           Questions Submitted by Senator Barbara A. Mikulski

    Question. Central Intelligence Agency Director George Tenet and 
Director of the Defense Intelligence Agency, Vice Admiral Lowell E. 
Jacoby have testified publicly as to the pressing threat that Colombia 
poses to U.S. interests. In his testimony before the Senate Select 
Committee on Intelligence, Vice Admiral Jacoby testified that ``The 
Revolutionary Armed Forces of Colombia (FARC) remains the most potent 
terrorist threat to U.S. interests in Colombia.'' Of note is that the 
``FARC's perception that U.S. support is the direct cause of the 
Colombian government's recent successes, increases the likelihood the 
group will target U.S. interests in 2004.''
    Similarly, George Tenet testified that ``The FARC may increasingly 
seek to target U.S. persons and interests in Colombia, particularly if 
key leaders are killed, captured, or extradited to the United States. 
The FARC still holds the three U.S. hostages it captured last year and 
may seek to capture additional U.S. citizens.''
    As part of the ``Anti-terrorism'' package, the U.S. increased 
military presence and aid to Colombia. Since 2001, we have given over 
2.5 billion in aid and significantly increased our military presence.
    Has increased U.S. engagement in Colombia turned what was 
essentially a national revolutionary resistance and terrorist group in 
Colombia into a terrorist group that specifically targets and directly 
threatens the United States?
    Answer. The Revolutionary Armed Forces of Colombia (FARC) have had 
a long history of planning, threatening, and conducting terrorist 
attacks in Colombia, since its creation in 1964. The FARC have been 
responsible for conducting bombings, murder, mortar attacks, 
narcotrafficking, kidnapping, extortion, hijacking, as well as 
guerrilla and conventional military action against political, military, 
and economic targets in Colombia. Before significant increases in U.S. 
Government assistance to Colombia, the U.S. Government recognized that 
the FARC's terrorist activities threatened the security of United 
States nationals and the national security of the United States, first 
designating the FARC as a Foreign Terrorist Organization (FTO) in 
October 1997. In March 1999, the FARC murdered three U.S. Indian rights 
activists on Venezuelan territory after it kidnapped them in Colombia. 
The U.S. Government holds the FARC responsible for the safety and 
welfare of the three Americans it currently holds hostage and for any 
attack that it conducts against U.S. interests in Colombia, regardless 
of U.S. assistance levels to the Colombian Government.
    United States assistance to Colombia is dedicated to help the 
Colombian Government strengthen its democracy, respect human rights and 
the rule of law, and end the threat of narcotics trafficking and 
terrorism. To do so, we are carrying out programs to provide training, 
equipment, infrastructure development, funding, and expertise to the 
Colombian Government and civil society in the areas of counternarcotics 
and counterterrorism, alternative development, interdiction, 
eradication, law enforcement, institutional strengthening, judicial 
reform, human rights, humanitarian assistance for displaced persons, 
local governance, anti-corruption, conflict management and peace 
promotion, rehabilitation of child soldiers, and preservation of the 
environment.
    Question. During this year's annual threat report, CIA director 
George Tenet warned that ``al-Qaida has infected other organizations.'' 
He said that ``even as al-Qaida has been weakened, other extremist 
groups within the movement have become the next wave of the terrorist 
threat. Dozens of such groups exist.'' He named the Zarqawi network as 
an example.
    Al-Zarqawi, the Jordanian who is suspected of committing the Madrid 
bombings, is viewed by intelligence officials to be at the forefront of 
the next wave of terrorist threat. The next wave identified as fluid 
elements that are know to be collaborators of Osama bin Laden, who 
share his ideology but are more diffuse and operate outside his 
control.
    The Zarqawi network and another group with an al-Zarqawi 
affiliation, Ansar al-Islam, have been blamed for continued bombings in 
Iraq. The groups are suspected to attack Iraqi and foreign targets, 
especially Shiite pilgrims or Iraqi police and hotels inhabited by 
