[Senate Hearing 108-518]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-518

                      FOREIGN ASSISTANCE OVERSIGHT

=======================================================================

                                HEARING

                               BEFORE THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                              MARCH 2, 2004

                               __________

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                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman
CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming             RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio            BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee           BILL NELSON, Florida
NORM COLEMAN, Minnesota              JOHN D. ROCKEFELLER IV, West 
JOHN E. SUNUNU, New Hampshire            Virginia
                                     JON S. CORZINE, New Jersey

                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director

                                  (ii)

  
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                            C O N T E N T S

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                                                                   Page

Allen, Hon. George, U.S. Senator from Virginia, chairman, 
  Subcommittee on European Affairs, opening statement............   101
Brownback, Hon. Sam, U.S. Senator from Kansas, chairman, 
  Subcommittee on East Asian and Pacific Affairs, opening 
  statement......................................................    36
Burns, Hon. William J., Assistant Secretary of State, Bureau of 
  Near Eastern Affairs, U.S. Department of State, Washington, DC.    20
    Prepared statement...........................................    22
Chafee, Hon. Lincoln D., U.S. Senator from Rhode Island, 
  chairman, Subcommittee on Near Eastern and South Asian Affairs, 
  opening statement..............................................     1
Coleman, Hon. Norm, U.S. Senator from Minnesota, chairman, 
  Subcommittee on Western Hemisphere, Peace Corps, and Narcotics 
  Affairs, opening statement.....................................    48
Franco, Hon. Adolfo A., Assistant Administrator for Latin America 
  and the Caribbean, U.S. Agency for International Development, 
  Washington, DC.................................................    63
    Prepared statement...........................................    66
Hill, Hon. Kent R., Assistant Administrator, Bureau for Europe 
  and Eurasia, U.S. Agency for International Development, 
  Washington, DC.................................................   109
    Prepared statement...........................................   113
Jones, Hon. Elizabeth, Assistant Secretary of State, Bureau of 
  Europe and Eurasian Affairs, U.S. Department of State, 
  Washington, DC.................................................   103
    Prepared statement...........................................   105
    Responses to additional questions for the record from Senator 
      Allen......................................................   130
Keyser, Mr. Donald W., Principal Deputy Assistant Secretary of 
  State, Bureau of East Asian and Pacific Affairs, U.S. 
  Department of State, Washington, DC............................    37
    Prepared statement...........................................    40
Newman, Hon. Constance Berry, Assistant Administrator for Africa, 
  U.S. Agency for International Development, Washington, DC......    85
    Prepared statement...........................................    87
Noriega, Hon. Roger F., Assistant Secretary of State, Bureau of 
  Western Hemisphere Affairs, U.S. Department of State, 
  Washington, DC.................................................    50
    Prepared statement...........................................    56
Rocca, Hon. Christina B., Assistant Secretary of State, Bureau of 
  South Asian Affairs, U.S. Department of State, Washington, DC..     2
    Prepared statement...........................................     4
West, Mr. Gordon, Acting Assistant Administrator for Asia and the 
  Near East, U.S. Agency for International Development, 
  Washington, DC.................................................     7
    Additional testimony of Mr. West.............................25, 43
    Prepared statement...........................................     9
Yamamoto, Mr. Donald Y., Deputy Assistant Secretary of State, 
  Bureau of African Affairs, U.S. Department of State, 
  Washington, DC.................................................    80
    Prepared statement...........................................    81

                                 (iii)

  

 
                      FOREIGN ASSISTANCE OVERSIGHT

                              ----------                              


                         TUESDAY, MARCH 2, 2004

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:06 a.m. in SD-
419, Dirksen Senate Office Building, and S-116, The Capitol 
Building, Hon. Lincoln D. Chafee, presiding.
    Present: Senators Chafee, Allen, Brownback, Alexander, 
Coleman, and Bill Nelson.


             OPENING STATEMENT OF SENATOR LINCOLN D. CHAFEE


    Senator Chafee. Good morning. Today we are going to have a 
hearing on the budget of the appropriate committees, 
subcommittees, and on behalf of the Senate Foreign Relations 
Committee I would like to welcome all participants and guests 
of this hearing on U.S. foreign assistance.
    Today we will hear from Christina Rocca, Assistant 
Secretary of State for South Asian Affairs; Gordon West, USAID 
Acting Assistant Administrator for Asia and the Near East; 
William Burns, Assistant Secretary of State for Near Eastern 
Affairs; Don Keyser, Principal Deputy Assistant Secretary of 
State for East Asian and Pacific Affairs; Roger F. Noriega, 
Assistant Secretary of State for Western Hemisphere Affairs; 
Adolfo Franco, USAID Assistant Administrator for Latin America 
and the Caribbean; Don Yamamoto, Deputy Assistant Secretary of 
State for African Affairs; Constance Berry Newman; USAID 
Assistant Administrator for Africa; Elizabeth Jones, Assistant 
Secretary of State for Europe and Eurasian Affairs; and Kent 
Hill, USAID Assistant Administrator for Europe and Eurasia.
    We look forward to the testimony of all our witnesses and 
to the discussion of the role that U.S. foreign assistance can 
play around the world.
    Since the mid-1980s, Congress has not fulfilled its 
responsibilities to pass a foreign assistance authorization 
act. In the absence of such legislation, the job of providing 
guidance on foreign assistance has fallen to the Appropriations 
Committee. During the past year, Chairman Lugar has been 
pressing forward with attempts to pass a foreign assistance 
bill, and I share the chairman's hope that our committee in the 
Senate will work during the coming weeks to pass a thoughtful 
foreign assistance authorization bill that carefully examines 
existing programs and addresses emerging needs.
    We appreciated very much the testimony of the Secretary of 
State on February 12 on the administration's request to fund 
the Department's domestic and overseas operations. 
Understandably, many questions at that hearing focused on 
broader U.S. policy. Today we will probe foreign assistance 
programs in much greater detail.
    We hope to learn how the administration's fiscal year 2005 
budget request will support U.S. foreign policy interests, 
including efforts to combat terrorism, to reconstruct Iraq and 
Afghanistan, to advance education and environmental protection, 
to reduce the threat of weapons of mass destruction, to bolster 
our public diplomacy, and to fight poverty and AIDS.
    Today our hearing will consist of six regional segments, 
each led by the relevant subcommittee chairman. I will begin 
this process by leading the first two segments of our 
discussion, which will address foreign assistance for the Near 
East and South Asia. The third panel on East Asia and the 
Pacific will be chaired by Senator Brownback, and I believe 
that portion of the hearing will occur over in S-116 as there 
are floor votes scheduled.
    After a 1-hour lunch break, we will resume for a hearing on 
the Western Hemisphere, which will be chaired by Senator 
Coleman, and Senator Alexander will chair our fifth panel on 
Africa. Our last panel will focus on Europe and be chaired by 
Senator Allen.
    I thank all our distinguished witnesses and look forward to 
their budgetary insights, and I'll start with the Honorable 
Christina Rocca. Welcome, Christina.

 STATEMENT OF HON. CHRISTINA B. ROCCA, ASSISTANT SECRETARY OF 
 STATE, BUREAU OF SOUTH ASIAN AFFAIRS, U.S. DEPARTMENT OF STATE

    Ms. Rocca. Mr. Chairman, thank you. Thank you very much for 
giving us the opportunity to come and talk about how our 2005 
budget request serves U.S. policy priorities in South Asia.
    I have a longer testimony which I'd like to submit for the 
record and abbreviate the oral version, if that's OK.
    Senator Chafee. Without objection.
    Ms. Rocca. Since we came together a year ago, U.S. 
assistance has helped to establish some dramatic milestones of 
progress in the region. In January, Afghans adopted a moderate 
democratic constitution. Women and girls have continued to 
rejoin schools and the work force. Afghanistan's annual 
economic growth rate was estimated at 30 percent for the second 
year in a row. A 18-hour journey was reduced to 6 hours by 
completion of the first layer of the Kabul-Kandahar road in 
December.
    NATO agreed to assume leadership of the International 
Security Assistance Force for Afghanistan, ISAF, while the 
growing national army and police gathered strength and civil 
military provincial reconstruction teams extended security in 
the provinces.
    In Pakistan, 550 al-Qaeda and former Taliban operatives 
have now been captured, including al-Qaeda operational 
commander, Khalid Shekh Mohammed, and a September 11 plotter, 
Ramzi bin al-Shibh. Along the border with Afghanistan, 
checkpoints and law enforcement agencies were strengthened. A 
second forward operating base was established in Peshawar, air 
wing surveillance and transport was supported, and a new access 
road construction was begun.
    Pakistan's economic recovery proceeded at pace and the 
government's education reform efforts continued with a renewed 
focus on madrassas. Pakistan is helping to unearth the A.Q. 
Kahn proliferation network and we are asking them to share what 
they find with us.
    In January, we launched our Next Steps in Strategic 
Partnership, NSSP, initiative with India. Regional stability 
increased as India and Pakistan began a dialog about the 
restoration of bilateral ties and regional cooperation. Despite 
suspension of formal peace process in Sri Lanka, the cease-fire 
and informal cooperation continue, and we are assisting 
elections scheduled for early April.
    But the situation in Nepal is grim. Challenges remain in 
Bangladesh and in other countries, and we cannot rest until we 
see a fully peaceful, democratic and prosperous South Asia 
entirely free from terror and nuclear threat.
    Our fiscal year 2005 budget request for South Asia will 
enable us to consolidate hard-won gains and press ahead toward 
our goals. Our fiscal year 2005 foreign operations resource 
request totals $1.9 billion. Of that, over $1.6 billion 
supports our No. 1 policy goal, combating terror and the 
conditions that breed terror in the front line states of 
Afghanistan and Pakistan.
    Total U.S. assistance for Afghanistan this far, including 
for accelerated programs, comes to over $4 billion. The 
President's 2005 request of $1.2 billion for Afghanistan, which 
includes approximately $300 million from the Department of 
Defense, will sustain our accelerated efforts. Chief among 
these are building new democratic institutions following 
elections, training and equipping more army battalions and 
police, supporting military demobilization and reintegration, 
helping to end the drug trade, and fostering private sector 
investment for sustained growth.
    In Pakistan, recent attempts on President Musharraf's life 
underscore the need to shut down terrorist organizations and 
the networks that support them, something the government is 
working hard to do. Our fiscal year 2005 request for Pakistan 
contains $300 million in foreign military financing funds and 
$300 million in economic support funds for the first of a 5-
year, $3 billion Presidential commitment.
    The symmetry is no accident. As we facilitate the capture 
of al-Qaeda and Taliban remnants with FMF, we will help tackle 
conditions that breed terror by providing up to $200 million 
for ESF for economic stabilization and growth and at least 
another $100 million in ESF will support social sector 
programs. Remaining funds in our request support ongoing law 
enforcement, education, democracy, and health programs.
    The Next Steps in Strategic Partnership with India expands 
our cooperation on civilian nuclear activities, civilian space 
programs, high technology trade, and missile defense. As the 
initiative facilitates mutual economic benefits, we will 
maintain all U.S. international non-proliferation obligations 
and fund programs for enhanced export controls to India, 
Pakistan, and Afghanistan.
    As our hopes for India and Pakistan for an India-Pakistan 
rapprochement continue, crucial work is needed elsewhere to 
promote regional stability. Our fiscal year 2005 request for 
Sri Lanka will fund programs that are both an incentive to 
peace and a boost to reconstruction and reconciliation in war-
torn areas.
    The Maoists broke a 7-month cease-fire in Nepal last 
August. By October we imposed financial sanctions against the 
Maoists as a terrorist organization under Executive Order 
13224. While the United States, India, and the U.K. and others 
support the government, we share the view that a military 
solution will not work. We are urging the king and the parties 
to unite to pursue a political solution to the conflict and 
ensure respect for human rights. Our fiscal year 2005 request 
will continue to support the government's efforts to counter 
the insurgents and reduce underlying causes of the conflict.
    Promoting democracy and good governance is a goal firmly 
grounded in the President's belief in expanding freedom. Fiscal 
year 2005 funds requested for our democracy programs in South 
Asia will help bolster counter-terror, conflict prevention, and 
development efforts over the long term.
    Our human rights programs will help combat trafficking in 
persons and support women's rights, religious freedom, and 
programs to reduce child labor. As we strengthen good 
governance, we will in fiscal year 2005 continue to support 
long-term economic growth, diversification, and free trade 
throughout South Asia.
    Fiscal year 2005 funds requested for our economic programs 
will promote macroeconomic reform as well as help ordinary 
people to gain access to better education, health care, and 
income-generating opportunities.
    Of 1 billion Muslims in the world, some 460 million reside 
in South Asia. Our public diplomacy and development programs 
are building U.S.-Muslim ties and understanding, like the 
President's recently announced Greater Middle East Initiative, 
now being developed in consultation with prospective 
participants. Our bilateral programs support freedom and 
prosperity throughout South Asia.
    In fiscal year 2004, we retooled our $2 million regional 
economic support fund program to serve as an incubator for 
innovative or multi-country pilots to foster democracy and 
support education, income generation, or conflict resolution in 
key South Asian communities.
    Thanks again for this opportunity to describe our 2005 
budget request for South Asia. It remains crucial to enhancing 
our national security and promoting South Asia's stability, and 
I welcome your questions.
    [The prepared statement of Ms. Rocca follows:]

             Prepared Statement of Hon. Christina B. Rocca

                       ACCOMPLISHING OUR MISSION

    Chairman Lugar and members of the Committee, thank you for inviting 
me to come here today to talk about how our FY 2005 budget request will 
help implement U.S. policy priorities in South Asia.
    Mr. Chairman, since September 2001 we have advanced our most vital 
security interests in South Asia quite dramatically. A moderate, 
democratic Afghan constitution was adopted in January, with national 
elections scheduled for June. Estimates now put Afghanistan's annual 
economic growth at 30% over the past two years; and we helped the 
government institute reforms to facilitate that growth. Completion of 
the first layer of paving of the Kabul-Kandahar road in December was a 
major step toward extending the authority of the central government and 
linking key regions. We are pleased that our NATO allies agreed last 
year to assume leadership of the International Security Assistance 
Force for Afghanistan (ISAF). With our help, Afghanistan has made 
significant progress in establishing a new national army (ANA) and 
police force, and we have extended security through a network of civil-
military Provincial Reconstruction Teams in the provinces.
    Pakistan remains a crucial ally in the war on terror. Over 550 al-
Qaeda and former Taliban operatives have been captured, including al-
Qaeda operational commander Khalid Shekh Mohammed and September 11th 
plotter Ramzi bin al-Shibh. We have strengthened border security 
through support for an air wing, checkpoints, new outposts in Quetta 
and Peshawar, road construction to improve access, and training for--
and improved cooperation between--law enforcement entities in the 
Federally Administered Tribal Areas. Pakistan's economy has moved from 
crisis to stabilization. The government continues to pursue education 
reform, including for madrassahs, aimed at preparing young Pakistanis 
to gain employment and compete in the global marketplace. Pakistan is 
making good progress in unearthing the A.Q. Khan proliferation network, 
and we are asking them to share what they find with us.
    In January, we launched our Next Steps in Strategic Partnership 
(NSSP) initiative with India. The rapprochement between India and 
Pakistan that began last year has enabled not only a successful meeting 
on regional cooperation in January, but the beginning of a composite 
dialogue on the issues that divide them. Despite suspension of formal 
negotiations between the government and the Tamil Tigers in Sri Lanka 
since last year, and a political crisis within the government, the 
ceasefire there continues to hold.
    Impressive as these developments are, we cannot afford to rest 
until we see a fully peaceful, democratic and prosperous South Asia, 
entirely free from terror and nuclear threat. Our FY 2005 resource 
request for South Asia will help consolidate hard-won gains and enable 
us to press ahead against the challenges that remain. Chief among these 
are--in the spirit of the Afghanistan Freedom Support Act--assisting 
Afghanistan's new democratic institutions, broadening security 
(including through the act's Department of Defense drawdown authority), 
ensuring a full economic recovery, and helping to end the drug trade in 
Afghanistan. In Pakistan, recent attempts on President Musharraf's life 
underscore the need to shut down terrorist organizations and the 
networks that support them; something the government is working hard to 
do. Resources requested for Pakistan will help facilitate the war on 
terror on all fronts. We must help Sri Lanka achieve a lasting peace 
and rebuild a war-torn society and economy. In Nepal, our resources 
will help to counter a brutal Maoist insurgency. Our programs also aim 
to help the moderate democracy of Bangladesh address governance, 
transparency and economic challenges.

                FIGHTING TERROR IN THE FRONTLINE STATES

    Over $1.6 billion of our $1.9 billion FY 2005 foreign operations 
resource request supports our number one policy goal--combating terror 
and the conditions that breed terror in the frontline states of 
Afghanistan and Pakistan. Total U.S. assistance for Afghanistan thus 
far, including this year's acceleration of reconstruction, comes to 
over $4 billion. The President's $1.2 billion request for Afghanistan 
in FY 2005, which includes $300 million from the Department of Defense, 
will sustain our accelerated programs. Following national elections 
this summer, we will help strengthen new democratic institutions from 
the national to local levels, and support the nascent civil society and 
independent media. We will also support counternarcotics activities, 
and provide training and equipment for additional ANA battalions and 
train the remaining national and border police. The nexus between 
narcotics and terrorism is becoming increasingly apparent, and it is a 
top priority of ours, and of our international coalition partners, to 
stamp out drug production where we find it. While we will support 
continued macroeconomic reforms, invest in private sector development 
to create sustained growth and build necessary roads and bridges, at 
the grassroots level, we are reaching out to ensure a Bonn dividend. We 
will support women's centers that provide health and legal services; 
will build hundreds of schools and clinics through Provincial 
Reconstruction Teams; will train teachers and provide schoolbooks; and 
will help farmers re-establish their livelihoods.
    The Government of Pakistan continues to capture al-Qaeda terrorists 
and Taliban remnants. President Bush has committed to work with 
Congress to demonstrate sustained support for these efforts and for 
ongoing economic, education and democracy reforms. Our FY 2005 request 
for Pakistan includes $300 million in economic and $300 million in 
security assistance for the first of a five-year, $3 billion 
commitment. The symmetry is no accident. As we enable Pakistan to 
combat terror by providing $300 million in Foreign Military Financing, 
we must help tackle conditions that breed terror by expanding education 
and economic growth and employment opportunities and by helping to 
restore a fully-functioning democracy. The $300 million in FY 2005 
Economic Support Funds (ESF) requested will include both macro-
stabilization and social sector elements. Remaining budget resources 
requested for Pakistan in FY 2005--including Development Assistance; 
Child Survival and Health; International Narcotics, Crime and Law 
Enforcement; and Nonproliferation, Anti-Terrorism, Demining and Related 
Programs resources--will fund critical border security, 
counternarcotics and law enforcement programs, in addition to ongoing 
development programs for education, democracy and health that 
demonstrate our support to ordinary Pakistanis.

           NEXT STEPS IN OUR STRATEGIC PARTNERSHIP WITH INDIA

    In January, President Bush and Prime Minister Vajpayee announced 
our Next Steps in Strategic Partnership (NSSP), an initiative designed 
to cement our strategic ties with the world's largest democracy. This 
expanded cooperation on civilian nuclear activities, civilian space 
programs, high technology trade and an expanded dialogue on missile 
defense will bring significant economic benefits to both sides, while 
also achieving our nonproliferation goals through enhanced export 
control regimes in India and maintaining all our international 
nonproliferation obligations. Our FY 2005 resource request for India 
will help complete successful economic reforms, support HIV/AIDS and 
child survival programs, and provide aid for her most vulnerable 
groups.

                           REGIONAL STABILITY

    Regional Stability is another high policy priority in South Asia. 
We credit the vision and statesmanship of Prime Minister Vajpayee and 
President Musharraf and their governments for the remarkable progress 
recently achieved toward resolving the issues that divide them. At the 
same time, India is conducting a simultaneous dialogue with the 
Kashmiri group, the All Parties Hurriyat Conference. We will be 
watching developments with hopes for continued success and will 
continue to support these efforts to resolve the long-running conflict. 
Our bilateral interaction with India and Pakistan includes wide-ranging 
discussions on how to control the onward proliferation of nuclear 
technology. We are urging both countries to bring their export controls 
in line with international standards and to enforce them effectively. 
Our FY 2005 request includes program support for their efforts in this 
regard.
    In Sri Lanka, the 2003 suspension of formal peace negotiations 
between the government and the separatist Liberation Tigers of Tamil 
Eelam (LTTE) was followed by an October LTTE proposal for an interim 
administration in the predominantly Tamil areas of the north and east 
of the country, which we hoped would help the parties resume formal 
negotiations. But a continuing standoff between the Prime Minister and 
President has prevented a return to the talks; with parliamentary 
elections called for April. However, the Sri Lankan people want to see 
their leaders bring an end to this war. The ceasefire continues to 
hold. An informal peace process continues, bringing increased 
interaction among the ethnic communities, and growing trade and 
economic opportunity. Our FY 2005 request for Sri Lanka will fund 
short-term, high impact programs that are both an incentive to peace, 
and a boost to reconstruction and reconciliation in war torn areas. 
Nation-wide development and health programs will support the 
Government's economic competitiveness and anti-poverty efforts, while 
our democracy programs will support reconciliation and promote 
reintegration.
    In August, 2003 the Maoist insurgents in Nepal unilaterally 
withdrew from a seven-month ceasefire and resumed military attacks and 
terrorist activity, leading the U.S. in October to designate the 
Maoists as a terrorist organization under E.O. 13224, which imposes 
financial sanctions against the group. The United States, India, the 
UK, and others in the international community stand with the Government 
of Nepal against the Maoists, but also share the view that a military 
solution is not possible and that a negotiated settlement is required. 
The balance between our FY 2005 requests for security and development 
programs in Nepal underscores this point. We are deeply concerned about 
suspension of the electoral process and numerous human rights abuse 
allegations against the government security forces and Maoists alike. 
Political parties and the King must unify under a multi-party 
democracy, ensure respect for human rights, and reach a political 
solution to the conflict for the benefit of all Nepalis. Our FY 2005 
request will provide strategically-targeted economic, governance and 
humanitarian assistance in areas vulnerable to Maoist control, while 
long-term development programs address the broader conditions of 
desperate poverty and lack of opportunity that have bred instability.

                            GOOD GOVERNANCE

    Promoting effective democratic governance is a goal firmly grounded 
in the President's belief in expanding freedom. Democratic development 
will bolster our counterterror, conflict prevention, and development 
efforts over the long term by establishing political stability and good 
governance. U.S. democracy programs in South Asia address the historic 
challenge of centralized, patronage politics. At one end of the 
spectrum, we are supporting Afghanistan's national elections in 2004. 
Throughout the region we are working with legislatures, judiciaries, 
local government, political parties, civil society and the independent 
media to tackle corruption and increase citizen participation. Our 
human rights programs combat trafficking in persons and child labor, 
while promoting women's rights and religious freedom.

                            ECONOMIC GROWTH

    As we support Afghanistan's economic reconstruction and Pakistan's 
economic stabilization, we must help the other South Asian countries to 
reduce poverty, and countries dependent on textiles to diversify. Our 
bilateral economic programs support macro reforms to spur long term 
growth and trade, while helping ordinary people to gain access to 
better education, health care and income-generating opportunities.

                               CONCLUSION

    Of one billion Muslims in the world, over 400 million reside in 
South Asia. Our public diplomacy and development assistance programs 
are building stronger ties and understanding between the United States 
and South Asian Muslim communities. Like the President's recently 
announced Greater Middle East Initiative--now being developed in 
consultation with prospective participants--our bilateral programs 
support freedom and prosperity throughout the South Asia region.
    Our bilateral programs are complemented by our $2 million regional 
Economic Support Fund (ESF) program, which serves as an incubator for 
innovative or multi-country pilots to foster democracy or support 
education, income generation and conflict resolution in key South Asian 
Muslim communities. Projects thus far include expanding USAID Dhaka's 
successful community leader training on health, development and human 
rights and hopefully, helping to explore a similar program in 
Afghanistan. We are taking a regional Muslim women's rights network to 
the next level, helping to establish ongoing collaboration across 
borders to gain acceptance of women's rights under Islam, using 
successful models from Southeast Asia. We are also supporting the 
development of Pakistan's new independent radio through a grant to 
Internews.
    In conclusion, our FY 2005 resources request will enable us to 
continue implementing U.S. policy goals that remain crucial to our 
national security as well as to the future stability of South Asia. Mr. 
Chairman, I thank you and the Committee for your generous time and deep 
interest.

    Senator Chafee. Thank you, Secretary Rocca. Now we'll hear 
from Mr. Gordon West.

 STATEMENT OF GORDON WEST, ACTING ASSISTANT ADMINISTRATOR FOR 
                 ASIA AND THE NEAR EAST, USAID

    Mr. West. Thank you, Chairman Chafee. USAID appreciates 
this opportunity to discuss our programs in the South Asia 
region. South Asia, as is well-known, is home to over more than 
half of the world's poor. Less known, South Asia is also home 
to over half of the world's Muslim population, in fact often 
overlooked due to the world's attention to the Middle East.
    South Asia is also an area of change and dynamism, and this 
has brought both challenges and great opportunities to this 
region. Nowhere are those challenges and opportunities more 
apparent than in Afghanistan. We're now beginning our third 
year of operations in Kabul. We look back to meetings in Berlin 
and Brussels and Tokyo in the very early days, the beginning of 
the Afghanistan program, and the challenges were almost 
overwhelming.
    We have seen since those days tremendous strides in the 
creations of ministries, of the building of basic 
infrastructure, roads, schools, clinics, the basis of an 
agriculture sector, the foundations for an operating economy, 
and indeed, there is much to be proud of in the accomplishments 
that the U.S. and its partners in Afghanistan have 
accomplished.
    As noted in the upcoming sessions scheduled for Berlin, 
there is much yet to be accomplished. Largely we are looking at 
sort of a transition phase where the basics are there, but the 
capacity is yet to have been developed in terms of the Afghans 
taking over their own security, taking over their own role as 
head of government and a governing body, of being able to 
expand their economy and reach out to the rest of the world, of 
being able to expand and improve their services. This will very 
much be the attention of the coming years. A lot of the basis 
is now there but there's a lot of work to be done, and USAID 
looks forward to continuing to work closely with State, DOD, 
and the other donor partners of the world in taking on these 
challenges.
    Clearly, security is one of the major factors that we face 
on a daily basis in Afghanistan, particularly in the south and 
southeast. And while it does demand our constant attention, it 
has not prohibited us from continuing and expanding our 
programs.
    Pakistan is another of our major focuses in South Asia. We 
have now been on the ground for approximately a year and a 
half. Our programs started out with a large focus on basic 
health and education services. We are encouraged by the 
progress in both of those sectors. There is a considerable 
dynamism in the private sector, in the NGO sector, and 
increasingly in the government as we decentralize and expand 
the ability and the capacity to deliver these basic social 
services.
    This past year has seen us dramatically increase our 
support in the democracy sector, focusing on developing the 
capacity of women in the legislative sector, on expanding the 
role of an open media, and of increasing civil society and rule 
of law. We are also initiating programs in the economic growth 
area focused on small business development.
    In Nepal, we have dramatically shifted the focus of our 
program, largely to conflict mitigation. While we do believe 
that the Maoists can no longer threaten to overtake the 
country, we also recognize that without positive and effective 
leadership at the center, there are limitations to what the 
outside community can do to really push Nepal forward, and we 
hope for better days in the future.
    In Sri Lanka, there have been setbacks, but we are still 
encouraged by the willingness to overcome the decades and, 
indeed centuries of conflict in that country. We are playing a 
leading role, along with our partners in the U.S. Government 
and the donor community in the peace negotiations and 
structure. We have our Office of Transition Initiatives and 
many other resources on the ground and we continue to focus on 
Sri Lanka as a priority. It is also among the candidates that 
may be within the realm of the Millennium Challenge Account 
over the coming years.
    Bangladesh, a moderate Muslim majority, continues to 
progress. It has political challenges, but we have seen great 
strides in almost all the sectors we work. We are hopeful that 
this program will really be a model for our role in outreach 
to--it has been an outreach to the Muslim community in economic 
development and in the delivery of basic social services.
    In India we continue to see a transformation of our 
relationship as India grows as a world power. We are very much 
focused on vulnerable populations. We also note that the HIV/
AIDS threat in India is real and growing. There are four states 
in particular which are a focus of our attention. We have $13.5 
million in HIV/AIDS programs working in India and we do believe 
this is a program that deserves and will continue to get 
increasing attention.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. West follows:]

                   Prepared Statement of Gordon West

    Chairman Lugar, members of the committee, I welcome the opportunity 
to discuss with you the important work that the U.S. Agency for 
International Development is carrying out in the Asia and Near East 
region. This has been a year of extraordinary challenges for the United 
States, and I am confident USAID has helped our nation meet those 
challenges.

                                OVERVIEW

    The countries encompassed by USAID's Asia, Near East (ANE) bureau 
are at the core of U.S. national interests and foreign policy 
priorities. This region faces major development challenges including 
terrorism, instability, oppressive governments, HIV/AIDS, widespread 
corruption, and persistent environmental degradation. Strongholds of 
extremism and fundamentalism prey on poverty-stricken people who see 
little hope in the future. Regional pockets harbor terrorists and 
radicals who are of significant risk to those countries' governments as 
well as to the United States.
    The lack of transparency in economic and legal institutions and 
severe restrictions on human freedoms impose a sense of fear and 
hopelessness that robs people of their dignity and freedoms. Oppressive 
regimes impose their will while sanctioning illicit activities that 
destroy opportunities for equitable economic growth and human well-
being. These challenges hinder prospects for the millions of people in 
the ANE region living in abject poverty and, in many cases, terror.
    The USAID missions in the ANE region carry out foreign assistance 
programs that meet these challenges while supporting key U.S. foreign 
policy interests. The wars in Iraq and Afghanistan have created 
challenging and dangerous working environments. On-going hostilities 
and random terrorist attacks extract a price, in terms of both dollars 
and personnel. Through perseverance, our professionals in the field are 
meeting this challenge and accomplishing those things asked of them by 
the President and the Congress.
    HIV/AIDS is a plague that destroys communities and bankrupts social 
systems. In Asia and the Near East, eight million people are HIV 
positive, and each year hundreds of thousands die from HIV/AIDS-related 
illnesses. This could increase substantially if the epidemic is allowed 
to spread from high-risk groups to the general population in countries 
like India, China, Indonesia and Thailand.
    Millions of girls and women in the ANE region are not allowed to 
pursue an education. The ANE bureau believes that education for all, 
regardless of gender or religion, is a key element to achieving the 
democracy and economic prosperity, goals that contribute to stability.
    Rapid industrialization, unsustainable energy policies and growing 
populations are straining the region's natural resources and 
environmental systems. Urban air pollution levels in Asia are among the 
highest in the world. The consumption and destruction of natural 
resources is occurring at an unsustainable rate that does not allow for 
replenishment.
    The programs USAID will implement to meet these challenges are 
closely linked to the joint State-USAID Strategic Plan, which aligns 
U.S. diplomacy efforts with development assistance. Throughout the 
region, USAID strives to ``create a more secure, democratic, and 
prosperous world for the benefit of the American people and the 
international community.''

                   PROGRAM AND MANAGEMENT CHALLENGES

    Security is the single gravest and most costly concern to the Asia, 
Near East Bureau, and yet it is the most difficult to predict. USAID is 
grappling with how to plan and budget for unknown threats to adequately 
protect the professionals charged with carrying out U.S. assistance 
programs.
    Iraq and Afghanistan top the list of countries with serious 
security concerns, but they are not alone. Jordan, Indonesia, Pakistan, 
Lebanon, Israel, and the Philippines, to name a few, also have security 
concerns. Virtually every country in the ANE region bears the burden of 
increased risk and the attendant security procedures and costs that 
accompany those risks. Meeting these challenges and protecting our most 
important asset, the people who design and manage these important 
programs, requires adequate resources.
    In terms of program challenges, Iraq and Afghanistan will remain 
USAID's highest priorities in the ANE region. Rebuilding these 
countries will improve world stability. In Iraq, USAID efforts will 
allow a freed Iraqi people to govern their own country in an atmosphere 
of democratic freedom. USAID will require additional program and 
operating resources to continue the reconstruction and stabilization 
work in Iraq beyond 2005.
    In Afghanistan, ANE has made great strides with completion of the 
Kabul-Kandahar road and new constitution. The Afghan people are now 
looking forward to free and open elections in the near future. ANE will 
continue to rebuild infrastructure while improving educational and 
economic opportunities that will allow democracy to flourish in these 
countries that have not enjoyed basic human rights for decades.
    Education is a high priority in ANE. It is recognized that 
education is a key factor to stability, democracy and economic 
prosperity. New or expanded initiatives are being implemented in some 
countries, but more could be done to address radical and anti-American 
teachings being provided in some alternative religious schools.
    Several countries in the ANE region are battling economically 
devastating epidemics of HIV/AIDS. In some countries the prevalence 
rate is beginning to slow or even turn around because of the 
interventions being taken. Unfortunately, the epidemic continues to 
grow in some of the more densely populated countries. For example, 
India, with a prevalence of just less than one percent, has the second 
largest number of HIV positive people in the world. In Indonesia and 
Nepal, the epidemic is showing signs of moving into the general 
population and will require intensive efforts to slow or stem its 
spread. Additional HIV/AIDS resources will be needed in those countries 
to combat the epidemic as it spreads to the general population.

                               NEAR EAST

Iraq
    USAID participated in Operation Iraqi Freedom by moving into Iraq 
on the heels of combat troops. In nine months, USAID has achieved 
amazing successes in Iraq, in spite of gunfire and direct rocket 
attacks. The need for an immediate response to the reconstruction and 
humanitarian needs in Iraq this year required a shift of financial and 
human resources. USAID diverted resources from other missions in the 
region so that people, finances and contractors were ready to act as 
soon as they were allowed into Iraq.
    Through close coordination with the Coalition Provisional Authority 
(CPA) and other USG entities, USAID is playing a key role rebuilding 
Iraq's infrastructure, aiding in the establishment of local and 
national governance systems, rebuilding the education and health 
systems and helping revitalize the national economy. A long-term effort 
will be required to rebuild Iraq and establish a democracy with a free, 
market-oriented economy in which the Iraqi people have a voice and 
choice in their future. A substantial financial commitment will also be 
necessary to ensure the safety of our professionals working in such 
difficult circumstances.
    As the term of the CPA lapses, USAID will continue to work closely 
with State and other USO agencies to ensure that our on-going 
development efforts are properly aligned and complimentary to political 
initiatives. We will continue the relief and reconstruction work that 
will allow the Iraqi people to rebuild their lives as we help them 
rebuild their country.

Egypt
    Egypt and the United States share strategic interests that include 
the achievement of freedom, stability and peace in the region. USAID's 
programs in Egypt support this goal by helping promote prosperity in 
Egypt and facilitating the country's ongoing, but incomplete, 
transition from an economy controlled by the state to a free-market 
oriented one. The greatest threat to domestic stability in Egypt is 
frustration over the persistent lack of economic opportunity. With high 
rates of unemployment and underemployment, about one-third of Egypt's 
69 million people now live below the poverty line. Without ready access 
to peaceful ways to express their aspirations and concerns, Egyptians 
may turn to ways that threaten stability.
    To help Egypt meet these challenges in 2005, USAID programs will 
place special emphasis on three programs. First, the education program 
will continue to expand the benefits of community-based education 
reform to Upper Egypt and poorer parts of Cairo. Second, the governance 
program will continue to expand strengthening the role of 
nongovernmental organizations, increasing transparency and 
participation in government, and improving the quality of journalism 
and the administration of justice. Third, business investment--
necessary for job creation--will be promoted through financial market 
strengthening and reform, customs reform, and increased support for 
small business development.
    ANE recognizes the need to address issues in other Arab countries 
to head off growing radicalism and anti-Americanism. Assistance 
programs in Morocco and Jordan have been restructured to better respond 
to USG priorities and joint State-USAID strategies, with emphasis on 
education, democracy, governance and economic growth.

West Bank and Gaza
    This past year held moments of anticipation and despair for the 
Palestinian people. The establishment of the Palestinian Prime 
Minister, implementation of significant financial management reforms by 
the Palestinian Authority (PA), and agreement by the Israelis and the 
Palestinians to President Bush's Road Map for Peace produced moments of 
great anticipation for the Palestinian people. For a time, both sides 
undertook limited actions consistent with the Road Map: Israel removed 
several illegal outposts and withdrew from Northern Gaza; and the PA 
took measures to exert greater security control over areas of the West 
Bank and Gaza (WBG), including negotiating a temporary ceasefire, with 
Palestinian militants. The breakdown of the ceasefire, a resumption of 
suicide bombings, the collapse of Prime Minister Abbas' government, and 
the stagnation of PA reforms, however, dashed those hopes.
    Now, USAID faces competing demands on its resources. First are the 
immediate needs of the population, which are enormous. The fact that a 
humanitarian catastrophe has been averted in the West Bank and Gaza is 
due only to the large amounts of donor emergency assistance that has 
been provided. In spite of the valuable infrastructure projects 
planned, USAID has had to reallocate more than $200 million to 
emergency response programs. Through these programs, USAID addresses 
the basic needs of the Palestinian population through activities that 
improve and sustain performance in the health care system, create jobs 
and long term employment on an emergency basis, and provide assistance 
to rebuild damaged infrastructure and roads.
    USAID funds also support political and economic policy reforms, in 
line with the President's call for reform of the Palestinian Authority, 
including the strengthening of key PA ministries and regulatory 
agencies, the legislature and the judiciary, and support for 
Palestinian NGOs that promote democratic values and moderation. USAID 
activities work to revitalize the private sector, including repair of 
damaged small and medium businesses, work with small and medium 
enterprises on improved management processes, financial restructuring, 
and the development of appropriate private sector and investment laws 
and regulations.

Jordan
    Jordan faces several critical long-term challenges. Prominent among 
these is Jordan's high population growth rate that will cause the 
population to double by 2027. This challenge is compounded by high 
levels of poverty and unemployment; between 15% and 30% of Jordanians 
live on less than $439 per year. Further complicating the situation is 
a traditionally low level of participation in civil society, which 
leads to a perceived lack of personal freedom.
    To address these challenges, USAID promotes Jordanian-led 
development. USAID's programs in Jordan are jointly designed and 
implemented with the Government of Jordan and thereby promote a stable, 
reform-driven Jordan. In so doing, the program not only strengthens a 
strong strategic ally in the Middle East but also serves as a model to 
less reform-oriented Middle Eastern nations.

Lebanon
    In Lebanon, USAID, working primarily through organizations outside 
the Government, address the economic, political and environmental 
challenges that country is facing. USAID's program concentrates on 
improving living standards by revitalizing and expanding economic 
opportunities for small entrepreneurs and disadvantaged, mine-affected 
people, encouraging trade and investment with WTO accession, 
strengthening American educational institutions, and building the 
capacities of indigenous groups. USAID programs also aim to improve 
environmental policies and practices by developing appropriate waste 
management practices, creating environmental awareness, and promoting 
water sector restructuring and efficient water management. In addition, 
USAID-funded activities encourage good governance and transparent 
practices by strengthening municipalities throughout Lebanon.

Morocco
    Morocco is a middle-income country with the human and social 
development levels of a low-income country. Approximately 48% of adults 
are illiterate, placing Morocco 20th among the 22 Arab League countries 
(surpassed only by Mauritania and Yemen) in literacy rates. Women are 
particularly affected, with a female illiteracy rate of 62%, and higher 
in rural areas.
    The U.S. Government's highest economic priority in Morocco is the 
negotiation, conclusion, and implementation of the U.S.-Morocco Free 
Trade Agreement (FTA). The FTA, which is in the final stages of 
negotiation, will accelerate the major economic reforms and 
restructuring that will attract investment, open global markets, and 
create jobs. USAID is providing support to the government of Morocco to 
enable it to maximize the positive effects of the FTA and help mitigate 
negative impacts such as increased rural unemployment. Over the next 
year, USAID will put in place new activities to create jobs, provide 
workforce training and assist the Government of Morocco to decentralize 
and better meet the needs of its people.

Yemen
    USAID opened a new mission in Yemen during this past year. Our 
program there will address U.S. foreign policy objectives and, 
specifically, the war on terrorism. USAID will assist the Yemeni 
Government in improving their health and education systems while 
encouraging improved governance and participation.

                               SOUTH ASIA

Trafficking
    Rapid social and economic changes occurring in this region fuel 
mobile migrant populations and growth of the sex and drug trades. 
Trafficking is one of today's greatest human tragedies. The U.S. 
Government estimates that up to a million women and children are 
trafficked annually. Some victims are tricked into leaving their homes 
with the promise of a better life and a well-paid job.
    Some are kidnapped and still others are sold by desperate family 
members faced with inescapable poverty. USAID is working closely with 
the State Department in multiple countries in South Asia to implement 
programs to combat this evil.

Afghanistan
    The reconstruction and development of Afghanistan continues at an 
accelerated pace, in spite of the continuing dangers there. The most 
striking success was completion of the first layer of pavement on 390 
kilometers of the Kabul-Kandahar highway, which links Afghanistan's two 
largest cities. This achievement reduces transportation costs, improves 
economic growth prospects, and expands access to services for one-third 
of the country's population. Work in the transportation sector is now 
expanding to the Kandahar-Herat portion of this same highway and 
rehabilitation of over 1,000 kilometers of secondary roads.
    In health and education, USAID is building clinics, supporting NGOs 
across the country, building schools, training teachers and providing 
textbooks. Agriculture is the livelihood for approximately three-
quarters of Afghans, and USAID is working to improve productivity and 
market access as well as helping Afghans to expand into new crops. 
Building on a successful currency exchange program, USAID continues to 
assist the Central Bank and Ministry of Finance to strengthen the 
central government's economic management and budgeting. USAID also 
played a key role in December's Constitutional Loya Jirga coordinating 
logistics and providing technical assistance. Critical preparation is 
now underway for elections in the summer of 2004.

Pakistan
    Pakistan is a key ally in the Global War on Terror and USAID-funded 
programs are working to strengthen the fundamental social and economic 
weaknesses there. One of USAID's foremost programs seeks to improve 
primary education. Improved and more accessible education will build 
the economy, counter extremism, and promote moderation among the 
population. USAID is also assisting the most vulnerable segments of 
society, including women, infants, and children, by providing access to 
health, including reproductive health services.
    USAID's democracy and governance program in Pakistan is working 
with civil society organizations, political institutions and the media 
to promote and strengthen democratic principles of good governance. An 
empowered civil society will create more effective, responsive local 
and national governance, making legislative institutions more 
accountable to constituents. Finally, a fourth and critical sector is 
economic growth. USAID is working to reduce poverty and increase income 
and employment for the poor, especially women and young adults. The 
program is assisting micro-entrepreneurs to start and expand businesses 
by providing a source of credit in some of the poorest, most isolated 
regions of the country.

India
    India, the world's largest democracy, home to over one billion 
people (roughly one-sixth of the world's population) is a key partner 
with the United States in the war on terror and an anchor for security 
and economic growth in South Asia. Both nations want to dramatically 
transform their relationship. The Indian government is intensifying its 
economic and social policy reforms to decrease poverty and increase 
social equity and is committed to cutting the poverty rate in half by 
the year 2020.
    USAID programs in India will continue to advance four U.S. national 
interests: (1) economic prosperity achieved through opening markets; 
(2) global issues of population growth, infectious diseases, and 
climate change; (3) development and democracy concerns of alleviating 
poverty, reducing malnutrition, and improving the status of women; and 
(4) humanitarian response by saving lives and reducing suffering 
associated with disasters.
    In addition to the bilateral program, ANE's South Asia Regional 
Initiative/Energy (SARI/Energy) program encourages regional cooperation 
in energy development and the eventual trade in clean energy resources 
among South Asian countries. The United States-Asia Environmental 
Partnership promotes the adoption of clean and efficient technologies 
in addition to policies and practices that support the positive 
relationship between economic growth and environmental protection in 
India.

Sri Lanka
    In Sri Lanka, USAID moved from a program closeout scenario in 2001 
to the design and implementation of an ambitious program that supports 
a negotiated settlement to the 20-year conflict in that country. U.S.-
funded activities provide transition and humanitarian assistance to 
those areas affected by the conflict while working to improve 
democratic institutions and processes. Through these programs, the 
respect for human rights is promoted and economic growth and stability 
through market-oriented interventions are being supported. USAID is 
also working with other donors to monitor the upcoming April 2004 
parliamentary elections to ensure that they are free and fair.

Nepal
    The Maoist insurgency in Nepal has been costly in human terms and 
has severely disrupted that country's already fragile economy. The 
problems have been exacerbated by the political impasse between the 
monarchy and the political parties. By supporting interventions that 
address underlying causes of popular dissatisfaction (poverty, 
inequality, and poor governance) which contribute to the insurgency, 
the U.S. is making an important contribution to fighting terrorism, 
promoting regional stability, and diminishing the likelihood of a 
humanitarian crisis. The USAID program is aimed at reducing the impact 
of the insurgency on individuals and their communities, increasing 
household food security, reducing fertility and protecting the health 
of Nepalese families, addressing the country's energy needs, and 
assisting the Government of Nepal in dealing with critical problems of 
poor governance, weak rule of law and inconsistent democratic 
practices.

Bangladesh
    Bangladesh has progressed significantly during the past decade 
achieving self-sufficiency in rice production, lowering infant and 
child mortality rates, virtually eradicating polio, increasing girls' 
enrollment in schools, and consistently increasing annual GDP. USAID's 
program of assistance in Bangladesh is particularly attuned to the 
priorities expressed in the joint USAID-State Department Strategic Plan 
2004-09. In particular, the program in Bangladesh supports the joint 
objective of promoting democracy and economic freedom in the Muslim 
world, reducing the threat of famine, and advancing sustainable 
development goals. U.S. strategic interests include improving health, 
education, economic development, and the environment for the 
Bangladeshi population, and minimizing the costs of natural disasters.

                               EAST ASIA

Regional Development Mission for Asia
    USAID's Regional Development Mission/Asia (RDM/A) opened in 
Bangkok, Thailand in June 2003. The new mission manages regional and 
country-specific programs in Burma, China, Laos, Thailand, and Vietnam, 
as well as HIV/AIDS and environmental programs that extend East into 
the Pacific and West into South Asia. RDM/A also acts as the regional 
hub for services including contracting, administration, and disaster 
response. RDM/A will manage four programs: Cleaner Cities and 
Industries in Asia, Effective Responses to HIV/AIDS and Other 
Infectious Diseases, Improved Governance in South East Asia, and 
Special Foreign Policy Interests Addressed in South East Asia.

HIV/AIDS
    HIV/AIDS continues to increase in Asia where, in several countries, 
the epidemic has moved from high-risk groups into the general 
population. This could put 3.8 billion people at risk throughout the 
region. Approximately 8 million people in Asia are infected, including 
one million who became infected with HIV just during the last year.
    Low national prevalence rates in some highly populated countries 
conceal serious localized epidemics. In China and India alone, there 
are more than 5 million people, adults and children, who are infected. 
Unless HIV/AIDS prevention efforts improve, Asia could have 40 million 
infected persons by the year 2010. This would make the region the 
highest of any infected region in the world. The HIV/AIDS epidemic in 
Asia could be contained in Asia if adequate resources and prevention 
mechanisms are focused on the region.
    USAID programs are supporting HIV/AIDS prevention, care and 
treatment in 15 Asian countries, where some notable successes have been 
achieved. For example, with USAID support and Government of Cambodia 
commitment, HIV/AIDS in that country has decreased from 4% of the adult 
population to 2.8%. However, the current flat-lined budget for HIV/AIDS 
activities will limit the level of effort USAID will be able to 
provide.
    With continued funding for prevention, care and treatment, 
strategic planning, and support for high-level government policy 
support, the HIV/AIDS epidemic in the ANE region could be contained, 
thereby mitigating the impact of this dreadful disease on individuals, 
families and communities.

The Philippines
    The Muslim population of Mindanao has been marginalized 
economically for decades and now lacks access to basic social services. 
The long neglect and inequities for people in these areas have 
contributed to deep seated feelings of resentment and alienation from 
the nation as a whole.
    USAID has refocused its program to provide more funding to this 
fragile area to encourage economic development within the conflict-
affected areas. Local organizations that support peace will receive 
support, as will programs for indigenous peoples affected by conflict. 
Microfinance initiatives play a key role in supporting small-scale 
projects serving the needs of impoverished women. Rural agriculture 
will remain a major focus, in tandem with specific interventions 
designed to reintegrate former combatants into productive social and 
economic roles. USAID is designing programs to improve the Autonomous 
Region for Muslim Mindanao's (ARMM) capacity to deliver basic services 
(especially in health and education sectors). USAID will continue to 
enhance access to justice by supporting programs that build the 
capacity of local level community justice systems.
    USAID's new education initiative in the Philippines will address 
the disparities in education between the ARMM and the rest of the 
country. This will demonstrate a commitment to greater equality and 
help reduce the widespread sense of alienation and exclusion felt by 
many Muslims in the region.
    Through these activities, more than 21,000 former combatants of the 
Moro National Liberation Front (MNLF) have successfully reintegrated 
into the peaceful economy and have not taken up arms again. Over 1,000 
homes of former rebels have been electrified, and economic 
opportunities in Mindanao as a whole have expanded through producer 
organizations and high value crops. The rebel Moro Islamic Liberation 
Front (MILF) is now poised to seek a historic peace agreement with the 
government, and, according to President Macapagal-Arroyo, this is due 
in no small measure to the attractiveness of USG assistance directly 
benefiting the MNLF. USG assistance will not go to the MIFL areas until 
after the MILF has signed an agreement with the Government and cut all 
ties to terrorist groups. USAID's efforts to reintegrate former 
combatants have been so successful that the State Department 
distributed a video presentation of the program to be used as a model 
for U.S. relations with Islamic communities worldwide.

Indonesia
    USAID's 2000-2004 assistance program to Indonesia was designed to 
support a transition from 1998-era crisis response initiatives to 
strategic interventions that establish the foundation for economic, 
social and political reforms. These goals have largely been 
accomplished. With the planned level of FY 2004 funding, USAID will be 
the lead donor supporting transparent, inclusive and peaceful 
legislative and the first-ever, direct presidential elections in 
Indonesia.
    The next step will be to provide assistance that will make it a 
more moderate, stable and productive country. USAID is embarking on a 
new strategic direction that will address these needs. The new 
strategy, which the Mission is currently developing and will carry them 
through the next five years, will be presented to ANE in March for 
discussion and approval. This strategy will focus on programs that will 
improve the quality of decentralized basic education, improve 
democratic and decentralized governance, elevate the quality of basic 
human services, maintain healthy ecosystems, and increase economic 
growth and job creation through assistance.
    The education program, which will be initiated in FY 2004, is a new 
one based on President Bush's announcement of an Indonesian education 
initiative. Program activities will prepare the children of Indonesia 
to become productive members of the world economy. USAID programs will 
also prepare Indonesians to be effective participants in their own 
democratic society, while reducing extremism and intolerance in favor 
of democracy, respect for diversity, and resolution of societal and 
political differences through non-violent means.