foreigners. Their aim is sowing discord and perhaps civil war and 
raising opposition against U.S. occupation.
    Tenet further testified that our main challenge now is ``preventing 
the loosely connected extremists from coalescing into a cohesive 
terrorist organization.'' He said that we had started to see a ``few 
signs of such cooperation at the tactical or local level.''
    (a) What is your assessment of the reach of these new diffuse 
organizations? What is our strategy to deal with these emerging 
threats?
    Answer. Locally-based groups ideologically linked to, but 
operationally distinct from al Qaeda, like those that carried out the 
March Madrid bombings, may represent the wave of the future. The threat 
we face is a global one and we prioritize responses to enable us act in 
an appropriate and effective manner to address differing challenges in 
different regions. The key to addressing immediate threats lies in 
developing timely, useable intelligence in conjunction with partners 
around the world. In the medium and longer terms, we must ensure that 
law enforcement and judicial authorities have the tools they need to 
prevent terrorists from achieving their objectives. In many countries, 
a government's inability to find, arrest, and prosecute terrorists is 
the main impediment to coping with the threat. We have therefore 
initiated cooperative programs designed to increase partner nations' 
will and CT capabilities and to build ties among United States. and 
foreign CT communities. These programs include long-term capacity-
building efforts in border security, criminal investigations, 
intelligence support, and training/advice to combat terrorist 
financing, as well as a robust Anti-Terrorism Assistance program to 
bolster the CT capabilities of law enforcement.
    Question. (b) How would you categorize the impact of the Zarqawi 
network and Ansar al-Islam on disrupting our reconstruction efforts and 
inciting opposition, especially among the Shia, against the United 
States?
    Answer. The violence and intimidation committed by the Zarqawi 
network, Ansar al-Islam and other terrorists and insurgents has clearly 
had an impact on the scale and pace of reconstruction. Nevertheless, we 
have made a great deal of progress in rebuilding Iraq's infrastructure 
and services and in preparing for the handover to an interim Iraqi 
government on June 30. New roads, bridges, schools, hospitals have been 
built; provision of local services like electricity and water, has been 
extended in many parts of the country; advisors are assisting Iraqi 
officials to develop strong, functioning institutions; many countries 
are engaged in training Iraqi police and security forces. The vast 
majority of Iraqi citizens--Sunni, Shia, Kurd, Turkomen, and others--
want peace and freedom and a better life for their children. We will 
continue to pursue the terrorist organizations so they cannot take this 
future away from the people of Iraq.
    Question. (c) What is the status of the Kurdistan Worker's Party or 
PKK? How has the Unite States-led occupation of Iraq affected the PKK?
    Answer. In April 2002 at its 8th Party Congress, the PKK changed 
its name to the Kurdistan Freedom and Democracy Congress (KADEK) and 
proclaimed a commitment to nonviolent activities in support of Kurdish 
rights. Despite this pledge, a PKK/KADEK spokesman stated that its 
armed wing, The People's Defense Force, would not disband or surrender 
its weapons for reasons of self-defense. In late 2003, the group sought 
to engineer another political face-lift, renaming the group Kongra Gel 
(KGK) and brandishing its ``peaceful'' intentions, while continuing to 
commit attacks and refuse disarmament. Kongra Gel now consists of 
Approximately 4,000 to 5,000 members, most of whom currently are 
located in a remote mountainous section of northern Iraq. Kongra Gel 
has claimed to be under a self-imposed cease fire, but they have 
continued to engage in violent acts in Turkey--including at least one 
terrorist attack--against the Turkish state in 2003. Several members 
were arrested in Istanbul in late 2003 in possession of explosive 
materials.
    The United States is committed to the elimination of the PKK threat 
to Turkey from Iraq. President Bush has said there will be no terrorist 
haven in a free Iraq, and that includes the PKK.
                                 ______
                                 