Cambodia
    Although the Kingdom of Cambodia continues with democratic 
governance issues, it has made progress. The July 2003 national 
assembly elections, partially funded by USAID, helped to create the 
most open political environment that country has seen in the past 
decade. The prime U.S. national interest in Cambodia is to reduce 
Cambodia's vulnerability to international terrorism and international 
crime (such as trafficking in persons and narcotics) through building 
the country's potential to become a democratic state with an effective 
legal and judicial system.
    While not working directly with the Cambodian government, USAID's 
democracy and governance program seeks out and funds NGOs that 
challenge the political and judicial system to treat Cambodian citizens 
equitably. The Agency's support will continue to sustain the 
development of professional party organizations, expand participation 
of youth in politics, and provide all democratic parties a presence on 
Cambodian airwaves. USAID's health program will continue to increase 
the number of health centers that can deliver an integrated health 
package, ensuring links between HIV/AIDS and all other health programs. 
These health centers will provide services for maternal and child 
health, reproductive health, family planning, tuberculosis, HIV 
prevention, care and support, and community outreach. USAID's health 
programs will also focus on support for orphans and vulnerable children 
and prevention of mother-to-child transmission of HIV.

Mongolia
    Mongolia has made significant progress over the past twelve years 
in establishing the basic framework for a democratic society. An 
impressive constitution is in place, along with laws and regulations 
that provide the foundation for even further progress in the years 
ahead. One of the tests of democracy is the ability to change 
governments through regular, free and fair elections and Mongolia has 
passed this test with nine major elections over the past decade, three 
each at the local, parliamentary and presidential level. Governments 
have been elected to power and then peacefully relinquished that power 
following the outcome of subsequent elections.
    The upcoming parliamentary elections, scheduled for June 2004, will 
provide another important test of the democracy taking root in 
Mongolia. This is in marked contrast to its five Central Asian 
neighbors, each of which is still ruled by the same leader who 
inherited power following the breakup of the Soviet Union.
    Mongolia's continued progress is by no means guaranteed and 
difficulties will almost certainly be encountered in the days ahead. As 
economic prospects improve, competition over the country's productive 
resources is likely to increase. The stakes will become higher and the 
issues more complex. USAID's programs in Mongolia are structured to 
build on these initial successes by focusing on legal reform and 
political processes.

Vietnam
    Recent Ministry of Health reports indicate that between 4 and 6 
million Vietnamese (6-8% of the population) suffer from disabilities. 
One out of every three Vietnamese children is born with or acquires an 
ambulatory, mental, sensory, or intellectual disability. In all, there 
are roughly one million children with disabilities in Vietnam.
    Recognizing this compelling need, USAID and the international donor 
community have sought to mobilize the Government of Vietnam to respond 
to this need. USAID's efforts to build the capacity of the government 
to address this situation have achieved great successes through the 
Leahy War Victims Fund (LWVF) and the Displaced Children and Orphans 
Fund (DCOF). These two funds support a number of projects implemented 
by NGOs to provide prosthetics and orthotics, promote rehabilitation, 
improve advocacy and policies for the disabled, and develop inclusive 
education models for children with disabilities to be included in the 
regularized school system.
    USAID programs also include an active HIV/AIDS program in Vietnam 
to contain the epidemic in that country. Prevalence rates are less than 
1% but without continued interventions, the epidemic threatens to enter 
the general population.

East Timor
    USAID will open an office in East Timor in 2004. This nation, which 
is only 21 months old, faces enormous challenges to its democratic and 
economic development. USAID is providing critical assistance that will 
help build a viable economy and strong democratic base for the 
fledgling nation. USAID's programs will work to develop the local 
economy while establishing an environment attractive for trade and 
foreign investments that will create jobs and reduce poverty. USAID 
also funds training in basic business and management skills to 
encourage small business development. The establishment of small retail 
purchasing cooperatives has helped to speed the local economic recovery 
in rural areas.
    Experience in democratic governance, public administration and 
economic development are extremely limited among the East Timorese. 
USAID's democracy programs are working to strengthen governance and 
improve citizens' access to justice. Continued U.S. support will be 
essential to help government, media and civil society fill their 
appropriate roles in a free and open democracy.

Burma
    Burma is ruled by a highly authoritarian military government. The 
Government reinforced its firm military rule with a pervasive security 
apparatus. Though resource-rich, the country is extremely poor. Four 
decades of military rule, economic mismanagement, and endemic 
corruption have resulted in widespread poverty, poor health care, 
declining education levels, poor infrastructure, and continuously 
deteriorating economic conditions.
    USAID co-manages the Burma assistance program with the Department 
of State. These activities support democracy in Burma as well as pro-
democracy groups outside Burma. They also meet the needs of Burmese 
residing in Thailand by providing access to humanitarian assistance, 
primary health care and basic education. Democracy activities include 
training of Burmese journalists and public information workers to 
improve the quality and dissemination of news and information on 
conditions inside Burma. USAID also funds scholarships for Burmese 
refugees to study at colleges and universities in Asia, Europe, Canada, 
Australia, and the U.S.

Laos
    Laos is one of the poorest and least developed countries in East 
Asia. Although it is also one of the few remaining Communist states in 
the world, reforms underway in neighboring countries and continued 
availability of Thai broadcasting may create greater incentives for the 
regime to undertake necessary reforms.
    USAID programs in Laos will continue to combat the spread of HIV/
AIDS. Because Laos is surrounded by countries such as China, Thailand, 
and Vietnam, which have significant numbers of HIV infections, and 
given the level of international migration, it is very likely that the 
epidemic will continue to spread in Laos. USAID activities will fund 
necessary interventions to control the spread of HIV. Other programs in 
Laos include USAID's War Victims Assistance Project to reduce the 
impact of unexploded ordinance (UXO) in northern and central Laos. In 
addition, USAID's child survival and maternal health activities the 
Vulnerable Groups Inclusive Education Program strengthens inclusive 
education in Laos at both the policy and classroom levels to ensure 
that all children with disabilities in Laos are able to attend and 
achieve in school.

China/Tibet
    USAID coordinates very closely with the State Department on all of 
our activities in China. The programs there have two objectives. The 
first is to improve China's legal infrastructure so that it is more 
compatible with a market economy and better protects its citizens' 
rights. The second program assists Tibetan communities in preserving 
their cultural traditions, promoting sustainable development, and 
conserving the environment. The first objective is being met by 
introducing key members of the Chinese legal and judicial system to 
constitutional principles that support the rule of law, transparency 
and justice.
    The second objective is being achieved through activities that 
directly assist Tibetan communities in China. This program is 
implemented through NGOs headquartered outside China that provide 
Tibetan communities with access to the financial, technical, marketing, 
environmental, and educational resources they need to sustain their 
traditional livelihoods, unique culture and environment, and to avoid 
economic marginalization as China develops its western regions.

                               CONCLUSION

    The foregoing summary briefly explains some of USAID's programs, 
achievements and challenges in the Asia, Near East region. While much 
has been accomplished, much work remains to combat terrorism, promote 
stability, advance democracy and human rights and halt the advance of 
HIV/AIDS. USAID thanks this committee for their support of USAID's 
mission. We are confident that with continued support, we can address 
the challenges ahead. Thank you.

    Senator Chafee. Well, thank you for your testimony.
    As we look at the history of the 2003, 2004, 2005 budgets, 
from what I see for the region in 2003, the total is $1.3 
billion. Is that roughly accurate? 2004, $2.4 billion, but then 
falling back this year to $1.9 billion. Am I reading those 
figures accurately?
    Ms. Rocca. I believe so, yes.
    Senator Chafee. And how, in the age of inflation, how is 
the wrestling match back at headquarters as you tried to 
confront a declining number for your region?
    Ms. Rocca. Well, the declining--I think that the difference 
in the numbers there that you're seeing is due to the fact that 
in 2004 we got a supplemental, which added a large amount of 
money to the Afghan account specifically. We think that with 
the $1.9 billion that we're asking for this year, we're going 
to be able to consolidate the projects we already started with 
the big boost of assistance we got in 2004 and continue to move 
those projects forward for 2005. I think there's sufficient 
funds there.
    Senator Chafee. And that begs the question, do you have any 
expectation of a supplemental in 2005?
    Ms. Rocca. I don't have the answer to that, I'm sorry.
    Senator Chafee. And in examining in 2005, the 2005 budget 
per country, as Mr. West was going through, certainly what 
jumps out is that Pakistan, $700 million and Afghanistan, $900 
million, $929 million, almost $1 billion out of the $1.9 
billion total, leaving scarce funding for the other members of 
the region. What jumps out at me in particular is India, if I 
have this right, $85 million compared to $700 million for 
Pakistan. How, as we carry forth our diplomacy between these 
two neighbors, how is the dynamics of confronting the disparity 
in foreign aid? Do I have this right, $700 million for Pakistan 
and $85 million for India?
    Ms. Rocca. Do you want to address it or shall I? I'll, just 
in general, our relationship with India is a different type of 
relationship than that which we have with Pakistan. With 
Pakistan we are--Pakistan is one of the front-line countries in 
the war on terror, and a lot of the assistance that we're 
talking about providing to Pakistan is related directly to that 
issue. With India we have a different relationship. It's one 
with a growing world power and our assistance there is really 
focused on helping them deal with not only the remaining 
poverty, but also with some of the economic problems, which are 
still holding them back, such as their deficit. So we're 
providing technical assistance. It's on a different level from 
that which we need for Pakistan, but I'll let Gordon talk about 
specifics.
    Mr. West. I'd just like to emphasize that the level of 
sophistication, educational attainment in India really makes 
this a rather difficult comparison. We actually see almost two 
countries, with the south being almost a developed country 
anymore, and the capacity of the government and the many states 
to manage its own affairs really puts it in a category where it 
increasingly is able to manage its own affairs.
    There are many policy decisions, strategic decisions that 
India must take. We are an active partner in many of those 
discussions, but increasingly India is seen as a country which 
is and should be expected to manage its own domestic affairs.
    Ms. Rocca. If I could just add one thing. India is also a 
provider of assistance to Afghanistan and in Iraq as well, so 
it is also providing a large amount of money in its own right. 
It puts it in a different category.
    Senator Chafee. Do you get howls of protest from the Indian 
Embassy that, how about this disparity? No? And your answer to 
the question was, there's more direction toward a military aid, 
which isn't as important in India as it is in Pakistan because 
of the front on the war on terror. And that also begs the 
question, is that a good policy to have to be directing so much 
targeted to military aid as opposed to economic aid?
    Ms. Rocca. Yes, because it is still, as I mentioned and as 
you said, sir, it's still a front line country on the war on 
terror, and the military assistance that we're providing is 
assistance that directly helps us fight that war, which is why 
we've got half and half, because we also want to be able to get 
to the root causes of the extremism that exists in that region. 
So we've got half in military assistance and the other half in 
economic support funds and development assistance, it's a 
little--actually, it's more than half and half actually.
    Senator Chafee. And getting at the root of the causes of 
terrorism, can you talk a little bit about the programs coming 
out of State in that direction?
    Ms. Rocca. Absolutely. What we're looking at is--well, what 
we have done so far is the assistance that we've provided has 
gone to social sector reform and to education reform. For the 
2005 budget, the $300 million that we're talking about that we 
are proposing, $200 million would be for either budget support 
or possibly debt relief, and that would certainly--we would 
expect and we would work out with the Government of Pakistan an 
arrangement whereby equal amounts would go toward the social 
sector.
    Of the $100 million for the social sector, I have a 
notional breakout, but it's still being worked out, which is 
$25 million for continuing successful USAID projects, $25 
million for university scholarships in Pakistan and in the 
U.S., $42 million in new education, health, and water projects, 
$7.8 million to train local government and support devolution, 
and $.2 million, Department of Commerce trade capacity 
building, which we're working with the Government of Pakistan 
so that they can open up their economy and that the benefits 
that the Pakistani economy is currently reaping can go down to 
the average person.
    Senator Chafee. To move to the subject now of counter-
narcotics in Afghanistan in particular, we've had hearings in 
which that has been highlighted as one of the biggest 
difficulties in Afghanistan, the spread of the narcotics 
industry once again. I remember at one hearing one of the 
witnesses said it's so open that they grow it on the town 
plaza, in some of the towns the opium's grown right out in the 
open, a corrosive effect on all the establishment of judicial 
or military. The narcotics growers have their own militias to 
protect their crops and just the corruption that flows from 
this illicit trade.
    And by looking at the budgets in Afghanistan, if I'm 
looking at the line item, INCLE/ACI, the counter-narcotics line 
item, in 2003 in Afghanistan it was zero, in 2004 it jumped to 
$220 million, and then it slid back in 2005 to $90 million. 
That certainly raises some questions, if this is such a growing 
problem that it's eroding everything we're doing there, why the 
slip back from $220 million to $90 million?
    Ms. Rocca. Once again, as in most of the accounts that deal 
with Afghanistan, what we're looking at is a difference of--the 
2004 money has actually been plussed-up by a supplemental. The 
amount that we've actually been working with has gone up, and 
in 2005 we've requested $90 million.
    There's no denying that the drug issue is a big challenge 
in Afghanistan. It's one that we're working hard and putting 
renewed effort into, and the 2004 numbers I think reflect also 
money that the Department of Defense will be providing to this 
effort. It is also an effort that we're working very closely 
with our European allies, and the British have taken the lead 
on this. We are absolutely cognizant of the challenges that lie 
ahead, but we think that $90 million certainly as initial going 
number, it will help us continue what we will have achieved in 
2004.
    Senator Chafee. Could you just talk a little bit more in 
detail--this is a fair question--on more of the specifics of 
what we're doing. Is it crop substitution, is it eradication?
    Ms. Rocca. We're talking about eradication, we're talking 
about crop substitution, we're talking about training border 
police and border guards to help deal with the movement of the 
drugs. We've got agricultural projects, which I'll let Gordon 
talk about, but that's where the specific funding would be 
going to.
    Senator Chafee. And if we've had the $220 million in 2004, 
have we seen success with the crop substitution, with the 
eradication, with the local military training, some of the 
areas that we've said where we spend the money?
    Ms. Rocca. I think it's too soon to claim any success yet. 
It's an ongoing effort and I think we need a bit more time 
before we're able to say what we've been able to accomplish 
with the 2004 moneys. But certainly I can tell you that it is 
an absolute--it's an issue of absolute intense focus across the 
board, because everybody understands the undermining effect 
this could have on the stability of the country.
    Senator Chafee. And I guess it goes back to the same 
question I had before, it begs the question, we must be 
anticipating another supplemental then if there's an intense 
focus on a subject, it does take resources. And to see it 
fallen from $220 million down to $90 million, that doesn't back 
up the assertion that there's an intense focus.
    Ms. Rocca. Well, first of all, I can't comment on a 
supplemental because I don't know. However, I think we also 
need to get the 2004 funds moving, and I think the $90 million 
will help, I think the $90 million is a very significant number 
for us to get out the door by 2005 as well.
    Senator Chafee. And, Mr. West, any further comments on our 
counter-narcotics efforts?
    Mr. West. Just to say that agriculture is one of the three 
areas, enforcement, interdiction, and alternative crop 
development. There has been great success in the Helmand area 
in expanding the areas that are dedicated to wheat and other 
crops, so there are other ways to earn a living, so there's no 
denying that the poppy cultivation has grown, but there is also 
reason for some optimism that as, particularly as markets 
develop and as exports start to become more common, that there 
are alternatives in the future.
    Senator Chafee. Well, I know you have a hard job in 
declining revenue to address the myriad problems and the 
intense problems, as you said, in your regions. I know we in 
Congress, as Chairman Lugar said, we're at least trying to have 
an authorization bill to give some guidance to the 
Appropriations Committee, and I'm sure you have a difficult 
time trying to come up with a final number here, $1.9 billion 
for your region, but I commend you for your appearance here. I 
don't have any more questions.
    Ms. Rocca. Thank you very much, Senator.
    Senator Chafee. Thank you.
    Mr. West. Thank you.
    Senator Chafee. And now we will take on the Near East. 
We'll take a short recess.
    [Recess from 9:37 to 9:48.]
    Senator Chafee. Welcome, Secretary Burns, Mr. West again 
for the second half of this panel, the Near East.
    Secretary Burns, please proceed.

  STATEMENT OF HON. WILLIAM J. BURNS, ASSISTANT SECRETARY OF 
STATE, BUREAU OF NEAR EASTERN AFFAIRS, U.S. DEPARTMENT OF STATE

    Mr. Burns. Thank you very much, Senator, and with your 
permission I'll submit my written statement for the record and 
just summarize my comments orally.
    Senator Chafee. Without objection.
    Mr. Burns. I very much appreciate this opportunity to meet 
again with you to discuss our fiscal year 2005 budget request. 
There's certainly no shortage of challenges as well as 
opportunities before us in the Near East. I look forward very 
much to continuing to work with you and with other members of 
the committee in pursuit of a positive agenda for peace, 
prosperity, and freedom in the region built on genuine 
partnership with leaders and people in the Near East.
    I have no illusions about the difficulties ahead, but I 
remain confident that such a positive hopeful agenda is the 
most powerful antidote to the violent extremism which threatens 
us all.
    There are four key priorities around which we are trying to 
build partnership in the Near East and around which we are 
organizing our resources. First is the challenge of helping 
Iraqis liberated from the tyranny of Saddam Hussein to build 
the secure, stable, and prosperous country that they deserve. A 
year ago as we met in this room, American and coalition forces 
were advancing toward Baghdad.
    We have learned a great deal since then, and there is no 
question that we have had to improvise at times, rethink our 
assumptions, and adapt our approach to realities on the ground. 
But there is also no question that Iraqis today are enjoying a 
level of freedom that they have rarely seen in their modern 
history. We look forward to the transfer of sovereignty to a 
new Iraqi Government this summer and to working closely with 
the United Nations in helping Iraqis organize an effective 
political transition. With the support of Congress, we also 
look forward to further progress in helping Iraqis to rebuild 
their economy.
    Today's tragic bombings in Baghdad and Karbala are another 
reminder of the security challenges Iraqis face and we are 
working very hard to build effective Iraqi police and civil 
defense forces and to combat violence.
    Mr. Chairman, I've been to Iraq five times in the last 6 
months and I can't say enough about the extraordinary 
commitment and dedication of the people we have on the ground 
there, military as well as civilians. The contingent of 
American diplomats in Iraq today is by far our largest in any 
country in the Near East, and it will increase in the months 
ahead. The hard work and courage of my colleagues in Iraq will 
only grow more important in the coming period, given what we 
have at stake in a successful transition.
    A second priority, no less significant than the challenge 
before us in Iraq, is resuming progress toward the two-state 
vision which President Bush has outlined and which is so deeply 
in the interests of Israelis as well as Palestinians. This will 
require bold choices for peace from Israelis and Palestinians 
themselves, strong leadership from the United States, and 
active diplomacy with our friends in the region and throughout 
the international community.
    We are consulting intensively with the Israeli Government 
to determine how the concept of disengagement might serve to 
bring us closer to that two-state vision, and at the same time 
are continuing to urge the Israeli and Palestinian Prime 
Ministers to meet and try to revive the Road Map.
    A third priority involves the crucial struggle against 
terrorists and their state sponsors, as well as against the 
spread of weapons of mass destruction. We have seen a major 
advance on both these fronts in recent months in decisions made 
by Libya. As we described to this committee last week, the 
administration is determined to build on this progress through 
patient and persistent diplomacy.
    A fourth priority intimately connected to the other three 
is the historic challenge of supporting home-grown efforts at 
economic and political reform in a region which has for too 
long known too little of either. Such changes simply cannot be 
imposed from the outside, they must emerge from within. And the 
good news is that many societies throughout the greater Middle 
East are moving to modernize their economies and open up 
political participation as a matter of their own profound self-
interest.
    The United States and other friends outside the region can 
help in many ways, from assistance programs to trade agreements 
to educational exchanges, and it is profoundly in our self-
interest to do so. That's why we are so appreciative of your 
support for the Middle East Partnership Initiative and 
assistance programs which our colleagues in USAID have been 
managing with great professionalism for many years.
    Mr. Chairman, I can think of few challenges more 
significant in the years ahead for American interests and 
American values than turning our positive agenda built around 
the four priorities I've mentioned into real progress and real 
partnership in the Near East. Our economic and security 
assistance in the region has never been more critical, and our 
personnel and fiscal resources are stretched to the limit. We 
are grateful for the vigorous efforts of this committee and the 
Congress to ensure that the significance of what's at stake in 
the Near East is matched by the resources we need to succeed.
    Thank you again, and I look forward very much to continuing 
to work closely with all of you. Thank you.
    [The prepared statement of Mr. Burns follows:]

              Prepared Statement of Hon. William J. Burns

    Thank you, Mr. Chairman. A year ago, as we met in this room, 
American and coalition forces were advancing toward Baghdad. We 
discussed the challenges we would soon face in helping the Iraqi people 
rebuild Iraq as a peaceful, prosperous, and democratic nation. The 
challenges were real, and there is no question we have had to improvise 
at times, rethink some assumptions, and generally learn some hard 
lessons through experience.
    A year later, we can look at a record of real accomplishment. I 
have traveled to Iraq five times in the past year, Mr. Chairman, and I 
can't say enough about the commitment and dedication of the people we 
have on the ground there; military and civilian, government and 
private. They are doing great things, every day, in Iraq, and it is 
paying off.
    Together with our coalition partners, our friends and allies in the 
region, we have rebuilt infrastructure, addressed humanitarian needs, 
and--in full partnership with the Iraqi people--started re-establishing 
effective institutions of government and civil society.
    Iraqis today enjoy a level of freedom they have rarely seen in 
their modern history, and that freedom will soon include the transfer 
of sovereignty to a new Iraqi government. We cannot afford to be naive 
about the substantial challenges that remain before us. But neither 
should we understate how far we have come.
    Helping Iraq to rebuild and develop its democracy will continue to 
be a major focus of our resources and energy in the coming year. But we 
also face a number of issues that must be addressed as part of a broad, 
comprehensive approach to bringing peace, stability, and prosperity to 
the region. I see four priorities.
    First, the challenge of helping Iraqis liberated from the tyranny 
of Saddam Hussein to build the secure, stable and prosperous country 
that they deserve.
    Second, the struggle against terrorists and their state sponsors, 
as well as against the spread of weapons of mass destruction.
    Third, the challenge of renewing progress toward the two state 
vision which President Bush has outlined, and which is so deeply in the 
interests of Israelis as well as Palestinians.
    Fourth, the historic challenge of supporting homegrown efforts at 
economic and political reform in a region which has for too long known 
too little of either.
    We appreciate the close and fruitful collaboration we have enjoyed 
with this committee in shaping our policy responses to these 
challenges, and in ensuring the resources are available to get the job 
done. With that in mind, I would like to spend a few minutes going over 
some of the details in each of the priority areas I have identified.

                                  IRAQ

    We continue to work closely with the Coalition Provision Authority 
(CPA) and Iraqi Governing Council (IGC) in their efforts to stabilize 
the security situation in Iraq, reinvigorate the Iraqi economy, and to 
forge a political process rooted in democratic values that will lead 
ultimately to a federal, democratic, unified and prosperous Iraq. We 
are working, along with the United Nations, our coalition allies, 
partners in the region, NGOs, and the international community to lay 
the foundations for an Iraq with pluralistic and democratic government 
institutions, protections for civil liberties, and equal rights without 
regard to ethnicity, religion, or gender.
    The transfer of authority from the CPA to an Iraqi government on 
June 30 will be a key milestone. The United States will need to 
maintain a substantial presence in Iraq after the transition. We are 
moving ahead with plans to establish in Iraq what will be the largest 
U.S. diplomatic mission in the world. The Baghdad Embassy will draw 
staff from across the government to help the newly sovereign Iraqi 
government face a dauntingly complex array of challenges. Funding is 
our most urgent issue. The current level of program activity in Iraq 
exceeds by orders of magnitude the staffing and budgetary levels that 
the State Department and other U.S. Government agencies devote to 
typical Embassy operations. We have limited funding from the 2003 
supplemental to establish Embassy operations in Iraq including $35.8 
million for Embassy startup, operational, and security expenses and 
$61.5 million for establishing interim facilities. Our operational 
needs for FY05, above the $17 million in the President's FY05 budget 
request, will need to be addressed in the future.

                           ARAB/ISRAELI PEACE

    No achievement would resonate more in the region right now than 
restoring a sense of hope and progress toward realizing the President's 
goal of a two state solution to the Israeli-Palestinian conflict. In 
order for this to happen, both Israelis and Palestinians will have to 
see a different reality emerging than the one they see today. It is 
becoming increasingly clear that the emergence of a democratic, 
peaceful Palestinian state alongside a secure Israelis not just a dream 
of the Palestinian people. It is intimately connected with Israel's 
future as well. To make it happen, vigorous U.S. leadership, as always, 
will be key. Our assistance package will continue to be a vital part of 
our approach. Economic and military assistance to Israel--over $2 
billion annually in FMF and, for fiscal year 2005, $360 million in 
ESF--helps provide the security and economic vitality for Israel to 
take risks for peace. Our $75 million in annual ESF for the West Bank 
and Gaza addresses immediate humanitarian needs while developing 
essential infrastructure and advancing President Bush's goal of seeing 
reformed and renewed Palestinian institutions. In addition to ESF for 
the Palestinians, USG contributions to UNRWA typically make up over 
one-third of that agency's annual budget (total support for fiscal year 
2003 reached $134 million). In this way we address the continuing 
humanitarian predicament while working to build the foundations for a 
viable, democratic state.
    Our efforts at peace reach beyond our bilateral relationships with 
the parties and into a variety of tracks that encourage greater 
regional interaction and multilateral peace activities. As the 25th 
anniversary of the Camp David accords approaches, the Multinational 
Force and Observers continues to play an essential role in support of 
the Egyptian-Israeli relationship. We remain committed to our long-
standing multilateral programs aimed at encouraging dialog and 
cooperation between Israel, the Palestinians, and other Arab States, 
although no money was earmarked for it in the FY 2004 Omnibus Bill. The 
resources devoted to our Middle East Regional Cooperation program--we 
are seeking $5 million in FY 2005--promote scientific collaboration 
between regional universities, NGOs, and research centers.

                FIGHTING TERRORISM AND WMD PROLIFERATION

    We have continued to focus our military and economic assistance 
throughout the region toward disrupting terrorist networks, denying 
support and sanctuary to terrorists, and, bringing terrorists to 
justice. We have sought to help our friends and allies to strengthen 
their legal, regulatory, and enforcement capabilities. Together with 
the Departments of Justice, Treasury, and others, we have provided 
training and technical assistance to help regional governments enhance 
their financial oversight and regulatory authority over banks, 
charities, and informal money exchange networks, known as ``hawala,'' 
that have been used by terrorists to fund attacks, obtain fmancing for 
their activities, and disguise their assets. These efforts have been 
paying off. At our urging, regional states have taken significant steps 
to prevent the misuse of charities and informal remittances as sources 
of funding for terrorism.
    Our FMF programs, and our strong bilateral military relationships 
with many regional states, support both our anti-terror effort and our 
WMD objectives. Last year, increased assistance to critical frontline 
states such as Jordan, Bahrain, and Oman was instrumental in helping us 
to stage coalition operations in the region. Assistance to Yemen and 
others enhanced anti-terror capabilities, and our ability to work 
together with friends in the region to stem WMD proliferation.
    Libya is a good example of how far we have come on both of these 
issues. Through intensive diplomatic efforts, backed up by multilateral 
sanctions--and in partnership with the courageous families of the Pan 
AM 103 victims--Libya has finally accepted responsibility for the 
actions of its officials, paid appropriate compensation to the families 
of the victims, and must make a clear commitment to halt permanently 
support for all forms of terror. In the past several months, we have 
also been involved in an intensive and highly successful effort by 
which the Libyan government has taken steps to disavow and dismantle 
its WMD programs and Missile Technology Control Regime (MTCR)-class 
missiles as well as ratify the Chemical Weapons Convention (CWC) and 
the IAEA Additional Protocol that allows nuclear-related inspections at 
any time. Significant challenges continue to face us in Iran and Syria 
with regard to their WMD programs, and we will continue to work 
directly and in concert with our allies to address these issues.

              ECONOMIC MODERNIZATION AND DEMOCRATIC CHANGE

    The fourth set of issues on our policy agenda, closely intertwined 
with the other three, is the longer-term issue of supporting efforts 
from within the region aimed at democratic change and economic 
modernization. Political, economic, and educational reform as well as 
expanded opportunity for women and youth are essential for the long-
term stability of the region. We must prevent the frustrations of today 
from producing the terrorists of tomorrow. To realize this goal, the 
President's ``Forward Strategy for Freedom'' includes as components 
both the U.S.-Middle East Partnership Initiative (MEPI) and the Greater 
Middle East Initiative (GME).
    In 2002, the Secretary launched the Middle East Partnership 
Initiative as our principal vehicle to enhance economic, educational 
and political opportunity in the Arab world. MEPI seeks to establish or 
enhance region-led reform efforts that will strengthen democratic 
practices, expand political pluralism and the freedom of expression, 
promote the rule of law, advance economic reform, and improve access to 
and the quality of education in the region, as well as expanding 
opportunity for women and youth in the Middle East.
    The President's Greater Middle East Initiative is also designed to 
respond to calls for reform in the region. We are encouraging states in 
the region to develop and agree on a new document or ``charter'' that 
lays out basic political and economic freedoms and principles. We 
believe the upcoming G-8, U.S.-EU, and NATO summits are opportunities 
for these institutions to respond to calls for change from the region 
and to act in concert to support the forces seeking positive change in 
the Greater Middle East.

                             LOOKING AHEAD

    The great challenge of restoring hope and integrating the Greater 
Middle East into a more peaceful and prosperous world is one to which 
the United States must rise. But in the end our success will be 
measured by whether we are able to achieve a partnership with the 
people of the region based on a common vision. To do this, we must 
convey a message of freedom, opportunity, and dignity to the region's 
people. We must restore hope and confidence as the best antidote to 
chaos and extremism.
    As always, we will need the guidance and support of this committee, 
the Congress, and many others. We certainly appreciate the vigorous 
efforts of this committee to ensure we have the resources to meet these 
policy challenges. As we move forward, I look forward to working 
closely with all of you. Thank you.

    Senator Chafee. Thank you, Mr. Secretary.
    Mr. West.

 STATEMENT OF GORDON WEST, ACTING ASSISTANT ADMINISTRATOR FOR 
                 ASIA AND THE NEAR EAST, USAID

    Mr. West. Thank you, Chairman Chafee, Senator Nelson. We 
appreciate this opportunity to review USAID's budget and 
programs in the Middle East region. Let us start with Iraq, 
which represents USAID's largest new undertaking since the 
Vietnam war. We've been on the ground now for approximately one 
year. We have a staff of about 160 persons in Baghdad. We're 
managing a program now of approximately $4.2 billion with more 
anticipated in the months to come.
    One of the major focuses has been on the power sector. It's 
absorbed a lot of our energies, if you will. Our target is to 
get to 6,000 megawatts by this summer. We're well on the way to 
achieving that target.
    Water and wastewater is a major undertaking. Although the 
results of all the engineering works is not evident yet, there 
are through the summer and fall season roll-outs of many of the 
wastewater and water facilities that will greatly improve the 
ability to deliver water and to rid of waste, which is a large 
issue in child survival rates throughout the country.
    Telecommunications is progressing quite rapidly. We have 
the opening and the functioning of the Umkasr port. The Baghdad 
airport is open. It is not ready for commercial service due to 
security concerns, but the facility is ready to go. Roads, 
bridges, schools, clinics are well underway in terms of 
reconstruction programs. We have rebuilt or upgraded 2,400 
schools throughout Iraq.
    Child immunization rates are about 90 percent now, which is 
where it should be.
    We have great success in other areas, but most specifically 
I would note the strength of the combination of local 
government programs, community action programs through 
grantees, our Office of Transition Initiatives, the Office of 
Foreign Disaster Assistance, and the tremendous capabilities of 
our military civil affairs units, which have combined in a 
community development program and strengthening of local 
governance, which we believe has really been under-advertised 
and is the bedrock for the future of good government and 
delivery of services and a new and democratic society in Iraq. 
We are very encouraged by what's going on at the grassroots 
level.
    Meetings were held in Abu Dhabi. We really feel that the 
next phase is critical and encouraging. We're working actively 
with state military and now the U.N. and other donor 
communities to map out the next year in terms of transitions, 
both to self-government and to the expansion of the development 
of the capacities of the Iraqis to manage their own affairs.
    In Egypt, we've seen a time of equally dynamic change and 
momentum. We've seen a shift of what was a very much status quo 
program to a much more productive dialog between us. It's not 
all positive. We've had good results in areas of education, 
customs reform, monetary change, civil society. At the same 
time we have areas of contention. We currently have a fair 
amount of money held up because of issues of privatization, 
transparency, intellectual property rights, but we believe this 
is a good sign. It's a sign that there is serious dialog and 
issues are being addressed that affect the future of the 
Egyptian people.
    We have a solid program in Jordan. We are very encouraged 
by the leadership and the openness, both economically and 
politically, that is demonstrated in that country.
    We have what was a program that was nearing close in 
Morocco, which has now taken on not only free trade but 
education, democracy, and other key issues. We are encouraged 
and hopeful for a very productive future in our expanded 
Morocco program.
    We also have a brand-new Yemen program. It's off to a good 
start. It's a challenging environment, but we believe it will 
have an impact in that country.
    Thank you very much.
    Senator Chafee. Thank you, Mr. West. I have a question as 
to the Iraq line item, and it's probably a simple answer, but I 
see it in 2003 but I don't see it in 2004 or 2005. I don't see 
any line item for Iraq. You have every other country but I 
don't see Iraq. Why is that?
    Mr. Burns. Sir, as I recall the figures in the 2004 
supplemental, there's a request that has to do with 
establishing an interim embassy facility and then in 2005 
there's another request that's related to the operating 
expenses of State Department personnel in Iraq, but clearly 
we're going to need, the administration is going to need to 
seek, at a time the White House chooses, greater resources in 
terms of setting up and staffing our embassy in Iraq, but 
that's a decision at least with regard to timing that hasn't 
been made yet. That's just with regard to the issue of the new 
American Embassy which we are planning to open the 1st of July.
    Senator Chafee. Yes, but my question is, in looking at the 
budget as you have broken in down, the various line items into 
the various countries and regions, I have Algeria, ATA 
regional, Near East Asia, Bahrain, Egypt, Israel, Jordan, 
Lebanon, Middle East multilaterals, Middle East Partnership 
Initiative, Middle East regional cooperation, Morocco, and on 
down, Saudi Arabia, Tunisia, but I don't see Iraq. I do see it 
in 2003, Iraq, Iraq opposition, Iraq pre-positioning, Iraq war 
crimes tribunal line items, but I don't see anything on Iraq in 
2005. Why is that? Why the change from 2003 into 2004 and 2005?
    Mr. West. The 2004 numbers do not include what is still an 
uncertain figure of what portion would be managed of the 
supplemental II by USAID. We know right now there is 
approximately $2.6 billion, which has been identified, $1.8 
billion has been put into the infrastructure sector, and the 
health education, economic growth, and governance----
    Senator Chafee. Where do I find those though? They've got 
to be in print somewhere.
    Mr. West. The 2207 report was the last authoritative report 
in terms of budget allocations, but the CPA has yet to make 
final determinations on many of the sector allocations, so we 
ourselves are hoping soon to have some final numbers. FY 2005 
clearly is dependent on similar issues of decisions on what the 
appropriate timing of seeking additional funds is. The 
supplemental II program was more than a 12-month budget figure, 
so to the extent that carries us through 2005, we will likely 
be using many of the funds that have been provided in the 
supplemental II for the 2004/2005 period.
    Senator Nelson. Will the chairman yield?
    Senator Chafee. Yes.
    Senator Nelson. Mr. Chairman, that is not a clear answer, 
and it is a part of what is the problem in a request for funds, 
either through an authorization or through an appropriation. 
The administration, the executive branch of government, has a 
clear responsibility to request funds of the legislative branch 
and to state that very clearly what your request is, instead of 
saying you're going to refer part of it to a supplemental. 
We've been through this drill on the Defense budget as well 
where moneys in the President's budget are not even put in 
there for the expenditures in Iraq for Defense.
    And now you're telling us this is the same thing with 
regard to this budget request in the State Department. That's 
just unacceptable.
    Senator Chafee. Thank you, Senator Nelson. I'll continue my 
questioning. Could you--so there is going to be a supplemental 
request? Will you go that far for Iraq?
    Mr. Burns. Sir, I think with regard, I just addressed the 
issue of setting up the embassy, as I said, we've tried to lay 
out in the numbers that we've offered some of the costs that we 
anticipate, but we anticipate there'll be more costs that we'll 
have to request through a supplemental. But I'll leave it to 
the White House in terms of the timing of that issue, sir.
    Senator Chafee. The timing and the amount? You don't have 
any forecast of the timing or the amount?
    Mr. Burns. I don't, sir, this morning.
    Senator Chafee. OK. And I'll finish a couple questions and 
turn it over to Senator Nelson. In looking at the numbers for 
the region, it goes from $8.4 billion in 2003 down to $5.5 
billion in 2004 and $5.4 billion for the region, the total 
region of the Middle East. And the reason for that drop-off 
from $8.4 billion down to $5.5 billion and $5.4 billion is that 
the money comes in the supplemental? Is that accurate? Is there 
any other line item that shows why such a dramatic decrease?
    Mr. Burns. No, sir. I mean, as you know, with regard to 
the, for example, the Egypt and Israel economic assistance 
programs, we've been on a glide path for a number of years, so 
in terms of ESF there's been a predictable decrease in the 
amounts year by year running through fiscal 2008.
    That's one explanation, but in other areas, as my colleague 
mentioned, with regard to Morocco, for example, with regard to 
the Middle East Partnership Initiative we're seeking increases 
for the reasons that I outlined in my opening statement.
    Senator Chafee. It seems as though it's such a dramatic--if 
a glide path is different from a fall off--a step from $8.4 
billion down to $5.5 billion. That's a dramatic, dramatic 
decrease, as opposed to a glide path, and I can't find exactly 
where in the numbers, I was hoping you could help me, in how 
that dropped off, where and what line item, or was it a mix 
of--over the course of taking from every account? You can't--
oh, I'm sorry, Mr. West.
    Mr. West. It's fairly much exclusively the lack of a 
portion of the supplement, the second supplemental funds. As 
Assistant Secretary Burns mentioned, we do have some modest 
reductions on a continuing basis in Israel and Egypt that is 
almost made up for by increases in MEPI funding in Morocco and 
others, so the real change there is the fact that the second 
supplemental is not reflected in the later year number.
    Senator Chafee. OK, fair enough.
    Senator Nelson.
    Senator Nelson. Thank you, Mr. Chairman, and Mr. Chairman, 
you can sense the frustration in my voice and it has nothing to 
do with the two of you gentlemen, because you are excellent 
public servants and you're doing the best you can under a very 
difficult situation, and in many cases you become the 
messengers of messages that are delivered to you by the White 
House and what I'm saying doesn't have anything to do with 
partisan politics, nor does it have anything to do with an 
election year. I'd be saying the same thing on the 
constitutional responsibility of the legislative branch and the 
authorization for expenditures and the appropriations for 
expenditures.
    And we've seen this now in many instances where there's an 
attempt to obfuscate and hold off to the future, and that is 
transgressing the constitutional separation and checks and 
balances that we have. So I wish you all would heed the 
chairman's questions and come forth with the information of 
what is requested for this 2005 authorization.
    Typically what happens is we don't ever get an 
authorization bill, Mr. Chairman, so they don't have to deal 
with us. They go and deal with the Appropriations Committee and 
do it much later and do it in supplemental budgets, and that's 
just not a way to run a railroad. So you'll have to understand 
some of the frustration that I have. If I were President, we 
wouldn't be running it this way, and by the way, I'm not 
running for President. I'm one of the few Senators that's not 
running for President.
    All right, let me ask you this. What is in the President's 
budget to organize and create and stand up what is going to be 
the largest embassy in the world, the U.S. Embassy in Baghdad?
    Mr. Burns. Sir, what is--as in the 2003 and 2004 
supplementals, there's a total of about $96 million, which 
we've set aside for various costs connected to beginning to set 
up that embassy, and in the 2005 budget there's a fairly modest 
initial request of something less than $50 million to do the 
same thing.
    We clearly are going to need more resources as we move 
ahead to set up this embassy. We have now, as I indicated in my 
opening comments, well over 100 of my colleagues, American 
State Department personnel on the ground working in the CPA in 
Baghdad as well as in provinces around the country, and we're 
going to need to sustain, as you suggested, a very large 
diplomatic presence there, our biggest in the NEA region for 
some time to come.
    It'll clearly be, as any of our missions are overseas, a 
very important interagency effort involving our colleagues from 
other agencies throughout the government in order to sustain 
our support for successful transition in Iraq. So the figures I 
mentioned to you are just a first indication of what we can 
anticipate in terms of cost, but this is going to be I think a 
big and very important investment, not just for American 
diplomacy but for the U.S. Government for some years to come.
    Senator Nelson. And that's $50 million that's in the budget 
and plus--what was the other figure that you mentioned?
    Mr. Burns. The total figure as I recall it in the 2003 and 
2004 supplementals is about $96 million. Part of that was set 
aside for establishing an interim embassy facility in Baghdad, 
and the other has to do with other costs of supporting our 
diplomats there.
    Senator Nelson. But in the 2005 budget, which starts in 
October of 2004, you would anticipate that the expenditures for 
setting up an embassy in Baghdad in the period of time from 
October the 1st of 2004 to September the 30th of 2005 is going 
to be much greater than is put in the budget now.
    Mr. Burns. I would expect that there would be a greater 
need there, sir. I don't have a precise figure to offer you 
today. We tried as best we could to look at predictable 
expenses and offered the figure I mentioned to you, and we'll 
look forward to staying in close consultation with you on this.
    I understand entirely the frustration that you described 
before and we're wrestling with the situation as well on the 
ground, where it's very important for us to put not only our 
best people out there, but to support them in the best possible 
way. I don't think there's--there certainly isn't a higher 
priority in terms of the policy issues we deal with in the Near 
East Bureau than helping Iraqis to make a success of their 
transition.
    Senator Nelson. Mr. West, you had a comment.
    Mr. West. Thank you, Senator Nelson. I'd just like to add a 
few observations on the operational challenges and structures 
that USAID sees. Currently we have approximately 700 Foreign 
Service officers serving worldwide. We used to almost have that 
many in India or Brazil or Korea in the 1960s. We have 
downsized to the point where when we face challenges such as 
Iraq and Afghanistan, the fight against HIV/AIDS around the 
world. It is straining every ounce of our fiber to fulfill our 
commitments. We have done an outstanding job in Iraq. We will 
continue to do that. But it does trickle down throughout the 
Agency in terms of the impact on all our operations.
    First and foremost I would like to say that our operating 
expense structure I think is one of the sources of the issue, 
whether it's just a matter that it needs to be increased or 
whether we need a new paradigm for our operating expense versus 
program funding. There are options. Our bureau is the key 
bureau this year in the Agency to look at some experiments, but 
the issues are very real. We are not in adequate numbers. We 
are not trained nor able to deploy in the manner we really need 
to, given the challenges in the role for USAID in the future in 
foreign affairs.
    On the same vein, Iraq is quite different than the 
challenges we faced in the past, for instance, in Vietnam where 
we created whole bureaus and structures, the collapse of the 
wall and the fall of communism where we had the SEED Act and 
the Freedom Support Act, which gave the Agency broad abilities 
to not only address the specific country but to gear up as an 
institution and address the problems we face.
    And we have been able to take into account specific 
operating actions on a rolling basis in Iraq, but we do not 
have that umbrella structure and we are actually encouraged by 
Chairman Lugar and others to look at some of the lessons 
learned in Iraq, Afghanistan, and others. We look forward to 
continued dialog on how we can do it better in the future.
    Senator Nelson. In your report earlier about water systems, 
sewer systems, roads and bridges, all of that is very good. 
Now, speaking of that, if you would answer, are there attempts 
still to sabotage all of that infrastructure as we had seen 
early after we had taken over? And tell us, if you will, bring 
us up to date, what was the explosion that occurred last night 
and what did that relate to?
    Mr. Burns. Senator, with regard to the explosions that were 
reported earlier today in Baghdad and Karbala which resulted 
tragically in a very significant loss of life, dozens of 
innocent people killed, most of them Shi'a worshipers. This is 
one of the holiest days in the Shi'a Muslim calendar and there 
were a series of explosions in both Baghdad and Karbala, one of 
the holy Shi'a cities in the south of Iraq, as I said, which 
caused a very tragic loss of life.
    I haven't seen any claims of responsibilities yet for those 
particular acts of terrorism, but it's a reminder, as I said in 
my opening comments, of the difficulties of the security 
situation, and we're working very hard to help Iraqis get 
police forces back on the street and to help stand up their 
civil defense forces. And that's going to continue to require a 
lot of effort, not just on the part of the United States, put 
on the part of others in the coalition as well.
    Senator Nelson. And how about the sabotage of 
infrastructure?
    Mr. Burns. Well, just in general terms, sir, it's still a 
threat. I think the incidence of those kinds of acts of 
sabotage has actually decreased in recent months, but again, I 
don't want to underestimate the nature of the threat. It 
continues to be a challenge for the Iraqis and for the CPA and 
U.S. forces and coalition forces, which we'll continue to be 
very mindful of.
    But we've made a great deal of progress, as Mr. West can 
elaborate on, in terms of rebuilding and getting back up to 
pre-war levels in terms of power generation, oil exports, a 
whole range of things. So it remains a threat, but I think 
we've made a good deal of progress working with Iraqis to help 
regenerate some hope in the economy.
    Senator Nelson. On the basis of your answer, it would seem 
that you're saying that most of the violence is directed at 
individuals instead of at the infrastructure, and if that is 
the case, how much effect have those explosions of trying to 
create mayhem and fear among the populations, both indigenous 
as well as foreign, how has that affected the international 
donor effort? And as part of that answer will you tell me how 
much has been contributed?
    Mr. Burns. Yes, sir. Let me start with the answer to the 
question and then turn to Mr. West. I think the international 
donor effort, which was manifested last fall in Madrid at what 
was historically the single biggest commitment by donors to a 
reconstruction effort. That produced a total of $33 billion in 
commitments, including the very generous contribution that the 
Congress made possible on the part of the United States.
    As Mr. West mentioned, there was in Abu Dhabi the last 
couple of days another meeting of the donors to talk about ways 
in which they can apply those resources to needs in Iraq. A 
significant delegation of Iraqi ministers there to explain how 
they're using the moneys, what their priorities are. So I think 
the donor effort not only hasn't flagged, but I think it's 
actually strengthened in terms of the commitment of many 
countries, international financial institutions to help Iraqis 
rebuild, notwithstanding the continuing security threats that 
are out there.
    Senator Nelson. And how much is being contributed?
    Mr. West. Basically the World Bank trust fund and the UNDP 
trust funds have just been created. The United States was the 
first to put in its base contribution. There was a very good 
meeting of the minds in Abu Dhabi in terms of the areas of 
emphasis. The World Bank, UNDP, will be focusing on the level 
of donations into those trust funds, has not yet been notified, 
it's just beginning. The Japanese really are the first ones out 
of the chute, if you will. They have up to $500 million in 
terms of designated programs on the ground.
    Security is a big issue for all the other donors. They are 
very much looking to the United States for guidance on how to 
operate successfully in Iraq, and this will be a year of a lot 
of challenges in terms of getting more legs on the ground, more 
operating units. Many of them will be operating with Amman as a 
base and coming in and out. But it is going to be a challenging 
but a promising year in terms of expanding donor presence.
    Senator Nelson. Mr. Chairman, I'm not accustomed to asking 
a question three times. The question I'll ask for the third 
time is, how much has been contributed by the international 
donor effort?
    Mr. West. May we come back with an answer, with a written 
answer to you as of today how much has been contributed?
    Senator Nelson. Is the implication of your question zero 
has been contributed?
    Mr. West. No. There have been contributions from the United 
Nations, from Japan, but we will have to get back to you with 
an answer.
    Mr. Burns. Sir, I just add the figures that were committed, 
for example, in Madrid, and the meetings in Abu Dhabi are a 
continuation of that process, the Japanese committed to a total 
of nearly $5 billion. You had commitments made by Saudi Arabia, 
for example, and Kuwait of about half----
    Senator Nelson. Those are commitments. I'm talking about 
contributed.
    Mr. Burns. Money that's actually expended on the ground----
    Senator Nelson. That's correct.
    Mr. Burns [continuing]. We'll have to get you those 
specific figures, but that was the purpose, sir, of this 
meeting in Abu Dhabi too was to try and translate that.
    Senator Nelson. Thank you.
    [The following information was subsequently supplied.]

       IMPLEMENTING MADRID PLEDGES: NON-U.S. DONOR DISBURSEMENTS

    Of the $32 billion in pledges for 2004-2007 at the Madrid Donors' 
Conference, $13.584 billion was from non-U.S. sources. Of this, $5.55 
billion was pledged by the World Bank and IMF in lending programs. The 
remaining $8.034 billion was from 36 countries and the European 
Commission.
    Now that there is an internationally recognized government in 
Baghdad, the World Bank and IMF are discussing with the new Iraqi 
Interim Government its interest in their lending programs.
    As of June 30, 2004, of the $8 billion in pledged donor assistance, 
other donors had disbursed $1.148 billion of their pledges, according 
to State Department estimates. This does not include other assistance 
these donors already provided to Iraq, such as humanitarian assistance, 
military assistance, or other aid to Iraq and the Coalition.
    It also undercounts some donors where we do not have detailed 
information or confirmation from the donor countries on amounts 
disbursed for bilateral assistance. For example, we understand the UK 
has disbursed about another $60 million in bilateral project 
assistance.
    The bulk of the $1.148 billion disbursed by donors has been in the 
form of deposits to the International Reconstruction Fund Facility for 
Iraq (IRFFI), which is comprised of UN and World Bank trust funds. The 
UN and World Bank trust funds are now starting implementation of their 
initial IRFFI projects.
    Disbursements and implementation have been complicated by the 
security situation in Iraq, but nonetheless are continuing.
    Disbursements by non-U.S. donor countries of over $1.14 billion in 
the first six months of a 4-year pledge of $8 billion indicate a 
disbursement rate comparable to disbursement rates by our donor 
partners for previous post-conflict assistance efforts, though on a 
bigger scale.
    The Iraqi Interim Government (IIG) through its Iraqi Strategic 
Review Board (ISRB) is playing a central role in coordinating donor 
assistance and setting assistance priorities.
    For additional information on reconstruction progress, including 
examples of progress on the ground attributable to international 
donations, you may want to refer to the Quarterly Section 2207 report 
on reconstruction progress. This report is posted on the White House 
Web site. Appendix 2 includes international donation information.

    Senator Chafee. Thank you, Senator Nelson. Secretary Burns, 
you're a career Foreign Service officer, speak Arabic, and 
stationed Ambassador to Jordan, and the Djerijian report 
released in--commissioned by the administration and released in 
the fall showed that the anti-Americanism is rising to shocking 
levels. In the effort we're making in the Middle East and the 
region that you understand well, are we going backward?
    Mr. Burns. Sir, there is no doubt, as the Djerijian report 
described, that there is deep frustration throughout the 
region, throughout the Near East, for a whole variety of 
reasons. There's frustration with American policy, there's 
frustration with a lack of movement in opening up economies and 
political systems in people's own societies. There's deep 
frustration, as you well know, with the lack of progress on the 
Palestinian issue.
    So there are a whole range of sources of that mood, which 
can be a very ugly one, as you described. It seems to me that 
the best policy approach to dealing with those challenges, and 
this is something that the Djerijian report indicated, has to 
do with the kind of broad positive agenda that I tried to 
describe, in other words, a vigorous effort on the part of the 
United States to show that we can work in partnership to deal 
with those sources of frustration, whether it's on rebuilding 
Iraq, whether it's on the Palestinian issue, Arab-Israeli 
issues more generally, or on the historic challenge and the 
truly critical priority of helping leaderships and people in 
the region open up economies, open up political systems, create 
greater opportunities.
    All of those issues, it seems to me, are connected, and 
changing the mood in the region to the extent that the United 
States can help do that is going to be a function of progress 
in all of those areas.
    Senator Chafee. And do you see the resources following that 
goal as we look at the total for the region? As I said, it goes 
from $8 billion down to $5billion except for the effort in 
Iraq. The Middle East Partnership is a year old and now we have 
a chance to look at it, and as you said, the issue that seems 
to be the galvanizing one is the Israeli-Palestinian issue. Are 
the resources there in this budget to address some of these 
critical, critical issues?
    Mr. Burns. I think they are there, Senator. I mean, we've 
looked very carefully at each of those programs in the Middle 
East Partnership Initiative, since, as you did say, it's a new 
program and so we've tried to work very carefully with you and 
with your staffs to ensure that those moneys are well-spent so 
that they provide a good basis for us making expanded requests 
in the future.
    I believe it's critically important for the United States 
to devote far more attention than administrations that I've 
worked for over the 21, 22 years I've been in the Foreign 
Service have been devoted to issues of political participation, 
economic modernization, educational opportunity. It's one of 
the great challenges I think, not just for the United States in 
the region, but for the peoples and leadership of the Near 
East, and there's a lot we can do to help.
    So what we want to do is try and demonstrate that that $150 
million that we've requested is well-targeted, that it will be 
well-spent, and that it is part of a comprehensive effort 
that's also connected to the bilateral programs, whether in 
Egypt or in Jordan or in Morocco or Yemen or other parts of the 
region that we've also identified.
    We also want to make sure, and this is something we've 
tried hard to do in the Middle East Partnership Initiative, 
that we are trying to link together all the various tools of 
American policy. The President has laid out a target of a 
Middle East free trade area by the year 2013. The bilateral FTA 
with Jordan provides a very solid foundation for that.
    We're about to announce later today a significant 
achievement with Morocco in our FTA negotiations and we're 
making very good progress with Bahrain, thanks to the efforts 
of my colleagues in USTR. So I think this is in part a function 
of assistance levels, but it's also in part a function of 
brining all of those different instruments of policy together.
    Senator Chafee. And to followup on Morocco, in the budget 
it's going this year, 2005, up to $57.3 million up from $19.8 
million. Can you explain why that is and why--should that be 
part of the MEPI?
    Mr. Burns. Yes, sir. On the economic side, I would say 
several things. First, King Mohammed and his government have 
launched what is in our judgment a very serious and very 
courageous program of reform, and so as we look at Morocco, 
it's very much in the American interest to invest in the 
success of those reform programs.
    Second, Morocco itself has come under terrorist attack, 
including last May. It's significant, I think, that all of the 
perpetrators of that attack came from the same slum in 
Casablanca, and what it reinforces to us is the importance of 
helping to show some sense of economic and social hope in 
Morocco, precisely the kind of goals that King Mohammed has 
laid out.
    So it seems to us to be very much in the American interest 
to look at ways in which we can expand support for serious 
efforts at reform and help create a model of success in Morocco 
in much the same way that we've tried to do in Jordan and we're 
trying to do in other countries in the region.
    Senator Chafee. Very good. And the line item for Gaza and 
the West Bank, that's gone from 2003, $124 million down to 2004 
and 2005 about $75 million. First of all, why the drop? I know 
that's a year old, and how is the money being spent?
    Mr. Burns. I'd just make one comment and then I'm sure Mr. 
West will add to it. The difference has to do with the $50 
million in supplemental assistance that you provided for the 
Palestinians. The $75 million annual figure in ESF assistance 
has been fairly consistent in recent years, and Mr. West may 
want to comment on the purposes to which those resources are 
put.
    Mr. West. Basically our programs right now are largely 
directed to humanitarian and, if you will, basic relief 
programs. It is a very difficult environment to be operating a 
proactive development assistance program, so we're largely 
trying to rebuild damaged communities, to keep basic job 
creation programs going while issues get resolved at the 
political level.
    Senator Chafee. Could you go a little bit further on the 
success in what we're doing in West Bank and Gaza with that $75 
million, rebuilding? Are we getting a return on our investment?
    Mr. Burns. Senator, I think we are despite all the 
difficulties involved. As you know, the plight of Palestinians 
in Gaza and in the West Bank is extremely difficult and getting 
more difficult over time. What we've tried to do, as Mr. West 
suggested, is focus on not only some long-term infrastructure 
projects, water projects in particular in Gaza, which serve a 
very important long-term need of Palestinians, but also, given 
water scarcity throughout the region, for Israelis as well.
    Second, we've tried to focus, particularly in Gaza, the 
northern part of Gaza, on emergency programs that help in 
rebuilding from some of the destruction of the Intifada in 
recent years, put people to work in the course of 
reconstructing roads and other kinds of infrastructure 
projects. And that also has had some tangible benefit in an 
area that's been extremely hard-hit, and we have very high 
unemployment rates for Palestinians, again particularly in 
Gaza.
    Senator Chafee. And just to followup, I'm trying to keep my 
questions to the budget. I know when Secretary Powell appears, 
we veer off into policy and I'm trying in this subcommittee to 
focus just on the numbers, but I do believe it's relevant to 
how we spend our money in the questions I just asked as to 
where are we on the Road Map. Has Ambassador Wolfe in the area, 
is--you talk about investing in the West Bank and Gaza while 
the Intifada goes on. Obviously it seems like a poor investment 
to rebuild a road that's going to be shelled the next week 
potentially or a building or water works or other 
infrastructure. Where are we on the Road Map?
    Mr. Burns. Well, Senator----
    Senator Chafee. Has Ambassador Wolfe been in the region? Is 
anybody----
    Mr. Burns. No, sir. I was there last week with some 
colleagues from the NSC staff and I expected----
    Senator Chafee. Can I just interrupt? I'll just ask, is 
Ambassador Wolfe still at all involved or is he kind of phased 
out of this?
    Mr. Burns. Yes, sir. Well, he's, you know, working in his--
--
    Senator Chafee. At one point he was the lead person for the 
Road Map.
    Mr. Burns. In terms----
    Senator Chafee. If there was one person to look at, it 
would be him, correct?
    Mr. Burns. Yes, sir. In terms of the----
    Senator Chafee. Has that changed?
    Mr. Burns. In terms of the monitoring mission to--that was 
set up last summer to try and ensure that we're making 
progressing on the Road Map, that's right, that's the role that 
Ambassador Wolfe has played. As I said, I was, along with some 
colleagues from the NSC staff, in the region last week. I 
expect to be traveling again soon.
    We remain very much committed to the Road Map. The Road Map 
is at a stalemate at this point, as you know. We have strongly 
encouraged, including in the meetings I had with Israelis and 
Palestinians last week, a meeting between the two Prime 
Ministers, between Prime Minister Sharon and Abu Alla, to look 
at ways of reviving our progress on the basis of the Road Map.
    And we've also, as I mentioned in my opening statement, 
been consulting with the Israeli Government about some ideas 
that they've put forward with regard to disengagement, ideas 
which are interesting and which give us something to work with. 
And we're looking clearly at ways in which those kind of ideas 
can be applied to promote the two-state vision which President 
Bush has outlined and which is so critically important to 
Israelis as well as to Palestinians.
    Senator Chafee. Can you give me any reason for hope?
    Mr. Burns. For all the difficulties in the path to 
progress, and you know them very well, Senator, it seems to me 
so critically important to both Israelis and Palestinians to 
revive hope in a political process, to move away from the 
terror and violence which have done so much to undermine not 
just the security of Israelis, but the legitimate aspirations 
of Palestinians, that I continue to believe that with strong 
American diplomacy and leadership working with our partners in 
the quartet, our friends in Egypt and Jordan, that we can help 
find a way to reopen a pathway toward some greater hope and 
political progress.
    The Road Map offers a clear pathway to do that. It requires 
political will. It also requires some diplomatic activism and 
ingenuity on our part, and that's what we're going to continue 
to apply, because as I said, there is no greater challenge 
before us in the Near East region than trying to revive that 
sense of hope.
    Senator Chafee. Without a doubt. I'll move to Libya. Do you 
plan to come back and request any aid? There is no line item 
for Libya. Do you plan to come back if sanctions are lifted?
    Mr. Burns. No, sir, not at this point. I don't know of any 
plans to do that. As we discussed last week when I appeared 
before the committee, I think we've--the Libyans have made 
significant progress in fulfilling the WMD commitments that 
they've made, and we've announced a number of things that the 
United States is going to do in recognition of that.
    I'll meet with the Libyans again later this month in March 
and we'll look forward to continuing to build on that progress. 
But, to answer your question, sir, no specific requests at this 
time.
    Senator Chafee. And last, I have one more question. Any 
requests you have of Congress as to how we should lift any 
sanctions or restrictions that might be on any aid or any 
action we should be taking on this side of the branch of 
government?
    Mr. Burns. I don't have any specific requests at this time, 
sir, with regard to----
    Senator Chafee. Restrictions in Iran or any restrictions on 
aid to Iran or any other--no?
    Mr. Burns. No, sir, not at this point. On Libya we'll stay 
in very close touch with you as we move ahead in that 
relationship. But with regard to the other areas we've 
discussed, the Partnership Initiative and other areas, as I 
said, we're very grateful for the support that you have 
provided for the resources that we've requested and we'll look 
to expending them in an effective way.
    Senator Chafee. Well, thank you. Any comments, Mr. West, 
before you're let off the hot seat?
    Mr. West. Just one last comment. We didn't go in great 
detail on the MEPI partnership. It's been a learning process, 
but we have promising signs. We have a strong partnership with 
State on this. It's allowed us to operate in many countries 
that USAID has not before traditionally worked in, and we are 
encouraged by the trend. Thank you.
    Senator Chafee. Well, as many have said, the success in the 
region, and I believe it firmly, and as the Djerijian report 
suggests is looked at and you hear it from so many of the 
diplomats from the region is looked at at the ongoing struggles 
between the Israelis and the Palestinians. And I believe firmly 
that if the administration shows more effort in that arena, 
it'll pay dividends in the entire Muslim world, and for some 
reason we're just, as Secretary Burns says, in this horrible 
stalemate that's hurting our interests in the region.
    Thank you, gentlemen.
    Mr. Burns. Thank you, Senator.
    Senator Chafee. We'll recess until the next subcommittee.
    [Recess from 10:37 a.m. to 11:04 a.m.]

               OPENING STATEMENT OF SENATOR SAM BROWNBACK

    Senator Brownback [presiding].
    I'll call the hearing to order. Thank you, gentlemen, for 
joining me here today. I appreciate you very much coming 
forward. I think we'll just go right into your presentations so 
we can hear that. Your written statements will be put into the 
record. I appreciate very much your service and we want to do 
this as getting some understanding and outlines of where you 
hope to put the budget and the funds that you're given.
    Two people are testifying today, Mr. Don Keyser, Principal 
Deputy Assistant Secretary, Bureau of East Asian and Pacific 
Affairs, State Department, and Mr. Gordon West, Acting 
Assistant Administrator for Asia and Near East, USAID. I 
appreciate your being here and we'll receive your testimony.
    Mr. Keyser.

   STATEMENT OF DONALD W. KEYSER, PRINCIPAL DEPUTY ASSISTANT 
 SECRETARY OF STATE, BUREAU OF EAST ASIA AND PACIFIC AFFAIRS, 
                    U.S. DEPARTMENT OF STATE

    Mr. Keyser. Thank you very much, Mr. Chairman, for the 
opportunity to come here and to discuss the assistance programs 
that we in the Bureau of East Asia and Pacific Affairs are 
looking at for fiscal year 2005. By way of prelude, let me say 
that my boss, Secretary Kelly, would have been very happy to be 
here. He will be testifying this afternoon before the committee 
on his recent trip to North Korea. This morning he's with the 
Foreign Minister of the Republic of Korea, and indeed at this 
very minute he's in the White House with the Foreign Minister.
    Senator Brownback. Good. No problem.
    Mr. Keyser. Thank you. As you said, Mr. Chairman, we have a 
fairly long statement that's already in the record, so if I 
may, I'll simply skim lightly over some of the high points to 
save time.
    Senator Brownback. Please. Just hit the key items of areas 
that you want to really deal with and delve into as an entity 
for this upcoming year.
    Mr. Keyser. Right. Thank you, sir. Basically we have put 
counter-terrorism at the very top of our list of priorities for 
obvious reasons. It has been there, but it is our primary 
strategic target for the coming year. It moreover is a 
strategic foreign assistance goal, which relates to each of the 
other strategic priorities that we have had traditionally in 
this bureau and that have taken added importance obviously in 
the aftermath of September 11.
    So quickly, these are: promoting regional stability; 
fostering democracy and human rights; encouraging economic 
prosperity; fighting or combating transnational issues and 
international crimes, such as trafficking in persons, narcotics 
trafficking; and preventing the spread of weapons of mass 
destruction. Each of these, in our view, is interrelated into a 
coherent whole.
    Very quickly, on counter-terrorism the goal is to root out 
terrorism throughout the region and to root it out both where 
cells exist, as in, for example, the Philippines, and also at 
the same time to attempt through our assistance programs to 
address the underlying conditions that foster the growth of 
terrorism. So a high priority for us is indeed the rule of law 
and promotion of institutions of civil society and so forth and 
so on.
    We are working to this end both bilaterally and through 
regional organizations such as ASEAN, the ASEAN regional forum, 
and APEC. Increasingly we have attempted to put into the agenda 
of those regional organizations that overriding goal of 
combating terrorism.
    I stress this because even though APEC, for example, is an 
organization created to deal with economic issues, increasingly 
we have managed to persuade our partners in that organization 
to look at the phenomenon of terrorism as one that affects 
economic growth, it affects the ability of societies to conduct 
the kind of economic activities that they wish to discuss. So 
we're working, as I say, both bilaterally and multilaterally to 
that end.
    Regional stability has long been the bureau and the 
Department's main strategic goal in East Asia and the Pacific. 
We will do this, of course, through sustaining the alliance 
structures we have. We have five major allies in the region, 
the Republic of Korea, Japan, the Philippines, Australia, and 
Thailand. I would note simply that we have had as a mission 
since the outset of the administration the goal of fostering 
and strengthening those alliances, and I think that has borne 
fruit in the aftermath of September 11 in particular, whether 
directly or more quietly in the case of Thailand.
    Each of these five strategic partners, treaty alliance 
partners, have contributed both to the overriding goal of 
combating terrorism and they have also been stalwart partners 
in the mission that we've undertaken in Iraq, both in the 
military sense and now in the reconstruction sense. So 
essentially, regional stability is a major goal. We have many 
components to that that we can get into later.
    Democracy and human rights. Fundamentally we have seen a 
great deal of progress in the region. I think it's a subject 
that can and should be remarked upon that we're looking this 
year toward five different elections in East Asia and Pacific 
of the nations with which we have close relations. In addition, 
Taiwan, that we, of course, don't recognize as a nation but 
nonetheless is a vibrant democracy and 23 million people will 
have an election as well. So we are looking ahead to six free 
and democratic elections in East Asia and Pacific during this 
year.
    I flag this to your attention, Mr. Chairman, because later 
today Secretary Powell will be giving a speech before the 
Heritage Foundation on the theme of democracy, and in that 
speech he will note that, I think 10 years ago, 15 years ago, 
to have projected that we would be talking about this degree of 
democratic development, this degree of building of the 
institutions of civil society would have been regarded as a 
very pleasant dream but a very tough dream to realize.
    Many of us recall well that 20 years ago we heard leaders 
such as Lee Kwan Yew talk about an Asian system of values. By 
that, they meant Asians concentrate on economics, others in the 
United States and in Europe with their traditions concentrate 
on human rights. Well, not so. What we have found, in fact, is 
that throughout Asia, as elsewhere, people wish to have 
democratic societies, they wish to cast votes, they wish to 
have their individual liberties protected.
    A large part of what we do in East Asia is to support these 
tendencies, both where they already exist and where they are 
yet to be achieved, in China, for example.
    Another area, very quickly, open markets and economic 
development. This is self-evident. We seek to promote open 
markets, economic developments, sound economic policies. This 
is not only a goal worth being pursued in itself, but it is 
also essential, crucial to the war against terrorism. If 
nations are developing economically, it seems to us some of the 
root causes of terrorism perhaps are mitigated, and it seems to 
us that the overall goal of combating terrorism and of 
promoting regional stability will be better achieved.
    As part of that, I would say that we're looking in 
particular at China, a massive issue, and to say it's a big 
issue almost sounds like parody since China obviously is the 
world's largest nation with 1.3 billion. For us, the issue of 
China's compliance with its WTO obligations, in particular with 
its commitments to pursue offenders against intellectual 
property rights, is a major goal. We have sought to address 
that goal through a series of assistance programs that we have 
had working and through various and sundry exchange programs 
and other programs that we have projected for the future.
    Weapons of mass destruction. Again, we have for some time 
sought, both internationally and in the East Asia/Pacific 
region, to deal with the question of weapons of mass 
destruction proliferation. Through last year I think we have 
seen considerable strides taken in our relations with China. 
China undeniably had been a major concern to us, it remains a 
major concern to us in terms of its proliferation activities.
    The good news, Mr. Chairman, is that in the past year we 
have had some episodes of meaningful, concrete cooperation with 
the People's Republic of China, including, I suppose it can now 
be revealed in a public setting, one instance involving 
proliferation or possible proliferation toward North Korea.
    The Chinese cooperated closely with us in response to our 
provision of certain information. This was a story broken by 
Asahi Shimbun about 2 weeks ago, and I'm delighted to say that 
the Chinese saw fit to confirm it, so it's now something that 
the Chinese not only were prepared to do with us quietly, 
they're prepared to, I think, bask and take some credit for 
what they've been doing.
    That having been said, there are still a great many 
entities in China that have been involved in activities of 
concern to us. We have sanctioned them when necessary. We will 
continue to sanction them. So we have in that connection 
requested another $2.6 million in fiscal year 2005 in order to 
address export control issues. We think we are making some 
headway on that. We hope to make more.
    Beyond all that, there are various areas highlighted in our 
presentation this year where some slight adjustments from 
previous years are marked. One of those I would call to your 
attention, Mr. Chairman, is in Cambodia. Cambodia has had an 
election as you know. They've not yet been able to form a 
government. We have been counseling, we have been urging the 
various parties in Cambodia to come together as quickly as they 
can to form that government.
    One goal of most in Cambodia has been to form a tribunal, a 
war crimes tribunal. For many in Cambodia, for many in 
Southeast Asia, there has been a goal of bringing to justice 
those who are still alive who participated in the atrocities 
that took place under the Khmer Rouge regime, and to bring 
closure to a horrific episode in that nation's history.
    We have, as a government, said that we believe that such a 
thing will be useful, such a thing deserves support, and we 
have said that we have been interested in making a due 
contribution toward such a tribunal if one is constituted and 
if there are the right conditions attached to that. So we have 
marked that and I mark it here today, sir, as something that we 
do look forward to contributing toward. It remains 
controversial, however, and I won't deny that.
    I think with that I'll simply close. I've spoken enough and 
the formal testimony is on the record. I'd be happy later to 
answer any questions you might have. I want to thank you again 
for the chance to be here.
    [The prepared statement of Mr. Keyser follows:]

                 Prepared Statement of Donald W. Keyser

    Mr. Chairman, I am pleased to share with the Committee our 
priorities for foreign assistance programs in the East Asia and Pacific 
region for fiscal year 2005.

                        OVERVIEW: U.S. INTERESTS

    EAP has placed counter-terrorism at the top of its list of 
strategic foreign assistance goals for FY 2005. In light of a continued 
terrorist threat in Southeast Asia, evident in major bombings in Bali 
and Jakarta in the past two years, efforts to combat terrorist activity 
have been central to the pursuit of EAP's strategic goals that 
encompass the following: our traditional, primary long-term goal of 
promoting regional stability; fostering democracy and human rights; 
encouraging economic prosperity; fighting transnational issues and 
international crime; and preventing the proliferation of weapons of 
mass destruction.
    Counter-terrorism: Terrorism in the Asia-Pacific region is a 
serious threat to U.S. national security interests, including the 
welfare and security of American citizens in the region and the 
security of friends and allies. It poses a direct and immediate threat 
to regional trends toward stability, democratization, and prosperity 
that are otherwise generally positive. The Bureau's goal is to root out 
terrorism and address the underlying conditions, including the absence 
of rule of law, that make the region vulnerable to terror.
    EAP will work with countries in the region bilaterally and through 
regional organizations to strengthen their capacity to combat terrorism 
and to foster the type of international cooperation needed to fight the 
global war on terrorism.
    In Indonesia, for example, we intend to build on the successful 
efforts, funded by the NADR account, to continue training and to expand 
the Indonesian National Police's Counter-terrorism Task Force.
    And, we will use the increase in FY 05 ESF funds for Indonesia to 
support basic education through our USAID program as a key element in 
the effort to combat terror. This initiative, announced by President 
Bush in October of 2003, will prepare Indonesia's children to be 
effective participants in their own democratic society while reducing 
extremism and intolerance, and supporting democracy and respect for 
diversity.
    The bureau will leverage U.S. efforts through cooperation with 
friends and allies, particularly those with the capability to help 
build regional CT capacity, including Japan, Australia, Korea, 
Singapore, Thailand, Malaysia, and China.
    Regional Stability: Regional stability has long been the Bureau's 
main long-term strategic goal. In FY 2005, regional stability will be 
advanced through success in attacking terrorism. EAP will sustain 
alliances with our five treaty partners in the region while promoting 
their increased integration into U.S. regional and international 
strategy; promote stability in Northeast Asia, including on the Korean 
Peninsula; support the positive integration of China into regional and 
global institutions; strengthen regional institutions for managing 
political and economic challenges, including the ASEAN Regional Forum 
(ARF), ASEAN, and APEC; and pursue regional growth and integration 
through FTAs, Trade and Investment Framework Agreements (TIFAs), market 
openings, and other economic liberalization measures, as well as 
through democratization and rule of law programs.
    The ASEAN Cooperation Plan is an essential tool for building long-
term stability in Southeast Asia. To support activities under the ASEAN 
Cooperation Plan, we have requested $2.5 million for FY 05. The funds 
will be used to bolster the ability of ASEAN to play a constructive and 
stabilizing role in Asia, to facilitate cooperation to address 
transnational issues, to foster economic and political integration, to 
spur development and to enhance our influence in a region of 
significant economic importance to the United States.
    We are requesting $250,000 in FY 05 for Regional Security to 
support U.S. efforts in the ASEAN Regional Forum to shape regional 
views on issues such as arms control, counter-terrorism, and maritime 
security through seminars, workshops, and exchanges and to promote 
regional stability through strengthening regional institutions in which 
the United States participates.
    Democracy and Human Rights: The relative stability of the EAP 
region has allowed democracy to take hold in many areas, including 
South Korea, the Philippines, Mongolia, Thailand, and Taiwan as well as 
many Pacific Island states. This year will see citizens of five nations 
in the EAP region--namely Indonesia, Korea, Philippines, Malaysia and 
Mongolia--plus Taiwan go to the polls.
    EAP will continue to promote democratization and improvements in 
human rights throughout the region and will work closely with EAP 
countries, including Indonesia as it continues its democratic 
transformation. With our help and that of other major donors, 
Indonesia--a secular state with a diverse and predominantly Moslem 
population--could become an example of tolerance and democracy and a 
model for other countries.
    Through our USAID programs, we are assisting NGOs in Cambodia in a 
wide range of areas, including human rights, labor rights, good 
governance, rule of law, and an independent press. In Indonesia, we 
will support programs that advocate public tolerance and strengthen 
local governments, in addition to our basic education initiative.
    The situation in Burma remains grim, as we have just made clear in 
our human rights report. Human rights abuses continue; Aung San Suu 
Kyi, other NDL leaders, as well as other political prisoners remain 
under detention. The government has given no indication how it will 
involve the democratic opposition and ethnic groups in its plan for 
national reconciliation nor has it outlined a timeframe for these 
discussions.
    Our FY 05 assistance to Burmese citizens inside Burma and Burmese 
refugees in neighboring countries, particularly Thailand, is intended 
to strengthen grassroots democratic institutions and to press the 
Burmese government to improve its human rights record and to cease 
persecution of religious and ethnic minorities.
    Open Markets/Economic Development: Promoting open markets, economic 
development, and sound economic policies is not only a critical 
regional goal, it is also a vital element of the war on terrorism. 
Economic prosperity reinforces democratic institutions, fosters 
stability, encourages the peaceful resolution of differences, and 
supports U.S. commerce and trade.
    The Asia-Pacific region is key to global economic growth. While the 
region has moved a long way down the path of recovery since the 
economic crisis of 1997-98, resumption of dynamic growth rates will 
require significant financial and corporate restructuring and improved 
economic and political governance, including an end to endemic 
corruption, and expanded trade and investment. The U.S. role--through 
bilateral assistance, free trade arrangements, support for reforms and 
regional programs in APEC and ASEAN--will be critical to the success of 
this transformation.
    Free trade arrangements with the U.S. will be an important vehicle 
for driving competitive trade liberalization in the region. We are 
moving ahead with the Enterprise for ASEAN Initiative (EM), which 
offers the prospect of FTAs between the United States and ASEAN 
countries that are committed to reform and openness. The goal is to 
create a network of bilateral FTAs which will increase trade and 
investment, tying our economies more closely together. The EAI has 
already resulted in an FTA with Singapore, which came into force in 
early 2004. We have completed negotiations with Australia for an FTA, 
and we have announced intentions to enter into FTA negotiations with 
Thailand. We continue to support granting normal trade relations (NTR) 
to Laos.
    China's compliance with its World Trade Organization (WTO) 
obligations, its transition to a market economy and its emerging 
economic influence are economic developments that EAP will monitor 
closely. The bureau will also use multilateral regional bodies such as 
APEC as a way of promoting market-oriented reforms and open trade and 
investment regimes. In addition, to fulfill our obligations under the 
South Pacific Multilateral Fisheries Treaty, we are requesting $18 
million in ESF in FY 05. This treaty ensures continued access for U.S. 
commercial fishing vessels to the Pacific Ocean Tuna fishing areas. In 
the Philippines our funding through USAID will support micro-financing, 
anti-corruption, civil society, governance, and other programs to 
promote economic development in empoverished areas. Our ESF request for 
East Timor of $13.5 million will support the development of its civil 
society and new democractic and economic institutions.
    International Crime and Transnational Issues: Transnational issues, 
including terrorism, narcotics, human trafficking, and infectious 
diseases, are a serious threat to regional stability. EAP works with 
INL, OES, USAID and other agencies on these transnational challenges to 
develop multilateral approaches to supplement existing bilateral 
efforts.
    One of the most important contributions we intend to make in FY 05 
is in the area of human trafficking. We have requested $1 million in FY 
05 assistance for EAP's Regional Women's Account to support a regional 
approach to combat the scourge of trafficking in persons (TIP). As TIP 
is a problem that crosses and takes advantage of national borders, we 
must mobilize a regional effort to counter it. Funding will focus on 
empowering women through political participation, economic 
independence, and the elimination of violence against women. Our 
efforts will concentrate on TIP projects in Tier 2 countries where 
trafficking problems are most severe.
    Weapons of Mass Destruction: FY 2005 placement of WMD proliferation 
as a strategic goal is based on the assumption that current positive 
trends in nonproliferation cooperation with China will continue. We are 
working to pursuade China to adhere fully with its existing bilateral 
and multilateral nonproliferation commitments and to cooperate fully in 
pre-licensing and post-shipment verification checks related to U.S. 
dual-use exports. EAP will also work to obtain Chinese cooperation in 
encouraging other countries to adhere to the guidelines of the 
international non-proliferation regimes. EAP is working within the Six 
Party Talks process to secure the complete, verifiable, and 
irreversible elimination of North Korea's nuclear programs. In FY 2005, 
the bureau will continue the effort to prevent, contain, and reverse 
the possibility that any WMD or their means of delivery might become 
available to rogue nations or non-state terrorist organizations.
    For FY 05, the Department has requested $2.6 million in export 
control assistance for the EAP region. The recent accounts of a black 
market in sensitive nuclear-related goods involving companies in the 
EAP region make this funding critical to our efforts to end WMD 
proliferation.
                 modifications of current restrictions
    EAP would like to expand programs for a small group of EAP 
countries, including Cambodia, in the future.
    In Cambodia, Public Law 108-199 for FY 2004 restricts assistance to 
the central government, with limited exceptions. There are several 
areas where closer cooperation with the central government would be in 
the U.S. national interest: enhancing counter-terrorism capabilities; 
promoting rule of law and justice; developing a smaller more 
professional military; and supporting a credible Khmer Rouge Tribunal.
    Cambodia needs training in immigration, border security, and other 
areas critical to our global fight against terrorism. We need to be 
able to train and work directly with the government agencies concerned 
with CT. All individuals and units we work with will be carefully 
vetted.
    Many of Cambodia's problems stem from or are exacerbated by the 
shortcomings in its legal and judicial system. U.S. assistance for 
judicial reform and anti-corruption efforts would promote our interests 
in a number of areas, including: combating trafficking in persons, 
resolving human rights abuses, improving international adoption 
procedures and bringing Cambodia into compliance with WTO legal 
standards.
    Public Law 108-199 also prohibits funding for any tribunal 
established by the Government of Cambodia. It has been the longstanding 
policy of this and prior Administrations to seek accountability and 
bring to justice those responsible for the genocide carried out by the 
Khmer Rouge regime from 1975-1979. In June 2003, the UN and Cambodia 
signed an agreement to establish a credible Khmer Rouge Tribunal. We 
have urged all parties to work to ensure the Tribunal will execute its 
jurisdiction in accordance with international standards of justice, 
fairness, and due process and would seek to make an appropriate 
contribution to such a tribunal.

                               CONCLUSION

    The foregoing represents a brief overview of EAP bureau goals and 
objectives, and the resources necessary to meet them. It incorporates 
our best assessment of the region-wide demands and requirements we 
should work to meet, but as we mentioned in last year's testimony, it 
cannot incorporate resource requests for major, unanticipated events 
that could emerge without warning in the region, including on the 
Korean Peninsula.

    Senator Brownback. Thank you very much. Mr. West, do you 
want to put anything forward or----
    Mr. West. Briefly, if I may.
    Senator Brownback. Yes.

 STATEMENT OF GORDON WEST, ACTING ASSISTANT ADMINISTRATOR FOR 
                 ASIA AND THE NEAR EAST, USAID

    Mr. West. Thank you, Mr. Chairman. We see in East Asia in 
particular some encouraging news in terms of the 5-year 
economic straits, difficulty straits are gradually lifting. At 
the same time, we see a region that perhaps is not as 
competitive as it was before and certainly has political 
insecurity challenges, which, certainly on the security side 
were not a part of the fabric of USAID's attention in some of 
these areas.
    Our biggest priorities in the region are the Philippines 
and Indonesia, where we have large presence countries. In the 
Philippines we have almost totally directed our assistance to 
focus on the issues of development and separatism and terrorism 
in Mindinao and the souther islands.
    We've had an ongoing program for 10 years now. More 
recently, we have directly engaged, as you know, with the MNLF, 
with considerable success in terms of being able to create 
livelihood opportunities, beginnings of civil society. This 
year we have added initiatives in education, basic education 
and exchanges that will allow us to address the poor state of 
both public and private education facilities throughout the 
country but especially in the Mindinao area.
    We have on the shelf funding that would allow us to engage 
with the MILF should there be a break. We are not at the moment 
going forward with any of those programs, but there are some 
positive signs. We don't know if anything would happen before 
an election. We are prepared to work very closely with the 
State Department and others on the ground should those 
opportunities come forward.
    We are prepared to put a modest amount toward the election 
that's coming. Those will largely be helping the institutions 
in the monitoring process for those elections.
    In Indonesia, we also, as Mr. Keyser mentioned, there is a 
major election this year. We have put substantial resources 
toward preparing for these elections. This will be a very 
active year on that front.
    We have also engaged in a substantial increase in our 
commitment to education. We had some fairly low-level programs 
before, largely through the Asia Foundation. As a result of the 
announcement by President Bush, we have committed to a 5-year, 
long-term program in education. It's focusing on decentralized 
authorities building the local capacity to manage education. We 
are looking at centers of excellence on a district basis, a 
large emphasis on community, women's involvement. Many of these 
areas will also include areas where we have Islamic schools to 
generally upgrade the capability of registered and qualified 
schools across the board. This is a very important initiative.
    We also continue with economic reforms and Indonesia is one 
of the potential countries that face an HIV/AIDS threat, so we 
are active in trying to protect the country from that, from 
HIV/AIDS.
    In mainland Southeast Asia, we largely focus increasingly 
on transnational issues. Those include HIV/AIDS, infectious 
diseases, trafficking in persons, corruption, trade capacity 
and development. We're also engaging increasingly with ASEAN to 
strengthen its ability to bring together the Southeast Asia 
region.
    These transnational issues, to the extent they also involve 
areas of crime, whether it's trafficking, drugs, also have a 
clear intersect with terrorism. It's clear that the criminal 
and terrorist worlds are increasingly intertwined in countries 
that are either weak or failing, such as Burma. The weakness of 
governance in Cambodia do offer opportunities for terrorist 
elements. We've seen resurgence in the Malaysian border. We see 
issues on the Burma/Bangladesh border.
    In response, we are increasingly working closely together 
with State, not only on a bilateral but on a regional basis. We 
have created a regional mission in Thailand that will 
increasingly take on many of these transnational issues.
    That's all I have.
    Senator Brownback. Thank you, gentlemen very much. I have a 
series of issues I want to raise with you, and we're going to 
have a series of rollcall votes, so I don't think there's 
probably any way you can address all these, but what I'm going 
to mention to you is things that I'm going to be pressing on 
here and in the Appropriations Committee as well on areas that 
intersect your region that you're working on.
    And first, I really applaud and appreciate your efforts. I 
think there has been an incredible movement of liberty and 
freedom in that region, as you noted of what Secretary Powell's 
going to speak on. You really couldn't have imagined this being 
at this level, to the point that in December of this last year 
I was in Hong Kong calling for democracy and to a rousing crowd 
and a--what, about 2 weeks earlier there had been 100,000 
people out in the streets of Hong Kong calling for democracy.
    Wow. I mean, that's pretty significant, to the point that 
North Korea, that during most of my tenure has been a 
hermetically sealed place. We haven't known what's going on 
before now. We're getting out virtually daily new information 
from refugees that are coming out, chemical weapons testing, 
Gulag system, much of it's just horrific, but we're finally 
hearing and knowing some of the things going on, and a lot of 
that's due to the pressure really the administration's placed 
on them, and I think that's important.
    To Vietnam, where the trade relationship has grown 
dramatically, and I was just back there in January, but some of 
the human rights issues haven't moved along as well. Religious 
freedom in the State Department's annual report was really just 
citing problems with Vietnam and religious freedom, and I 
stated to the officials in Vietnam, this relationship is 
growing, it should, that's as it should be, but here is a big 
impediment if you don't start addressing it, and there's no 
reason for you not to address it, and I'm hopeful they will 
receive that well.
    Several areas that are also on my list, Burma and putting 
in the officially elected government. I tried to get into Burma 
this year and was denied a visa by the Burmese not allowing me 
to go into that country. It has to remain a strong, hard focus.
    And then it's not just Burma. When I was on the Thai-
Burmese border a couple of years ago, what the Burmese junta 
has done has forced a number of people into--just on that Thai 
border--and the people are just prey for traffickers and 
criminal elements. So you're seeing all these little girls 
getting trafficked into brothels that just is a death sentence 
on them. That is a disgusting thing that the military 
government and what it's pushing has then had this huge human 
side effect on it.
    I want to draw your attention to something that we're going 
to try to press through that's tied with that. We take in 
refugees into the United States and it's an admirable thing we 
do. We don't take in near as many as we could. I think last 
year we took in about 25,000. We funded to 75,000.
    I have introduced a bill called the Widows and Orphans Act. 
Of the 25,000 we took in, only 1,000 were widows or young 
orphans, and of the refugee population around the world, it's 
estimated that population of widows and orphans is about 34 
million. In other words, most refugees are widows and orphans, 
and yet the ones that can fight through the system to make it 
here are generally young, healthy males, because they're the 
ones that can rigorously dig through the system. The ones most 
subject to trafficking, to raid, to refugee camp crimes are 
widows and orphans. They're the most vulnerable. This bill 
would allow a new category for State Department to identify 
people that are in vulnerable categories, and instead of 
requiring them to swim up through the stream to make it, it 
allows us to pick them out and say, you know, this is somebody 
that ought to be moved to the United States for safety purposes 
and keep them from being trafficked. We're going to try to 
press that on forward.
    On the trade front, I do agree with you on the WTO 
accession by China and that we've got to press them to live up 
to their obligations. They have created an economic juggernaut 
and done a brilliant job of it. You really got to tip their 
hats to them. I was up in the North Korea-China border region a 
year and a half ago and they cracked open a four-lane limited 
access road into a fairly remote region of the country, wasn't 
anybody on the road, we turned around and went the wrong way 
for about a half mile because somebody behind us had a flat 
tire, it was a snowy day, so that also contributed to a lack of 
traffic. But I was saying, you know, as an economic activity, 
you got to give it to them. They are cracking open regions of 
that country just left and right. It's a wise economic 
strategy. But they've got to live by their WTO obligations and 
that impacts our people here.
    I've been pressing hard that we get the beef markets open 
back up in Asia. That's a particular concern of my State with 
Japan, the BSE case. And I understand why they did that, but it 
is time that we open that market and really press them to get 
that moving open again.
    Two final issues I just want to point out to you, because 
they're ones we're going to be working on. I hope you get soon 
resolution. There is a group of Vietnamese refugees in the 
Philippines that are left over from the Vietnamese boat people. 
I think it's about 1,200 to 1,800. I called the head 
coordinator of that last week to say the issue of these people 
needs to be resolved, this is 15 years old now, and it's a 
limited population pool and I think they need to be allowed 
into the United States, but just let's get it examined, let's 
get it determined where these folks are going to.
    Then the final issue is we've got a bill pending on North 
Korea. It would allow asylum and refugee status to North Korean 
refugees seeking status in the United States. Currently there's 
a legal coefficient against that because they can by 
constitution go to South Korea. If we're to support the 
freedom, we need to be able to take some as well, and that 
would be a narrow authorization issue for State Department. We 
would try to get that authorization to State Department.
    The broader issue is on the six-party talks if those move 
forward that--I agree with trying to deal with the nuclear 
issue, but this is the worst humanitarian situation in the 
world. The numbers I've seen, about 2\1/2\ million people have 
died in the last 10 years in North Korea. That's a tenth of the 
population, a little more than a tenth of the population, and 
if we do the deal where they stop developing nuclear weapons 
and we pay money to prop up the regime and these people are 
left to die, you talk about a weapon of mass destruction. 
Killing 2\1/2\ million people in 10 years is a weapon of mass 
destruction and I disagree with that, and if the administration 
comes to the Congress and says, we want money for this 
agreement, and does not address the human rights issues in 
North Korea, I will be opposing that, even thought it is a 
laudable goal that you're after to get rid of the nuclear 
weaponry in North Korea and we need to do it. But if the price 
is leaving these people in a gulag to die where food aid that 
we pay for doesn't get to the targets and when they're not 
allowing us to monitor it to get to the targets, I do not agree 
with that, and that is not a humanitarian way for us to go.
    We now know what's going on inside of North Korea. We 
didn't for a long time but we do now. And so for us to say, 
well, it's going on but we've got this objective here, I can't 
abide by it. That's too high of a price to pay in human lives 
and their suffering. We're not seeing North Korean refugees all 
over China, we're now seeing them in Vietnam, in Burma I'm 
told, in Thailand, you know, as they keeping walking out trying 
to get to some freedom. We really need to stand with them.
    That's a long discussion, but I wanted to tell you of some 
things that we are working on that hopefully will by and large 
be very helpful to your mission, but other items that may have 
some impact on your work. I appreciate any response or you 
don't need to respond to it at all. It's really your choice, 
but I wanted to let you know those things.
    Mr. Keyser. Thank you, Senator. Let me start with the last, 
the Korean situation part, because Jim Kelly, my boss, has just 
come back from there and will be testifying this afternoon, and 
then part because I've had the privilege of meeting with you 
previously on some of these issues.
    I'll simply say that I know my boss, Jim Kelly, will say 
that we look forward to working with you and with the 
committee. We, as an administration, appreciate the passion, 
the conviction, and the spirit of American values that you 
bring to this whole question about what to do about the people 
who are suffering in North Korea. I think we share very much 
the goals that you have outlined. I think we certainly are more 
than prepared to work with you to figure out how to do that 
correctly.
    On the question of how this fits into the current six-party 
talks process, I'd like to reassure you, sir, that every 
presentation by Jim Kelly at the outset of these talks features 
a comment on the human rights situation in North Korea as one 
that we must address should we ever get to the point of talking 
about normal relations with the DPRK. As you say, in the six-
party talks, we are focusing laser-like on the nuclear issue, 
but the other is not forgotten. We have made plain both that we 
have looked with horror at what takes place in North Korea. We 
didn't use the word gulag, but among ourselves we did use the 
word gulag, that's what it is undeniably.
    We've made plain that where the North Korean regime 
abducted Japanese citizens, Deputy Secretary Armitage has said 
on the public record that we regard that as an act of state-
sponsored terrorism. North Koreans have not appreciated that 
particular parlance, but as the Chinese would say, seek truth 
from facts. It was that. This was a bizarre thing to do by any 
standards, a brutal thing to do, it must be solved. So the 
Japanese are putting that forward in these talks as well and 
we're making plain that we support the Japanese in that. This 
kind of thing must be dealt with.
    In terms of the refugees, we certainly support the intent 
of the legislation that you are proposing, Senator. We are 
featuring in a set of bilateral talks we have with the Chinese 
a segment to address that overall situation. We've not yet had 
the progress that we hope to have in that, but we remind the 
Chinese of their obligations to the U.N. High Commissioner for 
Refugees. We tell them that while we understand their 
definition of many refugees as economic migrants, and indeed, 
many may be seeking a better economic life and a way of sending 
money back across the border, the fact remains there needs to 
be a mechanism to screen these individuals to see what their 
circumstances are, to ensure that they're not persecuted or 
tortured or killed if they are sent back to North Korea.
    So we are, I think, trying quite hard to persuade the 
Chinese that they have an obligation by way of their signing on 
to the relevant convention in 1951, and they have a moral 
obligation to this as well. So we do try to engage them in 
this. We are working with them, we are working with the U.N. 
High Commissioner for Refugees on this, and certainly I think 
we would be--if we could find a way to do it, we would indeed 
come forward to request assistance, moneys to support whatever 
kind of intervening effort, what ever kind of relocation, a 
resettling effort. Sorry for that very long answer.
    Senator Brownback. That's a good answer. I appreciate that. 
Any other items, Mr. West, that you'd care to respond to?
    Mr. West. No, sir.
    Senator Brownback. The way I look at it is that we're 
really in synch on most of these issues and see great 
opportunity. I really am amazed at the window that we have. If 
we can stay the course, you can really see your way through to 
a real burst of freedom in a region that impacts several 
billion people through it, so I look forward to working closely 
with you on pressing your budget so that we can get that, that 
you can have the adequate resources that you need to move these 
items on forward.
    Gentlemen, thank you very much. Is there anything else, Mr. 
Keyser or Mr. West?
    Mr. West. No.
    Mr. Keyser. Thank you very much.
    Senator Brownback. Well, I appreciate you being here. For 
the record, other members of the committee and I may have 
additional questions for the record. Therefore, I'd like to ask 
that responses to questions for the record be made in a timely 
manner so as to help guide members during the foreign 
assistance mark-up that's on Thursday. The record will be kept 
open for 24 hours to accommodate any additional questions that 
members might have.
    Gentlemen, thank you very much. God speed to you. You can 
bring freedom and liberty to a lot of people.
    Mr. Keyser. Thank you, Mr. Chairman.
    Senator Brownback. This part of the hearing is ended. We 
will recess until 1 p.m.
    [Recess from 11:37 a.m. to 1 p.m.]
    Senator Coleman [presiding].

               OPENING STATEMENT OF SENATER NORM COLEMAN

    Senator Coleman. We're going to reconvene this hearing of 
the Senate Foreign Relations Committee on the President's 
budget for foreign assistance, this panel focusing on the 
Western Hemisphere. Assistant Secretary Noriega, Assistant 
Administrator Franco, we are pleased to have you here with us 
to testify about the President's foreign aid budget for Latin 
America and the Caribbean, particularly at a time when I know 
both of you have been so busy.
    Latin America and the Caribbean are strategic to U.S. 
national interests. Besides geographical proximity, these 
nations by and large share our values, democracy, economic 
freedom, and human rights. We hope to see these nations 
flourish economically and politically, and I'm pleased to see 
these priorities evident in the President's budget.
    Democracy is not without its challenges in this hemisphere, 
however. In the last 5 months, we have seen two Presidents 
resign under popular pressure. That these were not military 
coups is a sign of Latin America's progress in recent decades. 
Still the threat of instability casts a shadow on the future 
throughout the region.
    Jean Bertrand Aristide's decision to end his Presidency 
concludes a difficult chapter in Haiti's history. Now is the 
critical moment for the U.S. and the international community to 
put ourselves to the task of supporting Haiti's future. We must 
act quickly to help through this transition and we must 
consider long-term support for Haiti so that Haiti's future 
will be an improvement over its past.
    I know there has been considerable debate in Washington 
over the issue of Haiti, and with the events of the last 
weekend, that division has only intensified. Some blame the 
Clinton administration for placing too much trust in the 
untested Aristide in 1994. Others accuse U.S. policy of 
neglecting Haiti and abandoning Aristide. Making the debate 
more explosive, there are even those who attempt to explain 
U.S. policy based on race.
    For the record, let me lay out my view on today's hot 
topic. I have absolutely no reason to believe that President 
Aristide was kidnaped and I do believe that his departure from 
Haiti will ultimately help that nation move forward.
    I think it's very regrettable, by the way, for members of 
this Congress to give any credence whatsoever to the statements 
of Aristide himself regarding what transpired here. President 
Aristide was democratically elected, but that does not mean 
that he governed in a democratic way. Aristide broke and 
politicized the Haitian police. He chose to rely instead on a 
paramilitary group of supporters to harass and even kill 
opponents. He has been accused of drug trafficking and 
corruption and lost the confidence of Catholic priests, from 
whose ranks he had risen. Rigged Haitian elections in 2000 were 
never resolved and Aristide has been ruling by decree.
    Having lost the trust of the Haitian people, Aristide 
decided to resign from the Haitian presidency. He was not 
overthrown by a coup d'etat and the United States did not 
conspire toward his ouster.
    Secretary Powell assures us that the U.S. did not 
intimidate Aristide into leaving, but that we did help him 
escape. If Aristide is changing his story now, I'd urge my 
colleagues to consider who they trust, a failed leader who owed 
his survival to thugs and paramilitary gangs, or the United 
States Secretary of State.
    While Congress has an essential role in holding the 
administration accountable on foreign and domestic policy, I do 
believe we do a disservice to the people of Haiti if we spend 
too much time turning the latest crisis into a political 
rallying cry in this country. Haiti has had a troubled 200-year 
history and Haiti's problems have persisted regardless of which 
political party held power in Washington. Today I think we 
ought to be more concerned about Haiti's future than our own 
varying interpretation of Haiti's past.
    I think there is an incredible moment of opportunity here 
for the U.S. and the international community to join together 
to make a sustained and long-term investment in Haiti. Haiti 
needs our help, it does not need our bickering. The deployment 
of Marines is a good start, but that must be accompanied by 
political reform, humanitarian aid, institution building. We 
have the opportunity to act in concert with the international 
community and I commend the unanimous passage of the resolution 
on Haiti by the United Nations Security Council. America and 
the world must not waiver on our commitment to Haiti's long-
term stability.
    Through a serious approach I believe we can help Haiti turn 
away from its difficult past. That will require pro-Aristide 
and anti-Aristide Republicans and Democrats black and white to 
put our heads together rather than to point fingers at one 
another.
    Next week the Subcommittee on Western Hemisphere, Peace 
Corps, and Narcotics Affairs will hold a hearing to review 
Haiti's recent crisis, but also and more importantly, to find a 
way forward for Haiti and the U.S.-Haitian relationship. I look 
forward to hearing my colleagues' wealth of experience and 
constructive ideas for Haiti's future at that hearing.
    Moving to other regions, other areas in the region, the 
hemisphere, recent events in Venezuela are also troubling. 
President Chavez's increasing rhetoric is not helpful, nor is 
the coercion of the Venezuelan electoral commission. Venezuela 
is undergoing a democratic test today and the international 
community fully expects President Chavez, as well as the 
electoral commission, to abide by international norms as well 
as the Venezuelan constitution.
    Colombia remains the largest recipient of foreign aid in 
the Western Hemisphere. Colombia is a country that knows what 
it is to engaged in a war on terrorism and we in the United 
States should continue to support President Uribe's bold 
efforts.
    U.S. anti-narcotics efforts in the region also support 
Colombia's neighbors, Peru, Bolivia, Ecuador, Brazil, Panama, 
and Venezuela. In the case of Bolivia, recent unrest resulted 
in the resignation of President Gonzales Sanchez de Lozada. 
Many of us remain concerned about stability in Bolivia, and I 
hope the witnesses will address in their statements how our 
foreign aid budget will encourage stability in Bolivia under 
the Carlos Mesa government.
    The nations of Central America have made remarkable 
progress in the last 20 years, but continue to struggle with 
crime and poverty and deserve our support and partnership. In 
the Caribbean, the U.S. supports such important shared goals as 
transnational crime prevention and border security.
    Last year, Congress enacted two new global foreign aid 
initiatives which I was proud to support, the global HIV/AIDS 
initiative and the Millennium Challenge Account. I know both of 
these programs are just getting started, but I would like the 
witnesses to speak briefly about their impact on Latin America.
    The President's budget also includes an increase for the 
Peace Corps to keep them on track, for which a doubling of the 
number of volunteers. I strongly support this increase and 
would note that the President's budget also includes funding 
for the first ever Peace Corps program in Mexico.
    I believe in the foreign assistance budget. I believe it is 
an important tool for our foreign policy. I also believe in the 
importance of congressional oversight. I am pleased to have two 
distinguished witnesses here to talk about our foreign aid 
budget for the Western Hemisphere. When my distinguished 
ranking member, Senator Dodd, on the subcommittee comes, I will 
defer to him for a statement, but at this time I will then just 
proceed with the testimony.
    Testifying on the foreign aid budget for Latin America and 
the Caribbean are two men who are no strangers to this 
subcommittee, Assistant Secretary of State, Roger Noriega, and 
Assistant Administrator for the U.S. Agency of International 
Development, Adolfo Franco.
    Assistant Secretary Noriega, before you begin I want to 
thank you for all your efforts to manage Haiti's ongoing 
crisis. I know this has been a demanding time for you. I also 
know Assistant Administrator Franco has been very busy 
overseeing humanitarian aid to the Haitian people, so we begin 
by thanking you both and look forward to your testimony.
    Secretary Noriega.