            Questions Submitted by Senator Richard J. Durbin

    Question. In January, USAID released a foreign aid ``white paper'' 
arguing that given the broad range of national security threats facing 
the United States, including the threat of terrorism, foreign 
assistance must go beyond more traditional humanitarian and development 
objectives. The white paper outlines five key operational goals that 
foreign aid should address: (1) promoting transformational development; 
(2) strengthening fragile states; (3) providing humanitarian relief; 
(4) supporting U.S. strategic interests; and (5) mitigating global and 
transnational ills. How do each of these goals contribute to making 
foreign aid a better tool and instrument for American policymakers in 
the global war on terrorism?
    Answer. Foreign aid can be a powerful CT tool for achieving our 
medium and long-term CT objectives. The five goals cited are designed 
to make it as effective as possible. Achieving these goals will enable 
us to better attain our overall objectives of defeating terrorist 
organizations with global reach by diminishing the underlying 
conditions of poverty, ignorance, intolerance, and desperation that 
terrorists seek to exploit.
    As I noted in my opening statement, we recognize that in many of 
the countries where we work, the overall institutions of the government 
and society are not sufficiently robust for the task of aggressive 
counterterrorism programs. For this reason, institution building is 
vital and all those tasks serve to do so. We should take the necessary 
steps to strengthen the institutions of our partner nations and thereby 
move less developed countries closer toward their full potential in 
combating terrorism. At the same time, we must also encourage and work 
closely with other international donor nations to provide resources and 
expertise in support of this goal.
    Question. How do you respond to those who argue that poverty is not 
a root cause of terrorism; that other factors, such as economic 
isolation and U.S. foreign policy positions that are perceived as being 
anti-Islam, are more important at getting at to the heart of why 
America faces this threat?
    Answer. Whole libraries have been written about the ``root causes 
of terrorism. Obviously, all of these factors contribute to the problem 
we now face. It is difficult to assess the true motives of these 
killers, apart from their desire to spread death, terror, and chaos. We 
have clearly seen their willingness to make outrageous claims and 
demands on the civilized world, and use whatever stated motivations are 
most expedient for their crimes.
    Question. In terms of the terrorist attacks that we have seen in 
recent months, the connection between failed states and the roots of 
terrorism appears to be more indirect than we used to believe. Instead 
of operatives coming out of places like Sudan and Afghanistan, for 
example, we seem to be witnessing the emergence of local terrorist 
organizations in states like Turkey or Spain taking up the goals or 
ideology of Al Qaeda. How do you use foreign aid to fight an ideology 
that emerges in a relatively wealthy state? With this emerging 
successor generation of Al Qaeda-associated operatives, from the 
perspective of counter-terrorism, are we missing the point in directing 
our resources toward so-called front-line states. Where exactly is the 
``frontline.''
    Answer. Unfortunately, the ``front line'' is everywhere. The threat 
we face is a global one and we continually monitor regions that could 
serve as terrorist sanctuaries. To that end we prioritize our responses 
to enable us act in an appropriate and effective manner to address 
differing challenges in different regions. Al Qaeda itself, now serves 
as an idea and an inspiration to a decentralized worldwide extremist 
network that exploits weak CT regimes and global linkages to recruit, 
raise funds, spread propaganda and plan and conduct terrorist attacks 
on almost every continent. The changing nature of the terrorist threat 
puts a focus on capacity building and on working with partner 
governments to build and sustain international will to continue the 
effort.
    Question. What specifically would you say has been the effect of 
the war in Iraq on the roots of terrorism in the Middle East? In what 
demonstrable way is foreign aid to Iraq reducing the terrorist threat 
against the United States and its allies?
    Answer. The war in Iraq removed a brutal dictator from power, 
eliminated a state sponsor of terrorism, and greatly reduced the 
ability of terrorists to freely use Iraqi territory for training or 
safehaven. A free, independent and democratic Iraq will have a positive 
effect on the region. In addition, the U.S. works through many 
different programs to develop other countries' will and capacity to 
fight terrorism and, through economic development and political reform, 
to diminish the conditions that terrorists exploit to advance their 
violent ideology. Enhancing security by helping the Iraqis defeat 
terrorists and criminal elements is one of the key elements of U.S. 
assistance to Iraq. The United States and allied nations are engaged in 
an extensive training program for Iraqi Police and Security forces; 
more plentiful and more capable security forces are critical to 
defeating insurgent elements within Iraq. U.S. assistance funds have 
also been prioritized to generate employment, stimulate economic 
activity, and provide immediate assistance to areas threatened by the 
insurgency. Additional State Department programs include Anti-Terrorism 
Assistance training, terrorist financing and anti-money laundering 
assistance, border security assistance and training, and diplomatic 
engagement. Activities and programs such as the Forum for the Future 
and the Millennium Challenge Account help strengthen our partners to 
more effectively combat terrorism.
    Question. If terrorists are increasingly using the advanced 
technologies like the Internet to do such things as coordinate 
operations, to find information about weapons of mass destruction and 
recruit members, how are we ensuring that we provide foreign aid in 
such a way that we avoid enabling members of terrorist organizations to 
be more effective?
    Answer. We seek to target our assistance to address key CT 
weaknesses in partner countries and work with our more capable partner 
to assist countries where the will is there, but abilities are limited. 
Rigorous screening of NGO program participants and others, as well as 
follow-up on programs and projects helps prevent misuse or diversion of 
U.S.-provided resources, including knowledge and technology.

                          SUBCOMMITTEE RECESS

    Senator McConnell. Thank you all very much. The 
subcommittee will stand in recess to reconvene on Tuesday, May 
18.
    [Whereupon, at 4:17 p.m., Wednesday, April 21, the 
subcommittee was recessed, to reconvene at 10:30 a.m., Tuesday, 
May 18.]
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