  STATEMENT OF HON. ROGER F. NORIEGA, ASSISTANT SECRETARY OF 
STATE, BUREAU OF WESTERN HEMISPHERE AFFAIRS, U.S. DEPARTMENT OF 
                             STATE

    Mr. Noriega. Thank you very much, Mr. Chairman. I have a 
prepared statement, which we've made available, and I offer it 
for your making part of the record.
    Senator Coleman. It will be part of the official record.
    Mr. Noriega. Thank you very much, Mr. Chairman. I have a 
brief opening statement. Let me emphasize that in our work with 
the region, we definitely work as a team, USAID, State, the 
other agencies that have a direct role on this, and we 
emphasize communication with the Congress, and let me just say 
that we are always available to you and your staff to 
communicate on the important issues and welcome this 
opportunity to do so in a more formal setting.
    The Western Hemisphere has a unique place in our foreign 
policy and assistance programs. Our own destiny is uniquely 
bound to that of our neighbors in the north and the south 
through their constant movements of goods and people across our 
long shared borders. Our open societies, however, are 
vulnerable to external and internal threats, crime of all 
kinds, internal conflict, and as September 11 made very clear, 
dangerous new forms of terrorism as well.
    Our foreign assistance programs address these 
interconnected problems. We aim to encourage continued progress 
throughout the hemisphere toward effective participatory 
democracy with broad-based economic growth, human development 
in both personal and national security.
    In 1980, fewer than half of the countries of the hemisphere 
had freely elected democratic leaders. Although some 
democracies in our hemisphere are troubled, Haiti comes to mind 
immediately. Today 34 of our 35 countries have freely elected 
governments. Only Cuba does not.
    As we have seen in country after country the return to 
democracy, in some cases after an end of long internal 
conflicts, has raised expectations that have not been fully 
fulfilled. While some gap in performance is unavoidable, in 
many countries the gap remains dangerously wide or is even 
growing, so we have to respond to this crisis of rising 
expectations. The institutions of government are simply not 
organized or sufficiently funded to be able to respond 
effectively to the reasonable demands of the people.
    Haiti is in the midst of yet another crisis. While the 
manifestations of Haiti's ills are poverty and misery, the 
roots causes are political and institutional. A government that 
has failed its people in every way in recent years. We are 
working very hard with our international partners to seek a 
solution to the political crisis in Haiti that respects 
democratic rule. We have a resolution of the U.N. Security 
Council, as statement of the OAS. We are working with our 
people and counterparts on the ground to support a formation in 
the very near term of an independent government headed by the 
new President and a new Prime Minister, and we are very pleased 
by the offer of several countries in our hemisphere and outside 
our hemisphere to make security forces available in the very 
near term to accompany this process of democratic and political 
normalization under a new constitutional leader.
    Meanwhile, our assistance programs promote the development 
of democratic processes in Haiti for training and the positive 
engagement of civil society groups in the issues of governance. 
This will be particularly important as we go ahead in Haiti.
    Bolivia and Venezuela remain causes for considerable 
concern and interest. A principal objective of our democracy 
program in Bolivia is to draw the long-marginalized indigenous 
population into political life in Bolivia. That is a policy of 
the Bolivian Government today and we support it. It was a 
policy of the previous administration and it is a policy of 
President Mesa. We hade a Bolivia support group along with 
Mexico. It brings many donors around the table and others who 
offer political support from inside the hemisphere, from 
outside the hemisphere that are looking for ways to accompany 
the efforts of Bolivia to address the fiscal gap that plagues 
that country, to address the issue of governance and the 
confidence of its people, so we have a very active engagement 
and a very good team working to support Bolivia.
    In Venezuela, we continue to support efforts to find a 
peaceful, constitutional solution to the political impasse, 
which is now entering its third year. Venezuela is plagued by 
an extraordinary level of polarization, which is on a daily 
basis exacerbated by President Chavez. However, the Venezuelan 
people are by and large taking advantage of the constitutional 
means that they have available to them to have a say in their 
own future, to contribute to a peaceful resolution of the 
political crisis and to reach national reconciliation. It's a 
long, complicated, difficult process, but we hope that people 
will choose the political recourse rather than any sort of 
violent means.
    Our foreign assistance resources will be used to strengthen 
the operations of democratic political parties and democracy-
related non-governmental organizations in Venezuela.
    In Cuba, our policies to encourage a rapid peaceful 
transition to democracy are characterized by strong support for 
human rights and an open market economy. The President has 
named an executive branch commission which will make a report 
to him before May 1 or on May 1. That is a commission that is 
determined to make recommendations on hastening the democratic 
change in Cuba, but also determined and prepared for a change 
so that we can respond agilely and decisively to ensure that 
there is a remarkable, profound, broad change in Cuba that will 
give the Cuban people a chance to make a decision about their 
own future.
    These are but a few examples of how our policy will support 
democracy, and our foreign assistance programs are tailored to 
the circumstances in our individual countries that we deal 
with. The second pillar of our Western Hemisphere strategy is 
economic growth. This is a process that is by consensus in the 
hemisphere. It's a multilateral process. The programs and the 
policies that we're supporting are really reached by consensus 
and consultation with our neighbors.
    At the special Summit of the Americas held in Monterrey in 
January, the leaders discussed the social issues, poverty, 
alienation, and equitable growth. They agreed on a host of 
concrete actions to fight corruption and to promote 
transparency, invest in health and education, and promote 
growth through trade and economic reforms.
    Our assistance programs will help implement the commitments 
that were made by our neighbors. These are practical 
commitments that don't all look for what other countries can do 
for them, what donor countries can do for them, but just as 
importantly, I would suggest more importantly, what they can do 
for themselves to take full advantage of the resources that 
come to them through the income generated by trade, through 
remittances, and through investment. They have to retool their 
economies so that they are able to make the best use of these 
resources and to spread the economic opportunity that is 
manifested by these resources, to spread it to people from all 
walks of life. For example, we'll support legal and regulatory 
reforms that will help small- and medium-sized enterprises and 
property owners and to bring informal businesses into the 
formal sector so that they can have access to capital, will be 
subject to regulation that's a wise regulation, will pay their 
taxes, and again, be in a position where they are able to 
expand their operations and employ more people, because 
overseas as well as here, jobs are the best sort of social 
program.
    We will help countries develop the capacity to provide 
business services, including access to credit and markets and 
to enable them to compete in the global economy, and USAID does 
a remarkable job in emphasizing this trade capacity-building.
    As international standards increasingly require attention 
to the environment, we will promote the best use of 
environmental management practices, including access to 
financing for their implementation. We will also promote 
transparency and accountability in government institutions so 
that people have confidence in the first instance in the 
government.
    We remain firmly convinced that trade is the most effective 
means of increasing prosperity in the hemisphere, to create 
economic growth, to spread that economic growth to people 
across all walks of life. The summit declaration in Monterrey 
reaffirmed the commitment to complete the FTAA on schedule, 
that is to say, by January 2005. We are also moving forward 
with several bilateral agreements with the Andean countries, 
with Central America, with the Dominican Republic, with Panama, 
and these are extraordinarily important too, but we do have our 
sights set on the regional trade agreement, because we think 
that's important that we all grow together in every sense of 
that expression.
    At present, too many in the hemisphere are trapped in 
poverty and suffer from malnutrition. Consequently, we are 
continuing to dedicate significant resources to improve 
nutrition and health care in specific countries in regions. 
Haiti, Nicaragua, and the impoverished coca-growing regions of 
Bolivia and Peru are among the recipients of that sort of 
assistance.
    The United States is the largest bilateral donor for HIV/
AIDS prevention and care in Haiti, and one of the President's 
HIV/AIDS initiative focus countries. We also do an awful lot of 
work in combating HIV/AIDS in the Caribbean region and in other 
parts of the Americas.
    We look forward to the initiation of programs through the 
Millennium Challenge Account, which will provide an important 
new source of financing for lower income countries and 
establish sound economic policies, invest in their people, and 
demonstrate the political will to establish transparency in 
government and to conform with the rule of law.
    You asked how this is going. I think it's already had an 
impact, because countries recognize that this is a source of 
financing that will be made available if they meet certain 
requirements, so these countries are taking special care to 
adopt the kinds of policies that they need to make them more 
eligible, more likely to be a recipient of that sort of MCA 
financing.
    I believe personally that the countries of the Western 
Hemisphere that are led by democratic re-elected leaders who 
are committed to market policies that are our trade partners, 
that are in the natural market for us, are uniquely qualified 
really for that sort of MCA assistance. That sort of investment 
will make all the more difference in the lives of these people 
because it's an investment along with the people of these 
countries, along with their governments that are adopting the 
right policies. So we believe that the MCA has great promise 
for the Americas.
    We anticipate several countries in the hemisphere will 
qualify for that sort of assistance in the very first year and 
we hope that the Congress does provide the President's request 
for the MCA for the second year as well, because we will be 
prepared to move very quickly, particularly in this hemisphere, 
to present programs that are well-developed and have good 
partners and will leverage the kinds of results that we want to 
see in the Americas.
    While the hemisphere is making progress in the development 
of effective democratic institutions and open economies, this 
progress is threatened by the inability of countries to control 
crime and demonstrate to all citizens the value of the rule of 
law. Indeed, the lack of personal security is now recognized in 
many countries as the primary threat to the stability of 
democratic re-elected governments.
    The goals of democracy and security are thus two sides of 
the same coin. We cannot pursue one without the other, and both 
are critical to our own security here at home.
    Much of our assistance to the region focuses on 
strengthening criminal justice institutions and processes, 
development assistance, ESF, and INCLE funds are also used for 
such purposes. Assistance ranges from training and equipping 
counter-narcotics and other specialized units to sector-wide 
efforts aimed at implementation of new criminal procedure 
codes.
    The rule of law is at the basis of everything we do. It's 
the heart of economic growth and it has to be part of our 
program. In many countries, such efforts are proceeding at a 
parallel and are coordinated by our country team, USAID, State, 
and others. Many countries also need to give greater attention 
to crime prevention and victim assistance.
    Colombia continues to present the most urgent case for law 
enforcement and other assistance in the region. Colombia 
supplies 90 percent of the cocaine consumed in the United 
States. Terrorist organizations moreover fund their activities 
with the proceeds of drug traffic, making a unified response 
absolutely necessary.
    We appreciate the expanded authority that Congress has 
provided to allow our assistance program to support Colombia's 
unified campaign against drug trafficking and terrorism. Our 
Andean counter-drug initiative for 2005, our request would 
provide $150 million for programs to address underlying social 
and institutional issues and $313 million for narcotics 
interdiction and eradication in Colombia.
    The alternative development and institution-building 
programs include emergency and longer-term assistance to 
vulnerable groups and displaced persons, as well as programs to 
promote the rule of law, local governance, and human rights. 
The total Andean counter-drug initiative request for 2005, 
including Colombia, is $731 million. These funds are needed to 
support a unified Andean regional campaign against drug 
trafficking and narco-terrorism.
    In other countries, INCLE funds are used to help 
governments build strong law enforcement and related 
institutions that can stop the threats of international drug 
trafficking and transnational organized crime before they reach 
U.S. soil. For example, in Mexico we have built trust and an 
unprecedented track record of U.S. law enforcement cooperation 
over the last 4 years. We will develop a comprehensive law 
enforcement training plan with our Mexican counterparts to 
enhance police and prosecutorial capabilities to combat serious 
crimes affecting citizens of both countries. We will support 
initiatives such as the U.S.-Mexico border partnership to 
improve security along our southern border.
    Mr. Chairman, in the wake of September 11, we have 
refocused our anti-crime programs to emphasize and sharpen 
their counter-terrorism impact. The administration of justice 
programs throughout the region generally address problems in 
the criminal justice systems. Because of the serious street 
crime problems in Central America, including violent gangs, 
some of which have reached into this community as well, we are 
also looking for ways to enhance crime prevention efforts with 
the work of enforcement agencies and community organizations.
    On the military side, our FMF military financing request 
for fiscal year 2005 will provide professional training and 
equipment to meet three distinct requirements: to support the 
efforts of the Andean region to establish and strengthen 
national authority over remote areas that shelter terrorists 
and illegal narcotic activity; to reinforce homeland security 
by controlling approaches to the United States; and to improve 
the capability of security forces in the region to participate 
in coalition--in peacekeeping operations.
    I visited El Salvador recently and met with the family 
members of Salvadorean troops that are over in Iraq, and these 
people want to be part of the new future for Iraq, want to be 
part of a new world where there is a multilateral response to 
help countries out of tough times and through terrorism.
    When El Salvador, Honduras, Nicaragua, and the Dominican 
Republic volunteered troops for these operations, they did not 
have the equipment or the training to enable them to be 
incorporated immediately into our programs. We proposed to 
address such deficiencies through FMF to allow their continued 
participation in peacekeeping operations.
    Training provided under the IMET program will expose 
foreign students to U.S. professional military organizations 
and procedures and the manner in which military organizations 
function under civilian control.
    To summarize briefly, Mr. Chairman, our objectives in the 
hemisphere are clear: to strengthen broad-based economic 
growth; strengthen democratic institutions; to provide for 
basic human needs in most urgent conditions; and to protect 
people from both internal and external security threats.
    Our foreign assistance programs, and specifically our 
fiscal year 2005 budget request, provide an accurate overview 
of the many challenges still before us. We are engaged 
intensely with the countries of the hemisphere across a wide 
spectrum of issues to bilateral and multilateral mechanisms. We 
must also offer concrete assistance as they work toward our 
common objectives, and I ask your support for full funding for 
the administration's fiscal year 2005 budget. Thank you very 
much, Mr. Chairman.
    [The prepared statement of Mr. Noriega follows:]

              Prepared Statement of Hon. Roger F. Noriega

    Mr. Chairman and Members of the Committee:
    Thank you for the opportunity to discuss the Administration's 
foreign assistance priorities for the Western Hemisphere. The Western 
Hemisphere has a unique place in our foreign policy and assistance 
programs. Not only is it our home, but we also share with the other 
countries certain defining events and values that have given form to 
our political institutions and culture. Our own destiny is uniquely 
bound to that of our neighbors to the north and south--through the 
constant movement of goods and people across our long borders seeking 
markets, education, jobs, or simply new experiences. Our open 
societies, however, are vulnerable to both internal and external 
threats--crime of all kinds and dimensions, internal conflict and, as 
September 11th made clear, dangerous new forms of terrorism.
    The most encouraging development in the hemisphere over the last 
two decades has been the decisive shift to democratic governance. In 
1980, fewer than half the countries in the hemisphere had freely 
elected leaders. Although some democracies in our hemisphere are 
troubled--Haiti comes immediately to mind--today thirty-four of our 
thirty-five countries have freely-elected governments. Only one--Cuba--
does not. Beginning at the 1994 Summit of the Americas, thirty-four 
Heads of State and Government have repeatedly endorsed democracy and 
free trade as guiding principles. They have also approved ambitious 
work plans to achieve these and related goals. The Summit action 
plans--which both orient and reflect major components of our foreign 
assistance program--describe the broad spectrum of activities still 
needed to ensure that democracy's promise of freedom and prosperity 
reaches all who reside in the Western Hemisphere.
    We recognize that the path toward true democracy for all nations of 
the hemisphere has not been smooth. But we must continue to invest in 
the Hemisphere's future. Democratic, prosperous nations make the best 
neighbors. They are likely to maintain peaceful relations with others 
in the region and safeguard the rights of Americans living within their 
borders. They are likely to foster favorable investment climates for 
U.S. firms and open their markets to U.S. products. They are likely to 
work with us to combat trans-national threats and to advance views 
similar to our own in multilateral fora such as the UN, the OAS, and 
the international financial institutions. We must continue to 
strengthen this Inter-American community.

                               DEMOCRACY

    To take root, democracy must provide much more than free elections. 
As we have seen in country after country, the return to democracy--in 
some cases at the end of long internal conflicts--has raised 
expectations that have not been fulfilled. While some gap in 
performance is unavoidable, in many countries the gap remains 
dangerously wide or is growing. The institutions of government are 
simply not organized to be able to respond effectively to the 
reasonable demands of the people. The avenues for participation that we 
take for granted in the United States--an active civil society, 
established political parties, and a free market economy that 
encourages entrepreneurship, among other things--still are not fully 
developed in many countries in the region. These structural impediments 
are compounded by world economic trends and national fiscal problems, 
as well as crime and other threats to security, all of which have 
placed further demands on elected leaders.
    Our foreign assistance program addresses these interconnected 
problems. We aim to encourage continued progress throughout the 
hemisphere toward effective democracy with broad-based economic growth, 
human development and both personal and national security. Let me give 
you some examples.
    Haiti most dramatically illustrates the perils of democratic 
government. The country is in the midst of yet another crisis despite 
the dedicated efforts of the international community, including the OAS 
and the United States. After years of undemocratic governance, 
President Aristide became the victim of his own repressive and 
autocratic rule. President Aristide voluntarily resigned when he 
realized that he could no longer depend on armed gangs to maintain him 
in power. And in the end, those were the only elements of possible 
support left to him. He alienated the democratic opposition in 2000 
when he refused to remedy fraudulent legislative elections, despite 
requests from opposition leaders and the international community. 
Violent suppression of peaceful protest demonstrations, sometimes with 
the complicity of the Haitian National Police, further polarized the 
political landscape, as did intimidation of journalists and the 
credibly alleged participation of local officials in extra-judicial 
killings.
    While the manifestations of Haiti's ills are poverty and misery, 
the root causes are political. President Aristide's government failed 
its people in every way. Now we can make a new beginning in helping 
Haiti to build a democracy that respects the rule of law and protects 
the human rights of its citizens. The U.S. and its partners in the 
international community will work intensively with Haiti's interim 
government to restore order and democracy. We are participating in the 
multinational force authorized by UN Security Council Resolution 1529, 
and will also work with our international partners in efforts to reform 
the Haitian National police. Restoring democracy and the rule of law in 
Haiti will require lots of work for us and the international community, 
but we are committed to the task.
    Just a few months ago, Bolivia was in the headlines. When Gonzalo 
Sanchez de Lozada was elected president of Bolivia in August 2002, we 
looked forward to working with him to implement, among other things, 
market-oriented economic reforms he had previously developed. However, 
he was forced to resign this past December by popular demonstrations 
against some of those very policies. While there was a constitutional 
transfer of power to Vice President Mesa, Bolivia's indigenous majority 
remains underrepresented in the government and deeply suspicious of 
institutions which provide little of benefit to the poor. A principal 
objective of our democracy program in Bolivia is to draw the long-
marginalized indigenous population into political life. We are also 
assisting the Government's anti-corruption campaign, continuing to 
support improvements in the administration of justice, and helping to 
increase the Government's responsiveness to citizen needs through 
support for decentralization as well as for the national legislature. 
The consolidation of democracy in Bolivia is our top performance goal 
for the country. We believe that a stable democracy is a necessary 
condition for success in the fight against illegal drugs.
    Venezuela remains a cause for considerable concern. The crisis of 
governance--brought on by President Chavez' increasingly anti-
democratic actions and the strong opposition of the traditional 
elites--is now entering its third year. The National Electoral Council 
will announce soon whether sufficient signatures have been verified to 
convoke Presidential and National Assembly recall elections. The United 
States has a major interest in preserving and regenerating democracy in 
Venezuela and facilitating a peaceful, constitutional solution to the 
ongoing political crisis. Foreign assistance resources will be used to 
improve the functioning of institutions that underpin democracy, in 
particular stronger, more democratic political parties and democracy-
related NGOs. The absence of such dependable actors has greatly 
increased the distance between Chavez and his detractors and prolonged 
the crisis, with devastating effects on the national economy as well. 
We will also be dedicating resources to help Venezuela reverse this 
long-term economic decline and promote sound growth-oriented 
macroeconomic policies.
    Other examples of assistance to strengthen democratic institutions 
include a five-year project in Peru focused on the national 
legislature, judicial reform, and decentralization and activities in 
the Dominican Republic to support civil society advocacy for political 
reform and training for the media. In Ecuador, a decade has passed 
since a president has completed his term of office. Our challenge there 
is to work at all levels--both within and outside the government--to 
reinforce the message that politics must stay within constitutional 
bounds. Assistance will include training on civil-military relations, 
exchange programs on constitutional democracy, and support for selected 
civil society groups to demand effective democratic government. In 
Paraguay, where more orderly constitutional processes are the goal, we 
will promote consensus between the executive and legislative branches 
on issues of rule of law, state reform, and protection of human rights. 
Mexican democracy too is at a critical stage in its transition toward 
more open and participatory government. Assistance there will 
strengthen the rule of law through judicial reform and support greater 
transparency and accountability in government.
    In Cuba, the one country in the region that does not have a freely 
elected government, our policy is to encourage a rapid, peaceful 
transition to democracy characterized by strong support for human 
rights and an open market economy. With increased ESF resources, we 
will augment our support for Cuba's embattled civil society and 
increase our efforts to break the information blockade Castro has 
imposed on the island. We will provide a voice to Cuba's independent 
journalists and human rights activists. In this way, we will help 
Cuba's strongly motivated civil society to work for freedom in 
political, economic and other fields. We intend to help create the 
conditions that will bring to an end the hemisphere's only totalitarian 
government and reintegrate the Cuban people as members of the community 
of the Americas.

                               PROSPERITY

    At the Special Summit of the Americas held in Monterrey, Mexico, 
this past January, the democratically elected. Heads of State and 
Government declared their commitment to economic growth to reduce 
poverty. Called in response to problems that have arisen since the 
Third Summit in April 2001, the Special Summit focused on private 
sector-led growth to reduce poverty and fighting corruption. There was 
much discussion in the lead up to the Summit and at the Summit itself 
around social issues and economic equality for all members of society. 
Hemispheric leaders agreed on a host of concrete actions to fight 
corruption and promote transparency, invest in health and education, 
and promote growth through trade and economic reforms.
    Among these specific commitments, leaders agreed to reduce the time 
and cost of starting a business and to strengthen property rights by 
the next summit in 2005. Leaders agreed to triple lending by the Inter-
American Development Bank through private sector banks to micro, small 
and medium-sized enterprises by 2007. They also agreed to create 
conditions for reducing by at least half the average cost of remittance 
transfers by 2008. All these steps are intended to facilitate 
entrepreneurship and increase access to capital. The Summit declaration 
welcomed the progress achieved to date toward the establishment of a 
Free Trade Area of the Americas (FTAA) and reaffirmed the commitment to 
complete the FTAA on schedule, that is, by the January 2005 deadline. 
The declaration contained numerous other statements of support for 
sound macroeconomic policies, prudent fiscal management, and public 
policies that stimulate domestic savings, meet the need for creation of 
productive jobs, and contribute to greater social inclusion.
    As with democracy as a form of government, there is broad agreement 
throughout the hemisphere on objectives, on the principles that 
determine overall economic success and prosperity. The problem is once 
again a performance gap, the gap between political declarations and 
reality. After decades of government control of basic industries and 
other mercantilistic policies, the structure of the economy in many 
countries cannot readily be reoriented to a free market system, which 
also needs regulatory and other support mechanisms to ensure a level 
playing field. Our assistance programs will help support legal and 
regulatory reforms to help small- and medium-sized businesses and 
property owners and to bring informal businesses into the formal 
sector. We will also help countries develop the capacity to provide 
business services, including access to credit and markets, to enable 
them to compete in the global economy. As international standards 
increasingly require attention to the environment, we will promote the 
use of the best environmental management practices, including access to 
financing for their implementation.
    An overriding issue in the quest for equitable growth is 
corruption. Corruption undermines the rule of law and distorts 
economies and the allocation of resources for development. In 
Monterrey, the leaders pledged to intensify efforts to combat 
corruption and other unethical practices in both the public and private 
sectors. They pledged to strengthen a culture of transparency and deny 
safe haven to corrupt officials and those that corrupt them. They 
called for promoting transparency in public financial management. They 
called for robust implementation of the Inter-American Convention 
against Corruption, and its follow-up mechanism, and committed to 
develop specific measures to strengthen international cooperation 
toward this end. In addition, Leaders pledged to hold consultations if 
adherence to their transparency and anti-corruption objectives is 
compromised to a serious degree in any Summit country.
    In support of the transparency commitment, U.S. assistance programs 
will promote transparency and accountability in government 
institutions. In Bolivia, we will provide technical assistance to 
support civil service reform and anti-corruption training for police, 
military, prosecutors and judges. In the Dominican Republic, we will 
help mobilize a civil society coalition for transparency in government 
and support the development and implementation of a national anti-
corruption plan. In Nicaragua, we will support reform of the law 
governing the operation of the Office of the Comptroller General and 
continue to provide assistance to the Attorney General and National 
Police to support prosecution of public corruption cases. These 
examples illustrate the different approaches being taken by individual 
countries toward the same objective of greater transparency in 
government.
    We remain firmly convinced that trade is the most effective means 
of increasing prosperity in the hemisphere. The United States already 
imports from Latin America and the Caribbean goods valued at more than 
120 times the total amount of its assistance to the region. We will 
work to expand trade--and the prosperity it brings--through the FTAA, 
the Central America Free Trade Area, and bilateral agreements as 
appropriate. We will call upon the United States Senate to help us make 
this vision a reality by providing advice and consent to ratification 
of these agreements at the appropriate time. Trade related assistance, 
such as that just alluded to, is an integral part of our trade 
strategy. My colleague Adolfo Franco of USAID will discuss in greater 
detail our current efforts to build trade capacity throughout the 
hemisphere.

                          INVESTING IN PEOPLE

    While I have been talking about political and economic structure 
and processes, people are the intended beneficiaries of all our 
programs. We aim to facilitate the development of open political and 
economic systems that serve the needs of the people and enable them to 
prosper and pursue their own individual objectives within the framework 
of a rule of law. At present, too many in the hemisphere are trapped in 
poverty and suffer from malnutrition. Without attention to their basic 
human needs--food, basic sanitation and quality education and 
healthcare, they will never be able to participate in the gains 
generated by economic growth and expanded trade. Consequently, we are 
continuing to dedicate significant resources to improve nutrition and 
healthcare in selected countries and regions.
    In the poorest country in the hemisphere, Haiti, two-thirds of the 
population lives below the absolute poverty line, unable to meet 
minimum daily caloric requirements. This fact alone is enough to launch 
thousands of undocumented migrants toward our shores each year in 
unseaworthy vessels. Haiti is also the country most severely affected 
by HIV/AIDS, with a prevalence rate of between 4.5 and 6%. U.S. 
assistance to Haiti, channeled largely through nongovernmental 
organizations, focuses on the most vulnerable--those suffering from 
chronic malnutrition, communicable disease and illiteracy. The U.S. is 
the largest bilateral donor for HIV/AIDS prevention and care in Haiti, 
using a public/private partnership to provide a comprehensive set of 
prevention and education activities to reduce the rate of new 
infections, as well as programs to provide care and support for those 
already infected or affected by the disease.
    In Nicaragua, the second poorest country in our hemisphere, our 
programs address fundamental obstacles to development, including food 
aid to ameliorate the impact of rural unemployment. We are also 
providing assistance to diversify agricultural production and link 
agricultural products to local, regional and global markets, giving 
small farmers a stake in the national economy. We are working with the 
Nicaraguan Government to expand access to primary education and improve 
the infrastructure and quality of schools, to reform public policy and 
management of health issues, and increase access to sustainable health 
care for low- and middle-income families through the private sector 
health market. All these activities aimed at helping individuals meet 
immediate needs bring those people into the economic and political life 
of the country, expanding prosperity and participation in democratic 
governance.
    Examples of other programs we ask you to fund include assistance in 
Bolivia and Peru, particularly in high poverty coca-growing regions, to 
improve nutrition and enhance the capacity of public and private sector 
organizations to meet the population's health, nutrition and education 
needs. In the Dominican Republic, programs focus on health sector 
reform, improving reproductive health services, and controlling the 
spread of HIV/AIDS and tuberculosis. In Honduras, we are supporting 
President Maduro's Poverty Reduction Strategy, developed as part of the 
Highly Indebted Poor Countries Initiative and designed to improve 
access and opportunities for low-income Hondurans via an improved 
investment climate, better social services and more effective municipal 
governments. As the center of the HIV/AIDS epidemic in Central America, 
Honduras will also receive assistance to improve prevention and care 
for people contracting the disease. A regional program for the Eastern 
Caribbean works with NGOs, community-based organizations, and 
governments toward the same ends.
    We look forward to the initiation of programs through the 
Millennium Challenge Account, which represents a major departure from 
past practices in distributing U.S. economic assistance. The MCA will 
provide an important new source of financing for lower income countries 
that establish sound economic policies, invest in their people and 
demonstrate the political will to establish transparency in government 
and conform to the rule of law. This month the Millennium Challenge 
Corporation will propose eligibility criteria for nations to 
participate, and in May the MCC will select a final list of countries 
to receive assistance. We hope that several countries in the Western 
Hemisphere will qualify in the first year, and that additional nations 
will become eligible in the future. We will be working to ensure that 
the initial ftmding provided by Congress delivers the promised results: 
reducing poverty by significantly increasing economic growth. As the 
President has stated, the MCA will provide people in developing nations 
the tools they need to seize the opportunities of the global economy.

                                SECURITY

    While the hemisphere is making progress in the development of 
effective democratic institutions and open economies, this progress is 
threatened by the inability of governments to control crime and 
demonstrate to all citizens the value of a rule of law. Indeed, the 
lack of personal security is now recognized in many countries as a 
primary threat to the stability of the democratically elected 
government. The goals of democracy and security are thus two sides of 
the same coin. We cannot pursue one without the other, and both are 
critical to our own security here at home.
    For many people in the region, the immediate perceived threat is 
common crime--theft of property, assaults, kidnapping, and murder--and 
is a direct reflection of some governments' inability to provide 
adequate police services. However, this is the tip of the iceberg. 
Intermingled with these same local criminals--and taking advantage of 
the same gaps in the criminal justice systems--are those engaged in 
international organized crime. The drug traffickers, alien smugglers, 
and traffickers in persons, among others, all, thrive in the same 
fertile ground of inadequate laws, often untrained and inexperienced 
personnel throughout the justice system, and a long history of not 
enforcing the laws on the books. While there are certainly variations 
among countries, in too many countries only the poor are incarcerated, 
generally for long periods of time without trial and without access to 
counsel. To reverse this situation and establish criminal justice 
systems capable of prosecuting high visibility crimes against prominent 
defendants on a regular basis is a monumental task. The countries of 
the Americas must meet it to secure the rule of law and sustain 
democratic governance.
    Much of our assistance to the region focuses on strengthening 
criminal justice institutions and processes. ESF and INCLE are the 
primary source of funds for such programs. Assistance ranges from 
training and equipping of counternarcotics and other specialized units 
to sector-wide efforts aimed at implementation of new criminal 
procedure codes. The latter reach out at a policy level to all elements 
of the criminal justice system--police, prosecutors, judges and public 
defense services. In many countries, such efforts are proceeding in 
parallel and are coordinated by the Country Team. We feel that it is 
critical to look at justice systems as a whole to identify the weak 
points in coordination between agencies. These are the critical gaps 
that need to be filled for successful prosecutions. Both the lack of 
competence in investigative techniques and competition among police, 
prosecutors and judges over investigative responsibilities are serious 
obstacles to the effective prosecution of crimes in the region today. 
Many countries also need to give greater attention to crime prevention 
and victim assistance.
    Notwithstanding Haiti, Colombia continues to present the most 
urgent case for law enforcement and other assistance in the region. 
Counternarcotics remains at the center of U.S. relations with Colombia, 
which supplies 90% of the cocaine consumed in the United States. 
However, as Colombia's three terrorist organizations--the FARC, ELN, 
and AUC--fund their activities with the proceeds of drug trafficking, a 
unified response is necessary. We appreciate the expanded authority 
that Congress has provided to allow our assistance program to support 
Colombia's unified campaign against drug trafficking and terrorism. Our 
FY 2005 request for funding builds upon the successes of programs begun 
in FY 2000 with the Plan Colombia Supplemental and sustained by 
subsequent Andean Counterdrug Initiative (ACI) appropriations. Our ACI 
request for FY 2005 would provide $150 million for programs to address 
underlying social and institutional issues and $313 million for 
narcotics interdiction and eradication. The alternative development and 
institution building programs include emergency and longer-term 
assistance to vulnerable groups and displaced persons, as well as 
programs promoting the rule of law, local governance, and human rights.
    The total ACI request for FY 2005 (including Colombia) is $731 
million. These funds are needed to support a unified Andean regional 
campaign against the drug trade and narco-terrorism. In Peru, coca 
cultivation has already been reduced by 70%. Our FY 2005 request ($112 
million) will support the further eradication of illicit coca and opium 
poppy cultivation, interdiction, maintenance of USG-owned air assets, 
and the development of rural infrastructure to prevent the spread of 
illicit economic activities linked to narcotics trafficking. We will 
pursue similar activities in Bolivia at a somewhat lower level ($91 
million). We are seeking $26 million for Ecuador, where programs will 
aim primarily to stop spillover from Colombia and the transit of drugs 
destined for the United States, and $9 million for Brazil, to support 
an interagency operation to fortify the northern border through 
riverine control. We also request $6 million and $3 million for Panama 
and Venezuela, respectively, for interdiction and other law enforcement 
activities. Given Panama's strategic location and its well-developed 
banking sector, our goal is to help Panama develop its own capabilities 
to protect itself from criminal exploitation of all kinds. We also 
propose to increase support for port, canal, and maritime security.
    Mexico is the major transit country for cocaine entering the United 
States. Mexican opium and marijuana cultivation is also a serious 
threat, and Mexican traffickers figure prominently in the distribution 
of illegal drugs in this country. Over the last few years, we have 
built trust and an unprecedented track record of law enforcement 
cooperation with the Mexican Government. Successes have come by 
targeting individuals involved in criminal activity, the goods they are 
trafficking, and the assets they accrue. With INCLE funds, we intend to 
sustain the progress made since 2001 in interdiction capacity while 
supporting eradication, surveillance, and intelligence capabilities. We 
will develop a comprehensive Law Enforcement Training Plan with Mexican 
counterparts to enhance police and prosecutorial capabilities to combat 
serious crimes affecting citizens of both countries. We will support 
initiatives, such as the U.S.-Mexico Border Partnership, to improve 
security along our southern border. We will also continue to work with 
Mexican authorities as they reevaluate their domestic legislation, 
including the proposed introduction of oral proceedings in criminal 
cases. Complementary administration of justice activities will be 
funded with ESF.
    In other countries, INCLE funds are used to help governments build 
strong law enforcement and related institutions that can stop the 
threats of international drug trafficking and transnational organized 
crime before they reach U.S. soil. In the wake of September 11, 2001, 
we have refocused many anti-crime programs to emphasize and sharpen 
their counter-terrorism impact. For example, we are stepping up 
cooperation with Argentina, Brazil and Paraguay with a view toward 
decreasing use of the tri-border area as a hub for terrorist financing. 
Administration of justice programs throughout the region, including 
ESF-funded law enforcement development activities, generally address 
problems in the criminal justice system. Programs in El Salvador, 
Guatemala, Honduras, and Nicaragua all seek to develop good working 
relationships between police investigators and prosecutors, to improve 
the quality of criminal cases presented to judges and the possibility 
of conviction on the merits. Because of the serious street crime 
problems in Central America, including violent gangs, we are also 
looking for ways to enhance crime prevention efforts--through the work 
of enforcement agencies and community organizations. Projects in 
Central America, Mexico and the Caribbean address the need for better 
management systems and training for all participants in the judicial 
process. A new international organization has been established in 
Santiago, Chile, with a mandate from the Summit of the Americas to 
support judicial reform throughout the hemisphere. The ESF account is 
the source for U.S. financial contributions to the Justice Studies 
Center of the Americas.
    On the military side, our Foreign Military Financing (FMF) request 
for FY 2005 will provide professional training and equipment to meet 
three distinct requirements. Most of the requested assistance will 
support efforts in the Andean region to establish or strengthen 
national authority over remote areas that shelter terrorists and 
illegal narcotics activity. Despite impressive improvements, Colombian 
security forces will still require significant U.S. assistance in the 
key areas of mobility, intelligence, sustainment and training. Our FMF 
request for FY 2005 would provide $108 million for such programs, 
including the provision of interdiction boats, infrastructure 
improvements and support. for Colombia's C-130 transportation fleet. 
FMF support is also critical to Colombia's neighbors to preclude 
spillover of narcotics and terrorism into their territories.
    A second objective of the FY 2005 FMF request is to reinforce 
homeland security by controlling approaches to the United States. We 
will provide countries of the Caribbean and Central America 
communications equipment, training, spare parts, port security 
enhancements and logistical support to complement U.S. interdiction 
efforts. Our intention is to reinforce each country's own sovereign 
ability to address the continuing terrorist threat, illicit drug 
trafficking and illegal immigration into the United States.
    The third objective for FMF financing is to improve the capability 
of certain security forces in the region to participate in coalition 
and peacekeeping operations. Chile, Uruguay and Argentina are committed 
and well-trained to participate in international peacekeeping 
operations but lack support in aviation logistics, specialized 
individual equipment and infrastructure. Providing this support through 
FMF will enable their continued participation in peacekeeping efforts, 
reducing the possible requirement for U.S. forces in such operations. 
Similarly, when El Salvador, Honduras, Nicaragua and the Dominican 
Republic volunteered troops for stability operations in Iraq, they 
demonstrated the political will to support U.S. objectives. However, 
deficiencies in equipment and training remain, which we propose to 
address through FMF to allow continued participation in peacekeeping 
operations.
    Training provided under the IMET program will expose foreign 
students to U.S. professional military organizations and procedures and 
the manner in which military organizations function under civilian 
control. In the Western Hemisphere, such training focuses on junior and 
mid-grade officers, who still have a significant military career ahead 
of them and whose development can be positively influenced by exposure 
to U.S. practices. The largest programs are in Colombia, El Salvador, 
Mexico, Argentina, the Dominican Republic and Honduras. Our total FY 
2005 request is $14,390,000. Continuation of these programs is intended 
to enhance regional security by consolidating gains Latin American 
militaries have made in subordinating themselves to civilian control.

                          GAPS AND AUTHORITIES

    Your letter of invitation asked specifically whether, in my 
opinion, there were any critical gaps in the Administration's foreign 
assistance request for the Western Hemisphere. Needless to say, there 
are always choices that must be made in putting together a budget of 
this kind. Our request level is sufficient to address the highest 
priority needs in our hemisphere. As is the custom, however, we expect 
to make some adjustments in individual country or program levels to 
meet actual requirements when FY 2005 appropriations are made 
available.
    You also asked whether we needed any new authorities. Last year on 
this occasion, Acting Assistant Secretary Struble identified aspects of 
existing legislation that hampered programming in the region. The areas 
identified--the need for year-to-year extension of special authorities 
for Colombia and administration of justice programs, and the confusing 
array of exceptions to section 660 to authorize police assistance--
remain issues of concern to us today. We would like to have permanent 
authorization language to support the unified campaign in Colombia 
against narcotics trafficking and activities by organizations 
designated as terrorist organizations. We would welcome elimination of 
the sunset and other revisions in FAA section 534 to bring it into line 
with the annual appropriations language. However, more fundamentally, 
we continue to believe that police assistance authorities should be 
reevaluated with a view toward developing new affirmative legislation 
to replace section 660 and its numerous exceptions. The limitations of 
our authority to work with law enforcement personnel under section 534 
have become particularly apparent in connection with the need for 
general crime prevention activities in Central America. We are 
discussing these issues internally and look forward to sharing an 
Administration position with the Committee in the near future.

                               CONCLUSION

    In conclusion, our objectives in the Western Hemisphere are clear--
to strengthen democratic institutions, to improve conditions for broad-
based economic growth, to provide for basic human needs in the most 
urgent situations, and to protect people from both internal and 
external threats. Our foreign assistance program and specifically our 
FY 2005 budget request provide an accurate overview of the many 
challenges still before us. While there have been many positive 
developments--and I would call your attention once again to the strong 
consensus demonstrated through successive Summits of the Americas on 
diverse issues of longstanding importance to the United States--there 
are very real problems that require our ongoing attention. The 
institutions of government, social services, and the free market 
economy we enjoy in the United States were not created overnight. We 
cannot expect that other countries in this hemisphere, most of which 
have a much shorter or inconsistent experience with democratic 
governance, will achieve a similar institutionalization of rights and 
freedoms in a few short years. We are engaged intensely with them 
across a wide spectrum of issues through bilateral and multilateral 
mechanisms. We must also offer them concrete assistance as they work 
toward our common objectives. Their success will not only benefit their 
own citizens but also redound to our benefit. As they become more 
stable partners in international endeavors and more open markets for 
our goods and services, we will become better friends in the broadest 
sense of the word. That is the overall objective we seek through our 
assistance program. I ask your support for full funding of the 
Administration's FY 2005 budget.
    Thank you for your attention.

    Senator Coleman. Thank you, Secretary Noriega. 
Administrator Franco.

STATEMENT OF HON. ADOLFO A. FRANCO, ASSISTANT ADMINISTRATOR FOR 
             LATIN AMERICA AND THE CARIBBEAN, USAID

    Mr. Franco. Thank you very much, Mr. Chairman. It's a 
pleasure to appear before the Committee on Foreign Relations to 
discuss USAID's Bureau for Latin America and Carribean's 
request for fiscal year 2005 and to share with you briefly the 
President's vision for the Western Hemisphere.
    Before I begin, Mr. Chairman, I just wanted to say that I 
fully concur with your opening statement in every regard. I 
also want to underscore what Secretary Noriega has said, that 
the relationship between USAID and the State Department, and 
the team started with Secretary Powell and Administrator 
Natsios, is excellent. We work in concert together to promote 
the foreign policy interests of the United States, so it's very 
much a team effort.
    In that regard, I really believe Secretary Noriega has 
outlined very clearly and very articulately the priorities of 
the President, the Secretary of State, and Administrator 
Natsios for our region for the coming fiscal year. Therefore, 
with your permission I'd like to just summarize very briefly 
rather than repeat the Secretary's commenst. My comments 
summarize them, and I ask that my statement be a part of the 
record.
    Senator Coleman. It will become part of the official 
record.
    Mr. Franco. Thank you, sir. Mr. Chairman, Secretary Noriega 
has noted that the countries of the Western Hemisphere have a 
shared destiny by virtue of our geography, our history, our 
culture, and the economics of the region. The President's 
vision for the hemisphere is premised on the concept of a more 
prosperous neighborhood anchored on free trade. He has 
expressed this in his national security strategy that links, 
``The future of our hemisphere to the strength of three 
commitments: democracy, security, and market-based 
development.''
    I realize that much attention, as you noted, Mr. Chairman, 
and rightly so, is currently focused on the crisis in Haiti. 
However, I believe that political stability in the region 
overall has increased over the last several decades, as 
Secretary Noriega has noted, with the growth of democracy and 
its continued promotion in the region.
    As the current crises in Haiti and Bolivia, to which you 
alluded, Mr. Chairman, and the polarization in Venezuela 
demonstrate clearly, we still have challenges in the Western 
Hemisphere. To address these challenges, USAID has developed 
three key priorities, and they're all premised on what 
Secretary Noriega has said. Rule of law is at the heart of all 
of our efforts, but the three key priorities are, No. 1, to 
improve good governance, to combat crime, and to reduce 
corruption. These are also enshrined in the President's 
Millennium Challenge Account proposal that is now the 
Millennium Challenge Corporation.
    Second, we are also working to increase economic growth and 
free trade, and last to combat the counter-narcotics 
trafficking in the region which undermines the rule of law and 
democracy. In addition, as you noted, Mr. Chairman, we're 
working on a number of Presidential initiatives. They range 
from the President's Emergency Plan for HIV/AIDS to Centers for 
Excellence in Teacher Training that address education needs in 
the region, to an Initiative Against Illegal Logging in Latin 
America.
    Mr. Chairman, I would like to give you just a few details 
on the priority programs I've outlined, the three priority 
programs. On good governance, crime prevention, and reduction 
of corruption, our justice sector modernization efforts remain 
the largest focus of USAID's governance programs in the region. 
We work closely with governments to draft new criminal 
procedure codes and anti-corruption programs that promote 
transparency and attack entrenched transpolitical institutions 
that threaten democracy and the belief in democracy, as well as 
poor public sector management that creates in citizens a sense 
that democracy is not delivering what's promised.
    In the area of economic growth, USAID plays a significant 
role, as noted by the Secretary, in preparing countries for 
free trade and the benefits of free trade. We've done that with 
Central American countries as we've moved forward the CAFTA 
initiative, which is premised on opening markets and creating 
opportunities for the United States, as well as for our 
neighbors to the south.
    For the Free Trade Area of the Americas process, we are 
requesting and we have received a Hemispheric Cooperation 
Appropriation Program of $10 million from the Congress that 
will assist us in our work with the U.S. Trade Representative 
and other agencies to target trade capacity-building assistance 
that's consistent with our hemispheric country priorities. 
These are efforts to make the countries of the region more 
competitive, but more importantly, to increase incomes and to 
create the climate for foreign investment and ultimately 
greater exports from the United States.
    In the area of counter-narcotics, Mr. Chairman, despite 
bold efforts by Colombia, Bolivia, and Peru to combat narco-
trafficking, a lack of state presence has allowed illegal 
narcotics production and armed terrorist organizations to 
flourish. You've correctly noted, Mr. Chairman, President's 
Uribe's bold leadership. We've made great strides in Colombia, 
and we continue to pursue our agenda vigorously in Peru and 
Bolivia.
    In Bolivia and Colombia, our alternative development 
programs promote licit crop production, rural competitiveness, 
improved social, physical, and productive infrastructure, 
access to justice, and an increased state presence in coca-
growing regions. Now, that's a mouthful, Mr. Chairman, but what 
we're trying to do, as President Uribe has outlined in his 
democratic security proposal for Colombia, is to create a state 
presence, security, and then bring in the necessary investments 
with our development programs and partners to create the 
infrastructure and identify market linkages so people have an 
alternative, not a substitution, but an alternative to illegal, 
illicit production. And most people seek that given the 
opportunity. But we need the state presence, and Colombia is an 
example in the south where we can and have had success, which 
we can replicate elsewhere in the region. In fact, thousands of 
farm families have eradicated their coca on thousands of 
hectares and they've done so voluntarily when state presence 
has been there and when there are alternatives to coca 
production.
    I'd like to mention two countries of special concern. The 
first, of course, is Haiti. We are continuing to monitor the 
humanitarian situation very closely, as we have prior to this 
most recent crisis. Based on the assessments that we are 
carrying out by USAID staff in Haiti currently and as well as 
our non-governmental partners to date, I can state for the 
record, there is no humanitarian crisis as we know that term in 
Haiti, and there are sufficient food supplies in Haiti to feed 
the population for the time being. In addition, Mr. Chairman, I 
wish for you to know that up to 20,000 metric tons of 
additional food is available for us to transport from Lake 
Charles, Louisiana in very short order should the need arises.
    We continue to monitor distribution and security issues 
very closely now that we have U.S. and foreign military 
presence in the country. We believe the situation will improve 
dramatically in terms of the distribution and security of food.
    Some food aid was looted from warehouses in recent days. It 
has not been, from our assessment, a large amount of USAID food 
that has been looted. The greatest impediment is again the 
security situation for our staff and for transportation. We're 
also monitoring the medical situation very closely. We've sent 
additional resources totaling $537,000 directly and through our 
partners to attend to low supplies in Port au Prince hospitals 
and throughout the rural areas.
    I plan to travel to Haiti as soon as possible. I hope early 
next week to assess the situation personally. We are, Secretary 
Noriega and I and the rest of the team, obviously in daily 
contact with our mission in Haiti.
    In Bolivia, USAID has launched a job creation initiative in 
volatile communities that have not been previously serviced by 
USAID to help the Carlos Mesa government address economic and 
social inequities in Bolivia. Administrator Natsios and I 
visited Bolivia several weeks ago. I can report to you that 
President Mesa is fully committed to our efforts to continue to 
combat counter-narcotics and to address questions of inequity. 
I can tell you, Mr. Chairman, it is not window dressing. Mesa 
is a democrat fully committed to support not only the 
democratic process but the participation of all of Bolivia's 
population.
    In conclusion, Mr. Chairman, I'm pleased to report that we 
continue to help governments of the region that are dedicated 
to the promotion of democracy. I can't underscore enough what 
Secretary Noriega has said about, what you've mentioned, the 
importance of the Millennium Challenge Account. It has been an 
incentive for the region that investing in people, as the 
President stated in his speech 2 years ago at the Inter-
American Development Bank, is what the United States will 
respond to.
    So it's been an extraordinarily positive tool. Secretary 
Noriega mentioned its impact is already being felt, and this is 
something that we're looking forward at USAID to work very 
closely as its operations come to full speed.
    I'd be pleased to answer any questions you or Senator 
Nelson may have.
    [The prepared statement of Mr. Franco follows:]

              Prepared Statement of Hon. Adolfo A. Franco

    Mr. Chairman, Members of the Committee, it is a pleasure to appear 
before the Senate Committee on Foreign Relations to discuss with you 
how USAID's Bureau for Latin America and the Caribbean (LAC) is 
promoting the President's vision for the Western Hemisphere.
    The countries of the Western Hemisphere have a shared destiny by 
virtue of geography, history, culture, demography, and economics. As 
stated by Secretary Powell in September 2003, ``there is no region on 
earth that is more important to the American people than the Western 
Hemisphere.'' A prosperous LAC region provides expanded opportunities 
for increased trade, and a peaceful hemisphere is paramount to our 
national security. USAID is fulfilling its development and humanitarian 
mandate in LAC countries as it continues to respond to the U.S. 
National Security Strategy, which, as stated by President Bush, links 
``the future of our Hemisphere to the strength of three commitments: 
democracy, security and market-based development.''
    On balance, political stability has greatly increased over the last 
several decades and governments have shifted from mainly authoritarian 
rule to representative and constitutional democracies. Throughout the 
region, official human rights abuses have diminished, civil society 
oversight of public institutions is increasing, and elections are held 
under the management and supervision of professional electoral 
commissions. Governments are taking steps to stamp out corruption, 
establish mechanisms for transparency and accountability, and attract 
foreign investment.
    The region's economic situation is improving and LAC countries are 
closer to trade liberalization and integration with their neighbors 
than they have ever been. The World Bank and the U.N. Commission for 
Latin America and the Caribbean estimate that the region's gross 
domestic product (GDP) grew by 1.5% in 2003 (slightly more than the 
population growth rate of 1.3%-1.4%), compared with a 0.4%-0.8% 
contraction in 2002. Those LAC countries that have adopted sound fiscal 
policies and oriented their economies toward greater foreign investment 
and rules-based trade proved more resilient to the recent global 
economic downturn than those that did not take such outward-looking, 
market-based steps. The region's GDP is expected to continue to expand 
by 3.5% in 2004, with growth predicted across the region. However, the 
region's economic recovery rate is still not enough to reverse the 
effect of recent years of economic stagnation. Approximately 44% of the 
region's population lives under the poverty line of two dollars a day, 
and unemployment averages 10.7%, with underemployment significantly 
higher.

                      CONTINUING CHALLENGES IN LAC

    Despite gains in human rights and democracy, and increased economic 
linkages across the region, threats to the development achievements of 
the last decade persist. Popular dissatisfaction with tepid economic 
growth, public sector inefficiencies, and failure by elected 
governments to perform effectively and responsibly have led to numerous 
setbacks--economic instability and political crisis in Venezuela, 
abysmal poverty and alarming levels of political instability, and 
violence in Haiti, and growing civil unrest in the Dominican Republic. 
President Bush noted that ``. . . when governments fail to meet the 
most basic needs of their people, these failed states can become havens 
for terror . . . No amount of resources transferred or infrastructure 
built can compensate for--or survive--bad governance.'' (March 2002). 
Thus, sustained efforts by the United States to work in partnership 
with our neighbors are essential to promote democratic and economic 
integrity in the Western Hemisphere.
    Great inequities remain in access to and delivery of quality health 
care and education. These impediments weaken economic growth, labor 
productivity, and the ability to compete globally. Maternal and 
neonatal mortality rates remain unacceptably high, and resistance to 
accessible medicines is on the rise. The LAC region has the second 
highest HIV/AIDS rate in the world, with over two million people living 
with HIV, including the estimated 200,000 that contracted the deadly 
virus in 2003. Diseases such as dengue and malaria are posing an 
emerging threat as well. In education, nearly one-half of the children 
who enter primary school fail to make it to the fifth grade, and only 
about 30% graduate from secondary school. Access to education 
especially affects poor, rural, and indigenous children, particularly 
girls.
    The lack of effective rule of law threatens business interests and 
puts citizens, including Americans, at risk. Narcotics wealth gives 
large trafficking organizations a practically unlimited capacity to 
corrupt. In economically weak countries, the drug trade's wealth makes 
it a great threat to democratic government. Terrorist organizations 
overtly seek to topple governments by force, while drug syndicates 
undermine them surreptitiously from within. In recognition of this 
threat, the U.S. government is committed to improving security overseas 
so that threats never arrive on our shores. This calls for targeted 
foreign assistance and complementary institutional reform programs in 
countries where organized crime exploits weak governance, especially in 
the justice sector.

                   USAID PRIORITIES IN THE LAC REGION

    USAID's strategic priorities in the LAC region are to: 1) improve 
good governance and reduce corruption; 2) increase economic growth and 
free trade; and 3) reduce narcotics trafficking. These themes give 
paramount importance to the implementation of policies that address key 
constraints to development, with the overarching goal of advancing the 
U.S. foreign policy agenda. In addition, USAID is addressing critical 
transnational issues such as HIV/AIDS and other infectious diseases, a 
deteriorating natural resource base, and trafficking in persons.

                        DEMOCRACY AND GOVERNANCE

    LAC will continue to expand its support for deepening democracy, 
concentrating on issues of anticorruption, government transparency and 
accountability, and human rights. Fragile and politically troubled 
states such as Bolivia, Haiti, and Venezuela will continue to receive 
special attention.
    Justice sector modernization remains the largest focus of USAID 
governance programs in the LAC region. In addition, governance programs 
promote accountability and transparency in government institutions; 
increase the capacity of local governments to manage resources and 
provide services; and strengthen civil society organizations to 
advocate for citizens' rights.
    Without a reliable and fair justice system, investor confidence and 
a stable trade environment are jeopardized. Likewise, impunity for 
crime and corruption undercuts social and economic growth. USAID 
efforts to advance criminal justice reform, strengthen judicial 
independence, expand access to justice, and improve administration of 
justice are underway in 12 LAC countries. New criminal procedure codes 
and other criminal justice system reforms, developed and enacted over 
the last decade with USAID support in Nicaragua, Honduras, Guatemala, 
El Salvador, Bolivia, Colombia, and the Dominican Republic, are 
introducing profound changes. USAID is helping the government of Peru 
to increase judicial accountability by introducing reforms to make 
judicial selection more transparent and improve oversight of the 
courts. In Colombia, USAID has established oral procedures in a 
reformed criminal justice system, strengthening the public defense 
system to guarantee due process, expanding access to community-based 
legal services, and promoting widespread use of alternative dispute 
resolution mechanisms.
    New efforts in justice reform are examining commercial codes. This 
fiscal year, USAID helped the Nicaraguan Chamber of Commerce launch a 
joint initiative with the government of Nicaragua to draft an 
alternative dispute resolution law aimed at providing an accessible 
mechanism that meets international standards for resolving commercial 
disputes. This law will help prepare Nicaragua for CAFFA implementation 
by improving the environment for trade and investment.
    USAID anticorruption programs in 15 countries emphasize citizen 
oversight and build local capacity to attack weak governance, 
entrenched political institutions, and poor public sector management. 
USAID provides assistance to citizens groups and nongovernmental 
organizations to devise anticorruption plans and monitor government 
officials and agencies. USAID supports local initiatives to establish 
special commissions and investigative units to expose and prosecute 
cases of corruption by public officials. The United States is the only 
country providing help to the Dominican Republic in handling the 
complex bank fraud cases currently under investigation and in the 
courts. USAID helped establish a coalition of over 50 Dominican civil 
society organizations which is actively engaged in ensuring that the 
Baninter and other bank fraud cases are investigated and prosecuted.
    With direct election of local mayors and devolution of authority to 
municipalities, USAID is helping citizens and elected leaders devise 
community development plans that respond to local needs and generate 
growth. In 14 countries USAID helps mayors establish transparent 
accounting and fiscal management procedures to create a framework for 
greater revenue generation for roads, schools, health centers, and job 
creation. In turn, citizens monitor the use of public funds and devise 
``social audits'' to track spending in accordance with local 
development plans and to hold officials accountable. USAID provided 
assistance to national and local Colombian government entities to 
standardize accounting and internal financial control systems according 
to international standards, as well as assistance to 100 citizen 
oversight groups to oversee close to $1.5 billion in public funds. 
Colombia's ranking in the Transparency International Corruption index 
improved 17% between 2000 and 2003, the greatest improvement among the 
more than 40 medium and low-income countries surveyed.

                            ECONOMIC GROWTH

    USAID is assisting LAC countries to enact legal, policy, and 
regulatory reforms that promote trade liberalization, hemispheric 
market integration, competitiveness, and investment, which are 
essential for economic growth and poverty reduction. USAID's trade 
capacity building programs focus on helping LAC countries to prepare 
for trade negotiations and implement obligations stemming from trade 
agreements such as sanitary/phytosanitary measures, customs reform, and 
intellectual property rights. In addition, USAID works with the 
region's smaller economies to help them join the global trading system 
by developing specialty markets and providing assistance for business 
development and rural product diversification. Increased support is 
envisioned to respond to increasing demands for assistance.
    Although economic growth is still weak, governments increasingly 
understand the benefits of free trade and are willing to take steps to 
make it happen. The recent signing of the U.S.-Central American Free 
Trade Agreement (CAFTA) demonstrates the commitment by Guatemala, 
Honduras, Nicaragua, El Salvador, and Costa Rica to implement policy, 
trade, and economic growth reforms. We are currently working with the 
Dominican Republic so they can join this important agreement. Lessons 
learned from Mexico and shared with the Central American countries 
indicate that more open trade leads to improved policies, export 
diversification, political reform, stable exchange rates, increased 
foreign direct investment, employment generation, greater public 
investments in the social sector, and a more open society.
    Under the Free Trade Area of the Americas (FTAA) process, the 
Western Hemisphere countries are working together to implement the FTAA 
Hemispheric Cooperation Program (HCP). Under the program the smaller 
economies and developing countries of Latin America and the Caribbean 
have prepared national trade capacity building (TCB) strategies that 
USAID and other resource partners are using to effectively target TCB 
assistance in line with country priorities. USAID worked very closely 
with USTR, other USG agencies, and donors to launch the first HCP 
donor-country coordination meeting last October in Washington. USAID 
has also worked closely with this group to provide support for specific 
FTA negotiations with the Dominican Republic, Panama, Peru, and 
Colombia scheduled for 2004. In order to support this important 
process, sustained TCB funding will be paramount.
    In FY 2003, USAID provided technical assistance and training in 
support of CAFTA negotiations to Central American government officials, 
and assisted Bolivia, Peru, Guyana, and Suriname to prepare national 
trade capacity building strategies. USAID also assisted governments in 
Central America, the Caribbean, and Brazil to raise the public level of 
understanding about the benefits of free trade under CAFTA and the Free 
Trade Area of the Americas (FTAA). In coordination with the Government 
of Nicaragua, USAID implemented a public outreach program to 
disseminate information about CAFTA negotiations, as well as the 
opportunities and challenges associated with free trade. An opinion 
poll, taken a few months after the program began, showed that awareness 
of CAFTA among those surveyed increased from 2% to 82%. In addition, 
USAID support was instrumental in ensuring a highly successful round of 
CAFTA negotiations hosted by Nicaragua in September 2003.
    The progress with CAFTA bodes well for the success of the Free 
Trade Area of the Americas (FTAA), which will further strengthen and 
expand economic partnership in the Americas, a vast market of over 800 
million people producing nearly $14 trillion in goods and services 
every year. For example, the political and economic liberalization 
encouraged by the United States and successfully adopted by El Salvador 
has made El Salvador a model for post-conflict developing countries. 
The United States is El Salvador's most important trading partner, 
receiving 67% of its exports and providing 50% of its imports. By 
promoting prosperity in El Salvador through USAID programs and 
mechanisms such as CAFFA, the United States can help strengthen the 
Salvadoran economy, thereby improving the living standards of 
Salvadorians and reducing the number that feel the need to escape 
poverty by moving to other countries, such as the United States.
    USAID has played a major role in helping the U.S. Government shape 
and launch the FTAA Hemispheric Cooperation Program. USAID will use the 
NAFTA and CAFTA experience to help the hemisphere reach agreement on 
FTAA by the end of 2005. In the Caribbean, a sub-region with small 
island economies that lack diverse sources of income, USAID is 
conducting outreach programs that describe the benefits of free trade, 
providing assistance for small business development, and assisting 
eight Caribbean Community (CARICOM) countries to prepare national trade 
capacity building strategies and achieve a Caribbean Single Market and 
Economy by 2005. In Jamaica, USAID is helping the private sector to 
identify and address key regulations and legislation that constrain 
business operations. Two improvements made last year include a new 
electronic payment system introduced at the Jamaica Customs Department 
that allows importers and brokers to make direct payments through the 
bank, and an electronic manifest transmission system implemented by the 
Shipping Association of Jamaica to make this process more efficient. 
The United States is working with the Government of the Dominican 
Republic to have it become an active partner in CAFTA.
    USAID has also developed a regional program to help Andean 
Community countries address rules of trade and competitiveness issues, 
including customs reforms, sanitary and phytosanitary measures, and 
competition policy. USAID has begun an aggressive program in Peru to 
improve the regulatory and institutional framework to facilitate trade 
and investment and help Peru's private sector take advantage of the 
Andean Trade Preferences and Drug Eradication Act, and prepare for FTAA 
accession. Our Mission in Peru, which is managing the regional program, 
is coordinating closely with the USAID missions in Bolivia, Colombia, 
and Ecuador to ensure that USAID regional and bilateral support for TCB 
effectively responds to the needs that these countries have articulated 
in their national strategies.
    In response to the coffee crisis in Central America, consequent to 
the devastating drought in 2001 and the decline in coffee prices, USAID 
helped Central American coffee farmers apply best practices to increase 
sales to the high-value, niche coffee market through expanded 
partnerships with U.S. and European coffee traders and roasters. This 
project is resulting in increased rural competitiveness, incomes, and 
employment, all crucial to poverty reduction. USAID's programs to help 
farmers diversify agricultural production, increase yields, and obtain 
better access to markets helped Nicaraguan producers to meet local, 
regional, and international market demand for various products, and 
generated more than $17.5 million in sales during FY 2003. In Honduras, 
USAID support for technology transfer and training in market-led 
production and post-harvest handling successfully linked small-scale 
growers, processors, exporters, and supermarkets. This assistance has 
generated $31 million in new sales, and increased small farmer incomes 
by an average of 177%. Success is evidenced by an almost $4 million 
increase in exports of the main seasonal crops.
    Numerous USAID programs support development of regulatory 
frameworks and innovative approaches to widen and deepen financial 
intermediation in the small and microenterprise sector. As a result, 
marginalized business people have greater access to borrowing capital, 
increasing the number of self-employed entrepreneurs, especially women, 
and their profitability. USAID's demonstrated successes in microfinance 
have made other prominent donors eager to replicate its approaches. One 
of several microfinance models developed through USAID support in Haiti 
has been internationally touted as exceptionally innovative and well-
directed, and our microfinance models have been adopted by local 
commercial banks.
    USAID is also working with governments to improve economic 
policies. USAID technical support to the Nicaraguan National Assembly 
on economic policy contributed to the passing of the Law on Tax Equity, 
which allowed the Government of Nicaragua to collect $366 million in 
taxes in 2003, which was 23% above 2002 collections.
    USAID is supporting cutting-edge efforts to increase the 
developmental impact of remittances to the LAC region, which were 
estimated at $32 billion in 2003--more than all other development 
assistance combined. A pilot program supports the development of a 
remittance transfer service between Caja Popular Mexicana and credit 
unions in Texas and California. The program taps into one of the 
largest sources of private capital flowing into Mexico and should both 
lower transfer costs and leverage remittances as savings and productive 
investment. USAID's pioneering efforts have influenced other regional 
institutions such as the Inter-American Development Bank, which has 
unveiled a plan that would allow relatives of U.S. migrant workers to 
use remittances as collateral for real-estate loans in their home 
countries. The program is expected to begin later this year, on an 
experimental basis in Mexico, Colombia, Ecuador, and El Salvador. On 
average, relatives of migrants in those countries will be eligible for 
loans up to $25,000 to buy a home, start a business or pay for school.
    Overall, USAID is programming its development assistance in the LAC 
region to help our trading partners to prepare for trade negotiations, 
and implement trade agreements. Additionally, USAID-supported programs 
help to ensure that all USAID investments in areas such as small 
business development and rural diversification maximize the economic 
growth and poverty reduction benefits from their participation in free 
trade.
    USAID is implementing the President's Initiative against Illegal 
Logging, which seeks to address the negative impacts of the illegal 
timber trade on economic, social, and political stability. In Peru, 
where illegal loggers have developed a symbiotic relationship with 
resurgent terrorist groups in remote areas, USAID is supporting 
national efforts to enforce laws and regulations related to protected 
areas, assisting communities to manage forests and certify wood 
products, and promoting alliances with U.S.-based mahogany retailers 
and Peruvian mahogany exporters. In Brazil's Amazon Basin, a largely 
unexplored biodiversity treasure, USAID is helping to develop 
management systems that maintain a balance between development and 
protection of natural resources. Other USAID programs have contributed 
to the conservation of millions of hectares of land and passage of key 
laws such as the Special Law for the Galapagos. USAID's sustained 
support helped develop sustainable timber harvest, and reduced 
significantly the rate of deforestation in several South American 
protected reserves.

                          INVESTING IN PEOPLE

    The U.S. Government is a key player in combating the HIV/AIDS 
pandemic. President Bush, speaking to Congress in April of last year, 
said the fight against AIDS is ``integral to our nation's security'' 
and called HIV/AIDS a ``threat to the stability of entire countries and 
regions of our world.'' USAID's HIV/AIDS programs work with 
governments, nongovernmental organizations, and the private sector in 
six main areas: awareness and prevention; care and treatment; 
epidemiological surveillance; capacity building; developing legislation 
that forbids discrimination against people living with HIV/AIDS; and 
program coordination to ensure a coordinated multi-sectored, multi-
donor response.
    Adult HIV/AIDS prevalence rates in the Caribbean Basin are second 
only to those in sub-Saharan Africa. HIV/AIDS affects the most 
economically productive segment of the population and the economy as a 
whole. For example, in Jamaica, complications from AIDS are the leading 
cause of death in men and women between 30 and 34 years of age. As a 
result of USAID assistance, affected countries are more willing to 
openly discuss HIV/AIDS. Haiti and Guyana, two Presidential priority 
countries in LAC, have initiated national programs to prevent mother to 
child transmission of HIV/AIDS. This year alone, USAID established 22 
new voluntary counseling and testing and prevention of mother to child 
transmission centers across Haiti, giving rural Haitians access to 
services previously available only in select areas.
    USAID has made significant progress in raising vaccination coverage 
and reducing or eliminating major childhood illnesses such as measles. 
While progress is being made to apply proven, cost-effective protocols 
for combating malaria, tuberculosis, and other infectious diseases, 
rates remain unacceptably high. Because diseases do not respect 
geographic boundaries and due to the high numbers of legal and 
undocumented immigrants to the United States, USAID's health-related 
assistance to LAC countries is critical to the security and health of 
the United States.
    The quality and relevance of primary and secondary schooling in LAC 
countries continue to cause concern, as the majority of students attend 
weak and under funded schools and fail to acquire basic skills in 
mathematics, language, and science. Fewer than 30% of students in the 
region complete secondary school, and many of those who do finish lack 
the skills to compete in the workplace, let alone in an increasingly 
competitive global economy. USAID education and training programs are 
improving educational systems by developing innovative pilots and more 
effective service delivery models, many of which are being expanded by 
host governments and multilateral development banks. USAID will 
continue to improve the skills of teachers and administrators through 
the Centers of Excellence for Teacher Training, an initiative announced 
by President Bush in April 2001. Three sub-regional training networks 
established in Peru, Honduras, and Jamaica will train up to 15,000 
teachers who will serve 600,000 students. USAID has been a leader in 
education policy reform through efforts such as the Partnership for 
Educational Revitalization in the Americas. In addition, USAID is 
supporting advancements in workforce training and helping youths 
prepare to enter the workforce. For example, USAID's Training, 
Internships, Exchanges, and Scholarships program in Mexico is enhancing 
the capacity of Mexican scholars and institutions to respond to the 
emerging U.S./Mexico Common Development Agenda.

                        ALTERNATIVE DEVELOPMENT

    The scourge of narcotics threatens the social and economic fabric 
of the Andean countries and poses a threat to the United States. 
Despite bold efforts by Colombia, Bolivia, and Peru to combat narco-
trafficking, the lack of a state presence in some areas has allowed 
illegal narcotics production and armed terrorist organizations to 
continue to flourish. Drug-related spillover crime makes Ecuador's 
northern border with Colombia vulnerable. Further, experience has shown 
that intensive eradication efforts by one country increase pressure by 
the narco-trafficking industry in another. Alternative development 
programs emphasize licit crop production; rural competitiveness; 
improved social, physical, and productive infrastructure; access to 
fair justice; and an increased state presence in coca-growing regions. 
USAID is working in partnership with the Andean region's leadership, 
who are actively pursuing policies to fight narco-terrorism and expand 
the reach of government and rule of law.
    In Bolivia, USAID is providing viable income-earning alternatives 
to coca cultivation and developing sustainable infrastructure, national 
and export markets, and organizations to ensure sustained economic 
growth in coca-growing regions. Successful new strategies have 
increased domestic sales and exports from the Chapare. In 2003, banana 
exports rose by more than 30% and pineapple exports increased 250%. In 
the Yungas, more than 5,100 farmers improved their coffee harvest and 
post-harvest techniques, thereby increasing their incomes by an average 
of almost 40%.
    Radio, press, and face-to-face communications have convinced over 
15,000 families to enter agreements with the Government of Peru to 
voluntarily eradicate their coca and remain coca free. Between October 
2002 and December 2003, Peru's newly established voluntary coca 
eradication program resulted in the elimination of 5,445 hectares, with 
459 communities and over 19,000 families participating in the program. 
Voluntary eradication constituted 40% of total eradication for CY 2003, 
and approximately 40% of that was high density or managed productive 
coca, the same amount obtained previously through forced eradication.
    Since some coca growing areas are not suitable for sustainable 
agriculture due to agronomic or security reasons, USAID works with the 
private sector to increase licit income opportunities, making coca 
production less attractive. In Colombia, the combined tactics of 
eradication, interdiction and alternative development resulted in a 
coca crop reduction of 37.5% between 2000 and 2002 and an additional 
43% between 2002 and 2003, exceeding Plan Colombia goals. In addition, 
USAID completed 406 social infrastructure projects, including 
construction of roads, bridges, schools, and water treatment 
facilities, in 13 municipalities to provide short-term employment and 
access to markets necessary to sustain a licit economy.

                       SPECIAL EMPHASIS COUNTRIES

    Haiti. The United States is the largest donor in Haiti, providing 
roughly one third of the total bilateral and multilateral assistance 
last year. USAID's assistance has been focused on humanitarian 
assistance, including alleviating poverty and food insecurity, 
increasing access to health care by the majority of underserved 
Haitians, fighting HIV/AIDS, generating rural competitiveness-based 
employment, and strengthening civil society. USAID is closely 
monitoring the humanitarian impact of the current political crisis that 
has led to the resignation of President Aristide. Haiti's Supreme Court 
Justice Boniface Alexandre was sworn in as the interim president as 
stipulated in the Haitian constitution. USAID is working closely with 
other agencies and implementing partners to develop a post-conflict 
program strategy. This strategy will ensure the provision of emergency 
relief, continue to provide improved basic services, and generate 
employment over the immediate, short and medium-term. Also, USAID is 
cooperating with other donors to jointly identify long-term priorities.
    Colombia. USAID will continue to support President Uribe's new 
Democratic Security and Defense Policy aimed at guaranteeing the 
security, freedom and human rights of the population, consolidating 
state control over national territory, eradicating drug trafficking, 
defending democratic order and the rule of law, promoting economic 
prosperity and social equality, and reconstructing the social fabric.
    Colombia has one of the largest internally displaced persons (IDP) 
populations in the world (about 2.5 million) since 1985. Most displaced 
families are reintegrating into urban settings from a rural 
environment. One of USAID's most successful activities enables IDPs to 
regain or obtain income-generating opportunities through training in 
basic business practices such as accounting, finance, and basic market 
studies. The program has had particular success in involving the 
private sector and has established public/private partnerships. The 
training programs have led to the job placement of thousands of IDPs 
and the creation of successful micro and small businesses managed by 
IDPs. Job creation and skills training is one of the primary strategies 
in helping IDPs regain financial independence and long-term economic 
stability. In addition, USAID finances community infrastructure 
projects such as schools, health centers, water and sanitation systems, 
roads, and housing. USAID has provided relief to about 1.2 million IDPs 
since the program began in 2001.
    In July 2003, the Colombian Government reached agreement with nine 
paramilitary groups numbering some 18,000 combatants (roughly 82 
percent of the estimated paramilitary combatants in the country) to lay 
down their arms in exchange for Colombian Government support for their 
demobilization and reincorporation into Colombian society. In December 
2003, two groups were demobilized, one in Medellin totaling 871 former 
combatants, and one in Cajibio (Cauca), totaling 155. Negotiations are 
ongoing with the remaining groups. The current estimated costs for 
complete demobilization of all illegal armed groups in Colombia 
(including the country's two largest groups, the Colombian 
Revolutionary Armed Forces or FARC and the National Liberation Army or 
ELN) is between $254 to $298 million. The projected shortfall that the 
Colombian Government will look to the international community to fill 
is estimated at $138-$182 million. USAID has provided planning 
assistance to the Office of the High Commissioner for Peace, and 
subject to the resolution of legal policy and funding issues, is 
prepared to deepen and broaden assistance to the Colombian Government 
in this critical area. A broad, comprehensive demobilization and 
reincorporation program would provide tangible benefits by eliminating 
a significant source of human rights violations and creates potential 
for the future demobilization and reincorporation of other illegal 
armed groups.
    Bolivia. In CY 2003, USAID/Bolivia provided $10 million in FY 2003 
and $8 million in FY 2004 ESF funds as cash transfers to meet 
Government of Bolivia obligations with International Financial 
Institutions. This served to relieve pressure on the government's 
fiscal situation and encouraged other donors to follow suit. USAID/
Bolivia refocused at least $12 million in its current program to 
initiate a series of ultra fast activities in the conflict areas of El 
Alto and the altiplano, enabling temporary jobs, improved roads and 
schools, and expanded health services. This shows that the Government 
of Bolivia and the United States Government are attentive to the 
problems of neglected areas, and is providing political space for the 
Mesa administration to advance needed economic and social reforms. 
USAID will continue to implement quick impact, high visibility 
activities designed to demonstrate the responsiveness of the Mesa 
Government and its concern for the economic inequities in Bolivia. 
These will be augmented by activities and policies aimed at relieving 
the social and economic pressures in Bolivia and helping the Mesa 
Government address the needs of vulnerable citizens. Support for 
alternative development will remain strong.

                               ALLIANCES

    Private investments in Latin America, including contributions from 
civil society and faith-based organizations, far exceed official 
development assistance levels. Linking United States Government 
investments with private investments will assure a greater impact for 
both, as was articulated by President Bush at the Monterrey Conference 
last year. The Global Development Alliance and the Development Credit 
Authority (DCA) are exciting business models by which USAID has given 
U.S. resources much greater impact by partnering with businesses, 
municipalities, universities, and philanthropic groups. Key alliances 
in LAC include working with coffee companies and small-scale producers 
to address the crisis in this sector, cutting-edge work on remittances, 
and a new alliance for the chocolate industry. Using DCA authority to 
provide guarantees to microfinance institutions, commercial banks, 
rural savings and loans, and municipalities, USAID leveraged more than 
$30 million in private capital in 2002.

                               MANAGEMENT

    LAC is undertaking mission management assessments to make informed 
decisions on ways to work smarter, reduce the process workload, and 
ensure Operating Expense and staff allocations respond to Bureau 
priorities. Four mission management assessments were completed in 2003, 
resulting in measures to improve efficiency by consolidating financial 
management and other support services in four LAC missions to serve 16 
country programs. This year we plan to conduct seven more mission 
management assessments, thereby fulfilling the LAC Bureau's mandate, 
and we will continue to follow through on recommendations from earlier 
assessments. By responding to initiatives in the President's Management 
Agenda, including Strategic Management of Human Capital. USAID is 
maximizing the impact of foreign assistance. USAID Administrator Andrew 
Natsios recently approved staffing levels to better allocate staff in 
overseas missions and ensure best use of personnel. Steps will be taken 
to begin the process of implementing the Agency's Direct Hire staffing 
template while adhering to the spirit and intent of the FY 2004 
Appropriations Bill. Furthermore, we will finalize the regional 
services platform for Central America and more thoroughly analyze the 
options for South America.

    Senator Coleman. Thank you very much.
    Senator Nelson, do you want to make a statement?
    Senator Nelson. Well, I don't need a statement. I'll just 
ask some questions.
    Senator Coleman. Why don't I begin. You talked about the 
AIDS initiative in Haiti. Secretary Noriega, you talked about 
other countries have offered to make security forces available 
in the very near term. What does very near term mean?
    Mr. Noriega. Mr. Chairman, may I briefly walk through the 
process that's underway right now? Haiti, of course, has a new 
President now. The Prime Minister, Yvon Neptune, is the Prime 
Minister at present in Aristide's government. He continues to 
be the head of government. He has agreed to serve for a few 
days while a process in underway for appointment of the new 
Prime Minister.
    That process is modeled on a plan that was proposed by the 
Caribbean community a number of weeks ago, where there will 
be--the international community will work with sectors of 
Haitian society that we hope will be represented in sectors, 
including some of Aristide's party and others, to form a 
council of 7 to 9 persons that will advise the President on the 
appointment of a new Prime Minister, and the Prime Minister 
will return once he's appointed by the President, begin to form 
a cabinet of neutral, independent persons who are above all 
technically competent to head the various ministries of the 
Haitian Government.
    This council sort of steps in for the absence of a 
Parliament in Haiti and we believe it's important that there be 
some sort of a representative body to advise the government as 
it goes ahead. That process is underway and the time tables are 
very short. We want to move very quickly to put some people in 
place that can start making decisions for the new government.
    The U.N. Security Council resolution is the basis of our 
engagement, Resolution 1529, which was approved unanimously on 
Sunday. The United States has forces on the ground. Others are 
moving very quickly to put people on the ground. The French are 
in there.
    Senator Coleman. In addition to the French, anyone else?
    Mr. Noriega. There are a couple of others that have--and I 
would be pleased to talk to you about them privately, but the 
problem is some of these countries are just proposing these 
deployments to their Congresses, and if our Congress finds out 
before theirs does, I think we might make folks upset.
    Senator Coleman. I respect that.
    Mr. Noriega. But they all understand this is a very short 
fuse and we need to start seeing some people arrive very, very 
quickly. Some have said that they'll participate in current 
deployment and others will participate in the longer term. 
After about 3 months, we participated in a longer sort of 
traditional U.N. peacekeeping-type operation. But the numbers 
are anywhere from 5,000 in the current period and 7,000 offered 
up over the longer period.
    So we're going to have a robust presence and it's very 
important that one of the first things they do is stand up the 
Haitian national police to get some of these people who 
abandoned their posts because they didn't want to die for 
Aristide and to come back with the support of the international 
community, start patrolling the streets, start manning their 
police barracks again throughout the country. This will take a 
period of time, but we think that this--we're confident that 
this process can begin and it will be effective.
    Haiti is, has always been under-policed, but we think that 
this presence, the international presence, we can start to 
stand up a Haitian national police to start to maintain order. 
We have to do the basic things that were never done to make 
Haiti more attractive to investment and trade. Our aid programs 
need to continue in earnest and we need to look for additional 
sums and sources of assistance to accompany this process.
    All of this is underway. We have a meeting tomorrow at 
Southcom to talk about the security component and USAID and 
State have a working group to look at the long term--longer 
term, medium and longer term aid program, what are the 
priorities, how will we, what are we--what sorts of resources 
we are going to bring to bear.
    Something that might be of particular interest to Senator 
Nelson is, I think a mistake that we've made in recent years in 
Haiti is not involving the Haitian diaspora. So at 3 p.m. 
today, I'm going to have a conference call with leaders of 
broad, various groups of Haitian-Americans to get them more 
involved in the process and encourage them to do what they can 
do and to accompany us, inform our programs, and complement the 
programs that we're going to have to strengthen Haitian society 
across the board. And if Senator Nelson has any ideas of 
particular organizations, if his staff wants to pass them, 
we'll get them on this call today or reach out to them in the 
future. Thank you very much.
    Senator Coleman. I have a lot more questions about Haiti, 
but we have an hour for this segment and the subcommittee will 
have a hearing on Haiti at the end of next week, but clearly 
there are a lot more questions. Just one narrow question. Are 
we talking about using--reprogram existing funds for our 
efforts or is there any funds to asking for additional funds 
for Haiti?
    Mr. Noriega. My sense is that we're going to see what we 
can do with current resources, and if we need additional, if we 
can justify it, we'll have to go up through our policymakers 
and see if that's possible.
    Senator Nelson. May I ask something of a clarification?
    Senator Coleman. Yes.
    Senator Nelson. Just on what Secretary Noriega has said. In 
the last 2 hours, rebel leader Philippe is claiming that he is 
in control of the Haitian national police. What is the opinion 
of the U.S. Government?
    Mr. Noriega. He's not. He's not the head of anything and 
we've said----
    Senator Nelson. Not the head of or in control of----
    Mr. Noriega. Exactly. He's not in control of anything but 
of a ragtag band of illegally armed persons. As the 
international community presence has built up, we will make his 
role less and less central in Haitian life, and I think he will 
probably want to make himself scarce. But we have sent that 
message, Senator, too, and without talking about anything that 
might impact the security of our own forces on the ground, rest 
assured that we have sent that message to him and he obviously 
hasn't received it, but we'll be working with our military and 
the military of others who have people on the ground to make 
his presence in the capital less and less, has to do with use 
the word necessary, but certainly he will want to make himself 
scarce.
    Senator Nelson. And that's going to come when? When are you 
going to have sufficient troops on the ground in order that 
that kind of claim rings home?
    Mr. Noriega. Within the next few days, sir.
    Senator Nelson. Would it be your pleasure to--I have a 
couple of questions on Haiti, or do you want to go on to other 
subjects and them come to me? What's your preference?
    Senator Coleman. I'd like to--let me just get to a couple 
of other issues and then we'll come back to you. Again, I think 
it's important to touch upon some other areas, though clearly 
the hot topic right now is Haiti and I respect that.
    Administrator, now you talk about rule of law and obviously 
that's absolutely critical to all of Latin America. We're not 
going to get investment without rule of law. How do we 
prioritize with all the needs that are out there? How are you 
prioritizing what's the critical steps here you're trying to do 
for--in terms of rule of law?
    Mr. Franco. Well, in terms of rule of law, Mr. Chairman, we 
prioritize things very much in line with what the President 
outlined early on when he actually spoke about the Millennium 
Challenge Account, and that is those countries that are 
committed to an agenda to attack corruption. And our 
investments, if you will, in terms of our development 
assistance, are prioritized in those countries where we have 
the leadership at the top for transparency to reform 
governmental institutions, to insist upon a system that 
respects the sanctity of contracts, and that have minimum equal 
protections for citizens.
    So our priorities are based on those countries that are 
showing demonstrable progress and commitment at the top. I know 
we are focused in on Haiti, and we should be, along with a 
number of other places where we have difficulties. But we have 
a good number of enlightened, committed leaders, I venture to 
say virtually all of the leaders of Central America, and 
President Uribe. So we have an opportunity in the region to 
really bring about necessary reforms, and we are expanding 
those programs and making those allocations based on 
performance and commitment, and that's how we go about making 
allocations.
    Senator Coleman. Getting back, touching upon Haiti for a 
second, but tying it to the rule of law and the economic 
development question, in the present proposed budget there was 
no funding in Haiti for economic support, ESF funds, nothing 
international narcotics and law enforcement. With the change in 
the political environment in Haiti, do you anticipate that 
those funding requests will be revisited?
    Mr. Noriega. I would expect that we will have to revisit 
everything we've been doing on Haiti, because as you know, Mr. 
Chairman, we had reoriented our programs to deal with non-
governmental organizations in all of the Haitian state. Our 
ability to work with the police was severely limited because of 
the narcotics corruption within the police and the 
politicization of the police. That is going to change obviously 
and we're going to have to find the resources to be able to 
work with them.
    Senator Coleman. Let me turn to Colombia briefly. I read 
about another attempt on President Uribe's life just recently. 
Two questions, one a political question. He suffered a setback 
last fall in the referendum effort on the budget. An assessment 
of his political situation today and then a second question 
about our commitment to a plan in Colombia and your assessment 
as to whether those funds are being well-spent and should we 
keep proceeding in that direction.
    Mr. Noriega. I think right after the fall of--the defeat of 
this referendum on some reforms, he seized the initiative, he 
made some changes in his government, he adopted some reforms 
using executive authorities. I think he adopted some very bold 
moves vis-a-vis the guerrilla organizations and I think he's 
fully recovered, quite frankly, his political footing. He did 
probably within a couple or 3 months of that, that setback, and 
it's clear that he has the support of the Colombian people. 
He's made some fiscal reforms that are absolutely necessary to 
fund the programs, security programs that he has in mind.
    I think that our decision to provide the bilateral trade 
agreement has also been helpful to him. It gives some more hope 
in terms of economic development and attracting investment. So 
I think he has, he's fully recovered.
    We've made significant strides on fighting coca 
cultivation. We expect significant progress to continue in 
making a real dent in the cultivation in the coca that's coming 
out of the region. He's working better with his neighbors than 
ever before, particular Ecuador. He's treating this 
transnational threat as a shared one, where the United States 
is not the only country that's helping him, but there's really 
a regional--subregional support for his efforts.
    We need to keep the pressure on. He recognizes that these 
narcotics, the traffickers, and the terrorist groups work hand 
in hand. The terrorist groups are more and more directly 
involved in trafficking themselves, and so that by attacking 
that, by applying a robust military pressure on these groups, 
we're seeing more and more people deserting, thousands of 
people from, for example, these AUC terrorist groups deserting 
and saying they want to surrender.
    And now he has to have--develop very effective, 
comprehensive programs for disarming and resettling, 
demobilizing those people, so that--I mean, that's actually a 
good thing that he has this new task to take on, because it 
shows that his policy of applying the rule of law is making a 
difference. So it's making a dent in the security situation, in 
the coca cultivation situation, in the rule of law, and in 
Colombia's fiscal picture.
    The economy needs to continue to grow and he understands 
that, but I think he has a very effective strategy and we need 
to stick with it obviously based on what our request is.
    Senator Coleman. I have many, many more questions, but I'm 
going to defer to my colleague, Senator Nelson, and if there's 
any time left I may come back.
    Senator Nelson. It's a tough subject to cram in in less 
than an hour. First of all, I'm going to ask you a couple of 
difficult questions, and if you cannot answer them, just tell 
me that you can't answer them and I will respect that.
    First of all, I think we would all agree that Aristide was 
certainly lacking in leadership and clearly in some cases had, 
if not himself corrupt, certainly the vestiges of corruption 
around him. Going forward, and I made a speech on the Senate 
floor in which I just poured my heart out yesterday, the United 
States is going to have to be involved, and you two are in a 
position to make a difference, and I hope that it's going to 
be--the last 2 years of the Clinton administration it was 
dropping in support for such things as economic support, 
military assistance, food aid, Peace Corps, dropping from $83 
million to $73 million. The first year of the Bush 
administration, $55 million went up to $71 million down to $54 
million in its present fiscal year, and next year it's 
estimated at $54 million. That's not going to cut it for us to 
establish the institutions, help them, pick them up by the 
bootstraps, right.
    Those are not the questions. That's what we all agree. And 
this Senator is going to try to help you, because that's what 
we've got to do. What I want to ask you about is the policy, 
since we've been talking about rule of law, the policy of the 
U.S. Government of a regime change. Now, the first question I 
want to ask is, I want you to tell me what was the Santiago 
Declaration in 1991?
    Mr. Noriega. The Santiago Declaration was Resolution 1080 
of the foreign ministries meeting there of the General Assembly 
meeting there.
    Senator Nelson. And what did it say?
    Mr. Noriega. That said that a government that comes to 
power through a sudden or irregular interruption in 
constitutional order, that we would have a meeting of foreign 
ministers for the purposes of addressing this, for sudden or 
irregular interruption in constitutional order.
    Senator Nelson. And was it followed by the Inter-American 
Democratic Charter in 2001?
    Mr. Noriega. Yes, sir.
    Senator Nelson. And what did that say?
    Mr. Noriega. That defined what the essential elements of 
democracy were and it set up a system where the inter-American 
community agreed to work together to support countries in 
overcoming threats to these essential elements of democracy.
    A key element it included was a self-help mechanism where a 
country could ask for support, article 17, where a country 
could come and say, my institutions are under threat. 
Interestingly enough, President Aristide never used that 
mechanism.
    Senator Nelson. Did it not say that a democratically 
elected government in the Western Hemisphere, when calling upon 
another democratically elected government, that one would come 
to the aid of the other?
    Mr. Noriega. It did. In a general sense it said that we 
would support one another and it's interesting again that 
President Aristide never invoked article 17. I have a feeling I 
know why, because he felt that he would become accountable for 
his lack of respecting the essential elements of democracy, so 
they studiously resisted invoking article 17.
    Senator Nelson. So all the calls that he made, whether we 
agree or not, which I think we know that he was a bad actor, 
all the calls that he made internationally calling for help, 
our U.S. Government interpretation of both of those documents, 
which would have the patina of the rule of law, was that we 
were not going to come to the aid of that democratically 
elected government.
    Mr. Noriega. Senator, we were confronted with a very 
difficult situation. We knew that he was a constitutional-
elected--constitutional President. The election has--it's 
barely an election, but I think maybe 8 percent of the people 
voted, but we knew--we recognized him as a constitutional 
President.
    But we also knew a few other things about him from 
experience. I was working for the State Department in 1991 when 
it was a part of our policy to put him back in power, and since 
then we've watched him sow the seeds of the disaster that fell 
upon him. We saw him undermining basic institutions, 
undermining the security apparatus with drug corruption, 
putting his thugs in charge of the Haitian National Police, and 
this eventually made the HNP, the Haitian National Police fall 
apart.
    Senator Nelson. Here's what worries me, since we're talking 
about the rule of law, that in our judgment we will suspend two 
declarations, one in 1991 and another one in 2001 at our own 
interpretation when another democratically elected government 
calls on our help. And not only that, that we don't respond, 
but that we respond in a way that the outcome is inevitable, 
which in my discussion across a witness table with Secretary 
Powell last week, I said the abdication was foretold, that the 
way we were withholding any kind of support.
    And it's not the question of the purse, Secretary Noriega. 
It's the question of the process and the rule of law. And, Mr. 
Chairman, as we get into the hearing on Haiti, I want to 
continue with that, because what we want to protect more than 
anything in our country is that we not rule by men and women, 
but that we rule by law.
    Mr. Noriega. Mr. Chairman, Senator, I want to point out 
that there is a constitutional process underway, a new 
President is sworn in. The last one resigned, notwithstanding 
what he's saying now, he resigned. It's interesting to note 
that 3 days ago when people were clamoring for us to go in, we 
would have been going in to prop up a person who is now 
accusing those same people of having kidnaped him. It shows in 
spectacular relief that he was an irresponsible, untenable 
leader.
    We have an obligation to recognize him as a constitutional 
leader, but we do not have an obligation automatically to put 
American lives at risk to prop him up. The international 
community has moved in to support the constitutional succession 
that's underway. I described the policies of President 
Aristide, and I think this question boils down to whether it is 
better to have the international community keeping thugs in the 
national palace 3 days ago, or keeping them out of the national 
palace today, and it boiled down to that.
    Senator Nelson. Well, if we don't watch out, thugs who are 
taking over Port au Prince right now will be in the national 
palace if we don't get down there. And, Mr. Chairman, my 
question obviously needs to be explored, because if Haiti, why 
not Venezuela in a regime change as a policy of the United 
States Government? And that's something that shakes the very 
legal foundations of this country.
    Senator Coleman. Senator Nelson, I appreciate your 
comments. I would note we do have a hearing scheduled on March 
10. I would suggest, and I think it's quite obvious, that your 
decisions are going to have to be made way in advance of March 
10 addressing some of the concerns that you've just raised. I 
anticipate that there's a lot of thought going into that right 
now.
    This hearing is scheduled from 12 to 1, to 1 to 2. With 
that, I will adjourn this portion of the Foreign Relations 
Committee review of the President's budget and I want to thank 
the witnesses for your testimony. I look forward to future 
conversations. There were many, many, many questions and areas 
unexplored. I am hopeful that we'll have some other opportunity 
to do that.
    Mr. Noriega. Senator, if you'd like to submit questions for 
the record, we'll be glad to----
    Senator Coleman. I anticipate we will do that. This portion 
of the hearing is adjourned.
    [Recess from 2:02 p.m. to 2:06 p.m.]
    Senator Alexander [presiding]. Good afternoon. The hearing 
of the Committee on Foreign Relations is called back to order. 
This is an important day for us as a continuation of our 
hearing on foreign aid. The next hour we're going to discuss 
sub-Saharan Africa.
    Senator Feingold, who's very active on the subcommittee, is 
not here right now. Hopefully he'll be here, maybe he won't. 
They're in the Budget Committee this week getting things put 
together, so we'll certainly understand if he can't come.
    I might add last night I had a chance to have dinner with 
President DeKlerk who was in town talking about some of his new 
initiatives, which was a very interesting experience for me. We 
talked a good deal about the world, but also of course about 
sub-Saharan Africa.
    Our most commonly employed foreign policy tool is foreign 
aid, and so it makes a big difference in what we do in sub-
Saharan Africa. This is an area of increasing interest to the 
United States because of the President's interest. A lot of us 
can be interested, but when the President takes an interest, 
the world takes more of an interest, and the President's focus 
along with that of the U.S. Congress on HIV/AIDS, on the 
development of democracies in Africa, on conservation in 
Africa, all those things have caused, I think, Americans to 
become more familiar with it and our Congress to be more 
interested in this tremendous continent.
    Rather than my making an opening statement, I think we'll 
make better use of our time if I ask the witnesses to make 
their statements and then that'll leave me time for questions, 
or if Senator Feingold comes he'll have a chance to ask 
questions and make comments as well.
    We have two administration witnesses today, Don Yamamoto, 
whom I first met 20 years ago when he worked for Ambassador 
Mansfield in the U.S. Embassy in Japan and I was traveling 
there every year recruiting Japanese industry for Tennessee. 
He's Deputy Assistant Secretary of State for African Affairs. 
He's filling in for the acting Assistant Secretary, Charlie 
Snyder, who I understand is out of the country.
    Connie Newman, the USAID Assistant Administrator for Africa 
since 2001. We served together in the first Bush administration 
a few years ago where she was the Director of the Office of 
Personnel Management.
    I want to welcome you both, and Mr. Yamamoto, why don't you 
go first, and then Ms. Newman. Say what you'd like to say and 
then we'll have a conversation about that.

STATEMENT OF DONALD Y. YAMAMOTO, DEPUTY ASSISTANT SECRETARY OF 
                STATE, BUREAU OF AFRICAN AFFAIRS

    Mr. Yamamoto. Thank you very much, Mr. Chairman, and 
members of the committee, and it's indeed a great honor to be 
invited here today to testify before you on the Department of 
State's budget priorities. I will summarize my statement and 
submit the rest of it for the record.
    The State Department's $1.6 billion budget request for sub-
Saharan Africa will contribute to meeting our national 
strategic interests of security and economic prosperity by 
addressing five core goals in Africa, and they are: enhancing 
the region's capacity to fight terrorism; promoting private 
sector-led economic growth, reducing regional conflicts and 
promoting regional stability; promoting good governance, 
democracy, human rights, and the rule of law; and finally, 
improving health care, education, and the environment.
    We are doing this because what happens in Africa matters to 
the United States and significantly affects our interests. We 
are in partnership with many African nations to combat 
terrorism, a threat to U.S. national security interests as well 
as to African stability.
    Africa provides 15 percent of our oil needs, possess 
abundant natural resources, and holds commercial opportunities 
for U.S. investors who have already invested some $340 million 
in the past 3 years. The HIV/AIDS crisis affects sub-Saharan 
Africa like no other region in today. Twelve of the 15 focus 
countries in the President's emergency plan for AIDS relief are 
in this region, and the administration has requested a total of 
$2.8 billion in fiscal year 2005 to combat global HIV/AIDS, 
tuberculosis, and malaria.
    Of that request, $1.45 billion will fund activities in the 
focus countries to expand comprehensive and integrated 
prevention, care, treatment programs. It is vital to the U.S. 
interests and to the health and well-being of our citizens that 
we defeat this plague.
    The fiscal year 2005 request also helps the United States 
support African efforts to protect its rich biological 
diversity and improve natural resource management with such 
programs as the Congo Basin Forest Partnership.
    Unless we mitigate the political, social, and environmental 
crises that plague the African Continent, these countries will 
not be able to participate effectively in the global community 
of nations. The result will be chronic poverty and unrest that 
undermines stability, creates havens for criminal elements and 
terrorists and others would threaten the United States' 
interests.
    We will face continued political unrest and humanitarian 
crises, health problems that will replicate more quickly in the 
United States, and irreplaceable environmental resources that 
can help fight some of these problems will also be lost.
    Fortunately, there are reasons for optimism. Several 
African states are market-oriented democracies and many others 
are on the right road. Our assistance to sub-Saharan Africa has 
helped them resolve conflicts, strengthen democratic 
institutions, and create market economies. A robust public 
diplomacy program underscores our effort to strengthen ties and 
raises awareness of the various ideals that the African people 
share with the United States.
    In sum, our budget proposals will send the important 
message to our African partners that our priorities in Africa 
remain consistent and that our shared commitments to security, 
economic development, reform, and progress remain strong. This 
message reinforces our political, economic, and security 
interests.
    And, Mr. Chairman, I thank you and your committee's 
interest in sub-Saharan Africa, and you, Senator, for your 
personal support and interest. Thank you.
    [The prepared statement of Mr. Yamamoto follows:]

                Prepared Statement of Donald Y. Yamamoto

    Mr. Chairman and members of the committee, thank you for inviting 
me to testify on our budget priorities for sub-Saharan Africa in 
FY2005. The African Continent faces today, as it has in years past, 
many grave challenges. Terrorists have hit targets in Africa and states 
that are willing to confront terrorism often lack the means to do so. 
Serious conflicts that, while in some cases are close to resolution, 
remain a threat to stability. Soaring HIV/AIDS rates, hunger, and 
drought are crippling Africa's nations, while corruption, regional 
conflict, and human rights abuses threaten to undermine the progress we 
have made to enable African governments to fulfill the potential that 
exists in their people and natural resources.
    Our $1.6 billion FY2005 budget request addresses the most urgent 
concerns facing U.S. interests in Africa today and funds several 
programs that specifically seek to empower African governments' 
capacities to respond to emergencies and long-term problems. This 
request includes $101 million in Economic Support Funds (ESF), $22 
million in Foreign Military Finance (FMF), $11 million in International 
Military Education and Training (IMET), $60 million in Peacekeeping 
Operations (PKO), and nearly $1 billion in Child Survival and Health 
(CSH) and Development Assistance (DA) monies. My colleague USAID 
Assistant Administrator Connie Newman will address the details of 
development assistance in her testimony.
    We are making this request because events in Africa affect the 
interests of the United States. For sub-Saharan Africa, our five most 
important goals are to: increase African capacity to fight terrorism; 
promote private sector-driven economic growth; reduce regional 
conflicts while increasing African capacity to respond to 
contingencies; promote democracy, human rights, rule of law, and good 
governance; and improve the health and well-being of Africa's people 
and environment.
    These priorities reflect the reality that Africa's problems are 
increasingly linked to our own and to those of the international 
community. Corruption, civil unrest, and poor governance weaken states 
and prevent them from addressing the most critical needs of their 
people. In many cases around Africa, central governments have no or 
little ability to govern large portions of their territories. Weak, 
failing, and failed states breed chronic poverty and serve as potential 
havens for terrorists and terrorist networks that seek to attack the 
United States, its interests abroad, and its allies. Yet terrorists are 
not the only entities that take advantage of porous borders and weak 
governments in Africa. Disease, drug trafficking, and the spread of 
illicit arms constantly threaten to move among Africa's states and 
travel to other continents. Even human rights and environmental abuses 
on African soil have repercussions for the international community at 
large.
    Our assistance to sub-Saharan Africa benefits U.S. security. Many 
sub-Saharan African nations are solid allies in the Global War on 
Terrorism, and our partners in the region gladly embrace U.S. counter-
terrorism programs and training. The potential need for hosting forward 
operating sites for U.S. and coalition forces, and an existing 
willingness to apprehend terrorist suspects are advantages of 
maintaining strong ties with responsible governments in Africa. The 
President's FY05 request for assistance to sub-Saharan Africa 
simultaneously addresses terrorist threats to the United States through 
counter-terrorism programs, while also empowering these governments to 
address their own economic, social, and security needs, thereby 
reducing opportunities for terrorist networks to take hold. Our public 
diplomacy efforts in the region work to strengthen these ties and raise 
awareness of the values and ideals African people share with Americans, 
increasing understanding and support for U.S. foreign policy objectives 
and utilizing modern technology to reach wider audiences. The State 
Department request for African public diplomacy (programs and non-
American salaries, but not exchange programs) in FY05 is just over $20 
million. In addition, the Bureau of Educational and Cultural Affairs 
has indicated it expects to fund educational and cultural programs in 
Africa in FY05 at approximately the FY04 level, that is $35 million.
    U.S. leadership is critical to Africa. To cite one example, in 
Liberia, the United States has played a crucial role ensuring that 
country's transition to democracy. Following the removal of Charles 
Taylor from power and the end of more than 15 years of civil unrest and 
violence, Liberia today has a promising chance for a better future. 
Congress's appropriation of $200 million in FY04 supplemental funding 
for Liberia reconstruction and $245 million for CIPA to support the UN 
Peacekeeping Mission in Liberia (UNMIL) is playing a critical role in 
Liberia's reconstruction. U.S. assistance to Liberia goes beyond our 
economic pledges--this Administration has played a leading role in the 
international community's overall response to the Liberian crisis, co-
hosting last month's Liberia Reconstruction Conference with the UN and 
World Bank, and coordinating international efforts to reform Liberia's 
security sector.
    However, Liberia's success does not depend only on efforts from 
outside Africa. It is the responsibility of African people to address 
their problems. Chairman Gyude Bryant of the National Transitional 
Government of Liberia said it himself at the recent reconstruction 
conference: Liberia's stability and security depend foremost on the 
actions of Liberians and their ability to effectively and transparently 
use the aid the international community is willing to provide. Just 
across Liberia's borders, its neighbors have an important role to play 
too. Individual neighboring states like Sierra Leone and Cote d'Ivoire 
must work to contain their own conflicts, while sub-regional 
organizations like the Economic Community of West African States 
(ECOWAS) must continue to display strong leadership through effective 
peacekeeping operations.
    The President's budget request for the State Department, USAID, and 
other agencies working on assistance to sub-Saharan Africa addresses 
this need to build the capabilities of individual governments and 
African regional organizations.
    The Bureau has requested a total of $84 million in bilateral ESF 
funding in FY 2005 for 12 focus countries. These include five countries 
(Djibouti, Ethiopia, Kenya, Nigeria, and South Africa) identified as 
strategic--due to their size, economic power, military strength, 
importance to counter-terrorism initiatives, or ability to have either 
a significant impact on their region. Our assistance to the additional 
seven other focus countries (Angola, Burundi, the Democratic Republic 
of Congo, Liberia, Sierra Leone, Sudan, and Zimbabwe) will bolster 
efforts to resolve serious and generally long-running conflicts or 
instability. In the case of Zimbabwe, ESF will of course be aimed at 
bringing democracy to this nation that once gave so much promise, but 
which has been so badly misgoverned.
    Our remaining requested ESF funds ($17 million) are for three 
regional programs: the Africa Regional Fund, Safe Skies for Africa 
(SSFA), and regional organizations. The Africa Regional Fund ($11 
million) strengthens the rule of law, promote trade and investment, aid 
judicial reform and the development of civil society, improve 
administration of borders, combat money laundering, and support African 
efforts to manage its environment and natural resources. Through the 
SSFA program ($5 million), we will continue to enhance airport security 
in order to promote U.S. investment opportunities and combat 
international crime and terrorism. Some $1 million in assistance will 
help strengthen the capabilities of regional organizations in Africa, 
including the African Union, the Southern Africa Development Community 
(SADC), and ECOWAS. ESF will finance initiatives and programs that 
contribute to regional and global economic integration, especially 
programs to open markets and harmonize tariff structures.
    Strengthening the capabilities of key African states to combat 
terrorism is one of our highest priorities. The President announced his 
$100-million East African Counter Terrorism Initiative (EACTI) last 
June, which funds 14 programs designed to train and engage East African 
governments in intelligence sharing, limiting free movement of 
terrorists, augmenting host nation security forces, countering 
extremist influence, and disrupting terrorist financing networks. These 
programs are up and running and build a strong foundation for continued 
U.S. engagement to strengthen our African allies' capacity to fight 
terrorism in the region. Moreover, DA and ESF funds serve our interests 
by promoting the well-being of African citizens and encouraging 
goodwill toward the United States. East Africa's proximity to the 
Arabian peninsula, its large Islamic population, history of terrorist 
attacks, and the failed state of Somalia all underscore credence to the 
necessity of prioritizing this sub-region in our Global War on 
Terrorism. Roughly half of our $22 million request for FMF funds is for 
EACTI countries, which will also receive significant ESF funds in the 
President's 2005 request.
    Economic prosperity is another key U.S. goal in Africa. In FY05, 
the Africa Bureau will continue to encourage African governments to 
pursue economic reforms, establish sovereign credit ratings, and 
develop functioning capital markets in order to enhance growth in the 
private sector. As our trade and commerce with the African region 
expands, it is critical that economic growth on the continent continue 
to grow. The President's FY05 budget reflects the Administration's 
belief that economic growth in Africa is linked to creating 
opportunities for private sector activities and reinforcing successful 
government policies.
    In three years, the African Growth and Opportunity Act (AGOA) has 
helped to create more than 190,000 jobs and $340 million in new 
investment in Africa, while also spurring broader economic reforms and 
building favorable political will among Africans toward the United 
States. AGOA sets high standards for market-based economies and 
progress on democratization and human rights issues. Some 37 countries 
in sub-Saharan Africa were AGOA-eligible for 2004, and we hope more 
will meet eligibility criteria in 2005. The State Department welcomes 
Chairman Lugar's recently introduced legislation to extend AGOA until 
2020, and we look forward to working with Congress to develop the 
specific provisions of that legislation.
    We also welcome Congress's authorization of the Millennium 
Challenge Account, a performance-based program administered by the 
newly formed Millennium Challenge Corporation (MCC). The MCA aims to 
reduce poverty by spurring economic growth. The MCC will provide 
funding to poor countries around the world that have demonstrated their 
commitment to governing justly, investing in their people, and 
encouraging economic freedom. We expect the MCC Board in May of this 
year to identify countries to participate in MCA, and anticipate that 
some African countries will qualify for support. The total FY05 MCC 
request is $2.5 billion.
    Promoting regional stability is one of our top priorities in FY05, 
and this budget request will help advance our diplomatic initiatives in 
Liberia, Sierra Leone, Sudan and elsewhere continue moving those 
countries toward a more promising future. Over the years we have 
learned that regardless of location, in anywhere in the world chaos 
breeds more chaos, and that stability promotes more stability in 
neighboring countries. At the Liberia Reconstruction Conference last 
month, we heard the same message again and again from our allies, UN 
Secretary General Kofi Annan, and Liberia's leaders themselves: 
Liberia's successful transition to peace and democracy depends on 
stability in Guinea, Sierra Leone, and Cote d'Ivoire. Instability 
spills over borders, triggers fighting among African governments, their 
proxy forces, and rebel groups, putting their populations at risk and 
creating millions of refugees and internally displaced persons. 
Problems persist in Africa, with some long-time conflicts simmering 
just below the point of open hostilities, yet refusing to reach a 
peaceful conclusion. Ethiopia and Eritrea, to cite one example, remain 
on the verge of renewing their bloody border dispute, despite the best 
efforts of the international community and African leaders to outline a 
path toward peaceful resolution. We have held numerous meetings with 
Ethiopian and Eritirean representatives in Washington and in the 
region. In addition to our ambassadors pressing each side to meet their 
obligations under the Algiers Agreement, I have traveled personally to 
the region twice to deliver the same message to Ethiopian Primer 
Minister Meles and Eritirean President Isaias. The United States also 
publicly supports the efforts of United Nations Secretary General Annan 
to appoint a Special Envoy to help effect the demarcation of the 
border. Despite these efforts, the situation remains tense and the 
prospects of a durable peace uncertain.
    But elsewhere on the continent, the pieces of stability are slowly 
falling into place. Our work to build peacekeeping capabilities with 
the African Contingency Operations Training and Assistance (ACOTA) 
Program continues. We have requested $15 million to support ACOTA in 
FY05. The nearly $11 million in IMET funds the President has requested 
for sub-Saharan Africa will help us train Africa's armies to handle the 
stewardship of African stability. These funds will help African 
militaries contribute to the democratic evolution of their societies by 
thwarting or not conducting coups and avoiding human rights violations.
    In West Africa, our work with ECOWAS to increase its conflict 
resolution and peacekeeping capabilities has led it to become a key 
player in coping with African crises. ECOWAS troops have been central 
participants in restoring and maintaining order in Sierra Leone, 
Liberia, and Cote d'Ivoire. Nigeria has proven itself to be a very 
helpful partner who is willing to respond to help smooth instability in 
West Africa. A final, comprehensive peace agreement in Sudan is 
agonizingly close, and the instability that emerged in Cote d'Ivoire is 
now largely contained.
    In Central Africa, we have seen significant progress toward 
resolving long-running conflicts in the Democratic Republic of the 
Congo and Burundi. In Congo, despite continuing violence in the east, 
former combatants have come together to establish a transitional 
government of national unity and elections are planned for next year. 
In Burundi, where elections are planned for this fall, the largest 
rebel group has joined the government. Only one rebel group in Burundi 
remains outside of the peace process.
    To continue our work mitigating civil strife and violent conflict 
in Africa, our budget includes funding requests to promote good 
governance, the rule of law, respect for human rights, and increased 
democratization. In FY05 and beyond, the Africa Bureau will work to 
increase the number of states with effective legislatures, independent 
judiciaries, and active civil societies. In our ESF Africa Regional 
Fund, we have requested funding for programs to promote democracy and 
human rights programs in countries that are not included among the 12 
focus countries, including those that currently lack a USAID presence, 
such as The Gambia, Togo, and Niger. These funds also include a request 
for $2-$3 million to increase the capacity of the Rwandan judicial 
system to prosecute genocide cases transferred from the International 
Criminal Tribunal for Rwanda and for investigation and prosecution of 
other crimes against humanity committed in 1994.
    The HIV/AIDS crisis affects Africa like no other region in the 
world today. Of the estimated 40 million people infected with HIV 
worldwide, more than 25 million live in Africa. The President's 
Emergency Plan for AIDS Relief (PEPFAR) is the largest international 
initiative ever dedicated to combat HIV/AIDS-related health issues. The 
Administration released a five-year strategy to implement the Plan on 
Feb. 23 and set out how it intends to achieve the Plan's ambitious 
targets, both in the 15 focus countries, which represent at least 50 
percent of HIV infections worldwide, and in more than 100 countries 
throughout the world. Twelve of these focus countries are in Africa. 
Moreover, the President has requested a total of $2.8 billion in FY 
2005 to combat global HIV/AIDS, tuberculosis and malaria. Of that, the 
Administration has requested $1.45 billion to fund activities in the 
focus countries under the Plan to expand comprehensive and integrated 
prevention, care, and treatment programs. The bulk of those resources 
would be devoted to African countries. Some $1.2 billion would be used 
to continue and strengthen HIV/AIDS, tuberculosis and malaria in many 
other countries throughout Africa and $200 million is requested to 
continue our support to the Global Fund to Fight AIDS, Malaria and TB. 
CSH and DA funds account for more than half of our request for sub-
Saharan Africa-related programs, with $478 million and $499 million 
requested in FY05, respectively.
    The President's budget supports African efforts to promote improved 
health systems, build human capacity in the health field, and work to 
prevent the spread of other infectious diseases. The budget will also 
support efforts to enhance food security, promote broad-based economic 
growth, increase access to basic education, primarily for girls, and 
promote responsible use of natural resources. The centerpieces of the 
FY 2005 DA/CSH program continue to be the four initiatives launched in 
FY 2002--the Initiative to End Hunger in Africa (IEHA), the Trade for 
African Development and Enterprise (TRADE) Initiative, the Congo Basin 
Forest Partnership (CBFP), and the President's Africa Education 
Initiative.
    The FY05 request will help the United States support African 
efforts to protect its rich biological diversity and improve natural 
resource management in areas such as the Congo Basin. Poor conservation 
practices and conflict over resources undermine stability and hamper 
prospects for economic growth. We will use our resources to help Africa 
achieve more sustainable use of natural resources, protect habitats and 
species, promote involvement of all stakeholders in decision-making, 
build local capacity, and create economic opportunities for communities 
that will promote and reinforce conservation efforts.
    Mr. Chairman, I thank you for your and this committee's ongoing 
interest in Africa. I would be pleased to discuss our budget request 
and other issues of concern with you and members of the committee at 
this time.

    Senator Alexander. Thank you.
    Ms. Newman.

      STATEMENT OF HON. CONSTANCE BERRY NEWMAN, ASSISTANT 
                ADMINISTRATOR FOR AFRICA, USAID

    Ms. Newman. Yes, Mr. Chairman, I am most pleased to appear 
here before your committee to discuss the fiscal year 2005 
foreign affairs budget for Africa. Africa's future continues to 
look brighter. That's contra to what is often covered in the 
media, and this can be shown in terms of measurable progress in 
several indicators, economic, political, and social since the 
beginning of the millennium.
    New avenues for growth are emerging. There's greater 
political stability in parts of the continent as lengthy 
conflicts are being resolved, and many of the countries are 
beginning to adjust their priorities to take advantage of 
expanded opportunities.
    What is also worthy of note is the change in the policy 
environment on the continent affecting the region because 
leaders of the region have put forth a New Partnership for 
Africa's Development, NEPAD it's called, which does provide a 
positive framework for good governance as a guiding principle. 
It is a Road Map. There's a key litmus test though for NEPAD, 
and that will be the completion of the peer review, political 
and economic, and the corporate governance. Seventeen countries 
have agreed to take part in this, and the United States 
continues to affirm its endorsement of NEPAD, but we'll be 
watching the impact of this peer-review process.
    The positive trends in my submitted testimony cover 
cessation of major conflicts, spreading of democratic values, 
promising news in the fight against HIV/AIDS, the President's 
initiative, the $15 billion that was mentioned earlier.
    Despite these positive trends, however, sub-Saharan Africa 
continues to face enormous development challenges. It remains 
the world's poorest region, with half of its population of 690 
million living on less than $1 per day. The food security 
situation remains precarious in many parts of the region, and 
as a matter of fact, if the United States had not intervened in 
Ethiopia and southern Africa in the last year and a half, there 
would have been humanitarian disasters there. Education levels, 
particularly for girls, are the worst in the world.
    So while some of the key indicators have improved, we have 
to say that the HIV/AIDS pandemic has compromised the efforts 
to combat other diseases, reduce life expectancy, and has an 
impact on every sector. Major challenges remain as the region 
contains 45 percent global biodiversity, yet has the highest 
rate of deforestation in the world. And it's also true that 
Africa is urbanizing at the highest rate in the world, creating 
new environmental challenges. Finally, conflict and a difficult 
transition to stability in post-conflict states still exact a 
huge toll on politically fragile democracies.
    I'm just going to take my remaining moment to highlight six 
ways in which USAID and this request intend to respond to the 
challenges of the continent, and I will do this in the context 
of the joint Department of State/USAID strategic plan and the 
administration and congressional initiatives that complement 
core programs.
    Initiative to End Hunger in Africa. This 5-year program 
launched in 2002 is designed to harness science and technology, 
to unleash the power of market forces, and to increase small 
holder productivity. It's designed at the local level to stress 
that better quality control, wider access to rural finance, 
stronger producer associations will lead to, can lead to 
greater food security. The request in this budget is for $44.5 
million for that effort.
    The trade initiative, a 4-year, $70 million initiative, is 
promoting U.S.-African business linkages. It's designed to 
inform the governments and the businesses how to alter their 
regulatory environment in order to encourage foreign direct 
investment, in order to encourage a greater trade between 
Africa and the rest of the world. We've established three hubs, 
one in each of the regions, so this request is to help us 
strengthen those hubs so that technical assistance can be 
available to the people on the continent to improve economic 
growth and trade.
    The education initiative, a third initiative of the 
President, is centered on improving the quality of the 
teachers; providing scholarships for girls, 250,000 of them; 
$4.5 million for much-needed textbooks; and training for 
teachers, who unfortunately represent one of the professional 
groups hit the hardest by HIV/AIDS.
    The Congo Basin Forest Partnership, the centerpiece of 
USAID's efforts in the environmental sector in Africa is this 
partnership, 3-year, $53 million effort that I know you know 
about because of your legislation. We are prepared to convince 
you that we're moving steadily into implementing the 
partnership agreement and that already people are beginning to 
feel that the communities and the countries in which the forest 
exist will have a turnaround in terms of protecting the 
environment.
    The fifth is the President's Emergency Plan for AIDS 
Relief, his response to the pandemic, and I won't take time on 
this because the Ambassador has talked about it. The only thing 
I do want to say is that the approach being followed is one 
that has been successful in Uganda, so that there is a great 
emphasis on ``ABC.'' There is evidence to show that prevention 
is key to turning the numbers around so that in every instance 
the programs are stressing abstinence, be faithful, and correct 
and consistent condom use.
    There's also call for voluntary counseling and testing care 
for people living with AIDS, including anti-retroviral therapy, 
and then there are the programs begun under the prevention of 
mother to child transmission, so that the President's 
initiative, which is, as we all know, the largest in the world, 
is designed to follow what has been shown to have worked in the 
past.
    Finally, we have in the budget a request for anti-conflict 
and anti-corruption efforts. There is no question but that 
conflict and corruption have a negative impact on development 
throughout the continent, and unless these activities are 
turned around, unless citizens become more aware, unless 
government is more transparent and the people are held 
accountable for the governments on the continent, all the work 
that we will do will be for nought. So it is in our view that 
this proposal, and probably a number to come, should include 
plans for anti-corruption and anti-conflict activities.
    So I thank you very much and look forward to your 
questions.
    [The prepared statement of Ms. Newman follows:]

             Prepared Statement of Hon. Constance B. Newman

                            Africa Overview

                       THE DEVELOPMENT CHALLENGE

Background
    Mr. Chairman and Members of the Committee, I am pleased to appear 
before your committee to discuss the President's FY 05 foreign affairs 
budget for Africa. Africa's future continues to look brighter as the 
region has achieved measurable progress in improving several important 
indicators of economic, political and social development since the 
beginning of the millennium. New avenues for growth are emerging as key 
countries in the region move toward greater political stability, as 
lengthy conflicts are being resolved, and as many countries continue to 
adjust their policies and priorities to take advantage of expanded 
opportunities created through globalization.
    What happens in Africa is of concern to the United States and our 
engagement addresses U.S. interests. The overarching goals of U.S. 
policy in Africa are to: enhance African capacity to fight terrorism; 
create favorable conditions for U.S. and African trade and business 
opportunities while developing the foundation for sustained growth; 
reduce regional conflicts while increasing capacity to respond to 
contingencies; promote democracy, human rights and good governance; and 
improve the health and well being of Africa's people and environment.
    A change in the policy environment affecting the region is the 
African Union's New Partnership for Africa's Development (NEPAD), 
launched in 2001, that provides a positive framework and good 
governance as a guiding principle for development in Africa. NEPAD is 
deepening its support among African government leaders and its road map 
for African development is gaining wider credibility. A key litmus test 
will be the completion of peer reviews of political, economic and 
corporate governance in those seventeen countries that have now agreed 
to undertake the process. The United States continues to affirm its 
endorsement of NEPAD.
    Of the many positive trends in Africa during the first years of the 
decade, perhaps the most significant has been the cessation of major 
conflicts in Angola, Sierra Leone, Liberia, the Democratic Republic of 
the Congo (DRC), Burundi and Sudan, conflicts that had sapped the 
vitality of much of the continent. As these countries become more 
politically stable, the prospects for increased economic growth and a 
better standard of living for their citizens are much enhanced and 
their recovery will have beneficial repercussions for the entire 
continent.
    The spread of democratic values is also a positive sign for 
improving the living standards of millions of Africans. The rapid 
growth of new communications media and expansion of a free press have 
empowered civil society to hold governments more accountable for their 
actions and made ordinary citizens increasingly aware of their basic 
human rights. Nigeria, Africa's most populous country, took a major 
step forward in 2003 with free elections and the new governments in 
Kenya and Zambia have taken very positive strides to address the 
rampant corruption that had colored the previous administrations. 
According to Freedom House, over the last decade, the number of free 
democracies in Africa has almost tripled from four to 11 and more than 
half of the countries in the region are in the transition process 
toward full and free democracy.
    There is extremely promising news in the fight against HIV/AIDS. 
The President's Emergency Plan for AIDS Relief (PEPFAR), which proposes 
$15 billion over a five-year period for prevention, treatment and care, 
combined with an unprecedented international commitment to increasing 
resources, now offers real hope that serious inroads can be made 
against the spread of HIV/AIDS.
    Several key indicators of economic growth also create room for 
optimism. GDP growth in Africa remained constant at 3.2% between 2001 
and 2002, despite the worldwide economic slowdown, and is projected to 
increase to 3.8% in 2004, higher than all other developing regions 
except East and South Asia. Sub-Saharan Africa had the highest returns 
on net foreign direct investment of any region in the world in 2001.
    Despite these positive trends, sub-Saharan Africa continues to face 
enormous development challenges. It remains the world's poorest region, 
with half of its population of 690 million living on less that $1 per 
day. Of the 32 countries with the lowest levels of human development, 
24 are in sub-Saharan Africa. While economic growth trends in many 
countries are positive, with an overall regional population growth of 
2.4% a year, achieving the Internationally Agreed Development Goal of 
reducing poverty levels by 50% by 2015 will require almost a doubling 
of current rates, to 6% a year. This represents a formidable challenge, 
but it is nonetheless possible, provided encouraging trends continue in 
democratic governance and economic policy reform, conflicts are 
mitigated or resolved, natural and man-made disasters are managed 
effectively, economies diversify from over-dependence on agricultural 
production, trade continues to expand and the spread of the HIV/AIDS 
pandemic is slowed.
    The food security situation remains precarious in many parts of the 
region--only a massive intervention by the international community 
averted a humanitarian disaster in Ethiopia last year and significant 
levels of food assistance were required in much of southern Africa. 
There are early indications that food security may continue to be 
problematic in the southern Africa region this year. Education levels, 
particularly in the rural areas and for girls, remain well below world 
standards and despite the rapid growth of information and 
communications technology (ICT), the digital divide between the region 
and the rest of the world remains vast. While some key indicators of 
health have improved, the HIV/AIDS pandemic in many countries has 
compromised efforts to combat other diseases and has dramatically 
reduced life expectancy. The shrinking labor pool caused by AIDS will 
slow the continent's economic growth by as much as 2% a year. Gender 
inequities, such as access to credit and inheritance rights, remain a 
serious development constraint. Finally, conflict and the difficult 
transition to stability in post conflict states still exact a huge toll 
on politically fragile democracies.
    Meeting these challenges will require redoubled efforts on the part 
of African governments, civil society and the international community 
across a broad spectrum: increasing agricultural productivity; 
preserving the richness and diversity of Africa's natural resources; 
broadening the economic base; improving the competitiveness of African 
products; building human capacity at all levels; expanding ICT 
networks; improving the enabling environment for increased trade and 
investment; curbing the spread of HIV/AIDS, malaria, tuberculosis and 
other infectious diseases; increasing African capacity to deal 
effectively with natural disasters; and improving the transparency and 
accountability of government. USAID will structure its assistance 
programs to take advantage of its inherent strengths in addressing 
these challenges.

                           THE USAID RESPONSE

FY 2005 Program
    The proposed FY 2005 USAID program for sub-Saharan Africa will 
support a broad range of programs which address the most pressing of 
the regions' development challenges. In FY 2005, the Agency proposes to 
invest $1.028 billion in development assistance, child survival and 
health, and PEPFAR funding in Africa, approximately the same as in FY 
2004 ($1.020 billion). The PEPFAR funding will be programmed through 
the Office of the Global AIDS Coordinator at the Department of State. 
USAID anticipates that it will be one of the key implementing agencies 
for PEPFAR. USAID programs in Africa will contribute directly to the 
priorities outlined in the joint State/USAID Strategic Plan for FY 
2004-2009, particularly those which advance sustainable development and 
global interests, including regional stability and counterterrorism. 
The centerpieces of the FY 2005 program continue to be the four 
Presidential Initiatives launched in FY 2002; the Initiative to End 
Hunger in Africa (IEHA), the Trade for African Development and 
Enterprise (TRADE) Initiative, the Congo Basin Forest Partnership, and 
the Africa Education Initiative (AEI), as well as PEPFAR, a five year 
initiative launched in FY 2004. Other key elements of the program 
include the continuation of the African Anti-Corruption Initiative, the 
Africa Conflict Initiative and the Leland Initiative to increase the 
spread of and access to information and communications technology.

Agriculture
    Agriculture is the mainstay of most sub-Saharan economies, 
supporting over 70% of the population and contributing an average of 
over 30% to GDP. Increasing agricultural productivity is therefore 
critical to the region's efforts to achieve food security and to reduce 
poverty levels. Despite the adoption by many countries of policies to 
stimulate rural agricultural-led growth, agricultural yields in Africa 
remain the lowest in the world and per capita food production has 
actually declined to 1980 levels. The major constraints to increasing 
agricultural productivity include low usage of improved technologies 
and information, limited access to credit, inefficient land use, market 
distortions which discourage production, poor rural infrastructure and 
the debilitating effects of the HIV/AIDS pandemic. The flagship of 
USAID efforts in the agriculture sector is the Initiative to End Hunger 
in Africa (IEHA), a five-year program, launched in August 2002, 
designed to harness science and technology and unleash the power of 
market forces to increase small holder productivity. The IEHA 
Initiative will expand from the current three to at least six countries 
in FY 2004. IEHA has made notable advances, including distributing more 
than twenty agricultural technologies from research systems to 
countries in Eastern Africa, through the Association for Strengthening 
Agricultural Research in Eastern and Central Africa. For example, in 
Uganda, more than 3,000 demonstrations of improved rice and maize 
technologies were established, benefiting more than 140,000 small 
holder farmers. In East Africa, the Regional Agricultural Trade 
Intelligence Network was launched, providing real-time price and trade 
information through radio, web and cell phone systems, which reached 
more than 10 million listeners. In livestock trade, nine countries are 
developing harmonized livestock movement permits and common procedures 
for diagnosis and quarantine of livestock diseases. The Regional 
Agricultural Trade Expansion Support Program was established in East 
Africa. And, the Regional Agricultural Market and Trade Information 
System program was established in West Africa. In addition to IEHA, 
bilateral programs at all USAID Missions in the region will implement 
programs to boost agricultural productivity and rural incomes. Programs 
will stress the use of improved technologies, better quality control, 
wider access to rural finance, stronger producer associations, small 
scale rural infrastructure (in conjunction with P.L. 480 Title II 
Programs), increased access to information and improved functioning of 
agricultural markets. Related efforts will be made to promote private 
sector-led diversification of the rural economy, such as agro-
processing, and to increase agricultural exports. At the national 
level, policy dialogue will target changes to provide better incentives 
to farmers and reduce market distortions.

Economic Growth and Trade
    The globalization of the world economy offers Africa genuine 
opportunities to attract resources for development. Through the African 
Growth and Opportunities Act of 2001 (AGOA), the U.S. has shown 
worldwide leadership in efforts to transform African economies through 
increased trade and investment. AGOA is demonstrating ever more 
encouraging results. U.S. total trade with sub-Saharan Africa rose 36% 
in the first half of 2003 over the same period a year earlier and AGOA 
imports during the same period increased by 66% to $6.6 billion. In 
2003, the enactment of AGOA II further expanded trade opportunities and 
the President has recently proposed to extend AGOA up to seven years 
beyond its original expiration date of 2008.
    Sub-Saharan Africa has enormous potential to become a much more 
significant player in the international economy, yet the region 
accounts for just 2% of world trade. Although a number of countries in 
the region have begun to take measures to increase their 
competitiveness, trade is still hampered by systemic constraints such 
as high transaction costs, capacity limitations, poor infrastructure, 
and market distortions. Foreign Direct Investment (FDI) decreased 
dramatically by almost 50% between 2001 and 2002, to $7 billion, due in 
large measure to the global economic downturn, and remained highly 
skewed toward extractive industries in just a few countries. This 
nonetheless represents a modest increase from 2000 and was higher than 
FDI flows to either the Middle East or South Asia.
    USAID's primary response to the challenge of increasing trade and 
investment in the sub-Saharan Africa region and supporting AGOA is the 
Trade for African Development and Enterprise (TRADE) Initiative, 
launched in 2002. This four-year $70 million Initiative, which began 
full-scale implementation in FY 2003 is promoting U.S.-African business 
linkages, expanding the role of trade in poverty reduction strategies, 
and building African capabilities for more sophisticated trade 
analysis. It will also improve the provision of public services 
supporting trade (e.g. customs procedures), strengthen the enabling 
environment for African business and enable African business to take 
even better advantage of opportunities under AGOA. In partnership with 
other U.S. Government Agencies, including the Department of Commerce, 
the Office of the U.S. Trade Representative (USTR) and the Department 
of Agriculture, USAID is providing technical assistance, policy advice, 
economic analysis and training to African countries through three 
``Hubs for Global Competitiveness,'' which became fully operational in 
2003, in east, west and southern Africa. In FY 2005, USAID proposes to 
invest $229 million, or 22% of its program resources in efforts to 
promote economic growth and to support agriculture and trade, including 
$44.5 million for IEHA and $25 million for the TRADE Initiative.

Education
    An educated population is fundamental to sustaining democracy, 
improving health, increasing per capita income and conserving 
environmental resources. Although literacy rates have increased from 
50% in 1990 to 63% in 2001, Africa continues to lag behind the rest of 
the world in investment in its people. Access to formal education has 
risen in most African countries during the past several years, yet 39% 
of boys and 43% of girls still are not enrolled in primary school. 
Drop-out rates remain high, with just 20% of all children completing 
primary school. Educational quality is also poor, with large class 
sizes, significant numbers of poorly qualified teachers, a severe 
shortage of textbooks and teaching aids and inadequate facilities. HIV/
AIDS also continues to decimate the ranks of teachers. Systemic 
education reform is critical if Africa's children are to compete 
successfully in today's world. USAID bilateral programs focus on 
educational policy and systems development, decentralized decision 
making and greater involvement of parents and civil society, with an 
emphasis on basic education, particularly for girls, which has proven 
to yield higher returns.
    USAID's commitment to education in Africa is centered on the 
President's $200 million Africa Education Initiative, launched in FY 
2002. In FY 2004 this initiative will expand to reach students in 23 
countries in sub-Saharan Africa. The initiative will provide 250,000 
scholarships for girls and other vulnerable children, 4.5 million much-
needed textbooks and training for 420,000 teachers over a five-year 
period. This program is 2 years old now. To date, AEI, has upgraded the 
skills of over 50,000 teachers through in-service training programs and 
provided initial teacher training for 11,000 new teachers, and this 
year will provide 650,000 textbooks and 180,000 readers to African 
schools in Benin, Ethiopia, Guinea, and Senegal and deliver 
scholarships to nearly 25,000 girls. In FY 2005, USAID will invest 
about 10% of its program resources available for Africa, or $105.2 
million, in education programs, including $53 million for the Africa 
Education Initiative.

Environment
    Africa has a diverse and abundant natural resource base which if 
prudently managed and protected can contribute to sustainable economic 
growth as well as to worldwide efforts to improve the global 
environment and maintain bio-diversity. Experience has demonstrated 
that community-based natural resource management programs, such as 
those supported by USAID in Madagascar, Guinea and Namibia, have 
successfully preserved valuable environmental assets while extending 
their economic benefits to a broader range of households. For example, 
in Madagascar, 29,000 hectares of natural forest were transferred to 25 
community management associations, and USAID helped establish farmer 
associations in 882 villages where about 26,000 farmers have agreed to 
stop destructive slash and burn farming around critical biodiversity 
habitats. In Namibia, contributions made to the national economy by 
community-based Natural Resource Management enterprises are 
conservatively estimated at $5.5 million, and there has been an 81% 
increase in the number of hectares under conservancy management since 
2002. In Guinea, the national government has devolved the management of 
87,247 hectares in five classified forests to local communities, who 
now share the responsibilities for and the benefits of sustainable 
management of the forests with the Guinean Forest Service. Villagers 
have taken actions to protect these forests, which are important 
watersheds for three major West African rivers. Major challenges remain 
however, as the region contains 45% of global bio-diversity yet has the 
highest rate of deforestation in the world. Africa is also urbanizing 
at the highest rate in the world, creating new environmental 
challenges. By 2016, half of all Africans will reside in urban areas. 
The centerpiece of USAID's efforts in the environmental sector in 
Africa is the Congo Basin Forest Partnership (CBFP), a three-year $53 
million effort, announced at the World Summit on Sustainable 
Development in 2002, to provide a six-country network of national parks 
and protected areas, well managed forestry concessions and assistance 
to communities in the world's second largest tropical forest. Proposed 
funding for USAID's environmental programs in Africa for FY 2005 is 
75.9 million, or 7.3% of total available program funding.

Health
    A healthier population is critical to Africa's efforts to reduce 
poverty and improve living standards. However, during the past decade 
health status gains have been undermined in many countries of the 
region by increasing poverty, civil unrest and the rapid spread of HIV/
AIDS and other infectious diseases, such as tuberculosis (TB), malaria, 
meningitis and cholera. The disease burden in Africa is the highest in 
the world and life expectancy has continued to decline, to less than 50 
in many of the countries most affected by HIV/AIDS. Over 90% of the 
world's 600 million yearly malaria cases occur in Africa and this 
disease alone causes over 2.3 million deaths a year, mostly of young 
children. TB rates have also jumped by 95% between 1995 and 2000. While 
under-five mortality rates are continuing to decline, the rate of 
decrease has slowed over the last decade. AIDS is driving this trend, 
as well as that of the TB increases, and the highest HIV/AIDS 
prevalence countries are seeing an actual increase in their under-five 
mortality rates. Despite progress, immunization rates for children 
under one year are still below 80%, leaving significant numbers 
vulnerable. Malnutrition in children has also increased in many 
countries due largely to conflict and natural disasters, resulting in 
alarming numbers of stunted children in the most affected countries. 
Investment in health systems and basic health interventions has not 
kept pace with need.
    USAID is implementing broad based health interventions in every 
bilateral country program in the sub-Saharan Africa region. USAID 
health programs focus on increasing the availability, effectiveness and 
access to quality health care. Programs address the leading causes of 
child mortality and morbidity, such as malaria, TB, malnutrition, 
respiratory diseases, diarrhea and vaccine-preventable illnesses. USAID 
programs increase immunization coverage, strengthen surveillance and 
build human capacity to provide quality care. Spectacular results from 
Malawi, where sales of treated bed nets to reduce the risk of malaria 
reached almost one million people in 2003, almost a five fold increase 
over 2002, provide a proven model for future programming. Successful 
efforts to create alternative new community based health care financing 
systems, such as those underway in Senegal, Rwanda and Zambia, also 
offer promise to hundreds of thousands of households and provide 
excellent models for replication. As funding levels are clearly linked 
to improved health outcomes, it is expected that new funding from 
USAID, other donors, the Global Alliance for Vaccines and Immunizations 
(GAVI) and the Global Fund to Fight HIV/AIDS, Tuberculosis and Malaria 
will result in more positive trends in the near future. USAID will 
invest 15.5% of its FY 05 program funding available to Africa in health 
and child survival programs.

HIV/AIDS
    The HIV/AIDS pandemic continues to ravage the continent, although 
there are hopeful signs that prevention measures, treatment, and care 
are beginning to slow its spread. Prevalence rates remain extremely 
high in all of southern Africa, reaching 25% in Zimbabwe and almost 40% 
in Swaziland and Botswana. Of the estimated 34-46 million people 
infected by HIV worldwide, 25-28 million reside in sub-Saharan Africa. 
Over 80% are in their productive years and two thirds are female. The 
number of AIDS orphans is expected to rise from 11 million to 40 
million by 2010. Average life expectancy will continue to decline over 
the next decade, falling below 35 in several high prevalence countries, 
significantly impacting prospects for economic growth and further 
straining household incomes. However, the experience of Uganda, where 
infection rates have decreased by 50% from 1997-2001 and promising 
results among certain groups in Zambia and elsewhere demonstrate that 
strong leadership and a comprehensive approach to prevention can be 
effective in stabilizing and/or reducing prevalence rates.
    HIV/AIDS is the single highest health priority for USAID in Africa. 
USG global AIDS activity and policy is coordinated by the newly created 
Office of the U.S. Global AIDS Coordinator at the Department of Sate, 
coordinating the $15 billion, five-year, PEPFAR Initiative. In FY 2005, 
in addition to a substantial increase in PEPFAR funding, programmed 
through the Global AIDS Coordinator, $231 million of Child Survival 
HIV/AIDS funding will be made available for combating HIV/AIDS in 
Africa. USAID anticipates playing a key role in the implementation of 
PEPFAR. USAID Missions will maintain their focus on preventive primary 
health care and expand service coverage, including those for orphans 
and vulnerable children. Programs will build on successful efforts in 
Uganda, Senegal and Zambia. The key approach from Uganda being used for 
PEPFAR is the ``ABC approach'' where ``A'' is for abstinence, ``B'' for 
being faithful, and ``C'' for correct and consistent condom use. Also 
the approach calls for voluntary counseling and testing and care and 
support for persons living with AIDS, including anti-retroviral 
therapy. Programs begun under the Prevention of Mother to Child 
Transmission Initiative will also be expanded. Missions in Africa are 
integrating HIV/AIDS mitigation programs throughout their development 
portfolios.

Population
    With a growth rate of 2.4% a year, the highest in the world, 
Africa's population of 690 million will swell to over one billion by 
2025, despite the effect of the HIV/AIDS crisis. This will place its 
natural resources, public services and social fabric under enormous 
stress and compromise per capita income growth. Though the majority of 
women say they desire fewer children, contraceptive prevalence rates 
remain under 20% in all but five countries and above 50% only in South 
Africa and Zimbabwe. Dramatic increases in contraceptive prevalence 
rates in Botswana and Malawi over the past 15 years, however, offer 
proof that reproductive health programs, such as those supported by 
USAID, can indeed promote behavioral change. USAID Missions support a 
broad range of family planning programs, including public education, 
advocacy and outreach through traditional and community structures, 
community-based distribution and marketing of contraceptives and 
encouragement of sound child spacing practices.
    For FY 2005, USAID is proposing $536.8 million in overall funding 
for all child survival and health accounts, including HIV/AIDS and 
population, or 51.8% of its total available program funding.

Democracy, Conflict and Humanitarian Assistance
    Routine accountability in government, observance of the rule of law 
and respect for human rights mitigate against civil strife and violent 
conflict. They are also critical to equitable economic development. 
Good governance, coupled with improved economic well-being and better 
social services, also diminish the appeal of extremist ideologies and 
terrorist agendas. The past year has witnessed a series of extremely 
positive achievements in conflict resolution with the restoration of 
peace in Liberia, Sudan, the DRC, and with the continued progress of 
reconciliation in Angola and Sierra Leone after years of bitter strife. 
The United States has played a seminal role in international efforts to 
assist these processes. However, the conflict in the Cote d'Ivoire and 
the continuing instability in northern Uganda are reminders that peace 
is fragile. Through the Conflict and Peace Building Fund, begun in 
2003, USAID is implementing a multi-faceted approach to strengthen 
African capacity to manage and mitigate conflict.
    Democratic governance and improved governmental accountability have 
continued to expand throughout the region. A major milestone was met in 
Nigeria, when for the first time in its history a civilian government 
successfully and relatively peacefully transferred power to a 
succeeding civilian government. In addition, over the past five years, 
Ghana, Senegal, Kenya, Mauritius, South Africa, and Botswana have held 
free and fair elections. Since the Kenya elections in late 2002, the 
new government has moved aggressively to address the corruption issue 
and taken several concrete steps to improve the transparency and 
accountability of the public sector. Zimbabwe has unfortunately 
continued to be a problem with increasing disrespect for the rule of 
law and for human rights.
    USAID's efforts to improve democratic governance and promote 
increased accountability advance the national security goal of creating 
the conditions for peace and improved security. In the DRC, USAID 
assistance for a national workshop of civil society delegates for the 
Inter-Congolese Dialogue resulted in the drafting of a unified position 
paper for civil society. This paper identified issues including power-
sharing, elections, constituting a new army, police and public order 
matters, social and financial reconstruction issues, and peace and 
national reconciliation. Members of the opposition and civil society 
are now sharing four vice-presidential positions and other key 
government posts in a transitional government.
    USAID programs promote representative political processes, free and 
fair elections, the strengthening of democratic institutions, the rule 
of law, the growth of a vibrant civil society, the decentralization of 
governmental functions, improved accountability of the public and 
private sectors and the respect for human rights. USAID assistance 
increased civil society's capacity to lobby for reforms and to monitor 
government, leading directly to peaceful, free and fair elections in 
December 2002 in Kenya. In Ghana, USAID assistance has enhanced the 
interaction between civil society and local government and broadened 
public input to decision-making. Electricity, water, telephone 
services, judicial corruption, and health have been discussed in 
Parliament and have seen widespread interest from Ghanaian citizenry. 
Public hearings on judicial corruption were attended by more than one 
thousand people.
    Many USAID Missions have integrated the principles of transparency, 
participation and accountability throughout their development 
portfolios. Twelve Missions are participating in the Anti-Corruption 
Initiative, launched in FY 2003, which promotes public access to 
information, citizen awareness and advocacy, transparency and 
accountability of government procedures and public-private dialogue. In 
FY 2005, USAID will extend its efforts to manage and mitigate conflict, 
promote community reintegration and strengthen African networks to 
identify and respond to potential crises. In FY 2005, USAID will invest 
$89.5 million, or 8.7% of its program resources available to Africa, in 
efforts to strengthen democracy and governance.
    USAID's humanitarian assistance programs have been vital to 
international efforts to mitigate the effects of several natural 
disasters during the past year, the most severe being in Ethiopia and 
parts of southern Africa. Humanitarian assistance programs have also 
been critical to post conflict recovery in several countries, including 
the DRC, Sudan, Liberia and Burundi. USAID Missions will continue to 
strengthen their linkages with the Office of Foreign Disaster 
Assistance (OFDA) and the Office of Transition Initiatives (OTI) to 
better prepare for the relief-to-development transition in countries 
under stress.

Millennium Challenge Account
    The President has recently signed into law the Millennium Challenge 
Account Act, which provides the authorization for the MCA and $1 
billion in appropriations for FY 2004. In FY 2005, the Administration 
has requested $2.5 billion for the MCA. The MCA will be administered by 
the newly formed Millennium Challenge Corporation (MCC), an independent 
U.S. Government Corporation and will provide development assistance for 
selected poor countries that demonstrate a commitment to governing 
justly, investing in people, and encouraging economic freedom. It is 
anticipated that some African countries will qualify for participation. 
The legislation also provides for up to 10 percent of the MCA funds is 
authorized to be made available to countries that demonstrate a 
commitment to the criteria but fail to meet the full requirements for 
MCA eligibility so that they may become eligible in the future (so-
called ``threshold'' countries). Also, the MCA Act states that this 
assistance may be provided through USAID.
    USAID's relationship to the MCA is evolving. The USAID 
Administrator is one of nine MCC Board Members. At a minimum, in 
approving MCA proposals for assistance, the MCC will consult with 
Congress, USAID and other donors. USAID also may play a constructive 
role in assisting the threshold countries to qualify for MCA in future 
years.

Global Development Alliance--Public-Private Alliances
    Public-private alliances enable USAID to enhance the impact of its 
programs by mobilizing the ideas, efforts, and resources of the private 
sector with those of the public sector and non-governmental 
organizations. In FY 2003, USAID created 41 public-private alliances 
through 15 bilateral missions and all three regional programs in sub-
Saharan Africa. USAID missions leveraged $37.5 million of their own 
resources to generate $135 million from its partners. Alliances were 
created in almost every sector of development, including health, 
agriculture, the environment, education, information technology and 
small enterprise development. A major new alliance brings together 
Shell Oil with USAID in a $20 million effort to spur agricultural 
growth in Nigeria.

Debt Issues
    With the advent of real reductions in external debt resulting from 
the international Heavily Indebted Poor Countries (HIPC) Initiative, 
the overall debt picture in sub-Saharan Africa has begun to brighten 
appreciably. The continent's total debt service ratio (debt as a 
percentage of exports of goods and services) has fallen from 13.9% in 
1999 to 10.7% in 2002, well below the critical 15% mark that is 
generally viewed as unsustainable. The debt service savings enable the 
30 African countries benefiting from HIPC debt relief to free up public 
resources for other priority sectors, such as education and health.

Other Donors
    The United States remains the largest bilateral provider of 
Official Development Assistance (ODA) to sub-Saharan Africa in 2002. 
The United Kingdom, France and Japan follow as the other major 
bilaterals. The largest ODA levels continue to be provided through the 
multilateral organizations, primarily the World Bank group, which lends 
almost exclusively in Africa through its concessional International 
Development Association (IDA) window. The European Union, the African 
Development Bank and the various U.N. agencies are also significant 
multilateral donors in the region. The United States has become an 
active participant in discussions to better harmonize ODA procedures 
and policies among the donor organizations.

                   PROGRAM AND MANAGEMENT CHALLENGES

Security Issues
    Security remains an ever-increasing concern at most USAID missions 
in Africa. Five of 23 bilateral missions exist in critical or high-
threat security situations. Missions continue to take steps to improve 
security within the limits of available funding. USAID missions are 
required to co-locate with new embassies as they are being built.

Staffing and Operating Expenses
    Using the Agency-wide ``workforce template'' as a base, the Africa 
region has developed a plan to make the best use of its human 
resources. Overseas direct-hire field staff levels will be at 227 in FY 
2005, including nine new HIV/AIDS professionals. The Africa Bureau will 
continue to look at re-deploying staff among Missions over the next two 
years to maximize performance. In 2003 a new Mission was established 
for Sudan, based in Nairobi, but may move to Sudan as conditions 
improve. USAID also established a presence in Djibouti last year and is 
in the planning stages of establishing a USAID Representative Office in 
Sierra Leone.

    Senator Alexander. Thank you very much. Now, we're in the 
midst of three more votes, and I'm going to ask Matt to let me 
know when I need to leave to go vote but I can go right up and 
vote and come right back. Let me go through several areas and 
just ask both of you, and let's start with the HIV/AIDS that 
you were talking about. Most of that we can talk to Ambassador 
Tobias about when he comes around, but Senator Frist led a 
group of six of us to sub-Saharan Africa last August, which was 
a good educational tour, in four countries, South Africa, 
Mozambique, Botswana, and Namibia.
    One of the things that we saw was that we have a reassuring 
number of very talented U.S. Government people already on the 
ground who have been there for a while. They may be USAID or 
they may be from the Centers for Disease Control and Prevention 
but they're there and they know what they're talking about and 
they're able to help.
    But everywhere we went the greatest need seemed to be for 
infrastructure, for we all focus on cost of drugs and the 
availability of drugs, but the greatest need seemed to be on 
the people who could come and fit within a structure and 
provide the counseling, provide the nursing, train the doctors, 
train the medical people.
    And when I came back we talked about an AIDS Corps idea, 
the idea of tapping the great volunteer spirit of the United 
States and trying to find an effective and easy way to funnel 
that too toward the HIV/AIDS priority. We talked about whether 
to try to do it through the government, which usually is 
complicated, or whether just to encourage the private sector to 
do it, which sometimes can get it done pretty fast. We 
uncovered in the White House an existing program or two that 
sounded like it might fit into this and I talked to the Peace 
Corps director about it.
    So my question is, can you report anything about progress 
toward finding a way to help Americans who want to help in sub-
Saharan Africa with HIV/AIDS, an easy way for them to plug in 
or to volunteer and to go and be of some help?
    Ms. Newman. Part of the challenge in addressing HIV/AIDS, 
as you said, has to do with the weak, fragile, sometimes non-
existent health care systems, and therefore there is dependence 
on expatriate organizations. But many of these organizations 
are recognizing it is important to build local capacity. In 
doing so, the existing organizations are not going to be able 
to do it with the limited resources that they have, so that if 
there were a way to plug volunteers into the system, I think it 
would be an excellent idea.
    I was the director of VISTA at one time, and I will give 
one major caution, it's something that I found at the time 
weakened the volunteer effort. If the organization or the 
people to whom the volunteers are assigned don't have a clear 
understanding of what they want the volunteers to do and are 
not able to provide the proper direction in support, you lose 
the ability to get the very good volunteers and for them to 
make a difference. I would say that if something like this were 
to be done, the volunteers should first be assigned to 
organizations or to governments for whom there is already 
information that they're strong enough to manage the 
volunteers.
    Senator Alexander. Well, my question really is, is that 
already going on? Do we have something going on in the 
government right now?
    Ms. Newman. Peace Corps is doing some work, but not to a 
major extent. Now there's a new volunteer program within USAID 
to help just generally volunteers in development activity. It 
could be attached to that or it could be attached to Peace 
Corps. And I would encourage your talking with the Peace Corps 
director, I would encourage that. But the health care systems 
are a challenge. You know, Senator Frist does a great deal and 
has done it for quite some time of volunteering in health care 
systems in Africa.
    Senator Alexander. We just saw lots of institutions who 
said they could use the volunteers and we didn't know the kinds 
of structures that you mentioned and it looked to me like it 
was a matter of identifying them and connecting them with those 
institutions.
    Mr. Yamamoto, do you have anything to add?
    Mr. Yamamoto. I think another aspect is really, given the 
spirit in the United States, is interlink between NGO groups 
and others in Africa working. What we have done, let's say in 
East Africa and some areas, for instance, in Kenya there is an 
AIDS orphanage operated by a Catholic organization. They come 
to the United States, raise awareness, and collect funding and 
materials. And one of the big problems that we found in Uganda, 
and please correct me, is the issue of financing and taking 
their retroviral drugs, which are very, very expensive, so the 
thing right now is the financing, is the major issue. And, of 
course, these interlinks with the United States and groups in 
the United States really help.
    Senator Alexander. We had a hearing on public diplomacy 
last week in this committee and there was a good deal of hand-
wringing about how around the world the United States is not 
very well understood. Is it your sense that in Africa, sub-
Saharan Africa, Africans understand what the President and the 
country is trying to do with HIV/AIDS and appreciate it, or is 
it not understood, or is it resented? How would you assess 
that?
    Ms. Newman. I spend a great deal of time on the continent 
and I was a part of Secretary Thompson's trip, and I think that 
Africans understand what the United States has done and is 
doing. I hear very positive things about the fact that not only 
has the United States stepped up to the plate, but the United 
States is a leader attempting to convince the rest of the world 
to do much more in HIV/AIDS.
    The fact that Secretary Thompson is the chair now of the 
fund gives the United States even a greater role and a greater 
opportunity for others to see what it is that the United States 
does.
    I do not note negative views of the United States on the 
continent of Africa. It's very interesting. I think that, you 
know, the people wish the United States would do more, not just 
in HIV/AIDS, but in other ways. But the most negative 
comments--I probably shouldn't say this--the most negative 
comments have to do with some of our trade policies and 
subsidies, but in terms of what we do with health and 
education, it's very positive feedback.
    Senator Alexander. Mr. Yamamoto.
    Mr. Yamamoto. Interestingly, you know, in Africa, we have 
now 16 countries where Muslims are a majority, and that means 
43 percent of the entire population in Africa are Muslim, and 
if you--considering the contents of the world, 27 percent of 
all Muslims live in Africa. In the issues that there is an 
outreach to try to find ways to--simple things from improved 
child education, health care. For instance, Djibouti, where we 
have 96 percent of the population is Muslim, is one of the most 
proactive supporters of the United States. It's also the base 
of the only U.S. military camp in Africa.
    But the issue comes in--as on HIV/AIDS, there's a lot of 
misunderstanding, and those are issues that we need to interact 
with local communities to overturn a lot of prejudices, 
misinformation, and to work with these communities. And in all 
these communities there is a desire to interact with the United 
States and other countries to help, you know, fight not only 
HIV/AIDS, malaria, but others, illiteracy, poverty.
    Senator Alexander. One other question on HIV/AIDS. We 
Senators were impressed, although some knew it already, Dr. 
Frist, for example, that a byproduct of spending that much 
money on HIV/AIDS in Africa will be to create a lot more clean 
water in Africa for a lot more people, and I wonder if you were 
thinking about it that way. We were all very impressed with how 
relatively inexpensive it was to help people have clean water 
and how much it did to help relieve disease and death, not just 
HIV/AIDS, but malaria and other diseases.
    And I wonder if you and Ambassador Tobias would be keeping 
track over the next 5 or 10 years of how our involvement with 
HIV/AIDS and our other programs might actually move us along 
the track to helping more Africans have clean water to use?
    Ms. Newman. I did note on our trip with Secretary Thompson 
many of the HIV/AIDS projects that were funded by the U.S. 
Government included clean water as part of the project, but not 
all HIV/AIDS projects include water or nutrition as part of the 
project, and they should. And this last fiscal year, began 
discussions with the Water Alliance for projects in Ethiopia 
and we're talking with them about other projects. So that the 
point is that, yes, to a certain extent it will happen as a 
result of HIV/AIDS programming. I think we're also going to 
have to be more aggressive and put more seed money into water 
projects in order to expand the opportunity of people on the 
continent to clean water. And we all know that really is key, 
one of the keys to good health.
    Senator Alexander. OK. We have about 6 minutes left in the 
first vote, so what I'm going to do is ask one more--well, I'll 
ask the question and then I'll recess----
    Ms. Newman. And then you'll leave.
    Senator Alexander [continuing]. The hearing. And what I'm 
going to do is go up and cast this vote and then stay and cast 
the second vote because my name starts with an ``A'' and I can 
get out of there fast, so that will give us less interruption. 
But what I'd like to explore next is your comments about 
conservation. You mentioned the Congo Basin Forest Partnership, 
and I know that's a priority of the Secretary and of the 
President, and I think of it as not just an environmental 
program. I think of it as a way for African nations to identify 
something that is special about themselves and then create 
institutions and structures to celebrate that and to preserve 
it and to be proud of it, and in doing so, find ways to work 
together on other things.
    I think successful towns and cities and countries usually 
do that. You know, in Nashville it might be music and in 
northern California it might be wine and in Italy it might be 
art and in Africa it might be the great outdoors and the 
unusual environment, but any nation or country that rallies 
itself to celebrate what makes it special usually is a fairly 
successful place.
    So I'm thinking, quite aside from all the environmental 
benefits, I'm thinking of it that way, and I'd be interested in 
your comments when I come back about how this budget advances 
the administration's priority on helping African countries use 
conservation, not just for environmental purposes but for 
really nation building and building stronger structures and 
stronger countries.
    We'll recess for about 10 minutes.
    [Recess from 2:35 p.m. to 2:50 p.m.]
    Senator Alexander [presiding]. The hearing will resume. My 
strategy didn't exactly work. I got one vote in but the other 
one will come after 3, and I believe the next segment of our 
hearing starts at 3, so let's take 5 minutes or so on 
conservation and 5 minutes on Liberia. And who wants to start 
on the conservation question?
    Ms. Newman. I think, Senator, that there are two examples 
of programs funded by USAID that begin to do what you are 
suggesting, which is going beyond protection of the environment 
into involving the people in the management of the resources in 
a way that improves their livelihood and improves the quality 
of their lives.
    The first example is the one in the Congo Basin. Even 
though the partnership just started, a program has been going 
on there for some time. What has happened is that the people 
living in the area have become much more interested in managing 
the bush meat problem. People have become much more interested 
in engaging in protection of the land, understanding that they 
have an opportunity for more income, and that is part of that 
program.
    Now, on the partnership of the eleven landscape effort will 
also include the people, although they won't be actually on the 
land themselves. Namibia, on the other hand, has people 
actually on the land, it's communal land, and that has been 
going for quite some time, to the point that people have been 
able to measure an increase in animals coming back into the 
area, which also increases tourism. There's greater income and 
training in natural resource management that is often done in 
cooperation with how to do this. What has happened is that the 
protection of the environment is, as you suggest, only part of 
what is attempted to be accomplished in these projects, and 
actually the environment is probably not going to be that 
protected if the people themselves are not a part of it and 
don't understand the direct benefit.
    That has to be an effective part of these programs.
    We're wanting to extend our experiences in these two 
regions to other parts of the continent.
    Senator Alexander. Mr. Yamamoto.
    Mr. Yamamoto. Another aspect to the environmental issue is 
that it establishes mechanisms and ways to avoid and to 
minimize conflict. One of the examples that we have is the 
transborder cooperation, the so-called four corners, which 
involve Botswana, Namibia, Zambia, and Zimbabwe, to support 
sustainable economic growth.
    When you have power in local communities and you do so not 
only within one nation but within a multiple of nations, it 
creates mechanisms whereby you have dialog. And as you know, 
the Congo, one of the root causes for a lot of the conflict is 
their resources, and if we had, you know, the transborder 
dialogs, we had the local communities empowered, it could 
minimize and in many ways help support conflict resolution.
    Senator Alexander. Well, I'd like to keep a particular eye 
on that, and during my visit in August, and maybe in the Congo, 
maybe in Namibia would sound like two good places to go. I saw 
something of what USAID was doing in Namibia when I was there 
last August, I mean I heard about it but I didn't get to see 
it.
    Let me switch to Liberia now. Liberia to me is an 
especially interesting example in the way we weren't going to 
be nation building and suddenly we are, in Afghanistan and 
Iraq, and in a sense Liberia, but all with very different 
experiences. We appropriated $200 million there and we're all 
delighted to see that $500 million was pledged in the donors' 
conference.
    Are we measuring our progress? Do we have a way to 
benchmark our progress in Liberia? How much more money are we 
going to be asked for for Liberia in this next year? As I say 
benchmark, the New York Times had recently a benchmark for 
Iraq, and it was simple enough that you could read it. It might 
not have been everybody in the administration's favorite list 
of indicators, but it said, security indicators, 55 top 
Ba'athists at large, April, July, October, January, we went 
from 40 to 18 to 15 to 12.
    So I think one of the issues that we have when we're in 
war, we have daily briefings and everybody sees the objectives 
and sees the progress toward the objectives. When we're winning 
the peace, we forget that most taxpayers and Senators and 
others would like to see clear indicators of what our 
objectives are and what our progress is toward the objectives, 
so how are we doing in Liberia? What are our objectives and 
what progress are we making toward our goals?
    Mr. Yamamoto. We've met our first major objective, which is 
to get Charles Taylor out of Liberia, and given the deep, rich, 
and historic connections we have with Liberia, that commitment, 
we tried to stabilize the nation and also to develop economic 
development in that country is in our national interest and 
also for the region.
    When you ask do we have benchmarks? Yes, we do. We have 
ways to gauge development and progress. Right now the first 
part is to get Charles Taylor out. Next is international 
community support. The next step, of course, is to move forward 
on DDR, disarmament, demobilization, and reintegration. That's 
to begin again in mid-March we hope.
    The other issue is that with the other $200 million, $114 
million already has Presidential determination, and we have 
various CNs now up to Capitol Hill, but those will set the 
basis and lay the ground work for creating structures and 
moving forward on economic developments and progress in 
Liberia.
    Senator Alexander. Yes, but this gets it down a lot 
further--average daily tax on troops, accuracy of intelligence 
tips, number of security forces, number of troops, number of 
other coalition troops. Do we have objectives and benchmarks 
for winning the peace is what I'm trying to get at.
    Ms. Newman. May I just say that there have been series of 
meetings and involvement of all of the donors in determining 
which objectives are measurable. The resources will not flow to 
Liberia without their being able to assure the donors that 
they, along with the donors, are going to measure the 
effectiveness. I think that----
    Senator Alexander. Well, the effectiveness of what?
    Ms. Newman. The effectiveness--let's just take the 
different activities. Let's say one is that there will be 
agriculture and food for work activities. So then you decide 
what are the best measures for that, not just input, but impact 
measures, and we have a tendency to look solely at input. But--
--
    Senator Alexander. So I guess you're saying we don't have 
any objectives or measurements yet?
    Ms. Newman. We are working on them. If I took each of the 
activities, I could tell you, for example, the Liberian 
community infrastructure project, could tell you what it is 
that people propose to do and how you normally measure that 
type of infrastructure project. Each one of the initiatives now 
requires that we not only measure the effectiveness, but it be 
a transparent process that is available to the public, not just 
to Congress----
    Senator Alexander. Well, excuse me, if I may say, all I'm 
asking is what are those objectives and what are the benchmarks 
and how are we doing?
    Ms. Newman. The money is just now flowing.
    Senator Alexander. Well, it shouldn't flow before there are 
objectives?
    Ms. Newman. We will come to you with each of the sections 
of our proposal, and what the objectives are. We will do that 
because that is the only way we're going to feel satisfied that 
the money will be well-spent.
    Senator Alexander. Well, thank you.
    Ms. Newman. And I will add that it's not just the donors 
who are concerned about it. The Government of Liberia is now 
putting into place a monitoring and evaluation program and they 
are seeking technical assistance on how to go about doing that.
    Senator Alexander. Do you anticipate we'll be asked to 
incorporate more money for Liberia in the next year?
    Ms. Newman. I don't think beyond the $200 million, until we 
are all satisfied of the impact of this money, that there will 
be a request from USAID for additional money, because it's not 
just our $200 million. As you mentioned at the outset, the 
world has come up with $500 million and we have to manage that 
properly. We have to measure it, and before more resources flow 
and more requests are made, I think we ought to know much more 
about what impact this has had.
    Mr. Yamamoto. And, Senator, just one point to add too is, 
having gone to Liberia and spoken with Gyude Bryant during his 
inauguration is we have, not only a leader but a government 
which is extremely supportive of the United States, and to try 
to balance his needs, his desires, his goals and objectives 
with what we're trying to achieve as well with the 
international community. And so right now you have a tremendous 
amount of goodwill and support on both sides.
    Senator Alexander. I'm informed the 2005 budget does 
request $30 million more for Liberia, but here's what I would 
like to suggest on any future hearing about Liberia or any 
other place we want to spend money. What I'd like to know is, 
if we're going to spend money, or since we've already 
appropriated $200 million and others are spending $500 million 
with us in a lead position, it would help me if we could say 
our objectives in Liberia are 1, 2, 3, 4, 5, and here are the 
indicators of our progress toward those objectives. If one of 
the indicators of progress is the number of schools reopened 
April, July, October, January, I'd like to know what that is. 
Child immunization rate, if that has anything to do with what 
we're trying to do, I'd like to know what that is.
    And I think most Members of Congress would and most 
taxpayers would, and my suggestion is, on any of these programs 
where the U.S. Government and taxpayers are asked to fund 
winning the peace in far-away places, it will build support for 
those objectives if, when asked about it, if our government can 
say, yes, we have objectives for winning the peace that are as 
clear as winning the war, here are the objectives, here are the 
indicators, and here is the progress we're making toward those 
goals. And it may not all be good news, but at least we'll know 
we have a plan.
    And I would recommend whoever wrote this for the New York 
Times is a good adviser on how to write one. The Defense 
Department has been working on such a thing for the Iraq war, 
but it's not as good as this. I gave this to Secretary Rumsfeld 
as an example of what I thought could be done. This kind of 
thing tends to focus oil production, 0, 9, 2, 4, megawatts of 
electricity, 3, 3,200, 3,900, 3,600, and that's the kind of 
thing that would be helpful.
    Ms. Newman. May I make a commitment?
    Senator Alexander. Yes.
    Ms. Newman. There is a conference in Liberia to develop an 
action plan and the action plan is being put together with the 
other donors where there will be measures. And what we will do 
then, once that action plan is put together, ensure that copies 
are here, because I know you are interested in our--doing it 
for ourselves, but we will inform you and the staff of the type 
way in which we plan to measure this.
    Senator Alexander. Thank you very much, Ms. Newman. And I 
do understand that a plan is likely to be more effective for 
Liberia if Liberians make the plan. The Marshall Plan was a 
plan adopted, we named the plan, but it was a plan really 
developed by the recipient countries, but still, I think they 
should be told that the people who are sending $700 million 
would like to have some way of measuring progress toward goals 
so that we can make adjustments.
    I want to thank the two of you for coming today and 
apologize for that interruption caused by the vote. I'll look 
forward to our next visit and I hope if you have issues or 
questions along the way about Africa, you'll get in touch with 
me or with our staff. Thank you very much.
    Ms. Newman. Thank you.
    [Recess from 3:05 p.m. to 3:22 p.m.]

               OPENING STATEMENT OF SENATOR GEORGE ALLEN

    Senator Allen [presiding]. I call this hearing of the 
European Affairs Subcommittee to order. The purpose of this 
afternoon's hearing is to examine the Bush administration's 
foreign assistance budget request for Europe and Eurasia. Thank 
you all for being here. You understand we're having votes, so 
thank goodness we have this room in the Capitol to hold this 
hearing.
    Providing testimony for us today on the administration's 
foreign assistance priorities and objectives are Beth Jones, 
the Assistant Secretary for Europe and Eurasian Affairs at the 
Department of State and Kent Hill, the U.S. Agency for 
International Development's Assistant Administrator. Welcome to 
both of you, and we look forward to your testimony.
    Let me make a few remarks and then we'll hear from you 
first, Ms. Jones. When analyzing the current concerns in Europe 
and the policies that are needed to implement the best 
interests of the United States vis-a-vis our friends in Europe 
and emerging democracies in Europe, I believe there should be a 
strong focus on the emerging democracies in the southeastern 
part of Europe and the countries of Eurasia.
    Most of Europe is well-settled and prospering, as democracy 
has been there for centuries. There are others where democracy 
is just taking root, particularly in southeastern Europe, and 
there still remain challenges that we're facing and the people 
there are facing.
    Now we have, as we all know, tight budgets. When you have 
tight budgets, you have to make priorities. The focus in my 
view ought to be foreign assistance programs where you're going 
to get the best bang for the buck.
    Analyzing our programs in Europe I think is very sensible. 
It's a continent generally speaking where there's great 
symmetry between their sentiments, their philosophy and that of 
the United States in principles as well as specific tactical 
policies. Our friends in most of Europe enjoy relatively strong 
economies with stable governments that ensure the rule of law 
and equality of their citizenry.
    With these limited resources, I think the United States 
ought to be focusing or should focus on those European states 
that appear trending away from democratic governance and market 
reforms. With concerns about the rates of corruption, organized 
crime, and political unrest high among the states in the 
Balkans and the former Soviet Union, I think it's in the 
interests of the United States to promote grassroots 
democratization and sound governance programs as well as 
economic initiatives that strengthen capitalism, boost trade 
and investment, all within the rule of law, which I think is 
absolutely key for the people as well as investment and 
stability in those countries. Rule of law is not just mindless 
adherence to law, but it is a fundamental framework for 
protecting individual rights, protecting property, having a 
stability and an understanding that there will be fair 
adjudication of disputes, thereby making it a more likely place 
to entice investment into those areas for the jobs and 
prosperity that flow therefrom.
    Now, as this subcommittee learned in October of last year, 
transnational crime and corruption is a problem throughout 
Europe, but it has a significant impact on this country. It's 
not over there, across the Atlantic Ocean. Trade in persons, 
narcotics trafficking, the proliferation of weapons all 
compromise the security of the United States and our allies, 
and it also often can line the pockets of those opposing our 
reform efforts in Europe and around the world.
    Renewing our commitment to southeastern Europe is, in my 
view, in the interests of the United States. And even as 
economic circumstances have forced us to be more frugal in our 
assistance, I do believe a continued diplomatic and strategic 
foreign assistance campaign in the troubled nations of 
southeastern Europe will yield positive results and will 
provide both short- and long-term benefits to both Europe and 
the United States.
    Insofar as Eurasia is concerned, the states of Eurasia 
continue to represent an area of concern for the United States 
in our foreign policy, from concerns with democratic reform in 
Russia to political upheaval in Georgia to continued 
hostilities between Armenia and Azerbaijan, our government, I 
believe, must carefully consider the implications of our 
policies.
    Democratic and economic reform has occurred, in fits and 
starts in many of these countries, and our mission must be to 
strongly advocate for and assist in realizing consistent 
credible progress. I do have a particular concern and I think 
it probably will be shared by most of my colleagues in how the 
administration's budget request would provide dramatically 
different amounts of foreign assistance to Armenia and 
Azerbaijan. Requesting $8.7 million in military assistance for 
Azerbaijan and only $2.7 million for Armenia sends a 
questionable message and could threaten to undermine progress 
that has been made finding peace between two countries and 
bringing stability to that region.
    The relations between Azerbaijan and Armenia continue to be 
tenuous at best even with a fragile cease-fire in place. And so 
by placing the needs of one much higher than that of the other, 
the United States could be construed to be taking sides, which 
I know we don't want to do, in this ongoing dispute between 
these two countries. I don't want this perception to provide 
any incentive for either side to walk away from the negotiating 
table, which clearly is not in the interest of the Caucasus and 
clearly not in the interest of the United States.
    So that's an issue of importance I know to myself. I'll 
speak for myself but I think I do speak for other members of 
the committee as well, and I hope our witnesses will address 
this concern during this hearing.
    Let me just close by saying that we view the progress with 
Europe, the progress in the last 60 years with Europe as an 
example of the best of engagement. If you look at the last 60 
years, it's an example that's always given for the United 
States to be involved. Europe is growing and freedom's growing 
in Europe. It's great that there are new countries from central 
Europe joining in.
    There are some fits and starts obviously in the former 
Soviet Republic, in Georgia and Ukraine and Belarus, countries 
with different problems in different areas. However, freedom is 
on the march in Europe. It's spreading eastward. It's good for 
the people, it's good for our security, and where the roots 
have not taken hold is where you want to apply the fertilizer 
so to speak or the assistance or the proper care to weed out 
the corruption or any of the negative influences in those 
countries. I wish every continent was in as good a shape as 
Europe where freedom is clearly on the march, but more work has 
to be done and we look forward to hearing from our witnesses 
here today.
    I may have to break for a vote, and so if you'll all bear 
with me, rather than wait for us to stop voting we want to move 
forward. So I thank both our witnesses. Thank you for your 
dedication, your determination, for being here, and so we'd 
like to hear first from Secretary Jones on your views.

   STATEMENT OF HON. ELIZABETH JONES, ASSISTANT SECRETARY OF 
 STATE, BUREAU OF EUROPE AND EURASIAN AFFAIRS, U.S. DEPARTMENT 
                            OF STATE

    Ms. Jones. Thank you. Thank you, Mr. Chairman, for inviting 
us here today. I couldn't agree with you more that engagement 
is exactly what we do the best and we accomplish a tremendous 
amount through that. We think that American security and 
development assistance is a key tool, it's an important tool. 
It is the way we achieve many of our foreign policy goals in 
Europe and Eurasia.
    For fiscal year 2004, our request is $1.03 billion in 
Freedom Support Act money and SEED. It is $220 million for FMF 
and IMET and we very, very much appreciate your support, Mr. 
Chairman, and the support of Congress in appropriating this 
money for us.
    We believe that in the Bureau of European and Eurasian 
Affairs we have a very tight link between foreign policy 
objectives and our assistance programs. Furthermore, we are 
very proud of the excellent collaborate relationship we have 
with USAID represented here by Dr. Kent Hill. We actually think 
that our region is a model for the partnership between State 
and USAID that Secretary Powell has been promoting.
    The primary message that I bring today to this hearing is 
that the money we've invested in foreign assistance in Europe 
and Eurasia is paying big dividends very much along the lines 
that you have already mentioned. But we do have work to do and 
challenges to overcome.
    To begin with, most of the countries of Central and Eastern 
Europe and the former Soviet Union are valued partners in the 
global war on terrorism. Of the 27 transition countries, all of 
which have received substantial assistance since the early 
1990s, 24 are active supporters of Operation Enduring Freedom 
and OIF. Three of the central Asian countries actually provide 
basing for our troops.
    Military assistance has also helped these countries to 
contribute to peacekeeping in the Balkans and has facilitated 
NATO enlargement. There's a tremendous success story that can 
be enumerated with those countries.
    Overall we're contributing to the stability and prosperity 
of democracy in former Communist countries. Eight of the 
countries in north Central Europe no longer receive any of this 
transition assistance. Three others in the Balkans will join 
them in the next several years.
    Probably the most dramatic example and a recent example of 
our assistance making a difference is in Georgia. The 
``revolution of roses'' did not happen because of our 
assistance. It was a choice exercised by the Georgian people, 
but our assistance was key to building the capabilities of 
Georgians and Georgian organizations so they could make these 
choices for themselves. We had developed in them the habit of 
relying on these new institutions and the habit of relying on 
themselves and the choices that they were capable of making 
themselves.
    President Saakashvili and 14 members of his new cabinet are 
alumni of U.S. exchange programs. That is a dramatic statistic 
and one that we see evidence of even in the work that they're 
doing right now in Georgia.
    The assistance that we provided in the November balloting 
in Georgia, training of election monitors, funding of exit 
polls, made the scale of election fraud immediately clear and 
allowed the Georgian people to make the decisions that resulted 
in the election of President Saakashvili in early January.
    If Georgia is a prime example of what assistance can 
accomplish, it's also an example of what remains to be done. 
The success of the rose revolution isn't assured. We believe we 
need to work intensively with the new government as they attack 
deeply entrenched problems, particularly corruption, a decrepit 
energy system, and lack of economic opportunity.
    We are focusing on four of the most pressing assistance 
priorities right now, and we would enumerate them as follows. 
The first is cultivating partners in the global war on 
terrorism. Here our partnerships are just beginning, but we can 
help these countries become much more reliable partners through 
FMF, the military training, IMET, and peacekeeping assistance. 
The technical assistance we provide and the economic and 
financial aid also enhance their ability to combat terrorist 
financing.
    The second priority on which we're focusing is supporting 
the democratic process, especially including civil society. We 
have elections coming up in 15 of the transition countries in 
the next year. We want to make them as free and transparent as 
possible. In order to do this, we must empower civil society to 
monitor the elections to promote accountability. We need to 
support independent media also. This not only enhances civil 
society, but it also is what we consider an anti-corruption 
measure.
    One of the key mechanisms for supporting democracy is 
exchange programs. The change in this region is generational. 
We need to invest in the next generation. We now have more than 
100,000 graduates from exchange programs in southeast Europe 
and Eurasia. This was a policy that we implemented and 
instituted right at the beginning of the break up of the former 
Soviet Union.
    One of the primary examples that we also have is that 
Islamic leaders in Central Asia have gone home from U.S. 
programs stunned by America's religious tolerance and ready to 
spread the word to their own communities on how to go about 
doing this.
    The third priority on which we're focused is creating jobs 
and supporting the new middle class. Jobs we believe are a 
force for stability. Property ownership gives citizens a stake 
in their countries and their communities. We are helping cut 
excessive regulation, rationalizing tax policies, privatizing 
land, and making loans available to small business owners.
    But we have to do more. When we contemplate large pools of 
unemployed young men, particularly in areas like Bosnia or the 
Fergana Valley in Central Asia, there's a risk that extremist 
ideologies will find fertile ground unless we have employment 
for all of these people.
    Our fourth priority is in fighting transnational threats. 
This is another challenge, a scourge that does not respect 
national borders, that is narcotics smuggling. We have a flood 
of heroin from Afghanistan which transits through the former 
Soviet Union and Southeast Europe on its way to Western Europe, 
but unfortunately it doesn't just pass through, it leads a 
trail of crime, brings trafficking in persons, disease, and 
corruption in its wake.
    We can only barely dent the problem with the resources that 
we have available now. The President's fiscal year 2005 budget 
request for the Freedom Support Act includes a $16 million 
increase in resources to fight illicit drug flow, but this is a 
very long-term effort that we have underway.
    In summary, we think these foreign assistance investments 
are crucial and this committee, and in particular you, Mr. 
Chairman, have been stalwart supporters of this and we're very 
grateful for that and we look forward to discussing some of the 
issues you've already raised.
    [The prepared statement of Ms. Jones follows:]

               Prepared Statement of Hon. Elizabeth Jones

    Mr. Chairman and other distinguished Committee members, I am 
pleased to participate in your examination of U.S. foreign assistance 
programs. U.S. assistance is key to achieving our foreign policy goals 
in Europe and Eurasia, and we greatly appreciate your current and past 
support in providing us with this important diplomatic tool. I am 
pleased to have with me today Dr. Kent Hill, my counterpart from the 
U.S. Agency for International Development. Also, sitting behind me is 
Ambassador Carlos Pascual, the Coordinator of Assistance to Europe and 
Eurasia. We are fortunate to have in our Bureau a Coordinator with 
statutory authority over assistance in our region; we think this helps 
maintain a strong link between foreign policy objectives and assistance 
programs.

                 ASSISTANCE ADVANCES AMERICAN INTERESTS

    In the region covered by my bureau, there is strong evidence of how 
foreign assistance can serve U.S. national security interests. Our 
military assistance, through the Foreign Military Finance (FMF), 
International Military Education and Training (IMET) and the voluntary 
Peacekeeping Operations (PKO) accounts, is helping us gain capable 
allies in the war on terrorism and it strengthens the capabilities of 
our new NATO allies. Our political and economic transition assistance 
through the FREEDOM Support Act (FSA) and Support for East European 
Democracy (SEED) Act is expanding Europe's zone of democracy and 
prosperity eastward. The intense engagement we achieve through our 
assistance, with governments and the broader society, is building 
strong ties that will help anchor U.S. relations with these countries 
for years to come. Moreover, the support we give to nurture grassroots 
nongovernmental organizations will help these indigenous groups sustain 
the impetus for open and competitive political and economic systems, 
even beyond the lifespan of formal American assistance. No other donor 
is as active as the United States in this area, and we will continue to 
support civil society organizations as they strive to implant 
themselves.
    Since this Committee examined our foreign assistance in Europe and 
Eurasia a year ago, the countries of Central and Eastern Europe and the 
former Soviet Union have demonstrated that our assistance pays large 
dividends. They support U.S. foreign policy priorities and are valued 
partners for the United States in the global war on terrorism. Of the 
27 transition countries, all of which have received substantial U.S. 
assistance since the early 1990's, 24 are active supporters of 
Operation Iraqi Freedom (OIF) and/or Operation Enduring Freedom (OEF) 
(Albania, Armenia, Azerbaijan, Bosnia and Herzegovina, Bulgaria, 
Croatia, Czech Republic, Estonia, Georgia, Hungary, Kazakhstan, the 
Kyrgyz Republic, Latvia, Lithuania, Macedonia, Moldova, Poland, 
Romania, Serbia and Montenegro, Slovakia, Slovenia, Tajikistan, 
Ukraine, and Uzbekistan). Three Central Asian countries have provided 
some form of basing to our troops. Our overall foreign assistance has 
played a key role in cementing bilateral relations. Our military 
assistance has allowed these countries to contribute effectively to 
OEF, OIF, and the war on terrorism.
    Our military assistance has also made it possible for many of these 
states to be part of critical peacekeeping efforts in the Balkans. Our 
security aid through the FMF, IMET and PKO accounts enhances 
interoperability of European and Eurasian militaries with NATO. We have 
helped new NATO entrants build capabilities that they will contribute 
to the alliance. We have strengthened the ability of other nations to 
contribute to United Nations peacekeeping missions in Lebanon, Sierra 
Leone and Liberia. Increasingly, these countries are not just consumers 
of assistance but contributors to our global security interests.
    The United States has a strong national security interest in 
fostering stability, prosperity and democracy in those European and 
Eurasian countries that lived under Communism and Soviet domination. 
The picture is mixed and the challenges are complex. This can be seen 
very clearly by examining another significant development of the past 
year that I know this Committee followed closely--the regime change in 
Georgia. While Georgia is a relatively small country, the ``Revolution 
of Roses'' that took place there last November had huge reverberations 
in the former Soviet Union. It has caused governments throughout the 
region to take stock of their internal political situation.
    U.S. assistance did not play a role in the choice exercised by the 
Georgian people for a change in leadership--nor should it have. But 
U.S. assistance organizations so that they could make choices for 
themselves about their future. Newly elected President Saakashvili is 
an alumnus of a Freedom Support Act graduate fellowship at Columbia 
University. Fourteen members of his cabinet, including Prime Minister 
Zhvania and the ministers of Foreign Affairs, Defense, Agriculture, 
Economy, Interior, Justice and Finance, also participated in U.S.-
funded exchange programs. U.S. assistance in Georgia's November 
balloting, particularly our funding of exit polls and contributions to 
the training of 2,500 domestic election monitors, made the scale of 
election fraud immediately and abundantly clear. The sustained and 
ultimately effective response of Georgia's political parties and NGOs 
to the fraud was also a testament to the vibrancy of Georgian civil 
society. Ultimate credit goes to Georgians themselves. That is as it 
should be. But there is no question that the training, grants, and 
exposure to new ideas provided through U.S. assistance programs helped 
create the foundations for Georgians to exercise their political will.

                EMERGING PROGRESS, CONTINUING CHALLENGES

    With strong Congressional support for SEED and FSA over the years, 
we have made considerable progress in many of these countries. Eight 
countries in Central and Eastern Europe no longer receive transition 
assistance, and three more will join them in the next several years. 
Three countries (Poland, Hungary and the Czech Republic) have joined 
NATO and seven more countries that have received SEED assistance 
(Estonia, Latvia, Lithuania, Slovakia, Slovenia, Romania and Bulgaria) 
will join NATO this year.
    Over the past several years, many of these transition economies 
have remained resilient in the face of a sluggish world economy. 
Economic growth across all 27 transition countries in 2003 is estimated 
by the European Bank for Reconstruction and Development (EBRD) to have 
averaged 4.7 percent. Most of the economies of the former Soviet states 
have finally reversed the painful economic contraction that occurred 
after Soviet structures collapsed and before market policies took hold. 
Their GDPs are estimated to have grown by an average of 6.2 percent in 
2003, but some of these economies (Russia, Kazakhstan, Azerbaijan) 
still remain overly dependent on energy sales.
    Most countries of Southeast Europe and Eurasia remain poor. Ten 
have a per capita GDP under $1,445, the World Bank cut-off for low-
income countries. Unemployment remains a scourge in the Balkans, the 
Caucasus countries and much of Central Asia, with jobless rates 
(especially among youth) ranging from 20 to 30 percent, and in some 
cases much higher. Such high unemployment in politically volatile areas 
can threaten stability. Small and medium enterprise development is a 
key tool to combat this issue. Countries also need to rebuild broken 
trade links within the region.
    The process of democratic reform has also been uneven across the 
region. While every leader in the region claims legitimacy through a 
democratic process, the quality of democracy ranges from countries like 
Estonia, Latvia, Lithuania, Poland, Hungary, the Czech Republic, 
Slovakia and Slovenia, which have had over a decade of free and fair 
elections, to the dictatorships in Belarus and Turkmenistan. In between 
there are countries that improve from election to election. In the 
former Soviet Union we have seen a trend toward less outright 
manipulation of elections but use of strong central controls to 
manipulate the pre-election environment and access to media. 
Judiciaries are weak--salaries are low--and are subject to corruption. 
We must train judges and instill standards that will make the judicial 
branch of government a check on oligarchic rule. This process in some 
countries will be generational.
    Since the beginning of our SEED and FSA programs, we have invested 
heavily in the creation of a vibrant civil society. Nonexistent during 
the Soviet period, groups that advocate for business, environment, 
health, human rights, media, and hundreds of other causes are emerging 
as communities organize themselves and address their most basic 
problems. These groups allow for broad citizen participation in civil 
society and help educate communities, citizens and voters. These NGO's 
are essential to making govermnent accountable.
    Many of the greatest obstacles to a full economic and democratic 
transition in the region are transnational. Virulent organized 
criminals who traffic in narcotics, human beings and weapons are a 
growing problem in the region and threaten the forward development of 
rule of law and good governance systems. Corruption is a stubborn 
problem in many countries, particularly when there is no clear message 
from the most senior government officials that it must stop. HIV/AIDS 
is poised to ravage these transition countries, particularly Russia, 
Ukraine and the Baltic States.
    In the Balkans, SEED assistance has contributed to stability in an 
area torn by a decade of violent ethnic conflict that ended just a few 
years ago. As Southeastern Europe advances toward Euro-Atlantic 
integration, we are hastening the day when the international military 
presence in the region can be reduced and ultimately withdrawn. Serbia 
and Montenegro, in many ways the linchpin in the Balkans, made a 
dramatic turn-around several years ago. We want that to continue and 
see the country develop as a positive regional player. Its full 
cooperation with the International Criminal Tribunal for the former 
Yugoslavia is of course key to its continued progress in this regard.

                 LOOKING FORWARD: STRATEGIC PRIORITIES

    These complex trends present us with complex foreign policy 
challenges. American assistance programs are a crucial tool to help 
these transition countries become stronger partners with shared values. 
I would like to outline four sets of assistance priorities to advance 
our foreign policy interests:
    Partners in the Global War on Terror. As I have mentioned, many 
countries are already contributing to international peacekeeping 
efforts and to the global war on terrorism. These partnerships are 
nascent, and it is in our interest to help these countries do more. For 
this purpose, our FMF, IMET and PKO assistance accounts play a crucial 
role. This assistance helps build capabilities that countries use to 
advance peace and stability. If not for the participation of these 
countries in the Balkans, OIF and OEF, the burdens on American troops 
would be greater. We need our partners to be interoperable with the 
United States and NATO. It helps when we train these troops in modern 
military practices. In today's world of global security challenges, we 
need reliable partners. Our FMF and IMET assistance is an investment in 
our own security.
    Support for Democratic process, including civil society. There are 
important elections in 15 transition countries in the next year, 
including Presidential elections in Russia, Slovakia, Ukraine, Romania 
and Macedonia, and Parliamentary elections in Belarus, Slovenia, 
Uzbekistan, Kazakhstan, Tajikistan, Georgia and Romania, as well as 
Kosovo. We have learned that it takes at least a year to address 
electoral issues and can take generations to make societal changes. We 
rely heavily on an experienced and dedicated cadre of partners to 
monitor these elections and try to make them increasingly fair, 
transparent and democratic. The National Democratic Institute, The 
International Republican Institute, the International Foundation for 
Electoral Systems, the National Endowment for Democracy, the 
Organization for Security and Cooperation in Europe, to name just a 
few, all help to advance our efforts to see free and fair elections 
held in the transition countries. We increase our funding in the year 
prior to municipal, parliamentary and Presidential elections in the 
transition countries where we are active.
    More than ten years ago we understood that the transitional 
challenges in this region would be generational, and that we needed to 
invest in the people who could carry the torch of reform forward in 
their own societies. I mentioned the Georgian example. There are now 
more than 100,000 graduates from exchange programs in Southeast Europe 
and Eurasia. The greatest asset we offer them are American values--an 
appreciation for freedom, a respect for human rights. Islamic leaders 
in Central Asia have gone home from U.S. programs stunned by America's 
religious tolerance, and ready to spread the word in their communities.
    Creation of jobs and support for the emerging entrepreneurial 
class. Quite simply, jobs for a middle class are a force for stability. 
Property ownership gives citizens a stake in their country. Support for 
job creation may seem unexciting. In this region it is radical.
    In each of our transition countries, we are putting together 
financial and regulatory packages key to freeing up the private sector. 
Lending facilities and the creation of capital markets, deregulation, 
rationalization of tax policies, commercial law reform, promotion of 
regional trade, identifying areas of competitiveness and privatization 
of land--especially in rural areas--are the keys to the creation of a 
vibrant market economy. Mortgage programs have also helped free up 
large amounts of capital. In the Baltic states, through the Enterprise 
Fund, and in Kazakhstan, through a USAID program, we have had two 
highly successful mortgage programs.
    Elsewhere in the economic sector, we have focused on the growth of 
small and medium enterprises and an emerging middle class of 
entrepreneurs. In Ukraine, twenty ``one-stop shops'' for business 
registration reduced registration time from 30 to 14 days. In 
Kazakhstan, technical assistance and training for mortgage lending have 
facilitated $200 million in mortgage loans and another $67 million in 
secondary market transactions. Throughout the region, the United States 
has partnered with the European Bank for Reconstruction and Development 
to support micro and small-business lending. A U.S. government 
investment of $71.3 million, coupled with $600 million in capital from 
other donors has produced over 300,000 loans worth in excess of $2 
billion for small and micro lending in 13 different countries. 
Repayment rates are averaging over 99 percent.
    Fighting Transnational Threats. We are devoting increasing 
resources to combating trafficking in humans, and HIV/AIDS, seeking to 
focus increased resources to efforts to fight both those scourges. With 
regard to combating trafficking in persons (TIP) across Europe and 
Eurasia, I want to note that we have raised our funding levels for 
anti-TIP activities considerably over the past three fiscal years and 
we are hopeful that our assistance and diplomatic efforts in this area 
will help those countries of the region that face significant TIP 
problems to deal with them successfully.
    But I want to focus today on another serious transnational problem, 
narcotics smuggling and the linkages to organized crime. Heroin from 
Afghanistan is flooding into the former Soviet Union and Southeast 
Europe, but it is not just transiting these states. It is contributing 
to crime, disease and corruption to such an extent that it threatens to 
overwhelm recent gains, particularly in Central Asia. Russia, Ukraine 
and the Balkans have also been victims of this scourge, which is the 
principal cause of escalating HIV infection. For FY 05 we are asking 
for an increase in the FREEDOM Support Act account of approximately $16 
million for programs that combat the drug trade in Central Asia. We are 
actively coordinating with the European Union and the United Kingdom. 
We are drawing on the resources of all key American agencies including 
the Department's Bureau of International Narcotics and Law Enforcement 
Affairs Matters, the U.S. Drug Enforcement Agency, the Federal Bureau 
of Investigation, the Department of Defense, and our intelligence 
agencies. At this point, we can barely dent the problem with available 
resources.

                               CONCLUSION

    I want to leave time for Dr. Hill, who represents the major 
implementer of our assistance programs, USAID, to give his views.
    But before I conclude, I want go back to the point I highlighted at 
the beginning of my remarks: the overwhelming support we have received 
from the recipients of SEED and FSA assistance in the global war on 
terrorism. It is worth pointing out that this support is not just based 
on the policies of governments currently in power. I truly believe that 
in many cases it is based on shared values that go deeper into these 
societies. These shared values have been promoted by our foreign 
assistance--including, very importantly, our public diplomacy and 
exchange programs--for the past 15 years since the fall of the Berlin 
Wall. Through our aid programs, Americans are engaging with non-
governmental organizations, educational institutions, private 
companies, students, scientists, and many, many others. And this 
engagement is helping to form a network of linkages between our society 
and their societies, a web of linkages and shared values strong enough 
to withstand the ups and downs of bilateral relations in the long run. 
That is an excellent return on the investment of our foreign assistance 
dollars, and it is one that members of this Committee, and particularly 
you, Mr. Chairman, can be proud to have supported.

    Senator Allen. Thank you, Secretary Jones. I appreciate 
your testimony.
    Mr. Hill.
    Mr. Hill. Thank you.
    Senator Allen. Good to have you with us. Would you share 
with us your testimony.

STATEMENT OF HON. KENT R. HILL, ASSISTANT ADMINISTRATOR, BUREAU 
                 FOR EUROPE AND EURASIA, USAID

    Mr. Hill. Indeed. Chairman Allen, it's a privilege to be 
here and to be asked to testify, I have fond memories of 
meeting with you before my confirmation over 2\1/2\ years ago, 
and so it's good to be back with you again. And it is a 
privilege to be here with Ambassador Jones, my colleague from 
the State Department. I want to mention that also in the room, 
though not testifying today, is Ambassador Carlos Pascual, who 
is the person with whom we deal at USAID several times a week, 
the coordinator of all assistance for Europe and Eurasia, and 
someone who knows this region extremely well because he spent 
the last 3 years as the Ambassador to Ukraine. We consider it a 
privilege to work with Ambassador Pascual.
    Senator Allen. Welcome.
    Mr. Hill. I couldn't help but think when you made the 
observation, Senator Allen, that so much has happened in this 
part of the world these last decades that when November the 9th 
comes we will celebrate the 15th anniversary of the coming down 
of the Berlin Wall. We couldn't have predicted that happening 
as quickly as it did and we've been trying to deal with that 
ever since, and that raises the issue of what do we have to 
show for what we've tried to do during this period.
    I want to just say one quick word about several items that 
I think the Congress can be proud of that have been 
accomplished with U.S. taxpayer dollars. First, we know that 
there has been a phase-out to our assistance to eight of those 
countries. Indeed, tonight I'm flying off to Warsaw to meet 
with the representatives of eight of those countries in the 
northern tier of Eastern Europe to talk about what's happened 
since we left, since they graduated in 1996 to 2000, and they 
have not only done well, but they've done very well since that 
assistance ended.
    We have returned finally to positive growth rates in the 
economies in Europe and Eurasia for the most part, averaging 
about 5 percent a year for these last 4 years. Of course, that 
doesn't tell the whole story because it doesn't tell you the 
breakdown within the countries, but still it's a positive 
trend.
    There have been strides, as you correctly noted, in the 
area of democracy, and 21 of our recipient countries are marked 
by Freedom House as being either free or partly free at this 
point. The integration of our region into global organizations 
is very encouraging. Eight of our recipients will be joining 
the European Union this year and two more are anticipated to 
join in 2007. Seventeen have become members of the World Trade 
Organization and 10 will have become members of NATO by the end 
of this year. That's quite an accomplishment for those 
countries, and part of that, I think, rests on the shoulders of 
the assistance that was provided by this Congress.
    But it would be an incomplete story not to address the 
question that Senator Lugar raised in his letter about these 
hearings when he asked about the continuing challenges. He 
asked, what the most pressing issues are in Europe and Eurasia 
in light of the reductions in FSA and SEED funding levels. So 
let me just suggest what the major challenges are for us.
    I want to say something first about the slow pace of 
democracy development in much of Eurasia. You'll notice that 
virtually every place I've talked about to this point was not 
in Eurasia, but rather was in Eastern Europe. In Eurasia the 
progress has been much, much slower, and in fact if you graph 
democratically where these countries are based on indicators of 
civil society, elections, et cetera, you'll find that the peak 
moment was about 1991 about the time we began our assistance in 
many respects. That was a high point for Russia and many of 
these other countries.
    Not a single year since then have the indicators of 
democracy or civil society actually gone up. Sometimes it's 
plateaued. Sometimes it's gone down in places, like Russia, 
where the last 2 or 3 years, the decline has been more steep.
    But the answer to this as to why this is happening is 
because the historical pull of what I call the authoritarian 
past in these countries has been very, very powerful, and I 
think what we're really doing with our assistance is that we 
are planting seeds that we hope one day will grow, or at least 
slowed a backward trajectory, but it's been disappointing to 
see the struggle that we've had these last years in these 
countries.
    And, of course, some of the countries, if you talk about 
Turkmenistan or Belarus, are very resistant to change. But even 
Russia and Ukraine and Moldova have been disappointing in what 
they've been doing lately. So that's the first major challenge.
    The second major challenge has to do with HIV/AIDS, and 
despite the fact that the funding levels have been going down, 
the percentage of our portfolio and the actual dollars that we 
are spending on HIV/AIDS prevention in this part of the world 
have actually gone up.
    What we've accomplished with that is that we have slowed 
the rate of increase of the infection, but we have not stopped 
it. And so the consequences for a place like Russia could be 
catastrophic demographically if it is not stopped, and it could 
have major impact on the stability of Russia and of course 
international relations could be affected as well. So that's 
the second major challenge that we face.
    A third major challenge that we has to do with 
unemployment, and of course, the cold hard facts are that in 
the post-Communist transition period, in many of these 
countries the transition to democratic and free and 
economically free societies has been very slow, and this has 
been a major problem.
    But this is not just a problem because of the suffering 
that ensues when people do not have jobs and have economic 
duress. This is a problem because wherever there are these 
kinds of problems, particularly when you are dealing with 
countries that border Afghanistan or Iran, you're dealing with 
creating a fertile soil, a fertile place for terrorist 
advocates to gain ground.
    And they have a particular advantage in a post-Communist 
situation, where even though many of our countries are Islamic 
historically, because of the Communist years, they haven't 
really been given an opportunity to know the history of Islam. 
And when they hear Islamic radical rhetoric, they are not 
inoculated against knowing that that doesn't necessarily speak 
for, and does not speak for, a more moderate tradition within 
their own areas like Central Asia, and so this is of concern.
    Senator Allen. Let me just interrupt. Could you elaborate 
on that? Muslim countries, they hear this radicalism, they're 
not prepared to know the----
    Mr. Hill. During the Soviet period, religious instruction 
was not allowed for Christians, for Muslims, for Jews, for 
anybody, even people with historical tradition and religion 
simply were not allowed to know anything about their tradition. 
That means that there are millions of unemployed youth in 
Central Asia who know very little about Islam. They may be in 
historically Islamic areas but they know little about Islam.
    If a person who comes from outside the area and says, let 
me tell you what Islam is, and their interpretation of Islam is 
a radical variety of that--maybe they've come from Pakistan or 
Afghanistan or Saudi Arabia--those people who hear that message 
at age 17 have nothing in their memory bank to say, wait a 
minute, that's not what I was told the Koran says, that's not 
what the tradition of the 15th and 16th century of Islam in 
Central Asia is.
    That's why we argue, and we had a discussion recently with 
the Uzbek Foreign Minister and the Uzbek Ambassador to the 
United States this week for lunch, and I said, if you continue 
to have a policy that discourages religious instruction in the 
mosques, you are depriving your people of an opportunity to be 
inoculated against radical terrorist rhetoric.
    So that is a particular problem to this part of the world 
because of the Communist past, which makes them more vulnerable 
when you combine it with the economic duress of this particular 
period.
    Senator Allen. Is that your testimony?
    Mr. Hill. Yes.
    Senator Allen. Well, thank you for answering.
    I should not have interrupted you. Thank you, Mr. Hill. But 
the way you were saying that I would have asked you a question, 
but it would have been better in the midst of it all as you've 
given us further concerns. Carry forward.
    Mr. Hill. Well, I actually like it because it gives me an 
excuse to talk about what I would have otherwise had to leave 
out.
    Senator Allen. You may proceed.
    Mr. Hill. OK. Another problem is corruption, and it is so 
pervasive in this region, another legacy of the Communist era, 
and what it means is, because of the porous borders, the 
problems with narcotics and trafficking of people are very, 
very pervasive. And many people do not realize, but from this 
region come 25 percent of all of the victims of trafficking 
worldwide. They come from Europe and Eurasia. And so this is an 
area that's going to take a lot of work.
    Now, you mentioned the funding declines and how it affects 
our work, and it is fair to note, as Ambassador Jones did, that 
there are declines. In fact, concerning the proposed 2005 
moneys that are given to us, when they are--if they are given 
at the level we have asked, that would represent a 6 percent 
decline. But if you go back to 2001, you find that our numbers, 
collective numbers for SEED and FSA accounts have actually 
declined by 35 percent, and the USAID portion of that, which is 
usually between 65 and 70 percent have gone down by 31 percent.
    So indeed we do have less dollars to deal with these 
problems, which makes absolutely central the next point I want 
to make. Is there a rational, systematic way to think through 
how we apply funding cuts to the countries? And it's at this 
point that I am proud to note that we have been using and are 
using a monitoring phase-out device with Ambassador Pascual 
that was developed in the Bureau for Europe and Eurasia at 
USAID a number of years ago, which allows us to chart economic 
and democratic progress in all of our countries. You can see it 
on the graph.\1\
---------------------------------------------------------------------------
    \1\ The graph and chart referred to by Mr. Hill, during his 
testimony, can be found in his prepared statement on page 113.
---------------------------------------------------------------------------
    We've got another chart which shows how they're doing in 
terms of social development, and you can tell exactly how 
countries are doing and we can tell at what point countries in 
the past phased out of assistance. And when those countries 
that are now receiving assistance start to approach that point, 
we know that we can start talking about phase-out. It's very 
rational, it's very systematic, it allows us to deal with 
changes in situations from year to year, to adjust the 
portfolios, or to decide who should phaseout.
    Finally, I just want to thank you again for the support 
that the Congress and the Senate gives to our efforts in this 
part of the world although it's not in the headlines as much as 
other parts of the world right now. We all know from the 1990s 
and what happened in the Balkans and Kosovo that it can get 
difficult again quickly. And we appreciate the support. We 
think there's a lot of important work yet to be done, and I'm 
glad to be here as a part of what we are doing. We'll be 
pleased to answer questions and I would also ask that my full 
written testimony be included in the record.
    [The prepared statement of Mr. Hill follows:]

                Prepared Statement of Hon. Kent R. Hill

                              INTRODUCTION

    Chairman Allen and other distinguished members of the Committee on 
Foreign Relations, thank you for the opportunity to testify on U.S. 
foreign assistance programs in the countries of Europe and Eurasia.
    It has been over 14 years since this Committee authored the Support 
for East European Democracy (SEED) Act of 1989. Not long after the U.S. 
Agency for International Development (USAID) and other U.S. agencies 
began operating in central and eastern Europe, the Soviet Union 
collapsed. This Committee responded by passing the Freedom for Russia 
and Emerging Eurasian Democracies and Open Markets (FREEDOM) Support 
Act (FSA) of 1992. From the very beginning of the transition, USAID has 
been the main Federal agency managing programs to promote democracy, to 
introduce and institutionalize a market economy, and to alleviate the 
social and humanitarian problems in the former communist states of 
Europe and Eurasia.
    I am happy to report that tremendous progress has been made since 
1989, especially in central and eastern Europe. Yet great challenges 
remain, especially in those states that endured longer periods of 
communism, centuries of authoritarian rule, or recent civil wars. 
Peace, prosperity, and regional stability are the underlying objectives 
of USAID engagement in this part of the world.
    The specific challenges that most concern our assistance programs 
in certain countries, as detailed later in this report, include 
declining quality of democracy and governance, increasing prevalence of 
HIV/AIDS and other infectious diseases, excessively high unemployment 
levels, continuing corruption in both public and private institutions, 
and trafficking in persons. Also, we appreciate Congress's support in 
providing the Agency with our full operating expense request and new 
program authorities enabling us to increase staff and capacity.

                 THE GEOPOLITICAL AND SECURITY CONTEXT

    During the second half of the twentieth century, the main threat to 
the United States emanated from Central Europe and the Soviet Union. 
Congress understood the geopolitical and security importance of the 
region when it first authorized foreign assistance to the region more 
than a decade ago. The world has changed dramatically, but the Europe 
and Eurasia (E&E) region continues to be of geopolitical importance. 
The United States has many new allies. Czech Republic, Hungary, and 
Poland have joined the North Atlantic Treaty Organization (NATO). 
Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, and Slovenia 
expect to join NATO this year.
    The 1990s were marked by the internecine warfare accompanying the 
collapse of the former Socialist Federal Republic of Yugoslavia. These 
events not only caused humanitarian catastrophes, but threatened the 
peaceful democratic and economic transitions in neighboring post-
communist states. The United States and its NATO allies intervened with 
military, diplomatic, humanitarian, and technical assistance to protect 
human rights, establish peace, and lay the foundation for sustainable 
democracies and open market economies. While marked progress has been 
made since the Milosevic era of the 1990s, ethnic and nationalist 
tensions continue and the area remains an important geopolitical and 
security concern to the United States.
    Since the September 11, 2001 attacks on the United States, the 
geopolitical and security importance of the post-Soviet states of 
Central Asia and the Caucasus has increased dramatically. Countering 
authoritarianism and economic stagnation, which provide the fuel for 
domestic unrest, religious extremism, and international terrorism, is a 
key to protecting U.S. interests in the region. Central Asia's 
tremendous oil and gas resources add to its importance to the United 
States. The proven oil reserves of just two states on the Caspian Sea 
basin, Kazakhstan and Azerbaijan, are just slightly less than those of 
the United States. Also, Kazakhstan's Kashgan field is one of the most 
important petroleum finds in 30 years.\1\
---------------------------------------------------------------------------
    \1\ National Energy Policy, pp. 8-12, Report of the National Energy 
Policy Development Group, GPO: May 2001.
---------------------------------------------------------------------------
    In the Southern Caucasus, the area's significant oil reserves, its 
unresolved ethnic and nationalist conflicts, as well as the threat of 
international terrorism underscore those states' geopolitical and 
security importance to the United States. An uneasy stalemate over 
Nagorno-Karabakh exists between Armenia and Azerbaijan. In Georgia, 
separatist movements in Ajaria, Abkhazia, and South Ossetia threaten 
the integrity of the state internally, while the conflict in the 
neighboring Russian Republic of Chechnya threatens Georgia externally. 
Both Azerbaijan and Georgia provide the route for the planned Baku-
Thilisi-Ceyhan pipeline that will bring the region's vast oil and gas 
resources to world markets.
    Trade with and investment in the E&E region are certain to benefit 
the United States increasingly, as recognized by the Committee on 
Foreign Relations when it wrote the FREEDOM Support Act soon after the 
collapse of the Soviet Union.\2\ From the natural resources sector to 
the industrial equipment sector to the service sector and beyond, the 
United States is broadening its trade relationships with the region. 
U.S. exports to the region totaled almost $7 billion in 2002 with 
direct investment adding to no less than $2 billion in that same year. 
USAID's work to combat corruption, introduce and promote enforcement of 
contract and other commercial laws, help E&E countries join the World 
Trade Organization, and lay the foundation of a private sector have 
helped pave the way for American trade and investment.
---------------------------------------------------------------------------
    \2\ Section 101(7) of the FREEDOM Support Act (P.L. 102-511).
---------------------------------------------------------------------------
    Ethnic, religious, and political extremism are major sources of 
instability in several areas within the E&E region. The role of Islam, 
in particular, must be monitored, but at the same time it is vital that 
the leaders of the region democratize and respect human rights in order 
to avoid adding fuel to the fire for any kind of extremism.
    Finally, America's most important geopolitical and security 
interest in the region is its relationship with Russia. The world's 
largest nation in area controls thousands of nuclear warheads and, 
despite its problems, fields one of the largest conventional militaries 
in the world. Russia is also an energy powerhouse. In 2000, it was the 
world's second largest exporter of oil. It also holds one-third of the 
world's proven natural gas reserves.\3\
---------------------------------------------------------------------------
    \3\ National Energy Policy, pp. 8-12, Report of the National Energy 
Policy Development Group, GPO: May 2001.
---------------------------------------------------------------------------
                           STRATEGIC GUIDANCE

    Our work in the E&E region is integrated with U.S. foreign policy 
as set forth in several key documents: the President's National 
Security Strategy,\4\ the Joint State Department/USAID Strategic Plan 
\5\, and USAID's discussion paper entitled ``U.S. Foreign Aid: Meeting 
the Challenges of the Twenty-first Century.'' \6\
---------------------------------------------------------------------------
    \4\ The National Security Strategy of the United States of America, 
The White House, September 2002.
    \5\ Security, Democracy, Prosperity. Department of State/USAID 
Strategic Plan for Fiscal Years 2004 to 2009: Aligning Diplomacy and 
Development Assistance, August 2003.
    \6\ U.S. Foreign Aid: Meeting the Challenges of the Twenty-first 
Century, USAID, January 2004.
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    The National Security Strategy integrates defense, diplomacy, and 
development into one overall foreign policy strategy. The E&E Bureau is 
working towards five of the eight objectives identified by the 
President's plan. We are championing aspirations for human dignity by 
promoting human rights and democracy throughout the E&E region. Our 
efforts in private sector development are helping to ignite a new era 
of global economic growth through free markets and free trade. Our 
health care and social sector programs expand the circle of development 
by opening societies and building the infrastructure of democracy. We 
work with others to defuse regional conflicts in the Balkans, the 
Caucasus, Cyprus, and Northern Ireland. Finally, USAID is adopting 
exciting new public-private sector business models such as the Global 
Development Alliance to leverage new resources to meet U.S. foreign 
policy objectives and transform America's national security 
institutions to meet the challenges and opportunities of the twenty-
first century.
    We in USAID's Bureau for Europe and Eurasia (E&E) are heartened by 
the adoption of the Joint State Department/USAID Strategic Plan, which 
was created to harmonize State Department and USAID policies and 
actions, consistent with the National Security Strategy. Our Bureau has 
long had an excellent and very close working relationship with the 
State Department's Office of the Coordinator for Assistance to Europe 
and Eurasia. We are glad that the Agency and the Department have now 
moved towards a level of cooperation that has been the hallmark of the 
E&E Bureau's relationship with the Coordinator's Office ever since the 
Bureau and Coordinator's Office came into existence.
    The Joint Strategic Plan outlines 12 strategic goals for the 
Department and the Agency. E&E Bureau programs promote 9 of those 
goals. Throughout the region, one of the E&E Bureau's key strategic 
assistance areas is the establishment of democracy and human rights. 
Another key strategic assistance area is the creation of economic 
prosperity and security. Our Bureau also has a major emphasis on social 
and environmental issues to safeguard and bolster gains in other 
sectors. We promote regional stability through our conflict reduction 
work--most of which is at the grassroots level--in the Balkans, the 
Caucasus, Central Asia, Cyprus, and Northern Ireland. The E&E Bureau 
works on counterterrorism by diminishing the underlying conditions 
linked to terrorism--such as weak institutions and neglected social 
systems--and by emphasizing accountable, legitimate, and democratic 
government. We minimize the impact of international crime and illegal 
drugs through our work to promote the rule of law, transparent 
financial systems that inhibit money laundering, and anticorruption 
regimes. In the unfortunate cases when it has been necessary, we have 
provided humanitarian responses due to crises in the Balkans, the 
Caucasus, and elsewhere. Through public outreach in Mission-level 
strategy development as well as training and exchange programs, our 
Agency has been involved in public diplomacy and public affairs. Our 
Bureau is strongly committed to management and organizational 
excellence. For example, it has provided the Agency with models of 
information technology innovation in the financial management field and 
continues to have one of the Agency's most efficient staff-to-program 
dollar ratios.
    In light of the evolving nature of U.S. assistance in a rapidly 
changing global context, the USAID discussion paper suggests that we 
must increase aid effectiveness and policy coherence through greater 
clarity of purpose, alignment of resources with objectives, and 
strategic management. Our work is consistent with these ends. A 
fundamental element of our mission is to promote transformational 
development, consisting of sustained democratic, economic, and social 
change in the E&E region. With our work in the Balkans and the 
Caucasus, we also strengthen failed (or recovering) states. In response 
to dire conflicts, we have provided humanitarian relief. To achieve 
specific U.S. foreign policy goals, we support strategic states such as 
Cyprus, Ireland, and Turkey. The E&E Bureau also addresses global and 
transnational issues such as the spread of HIV/AIDS, multiple-drug-
resistant tuberculosis, trafficking in persons, and environmental 
degradation.
    Over the past several months, the E&E Bureau closely reviewed the 
larger strategic parameters set in the National Security Strategy, the 
Joint State/USAID Strategy, and the USAID discussion paper. We then 
took stock of the E&E region by measuring progress to date and 
assessing the remaining challenges. As a result of these reviews and 
analyses, the E&E Bureau drafted a new strategy that will guide our 
programs over the next four years, based on our mission to assist the 
transition of Eastern Europe and Eurasia to sustainable democracies and 
open market economies. For some countries, phase out of USAID 
assistance is on the horizon owing to their continued success. Yet 
other country programs are facing entrenched challenges that will be 
overcome only with hard work, close vigilance, and continued U.S. 
development assistance.

                    THE COUNTRY PERFORMANCE CONTEXT

    Several years ago, the E&E Bureau developed a system for monitoring 
country progress that compiles, tracks, and analyzes independently-
produced indicators from a variety of international sources. The chart 
that immediately follows shows a strong tendency for economic reform to 
accompany democratic freedom in individual countries. It also 
highlights the large disparities among E&E countries in progress toward 
economic and democratic reform as well as their standing vis-a-vis the 
European Union.



    The E&E Bureau classifies the E&E region into six groups of 
countries to identify the major gaps between performance and exit 
targets.
    The Northern Tier Europe countries (the Czech Republic, Estonia, 
Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia) are the 
most advanced. They have achieved democratic freedoms roughly on par 
with some Western democracies and are working toward meeting EU 
economic reform standards. The Northern Tier European countries have 
considerably more to accomplish in second stage economic reforms, 
especially in competition policy. (First stage reforms entail the 
reduction of government intervention and ownership, while second stage 
reforms focus on the complex task of building market-based 
institutional capacity and better public governance.) All have 
graduated from substantial USAID bilateral assistance, but their 
continued progress is monitored for the lessons it provides for other 
countries.
    The Advanced Southern Tier Europe countries (Bulgaria, Croatia, and 
Romania) have attained a level of democratic and economic reform 
equivalent to that attained by the Northern Tier countries when USAID 
was preparing to phase out its Missions in those countries. 
Nonetheless, unemployment rates are still very high. These high rates 
have been accompanied by a significant drop in real wages, still well 
below the levels of 1989. Macroeconomic stability is fragile, 
particularly in Croatia and Romania, though perhaps not much more than 
in many of the economies in the Northern Tier countries. Inflation 
continues to be high in Romania, but is falling impressively. 
Macroeconomic imbalances (fiscal and current account deficits) are high 
in Croatia, although no higher than the Northern Tier average.
    In the Western Balkans (Albania, Bosnia-Herzegovina, Kosovo, 
Macedonia, and Serbia-Montenegro), unemployment rates are the highest 
of the transition country groups, particularly among youth, a 
development only partially mitigated by the large informal economies 
within these countries. These countries are poorly integrated into the 
world economy, lacking even intra-regional trade. Macroeconomic 
imbalances are uniformly high, amongst the highest of all the 
transition country groups.
    The countries classed as Resource-rich Eurasia (Russia, Kazakhstan, 
and Azerbaijan) particularly lag in measures to fight corruption. All 
three countries have fewer democratic freedoms today than in 1991. 
Backsliding in democratization has continued in recent years, 
particularly in Kazakhstan and Russia. Their private economic sectors 
continue to be dominated by large firms with significant market power. 
The major development task for these economies is to broaden economic 
growth beyond what has occurred in the energy sector. This will be 
hampered by their poor performance in human capital development, in 
which the sub-region scored lowest within E&E. Life expectancies in all 
three countries are among the lowest of all the transition countries. 
Health and education expenditures remain very low by any standard, 
while secondary school enrollment rates have declined over the 1989-
2001 period from 78 to 70 percent in Russia, 76 to 54 percent in 
Kazakhstan, and 63 to 33 percent in Azerbaijan.
    The countries of the Resource-poor Eurasia sub-region (Armenia, 
Georgia, Kyrgyz Republic, Moldova, Tajikistan, and Ukraine) have the 
largest gap between progress in first stage and second stage economic 
reforms. Sustaining reform gains will be especially difficult unless 
more progress is made in structural reforms and in building 
institutional capacities. Export shares are the lowest of all the six 
country groups (7 percent of GDP in 2001). These countries have neither 
the strong incentives for reform that EU membership provides to central 
and eastern European countries, nor the natural resources to sell as do 
the resource-rich Eurasian countries. Per capita income in this sub-
region is the lowest in Europe and Eurasia, as are secondary school 
enrollment rates, education expenditures, and health expenditures. 
Among economic reforms, non-bank financial reforms and infrastructure 
reforms lag the most. Public governance and administration, including 
anti-corruption measures, also perform very poorly.
    Countries in Non-reforming Eurasia (Belarus, Turkmenistan, and 
Uzbekistan) have not yet come close to completing first stage or second 
stage economic reforms. Economic structural change lags considerably as 
illustrated by the small share of the economy controlled by the private 
sector, only 32 percent. Inflation is much higher in Belarus than 
elsewhere in E&E, serving as an indicator that structural reform is 
needed. Secondary school enrollments and health and education 
expenditures are especially low in Turkmenistan and Uzbekistan, and 
under-five mortality rates are very high. In contrast, Belarus' human 
capital indicators are more in line with east European standards.

                     THE ROBUST RESPONSE FROM USAID

    Through FY 2004, Congress appropriated a total of $16.3 billion in 
SEED and FSA assistance to the region. USAID has managed about 65 
percent of this total with the remainder transferred to other USG 
agencies for security, nuclear safety, fiscal advisory, and other 
assistance programs.
    In coordination with the State Department's Assistance Coordinator 
for Europe and Eurasia (EUR/ACE), USAID has played a lead role in 
planning and implementing assistance programs focused into three goal 
areas:

   democracy and governance (rule of law, civil society, 
        political processes, independent media, and local governance);

   economic restructuring and growth (privatization, fiscal 
        systems, enterprise development, financial sector, and energy); 
        and

   social transition (humanitarian assistance, health, 
        education, and related social protection issues).

    Generally, activities have concentrated on the policy and 
institutional requirements for reform; the development of grassroots 
and local organizations such as NGOs, political parties, professional 
organizations, small and medium private enterprises (SMEs), and 
municipal government; and the promotion of health reform and other 
targeted social interventions to mitigate the adverse impacts of 
change. Humanitarian assistance was provided in the early years, 
especially in the aftermath of major military conflicts in the Balkans.
    President Bush's National Security Strategy, which embraces the 
development of democracy and market economies as fundamental pillars of 
U.S. foreign policy, is bearing fruit in Europe and Eurasia. In my 
testimony last year, I highlighted successes at the macro level 
including, amongst others, the emergence of positive economic growth in 
the region, the great strides made in democracy as evidenced by 21 of 
our recipients ranked as free or partly free by Freedom House, and the 
impending integration of eight of our recipients into the European 
Union. Even more impressive may be some of the people-level impacts 
that USAID programming is helping produce in the countries in which we 
work.

   Owing to our efforts with small and medium enterprises, that 
        sector now employs over 4.3 million people in Ukraine.

   In Russia, a nationwide network of financial institutions 
        that we helped strengthen has made over 114,000 loans with the 
        amount lent doubling over the past year to reach $129 million. 
        The loans have significantly enabled entrepreneurs to grow 
        their businesses.

   We are helping E&E countries to penetrate markets overseas. 
        In the case of Macedonia, we helped establish a National 
        Entrepreneurship and Competitiveness Council, two clusters that 
        developed action plans to spur exports, and a Quality Control 
        laboratory for meat and dairy processors.

   Our assistance in the areas of observing elections, voter 
        education, monitoring, and exit polling paved the way for the 
        transparent conduct of January's key presidential election in 
        Georgia, a first in recent memory for this strategically-placed 
        country. Also, our assistance with parallel vote tabulation in 
        last November's flawed parliamentary elections was instrumental 
        in proving that the official results did not reflect the will 
        of the people.

   Seventy-six Citizen Information and Service Centers have 
        been established in Bulgaria, enabling local governments to 
        better serve the needs of their constituents.

   In Kazakhstan, 5 percent of intravenous drug users 
        nationwide have already been reached through the deliverance of 
        affordable, high quality condoms and the training of 260 peer 
        educators and 43 teachers. These important developments are 
        helping arrest the spread of HIV/AIDS.

   The Roll Back Malaria program in Tajikistan has established 
        surveillance centers in each of the country's four provinces 
        that provide equipment and training to diagnose the disease 
        that has reached epidemic proportions in a number of our 
        countries.

   In Romania, our program permitted the number of orphans in 
        institutional care to be reduced by 8,550 last year, the 
        closure of 43 institutions providing substandard care, and the 
        drafting of legislation to set standards for adoption.

                        CURRENT BUDGET PATTERNS

    The FY 2004 appropriation and FY 2005 request levels continue to 
decline, reflecting the higher priority given to other countries in the 
world such as Iraq and Afghanistan, the progress that a number of our 
recipients have made especially on economic policy, and the deferral to 
the European Union for assistance to some of our SEED recipients.
    The SEED appropriation for FY 2004 is $442 million, of which USAID 
manages $314 million (71 percent). For USAID, this constitutes a 
decline of a little more than 12 percent from $359 million in FY 2003. 
Overall SEED levels declined 34 percent from 2001 to 2004 with the 
portion of these funds used by USAID decreasing 2 percent. In FY 2005, 
the SEED request totals $410 million, of which $271 million (66 
percent) is proposed for USAID programs. The overall USAID level is 
down almost 14 percent in FY 2005 from a year earlier, reflecting both 
the overall decline in SEED levels and the decline in the USAID share. 
SEED levels had peaked in FY 2001 at $674 million.



    SEED levels for all countries or other separately budgeted regions 
are lower in FY 2005 than they were in FY 2003. The steepest declines 
will take place in Croatia, Macedonia, and Montenegro. For its part, 
Croatia is on a glide path toward phase-out, with an end set for SEED 
assistance of 2006. On the other hand, levels fall off most modestly 
for Bulgaria from FY 2003 to FY 2005. Bulgaria, the other country in 
the region for which a phase-out date (2006) has been established, has 
been unwavering in its support for the war against international 
terrorism. In addition, while coming down, request levels remain robust 
in FY 2005 for Bosnia ($41 million), Kosovo ($72 million), and Serbia 
($87 million). These countries continue to contend with the aftermath 
of ethnic upheaval and its pursuant heavy economic and social costs.
    The FY 2004 appropriation for FSA is $584 million, of which USAID 
manages $410 million (70 percent). For USAID, this amounts to a fall of 
more than 12 percent from $468 million a year earlier. Overall FSA 
funding levels declined 18 percent from 2001 to 2004 \7\ while the 
portion of these funds used by USAID increased 14 percent. In FY 2005, 
the FSA request amounts to $550 million; $389 million (71 percent of 
the total) is proposed for USAID programs. The overall USAID level in 
FY 2005 is down a little more than 5 percent from the year before. More 
than a decade ago (1993), FSA levels were $1.2 billion, more than 
double the FY 2005 request level.
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    \7\ This figure excludes funding for the ECA office in the State 
Department which was included in the FSA appropriation in 2001 but not 
in 2004.
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    The only FSA country whose request level is substantially higher 
for FY 2005 than it was in FY 2004 is Georgia, an outcome of American 
policy to support the new reform government and the transparent manner 
in which the presidential election was conducted recently. With 
assistance levels during FY 2003-FY 2005 relatively steady at about $25 
million per annum, Tajikistan is one of the United States' most 
cooperative development partners in the region. On the other hand, 
assistance declines are precipitous for Kazakhstan, Russia, and 
Ukraine. Over the three-year period FY 2003-FY 2005, levels will have 
come down for Kazakhstan (by 35 percent to $28 million), Russia (by 45 
percent to $79.5 million), and Ukraine (by 43 percent also to $79.5 
million). We can reduce assistance to Kazakhstan, owing to its massive 
oil and gas resources. In Russia, development assistance is perceived 
as less necessary in the economic arena, allowing Russia to be 
considered a candidate for phase-out in FY 2008. We continue to monitor 
the situation in Russia closely. Ukraine's leadership is regarded as a 
weak development partner whose democratic transition, characterized by 
vested interests, weak political accountability, corruption, unequal 
enforcement of the rule of law, and tightly controlled media, casts a 
pall on the country's development prospects. The two countries with the 
most repressive governments in the region (Belarus and Turkmenistan) 
are also experiencing reductions in support over FY 2003-2005.

                  CRITICAL GAPS FOR FUTURE ASSISTANCE

    We, however, need more resources than less. Indicators of progress 
in several areas of assistance that are essential to sustainable 
transition of countries in the E&E region do not show adequate 
improvement, and a number of key issues remain to be addressed.

   While there have been improvements in democracy indicators 
        in our Eastern and Central European recipients, most of our 
        Eurasian countries have no more democratic freedoms today than 
        in 1991, notwithstanding the continued development of civil 
        society. In fact, a number of countries have less freedoms, 
        most notably Russia.

   Combating HIV/AIDS must be given particular priority because 
        current programs from all sources have slowed, but not halted, 
        an impending catastrophic epidemic. If infection rates are not 
        further slowed in places like Russia, the impact on the 
        population, health system, budgets, employment pool, and 
        political stability could be grave, and our investments in 
        reforms in these countries may be swept away.

   Widespread unemployment continues to be a problem throughout 
        the entire E&E region. It leaves large populations, 
        particularly among youth, frustrated by their inability to 
        share in the benefits of economic growth and freedom.
        
        
   Corruption is recognized as a critical factor, limiting 
        performance towards many E&E goals. Institutional reforms, 
        unless they counter incentives for corruption, will not be 
        unsustainable. Corruption affects negatively all E&E goal area 
        work and the lives of citizens in all our countries.

   Trafficking in persons has expanded with the freedom of 
        movement that has accompanied the collapse of strong central 
        governments and has been exacerbated by the economic 
        deterioration and reductions in living standards which have 
        frequently accompanied the transition era. In addition to the 
        extreme suffering and degradation associated with this problem, 
        trafficking undermines the future of regions where it occurs by 
        striking vulnerable youth.

                     PHASE-OUT OF USAID ASSISTANCE

    The U.S. Government always has assumed that assistance to the E&E 
region would be temporary, lasting only long enough to ensure 
successful transition to a sustainable democracy and an open market 
economy. Today, programmatic success and declining resources result in 
the need to plan for phase-out of our assistance in some countries. 
Indeed, the E&E Bureau has already exited from eight countries, and 
phase-out is being planned or is under consideration in a number of 
others such as Bulgaria, Croatia, and Romania on the SEED side, and 
Russia and possibly Ukraine on the FSA side. We will monitor closely 
all transition indicators. If these indicators do not show progress, we 
are prepared to re-visit exit decisions. A case in point is our serious 
concern about the democratic transition in Russia. In any event, exit 
from an individual country need not take place at the same time across 
all sectors nor all regions. For instance, we may want to stay engaged 
in the Russian Far East longer than in European Russia.
    USAID and the State Coordinator's Office are now undertaking phase-
out assessments for all our country recipients in order to begin 
identifying exit dates and adjusting our strategies to address 
remaining gaps. In phasing out assistance, an overriding theme is to 
find ways to decrease the region's vulnerability to conflict and ensure 
that political and economic instability do not provide a seedbed for 
terrorist activity and financial networks. Failure to achieve a 
sustainable transition would leave both the region and its neighbors 
vulnerable to instability.
    Systematic planning for the eventual end of assistance enables 
USAID to ensure the sustainability of assistance gains in a number of 
ways. This includes: focusing resources on the most critical 
vulnerabilities and gaps in a country's transition, determining areas 
that may need attention after USAID departs, and preparing for an 
orderly close-out of activities. Building on our experience with the 
European Northern Tier graduates, USAID is exploring appropriate post-
presence initiatives as a way to consolidate assistance gains and carry 
support for democracy and markets into the future, even after a local 
USAID mission is closed. Post-presence initiatives consist of American 
or East-East regional partnerships established with USAID assistance, 
commercial relationships with the U.S. private sector, diplomatic 
relationships with other USG agencies, and, where well defined gaps are 
identified, post-presence programs funded by USAID.

                           THE USAID PROGRAM

    The strategy adopted by USAID for the E&E region closely follows 
the approach to foreign assistance described in the Joint State/USAID 
strategy by focusing on three of its Strategic Goals: economic 
prosperity and security, democracy and human rights, and social and 
environmental issues. Progress in each broad area is monitored 
systematically for each country that we assist, and individual country 
programs are tailored to the local needs that correspond with USAID 
capabilities.
    Economic Prosperity and Security: For the majority of E&E 
countries, the central focus of USAID assistance in this goal area is 
to assist in the economic reform process and to establish an 
environment that promotes growth. Most first stage economic reforms 
(liberalization of domestic prices and trade and foreign exchange 
regimes and small-scale privatization) have been accomplished, except 
in the three non-reforming Eurasian countries (Belarus, Turkmenistan, 
and Uzbekistan). Therefore, most remaining policy assistance will 
emphasize second stage reforms that focus on building market-based 
institutional capacity and better public governance. The six resource-
poor Eurasian countries (Armenia, Georgia, Kyrgyz Republic, Moldova, 
Tajikistan, and Ukraine) have the farthest to go to reach acceptable 
standards in these areas, and they are most vulnerable to recidivist 
policy changes.
    We will target SME development particularly in Eurasia since SME 
sectors in the central and eastern European countries are already much 
larger than those in Eurasia. About 45 percent of employment in central 
and eastern European countries comes from SMEs, compared to only 24 
percent in the resource-poor Eurasian countries and 10 percent in the 
resource-rich Eurasian countries (Azerbaijan Kazakhstan, and Russia). 
While energy programs are needed throughout the E&E region, we will 
emphasize such work in those Eurasian countries where issues such as 
winter heating could prove destabilizing, e.g., Armenia.
    Democracy and Human Rights: E&E supports the development of 
democratic institutions, processes, and values within the context of 
promoting a more equitable distribution of both horizontal and vertical 
power. Horizontally, power shared among different branches of the 
national government (executive, legislative, and judicial) ensures 
transparent and accountable government through a system of checks and 
balances. Vertically, the devolution of power to local governments and 
the empowerment of citizens through civil society and political 
processes keep governments responsive to the needs of people. Enhancing 
the rule of law, particularly in terms of protecting human rights, 
controlling corruption, and guaranteeing civil liberties, is an 
important component of this work and includes ensuring the rights of 
minority groups and other disadvantaged segments of the population. 
Progress in fostering a more equitable distribution of power is 
expected to be incremental and requires a long-term commitment, 
particularly in the more difficult cases of Eurasia.
    Because democratic reforms are stalled or regressing in most 
Eurasian countries, most areas of assistance in democracy and human 
rights will be emphasized in that region, including municipal 
governance, elections, rule of law, independent media, and development 
of political parties and civil society. Especially important in the 
near term will be elections assistance in countries of key foreign 
policy interest to the United States, such as Azerbaijan, Georgia, 
Russia, Ukraine, and several of the Central Asian countries. The 
eastern European countries are relatively advanced in civil society and 
electoral processes, so other forms of democratic and governance 
assistance, including public administration, rule of law, independent 
media, and anti-corruption, will receive emphasis.
    Trafficking in Persons (TIP) is a global problem that requires a 
multi-faceted response (its discussion is included here owing to its 
implications for human rights). The underlying factors that give rise 
to TIP in the E&E region include economic dislocation, a breakdown in 
traditional social structures, corruption, the absence or decline in 
personal values, the rise of international organized crime, 
disenfranchisement of women and ethnic minorities, regional conflicts, 
and the demand for legally unprotected, cheap labor in the sex trade 
and other illegal venues. Programs in all three of the E&E Bureau's 
strategic assistance areas address TIP. We address the TIP problem 
using the framework of prevention, protection, and prosecution. 
Programs to prevent trafficking include economic empowerment of 
individuals through SME activities, public education and awareness 
campaigns, capacity-building of governments, NGOs, and the media to 
address the problem, and legal reform and implementation. Our programs 
also help protect victims through support of government and NGO 
referral services and the establishment of safe houses and counseling 
services. While the E&E Bureau does not directly work on criminal law 
prosecution, it does support reform of the overall legal system, 
including prosecutors and public defenders.
    Social and Environmental Issues: Progress in this goal area 
requires investing in systems as well as addressing the most urgent 
problems and diseases. The areas of greatest concern include health, 
social protection, and human capital. Coordination with programs 
designed principally to meet other goal areas will be necessary to 
direct more resources toward reversing the decline in health and other 
welfare levels.
    We will emphasize child survival and maternal health interventions 
as well as family planning and reproductive health in Eurasia. The 
Caucasus countries and the Central Asian Republics have the highest 
under-five mortality rates in the transition region.
    Also, most Eurasian countries have experienced decreases in life 
expectancy since 1989-1990. Life expectancies now range between 65 and 
69 years in Eurasian countries, and the male-female life expectancy gap 
in a handful of Eurasian countries is the highest worldwide. In 
contrast, life expectancies stand at between 72 and 74 years in the 
central and eastern European region. We will need to continue to 
address the causes of these adverse trends in Eurasia, with 
interventions to mitigate diseases stemming from unhealthy lifestyles.
    Infectious diseases such as HIV/AIDS and tuberculosis will be 
targeted in those countries where they are the most virulent. For its 
part, the HIV/AIDS pandemic has the potential to erase much of our 
hard-won development gains, most notably in Russia and Ukraine.
    Depending on the availability of resources, education assistance in 
the Eurasian resource-poor countries will be pursued. It has 
particularly high long-term potential, especially through further 
collaboration with the World Bank and other donors.
    Finally, largely through programs for economic growth, we will need 
to focus our assistance and expertise on creative means to decrease 
unemployment, particularly in the southeast European countries. 
Unemployment rates average 20 percent in the southern tier. A very high 
percentage of the unemployed consists of the long-term unemployed and 
youth. In some countries such as Bulgaria and Macedonia, high 
unemployment also is accompanied with still very low real wages 
relative to pre-transition levels.
    Cross-Cutting Issues: The E&E Bureau works on several issues that 
broadly fall in all three strategic assistance areas of the economic, 
democratic, and social transitions. A key initiative of the E&E Bureau 
is to work to incorporate the positive values that are necessary to 
sustain the development of a free society with a market economic 
system. We are also working to combat corruption that undermines 
reforms necessary for economic growth and democracy.
    In Western Europe and the United States, the stock of social 
capital, that has made democracy and capitalism effective and that 
helped develop the institutions that support democracy, the rule of 
law, and a market economy, evolved over many centuries. The terms 
``values'' and ``social capital'' refer to the prevalent mindset that 
results in voluntary compliance with established laws, trust, 
cooperative behavior, and basic codes of conduct. One of the 
fundamental differences between long-standing market-oriented 
democracies and centralized authoritarian ones is how individuals 
relate to the state. Communist systems fostered attitudes of dependency 
and fatalism. The system was sufficiently corrupt and inefficient to 
require nearly everyone to use bribes or other illegal means to get 
ahead. While the rule of Communist parties has ended in most E&E 
countries, the culture that it created continues to hamper efforts to 
build a free and socially cohesive civil society based on the rule of 
law with a functioning market economy. The international donor 
community initially underestimated the social capital that would be 
necessary to introduce and secure essential reforms. We have learned 
that both patience and programmatic attention are needed to achieve the 
desired reform results. The E&E Bureau will focus more consciously and 
effectively throughout its portfolio to nurture the culture, values, 
and social capital necessary to accelerate and secure reform.
    Unfortunately, corruption is endemic in many countries of the E&E 
region in both the public and private sectors. We further believe that 
corruption is a development problem, not just a law enforcement 
problem. Corruption flourishes when transparency, accountability, 
prevention, enforcement, and education are weak. The E&E Bureau is 
working to bolster all five areas. We are promoting transparency 
through our work to create open, participatory governments. To promote 
horizontal accountability, our programs support checks and balances 
among government branches at the same level, inspector general 
functions, and clear hierarchical (not ad hoc or personal) structures 
within agencies. To promote vertical accountability, USAID programs 
support the decentralization of power to other layers of government as 
well as checks and balances from outside sources, such as independent 
media, trade associations, and political parties. Our programs also 
support prevention of corruption through the systemic reform of 
institutions and laws to decrease opportunities and incentives for 
corruption. USAID is working to promote enforcement through the 
consistent application of effective standards and prohibitions. 
Finally, USAID programs support education efforts that point out the 
adverse consequences of corruption, the tangible benefits of reform, 
and the concrete potential for positive change.

                      INNOVATIVE ASSISTANCE TOOLS

    The E&E Bureau is making every effort to increase the impact of the 
resources appropriated by Congress. Some of the methods include 
building partnerships and public-private alliances within the context 
of on-going USAID programs and putting in place post-presence 
mechanisms to sustain goals and promote reform after bilateral 
assistance ends.
    To achieve its objectives, the E&E Bureau has always depended on a 
wide range of partners, including host country governments, NGOs, other 
international donors, and the American private sector. Working with 
organizations that rely heavily on volunteers and sister-institution 
relationships has the potential for attracting major in-kind and 
financial resources to advance our strategic objectives. The E&E Bureau 
encourages U.S.-based partnerships to build constituencies for our 
objectives that will last beyond the endpoint of USAID funding. Such 
partnerships will become a larger part of the program in the years 
prior to mission close-out.
    Consistent with the initiative expressed by Secretary of State 
Colin Powell and USAID Administrator Andrew Natsios, the Global 
Development Alliance (GDA) encourages joint funding by USAID and the 
private sector for activities that serve mutually recognized 
objectives. We are committed to attracting private business donors and 
foundations to accomplish common objectives. In FY 2002, the E&E Bureau 
utilized $33 million to leverage an additional $59 million from our 
partners in the private sector in support of programs in Armenia and 
Bosnia-Herzegovina. USAID as a whole leveraged nearly $1.5 billion in 
2002. To encourage further the adoption of public-private alliances, 
the E&E Bureau has established a GDA-incentive fund on which our 
missions are bidding competitively. A series of training courses for 
USAID staff contributed to the success of the competition through 
facilitating contact with potential private sector partners.
    USAID's legacy is the long-term impact that its programs have on a 
country after the bilateral mission is closed. Most of USAID's legacy 
results from programs implemented during the existence of USAID's 
bilateral mission, but occasionally a further sustainability of gains 
made during USAID presence. Such legacy mechanisms include partnerships 
with U.S. private sector institutions, scholarship funds, and other 
programs that do not require large amounts of recurrent funding or 
USAID administration.
    The Millennium Challenge Corporation (MCC), which had its first 
meeting on February 2, 2004, will administer the Millennium Challenge 
Account (MCA) that provides for increases in assistance to developing 
countries of 50 percent over three years totaling $20 billion through 
FY 2008. The funds are earmarked for countries that have adopted 
appropriate policies; i.e., that demonstrate a strong commitment to:

   ruling justly (e.g., upholding the rule of law, rooting out 
        corruption, and protecting human rights and political 
        freedoms);

   investing in their people (e.g., investment in education and 
        health care); and

   encouraging economic freedom (e.g., open markets, sound 
        fiscal and monetary policies, appropriate regulatory 
        environments, and strong support for private enterprise).

    These three criteria correspond to the three goal areas in the E&E 
strategy. USAID assistance will be targeted on those areas where 
improvements are needed to qualify for MCA funding.
    cyprus, northern ireland and the republic of ireland, and turkey
    The E&E Bureau also provides oversight for Economic Support Funds 
(ESF) allocations to Cyprus, Northern Ireland and the Republic of 
Ireland, and Turkey. ESF monies have been furnished to Cyprus and 
Northern Ireland and the Republic of Ireland to promote reconciliation 
and conflict resolution through local, bi-communal initiatives. The FY 
2004 appropriation for Cyprus is $13.4 million and $21.9 million for 
Northern Ireland and the Republic of Ireland. The FY 2005 request 
proposes $13.5 million for Cyprus and $12 million for Northern Ireland 
and the Republic of Ireland. The FY 2004 and 2005 budget requests 
include $99.4 million and $50 million, respectively, in ESF funds to 
Turkey for debt servicing in support of the country's stabilization and 
economic recovery efforts. In the 2003 War Supplemental, Turkey 
received $1 billion in ESF funds administered through the U.S. 
Department of the Treasury.

     ASSISTANCE FROM THE SENATE FOREIGN RELATIONS COMMITTEE (SFRC)

    In the invitation to this hearing, the SFRC asked if there was any 
way that it could help us. In general, we are pleased with the 
authorities that you have accorded us. They provide us considerable 
flexibility and latitude in our programming. In particular, we have 
greatly appreciated the use of ``notwithstanding authority'' and 
Development Credit Authority, both of which have contributed to the 
impressive development results that we have achieved in such a short 
time. We also appreciate Congress's support in providing the Agency 
with its full operating expense request, as well as new program 
authorities that will enable us to increase our staff and strengthen 
our capacity to meet critical development challenges--both in the E&E 
region and worldwide.





                               CONCLUSION

    We are proud of our successes in the region. Our programs, which 
are integrated into the frameworks set by the National Security 
Strategy, the Joint State/USAID strategy, and USAID's discussion paper, 
have permitted us since the fall of the Iron Curtain to make tremendous 
strides in furthering democracy, installing market-based economic 
systems, and tending to the social and humanitarian needs of the former 
Communist states of Europe and Eurasia. We are very aware that there is 
much left to be done. In particular, the post-Soviet states of Eurasia 
appear to have a long transition path ahead of them. As new priorities 
emerge in other parts of the world, we urge the distinguished members 
of the Senate Foreign Relations Committee to provide continued support 
to our programs in Europe and Eurasia. The geopolitical, security, and 
trade and economic importance of the region remains of vital interest 
to the United States, and our very close working relationships with the 
Coordinator's Office in the Department of State allow us to program 
resources in a way that will be most responsive to these interests.
    Thank you, Mr. Chairman. Without the support that this Committee 
and Congress have given us over the years, the progress that we have 
made in the region would not have been possible. In closing, I want to 
assure you of our continued commitment to achieving the noble goals you 
set out in the SEED and FREEDOM Support Acts.

    Senator Allen. Your full testimony will be made part of the 
record as well as your statements. Let me ask you a few 
questions here and there may be others that will be submitted 
in writing from myself and other members. I'm sure you'll be 
willing to answer those.
    In my opening remarks I mentioned the difference in the 
administration's proposal about $8 million for Azerbaijan, $2 
million for--I'm using rough numbers--for Armenia. Why is there 
this difference? What's the rationale for it?
    Ms. Jones. Well, let me outline a couple of points to begin 
with. First of all, we're extremely careful to make sure that 
whatever assistance we provide to Azerbaijan or Armenia does 
not in any way enhance the ability of either country, but 
especially Azerbaijan, to conduct any military operations in 
connection with the Nagorno-Karabakh conflict. That's an 
extremely important point for us, not least because we're so 
heavily engaged in trying to broker a solution, immediate 
solution to the Minsk group between Armenia and Azerbaijan.
    The primary focus of the funding that we give to Armenia is 
to enhance its communications capabilities to make it more able 
to participate in peacekeeping in the region. They're working 
on establishing a peacekeeping battalion. And to enhance the 
interoperability of Armenian forces with NATO and international 
forces. One of the things that Armenia is working on, for 
instance, is to deploy a truck unit to Iraq under OAF.
    The FMF we're providing to Azerbaijan does a lot of those 
things, but in addition, the biggest issue we have with 
Azerbaijan is to enhance its ability to control the Caspian. 
This is particularly important not only for oil transport 
routes, which is on the benign side, but it's an area that can 
be used for narcotics trafficking, trafficking in persons, WMD 
trafficking, and transiting terrorists.
    So a lot of our assistance is going to enhance their border 
patrol capabilities and sea patrol capabilities. In addition, 
we're upgrading, we're helping them upgrade air space 
management at Nasosne Air Base. That is particularly important 
for us because it enhances our--the safety of U.S. air 
overflights and flights that land there on the way to and from 
Afghanistan and to some degree Iraq. There's KC-135 refueling 
that goes on there and it's extremely important to us that the 
capability of this base be enhanced so that our aircraft are 
safe.
    We're also using quite a bit of this money, this funding, 
to purchase equipment to maintain Azerbaijan's three 
peacekeeping deployments, one in Kosovo, one in Afghanistan, 
and one in Iraq. All three are very important to us and it's 
all meant to be in support of Azerbaijan's, whatever is 
necessary to support the global war on terrorism, offer to us.
    The other aspect to all of this is that over the years 
we've been able to provide Armenia with a tremendous amount of 
economic support assistance so that it even now has the highest 
per capita assistance of any of the countries of Central Asia 
and the Caucasus.
    The other thing that we're hoping for, and this will be 
decided by others, is that Armenia will qualify for the 
Millennium Challenge Account, and that will really upgrade the 
assistance levels that we'll be able to provide to Armenia.
    Senator Allen. All right. There's about 7 minutes until the 
vote, so what I'm going to try to do is not hold you over and 
I'm going to hold back on some questions. I do have some 
questions on military assistance concerning Armenia and 
Azerbaijan. I'll submit them for the record.
    Ms. Jones. All right.
    Senator Allen. And I hope you'll answer these----
    Ms. Jones. We will be sure to answer.
    Senator Allen [continuing]. Questions, some which are 
specific, some larger. I want to try to get some thoughts from 
you all on two issues real quickly if possible. I am concerned, 
Mr. Hill, you've mentioned the flood of heroin out of 
Afghanistan into Central Asian countries, the Caucasus, 
Southeast Europe, Russia, Ukraine, and so forth. What are we 
doing in conjunction with anyone else trying to stop the flow 
of drugs particularly out of places like Afghanistan, which 
seems to be its only cash crop, very lucrative obviously but 
unfortunate, in that country. What are we trying to do in that 
regard and who else is helping us?
    Mr. Hill. I'll just be very brief and then Ambassador Jones 
may want to say something. We're very much aware that those 
borders are so porous with Afghanistan and we also know that 
the flood of narcotics out is massive at this point. It ends up 
in Europe, it's beginning to stop off on the way, and that 
means it's having a terrible impact on Central Asia and Russia, 
et cetera.
    Everything we do in our portfolio that deals with rule of 
law, judicial reforms, anything like that that will prevent the 
corruption from stopping the prosecution is a step in the right 
direction. USAID is not as involved in the war against 
smuggling as other agencies that work on border security, et 
cetera. But to the extent our rule of law processes and 
programs succeed, that can make blockage more likely.
    But Ambassador Pascual and I were just in Central Asia and 
we were told that only a very small percentage of the border is 
controlled at this point, so there are massive amounts of 
assistance that would be required to really address that 
particular problem.
    Senator Allen. You're saying as a practical matter this 
is----
    Mr. Hill. With the amount of moneys that we have to spend--
--
    Senator Allen. Rather than being oblivious and saying, 
gosh, we care about it and so forth, we have a hard time on our 
own borders. And so you're saying it's very porous.
    Mr. Hill. It is. It's expensive, yes.
    Ms. Jones. I might just add a couple of things. In 
Afghanistan itself, the U.K. is responsible, it's the lead 
nation for trying to manage the counter-narcotics effort. 
They've just announced today that they're doubling their 
budget.
    In the meantime, we also have some very aggressive programs 
on border control, border security, especially with Tajikistan 
and Uzbekistan as the first line of resistance, if you will. 
Tajikistan has an impressive record of capturing heroin and 
other narcotics as they cross the border. It's still not 
enough, but it's the kind of effort that we have underway. DEA 
is increasing its presence in these countries. We work very 
closely with them to try to increase that even more, and as I 
mentioned in my opening remarks, we have asked for quite a bit 
more money this year in order to go after the narcotics 
problem.
    In Turkmenistan, we have a joint operation again with the 
British where we do some of the counter-narcotics work, the 
British do other parts of it, especially on the border with 
Iran, to get at one of the porous borders.
    Senator Allen. Thank you. Let me ask you one final 
question. Last year when the Senate was considering the foreign 
assistance measure, I was successful in adding, it turned out 
to $5 million to combat piracy of intellectual property. There 
was concern--it's not just in your portfolio, it's a problem in 
Asia, it's a problem all over the world where our intellectual 
property, our entertainment, our software is being stolen, 
misappropriated, and that means jobs. There's a lot of 
innovators, a lot of research in this country and obviously in 
production.
    I've heard, listening to folks even in your area, it's not 
unique to people complaining about China and different Far East 
Asia or Eastern Asia areas but also in the southeastern area 
and Central Europe. Do you find piracy, theft of intellectual 
property, to be a problem and what, if anything, is being done 
there? What policies, what resources are in place to protect 
the United States' intellectual property?
    Ms. Jones. It is a problem. It's one not nearly on the 
scale of other regions, but we have a very aggressive 
diplomatic effort underway with each of these countries, 
particularly with Ukraine, for instance, to ensure adherence to 
IPR requirements to--and Russia, to get them to pass much 
better IPR legislation, to implement----
    Senator Allen. And enforce----
    Ms. Jones [continuing]. Enforce IPR legislation, 
absolutely. And there are a variety of sanctions that are 
available to use as well if the work isn't done as well as it 
should be.
    Senator Allen. Thank you. Do you have anything to add, Mr. 
Hill?
    Mr. Hill. Well, just that our portfolio of USAID programs 
often tries to help these countries gain membership in the 
international organizations that require that they pass 
legislation dealing with these problems, and in quite a number 
of countries we have had some success in getting them to pass 
it. The second part of it, of course, is to get them to enforce 
it, but there is progress, and it's a big part of what we try 
to push.
    Senator Allen. I think you both understand how much I care 
about this issue and I think you all do as well--to me it's a 
priority protecting intellectual property rights and what's 
happening, again, not just in your area. That is a big concern, 
and for countries in Western Europe, countries such as Germany. 
This is not unique to some of the countries and I think it's 
vitally important that our leaders, the United States leaders, 
make sure they know how important we consider this to be, and 
this is not just something that we don't care about you 
stealing this or pirating that or breaching various copyright 
patents.
    Ms. Jones. Mr. Chairman, one of the big engines we have is 
the desire of many of these countries to join the World Trade 
Organization, which requires very stringent IPR legislation, so 
that's one of the other big hooks that we have as with Ukraine 
or with Russia or with Kazakhstan, any of these countries, that 
their legislation must be in place and the implementation must 
be vigorous.
    Senator Allen. Thank you both. I wish we could discuss it 
longer but I need to let you all go right on time. Thank you 
both for your testimony and you're anticipated to answer some 
other questions. The subcommittee hearing is adjourned.
    [Whereupon, at 4 p.m., the committee adjourned, to 
reconvene subject to the call of the Chair.]
                              ----------                              


       Responses to Additional Questions Submitted for the Record


   Responses of Hon. Elizabeth Jones to Additional Questions for the 
                Record Submitted by Senator George Allen

    Question 1. Recently, the administration released its fiscal year 
2005 budget requesting $8.75 million in military assistance for 
Azerbaijan and only $2.75 million for Armenia. As you are aware, 
Congress heeded the administration's request in the aftermath of 
September 11 and granted the President limited and conditional 
authority to waive Section 907 of the Freedom Support Act.
    Prior to the enactment of the waiver, the administration, as a 
matter of unilateral policy but not law, did not allocate military 
assistance to either nation citing the Section 907 restrictions placed 
on Azerbaijan and the need to maintain balance. As part of the 907 
waiver, there was an agreement made between the administration and 
Congress to continue ensuring military parity between Armenia and 
Azerbaijan. How does this budget request not undermine that 
understanding and not contradict the administration's previously held 
position?

    Answer. The administration has requested almost $5 billion in FY05 
in the Foreign Military Financing (FMF) account. FMF granted to 
friendly countries is used to purchase U.S. military equipment and 
services, such as training. Changes in country requests reflect normal 
priority adjustments. FMF improves the capability of allies and other 
friendly nations to contribute to international crisis response 
operations and also promotes interoperability of their militaries with 
U.S. armed forces. Azerbaijan currently provides peacekeeping troops in 
Iraq, Afghanistan, and Kosovo.
    Specific increases for Azerbaijan are linked to U.S. priorities in 
fighting terror, peacekeeping, and maritime security, particularly 
regarding proliferation and drug trafficking on the Caspian Sea. A 
large portion of our military assistance program is aimed at improving 
Azerbaijan's maritime capabilities to detect and interdict the illicit 
movement of WMD, drugs, or terrorists through this poorly controlled 
transit corridor.
    We do not have a policy that FMF funding levels for Armenia and 
Azerbaijan should be identical, but we are determined to ensure that 
our military assistance to these two countries does not alter the 
military balance between them. We are confident that increased FMF 
funding for Azerbaijan will not alter the military capability or 
offensive posture of Azerbaijan, nor will it perturb the military 
balance between it and Armenia in the Nagorno-Karabakh conflict. Our 
proposed FMF funding does not signal any change in our position on 
Nagorno-Karabakh. Finally, I should note that the balance of overall 
U.S. assistance in the FY05 budget request remains strongly in 
Armenia's favor. The overall FY05 request includes $67 million for 
Armenia and $51.2 million for Azerbaijan.

    Question 2. Recently, the administration released its fiscal year 
2005 budget requesting $8.75 million in military assistance for 
Azerbaijan and only $2.75 million for Armenia. As you are aware, 
Congress heeded the administration's request in the aftermath of 
September 11 and granted the President limited and conditional 
authority to waive Section 907 of the Freedom Support Act.
    Furthermore, how does providing asymetrical military assistance to 
Azerbaijan not damage the credibility of the U.S. as an impartial and 
leading mediator in the ongoing sensitive peace negotiations for the 
Karabakh conflict?

    Answer. FY05 military assistance requests for Armenia and 
Azerbaijan reflect the two countries' very different needs. Notably, 
Azerbaijan, as a Caspian littoral state, has a large unmet need for 
maritime security capabilities, which Armenia simply does not have.
    The specific funding levels of our military assistance programs or 
of overall U.S. assistance programs in either country will not affect 
our ability to serve as an impartial mediator. In this context, it is 
worth noting that the overall FY05 assistance funding request for 
Armenia remains significantly higher ($67 million) than the request for 
Azerbaijan ($51.2 million).

    Question 3. Recently, the administration released its fiscal Year 
2005 budget requesting $8.75 million in military assistance for 
Azerbaijan and only $2.75 million for Armenia. As you are aware, 
Congress heeded the administration's request in the aftermath of 
September 11 and granted the President limited and conditional 
authority to waive Section 907 of the Freedom Support Act.
    Finally, would not the administration's action only serve to 
legitimize Azerbaijan's ongoing blockades against Armenia and Karabakh 
and its periodic threats to renew military aggression, thereby 
subverting the short- and long-term U.S. policy goals of regional 
cooperation and security for the South Caucasus region?

    Answer. Any military assistance that we provide to Azerbaijan is 
carefully considered to ensure that it will not create offensive 
capabilities that might upset the military balance between Azerbaijan 
and Armenia. The assistance that we provide to the two countries in no 
way legitimizes any aspect of their unresolved conflict. Regional 
stability is a primary concern of U.S. policy in the South Caucasus, 
and the administration will do nothing that would put that objective at 
risk. We continue to work to help resolve the Nagorno-Karabakh crisis, 
both through bilateral diplomacy with the two countries and through our 
co-chairmanship of the Minsk Group.

                                 
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